Item 16. Form 10-K Summary

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18th day of November, 2016.

	PTC Inc.
	By:	/s/ JAMES HEPPELMANN
		James Heppelmann President and Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned officers and directors of PTC Inc., hereby severally constitute Andrew Miller and Aaron von Staats, Esq., and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below any and all subsequent amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, on the 18th day of November, 2016.

Signature		Title
(i) Principal Executive Officer:
/s/ JAMES HEPPELMANN		President and Chief Executive Officer
James Heppelmann
(ii) Principal Financial and Accounting Officer:
/s/ ANDREW MILLER		Executive Vice President and Chief Financial Officer
Andrew Miller
(iii) Board of Directors:
/s/ ROBERT SCHECHTER		Chairman of the Board of Directors
Robert Schechter
/s/ JANICE CHAFFIN		Director
Janice Chaffin
/s/ PHILLIP FERNANDEZ		Director
Phillip Fernandez
/s/ DONALD GRIERSON		Director
Donald Grierson
/s/ JAMES HEPPELMANN		Director
James Heppelmann
/s/ KLAUS HOEHN		Director
Klaus Hoehn
/s/ PAUL LACY		Director
Paul Lacy
/s/ RENATO ZAMBONINI		Director
Renato Zambonini

EXHIBIT INDEX

Exhibit Number			Exhibit
1		—	Underwriting Agreement, dated May 4, 2016, by and between PTC Inc. and J.P. Morgan Securities LLC, as the representative of the several underwriters named therein (filed as Exhibit 1.1 to our Current Report on Form 8-K filed on May 5, 2016 (File No. 0-18059) and incorporated herein by reference).
2.1		—	Asset Purchase Agreement dated as of October 9, 2015 by and between PTC Inc. and Qualcomm Connected Experiences, Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K dated October 13, 2015 (File No. 0-18059) and incorporated herein by reference).
2.2		—	Stock Purchase Agreement dated December 22, 2015 by and among PTC Inc., EAP Holdings, Inc., Kepware, Inc., and the Seller Owners listed on Schedule I of the Stock Purchase Agreement (filed as Exhibit 10.1 to our Current Report on Form 8-K dated December 22, 2015 (File No. 0-18059) and incorporated herein by reference).
3.1		—	Restated Articles of Organization of PTC Inc. adopted August 4, 2015 (filed as exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).
3.2		—	By-Laws, as amended and restated, of PTC Inc. (filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).
4.1		—	Indenture, dated as of May 12, 2016, by and between the Company and The Bank of New York Mellon, as Trustee (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on May 18, 2016 (File No. 0-18059) and incorporated herein by reference).
4.2		—	First Supplemental Indenture, dated as of May 12, 2016, by and between the Company and The Bank of New York Mellon, as Trustee (filed as Exhibit 4.2 to our Current Report on Form 8-K filed on May 18, 2016 (File No. 0-18059) and incorporated herein by reference).
4.3		—	6.000% Senior Notes due 2024 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on May 18, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.1*		—	2000 Equity Incentive Plan (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on March 2, 2016 and incorporated herein by reference).
10.1.2*		—	Form of Restricted Stock Agreement (Non-Employee Director) (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2009 (File No. 0-18059) and incorporated herein by reference).
10.1.3*		—	Form of Restricted Stock Agreement (Employee) (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).
10.1.4		—	Form of Restricted Stock Unit Certificate (Non-U.S.) (filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).
10.1.5		—	Form of Incentive Stock Option Certificate (filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).
10.1.6*		—	Form of Nonstatutory Stock Option Certificate (filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).

10.1.7*		—	Form of Stock Appreciation Right Certificate (filed as Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).
10.1.8*		—	Form of Restricted Stock Unit Certificate (Non-Employee Director) (filed as Exhibit 10.1.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2013 (File No. 0-18059) and incorporated herein by reference).
10.1.9		—	Form of Restricted Stock Unit Certificate (U.S.).
10.1.10		—	Form of Restricted Stock Unit Certificate (U.S.).
10.1.11		—	Form of Restricted Stock Unit Certificate (U.S.).
10.1.12		—	Form of Restricted Stock Unit Certificate (U.S. EVP).
10.1.13*		—	Form of Restricted Stock Unit Certificate (U.S. Section 16).
10.1.14		—	Form of Restricted Stock Unit Certificate (U.S. EVP).
10.1.15		—	Form of Restricted Stock Unit Certificate (U.S).
10.1.16*		—	Form of Restricted Stock Unit Certificate (U.S. Section 16).
10.1.17*		—	Form of Restricted Stock Unit Certificate (U.S. Section 16).
10.2*		—	2009 Executive Cash Incentive Performance Plan (filed as Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 (File No. 0-18059) and incorporated herein by reference).
10.3*		—	2016 Employee Stock Purchase Plan.
10.4*		—	Amended and Restated Executive Agreement with James Heppelmann, President and Chief Executive Officer, dated May 7, 2010 (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010 (File No. 0-18059) and incorporated herein by reference).
10.5*		—	Amendment to Executive Agreement dated as of November 18, 2011 by and between PTC Inc. and James Heppelmann to Amended and Restated Executive Agreement dated as of May 7, 2010 by and between PTC and James Heppelmann (filed as Exhibit 10.2 to our Current Report on Form 8-K dated November 15, 2011 (File No. 0-18059) and incorporated herein by reference).
10.6*		—	Amendment to Executive Agreement by and between PTC Inc. and James Heppelmann dated May 13, 2013 (filed as Exhibit 10.9 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 (File No. 0-18059) and incorporated herein by reference).
10.7*		—	Amendment to Executive Agreement by and between PTC Inc. and James Heppelmann dated August 4, 2015 (filed as Exhibit 10.1 to our Current Report on Form 8-K dated August 10, 2015 (File No. 0-18059) and incorporated herein by reference).
10.8*		—	Form of Amended and Restated Executive Agreement by and between PTC Inc. and each of Barry Cohen, Anthony DiBona, and Aaron von Staats (filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter dated April 3, 2010 (File No. 0-18059) and incorporated herein by reference).

10.9*		—	Form of Amendment to Amended and Restated Executive Agreement entered into as of November 18, 2011 by and between PTC Inc. and each of Barry Cohen, Anthony DiBona, and Aaron von Staats (filed as Exhibit 10.3 to our Current Report on Form 8-K dated November 15, 2011 (File No. 0-18059) and incorporated herein by reference).
10.10*		—	Executive Agreement dated April 16, 2014 between PTC Inc. and Matthew Cohen (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).
10.11*		—	Executive Agreement dated February 11, 2015 between PTC Inc. and Andrew Miller (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2015 (File No. 0-18059) and incorporated herein by reference).
10.12*		—	Form of Amendment to Executive Agreement dated August 4, 2015 by and between PTC Inc. and each of Andrew Miller, Barry Cohen, Matthew Cohen, Anthony DiBona, and Aaron von Staats (filed as Exhibit 10.2 to our Current Report on Form 8-K dated August 10, 2015 (File No. 0-18059) and incorporated herein by reference).
10.13*		—	Amended and Restated Executive Agreement dated May 7, 2010, as amended, between PTC Inc. and Robert Gremley (filed as exhibit 10.12 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).
10.14		—	Executive Agreement dated December 2, 2015 between PTC Inc. and Craig Hayman.
10.15		—	Lease dated December 14, 1999 by and between PTC Inc. and Boston Properties Limited Partnership (filed as Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (File No. 0-18059) and incorporated herein by reference).
10.16		—	Third Amendment to Lease Agreement dated as of October 27, 2010 by and between Boston Properties Limited Partnership and PTC Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K dated November 8, 2010 (File No. 0-18059) and incorporated herein by reference).
10.17		—	Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10 to our Current Report on Form 8-K dated November 4, 2015 (File No. 0-18059) and incorporated herein by reference).
10.18		—	Amendment No. 1 dated April 18, 2016 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 99.3 to our Current Report on Form 8-K filed on April 20, 2016 (File No. 0-18059) and incorporated herein by reference).
10.19		—	Amendment No. 2 dated June 1, 2016 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2016 (File No. 0-18059) and incorporated herein by reference).
10.20		—	Amendment No. 3 dated September 21, 2016 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto.
21.1		—	Subsidiaries of PTC Inc.
23.1		—	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm.
31.1		—	Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13(a)-14(a) and 15d-14(a).

31.2		—	Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13(a)-14(a) and 15d-14(a).
32**		—	Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.
101		—	The following materials from PTC Inc.'s Annual Report on Form 10-K for the year ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2016 and 2015; (ii) Consolidated Statements of Operations for the years ended September 30, 2016, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2016, 2015 and 2014; (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2016, 2015 and 2014; (v) Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2016, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements.

*	Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of PTC participates.

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

APPENDIX A

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of PTC Inc.:

In our opinion, the accompanying consolidated balance sheets and the related statements of operations, comprehensive income (loss), of stockholders’ equity, and cash flows present fairly, in all material respects, the financial position of PTC Inc. and its subsidiaries at September 30, 2016 and September 30, 2015, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management's Annual Report on Internal Control over Financial Reporting” appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2016.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

November 18, 2016

F-1

PTC Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30,
	2016				2015
ASSETS
Current assets:
Cash and cash equivalents	$	277,935			$	273,417
Short term marketable securities	18,695				—
Accounts receivable, net of allowance for doubtful accounts of $1,012 and $998 at September 30, 2016 and 2015, respectively	161,357				197,275
Prepaid expenses	52,819				56,365
Other current assets	131,783				140,819
Deferred tax assets	—				36,803
Total current assets	642,589				704,679
Property and equipment, net	67,113				65,162
Goodwill	1,169,813				1,069,041
Acquired intangible assets, net	310,305				291,301
Long term marketable securities	30,921				—
Deferred tax assets	89,692				38,936
Other assets	41,820				40,794
Total assets	$	2,352,253			$	2,209,913
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,022			$	13,361
Accrued expenses and other current liabilities	84,141				97,613
Accrued compensation and benefits	145,633				82,414
Accrued income taxes	6,303				4,010
Deferred tax liabilities	—				1,622
Current portion of long term debt	—				50,000
Deferred revenue	400,420				368,240
Total current liabilities	654,519				617,260
Long term debt, net of current portion	758,125				618,125
Deferred tax liabilities	13,754				42,361
Deferred revenue	13,237				18,610
Other liabilities	69,952				53,386
Total liabilities	1,509,587				1,349,742
Commitments and contingencies (Note I)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued	—				—
Common stock, $0.01 par value; 500,000 shares authorized; 114,968 and 113,745 shares issued and outstanding at September 30, 2016 and 2015, respectively	1,150				1,137
Additional paid-in capital	1,598,548				1,553,390
Accumulated deficit	(657,079		)		(602,614		)
Accumulated other comprehensive loss	(99,953		)		(91,742		)
Total stockholders’ equity	842,666				860,171
Total liabilities and stockholders’ equity	$	2,352,253			$	2,209,913

