<HTML> <HEAD> <TITLE>FORM 10-Q</TITLE> </HEAD> <BODY BGCOLOR="#FFFFFF"> <HR SIZE=1 NOSHADE> <HR SIZE=1 NOSHADE> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="4" COLOR="#000000" FACE="'Times New Roman', Times"> <B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"><B>Washington, D.C. 20549</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><HR WIDTH="21%" SIZE="1" NOSHADE></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="5" COLOR="#000000" FACE="'Times New Roman', Times"><B>FORM 10-Q</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="4" COLOR="#000000" FACE="'Times New Roman', Times"><B>QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="4" COLOR="#000000" FACE="'Times New Roman', Times"><B>SECURITIES EXCHANGE ACT OF 1934</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"><B>For the Quarterly Period Ended: April 1, 2000</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"><B>Commission File Number: 0-18059</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><HR WIDTH="21%" SIZE="1" NOSHADE></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="6" COLOR="#000000" FACE="'Times New Roman', Times"><B>Parametric Technology Corporation</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(Exact name of registrant as specified in its charter)</B></FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <TABLE WIDTH="100%" ALIGN="center" CELLSPACING=0 CELLPADDING=0> <TR> <TD VALIGN="top" WIDTH="45%" ALIGN="left"> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>Massachusetts</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>(State or other jurisdiction of</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>incorporation or organization)</B></FONT></DIV> </TD> <TD WIDTH="4%"></TD> <TD VALIGN="top" ALIGN="center" WIDTH="21596%"> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>04-2866152</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>(I.R.S. Employer</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Identification Number)</B></FONT></DIV> </TD> <TD WIDTH="1%"></TD> </TR> </TABLE> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>128 Technology Drive, Waltham, MA 02453</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>(Address of principal executive offices, including zip code)</B></FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(781) 398-5000</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>(Registrant’s telephone number, including area code)</B></FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">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 </FONT><FONT SIZE="2" COLOR="#000000" FACE="Wingdings">x</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> NO </FONT><FONT SIZE="2" COLOR="#000000" FACE="Wingdings">¨</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">There were 276,007,715 shares of our common stock outstanding on April 1, 2000.</FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <HR SIZE=1 NOSHADE> <HR SIZE=1 NOSHADE> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>INDEX TO FORM 10-Q</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>For the Quarter Ended April 1, 2000</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="615" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center" WIDTH="50"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH WIDTH="8"><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" ALIGN="center" WIDTH="514"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH WIDTH="8"><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center" WIDTH="33"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Page <BR> Number</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD COLSPAN=3 VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Part I—FINANCIAL INFORMATION</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" ALIGN="right" WIDTH="33"></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 1.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Financial Statements</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" ALIGN="right" WIDTH="33"></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" ALIGN="left" WIDTH="50"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Consolidated Balance Sheets as of September 30, 1999 and April 1, 2000</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" ALIGN="left" WIDTH="50"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Consolidated Statements of Income for the three and six months ended April 3, 1999 and <BR> April 1, 2000</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" ALIGN="left" WIDTH="50"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Consolidated Statements of Cash Flows for the six months ended April 3, 1999 and <BR> April 1, 2000</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" ALIGN="left" WIDTH="50"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Consolidated Statements of Comprehensive Income for the three and six months ended <BR> April 3, 1999 and April 1, 2000</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" ALIGN="left" WIDTH="50"><FONT SIZE="3" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Notes to Consolidated Financial Statements</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">5</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 2.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Management’s Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">7</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 3.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Quantitative and Qualitative Disclosures About Market Risk</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">19</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD COLSPAN=3 VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Part II—OTHER INFORMATION</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 1.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Legal Proceedings</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">19</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 4.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Submission of Matters to a Vote of Security Holders</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">20</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="top" WIDTH="50" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Item 6.</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="left" WIDTH="514"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Exhibits and Reports on Form 8-K</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">20</FONT></TD> </TR> <TR> <TD COLSPAN=5 VALIGN="bottom" ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD COLSPAN=3 VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Signature</FONT></TD> <TD WIDTH="8"><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" NOWRAP ALIGN="right" WIDTH="33"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">21</FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PART I—FINANCIAL INFORMATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>CONSOLIDATED BALANCE SHEETS</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(in thousands)</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="614" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>September 30, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>ASSETS</B></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Current assets:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Cash and cash equivalents</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 239,789</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 328,497</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Short-term investments</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">101,217</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">54,627</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accounts receivable, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">221,889</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">179,487</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other current assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">142,209</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">121,628</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total current assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">705,104</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">684,239</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Marketable investments</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">12,889</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">18,329</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Property and equipment, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">64,176</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">69,266</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Goodwill, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">113,011</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">103,740</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other intangible assets, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">53,836</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">50,013</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">67,604</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">77,269</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$1,016,620</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$1,002,856</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>LIABILITIES AND STOCKHOLDERS’ EQUITY</B></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Current liabilities:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accounts payable</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 40,879</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 33,972</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accrued expenses</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">67,135</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">53,306</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accrued compensation</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">55,590</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">44,965</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Deferred revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">213,059</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">219,153</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">80,520</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">20,862</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total current liabilities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">457,183</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">372,258</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other liabilities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">38,333</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">30,551</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Stockholders’ equity:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Preferred stock, $0.01 par value; 5,000 shares authorized; none issued</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Common stock, $0.01 par value; 500,000 shares authorized; 272,277 and <BR> 276,008 shares issued, respectively</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,723</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,760</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Additional paid-in capital</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1,583,846</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1,637,195</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Treasury stock, at cost, 2,113 and 0 shares, respectively</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(27,727</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accumulated deficit</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1,022,357</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1,027,306</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accumulated other comprehensive loss</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(15,381</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(12,602</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total stockholders’ equity</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">521,104</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">600,047</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="461" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total liabilities and stockholders’ equity</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$1,016,620</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$1,002,856</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="63" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="7"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The accompanying notes are an integral part of the consolidated financial statements.</FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>CONSOLIDATED STATEMENTS OF INCOME</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(in thousands, except per share data)</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="613" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=4 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Three months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=3 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Revenue:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> License</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$141,125</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 87,890</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$277,205</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$192,764</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Service</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">122,123</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">139,215</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">236,160</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">273,378</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">263,248</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">227,105</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">513,365</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">466,142</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Costs and expenses:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Cost of license revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,997</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4,604</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">7,136</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8,732</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Cost of service revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">47,567</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">59,799</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">89,283</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">115,826</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Sales and marketing</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">103,161</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">105,384</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">199,273</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">210,324</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Research and development</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">30,310</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">37,611</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">59,483</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">71,678</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> General and administrative</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">15,248</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">18,331</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">31,812</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">34,802</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Amortization of goodwill and other intangible assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,607</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">9,777</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6,094</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">19,205</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Acquisition and nonrecurring charges</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">39,518</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">53,347</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total costs and expenses</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">242,408</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> 235,506</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">446,428</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">460,567</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Operating income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">20,840</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(8,401</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">66,937</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">5,575</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other income, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">728</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">393</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,672</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1,036</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Income (loss) before income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">21,568</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(8,008</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">69,609</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6,611</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Provision for (benefit from) income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">11,019</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(2,162</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">29,069</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,076</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 10,549</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ (5,846</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 40,540</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 4,535</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Earnings (loss) per share (Note 2):</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Basic</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.04</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ (0.02</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.15</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.02</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="358" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Diluted</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.04</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ (0.02</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.15</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.02</FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="7"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The accompanying notes are an integral part of the consolidated financial statements.</FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(in thousands)</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="614" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=5 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash flows from operating activities:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Net income</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 40,540</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 4,535</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Adjustments to reconcile net income to net cash flows from operating activities:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Depreciation and amortization</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">25,170</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">38,150</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Non-cash portion of nonrecurring charges</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4,693</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Charge for purchased in-process research and development</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">38,244</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Changes in assets and liabilities which provided (used) cash, <BR> net of effects of purchased businesses:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accounts receivable</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(16,050</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">43,498</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accounts payable and accrued expenses</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(27,522</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(21,710</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Accrued compensation</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(25,083</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(14,025</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Deferred revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">35,074</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6,094</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(4,395</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(43,283</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other current assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(655</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(19,397</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other noncurrent assets and liabilities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(8,005</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(721</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net cash provided (used) by operating activities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">62,011</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(6,859</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash flows from investing activities:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Additions to property and equipment</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(15,234</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(22,341</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Additions to other intangible assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(2,053</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(2,015</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Acquisitions of businesses</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(70,344</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(7,922</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Construction in progress</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(2,058</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(4,106</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Proceeds from sale of construction in progress</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">30,836</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Purchases of investments</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(26,078</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(24,445</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Proceeds from sales and maturities of investments</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">131,721</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">65,118</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net cash provided by investing activities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">15,954</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">35,125</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash flows from financing activities:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Proceeds from issuance of common stock</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">14,934</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">77,001</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Purchases of treasury stock</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(64,973</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(19,947</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net cash provided (used) by financing activities</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(50,039</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">57,054</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Effect of exchange rate changes on cash</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,367</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,388</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net increase in cash and cash equivalents</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">30,293</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">88,708</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash and cash equivalents, beginning of period</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">205,971</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">239,789</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="487" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash and cash equivalents, end of period</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$236,264</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$328,497</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="7"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The accompanying notes are an integral part of the consolidated financial statements.