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ITEM 1.	Business

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ITEM 1A.	Risk Factors

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•	a high percentage of our revenue historically has been generated in the third month of each fiscal quarter and any failure to receive, complete or process orders at the end of any quarter could cause us to fall short of our revenue targets;

•	a significant percentage of our revenue comes from transactions with large customers, which tend to have long lead times that are less predictable;

•	one or more industries that we serve may have weak or negative growth;

•	our operating expenses are largely fixed in the short term and are based on expected revenues and any failure to achieve our revenue targets could cause us to miss our earnings targets as well;

•	our mix of license, subscription and service revenues can vary from quarter to quarter, creating variability in our operating margins;

•	because a significant portion of our revenue comes from outside the U.S. and a significant portion of our expense structure is located internationally, shifts in foreign currency exchange rates could adversely affect our reported results; and

•	we may incur significant expenses in a quarter in connection with corporate development initiatives, restructuring efforts or the investigation, defense or settlement of legal actions that would increase our operating expenses and reduce our earnings for the quarter in which those expenses are incurred.

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•	difficulties managing an acquired company’s technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions;

•	unanticipated operating difficulties in connection with the acquired entities, including potential declines in revenue of the acquired entity;

•	failure to achieve the expected return on our investments which could adversely affect our business or operating results and impair the assets that we recorded as a part of an acquisition including intangible assets and goodwill;

•	diversion of management and employee attention;

•	loss of key personnel;

•	assumption of unanticipated legal or financial liabilities or other unidentified issues with the acquired business;

•	potential incompatibility of business cultures;

•	significant increases in our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition; and

•	if we were to issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

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•	larger companies that offer competitive solutions;

•	larger, more well-known enterprise software providers with greater financial, technical, sales and marketing, and other resources; and

•	other vendors of various competitive point solutions or IoT platforms.

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•	difficulties in staffing and managing foreign sales and development operations;

•	possible future limitations upon foreign-owned businesses;

•	increased financial accounting and reporting burdens and complexities;

•	inadequate local infrastructure; and

•	greater difficulty in protecting our intellectual property.

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•	changes in tax laws, regulations, and interpretations in multiple jurisdictions in which we operate;

•	assessments, and any related tax interest or penalties, by taxing authorities;

•	changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

•	changes to the financial accounting rules for income taxes;

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•	unanticipated changes in tax rates; and

•	changes to a valuation allowance on net deferred tax assets, if any.

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ITEM 1B.	Unresolved Staff Comments

ITEM 2.	Properties

ITEM 3.	Legal Proceedings

ITEM 4.	Mine Safety Disclosures

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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ITEM 6.	Selected Financial Data

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Software revenue declined due to unfavorable currency movements and fewer large license transactions in the year than in the prior year. Perpetual license revenue declined $80 million in 2015 compared to 2014 ($56 million on a constant currency basis). We believe that challenging macroeconomic conditions and execution issues impacted our ability to close large license transactions in our core business. Additionally, 2015 was a difficult comparison in relation to 2014, in which CAD and ePLM had double digit software revenue growth due in part to customer contract cycles.

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•	Year-over-year revenue declines were partially offset by revenue from businesses acquired in 2014. On an organic basis (excluding revenue from acquired businesses), total license and subscription (L&S) revenue was down 18% year over year.

•	Professional services revenue declined primarily due to a shift of services to our partners in accordance with our margin improvement strategy.

•	We delivered strong growth in our Internet of Things business, closing a number of significant deals with large, industrial companies that are adopting our platform for their IoT initiatives. IoT license revenue represented more than 10% of our total L&S revenue in 2015, compared to 1% in 2014.

•	Approximately 58% of our revenue in 2015 came from recurring revenue streams (subscription solutions and support), compared to approximately 52% in 2014.