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

F-2

PTC Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year ended September 30,
	2016				2015				2014
Revenue:
Subscription	$	118,322			$	65,239			$	27,137
Support	651,807				681,524				688,502
Total recurring software revenue	770,129				746,763				715,639
Perpetual license	173,467				282,760				362,602
Total software revenue	943,596				1,029,523				1,078,241
Professional services	196,937				225,719				278,726
Total revenue	1,140,533				1,255,242				1,356,967
Cost of revenue:
Cost of software revenue	155,439				135,992				129,708
Cost of professional services revenue	170,226				198,742				243,975
Total cost of revenue	325,665				334,734				373,683
Gross margin	814,868				920,508				983,284
Operating expenses
Sales and marketing	367,465				346,794				367,454
Research and development	229,331				227,513				226,496
General and administrative	145,615				158,715				132,225
U.S. pension settlement loss	—				66,332				—
Amortization of acquired intangible assets	33,198				36,129				32,127
Restructuring charges	76,273				43,409				28,406
Total operating expenses	851,882				878,892				786,708
Operating income (loss)	(37,014		)		41,616				196,576
Foreign currency losses, net	(1,889		)		(2,706		)		(4,469		)
Interest income	3,437				3,697				3,117
Interest expense	(29,882		)		(14,742		)		(8,155		)
Other expense (income), net	(1,844		)		(1,340		)		(957		)
Income (loss) before income taxes	(67,192		)		26,525				186,112
Provision (benefit) for income taxes	(12,727		)		(21,032		)		25,918
Net income (loss)	$	(54,465	)		$	47,557			$	160,194
Earnings (loss) per share—Basic	$	(0.48	)		$	0.41			$	1.36
Earnings (loss) per share—Diluted	$	(0.48	)		$	0.41			$	1.34
Weighted average shares outstanding—Basic	114,612				114,775				118,094
Weighted average shares outstanding—Diluted	114,612				116,012				119,984

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

F-3

PTC Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year ended September 30,
	2016				2015				2014
Net income	$	(54,465	)		$	47,557			$	160,194
Other comprehensive income (loss), net of tax:
Unrealized hedge gain (loss) arising during the period	(3,375		)		—				—
Net hedge loss reclassified into earnings	2,131				—				—
Unrealized loss on hedging instruments	(1,244		)		—				—
Foreign currency translation adjustment, net of tax of $0 for all periods	408				(47,177		)		(24,069		)
Unrealized loss on marketable securities, net of tax	(122		)		—				—
Amortization of net actuarial pension loss included in net income, net of tax of $0.7 million, $18.5 million, and $0.3 million in 2016, 2015 and 2014, respectively	1,609				52,249				3,048
Pension net loss arising during the period net of tax of $3.5 million, $1.6 million and $2.8 million in 2016, 2015, and 2014, respectively	(8,646		)		(4,797		)		(24,267		)
Change in unamortized pension loss during the period related to changes in foreign currency	(216		)		2,350				2,081
Other comprehensive income (loss)	(8,211		)		2,625				(43,207		)
Comprehensive income (loss)	$	(62,676	)		$	50,182			$	116,987

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

F-4

PTC Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended September 30,
	2016				2015				2014
Cash flows from operating activities:
Net income (loss)	$	(54,465	)		$	47,557			$	160,194
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation	65,996				50,182				50,889
Depreciation and amortization	86,554				84,433				77,307
Benefit from deferred income taxes	(44,182		)		(49,361		)		(19,946		)
Excess tax benefits realized from stock-based awards	(93		)		(24		)		(10,428		)
Pension settlement loss	—				66,332				—
Other non-cash costs, net	966				157				(760		)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable	52,617				29,723				7,554
Accounts payable and accrued expenses	(14,185		)		31,134				(436		)
Accrued compensation and benefits	60,944				(56,950		)		8,974
Deferred revenue	16,232				8,852				24,998
Accrued income taxes, net of income tax receivable	6,749				(3,536		)		19,134
Other current assets and prepaid expenses	4,591				(10,716		)		4,417
Other noncurrent assets and liabilities	1,444				(17,880		)		(17,345		)
Net cash provided by operating activities	183,168				179,903				304,552
Cash flows from investing activities:
Additions to property and equipment	(26,189		)		(30,628		)		(25,275		)
Acquisitions of businesses, net of cash acquired	(165,802		)		(98,411		)		(323,525		)
Purchases of investments	(45,165		)		(11,000		)		—
Net cash used by investing activities	(237,156		)		(140,039		)		(348,800		)
Cash flows from financing activities:
Borrowings under credit facility and senior notes	670,000				185,000				1,386,250
Repayments of borrowings under credit facility	(580,000		)		(128,750		)		(1,032,500		)
Repurchases of common stock	—				(64,940		)		(224,915		)
Proceeds from issuance of common stock	21				41				877
Excess tax benefits realized from stock-based awards	93				24				10,428
Payments of withholding taxes in connection with vesting of stock-based awards	(20,939		)		(29,207		)		(26,857		)
Credit facility origination costs	(6,855		)		—				(7,930		)
Contingent consideration	(10,621		)		(4,323		)		—
Net cash provided (used) by financing activities	51,699				(42,155		)		105,353
Effect of exchange rate changes on cash and cash equivalents	6,807				(17,946		)		(9,364		)
Net increase (decrease) in cash and cash equivalents	4,518				(20,237		)		51,741
Cash and cash equivalents, beginning of year	273,417				293,654				241,913
Cash and cash equivalents, end of year	$	277,935			$	273,417			$	293,654
Supplemental disclosure of non-cash financing activities:
Fair value of contingent consideration recorded for acquisition	$	16,900			$	3,800			$	13,048

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

F-5

PTC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Common Stock							Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
	Shares			Amount
Balance as of October 1, 2013	118,446			$	1,185			$	1,786,820			$	(810,365	)		$	(51,160	)		$	926,480
Common stock issued for employee stock-based awards	2,455			24				853				—				—				877
Shares surrendered by employees to pay taxes related to stock-based awards	(808	)		(8		)		(26,849		)		—				—				(26,857		)
Compensation expense from stock-based awards	—			—				50,889				—				—				50,889
Excess tax benefits from stock-based awards	—			—				10,428				—				—				10,428
Net income	—			—				—				160,194				—				160,194
Repurchases of common stock	(5,068	)		(51		)		(187,364		)		—				—				(187,415		)
Common stock repurchase holdback	—			—				(37,500		)		—				—				(37,500		)
Foreign currency translation adjustment	—			—				—				—				(24,069		)		(24,069		)
Change in pension benefits, net of tax	—			—				—				—				(19,138		)		(19,138		)
Balance as of September 30, 2014	115,025			$	1,150			$	1,597,277			$	(650,171	)		$	(94,367	)		$	853,889
Common stock issued for employee stock-based awards	2,212			22				19				—				—				41
Shares surrendered by employees to pay taxes related to stock-based awards	(764	)		(8		)		(29,199		)		—				—				(29,207		)
Compensation expense from stock-based awards	—			—				50,182				—				—				50,182
Excess tax benefits from stock-based awards	—			—				24				—				—				24
Net income	—			—				—				47,557				—				47,557
Repurchases of common stock	(2,728	)		(27		)		(64,913		)		—				—				(64,940		)
Foreign currency translation adjustment	—			—				—				—				(47,177		)		(47,177		)
Change in pension benefits, net of tax	—			—				—				—				49,802				49,802
Balance as of September 30, 2015	113,745			$	1,137			$	1,553,390			$	(602,614	)		$	(91,742	)		$	860,171
Common stock issued for employee stock-based awards	1,820			18				3				—				—				21
Shares surrendered by employees to pay taxes related to stock-based awards	(597	)		(5		)		(20,934		)		—				—				(20,939		)
Compensation expense from stock-based awards	—			—				65,996				—				—				65,996
Excess tax benefits from stock-based awards	—			—				93				—				—				93
Net loss	—			—				—				(54,465		)		—				(54,465		)
Unrealized loss on hedging instruments, net of tax	—			—				—				—				(1,244		)		(1,244		)
Foreign currency translation adjustment	—			—				—				—				408				408
Unrealized loss on available-for-sale securities, net of tax	—			—				—				—				(122		)		(122		)
Change in pension benefits, net of tax	—			—				—				—				(7,253		)		(7,253		)
Balance as of September 30, 2016	114,968			$	1,150			$	1,598,548			$	(657,079	)		$	(99,953	)		$	842,666

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

F-6

PTC Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. Description of Business and Basis of Presentation

Business

PTC Inc. was incorporated in 1985 and is headquartered in Needham, Massachusetts. PTC Inc. develops and delivers technology solutions, comprised of software and services, that transform the way our customers create, operate and service their products for a smart, connected world. Our technology solutions are complemented by our services and support organizations, as well as third-party resellers and other strategic partners, who provide services and support to customers worldwide.

Basis of Presentation

Our fiscal year-end is September 30. The consolidated financial statements include PTC Inc. (the parent company) and its wholly owned subsidiaries, including those operating outside the U.S. All intercompany balances and transactions have been eliminated in the consolidated financial statements. In 2015, we recorded an out of period correction of approximately $6.4 million of additional revenue that was deferred and should have been recognized previously. Management believes this correction was not material to the then current period financial statements or any previously issued financial statements.

We prepare our financial statements under generally accepted accounting principles in the U.S. that require management to make estimates and assumptions that affect the amounts reported and the related disclosures. Actual results could differ from these estimates.

Reclassifications

In 2015, we classified 2015 and 2014 revenue and cost of revenue in three categories: 1) license and subscription ("L&S"), 2) support and 3) professional services. Effective with the beginning of the first quarter of 2016, we are reporting perpetual license revenue separately from subscription revenue and are presenting revenue in four categories: 1) subscription, 2) support, 3) perpetual license and 4) professional services. Effective with the beginning of the first quarter of 2016, we are combining cost of license and subscription revenue with cost of support revenue and reporting it as cost of software revenue. As a result, we are presenting cost of revenue in two categories: 1) cost of software revenue and 2) cost of professional services revenue.

Effective with the beginning of the first quarter of 2016, we reclassified certain expenses related to management of our product lines from general and administrative to marketing.

The following revenue and costs have been reclassified in the accompanying Consolidated Statements of Operations for the year ended September 30, 2015 and 2014 to conform to the current period presentation.

	Year Ended September 30,
	2015			2014
Reclassifications within revenue	(in millions)
From L&S to Perpetual License	$	282.8		$	362.6
From L&S to Subscription	65.2			27.1
Reclassifications within cost of revenue
From L&S to Software	$	53.2		$	45.0
From Support to Software	82.8			84.7
Reclassifications within operating expenses
From General and Administrative to Selling and Marketing	$	8.0		$	10.0

Segments

Through the second quarter of 2016, we had two operating and reportable segments: (1) Software Products, which included license and related support revenue (including updates and technical support) for all our products except training-related products; and (2) Services, which included consulting, implementation, training, cloud services, computer-based training products, including support on these products, and other services revenue.

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With a change in our organizational structure in an effort to create more effective and efficient operations and to improve customer and product focus, during the three months ended July 2, 2016, we revised the information that our chief executive officer, who is also our chief operating decision maker (“CODM”), regularly reviews for purposes of allocating resources and assessing performance. As a result, effective with the beginning of the third quarter of 2016, we changed our operating and reportable segments from two to three: (1) the Solutions Group, which includes license, subscription, support and cloud services revenue for our core CAD, SLM and PLM products; (2) the IoT Group, which includes license, subscription, support and cloud services revenue for our IoT, analytics and augmented reality solutions; and (3) Professional Services, which includes consulting, implementation and training revenue.