</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME</B></FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>(in thousands)</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="614" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=5 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Three months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=4 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$10,549</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$(5,846</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$40,540</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$4,535</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="35" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other comprehensive income (loss), net of tax provision (benefit):</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Foreign currency translation adjustment, net of tax of $(540), <BR> $290, $307 and $1,495, respectively</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1,004</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">537</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">569</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,776</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Unrealized gain (loss) on securities, net of tax of $(218), <BR> $2, $(107) and $1, respectively</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(406</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">5</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(201</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="35" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other comprehensive income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1,410</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">542</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">368</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2,778</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="35" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="394" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Comprehensive income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 9,139</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$(5,304</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$40,908</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$7,313</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="100%" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="35" SIZE="2" NOSHADE></FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="7"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The accompanying notes are an integral part of the consolidated financial statements.</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>1. Basis of Presentation</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The accompanying unaudited consolidated financial statements include the accounts of Parametric Technology Corporation and its wholly owned subsidiaries and have been prepared by us in accordance with generally accepted accounting principles. Our fiscal year end is September 30. Certain reclassifications have been made to the prior year’s statements to conform with the fiscal 2000 presentation. The year end consolidated balance sheet was derived from our audited financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. While we believe that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The results of operations for the three and six month periods ended April 1, 2000 are not necessarily indicative of the results expected for the remainder of the fiscal year.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>2. Earnings Per Share</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Basic earnings per share (EPS) is calculated by dividing net income by the weighted average number of shares outstanding during the period. 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 using the “treasury stock” method. The following table presents the calculation for both basic and diluted EPS:</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="561" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=4 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Three months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=3 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$10,549</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$(5,846</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$40,540</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 4,535</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Weighted average shares outstanding</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">267,955</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">275,107</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">268,314</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">273,749</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Dilutive effect of employee stock options</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">7,532</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6,577</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">14,623</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Diluted shares outstanding</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">275,487</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">275,107</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">274,891</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">288,372</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="42" SIZE="2" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Basic EPS</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.04</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ (0.02</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.15</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.02</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="331" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Diluted EPS</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.04</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ (0.02</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.15</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 0.02</FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Options to purchase 10.9 million and 14.4 million shares for the second quarter and first six months of 1999 and 2.0 million and 4.0 million shares for the second quarter and first six months of 2000 were outstanding but were not included in the computations of diluted EPS because the price of the options was greater than the average market price of the common stock for the period reported. For the second quarter of 2000, the dilutive effect of an additional 14.9 million options was excluded from the computation of diluted EPS as the effect was anti-dilutive with the loss.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>3. Facilities</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In December 1999, we sold land and certain improvements under construction for $30.8 million and entered into a lease covering approximately 381,000 square feet of office space in the Boston area that will allow us to consolidate and replace our Waltham operations. Occupancy and rent should begin in December 2000 and expire in December 2012, subject to completion of construction.</FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>PARAMETRIC TECHNOLOGY CORPORATION</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS— (Continued)</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>4. New Accounting Pronouncements</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, <I>Accounting for Derivative Instruments and Hedging Activities</I>. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. Originally, the statement had been effective for all quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, <I>Accounting for Derivative Instruments and Hedging Activities</I>, which postponed the adoption of SFAS No. 133 until fiscal years beginning after June 15, 2000. We plan to implement SFAS No. 133 in our fiscal year 2001. We believe that the adoption of this statement will not have a significant effect on our consolidated financial statements.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>5. Segment Information</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">During 1999, we adopted SFAS No. 131, <I>Disclosure about Segments of an Enterprise and Related Information</I>, which changes the way public companies report information about operating segments. Operating segments are defined as 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 making group is our executive officers.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We operate within a single industry segment—computer software and related services. We have two major product categories within that one segment: (1) our computer-aided design, manufacturing and engineering (CAD/CAM/CAE) solutions including our flagship Pro/ENGINEER® design software, which provides flexible engineering solutions to our customers and (2) our Web-based Windchill® information management software, which provides collaborative product commerce (CPC) solutions to our customers using Internet technologies to collaboratively develop, build and manage products throughout their entire lifecycle. Our products are sold worldwide by our sales force and distributors.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our revenue by product category and for the geographic regions in which we operate is presented below:</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="559" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=3 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Three months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=3 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Revenue:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> CAD/CAM/CAE solutions</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$251,354</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$187,732</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$497,511</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$388,516</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Windchill/CPC solutions</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">11,894</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">39,373</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">15,854</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">77,626</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$263,248</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$227,105</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$513,365</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$466,142</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Revenue:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> North America</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 97,443</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$ 85,731</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$213,298</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$191,887</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Europe</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">96,920</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">85,408</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">195,503</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">174,472</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Asia/Pacific</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">68,885</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">55,966</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">104,564</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">99,783</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="1" NOSHADE></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="304" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$263,248</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$227,105</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$513,365</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">$466,142</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="49" SIZE="2" NOSHADE></FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Total long-lived assets by geographic region have not changed significantly from September 30, 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>Forward-Looking Statement</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">This Quarterly Report on Form 10-Q contains forward-looking statements that describe our anticipated financial results and growth based on our plans and assumptions. Important information about the basis for these plans and assumptions and certain factors that may cause our actual results to differ materially from these statements is contained below and in <I>“Important Factors That May Affect Future Results” </I>beginning on page 13.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>Business Overview</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Historically, our core business focus has been to provide mechanical CAD/CAM/CAE solutions to customers through our flagship Pro/ENGINEER® design software, and we remain committed to providing our customers with industry leading flexible engineering solutions based on this software. Additionally, we believe that there is growing demand for collaborative product commerce (CPC) solutions from manufacturers who, in order to stay competitive, must deliver more custom-tailored goods faster and at lower prices while relying more than ever before on geographically dispersed and dynamic supply chains. CPC solutions include software and services that use Internet technologies to permit individuals—no matter what role they have in the commercialization of a product, no matter what computer-based tools they use, no matter where they are located geographically or in the supply chain—to collaboratively develop, build and manage products throughout their entire lifecycle. In order to pursue this opportunity, we expanded our focus in 1999 to encompass the complete CPC solution offered by our Web-based Windchill® information management software and are continuing this focus in 2000. This expanded focus allows us to increase the business impact our customers derive from our flexible engineering solutions and provides our customers with the additional tools they need to elevate their products into enterprise assets and to leverage these assets into new business opportunities.