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(1)

Costs and expenses in 2015 included $73.2 million of pension plan termination-related costs, $43.4 million of restructuring charges, a $28.2 million legal accrual, and $8.9 million of acquisition-related costs. Costs and expenses in 2014 included $28.4 million of restructuring charges and $13.1 million of acquisition-related and pension plan termination costs. Costs and expenses in 2013 included $52.2 million of restructuring charges and $9.9 million of acquisition-related costs. These restructuring, acquisition-related, pension plan termination costs and legal accrual have been excluded from non-GAAP operating income, non-GAAP operating margin and non-GAAP diluted EPS.

(2)

Income taxes for non-GAAP diluted earnings per share reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments described in Non-GAAP Measures, and also exclude the following non-operating income and tax items: The GAAP earnings per share in 2015 reflect a tax benefit of $18.7 million related to the reversal of a portion of the U.S. valuation allowance related to reducing deferred tax assets in connection with settling the U.S. pension plan. GAAP diluted earnings per share in 2014 includes (i) tax benefits of $18.1 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for acquisitions recorded in 2014 and (ii) a tax charge of $3.5 million to establish valuation allowances against net deferred tax assets in two foreign jurisdictions. GAAP diluted earnings per share in 2013 includes (i) tax benefits of $36.7 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for acquisitions recorded in 2013, (ii) tax benefits of $3.2 million relating to the final resolution of a long standing tax litigation matter and completion of an international jurisdiction tax audit, (iii) a tax benefit of $7.9 million related to the release of a portion of the valuation allowance in the U.S. as a result of a pension gain (decrease in unrecognized actuarial loss) recorded in accumulated other comprehensive income, and (iv) a tax benefit of $2.6 million relating to a tax audit in a foreign jurisdiction of an acquired company. GAAP diluted earnings per share in 2013 also includes a gain on investment of $0.6 million and a legal settlement gain of $5.1 million.

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(1)	On a constant currency basis from the prior period, total costs and expenses increased 9% from 2014 to 2015 and were flat from 2013 to 2014.

(2)	Headcount at September 30, 2014 included approximately 250 employees with termination dates after September 30, 2014 that were included in our fourth quarter of 2014 restructuring actions.

•	restructuring charges of $43.4 million in 2015 compared to $28.4 million in 2014, primarily for severance and other related costs associated with the termination of 411 employees;

•	costs from acquired businesses (Axeda, Atego, Thingworx and ColdLight added approximately 360 employees at the date of the acquisitions);

•	costs associated with terminating our U.S. Pension Plan which totaled $73.2 million (including a $66.3 million settlement loss);

•	a litigation accrual of $28.2 million related to our previously disclosed China investigation; and

•	amortization of acquired intangible assets (including amortization of purchased software which is included in cost of revenue), primarily related to our acquisitions in 2014 and 2015, which was higher by $5.3 million.

•	cost savings associated with restructuring actions in 2014 and 2015;

•	the impact of foreign currency movements which favorably impacted costs and expenses by $56.6 million in 2015; and

•	a decrease in cash-based incentive compensation of $18.1 million.

•	restructuring charges, which were $23.8 million lower in 2014; and

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•	cost savings resulting from restructuring actions in 2013.

•	costs from acquired businesses (approximately 300 employees);

•	investments we made in our Internet of Things business;

•	company-wide merit pay increases totaling approximately $12 million on an annualized basis, which were effective February 1, 2014;

•	increased amortization of acquired intangible assets, which was $5.2 million higher in 2014; and

•	increased acquisition-related and pension plan termination costs, which were $3.2 million higher.

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•	non-GAAP revenue—GAAP revenue

•	non-GAAP gross margin—GAAP gross margin

•	non-GAAP operating income—GAAP operating income

•	non-GAAP operating margin—GAAP operating margin

•	non-GAAP net income—GAAP net income (loss)

•	non-GAAP diluted earnings per share—GAAP diluted earnings (loss) per share

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(1)	Represents charges related to terminating a U.S. pension plan including a settlement loss of $66.3 million in 2015.