Revenue and operating income in Note O. Segment Information have been reclassified to conform to the current period presentation.

B. Summary of Significant Accounting Policies

Foreign Currency Translation

For our non-U.S. operations where the functional currency is the local currency, we translate assets and liabilities at exchange rates in effect at the balance sheet date and record translation adjustments in stockholders’ equity. For our non-U.S. operations where the U.S. dollar is the functional currency, we remeasure monetary assets and liabilities using exchange rates in effect at the balance sheet date and nonmonetary assets and liabilities at historical rates and record resulting exchange gains or losses in foreign currency net losses in the Consolidated Statements of Operations. We translate income statement amounts at average rates for the period. Transaction gains and losses are recorded in foreign currency net losses in the Consolidated Statements of Operations.

Revenue Recognition

Our sources of revenue include: (1) subscription, (2) support, (3) perpetual license and (4) professional services. We record revenues for software related deliverables in accordance with the guidance provided by ASC 985-605, Software-Revenue Recognition and revenues for non-software deliverables in accordance with ASC 605-25, Revenue Recognition, Multiple-Element Arrangements when the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred (generally, FOB shipping point or electronic distribution), (3) the fee is fixed or determinable, and (4) collection is probable. We exercise judgment and use estimates in connection with determining the amounts of software license and services revenues to be recognized in each accounting period. Our primary judgments involve the following:

•	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.

Our software is distributed primarily through our direct sales force. In addition, we have an indirect distribution channel through alliances with resellers. Revenue arrangements with resellers are generally recognized on a sell-through basis; that is, when we deliver the product to the end-user customer. We record consideration given to a reseller as a reduction of revenue to the extent we have recorded revenue from the reseller. We do not offer contractual rights of return, stock balancing, or price protection to our resellers, and actual product returns from them have been insignificant to date. As a result, we do not maintain reserves for reseller product returns.

At the time of each sale transaction, we must make an assessment of the collectability of the amount due from the customer. Revenue is only recognized at that time if management deems that collection is probable. In making this assessment, we consider customer credit-worthiness and historical payment experience. At that same time, we assess whether fees are fixed or determinable and free of contingencies or significant uncertainties. In assessing whether the fee is fixed or determinable, we consider the payment terms of the transaction, including transactions with payment terms that extend beyond our customary payment terms, and our collection experience in similar transactions without making concessions, among other factors. We have periodically provided financing to credit-worthy customers with payment terms up to 24 months. If the fee is determined not to be fixed or determinable, revenue is recognized only as payments become due from the customer, provided that all other revenue recognition criteria are met. Our software license arrangements generally do not include customer acceptance provisions. However, if an arrangement includes an acceptance provision, we record revenue only upon the earlier of (1) receipt of written acceptance from the customer or (2) expiration of the acceptance period.

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Generally, our contracts are accounted for individually. However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts.

Subscription

Subscription revenue includes revenue from two primary sources: (1) subscription-based licenses, and (2) cloud services.

Subscription-based licenses include the right for a customer to use our licenses and receive related support for a specified term and revenue is recognized ratably over the term of the arrangement. When sold in arrangements with other elements, VSOE of fair value is established for the subscription-based licenses through the use of a substantive renewal clause within the customer contract for a combined annual fee that includes the term-based license and related support.

Cloud services reflect recurring revenues that include fees for hosting and application management of customers’ perpetual or subscription-based licenses. Generally, customers have the right to terminate the cloud services contract and take possession of the licenses without a significant penalty. When cloud services are sold as part of a multi-element transaction, revenue is allocated to cloud services based on VSOE, and recognized ratably over the contractual term beginning on the commencement dates of each contract, which is the date the services are made available to the customer. VSOE is established for cloud services either through a substantive stated renewal option or stated contractual overage rates, as these rates represent the value the customer is willing to pay on a standalone basis. We also offer Cloud services under SaaS arrangements whereby customers access our software in the cloud. Under SaaS arrangements, customers are not entitled to terminate the cloud services and cannot take possession of the software. Cloud services include set-up fees, which are recognized ratably over the contract term or the expected customer life, whichever is longer.

Support

Support contracts generally include rights to unspecified upgrades (when and if available), telephone and internet-based support, updates and bug fixes. Support revenue is recognized ratably over the term of the support contract on a straight-line basis.

Perpetual License

Under perpetual license arrangements, we generally recognize license revenue up front upon shipment to the customer. We use the residual method to recognize revenue from perpetual license software arrangements that include one or more elements to be delivered at a future date when evidence of the fair value of all undelivered elements exists, and the elements of the arrangement qualify for separate accounting as described below. Under the residual method, the fair value of the undelivered elements (i.e., support and services) based on our vendor-specific objective evidence (“VSOE”) of fair value is deferred and the remaining portion of the total arrangement fee is allocated to the delivered elements (i.e., perpetual software license). If evidence of the fair value of one or more of the undelivered elements does not exist, all revenues are deferred and recognized when delivery of all of those elements has occurred or when fair values can be established. We determine VSOE of the fair value of services and support revenue based upon our recent pricing for those elements when sold separately. For certain transactions, VSOE is determined based on a substantive renewal clause within a customer contract. Our current pricing practices are influenced primarily by product type, purchase volume, sales channel and customer location. We review services and support sold separately on a periodic basis and update, when appropriate, our VSOE of fair value for such elements to ensure that it reflects our recent pricing experience.

Professional Services

Our software arrangements often include implementation, consulting and training services that are sold under consulting engagement contracts or as part of the software license arrangement. When we determine that such services are not essential to the functionality of the licensed software, we record revenue separately for the license and service elements of these arrangements, provided that appropriate evidence of fair value exists for the undelivered services (i.e. VSOE of fair value). We consider various factors in assessing whether a service is not essential to the functionality of the software, including if the services may be provided by independent third parties experienced in providing such services (i.e. consulting and implementation) in coordination with dedicated customer personnel, and whether the services result in significant modification or customization of the software’s functionality. When professional services qualify for separate accounting, professional services revenues under time and materials billing arrangements are recognized as the services are performed. Professional services revenues under fixed-priced contracts are generally recognized as the services are performed using a proportionate performance model with hours or costs as the input method of attribution.

When we provide professional services that are considered essential to the functionality of the software, the arrangement does not qualify for separate accounting of the license and service elements, and the license revenue is recognized together with the consulting services using the percentage-of-completion method of contract accounting. Under such arrangements, consideration is recognized as the services are performed as measured by an observable input. In these circumstances, we separate license revenue from service revenue for income statement presentation by allocating VSOE of fair value of the consulting services as service revenue, and the residual portion as license revenue. Under the percentage-of-completion

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method, we estimate the stage of completion of contracts with fixed or “not to exceed” fees based on hours or costs incurred to date as compared with estimated total project hours or costs at completion. Adjustments to estimates to complete are made in the periods in which facts resulting in a change become known. When total cost estimates exceed revenues, we accrue for the estimated losses when identified. The use of the proportionate performance and percentage-of-completion methods of accounting require significant judgment relative to estimating total contract costs or hours (hours being a proxy for costs), including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed and anticipated changes in salaries and other costs.

Reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in professional services revenue, with the offsetting expense recorded in cost of professional services revenue.

Training services include on-site and classroom training. Training revenues are recognized as the related training services are provided.

Deferred Revenue

Deferred revenue primarily relates to software subscription and support agreements billed to customers for which the services have not yet been provided. The liability associated with performing these services is included in deferred revenue and, if not yet paid, the related customer receivable is included in other current assets. Billed but uncollected support and subscription-related amounts included in other current assets at September 30, 2016 and 2015 were $126.3 million and $129.3 million, respectively. Deferred revenue consisted of the following:

	September 30,
	2016				2015
	(in thousands)
Deferred subscription revenue	$	102,847			$	37,478
Deferred support revenue	297,684				331,793
Deferred perpetual license revenue	4,151				4,940
Deferred professional services revenue	8,975				12,639
Total deferred revenue	$	413,657			$	386,850

Cash Equivalents

Our cash equivalents are invested in money market accounts and time deposits of financial institutions. We have established guidelines relative to credit ratings, diversification and maturities that are intended to maintain safety and liquidity. Cash equivalents include highly liquid investments with maturity periods of three months or less when purchased.

Marketable Securities

The amortized cost and fair value of marketable securities as of September 30, 2016 were as follows:

	September 31, 2016
	Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
	(in thousands)
Certificates of deposit	$	681			$	—			$	—			$	681
Commercial paper	11,945				—				(20		)		11,925
Corporate notes/bonds	34,701				—				(100		)		34,601
US government agency securities	2,411				—				(2		)		2,409
	$	49,738			$	—			$	(122	)		$	49,616

Our investment portfolio consists of certificates of deposit, commercial paper, corporate notes/bonds and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. All unrealized losses are due to changes in market interest rates, bond yields and/or credit ratings. We review our investments to identify and evaluate investments that have an indication of possible impairment. We concluded that, at September 30, 2016, the unrealized losses were temporary.

The following table presents our available-for-sale marketable securities by contractual maturity date, as of September 31, 2016.

F-10

	September 31, 2016
	Amortized cost				Fair value
	(in thousands)
Due in one year or less	$	18,585			$	18,549
Due after one year through three years	31,153				31,067
	$	49,738			$	49,616

Cost Method Investments

We generally account for non-marketable equity investments under the cost method. We monitor non-marketable equity investments for events that could indicate that the investments are impaired, such as deterioration in the investee's financial condition and business forecasts, and lower valuations in recent or proposed financings. For an other-than-temporary impairment in the investment, we record a charge to other expense for the difference between the estimated fair value and the carrying value. The carrying value of our non-marketable equity investments are recorded in noncurrent assets and totaled $11.6 million and $11.0 million as of September 30, 2016 and 2015, respectively.

Concentration of Credit Risk and Fair Value of Financial Instruments

The amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short maturities. Financial instruments that potentially subject us to concentration of credit risk consist primarily of investments, trade accounts receivable and foreign currency derivative instruments. Our cash, cash equivalents, and foreign currency derivatives are placed with financial institutions with high credit standings. Our credit risk for derivatives is also mitigated due to the short-term nature of the contracts. Our customer base consists of large numbers of geographically diverse customers dispersed across many industries. No individual customer comprised more than 10% of our trade accounts receivable as of September 30, 2016 or 2015 or comprised more than 10% of our revenue for the years ended September 30, 2016, 2015 or 2014.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. Generally accepted accounting principles prescribe a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value:

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

•

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

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

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Money market funds, time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

Certificates of deposit, commercial paper and certain U.S. government agency securities are classified within Level 2 of the fair value hierarchy. These instruments are valued based on quoted prices in markets that are not active or based on other observable inputs consisting of market yields, reported trades and broker/dealer quotes.