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">As a result of the difficulty we have been experiencing in transitioning from a one product company to a multi-product company and in balancing our efforts between our traditional CAD/CAM/CAE solutions business and our growing CPC solutions business, we are reorganizing ourselves to provide more discrete product line focus and accountability and to improve our overall profitability. The reorganization will result in the creation of the following business units:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Windchill and Web-based Collaboration Solutions. </I>This business unit is responsible for expanding our reach in the CPC market in terms of product content, collaboration and sourcing services. It will encompass our efforts to develop new partnerships, business relationships and indirect channels of distribution in support of our web infrastructure efforts.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>MCAD Products and Flexible Engineering Solutions. </I>This business unit is responsible for the Pro/ENGINEER product line as well as other applications within our i-Series of flexible engineering solutions. It will focus full-time on the needs of the mechanical CAD/CAM/CAE marketplace.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Each unit will have responsibility for research and development, marketing, professional services, customer support and indirect distribution. The sales force will continue to exist as a separate organization comprised of two divisions, primary and major accounts. Each division will include a group focused on the CAD/CAM/CAE solutions. In addition, we are working on a new initiative, called Netmarkets, that will enable us to address opportunities to utilize our Windchill technology in the business-to-business exchange marketplace. We also intend to review potential alliances and partnerships with large system integrators, application service providers and entities with complementary software products. Finally, we plan to reduce our existing cost structure to improve our profitability, which will result in a nonrecurring charge to be taken in the third quarter of 2000. The charge is currently under review and is now anticipated to be in the range of $15-20 million, consisting primarily of a reduction of approximately 300 people from the second quarter’s ending headcount, associated facility closures and other write-offs.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>Results of Operations</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The following is an overview of our results of operations:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Total revenue was $227.1 million for the second quarter of 2000 compared to $263.2 million for the second quarter of 1999. Total revenue was $466.1 million for the first six months of 2000 compared to $513.4 million for the first six months of 1999.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our year-over-year second quarter revenue declined 14% reflecting a 38% decrease in software license revenue offset by a 14% increase in service revenue. Our year-over-year six month revenue declined 9% reflecting a 30% decrease in software license revenue offset by a 16% increase in service revenue.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Windchill revenue increased to $39.4 million in the second quarter of 2000 from $11.9 million for the same period in 1999.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">CAD/CAM/CAE revenue decreased to $187.7 million in the second quarter of 2000 from $251.4 million for the same period in 1999.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net loss was $5.8 million for the second quarter of 2000 compared to net income of $10.5 million for the second quarter of 1999. Net income decreased $36.0 million to $4.5 million for the first six months of 2000 compared to the same period in 1999.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Pro forma net income, which excludes the amortization of goodwill and intangible assets and acquisition and nonrecurring charges, decreased $45.4 million to $0.5 million for the second quarter of 2000 and decreased $72.7 million to $18.1 million for the first six months of 2000 from the comparable periods in 1999.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The following table shows certain consolidated financial data as a percentage of our total revenue for the second quarter and first six months of 1999 and 2000.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="560" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=5 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Three months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=5 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Six months ended</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 3, <BR> 1999</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH COLSPAN=2 VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>April 1, <BR> 2000</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Revenue:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> License</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">54</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">39</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">54</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">41</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Service</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">46</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">61</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">46</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">59</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">100</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">100</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">100</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">100</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Costs and expenses:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Cost of license revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">2</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Cost of service revenue</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">18</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">26</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">18</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">25</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Sales and marketing</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">39</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">47</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">39</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">45</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Research and development</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">12</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">17</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">12</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">15</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> General and administrative</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Amortization of goodwill and other intangible assets</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Acquisition and nonrecurring charges</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">15</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Total costs and expenses</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">92</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">104</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">87</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">99</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Operating income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(4</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">13</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Other income, net</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Income (loss) before income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(4</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">14</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Provision for (benefit from) income taxes</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">6</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="1" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Net income (loss)</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(3</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">)%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">8</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> </TR> <TR> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD><FONT SIZE="1"><HR ALIGN="right" WIDTH="21" SIZE="2" NOSHADE></FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Pro forma, excluding amortization of goodwill and intangible <BR> assets and acquisition and nonrecurring charges:</I></FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Operating income</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">24</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">1</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">25</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">5</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="365" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Net income</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">17</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">18</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4</FONT></TD> <TD VALIGN="bottom" ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">%</FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>REVENUE. </I>As a result of our expanded focus on providing CPC solutions, software and service revenue from our Windchill products grew to 17% of total revenue in both the second quarter and first six months of 2000, up from 5% and 3% in the second quarter and first six months of 1999, respectively. Overall, however, total revenue decreased 14% and 9% for the second quarter and first six months of 2000 compared to the second quarter and first six months of 1999, respectively.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">License revenue decreased 38% and 30% for the second quarter and first six months of 2000 compared to the second quarter and first six months of 1999, respectively. While we continue to derive our license revenue primarily from software related to the mechanical CAD/CAM/CAE industry, our CPC software solutions are starting to comprise an increasing percentage of total license revenue. In order to meet what we believe is a growing demand for our CPC solutions, over the past two years we have channeled significant resources into this product line and continue to experience difficulty in transitioning from a one product company to a multi-product company.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our efforts during this transition period have resulted in a greater Internet-based CPC focus, which has in turn reduced the sales capacity for the CAD/CAM/CAE product line and contributed to a loss of market share. Market demand in certain segments of the CAD/CAM/CAE industry also appears to have slowed. In addition, we changed the way we distribute our CAD/CAM/CAE products to smaller business segments as part of a master distribution arrangement with Rand A Technology Corporation. Rand’s level of revenue contribution has been lower than originally anticipated; however, their performance is improving. Our results could be adversely affected if Rand is unable to achieve certain sales levels or make existing or future payments.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our emphasis on larger, more enterprise-wide solutions, has resulted in longer and less predictable sales cycles and increased our dependence on consummating larger transactions in general. During the first two quarters of 2000 we closed fewer large deals than we expected which explains, in part, the fact that unit sales were down 42% in the second quarter of 2000 and 37% for the first six months of 2000 compared to the same periods in 1999. We also experienced some weakness with existing customers in all geographic regions during this period.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Finally, the average selling price of our Pro/ENGINEER software decreased 10% in the second quarter and first six months of 2000 compared to the second quarter and first six months of 1999. This may be attributable in part to increased competition from native Windows®-based products offering more limited functionality at lower costs. Additional factors affecting our revenue and operating results are included in “<I>Important Factors That May Affect Future Results</I>” below.