(2)	Non-operating gain (loss) adjustments: In 2013, we recorded a $0.6 million gain on an investment related to an acquisition and a legal settlement gain of $5.1 million.

(3)

Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, and also include any identified tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets and in the fourth quarter of 2014 a valuation allowance was established against net deferred tax assets in two foreign jurisdictions. As the U.S. is profitable on a non-GAAP basis, the non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance. Additionally, the following identified tax items have been excluded from the non-GAAP tax results. The GAAP diluted earnings per share in 2015 includes an $18.7 million release of valuation allowance related to the U.S. pension plan termination. GAAP diluted earnings per share in 2014 includes (i) tax benefits of $18.1 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for acquisitions recorded in 2014 and (ii) a tax charge of $3.5 million to establish a valuation allowance against net deferred tax assets in two foreign jurisdictions. GAAP diluted earnings per share in 2013 includes (i) tax benefits of $36.7 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for acquisitions recorded in 2013, (ii) tax benefits of $3.2 million relating to the final resolution of a long standing tax litigation matter and completion of an international jurisdiction tax audit, (iii) a tax benefit of $7.9 million related to the release of a portion of the valuation allowance in the U.S. as a result of a pension gain (decrease in unrecognized actuarial loss) recorded in accumulated other comprehensive income and (iv) a tax benefit of $2.6 million relating to a tax audit in a foreign jurisdiction of an acquired company.

(4)	Diluted earnings per share impact of non-GAAP adjustments is calculated by dividing the dollar amount of the non-GAAP adjustment by the diluted weighted average shares outstanding for the respective year.

•	revenue recognition;

•	accounting for income taxes;

•	valuation of assets and liabilities acquired in business combinations;

•	valuation of goodwill;

•	accounting for pensions; and

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•	legal contingencies.

•	determining whether collection is probable;

•	assessing whether the fee is fixed or determinable;

•	determining whether service arrangements, including modifications and customization of the underlying software, are not essential to the functionality of the licensed software and thus would result in the revenue for license and service elements of an agreement being recorded separately; and

•	determining the fair value of services and support elements included in multiple-element arrangements, which is the basis for allocating and deferring revenue for such services and support.

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•	future expected cash flows from software license sales, customer support agreements, customer contracts and related customer relationships and acquired developed technologies and trademarks and trade names;

•	expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed;

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•	the acquired company’s brand awareness and market position, as well as assumptions about the period of time the acquired brand will continue to be used by the combined company; and

•	discount rates used to determine the present value of estimated future cash flows.

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•	a total leverage ratio, defined as consolidated total indebtedness to the consolidated trailing four quarters EBITDA, not to exceed

◦	prior to a Covenant Modification Trigger Event (incurring unsecured indebtedness of not less than $200 million in aggregate) (x) 3.50 to 1.00 as of the last day of any fiscal quarter ending on or prior to July 2, 2016, and (y) 3.25 to 1.00 as of the last day of any fiscal quarter ending on or after September 30, 2016

◦	on and after a Covenant Modification Trigger Event, 4.00 to 1.00 as of the last day of any fiscal quarter.

•	a senior secured leverage ratio, defined as consolidated total indebtedness to consolidated trailing four quarters EBITDA, not to exceed 3.00 to 1.00 as of the last day of any fiscal quarter ending after a Covenant Modification Trigger Event, and

•	a fixed charge coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges, of not less than 3.50 to 1.00 as of the last day of any fiscal quarter.

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(1)

Credit facility amounts above include required principal repayments and interest and commitment fees based on the balance outstanding as of September 30, 2015 and the interest rate in effect as of September 30, 2015, 1.875%. Pursuant to our amended and restated credit facility signed November 4, 2015, the term loan was converted into a revolving loan. The credit facility matures on September 15, 2019, when all remaining amounts outstanding will be due and payable in full. Future payments under this new agreement will be: $13.8 million in less than one year, $28.6 million in one to three years, and $732.6 million in three to five years.