The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data

F-11

sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

The fair value of our contingent consideration arrangements are determined based on our evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performances by the acquired entities. These arrangements are classified within Level 3 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and 2015 were as follows:

	September 30, 2016
	Level 1				Level 2				Level 3				Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	60,139			$	—			$	—			$	60,139
Marketable securities
Certificates of deposit	—				681				—				681
Commercial paper	—				11,925				—				11,925
Corporate notes/bonds	34,601				—				—				34,601
U.S. government agency securities	—				2,409				—				2,409
Forward contracts	—				260				—				260
	$	94,740			$	15,275			$	—			$	110,015
Financial liabilities:
Contingent consideration related acquisitions	$	—			$	—			$	19,570			$	19,570
Forward contracts	—				3,170				—				3,170
	$	—			$	3,170			$	19,570			$	22,740

	September 30, 2015
	Level 1				Level 2				Level 3				Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	91,216			$	—			$	—			$	91,216
Forward contracts	—				507				—				507
	$	91,216			$	507			$	—			$	91,723
Financial liabilities:
Contingent consideration related to acquisitions	$	—			$	—			$	13,000			$	13,000
Forward contracts	—				46				—				46
	$	—			$	46			$	13,000			$	13,046

(1) Money market funds and time deposits.

For a description of the inputs used to value the contingent consideration liability see Note E Acquisitions. Changes in the fair value of Level 3 contingent consideration liability associated with our acquisitions of ThingWorx, ColdLight and Kepware were as follows:

F-12

	Contingent Consideration
	(in thousands)
	ThingWorx				ColdLight				Kepware				Total
Balance at October 1, 2014	$	15,191			$	—			$	—			$	15,191
Contingent consideration at acquisition	—				3,800				—				3,800
Change in fair value of contingent consideration	2,809				200				—				3,009
Payment of contingent consideration	(9,000		)		—				—				(9,000		)
Balance at October 1, 2015	9,000				4,000				—				13,000
Contingent consideration at acquisition	—				—				16,900				16,900
Change in fair value of contingent consideration	—				1,000				170				1,170
Payment of contingent consideration	(9,000		)		(2,500		)		—				(11,500		)
Balance at September 30, 2016	$	—			$	2,500			$	17,070			$	19,570

Of the total, $11.8 million of the contingent consideration liabilities is included in accrued expenses and other current liabilities, with the remaining $7.8 million in other liabilities in the Consolidated Balance Sheet as of September 30, 2016.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was $1.0 million as of September 30, 2016, $1.0 million as of September 30, 2015, $1.6 million as of September 30, 2014 and $3.0 million as of September 30, 2013. Uncollectible trade accounts receivable written-off, net of recoveries, were $0.3 million, $0.8 million and $0.6 million in 2016, 2015 and 2014, respectively. Bad debt (credit) expense was $0.3 million, $0.2 million and $(0.8) million in 2016, 2015 and 2014, respectively, and is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

Financing Receivables and Transfers of Financial Assets

We periodically provide extended payment terms for software purchases to credit-worthy customers with payment terms up to 24 months. The determination of whether to offer such payment terms is based on the size, nature and credit-worthiness of the customer, and the history of collecting amounts due, without concession, from the customer and customers generally. This determination is based on an internal credit assessment. In making this assessment, we use the Standard & Poor's (S&P) credit rating as our primary credit quality indicator, if available. If a customer, whether commercial and U.S. Federal government, has an S&P bond rating of BBB- or above, we designate the customer as a Tier 1. If a customer does not have an S&P bond rating, or has a S&P bond rating below BBB-, we base our assessment on an internal credit assessment which considers selected balance sheet, operating and liquidity measures, historical payment experience, and current business conditions within the industry or region. We designate these customers as Tier 2 or Tier 3, with Tier 3 being lower credit quality than Tier 2.

As of September 30, 2016 and 2015, amounts due from customers for contracts with original payment terms greater than twelve months (financing receivables) totaled $7.1 million and $27.4 million, respectively. Accounts receivable and other current assets in the accompanying Consolidated Balance Sheets include current receivables from such contracts totaling $7.1 million and $21.8 million at September 30, 2016 and 2015, respectively, and other assets in the accompanying Consolidated Balance Sheets include long-term receivables from such contracts totaling $5.6 million at September 30, 2015 and none at September 30, 2016. As of September 30, 2016 and September 30, 2015, $0.1 million and $0.5 million, respectively, of these receivables were past due. Our credit risk assessment for financing receivables was as follows:

	September 30,
	2016				2015
	(in thousands)
S&P bond rating BBB- and above-Tier 1	$	5,953			$	16,841
Internal Credit Assessment-Tier 2	1,182				10,593
Internal Credit Assessment-Tier 3	—				—
Total financing receivables	$	7,135			$	27,434

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We evaluate the need for an allowance for doubtful accounts for estimated losses resulting from the inability of these customers to make required payments. As of September 30, 2016 and 2015, we concluded that all financing receivables were collectible and no reserve for credit losses was recorded. We did not provide a reserve for credit losses or write off any uncollectible financing receivables in 2016, 2015 and 2014. We write off uncollectible trade and financing receivables when we have exhausted all collection avenues.

We periodically transfer future payments under certain of these contracts to third-party financial institutions on a non-recourse basis. We record such transfers as sales of the related accounts receivable when we surrender control of such receivables. In 2016, we did not sell any financing receivables to third-party financial institutions. In 2015 and 2014, we sold $3.0 million and $24.5 million, respectively, of financing receivables to third-party financial institutions.

Derivatives

Generally accepted accounting principles require all derivatives, whether designated in a hedging relationship or not, to be recorded on the balance sheet at fair value. Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Western European countries, Japan, China and Canada. Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the U.S. dollar value of anticipated transactions and balances denominated in foreign currency, resulting from changes in foreign currency exchange rates. We enter into derivative transactions, specifically foreign currency forward contracts, to manage the exposures to foreign currency exchange risk to reduce earnings volatility. We do not enter into derivatives transactions for trading or speculative purposes. For a description of our non-designated hedge and cash flow hedge activities see Note N Derivative Financial Instruments.

Non-Designated Hedges

We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately three months. Generally, we do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net.

Cash Flow Hedges

Our foreign exchange risk management program objective is to identify foreign exchange exposures and implement appropriate hedging strategies to minimize earnings fluctuations resulting from foreign exchange rate movements. We designate certain foreign exchange forward contracts as cash flow hedges of Euro, Yen and SEK denominated intercompany forecasted revenue transactions (supported by third party sales). All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of foreign exchange forward contracts does not exceed 13 months.

Cash flow hedge relationships are designated at inception, and effectiveness is assessed prospectively and retrospectively using regression analysis on a monthly basis. As the forward contracts are highly effective in offsetting changes to future cash flows on the hedged transactions, we record the effective portion of changes in these cash flow hedges in accumulated other comprehensive income and subsequently reclassify into earnings in the same period during which the hedged transactions are recognized in earnings. Changes in the fair value of foreign exchange forward contracts due to changes in time value are included in the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Computer hardware and software are typically amortized over three to five years, and furniture and fixtures over three to eight years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related leases. Property and equipment under capital leases are amortized over the lesser of the lease terms or their estimated useful lives. Maintenance and repairs are charged to expense when incurred; additions and improvements are capitalized. When an item is sold or retired, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in income.

Software Development Costs

F-14

We incur costs to develop computer software to be licensed or otherwise marketed to customers. Research and development costs are expensed as incurred, except for costs of internally developed or externally purchased software that qualify for capitalization. Development costs for software to be sold externally incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product, are capitalized and, upon general release, are amortized using the greater of either the straight-line method over the expected life of the related products or based upon the pattern in which economic benefits related to such assets are realized. The straight-line method is used if it approximates the same amount of expense as that calculated using the ratio that current period gross product revenues bear to total anticipated gross product revenues. No development costs for software to be sold externally were capitalized in 2016, 2015 or 2014. In connection with acquisitions of businesses described in Note E, we capitalized software of $69.9 million and $13.6 million in 2016 and 2015, respectively. These assets are included in acquired intangible assets in the accompanying Consolidated Balance Sheets.

Goodwill, Acquired Intangible Assets and Long-lived Assets

Goodwill is the amount by which the purchase price in a business acquisition exceeds the fair values of net identifiable assets on the date of purchase.

Goodwill is evaluated for impairment annually, as of the end of the third quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Factors we consider important, on an overall company basis and reportable-segment basis, when applicable, that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period and a reduction of our market capitalization relative to net book value. We completed our annual goodwill impairment review as of July 2, 2016 and concluded that no impairment charge was required as of that date. To conduct these tests of goodwill, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss equal to the difference between the carrying value of goodwill and its implied fair value. We estimate the fair values of our reporting units using discounted cash flow valuation models. Those models require estimates of future revenues, profits, capital expenditures, working capital, terminal values based on revenue multiples, and discount rates for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans and industry data. The estimated fair value of each reporting unit was at least approximately twice its carrying value as of July 2, 2016.

Long-lived assets primarily include property and equipment and acquired intangible assets with finite lives (including purchased software, customer lists and trademarks). Purchased software is amortized over periods up to 11 years, customer lists are amortized over periods up to 12 years and trademarks are amortized over periods up to 12 years. We review long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset or asset group. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis.

Advertising Expenses

Advertising costs are expensed as incurred. Total advertising expenses incurred were $2.1 million, $1.1 million and $2.2 million in 2016, 2015 and 2014, respectively.

Income Taxes

Our income tax expense includes U.S. and international income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effects of these differences are reported as deferred tax assets and liabilities. Deferred tax assets are recognized for the estimated future tax effects of deductible temporary differences and tax operating loss and credit carryforwards. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not that all or a portion of deferred tax assets will not be realized, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense within the tax provision in the Consolidated Statements of Operations.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments, changes in unrecognized actuarial gains and losses (net of tax) related to pension benefits, unrealized gains and losses on hedging instruments and unrealized gains and losses on marketable securities. For the purposes of comprehensive income disclosures, we do not record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as we intend to reinvest permanently undistributed earnings of our foreign subsidiaries. Accumulated other comprehensive loss is reported as a component of stockholders’ equity and, as of September 30, 2016 and

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2015, was comprised of cumulative translation adjustment losses of $71.2 million and $71.6 million, respectively, unrecognized actuarial losses related to pension benefits of $38.7 million ($27.4 million net of tax) and $28.3 million ($20.1 million net of tax), respectively, unrecognized loss on hedging instruments of $1.4 million ($1.2 million net of tax) and zero, respectively, and unrecognized losses on marketable securities of $0.1 million and zero, respectively.

Earnings per Share (EPS)

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of stock options, unrecognized compensation expense and any tax benefits as additional proceeds. Due to the net loss generated in the year ended September 30, 2016, approximately 1.7 million restricted stock units have been excluded from the computation of diluted EPS as the effect would have been anti-dilutive.

