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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;

•	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 fall short of our earnings targets as well;

•	our mix of license 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 our 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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•	larger companies that offer PLM, SLM, SCM, CAD and/or ALM solutions;

•	larger, more well-known enterprise software providers who have extended, or may seek to extend, the functionality of their products to encompass PLM or who may develop and/or purchase PLM technology; and

•	other vendors of various CAD, PLM, SLM, ALM and SCM point solutions.

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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 potentially cause impairment to 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;

•	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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•	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;

•	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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(1)

Costs and expenses in 2013, included $52.2 million of restructuring charges and $9.9 million of acquisition-related costs. Costs and expenses in 2012 included $24.9 million of restructuring charges and $3.8 million of acquisition-related costs compared to $7.8 million of acquisition-related costs in 2011. These restructuring and acquisition-related costs have been excluded from non-GAAP operating income. In the first quarter of 2011, we entered into a strategic contract with an automotive customer for which we expected costs to exceed revenue by approximately $5 million. This loss was recorded in the first quarter of 2011 and resulted in a decrease in GAAP and non-GAAP operating income of approximately $5 million in 2011.

(2)

GAAP earnings per share in 2013 includes (i) non-cash 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 non-cash 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 $2.6 million benefit relating to a tax audit in a foreign jurisdiction of an acquired company. Earnings per share in 2013 also includes a gain on investment of $0.6 million, and a legal settlement gain of $5.1 million. The GAAP loss per share in 2012 includes a non-cash net tax charge of $124.5 million recorded in the fourth quarter to establish a valuation allowance against our U.S. net deferred tax assets and the following additional items: $5.4 million, net primarily related to foreign tax credits which would be fully realized on a non-GAAP basis; $3.3 million primarily related to acquired legal entity integration activities; and $1.4 million related to the impact from a reduction in the statutory tax rate in Japan on deferred tax assets from a litigation settlement. GAAP earnings per share in 2011 includes foreign currency losses of $4.4 million related to our acquisition of MKS; $0.7 million of foreign currency losses related to a litigation settlement; and a non-cash tax provision of $1.9 million in connection with a legal entity reorganization. The items above have been excluded from non-GAAP diluted earnings per share for each respective period.

(3)	In the first quarter of 2011, we used $48 million, net, of cash in connection with the resolution of a litigation matter.

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(1)	On a consistent foreign currency basis from the prior period, total costs and expenses increased 4% from 2012 to 2013 and increased 9% from 2011 to 2012.

•	restructuring charges of $52.2 million in 2013 compared to $24.9 million in 2012, primarily for severance and other related costs associated with the termination of approximately 550 employees;

•	an increase in employee headcount as a result of our acquisitions of Servigistics, Enigma and NetIDEAS, which when acquired had a total of approximately 485 employees;

•	company-wide merit pay increases effective on February 1, 2012 (approximately $11 million on an annualized basis), which resulted in an increase in salary expense across all functional organizations;

•	acquisition-related costs (included in general and administrative) of $9.9 million, which were $6.0 million higher than 2012; and

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•	increased amortization of acquired intangible assets, primarily related to our acquisition of Servigistics.

•	restructuring charges of $24.9 million primarily for severance and other related costs associated with the termination of approximately 210 employees;

•	higher cost of service in support of services revenue growth;

•	investments in our direct sales force;

•	an increase of approximately 500 employees in connection with our acquisitions of MKS and 4CS; and

•	company-wide salary increases effective on February 1, 2012 and 2011 (both salary increases were approximately $11 million on an annualized basis), which resulted in an increase in salary expense across all functional organizations.

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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)

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. In 2012, we recorded $0.8 million of foreign currency losses related to MKS legal entity mergers. In 2011, in connection with our acquisition of MKS, we entered into forward contracts to purchase CDN$292 million (equivalent to approximately $305 million when the contracts were entered into). We entered into these forward contracts to reduce our foreign currency exposure related to changes in the Canadian to U.S. Dollar exchange rate from the time we entered into the agreement to acquire MKS (the purchase price was in Canadian Dollars) and the closing date. We realized foreign currency losses of $4.4 million in 2011, recorded as other expense, related to the acquisition of MKS. In 2011, we recorded $0.7 million of foreign currency losses related to a litigation settlement in Japan.

(2)

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. As the U.S. is profitable on a non-GAAP basis, the 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance. Additionally, income tax adjustments in 2013 include non-cash 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; tax benefits of $3.2 million relating to the final resolution of a long standing tax litigation and completion of an international jurisdiction tax audit; a non-cash tax benefit of $7.9 million related to the release of a portion of the valuation allowance relating to the accounting for our U.S. pension plan (decrease in unrecognized actuarial loss results in a gain recorded in accumulated other comprehensive income); and a $2.6 million benefit relating to a tax audit in a foreign jurisdiction of an acquired company. Income tax adjustments in 2012 include a non-cash net tax charge of $124.5 million to establish a valuation allowance against our U.S. net deferred tax assets; $5.4 million, net primarily related to foreign tax credits which would be fully realized on a non-GAAP basis; $3.3 million, net, primarily related to a $4.2 million charge as a result of acquired legal entity integration activities; and $1.4 million related to the impact from a reduction in the statutory tax rate in Japan on deferred tax assets from a litigation settlement. Income tax adjustments in 2011 includes a non-cash tax provision of $1.9 million in connection with legal entity reorganizations.