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our service revenue is derived from the sale of software maintenance contracts and the performance of training and consulting services. Service revenue, which has a lower gross profit margin than license revenue, accounted for 46% and 61% of total revenue in the second quarter of 1999 and 2000, respectively, and 46% and 59% of total revenue in the first six months of 1999 and 2000, respectively. Service revenue increased 14% and 16% in the second quarter and first six months of 2000 compared to the same periods in 1999. This increase is the result of growth in our installed customer base and increased training and consulting services performed for these customers. We expect service revenue to continue to increase in absolute dollars for the remainder of 2000.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We derived 63% and 62% of our total revenue from sales to international customers in the second quarter of 1999 and 2000, respectively. For the first six months of 1999 and 2000, we derived 58% and 59% of our total revenue from sales to international customers, respectively. We licensed over 90% of our products directly to end-user customers in each of the first six months of 1999 and 2000 with the remainder licensed through third-party distributors, primarily Rand.</FONT></DIV> <DIV><FONT SIZE="5"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">[bar chart depicting Revenue by Geography:</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">U.S.: Q2 99 - $97.4 million; Q2 00 - $85.7 million</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Europe: Q2 99 - $96.9 million; Q2 00 - $85.4 million</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Asia/Pacific: Q2 99 - $68.9 million; Q2 00 - $56.0 million</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">U.S.: First 6 months 99 - $213.3 million; First 6 months 00 - $191.9 million</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Europe: First 6 months 99 - $195.5 million; First 6 months 00 - $174.5 million</FONT></DIV> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Asia/Pacific: First 6 months 99 - $104.6 million; First 6 months 00 - $99.8 million]</FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="51%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B></B>REVENUE BY GEOGRAPHY (IN MILLIONS)</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Looking forward, our overall revenue levels will be dependent on our ability to successfully balance our efforts between our traditional CAD/CAM/CAE business and our growing CPC business. Our challenge is to effectively manage and improve performance in our mechanical CAD/CAM/CAE business while continuing to aggressively pursue a new product area that presents significant growth opportunities. Because our reorganization into business units and overall transition to a multi-product business model are in process, we are cautious in our overall near-term outlook. Nevertheless, we believe the actions we are taking internally will result in improved performance over time.</FONT></DIV> <DIV><FONT SIZE="5"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>COSTS AND EXPENSES. </I>Our operating expenses have been based on anticipated future revenue and are relatively fixed for the short term. We have been incurring expenses that would support revenues in excess of current levels in order to implement our strategic initiatives, particularly as they relate to our Windchill CPC solutions. Given the lower than expected revenue in the last two quarters, we plan to reduce our existing cost structure to improve profitability. This will result in a nonrecurring charge to be taken in the third quarter of 2000 (see “<I>Business Overview</I>” above).</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>COST OF LICENSE REVENUE. </I>Our cost of license revenue consists of costs associated with reproducing and distributing software and documentation and the payment of royalties. Cost of license revenue as a percent of license revenue was 2% and 3% for the second quarter and first six months of 1999, respectively, and 5% for both the second quarter and first six months of 2000. The increase in cost of license revenue as a percent of license revenue is primarily a result of paying higher royalties on Windchill versus mechanical CAD/CAM/CAE revenue.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>COST OF SERVICE REVENUE. </I>Our cost of service revenue includes costs associated with training and consulting personnel, such as salaries and related costs and travel, and costs related to software maintenance, including costs incurred for customer support personnel and the release of maintenance updates. Cost of service revenue as a percentage of service revenue has increased to 43% from 39% and to 42% from 38% for the second quarter and first six months of 2000, respectively, from the corresponding periods of 1999. This increase reflects our investment in the staffing necessary to support our new product offerings, principally our Windchill CPC solutions.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>SALES AND MARKETING. </I>Our sales and marketing expenses primarily include salaries and benefits, sales commissions, travel and facility costs. These costs increased 2% and 6% for the second quarter and first six months of 2000, respectively, compared to 1999, primarily due to the higher average cost per sales employee, as we are hiring a more experienced Windchill CPC solutions sales force. Total sales and marketing employees decreased from 2,194 at April 3, 1999 to 1,851 at April 1, 2000 primarily due to the sales force reorganizations during 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>RESEARCH AND DEVELOPMENT. </I>Our research and development expenses consist principally of salaries and benefits, expenses associated with product translations, costs of computer equipment used in software development and facility expenses. These costs increased 24% and 21% for the second quarter and first six months of 2000, respectively, compared to 1999, primarily due to our continued investment in research and development, particularly in connection with our Windchill CPC solutions products and the impact of our InPart, Division and auxilium acquisitions in 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>GENERAL AND ADMINISTRATIVE. </I>Our general and administrative expenses include costs of our corporate, finance, information technology, human resources and administrative functions. These costs increased 20% and 9% for the second quarter and first six months of 2000, respectively, compared to 1999, primarily due to higher administrative costs associated with the changing revenue mix and the growth in our information technology infrastructure.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. </I>These costs represent the amortization of intangible assets acquired, including developed technology, goodwill, customer lists, assembled work force and trade names. The increased amortization of $6.2 million and $13.1 million in the second quarter and first six months of 2000, respectively, compared to 1999, primarily resulted from our 1999 acquisitions of InPart, Division and auxilium.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>ACQUISITION AND NONRECURRING CHARGES</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Acquisitions</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>InPart. </I>In October 1998, we purchased InPart Design, Inc., the developer of DesignSuite, a Web-based repository of 3D mechanical component data, as well as the developer of enterprise software applications focused on Web-based component and supplier management, which was founded in 1996. We allocated the purchase price of $38.1 million to the assets acquired and liabilities assumed based on our estimate of fair value. The values assigned included $741,000 for net liabilities assumed, $10.6 million for purchased in-process research and development (R&D), $4.1 million for developed technology, $1.1 million for customer lists, $200,000 for an assembled workforce and $300,000 for trade names. The excess purchase price over the amounts allocated to assets acquired and liabilities assumed was recorded as goodwill of $22.5 million.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Division. </I>In March 1999, we purchased Division Group plc, a developer of enterprise product data visualization, simulation, and integration tools. We allocated the purchase price of $48.1 million to the assets acquired and liabilities assumed based on our estimates of fair value. The values assigned included $555,000 for net assets acquired, $9.0 million for purchased in-process R&D, $3.3 million for developed technology, $2.0 million for customer lists, $970,000 for an assembled workforce and $2.5 million for trade names. The excess purchase price over the amounts allocated to assets acquired and liabilities assumed was recorded as goodwill of $29.8 million.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>auxilium. </I>In March 1999, we purchased auxilium inc., a developer of web-based software tools for the integration of legacy systems, databases and applications, which was founded in 1997. We allocated the purchase price of $101.7 million to the assets acquired and liabilities assumed based on our estimates of fair value. The values assigned included $182,000 for net liabilities assumed, $18.6 million for purchased in-process R&D, $700,000 for developed technology, $5.0 million for customer lists, $630,000 for an assembled workforce and $6.0 million for trade names. The excess purchase price over the amounts allocated to assets acquired and liabilities assumed was recorded as goodwill of $70.9 million.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In the opinion of management, the purchased in-process R&D for the acquisitions of InPart, Division and auxilium had not yet reached technological feasibility and had no alternative future use. Accordingly, we recorded a nonrecurring charge of $27.6 million during the second quarter of 1999 and $38.2 million for the first six months of 1999. For additional information about these acquisitions, see Item 7 of our 1999 Annual Report on Form 10-K.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>Nonrecurring Charges</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Sales Force Reorganizations. </I>During the first quarter of 1999, we reorganized our sales force and, in connection with this action, incurred a restructuring charge of $3.2 million for the severance and termination benefits of approximately 170 people who were terminated during the first quarter of 1999 in accordance with management’s plans. During the second quarter of 1999, we incurred a restructuring charge of $5.8 million for the severance and termination benefits of approximately 150 people in connection with the integration of our sales and related support groups. All amounts related to terminated employees were paid in 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Facility Consolidation and Asset Impairment. </I>During the second quarter of 1999, we incurred a restructuring charge of $1.4 million for the consolidation of certain excess leased facilities. Also, in the second quarter we recorded an impairment loss of $4.7 million on certain intangible assets related to our industrial design (CDRS) activities. Due to acquisitions and the development of new technology, the carrying value of these assets was impaired.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>OTHER INCOME, NET. </I>Our other income, (net) includes interest income, interest expense, costs of hedging contracts, the gain or loss from the translation of results for subsidiaries for which the U.S. dollar is the functional currency and other charges incurred in connection with financing customer contracts. For the second quarter of 1999, we reported other income of $728,000 compared to $393,000 for the second quarter of 2000. For the first six months of 1999, we reported other income of $2.7 million compared to other income of $1.0 million for the first six months of 2000. The decrease is primarily due to lower foreign exchange gains.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>INCOME TAXES. </I>Our effective tax rate for the first six months of 2000 was 31% compared with 42% for the corresponding period in 1999. The difference between our effective tax rate and the statutory federal income tax rate of 35% was due primarily to the use of Computervision net operating losses in the first six months of 2000 and the non-deductibility of certain acquisition and nonrecurring charges in the first six months of 1999. On a pro forma basis, which excludes amortization of goodwill and intangible assets and acquisition and nonrecurring charges, our effective tax rate for both the first six months of 1999 and 2000 was 30%.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>EMPLOYEES. </I>The number of worldwide employees was 5,051 at April 3, 1999 compared with 4,998 at September 30, 1999 and 5,151 at April 1, 2000. The increase over the prior year is primarily a result of growth in our professional services and research and development organizations, partially offset by a decrease in the sales force.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>Liquidity and Capital Resources</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our operating activities, the proceeds from our issuance of stock under stock plans and existing cash and investments provided sufficient resources to fund our employee base, capital assets needs, stock repurchases, acquisitions and financing needs, in the first half of 1999 and 2000.