The following table presents the calculation for both basic and diluted EPS:

	Year ended September 30,
	2016				2015				2014
	(in thousands, except per share data)
Net income (loss)	$	(54,465	)		$	47,557			$	160,194
Weighted average shares outstanding	114,612				114,775				118,094
Dilutive effect of employee stock options, restricted shares and restricted stock units	—				1,237				1,890
Diluted weighted average shares outstanding	114,612				116,012				119,984
Basic earnings per share	$	(0.48	)		$	0.41			$	1.36
Diluted earnings per share	$	(0.48	)		$	0.41			$	1.34

Stock-Based Compensation

We measure the compensation cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. See Note K for a description of the types of stock-based awards granted, the compensation expense related to such awards and detail of equity-based awards outstanding. See Note G for detail of the tax benefit recognized in the Consolidated Statements of Operations related to stock-based compensation.

Related Party Transaction

On November 27, 2013, we entered into a consulting agreement with Professor Michael Porter, who was a director of PTC at the time. In consideration for providing consulting services, we made a restricted stock unit grant valued at approximately $0.2 million (6,213 shares) to Professor Porter, half of which vested on November 15, 2014 and the other half of which vested on March 4, 2015. Professor Porter earned $240,000 in fees for participation in strategy events on behalf of PTC under the agreement. The agreement and Professor Porter's tenure as director ended on March 4, 2015.

Recent Accounting Pronouncements

Income Taxes

In October 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The purpose of ASU 2016-16 is to simplify the income tax accounting of an intra-entity transfer of an asset other than inventory and to record its effect when the transfer occurs. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. We are currently assessing the potential impact of the adoption of ASU 2016-16 on our consolidated financial statements.

Cash Flows

In August 2016, the FASB issued ASU 2016-15 to clarify whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (i) debt prepayments and extinguishment costs, (ii) settlement of zero-coupon debt, (iii) settlement of contingent consideration, (iv) insurance proceeds, (v) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (vi) distributions from equity method investees, (vii)

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beneficial interests in securitization transactions, and (viii) receipts and payments with aspects of more than one class of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.

Financial Instruments - Credit Losses

In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, our fiscal 2021, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Stock Compensation

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including accounting for income taxes, earnings per share, and forfeitures, as well as certain practical expedients for nonpublic entities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, our fiscal 2018, and interim periods within those years. Early adoption is permitted in any interim period, with all adjustments applied as of the beginning of the fiscal year of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which will replace the existing guidance in ASC 840, Leases. The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose important information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, our fiscal 2020, and interim periods within those annual periods. Early adoption is permitted and modified retrospective application is required. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Financial Instruments

In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Entities may choose a practical expedient, to estimate the fair value of certain equity securities that do not have readily determinable fair values. If the practical expedient is elected, these investments would be recorded at cost, less impairment and subsequently adjusted for observable price changes. The guidance also updates certain presentation and disclosure requirements. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, our fiscal 2019, and interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Deferred Taxes

In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740), to simplify the presentation of deferred income taxes. The amendments in this Update require that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that permits offsetting only within a jurisdiction and companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. ASU 2015-17 is effective for public companies for fiscal years beginning after December 15, 2016, with early adoption permitted for all entities as of the beginning of an interim or annual reporting period. This guidance may be applied either prospectively or retrospectively (by reclassifying the comparative balance sheet). We adopted this new guidance in our first quarter ended January 2, 2016 and applied this guidance prospectively and therefore prior periods have not been retrospectively adjusted. At September 30, 2015, net current deferred tax assets and net current deferred tax liabilities were $36.8 million and $1.6 million, respectively.

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Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB approved a one-year delay in the effective date. ASU 2014-09 is effective for us in our first quarter of fiscal 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. Subsequently, the FASB has issued the following standards to provide additional clarification and implementation guidance on ASU 2014-09: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. We are currently evaluating the impact of these new standards on our consolidated financial statements.

Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30), to simplify the required presentation of debt issuance costs. The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the related debt liability rather than as an asset. It is effective for financial statements issued for fiscal years beginning after December 15, 2015, our fiscal 2017, with early adoption permitted. The new guidance will be applied retrospectively to each prior period presented. See Note H. Debt for our debt balances at September 30, 2016 and 2015 net of the debt issuance costs.

Going Concern

In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," which requires management to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern and, if so, provide certain footnote disclosures. This ASU is effective for annual periods ending after December 15, 2016, including interim reporting periods thereafter. We do not anticipate that adopting this standard will have an impact on the financial statements and are currently evaluating the potential impact to our footnote disclosures.

C. Restructuring Charges

Restructuring charges for 2016 were $76.3 million, $76.9 million related to the plan announced in October 2015 described below, offset by a $0.6 million credit related to prior year restructuring actions.

On October 23, 2015, we initiated a plan to restructure our workforce and consolidate select facilities in order to reduce our cost structure to enable us to invest in our identified growth opportunities. The restructuring is expected to result in a charge of up to $80.0 million. In 2016, we recorded restructuring charges of $74.9 million attributable to termination benefits associated with 810 employees. Additionally, we recorded charges of $1.3 million related to the closure of excess facilities. The majority of the remaining charges are associated with excess facilities and are expected to be recorded in the first and second quarters of 2017.

On April 4, 2015, we committed to a plan to restructure our workforce and consolidate select facilities to realign our global workforce to increase investment in our Internet of Things business and to reduce our cost structure through organizational efficiencies in the face of significant foreign currency depreciation relative to the U.S. Dollar and a more cautious outlook on global macroeconomic conditions. In 2015, we recorded restructuring charges of $42.0 million attributable termination benefits associated with 411 employees. Additionally, we recorded charges of $1.4 million related to the closure of excess facilities. The facility charge reflects estimated costs including gross lease commitments of approximately $2.3 million, net of estimated sublease income of $0.9 million. As of September 30, 2015, this restructuring plan was substantially completed.

In September 2014, in support of integrating businesses acquired and the continued evolution of our business model, we committed to a plan to restructure our workforce. As a result, we recorded a restructuring charge of $26.8 million associated

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with severance and related costs associated with 283 employees. Additionally, in 2014, we recorded restructuring charges of $1.6 million, primarily associated with the completion of the restructuring actions initiated in the fourth quarter of 2013.

The following table summarizes restructuring charges reserve activity for the three years ended September 30, 2016:

	Employee Severance and Related Benefits				Facility Closures and Other Costs				Consolidated Total
	(in thousands)
Balance, October 1, 2013	$	19,234			$	295			$	19,529
Charges to operations	27,918				488				28,406
Cash disbursements	(20,334		)		(241		)		(20,575		)
Foreign currency impact	(983		)		(7		)		(990		)
Balance, September 30, 2014	25,835				535				26,370
Charges to operations	41,997				1,412				43,409
Cash disbursements	(52,882		)		(706		)		(53,588		)
Foreign currency impact	(864		)		(73		)		(937		)
Balance, September 30, 2015	14,086				1,168				15,254
Charges to operations	74,929				1,344				76,273
Cash disbursements	(53,966		)		(1,053		)		(55,019		)
Foreign currency impact	128				(28		)		100
Balance, September 30, 2016	$	35,177			$	1,431			$	36,608

The accrual for facility closures and related costs is included in accrued expenses and other current liabilities in the Consolidated Balance Sheets, and the accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.

D. Property and Equipment

Property and equipment consisted of the following:

	September 30,
	2016				2015
	(in thousands)
Computer hardware and software	$	267,928			$	246,756
Furniture and fixtures	20,742				18,370
Leasehold improvements	43,769				38,005
Gross property and equipment	332,439				303,131
Accumulated depreciation and amortization	(265,326		)		(237,969		)
Net property and equipment	$	67,113			$	65,162

Depreciation expense was $28.8 million, $28.9 million and $27.1 million in 2016, 2015 and 2014, respectively.

E. Acquisitions

In 2016, we completed the acquisition of Kepware (on January 12, 2016) and Vuforia (on November 3, 2015), in 2015, we completed the acquisition of ColdLight (on May 7, 2015), and in 2014, we completed the acquisitions of Axeda (on August 11, 2014), Atego (on June 30, 2014) and ThingWorx (on December 30, 2013). The results of operations of these acquired businesses have been included in our consolidated financial statements beginning on their respective acquisition dates. Our results of operations prior to these acquisitions, if presented on a pro forma basis, would not differ materially from our reported results.

These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The fair values of intangible assets for Kepware,

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ColdLight and the 2014 acquisitions were based on valuations using an income approach, with estimates and assumptions provided by management of the acquired companies and PTC. The fair values of intangible assets for Vuforia were based on valuations using a cost approach which requires the use of significant estimates and assumptions, including estimating costs to reproduce an asset. The process for estimating the fair values of identifiable intangible assets as well as the Kepware, ColdLight and ThingWorx contingent consideration liabilities requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

In accounting for these business combinations, we recorded net deferred tax liabilities of $21.6 million in 2014, primarily related to the tax effect of the acquired intangible assets other than goodwill that are not deductible for income tax purposes, partially offset by net operating loss carryforwards. As described in Note G, these net deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit to decrease our valuation allowance in the U.S. and the U.K.

Acquisition-related costs were $3.5 million, $8.9 million and $12.7 million in 2016, 2015 and 2014, respectively. Acquisition-related costs include direct costs of completing an acquisition (e.g., investment banker fees and professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees, severance, and retention bonuses). In addition, subsequent adjustments to our initial estimated amounts of Kepware, ColdLight and ThingWorx contingent consideration, primarily net present value changes, are included within acquisition-related charges. These costs have been classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.

2016 Acquisitions

Kepware

On January 12, 2016, we acquired all of the ownership interest in Kepware, Inc., for $99.4 million in cash (net of cash acquired of $0.6 million) and, $16.9 million representing the fair value of contingent consideration payable upon achievement of targets described below. We borrowed $100.0 million under our existing credit facility in January of 2016 to fund the acquisition.

The acquisition of Kepware's KEPServerEX® communication platform enhances our portfolio of Internet of Things (IoT) technology, and accelerates our entry into the factory setting and industrial IoT. At the time of the acquisition, Kepware had historical annualized revenues which were immaterial to our financial results. Kepware added approximately $16 million to our 2016 revenue and approximately $15 million in costs and expenses.

The former shareholders of Kepware are eligible to receive additional consideration of up to $18.0 million, which is contingent on the achievement of certain Financial Performance, Product Integration and Business Integration targets (as defined in the Stock Purchase Agreement) within 24 months from April 1, 2016. If such targets are achieved within the defined 12 month, 18 month and 24 month earn-out periods, the consideration corresponding to each target will be earned and payable in cash. Up to $9.6 million of the total contingent consideration is eligible to become payable in 2017, and the remainder, if subsequently earned, will become payable in 2018. In connection with accounting for the business combination, we recorded a liability of $16.9 million representing the fair value of the contingent consideration. The liability was valued using a discounted cash flow method and a probability weighted estimate of achievement of the targets. The estimated undiscounted range of outcomes for the contingent consideration was $16.9 million to $18.0 million at the acquisition date. As of September 30, 2016, our estimate of the liability was increased to $17.1 million. We will continue to assess the probability that the unearned milestones will be met and at what level each reporting period. The subsequent changes in the estimated fair value of the liability are reflected in earnings until the liability is fully settled.

The purchase price allocation resulted in $77.1 million of goodwill, which will be deductible for income tax purposes. Intangible assets of $34.5 million includes purchased software of $28.7 million, customer relationships of $5.2 million and trademarks of $0.6 million, which are being amortized over useful lives of 10 years, 10 years and 6 years, respectively, based upon the pattern in which economic benefits related to such assets are expected to be realized.