(2)

The future minimum lease payments above include minimum future lease payments for excess facilities under noncancelable operating leases. These leases qualify for operating lease accounting treatment and, as such, are not included on our balance sheet. See Note I Commitments and Contingencies of “Notes to Consolidated Financial Statements” in this Annual Report for additional information regarding our operating leases.

(3)

Purchase obligations represent minimum commitments due to third parties, including royalty contracts, research and development contracts, telecommunication contracts, information technology maintenance contracts in support of internal-use software and hardware and other marketing and consulting contracts. Contracts for which our commitment is variable, based on volumes, with no fixed minimum quantities, and contracts that can be canceled without payment penalties have been excluded. The purchase obligations included above are in addition to amounts included in current liabilities and prepaid expenses recorded on our September 30, 2015 consolidated balance sheet.

(4)

These obligations relate to our international pension plans. These liabilities are not subject to fixed payment terms. Payments have been estimated based on the plans’ current funded status, planned employer contributions and actuarial assumptions. In addition, we may, at our discretion, make additional voluntary contributions to the plans. See Note M Pension Plans of “Notes to Consolidated Financial Statements” in this Annual Report for further discussion.

(5)	As of September 30, 2015, we had recorded total unrecognized tax benefits of $14.1 million. This liability is not subject to fixed payment terms and the amount and timing of payments, if any, which we will make related to this liability, are not known. See Note G Income Taxes of “Notes to Consolidated Financial Statements” in this Annual Report for additional information.

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•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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•	determining whether collection is probable;

•	assessing whether the fee is fixed or determinable;

•	determining whether service arrangements, including modifications and customization of the underlying software, are not essential to the functionality of the licensed software and thus would result in the revenue for license and service elements of an agreement being recorded separately; and

•	determining the fair value of services and support elements included in multiple-element arrangements, which is the basis for allocating and deferring revenue for such services and support.

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•	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

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Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

•	Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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(1)	In 2014 and 2013, this is attributable to recognition of deferred tax liabilities recorded in connection with accounting for acquisitions and in 2015 and 2013 a reduction in deferred tax assets associated with our U.S. pension plan, both of which are described above.

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•	a leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, of no greater than 3.00 to 1.00 at any time; and

•	a fixed charge coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges, of no less than 3.50 to 1.00 at any time.

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(1)	The performance-based RSUs were granted to employees, including our executive officers, pursuant to the terms described below.

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(1)	The rate of increase in future compensation is weighted for all plans, ongoing and frozen (with a 0% increase for frozen plans). The weighted rate of increase for ongoing non-U.S. plans was 3% at September 30, 2015 and 2014.

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(1)

We recorded restructuring charges of $43.4 million in 2015. Software Products included $11.6 million; Services included $10.4 million; sales and marketing expenses included $16.3 million; and general and administrative expenses included $5.1 million of the restructuring charges recorded in 2015.We recorded restructuring charges of $28.4 million in 2014. Software Products included $2.8 million; Services included $9.8 million; sales and marketing expenses included $13.9 million; and general and administrative expenses included $1.8 million of the total restructuring charges recorded in 2014. We recorded restructuring charges of $52.2 million in 2013. Software Products included $17.7 million; Services included $11.3 million; sales and marketing expenses included $18.1 million; and general and administrative expenses included $5.1 million of the total restructuring charges recorded in 2013.

(2)	The Software Products segment operating income includes depreciation and amortization of $60.7 million, $55.0 million, and $52.6 million in 2015, 2014, and 2013, respectively. The Services segment operating income includes depreciation and amortization of $8.1 million, $7.4 million, and $6.1 million in 2015, 2014, and 2013, respectively.

•	CAD: PTC Creo® and PTC Mathcad®.

•	ePLM: PLM solutions (primarily PTC Windchill®) and ALM solutions (primarily PTC Integrity™) and Atego®.