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">As of April 1, 2000, cash and investments totaled $401.5 million, up from $353.9 million at September 30, 1999. The primary reason for the increase in cash and investments during the first six months of 2000 was $77.0 million in proceeds from the issuance of common stock under our stock plans and $30.8 million from the sale of land and certain improvements, partially offset by $22.3 million in expenditures to acquire property and equipment and $19.9 million for the repurchase of treasury stock. Our investment portfolio is diversified among security types, industries and individual issuers. Our investments are generally liquid and investment grade. The portfolio is primarily invested in short-term securities to minimize interest rate risk and to facilitate rapid deployment in the event of immediate cash needs.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Cash generated from operating activities was $62.0 million in the first six months of 1999, compared to cash used of $6.9 million for the first six months of 2000. The decrease in cash generated from operating activities was primarily due to lower net income and the payment of income taxes of $43.3 million in the first six months of 2000 versus $4.4 million in the first six months of 1999.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> In the first six months of 1999 and 2000, we acquired $15.2 million and $22.3 million, respectively, of capital equipment consisting principally of computer equipment, software and office equipment. In the first six months of 1999 and 2000, we made payments for acquisitions of $70.3 million and $7.9 million, respectively.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In the first six months of 1999, we used $50.0 million of net cash for financing activities for the repurchase of $65.0 million of common stock, offset by $15.0 million of proceeds from the issuance of common stock under our stock plans. We generated $57.1 million of net cash from financing activities during the first six months of 2000 comprised of $77.0 million from the issuance of common stock under our stock plans, offset by $19.9 million for the repurchase of common stock. Through April 1, 2000, we had repurchased 11.9 million of the 20.0 million shares authorized by the Board of Directors to be repurchased under our approved repurchase program. The repurchased shares under this repurchase program will be used for stock option exercises, employee stock purchase plans and potential acquisitions. We repurchased 856,000 shares in the first six months of 2000 and we expect to repurchase shares during the remainder of 2000 as determined by management.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In December 1999, we sold land and certain improvements under construction for approximately $30.8 million and entered into a lease covering approximately 381,000 square feet of office space in the Boston area that will allow us to consolidate and replace our Waltham operations. Occupancy and rent should begin in December 2000 and expire in December 2012, subject to completion of construction.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We believe that existing cash and short-term investments together with cash generated from operations and the issuance of common stock under our stock plans will be sufficient to meet our working capital, financing and capital expenditure requirements through at least the end of the current fiscal year. As a result of the decline in our revenue performance we are formulating plans to reduce our existing cost structure to improve profitability which will result in a nonrecurring charge to be taken in the third quarter of 2000 which will be funded by existing cash (see <I>“Business Overview” </I>above).</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>New Accounting Pronouncements</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. See Note 4 to the unaudited consolidated financial statements included herein.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>Important Factors That May Affect Future Results</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The following are some of the factors that could affect our future results. They should be considered in connection with evaluating forward-looking statements contained in this Quarterly Report on Form 10-Q and otherwise made by us or on our behalf, because these factors could cause actual results and conditions to differ materially from those projected in forward-looking statements.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>I. Operational Considerations</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Our operating results fluctuate within each quarter and from quarter-to-quarter making our future revenues and operating results difficult to predict</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">While our sales cycle varies substantially from customer to customer, we usually realize a high percentage of our revenue in the third month of each fiscal quarter, and this revenue tends to be concentrated in the later part of that month. Our orders early in a quarter will not generally occur at a rate which, if sustained throughout the quarter, would be sufficient to assure that we will meet our revenue targets for any particular quarter. Moreover, our sales force reorganizations in 1999, our shift in business emphasis to a more solutions-oriented sales process—undertaken in part to increase our average order size—and our focus on Windchill CPC solutions have resulted in longer and more unpredictable sales cycles for products and services. Accordingly, our quarterly results may be difficult to predict prior to the end of the quarter. Any inability to obtain large orders or orders in large volumes or to make shipments or perform services in the period immediately preceding the end of any particular quarter may cause the results for that quarter to fall short of our revenue targets. In addition, our operating expenses are based on expected future revenue and are relatively fixed for the short term. As a result, a revenue shortfall in any quarter could cause our earnings for that quarter to fall below expectations as well. Any failure to meet our quarterly revenue or earnings targets could adversely impact the market price of our stock.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other factors that may also cause quarter-to-quarter revenue and earnings fluctuation, include the following:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">our sales incentive structure is weighted more heavily toward the end of the fiscal year, and the rate of revenue growth for the first quarter historically has been lower and more difficult to predict than that for the fourth quarter of the immediately preceding fiscal year;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">variability in the levels of professional service revenues and the mix of our license and service revenues; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">declines in license revenue may adversely affect the size of our installed base and our level of service revenue.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, the levels of quarterly or annual software or service revenue in general, or for particular geographic areas, may not be comparable to those achieved in previous periods.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We may not be able to implement new initiatives successfully</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Part of our success in the past has resulted from our ability to implement new initiatives. Our future operating results will continue to depend upon:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">the successful implementation of a divisionalized business unit structure, including the realignment of internal functions, the management of divisionalized processes and effective mitigation of disruption that may result from organizational change;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">the success of our sales force reorganization initiatives, including</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—our shift from point sales to solution sales,</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—our shift from geography-based to named-account sales,</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—the ability of our sales reps to learn and sell our products, and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—Rand’s and other distributor’s ability to perform, including building a distributor network and competing successfully in the small business segment of the mechanical CAD/CAM/CAE arena;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">our ability to anticipate and meet evolving customer requirements in the CPC arena and successfully deliver products and services at an enterprise level; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">our ability to identify and penetrate additional industry sectors that represent growth opportunities.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We may not be successful in integrating recently acquired businesses or products</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We have increased our product range and customer base in the recent past due in part to acquisitions. We may acquire additional businesses or product lines in the future. The success of any acquisition may be dependent upon our ability to integrate the acquired business or products successfully and to retain key personnel and customers associated with the acquisition. If we fail to do so, or if the costs of or length of time for integration increase significantly, it could negatively affect our business.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We are dependent on key personnel whose loss could cause delays in our product development and sales efforts</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our success depends upon our ability to attract and retain highly skilled technical, managerial and sales personnel. Competition for such personnel in the high technology industry is intense. We assume that we will continue to be able to attract and retain such personnel. The failure to do so, however, could have a material adverse effect on our business.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>We must continually modify and enhance our products to keep pace with changing technology, and we may experience delays in developing and debugging our software</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We must continually modify and enhance our products to keep pace with changes in computer software, hardware and database technology, as well as emerging standards in the Internet software industry. Our ability to remain competitive will depend on our ability to:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">enhance our current offerings and develop new products and services that keep pace with technological developments through</FONT></DIV> </TD> </TR> </TABLE> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—internal research and development,</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—acquisition of technology, and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="8%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="92%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">—strategic partnerships;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">meet evolving customer requirements, especially ease-of-use;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">provide adequate funding for development efforts; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">license appropriate technology from third parties.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Also, as is common in the computer software industry, we may from time to time experience delays in our product development and “debugging” efforts. Our performance could be hurt by significant delays in developing, completing or shipping new or enhanced products. Among other things, such delays could cause us to incorrectly predict the fiscal quarter in which we will realize revenue from the shipment of the new or enhanced products and give our competitors a greater opportunity to market competing products.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We may be unable to price our products competitively or distribute them effectively</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our success is tied to our ability to price our products and services competitively and to deliver them efficiently, including our ability to:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">provide products with functionality that our customers want at a price they can afford;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">build appropriate direct distribution channels;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">utilize the Internet for sales; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">build appropriate indirect distribution channels through Rand or others.