The resulting amount of goodwill reflects our expectations of the following benefits: 1) Kepware’s protocol translators and connectivity platform strengthen the ThingWorx technology platform and accelerate our entry into the factory setting and Industrial IoT (IIoT); 2) cross-selling opportunities for our integrated technology platforms in the critical infrastructure markets to drive revenue growth; and 3) Kepware’s 20 years of manufacturing experience strengthens our manufacturing talent and domain expertise and provides support for our manufacturing strategy initiatives.

Vuforia

On November 3, 2015, pursuant to an Asset Purchase Agreement, we acquired the Vuforia business from Qualcomm Connected Experiences, Inc., a subsidiary of Qualcomm Incorporated, for $64.8 million in cash (net of cash acquired of $4.5 million). We borrowed $50.0 million under our credit facility to finance this acquisition.

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The acquisition of Vuforia's augmented reality (AR) technology platform enhances our technology portfolio and accelerates our strategy as a leading provider of technologies and solutions that blend the digital and physical worlds. At the time of the acquisition, Vuforia had approximately 80 employees and historical annualized revenues which were immaterial to our financial results.

The purchase price allocation resulted in $23.3 million of goodwill, $41.2 million of technology and $0.3 million of net tangible assets. The acquired technology is being amortized over a useful life of 6 years. The resulting amount of goodwill reflects the value of the synergies created by integrating Vuforia’s augmented technology platform into PTC’s IoT solutions.

The total purchase price for our 2016 acquisitions was allocated to assets and liabilities acquired as follows:

Purchase price allocation:	Kepware				Vuforia
	(in thousands)
Goodwill	$	77,081			$	23,316
Identifiable intangible assets	34,500				41,200
Cash	590				4,466
Other assets and liabilities, net	4,729				261
Total allocation of purchase price consideration	116,900				69,243
Less: cash acquired	(590		)		(4,466		)
Total purchase price allocation, net of cash acquired	116,310				64,777
Less: contingent consideration	(16,900		)		—
Net cash used for acquisitions of businesses	$	99,410			$	64,777

2015 Acquisition

ColdLight

On May 7, 2015, we acquired all of the ownership interest of ColdLight Solutions, LLC, a company that offered solutions for data machine learning and predictive analytics, for approximately $98.6 million in cash (net of cash acquired of $1.3 million).

The total purchase price for ColdLight was allocated to assets and liabilities acquired as follows:

Purchase price allocation:	(in thousands)
Goodwill	$	85,288
Identifiable intangible assets	17,620
Cash	1,313
Other assets and liabilities, net	(516		)
Total allocation of purchase price consideration	103,705
Less: cash acquired	(1,313		)
Total purchase price allocation, net of cash acquired	102,392
Less: contingent consideration	(3,800		)
Net cash used to acquire ColdLight	$	98,592

The purchase price allocation resulted in $85.3 million of goodwill, which will be deductible for income tax purposes. Intangible assets of $17.6 million includes purchased software of $13.6 million, customer relationships of $3.5 million and trademarks of $0.5 million, which are being amortized over useful lives of 10 years, 9 years and 7 years, respectively, based upon the pattern in which economic benefits related to such assets are expected to be realized.

The resulting amount of goodwill reflects our expectations of the following benefits: (1) ColdLight provides a differentiated machine learning platform for critical data analytics in our solution portfolio; (2) ColdLight’s Neuron® product suite can automate the analytics process, reducing the dependency on manual processes; (3) ColdLight is addressing challenging aspects of data analytics aligned with the PTC / ThingWorx analytics vision; (4) ColdLight has a presence in industries outside of PTC's traditional markets which create a foundation for us to pursue opportunities in non-traditional vertical markets.

The former shareholders of ColdLight are eligible to receive additional consideration (the earn-out) of up to $5.0 million, which is contingent upon achievement of certain technology milestones within two years of the acquisition. If an earn-out milestone is achieved, a portion of the contingent consideration becomes earned and payable in cash after each six-month period. In connection with accounting for the business combination, we recorded a liability of $3.8 million, representing the

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fair value of the contingent consideration. The liability was valued using a discounted cash flow method and a probability weighted estimate of achievement of the technology milestones. The estimated undiscounted range of outcomes for the contingent consideration was $3.8 million to $5.0 million at the acquisition date. As of September 30, 2016, our estimate of the liability was $2.5 million, net of $2.5 million in payments made in 2016. $1.9 million of the total payments represents the fair value of the liability recorded at acquisition date and is included in financing activities in the Consolidated Statements of Cash Flows. The remaining $0.6 million of the total payments represents changes in the estimated liability recorded at acquisition date and is included in operating activities in the Consolidated Statements of Cash Flow.

2014 Acquisitions

Axeda and Atego

In the fourth quarter of 2014, we acquired all of the outstanding shares of capital stock of Axeda (a privately-held U.S.-based company) and Atego Group Limited (a privately-held company with operations in the U.K., the U.S. and France) for a total of $212.0 million, net of $13.1 million of cash acquired. The acquisitions resulted in goodwill of $157.7 million, intangible assets of $86.9 million and deferred tax liabilities related to the intangible assets of $12.6 million.

ThingWorx

In the second quarter of 2014, we acquired ThingWorx, Inc. for $111.5 million (net of cash acquired of $0.1 million). The former shareholders of ThingWorx were eligible to receive additional consideration (the earn-out) of up to $18.0 million if certain profitability and bookings targets were achieved within two years of the acquisition from December 30, 2013 to January 1, 2016. In connection with accounting for the business combination, we recorded a liability representing the fair value of the contingent consideration. The liability was valued using a discounted cash flow method and a probability weighted estimate of achievement the financial targets.

The ThingWorx contingent earn-out first year payment criteria were attained in fiscal 2015. As such, $9.0 million of the total contingent consideration was paid in July 2015. Of this payment, $4.3 million represents the fair value of the first installment payment recorded at the acquisition date and is included in financing activities in the Consolidated Statements of Cash Flows. The remaining $4.7 million of this payment represents changes in the estimated liability recorded since the acquisition date and was included in operating activities in the Consolidated Statements of Cash Flows. The contingent earn-out second year payment criteria were attained in fiscal 2016. We paid the remaining $9.0 million of the total contingent consideration in April 2016. Of this payment, $8.7 million represents the fair value of the second installment payment liability recorded at the acquisition date and is included in financing activities in the Consolidated Statements of Cash Flows. The remaining $0.3 million of this payment represents changes in the estimated liability recorded since the acquisition date and is included in operating activities in the Consolidated Statements of Cash Flows.

F. Goodwill and Acquired Intangible Assets

At the start of 2016, we had two operating and reportable segments: (1) Software Products and (2) Services. In the third quarter of 2016, we changed our operating and reportable segments from two to three: (1) Solutions Group, (2) IoT Group and (3) Professional Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are the same as our operating segments.

As of September 30, 2016, goodwill and acquired intangible assets in the aggregate attributable to our Solutions Group, IoT Group and Professional Services segment was $1,196.6 million, $252.8 million and $30.7 million, respectively. As of September 30, 2015, goodwill and acquired intangible assets in the aggregate attributable to our software products segment and services segment was $1,297.9 million and $62.4 million, respectively.

Goodwill is tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting segment below its carrying value. We completed our annual goodwill impairment review as of July 2, 2016 and concluded that no impairment charge was required as of that date. To conduct these tests of goodwill, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss equal to the difference between the carrying value of goodwill and its implied fair value. We estimate the fair values of our reporting units using discounted cash flow valuation models. Those models require estimates of future revenues, profits, capital expenditures, working capital, terminal values based on revenue multiples, and discount rates for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans and industry data. The estimated fair value of each reporting unit was approximately at least double its carrying value as of July 2, 2016. Through September 30, 2016, there have not been any events or changes in circumstances that indicate that the carrying values of goodwill or acquired intangible assets may not be recoverable.

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Goodwill and acquired intangible assets consisted of the following:

	September 30, 2016												September 30, 2015
	Gross Carrying Amount				Accumulated Amortization				Net Book Value				Gross Carrying Amount				Accumulated Amortization				Net Book Value
	(in thousands)
Goodwill (not amortized)									$	1,169,813											$	1,069,041
Intangible assets with finite lives (amortized) (1):
Purchased software	$	354,595			$	199,192			$	155,403			$	284,257			$	174,887			$	109,370
Capitalized software	22,877				22,877				—				22,877				22,877				—
Customer lists and relationships	355,698				206,515				149,183				349,938				174,017				175,921
Trademarks and trade names	19,007				13,323				5,684				18,534				12,759				5,775
Other	3,955				3,920				35				3,946				3,711				235
	$	756,132			$	445,827			$	310,305			$	679,552			$	388,251			$	291,301
Total goodwill and acquired intangible assets									$	1,480,118											$	1,360,342

(1) The weighted average useful lives of purchased software, capitalized software, customer lists and relationships, trademarks and trade names and other intangible assets with a remaining net book value are 9 years, 10 years, 10 years and 3 years, respectively.

The changes in the carrying amounts of goodwill from October 1, 2015 to September 30, 2016 are due to the impact of acquisitions (described in Note E) and to foreign currency translation adjustments related to those asset balances that are recorded in non-U.S. currencies.

Changes in goodwill presented by reportable segment were as follows:

	Software Products Segment				Services Segment				Total
	(in thousands)
Balance, October 1, 2014	$	959,768			$	52,759			$	1,012,527
Axeda adjustment of purchase price from escrow	(180		)		—				(180		)
Acquisition of ColdLight	85,288				—				85,288
Foreign currency translation adjustments	(28,463		)		(131		)		(28,594		)
Balance, September 30, 2015	$	1,016,413			$	52,628			$	1,069,041
Acquisition of Vuforia	23,316				—				23,316
Acquisition of Kepware	77,081				—				77,081
Foreign currency translation adjustments	228				(6		)		222
Balance, July 2, 2016 prior to reallocation	$	1,117,038			$	52,622			$	1,169,660
	Solutions Group				IoT Group				Professional Services				Total
	(in thousands)
Balance, July 2, 2016 after reallocation	$	1,050,013			$	90,053			$	29,594			$	1,169,660
Foreign currency translation adjustments	137				12				4				153
Balance, September 30, 2016	$	1,050,150			$	90,065			$	29,598			$	1,169,813

The aggregate amortization expense for intangible assets with finite lives recorded for the years ended September 30, 2016, 2015 and 2014 was reflected in our Consolidated Statements of Operations as follows:

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	Year ended September 30,
	2016				2015				2014
	(in thousands)
Amortization of acquired intangible assets	$	33,198			$	36,129			$	32,127
Cost of software revenue	24,604				19,402				18,112
Total amortization expense	$	57,802			$	55,531			$	50,239

The estimated aggregate future amortization expense for intangible assets with finite lives remaining as of September 30, 2016 is $58.0 million for 2017, $57.0 million for 2018, $49.9 million for 2019, $47.2 million for 2020, $41.8 million for 2021, and $56.5 million thereafter.