•	SLM: PTC Arbortext® and PTC Servigistics®.

•	IoT: ThingWorx®, Axeda® and ThingWorx Machine Learning™ products.

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(1)	Includes revenue in the United States totaling $500.6 million, $518.7 million and $485.2 million for 2015, 2014 and 2013, respectively.

(2)	Includes revenue in Germany totaling $177.1 million, $200.3 million and $167.2 million for 2015, 2014 and 2013, respectively.

(3)	Substantially all of the Americas long-lived tangible assets are located in the United States.

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•	a total leverage ratio, defined as consolidated total indebtedness to the consolidated trailing four quarters EBITDA, not to exceed

◦	prior to a Covenant Modification Trigger Event (incurring unsecured indebtedness of not less than $200 million in aggregate) (x) 3.50 to 1.00 as of the last day of any fiscal quarter ending on or prior to July 2, 2016, and (y) 3.25 to 1.00 as of the last day of any fiscal quarter ending on or after September 30, 2016

◦	on and after a Covenant Modification Trigger Event, 4.00 to 1.00 as of the last day of any fiscal quarter.

•	a senior secured leverage ratio, defined as consolidated total indebtedness to consolidated trailing four quarters EBITDA, not to exceed 3.00 to 1.00 as of the last day of any fiscal quarter ending after a Covenant Modification Trigger Event, and

•	a fixed charge coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges, of not less than 3.50 to 1.00 as of the last day of any fiscal quarter.

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(1)

The consolidated financial position and results of operations data reflect our acquisitions of ColdLight on May 7, 2015 for $98.6 million in cash, Axeda on August 11, 2014 for $165.9 million in cash, ThingWorx on December 30, 2013 for $111.5 million in cash, Servigistics on October 2, 2012 for $220.8 million in cash and MKS on May 31, 2011 for $265.2 million in cash, as well as certain other less significant businesses during these periods. Results of operations for the acquired businesses have been included in the Consolidated Statements of Operations since their acquisition dates.

(2)

Operating income and net income in 2015 includes a pre-tax U.S pension settlement loss of $66.3 million recorded in the fourth quarter, a $28.2 million charge related to a legal accrual and pre-tax restructuring charges of $43.4 million ($0.8 million in the fourth quarter, $4.4 million in the third quarter, $38.5 million in the second quarter and ($0.3) million in the first quarter). Operating income and net income in 2014 includes pre-tax restructuring charges of $28.4 million ($26.8 million in the fourth quarter, $0.5 million in the third quarter and $1.1 million in the first quarter). Operating income and net income in 2013 includes pre-tax restructuring charges of $52.2 million ($17.9 million in the fourth quarter, $3.1 million in the third quarter, $15.8 million in the second quarter and $15.4 million in the first quarter). Operating income and net income (loss) in 2012 includes pre-tax restructuring charges of $24.9 million.

(3)

In 2015, net income includes an $18.7 million tax benefit related to settlement of our U.S pension plan recorded in the fourth quarter. Net income in 2014 and 2013 includes tax benefits totaling $18.1 million ($9.1 million in the fourth quarter and $8.9 million in the second quarter) and $44.6 million ($12.0 million in the fourth quarter and $32.6 million in the first quarter), respectively, related to the reversal of a portion of the valuation allowance in the U.S. related to the impact on deferred taxes in accounting for acquisitions and accounting for the U.S. pension plan. The net loss in 2012 includes a net tax charge of $124.5 million recorded in the fourth quarter ended September 30, 2012 to establish a valuation allowance against our U.S. net deferred tax assets.

(4)	Working capital in 2012 includes funds borrowed under our credit facility to fund our acquisition of Servigistics, (approximately $220 million) which closed on October 2, 2012.

(5)	The common stock prices are based on the Nasdaq Global Select Market daily high and low sale prices. Our common stock is traded on the Nasdaq Global Select Market under the symbol "PTC".