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We depend on sales from outside the United States that could be adversely affected by changes in the international markets</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">A significant portion of our business comes from outside the United States. Accordingly, our performance could be adversely affected by economic downturns in Europe or the Asia/Pacific region. Another consequence of significant international business is that a large percentage of our revenues and expenses are denominated in foreign currencies that fluctuate in value. Although we may enter into foreign exchange forward contracts and foreign exchange option contracts to offset a portion of the foreign exchange fluctuations, unanticipated events may have a material impact on our results. Other risks associated with international business include:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">changes in regulatory practices and tariffs;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">staffing and managing foreign operations, including the difficulties in providing cost-effective, equity-based compensation to attract skilled workers;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">longer collection cycles in certain areas;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">potential changes in tax and other laws;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">greater difficulty in protecting intellectual property rights; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">general economic and political conditions.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>We may not be able to obtain copyright or patent protection for the software products we develop or our other trademarks</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our software products and our other trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, there can be no assurance that the laws of all relevant jurisdictions will afford adequate protection to our products and other intellectual property. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. While we have not, to date, had any significant claims of this type asserted against us, there can be no assurance that someone will not assert such claims against us with respect to existing or future products or other intellectual property or that, if asserted, we would prevail in such claims. In the event a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we ultimately prevail.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>II. Mechanical CAD/CAM/CAE-Related Considerations</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Increasing competition in the mechanical CAD/CAM/CAE marketplace may reduce our revenues</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">There are an increasing number of competitive mechanical CAD/CAM/CAE products. Despite our belief that our products are technologically superior, some competitive products have reached a level of functionality whereby product differentiation is less likely, in and of itself, to dislodge incumbent CAD systems, given the training and other startup costs associated with system replacement. Increased competition and market acceptance of these competitive products could have a negative effect on pricing and revenues for our products, which could have a material adverse affect on our results.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, our CAD/CAM/CAE software is capable of performing on a variety of platforms. Several of our competitors focus on single platform applications, particularly Windows-based platforms. There can be no assurance that we will have a competitive advantage with multiple platform applications.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We continue to enhance our existing products by releasing updates. Our competitive position and operating results could suffer if:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">we fail to anticipate or to respond adequately to customer requirements or to technological developments, particularly those of our competitors;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">we delay the development, production, testing, marketing or availability of new or enhanced products or services; or</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">customers fail to accept such products or services.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Growth in the CAD/CAM/CAE industry appears to have slowed</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Growth in certain segments of the mechanical CAD/CAM/CAE industry appears to have slowed and, coupled with decreased functional differentiation among flexible engineering tools, may affect our ability to penetrate the market for new customers and recapture our market share. We believe our emphasis on Windchill CPC solutions will allow us to differentiate our flexible engineering products from the competition and invigorate sales of those products. However, the strategy may not be successful or may take longer than we plan. There could be a material adverse affect on our operating results in any quarter if these assumptions prove to be incorrect.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>III. CPC and Windchill Strategy Considerations</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>We are implementing a new strategy to capitalize on an Internet-based, business-to-business market opportunity known as Collaborative Product Commerce (CPC). It may be that our assumptions about the CPC market opportunity are wrong, which could adversely affect our results</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We have identified CPC as a new market opportunity for us, and have devoted significant resources toward capitalizing on that opportunity. CPC solutions include software and services that use Internet technologies to permit employees, customers, suppliers and others to collaboratively develop, build and manage products throughout their entire lifecycle. Because the market for software products that allow companies to collaborate on product information on an enterprise-wide level is newly emerging and because companies have not traditionally linked customers and suppliers in this process directly, we cannot be certain as to the size of this market, whether it will grow, or whether companies will elect to utilize our products rather than attempt to develop applications internally or through other sources.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, companies that have already invested substantial resources in other methods of sharing product information in the design-through-manufacture process may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems or methods. We expect that we will continue to need to pursue intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products. Demand for and market acceptance of our products will be affected by the success of these efforts.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Our Windchill software, which is central to our CPC strategy, is relatively new and is not yet well established in the marketplace</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The success of our CPC strategy will depend in large part on the ability of our Windchill solutions to meet customer expectations, especially with respect to:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">ease of installation;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">ease of use;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">full capability, functionality and performance;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">ability to support a large user base; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">quality and efficiency of the services we perform relating to implementation and customization.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The software is still relatively new. If our customers cannot successfully deploy large-scale implementation projects or if they determine that we are unable to accommodate large-scale deployments, our operating results may be affected.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, implementing a Windchill software solution on an enterprise level takes longer and requires greater expertise than does installing our other products. Our Windchill software must integrate with existing computer systems and software programs used by our customers and their partners. Because we are one of the first companies to offer a CPC solution, many customers will be facing these integration issues for the first time, particularly in the context of collaborating with members of the extended enterprise, including customers and supply chain partners. Our customers could become dissatisfied with our products or services if integrations prove to be difficult, costly or time consuming, and our operating results may be affected.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Competition among providers of CPC solutions may increase, which may reduce our profits and limit or reduce our market share</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The market for CPC solutions is new, highly fragmented, rapidly changing and increasingly competitive. We expect competition to intensify, which could result in price reductions for our products and services, reduced gross margins and loss of market share. Our primary competition comes from:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">in-house development efforts by potential customers or partners;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">other vendors of engineering information management software; and</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">larger, more well-known enterprise software providers seeking to extend the functionality of their products to encompass CPC.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, our professional services organization may face increasing competition for follow-on customization services from other third-party consultants and service providers.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>If use of the Internet does not continue to develop or reliably support the demands placed on it by electronic commerce, we may experience a loss of sales</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our success depends upon continued growth in the use of the Internet as a medium of commerce. Although the Internet is experiencing rapid growth in the overall number of users, this growth is a recent phenomenon and may not continue. Furthermore, the use of the Internet for commerce is still relatively new. As a result, a sufficiently broad base of companies and their supply chain partners may not adopt or continue to use the Internet as a medium of exchanging product information. Our CPC strategy would be seriously harmed if:</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">use of the Internet does not continue to increase or increases more slowly than expected;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">the infrastructure for the Internet does not effectively support enterprises and their supply chain partners;</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">the Internet does not create a viable commercial marketplace, thereby inhibiting the development of electronic commerce and reducing the demand for our products; or</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="1"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"></TD> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"></FONT><FONT SIZE="2" COLOR="#000000" FACE="Symbol">·</FONT><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></DIV> </TD> <TD WIDTH="92%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">concerns over the secure transmission of confidential information over public networks inhibit the growth of the Internet as a means of conducting commercial transactions.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Our CPC strategy will also be seriously harmed if the Internet infrastructure is not able to support the demands placed on it by increased usage or the limited capacity of networks to transmit large amounts of data, or if delays in the development or adoption of new equipment standards or protocols required to handle increased levels of Internet activity, or increased governmental regulation, cause the Internet to lose its viability as a means of communication between manufacturers and their customers and supply chain partners.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>IV. Other Considerations</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Our stock price, which may reflect an Internet valuation, has been highly volatile; this may make it harder to resell your shares at the time and at a price that is favorable to you</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Market prices for securities of software companies have generally been volatile. In particular, the market price of our common stock has been and may continue to be subject to significant fluctuations.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">In addition, our expanded focus on delivering Internet-based solutions may cause us to be viewed, in part, as an Internet company. The trading prices of Internet stocks in general have been unusually high under conventional valuation standards such as price-to-earnings and price-to-sales ratios and have experienced fluctuations unrelated or disproportionate to the operating performance of these companies. The trading prices and valuations of these stocks, and of ours, may not be sustained. Any negative change in the public’s perception of the prospects of Internet or e-commerce companies, or of PTC as an Internet company, could depress our stock price regardless of our results.