G. Income Taxes

Our income (loss) before income taxes consisted of the following:

	Year ended September 30,
	2016				2015				2014
	(in thousands)
Domestic	$	(156,166	)		$	(110,867	)		$	17,038
Foreign	88,974				137,392				169,074
Total income before income taxes	$	(67,192	)		$	26,525			$	186,112

Our (benefit) provision for income taxes consisted of the following:

	Year ended September 30,
	2016				2015				2014
	(in thousands)
Current:
Federal	$	2,417			$	3,907			$	12,792
State	571				599				2,062
Foreign	28,467				23,823				31,010
	31,455				28,329				45,864
Deferred:
Federal	965				(20,809		)		(13,200		)
State	515				(566		)		(2,085		)
Foreign	(45,662		)		(27,986		)		(4,661		)
	(44,182		)		(49,361		)		(19,946		)
Total provision (benefit) for income taxes	$	(12,727	)		$	(21,032	)		$	25,918

The reconciliation between the statutory federal income tax rate and our effective income tax rate is shown below:

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	Year ended September 30,
	2016			2015			2014
Statutory federal income tax rate	(35	)%		35	%		35	%
Change in valuation allowance	57	%		63	%		(11	)%
State income taxes, net of federal tax benefit	—	%		7	%		1	%
Federal and state research and development credits	(9	)%		(8	)%		—	%
Resolution of uncertain tax positions	—	%		(11	)%		—	%
Foreign rate differences	(41	)%		(213	)%		(19	)%
Foreign withholding tax	3	%		14	%		3	%
U.S. permanent items	4	%		34	%		4	%
Other, net	2	%		—	%		1	%
Effective income tax rate	(19	)%		(79	)%		14	%

In 2016 and 2015, our effective tax rate was lower than the 35% statutory federal income tax rate due, in large part, to our corporate structure in which our foreign taxes are at an effective tax rate lower than the U.S. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and in 2016, 2015 and 2014, the foreign rate differential predominantly relates to these Irish earnings. Our foreign rate differential in 2016 and 2015 includes the continuing rate benefit from a business realignment completed on September 30, 2014 in which intellectual property was transferred between two wholly-owned foreign subsidiaries. The realignment allows us to more efficiently manage the distribution of our products to European customers. In 2016 and 2015, this realignment resulted in a tax benefit of approximately $28 million and $24 million, respectively. In 2016 the change in valuation allowance primarily relates to U.S. losses not benefitted and the release of valuation allowance totaling $3.1 million in two foreign subsidiaries. Additionally, our provision reflects a $6.0 million tax benefit related to a U.S. research and development tax credit which was offset by a corresponding provision to increase our U.S. valuation allowance.

Additionally, in 2015, U.S. permanent items include the tax effect of a $14.5 million expense related to a pending legal settlement. Other factors impacting the effective tax rate include: the release of a valuation allowance totaling $18.7 million relating to the U.S. pension plan termination, foreign withholding taxes of $3.8 million, a tax benefit of $3.1 million relating to the reassessment of our reserve requirements and a benefit of $1.4 million in conjunction with the reorganization of our Atego U.S. subsidiaries. Additionally, our provision reflects a $2.1 million tax benefit related to a retroactive extension of the U.S. research and development tax credit enacted in the first quarter of 2015. This benefit was offset by a corresponding provision to increase our U.S. valuation allowance.

In 2014, our effective tax rate was lower than the 35% statutory federal income tax rate due, in large part, to the reversal of a portion of the valuation allowance against U.S. deferred tax assets. We recorded benefits resulting from 2014 acquisitions as described below. Other factors impacting the effective tax rate include: our corporate structure in which our foreign taxes are at an effective tax rate lower than the U.S. rate, foreign withholding taxes of $5.1 million and the establishment of a valuation allowance totaling $3.5 million in two foreign subsidiaries.

Acquisitions in 2014 were accounted for as business combinations. Assets acquired, including the fair value of acquired tangible assets, intangible assets and assumed liabilities were recorded, and we recorded net deferred tax liabilities of $21.6 million in 2014, primarily related to the tax effect of the acquired intangible assets that are not deductible for income tax purposes. These deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit of $18.1 million in 2014, to decrease our valuation allowance in jurisdictions where we have recorded a valuation allowance (primarily the U.S.). As these decreases in the valuation allowance are not part of the accounting for business combinations (the fair value of the assets acquired and liabilities assumed), they were recorded as an income tax benefit.

At September 30, 2016 and 2015, income taxes payable and income tax accruals recorded in accrued income taxes, other current liabilities, and other liabilities on the accompanying Consolidated Balance Sheets were $18.7 million ($6.3 million in accrued income taxes, $5.5 million in other current liabilities and $6.9 million in other liabilities) and $14.7 million ($4.0 million in accrued income taxes, $2.2 million in other current liabilities and $8.5 million in other liabilities), respectively. At September 30, 2016 and 2015, prepaid taxes recorded in prepaid expenses on the accompanying Consolidated Balance Sheets were $9.9 million and $8.2 million, respectively. We made net income tax payments of $25.5 million, $30.1 million and $25.5 million in 2016, 2015 and 2014, respectively.

The significant temporary differences that created deferred tax assets and liabilities are shown below:

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	September 30,
	2016				2015
	(in thousands)
Deferred tax assets (1):
Net operating loss carryforwards	$	100,033			$	71,533
Foreign tax credits	18,041				15,962
Capitalized research and development expense	22,504				31,690
Pension benefits	14,348				11,009
Deferred revenue	65,145				71,399
Stock-based compensation	19,846				16,777
Other reserves not currently deductible	25,993				21,940
Amortization of intangible assets	54,069				62,227
Other tax credits	41,381				37,270
Depreciation	3,002				3,465
Capital loss carryforward	8,019				8,040
Deferred interest	7,622				3,557
Other	14,778				6,559
Gross deferred tax assets	394,781				361,428
Valuation allowance	(235,503		)		(198,168		)
Total deferred tax assets	159,278				163,260
Deferred tax liabilities (1):
Acquired intangible assets not deductible	(78,663		)		(124,401		)
Pension prepayments	(542		)		(395		)
Deferred revenue	(2,039		)		(3,110		)
Other	(2,092		)		(3,598		)
Total deferred tax liabilities	(83,336		)		(131,504		)
Net deferred tax assets	$	75,942			$	31,756

(1) See Note B. Recent Accounting Pronouncements-Deferred Taxes regarding a change in the balance sheet classification of our deferred taxes.

We have concluded, based on the weight of available evidence, that a full valuation allowance continues to be required against our U.S. net deferred tax assets as they are not more likely than not to be realized in the future. We will continue to reassess whether a valuation allowance is required each financial reporting period.

For U.S. tax return purposes, net operating loss (NOL) carryforwards and tax credits are generally available to be carried forward to future years, subject to certain limitations. At September 30, 2016, we had U.S. federal NOL carryforwards of $247.1 million that expire in 2018 to 2036. These include NOL carryforwards from acquisitions of $82.2 million. The utilization of these NOL carryforwards is limited as a result of the change in ownership rules under Internal Revenue Code Section 382. NOL's totaling $45.1 million relate to windfall tax benefits that have not been recognized, the impact of which will be recorded in APIC when realized.

As of September 30, 2016, we had Federal R&D credit carryforwards of $25.2 million, which expire beginning in 2021 and ending in 2036, and Massachusetts R&D credit carryforwards of $24.8 million, which expire beginning in 2017 and ending in 2031. We also had foreign tax credits of $18.0 million, which expire beginning in 2023 and ending in 2026. A full valuation allowance is recorded against these carryforwards. Federal R&D credits totaling $14.0 million relate to windfall tax benefits that have not been recognized, the impact of which will be recorded in APIC when realized.

We also have NOL carryforwards in non-U.S. jurisdictions totaling $102.4 million, the majority of which do not expire. We also have non-U.S. tax credit carryforwards of $7.5 million that expire beginning in 2027 and ending in 2035. There are limitations imposed on the utilization of such NOLs that could restrict the recognition of any tax benefits.

As of September 30, 2016, we have a valuation allowance of $209.0 million against net deferred tax assets in the U.S. and a valuation allowance of $26.5 million against net deferred tax assets in certain foreign jurisdictions. The valuation

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allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our net operating loss carryforwards, the majority of which do not expire. There are limitations imposed on the utilization of such net operating losses that could restrict the recognition of any tax benefits.

The changes to the valuation allowance were primarily due to:

	Year ended September 30,
	2016				2015				2014
	(in millions)
Valuation allowance beginning of year	$	198.2			$	177.5			$	156.5
Net release of valuation allowance (1)	(3.1		)		(18.7		)		(18.1		)
Net increase/decrease in deferred tax assets with a full valuation allowance	39.8				39.4				14.1
Establish valuation allowance for acquired businesses	—				—				21.5
Establish valuation allowance in foreign jurisdictions	0.6				—				3.5
Valuation allowance end of year	$	235.5			$	198.2			$	177.5

(1)	In 2016, this is attributable to the release in two foreign jurisdictions. In 2015, this is attributable to a reduction in deferred tax assets associated with our U.S. pension plan, both of which are described above and in 2014 the recognition of deferred tax liabilities recorded in connection with accounting for acquisitions.

Our policy is to record estimated interest and penalties related to the underpayment of income taxes as a component of our income tax provision. In 2016, 2015 and 2014, we recorded interest expense of $0.5 million, $0.1 million and $0.3 million, respectively. In 2016, 2015 and 2014, we had no tax penalty expense in our income tax provision. As of September 30, 2016 and 2015, we had accrued $2.0 million and $1.5 million, respectively, of net estimated interest expense related to income tax accruals. We had no accrued tax penalties as of September 30, 2016, 2015 or 2014.

	Year ended September 30,
Unrecognized tax benefits	2016				2015				2014
	(in millions)
Unrecognized tax benefit beginning of year	$	14.1			$	15.0			$	13.7
Tax positions related to current year:
Additions	1.0				1.3				2.2
Tax positions related to prior years:
Additions	0.4				0.8				0.3
Reductions	—				(3.0		)		(0.1		)
Settlements	—				—				(0.6		)
Statute expirations	—				—				(0.5		)
Unrecognized tax benefit end of year	$	15.5			$	14.1			$	15.0

If all of our unrecognized tax benefits as of September 30, 2016 were to become recognizable in the future, we would record a benefit to the income tax provision of $13.9 million (which would be partially offset by an increase in the U.S. valuation allowance of $4.8 million) and a credit to additional paid-in capital (APIC) of $1.6 million. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We anticipate the settlement of tax audits may be finalized within the next twelve months and could result in a decrease in our unrecognized tax benefits of up to $8.0 million.

In the fourth quarter of 2016, we received an assessment from the tax authorities in Korea related to an ongoing tax audit of approximately $12 million. The assessment relates to various tax issues but primarily to foreign withholding taxes. We intend to appeal and will vigorously defend our positions. We believe that it is more likely than not that our positions will be sustained upon appeal. Accordingly, we have not recorded a tax reserve for this matter. We paid this assessment in the first quarter of 2017.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the IRS in the United States. As of September 30, 2016, we remained subject to examination in the following major tax jurisdictions for the tax years indicated:

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Major Tax Jurisdiction		Open Years
United States		2014 through 2016
Germany		2011 through 2016
France		2013 through 2016
Japan		2011 through 2016
Ireland		2012 through 2016

Additionally, net operating loss and tax credit carryforwards from certain earlier periods in these jurisdictions may be subject to examination to the extent they are utilized in later periods.