(3)	GAAP weighted average shares outstanding for 2012 of 118.7 million shares excludes the effect of stock-based compensation awards due to a GAAP net loss in 2012.

(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. Non-GAAP weighted average shares for 2012 of 121.0 million shares includes the dilutive effect of stock-based compensation awards of 2.3 million shares due to non-GAAP net income in 2012.

•	revenue recognition;

•	accounting for income taxes;

•	valuation of assets and liabilities acquired in business combinations;

•	valuation of goodwill;

•	accounting for pensions; and

•	legal contingencies.

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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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•	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;

•	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 leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, of no greater than 2.50 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)	Credit facility amounts above include required principal repayments and interest and commitment fees based on the balance outstanding as of September 30, 2013 and the interest rate in effect as of September 30, 2013, 1.5625%.

(2)

The future minimum lease payments above include minimum future lease payments for excess facilities under noncancelable operating leases, net of expected sublease income under existing sublease arrangements. These leases qualify for operating lease accounting treatment and, as such, are not included on our balance sheet. See Note I of “Notes to Consolidated Financial Statements” 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, 2013 consolidated balance sheet.

(4)

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

(5)	As of September 30, 2013, we had recorded total unrecognized tax benefits of $13.7 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 of “Notes to Consolidated Financial Statements” 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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•	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 2013, this is attributable to recognition of deferred tax liabilities recorded in connection with accounting for 2013 acquisitions and 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 2.50 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)

Of these performance-based RSUs, the performance conditions were achieved for approximately 200 thousand shares, half of which vested in November 2013, with the remainder to vest in two substantially equal installments in November 2014 and 2015. The remaining approximately 200 thousand shares will be eligible to vest in two substantially equal installments on the later of November 15, 2014 and November 15, 2015 and the date the Compensation Committee determines the extent to which performance criteria have been achieved. RSUs not earned for earlier periods are eligible to be earned in 2014 or 2015.

(2)	The time-based RSUs were issued to directors and employees, including some of our executive officers. The time-based RSUs issued to employees and executives will vest in three substantially equal annual installments from the date of grant. Substantially all of the time-based RSUs issued to our directors will vest one year from the date of grant.

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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, 2013 and 2012.

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(1)

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. We recorded restructuring charges of $24.9 million in 2012. Software Products included $4.1 million; Services included $4.0 million; sales and marketing expenses included $15.2 million; and general and administrative expenses included $1.6 million of the total restructuring charges recorded in 2012.

(2)	The Software Products segment operating income includes depreciation and amortization of $27.3 million, $25.4 million, and $24.8 million in 2013, 2012, and 2011, respectively. The Services segment operating income includes depreciation and amortization of $5.0 million, $3.6 million, and $3.8 million in 2013, 2012, and 2011, respectively.

(3)

In the first quarter of 2011, we made a strategic decision to enter into a contract with a customer in the automotive industry, for which we expected our costs to exceed our revenue by approximately $5 million. Services segment operating income in 2011 included immediate recognition of the approximately $5 million estimated loss on this contract and resulted in a reduction of service margins by approximately 2%.

•	CAD: PTC Creo®, including PTC Creo Parametric and PTC Creo Elements/Direct®, and PTC Mathcad®.

•	Extended PLM: our PLM solutions (primarily PTC Windchill® and PTC Creo ViewTM ), our ALM solutions (primarily PTC Integrity™) and our SCM Solutions (primarily PTC Windchill FlexPLM®).

•	SLM: PTC Arbortext® and PTC Servigistics®.

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(1)	Includes revenue in the United States totaling $485.2 million, $453.2 million and $408.0 million for 2013, 2012 and 2011, respectively.

(2)	Includes revenue in Germany totaling $167.2 million, $188.3 million and $173.3 million for 2013, 2012 and 2011, respectively.

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

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(1)

The consolidated financial position and results of operations data reflect our acquisitions of 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 2013 includes restructuring charges of $52.2 million ($17.9 million in the quarter ended September 30, 2013, $3.1 million in the quarter ended June 29, 2013, $15.8 million in the quarter ended March 30, 2013 and $15.4 million in the quarter ended December 29, 2012). Operating income and net income (loss) in 2012 includes restructuring charges of $24.9 million ($4.1 million recorded in the quarter ended June 30, 2012 and $20.8 million recorded in the quarter ended March 31, 2012).

(3)

Net income in 2013 includes non-cash tax benefits totaling $44.6 million 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 ($12.0 million in the quarter ended September 30, 2013 and $32.6 million in the quarter ended December 29, 2012). The net loss in 2012 includes a non-cash net tax provision of $124.5 million recorded in the 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 “PMTC” ("PTC" effective in December 2013).