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Also, a large percentage of our common stock traditionally has been held by institutional investors. Consequently, actions with respect to our common stock by certain of these institutional investors could have a significant impact on the market price of the stock. For more information, please see our proxy statement with respect to our most recent annual meeting of stockholders and Schedules 13D and 13G filed with the SEC with respect to our common stock.</FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <I>We are currently defending a securities class action lawsuit in which we could be liable for damages</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Certain class action lawsuits were filed by shareholders in the fourth quarter of 1998 against us and certain of our current and former officers and directors in the U.S. District Court in Massachusetts claiming violations of the federal securities laws based on alleged misrepresentations regarding our anticipated revenue and earnings for the third quarter of 1998. The plaintiffs in these lawsuits joined together to file a consolidated and amended complaint in the second quarter of 1999. The consolidated and amended complaint seeks unspecified damages. We believe the claims made in the consolidated and amended complaint are without merit, and we intend to defend them vigorously. In the third quarter of 1999 we filed a motion to dismiss the consolidated and amended complaint. We cannot predict the outcome of this motion or the ultimate resolution of this action at this time, and there can be no assurance that the litigation will not have a material adverse impact on our financial condition or results of operations.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><I>Our operations in Europe may be affected by the European Union’s conversion to a common currency</I></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">The conversion of major European countries to a common legal currency creates uncertainties for companies like us that do significant business in Europe. These uncertainties include technical adaptation of internal systems to accommodate euro-denominated transactions, long-term competitive implications of the conversion and the effect on market risk with respect to financial instruments.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Other than as disclosed in this report on Form 10-Q, there have been no significant changes in our market risk exposure as described in Item 7A: “Quantitative and Qualitative Disclosures About Market Risk” to our 1999 Annual Report on Form 10-K, which is incorporated herein by reference.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>PART II—OTHER INFORMATION</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>ITEM 1. LEGAL PROCEEDINGS</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Certain class action lawsuits were filed by shareholders in the fourth quarter of 1998 against us and certain of our current and former officers and directors in the U.S. District Court in Massachusetts claiming violations of the federal securities laws based on alleged misrepresentations regarding our anticipated revenue and earnings for the third quarter of fiscal 1998. The plaintiffs in these lawsuits joined together to file a consolidated and amended complaint in the second quarter of 1999. The consolidated and amended complaint seeks unspecified damages. We believe the claims made in the consolidated and amended complaint are without merit, and we intend to defend them vigorously. In the third quarter of 1999 we filed a motion to dismiss the consolidated and amended complaint. We cannot predict the outcome of this motion or the ultimate resolution of this action at this time, and there can be no assurance that the litigation will not have a material adverse impact on our financial condition or results of operations.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">We are also subject to various legal proceedings and claims that arise in the ordinary course of business. We currently believe that resolving these matters will not have a material adverse impact on our financial condition or results of operations.</FONT></DIV> <DIV><FONT SIZE="5"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B></FONT></DIV> <DIV><FONT SIZE="1"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">At the Annual Meeting of Stockholders of the Company held on February 10, 2000, the stockholders of the Company (1) elected Donald K. Grierson, Oscar B. Marx, III, and Noel G. Posternak as Class I directors of the Company to hold office until the 2003 Annual Meeting of Stockholders (subject to the election and qualification of their successors and to their earlier death, resignation or removal) and no other nominations were made; (2) approved an amendment to the Company’s Articles of Organization increasing the number of authorized shares of the Company’s common stock from 350,000,000 to 500,000,000; (3) approved the Company’s 2000 Employee Stock Purchase Plan; and (4) approved the Company’s 2000 Equity Incentive Plan. The votes were as follows:</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="540" CELLSPACING=0 CELLPADDING=0> <TR> <TH VALIGN="bottom" ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Votes For</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Votes <BR> Witheld <BR> or Opposed</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> <TH><FONT SIZE="1"> </FONT></TH> <TH VALIGN="bottom" NOWRAP ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Abstentions</B></FONT><FONT SIZE="1"><HR ALIGN="center" WIDTH="100%" SIZE="1" NOSHADE></FONT></TH> </TR> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(1) Election of Directors:</FONT></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Donald K. Grierson</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">234,421,713</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,713,940</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" ALIGN="right"></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Oscar B. Marx, III</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">234,427,959</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,707,694</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" ALIGN="right"></TD> </TR> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Noel G. Posternak</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">234,422,139</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,713,514</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" ALIGN="right"></TD> </TR> <TR> <TD COLSPAN=7 VALIGN="bottom" ALIGN="left"></TD> </TR> <TD COLSPAN=7><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(2) Approval of Amendment to Articles <BR> of Organization:</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">233,402,129</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">3,983,000</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">750,524</FONT></TD> </TR> <TR> <TD COLSPAN=7 VALIGN="bottom" ALIGN="left"></TD> </TR> <TD COLSPAN=7><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(3) Approval of 2000 Employee Stock <BR> Purchase Plan:</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">233,116,457</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">4,294,550</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">724,646</FONT></TD> </TR> <TR> <TD COLSPAN=7 VALIGN="bottom" ALIGN="left"></TD> </TR> <TD COLSPAN=7><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="bottom" WIDTH="226" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(4) Approval of 2000 Equity Incentive <BR> Plan:</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">182,674,512</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">54,559,141</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">902,000</FONT></TD> </TR> </TABLE> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"><B>ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(a) Exhibits</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <TABLE ALIGN="center" WIDTH="615" CELLSPACING=0 CELLPADDING=0> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> 3.1*</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Articles of Amendment to Restated Articles of Organization dated February 10, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.1*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amended and Restated Severance Agreement with Steven C. Walske dated February 10, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.2*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amended and Restated Severance Agreement with Steven C. Walske dated March 1, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.3*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amended and Restated Severance Agreement with C. Richard Harrison dated February 10, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.4*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amended and Restated Severance Agreement with Edwin J. Gillis dated February 10, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.5*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amended and Restated Severance Agreement with Barry F. Cohen dated February 10, 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.6*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Amendment #5 to the Consulting Agreement, as amended, with Michael E. Porter dated February 10, <BR> 2000.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">10.7*#</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Parametric Technology Corporation 2000 Equity Incentive Plan.</FONT></TD> </TR> <TR> <TD COLSPAN=3 ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> </FONT></TD> </TR> <TD COLSPAN=3><FONT SIZE="1"> </FONT></TD> <TR> <TD VALIGN="top" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">27.1*</FONT></TD> <TD><FONT SIZE="1"> </FONT></TD> <TD VALIGN="top" WIDTH="565" NOWRAP ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Financial Data Schedule for the period ended April 1, 2000.</FONT></TD> </TR> </TABLE> <DIV ALIGN="left"><HR WIDTH="10%" SIZE="1" NOSHADE></DIV> <TABLE BORDER="0" WIDTH="100%" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> *</FONT></DIV> </TD> <TD WIDTH="96%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Indicates document filed herewith.</FONT></DIV> </TD> </TR> </TABLE> <TABLE BORDER="0" WIDTH="100%" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="4%" ALIGN="left" VALIGN="top"><DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> #</FONT></DIV> </TD> <TD WIDTH="96%" ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of the Company participates.</FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> For our documents incorporated by reference, references are to File No. 0-18059.</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">(b) Reports on Form 8-K</FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> Form 8-K dated March 1, 2000 regarding our press release announcing that C. Richard Harrison had been named President and Chief Executive Officer and Steven C. Walske would remain Chairman and assume the newly created position of Chief Business Strategist.</FONT></DIV> <DIV><FONT SIZE="6"> </FONT></DIV> <DIV ALIGN="center"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> <B>SIGNATURE</B></FONT></DIV> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times"> 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.</FONT></DIV> <DIV><FONT SIZE="5"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="52%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">P<SMALL>ARAMETRIC </SMALL> T<SMALL>ECHNOLOGY </SMALL> C<SMALL>ORPORATION</SMALL> </FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="5"> </FONT></DIV> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="57%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="43%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">/<SMALL>S</SMALL> / E<SMALL>DWIN </SMALL> J. G<SMALL>ILLIS</SMALL> </FONT></DIV> </TD> </TR> </TABLE> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="52%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" WIDTH="48%" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">By: <U><HR SIZE=1 NOSHADE></U></FONT></DIV> </TD> </TR> </TABLE> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="56%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" VALIGN="top"> <DIV ALIGN="left"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B>Edwin J. Gillis</B></FONT></DIV> </TD> </TR> </TABLE> <TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0"> <TR> <TD WIDTH="52%" ALIGN="left" VALIGN="top"></TD> <TD ALIGN="left" VALIGN="top"> <DIV ALIGN="center"><FONT SIZE="1" COLOR="#000000" FACE="'Times New Roman', Times"><B><I>Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)</B></I></FONT></DIV> </TD> </TR> </TABLE> <DIV><FONT SIZE="2"> </FONT></DIV> <DIV ALIGN="left"><FONT SIZE="2" COLOR="#000000" FACE="'Times New Roman', Times">Date: May 16, 2000</FONT></DIV> </BODY> </HTML>