We incurred expenses related to stock-based compensation in 2016, 2015 and 2014 of $66.0 million, $50.2 million and $50.9 million, respectively. Accounting for the tax effects of stock-based awards requires that we establish a deferred tax asset as the compensation is recognized for financial reporting prior to recognizing the tax deductions. The tax benefit recognized in the Consolidated Statements of Operations related to stock-based compensation totaled $0.7 million, $0.7 million and $0.7 million in 2016, 2015 and 2014, respectively. Upon the settlement of the stock-based awards (i.e., exercise, vesting, forfeiture or cancellation), the actual tax deduction is compared with the cumulative financial reporting compensation cost and any excess tax deduction is considered a windfall tax benefit and is tracked in a “windfall tax benefit pool” to offset any future tax deduction shortfalls and will be recorded as increases to APIC in the period when the tax deduction reduces income taxes payable. In 2016, 2015 and 2014, we recorded windfall tax benefits of $0.1 million, $0.0 million and $10.4 million to APIC, respectively. We follow the with-and-without approach for the direct effects of windfall tax deductions to determine the timing of the recognition of benefits for windfall tax deductions. We follow the direct method for indirect effects. As of September 30, 2016, the tax effect of windfall tax deductions which had not yet reduced taxes payable was $33.4 million.

We have not provided for U.S. income taxes or foreign withholding taxes on foreign unrepatriated earnings as it is our current intention to permanently reinvest these earnings outside the U.S. unless it can be done with no significant tax cost, with the exception of a foreign holding company formed in 2014. In 2016, we incurred U.S. tax expense of $12 million on the repatriation of the 2016 earnings of this foreign holding company. This expense was offset by a change in the valuation allowance. If we decide to change this assertion in the future to repatriate any additional non-U.S. earnings, we may be required to establish a deferred tax liability on such earnings. The cumulative basis difference associated with the undistributed earnings of our subsidiaries totaled approximately $789 million and $684 million as of September 30, 2016 and 2015, respectively. The amount of unrecognized deferred tax liability on the undistributed earnings cannot be practicably determined at this time.

H. Debt

As of September 30, 2016 and 2015, we had the following long-term borrowing obligations:

	September 30,
	2016				2015
	(in thousands)
6.000% Senior notes due 2024	$	500,000			$	—
Credit facility-revolver	258,125				193,125
Credit facility-term loan	—				475,000
Total debt	758,125				668,125
Unamortized debt issuance costs	(10,709		)		(7,587		)
Total debt, net of issuance costs	$	747,416			$	660,538
Reported as
Current portion of long-term debt	$	—			$	50,000
Long-term debt	758,125				618,125
Total debt	$	758,125			$	668,125

Senior Unsecured Notes

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In May 2016, we issued $500 million in aggregate principal amount of 6.0% senior, unsecured long-term debt at par value, due in 2024. We used the net proceeds from the sale of the notes to repay a portion of our outstanding revolving loan under our current credit facility. Interest is payable semi-annually on November 15 and May 15. The debt indenture includes covenants that limit our ability to, among other things, incur additional debt, grant liens on our properties or capital stock, enter into sale and leaseback transactions or asset sales, and make capital distributions. We were in compliance with all of the covenants as of September 30, 2016.

On and after May 15, 2019, we may redeem the senior notes at any time in whole or from time to time in part at specified redemption prices. In certain circumstances constituting a change of control, we will be required to make an offer to repurchase the senior notes at a purchase price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest. Our ability to repurchase the senior notes in such event may be limited by law, by the indenture associated with the senior notes, by our then-available financial resources or by the terms of other agreements to which we may be party at such time. If we fail to repurchase the senior notes as required by the indenture, it would constitute an event of default under the indenture governing the senior notes which, in turn, may also constitute an event of default under other obligations.

As of September 30, 2016, the total estimated fair value of the Notes was approximately $536.3 million, which is based on quoted prices for the notes on that date.

Credit Agreement

In November 2015, we entered into a multi-currency credit facility with a syndicate of sixteen banks for which JPMorgan Chase Bank, N.A. acts as Administrative Agent. We use the credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements. As of September 30, 2016, the fair value of our credit facility approximates its book value.

The credit facility initially consisted of a $1 billion revolving loan commitment, which was reduced to $900 million in June 2016 pursuant to an amendment to the Credit Agreement. The loan commitment may be increased by an additional $500 million (in the form of revolving loans or term loans, or a combination thereof) if the existing or additional lenders are willing to make such increased commitments. The revolving loan commitment does not require amortization of principal and may be repaid in whole or in part prior to the scheduled maturity date at our option without penalty or premium. The credit facility matures on September 15, 2019, when all remaining amounts outstanding will be due and payable in full.

PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. Any borrowings by PTC Inc. under the credit facility would be guaranteed by PTC Inc.’s material domestic subsidiaries that become parties to the subsidiary guaranty, if any. As of the filing of this Form 10-K, there are no subsidiary guarantors of the obligations under the credit facility. Any borrowings by eligible foreign subsidiary borrowers would be guaranteed by PTC Inc. and any subsidiary guarantors. As of the filing of this Form 10-K, no amounts under the credit facility have been borrowed by an eligible foreign subsidiary borrower. In addition, PTC and certain of its material domestic subsidiaries' owned property (including equity interests) is subject to first priority perfected liens in favor of the lenders of this credit facility. 100% of the voting equity interests of certain of PTC’s domestic subsidiaries and 65% of its material first-tier foreign subsidiaries are pledged as collateral for the obligations under the credit facility.

Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by PTC as described below. As of September 30, 2016, the annual rate for borrowing outstanding was 2.56%. Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.75% above an adjusted LIBO rate for Euro currency borrowings or would range from 0.25% to 0.75% above the defined base rate (the greater of the Prime Rate, the FRBYN rate plus 0.5%, or an adjusted LIBO rate plus 1%) for base rate borrowings, in each case based upon PTC’s total leverage ratio. Additionally, PTC may borrow certain foreign currencies at rates set in the same range above the respective London interbank offered interest rates for those currencies, based on PTC’s total leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.175% to 0.30% per annum, based upon PTC’s total leverage ratio.

The credit facility limited PTC’s and its subsidiaries’ ability to, among other things: incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts exceeding $75 million for any purpose and an additional $200 million for acquisitions of businesses. In addition, under the credit facility, PTC and its subsidiaries must maintain the following financial ratios:

•	a total leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, not to exceed 4.00 to 1.00 as of the last day of any fiscal quarter;

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•	a senior secured leverage ratio, defined as senior consolidated total indebtedness (which excludes unsecured indebtedness) to the consolidated trailing four quarters EBITDA, not to exceed 3.00 to 1.00 as of the last day of any fiscal quarter; 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.

As of September 30, 2016, our total leverage ratio was 3.55 to 1.00, our senior secured leverage ratio was 1.18 to 1.00 and our fixed charge coverage ratio was 7.14 to 1.00 and we were in compliance with all financial and operating covenants of the credit facility.

Any failure to comply with the financial or operating covenants of the credit facility would prevent PTC from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.

We incurred $6.9 million in financing costs in connection with the Senior Notes in 2016. We incurred $7.9 million of origination costs in 2014 in connection with entering into prior credit facilities. These origination costs were recorded as deferred debt issuance costs when incurred and were being expensed over the remaining term of the obligations.

In 2016, 2015 and 2014, we paid $13.3 million, $10.1 million and $5.7 million, respectively, of interest on the credit facilities. The average interest rate on borrowings outstanding during 2016, 2015 and 2014 was approximately 3.0%, 1.7% and 1.6%, respectively.

I. Commitments and Contingencies

Leasing Arrangements

We lease office facilities under operating leases expiring at various dates through 2025. Certain leases require us to pay for taxes, insurance, maintenance and other operating expenses in addition to rent. Lease expense was $37.2 million, $36.9 million and $38.6 million in 2016, 2015 and 2014, respectively. At September 30, 2016, our future minimum lease payments under noncancellable operating leases are as follows:

Year ending September 30,	(in thousands)
2017	$	39,994
2018	34,347
2019	27,150
2020	22,804
2021	14,943
Thereafter	16,776
Total minimum lease payments	$	156,014

Amounts above include future minimum lease payments for our corporate headquarters facility located in Needham, Massachusetts. The lease for our headquarters facility was renewed in the first quarter of 2011 for an additional 10 years (through November 2022) with a ten year renewal option through November 2032. Under the terms of the lease, we are paying approximately $7.4 million in annual base rent plus operating expenses. The amended lease provides for $12.8 million in landlord funding for leasehold improvements which we completed in 2014. We capitalized these leasehold improvements and will amortize them to expense over the shorter of the lease term or their expected useful life. The $12.8 million of funding by the landlord is not included in the table above and reduces rent expense over the lease term.

As of September 30, 2016 and 2015, we had letters of credit and bank guarantees outstanding of $4.2 million (of which $1.2 million was collateralized) and $4 million (of which $1.1 million was collateralized), respectively, primarily related to our corporate headquarters lease.

Legal and Regulatory Matters

Korean Tax Audit

In July 2016, we received an assessment from the tax authorities in Korea related to an ongoing tax audit of approximately $12 million. See Note G. Income Taxes for additional information.

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Follow-On China Investigation

The China Administration for Industry and Commerce initiated a follow-on investigation at our China subsidiary related to the China Investigation described below under Legal Proceedings. In October 2016, this matter was resolved for an amount that is not material to our results of operations; the associated liability is recorded in our 2016 financial results.

Legal Proceedings

On March 7, 2016, a putative class action lawsuit captioned Matthew Crandall v. PTC Inc. et al., No. 1:16-cv-10471, was filed against us and certain of our current and former officers and directors in the U.S. District Court for the District of Massachusetts ostensibly on behalf of purchasers of our stock during the period November 24, 2011 through July 29, 2015. The lawsuit, which seeks unspecified damages, interest, attorneys’ fees and costs, alleges (among other things) that, during that period, PTC’s public disclosures concerning investigations by the U.S. Securities and Exchange Commission and the U.S. Department of Justice into U.S. Foreign Corrupt Practices Act matters in China (the "China Investigation") were false and/or misleading. We have reached an agreement-in-principle with the plaintiff to settle this lawsuit for an amount that is not material to our results of operations and the associated liability has been accrued in our fiscal 2016 results. The settlement is conditioned on execution and final court approval of formal settlement documents. Accordingly, we cannot predict the outcome of this action nor when it will be resolved.

We are subject to various other legal proceedings and claims that arise in the ordinary course of business. We do not believe that resolving the legal proceedings and claims that we are currently subject to will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a particular reporting period could be adversely affected.

Accruals

With respect to legal proceedings and claims, we record an accrual for a contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. For legal proceedings and claims for which the likelihood that a liability has been incurred is more than remote but less than probable, we estimate the range of possible outcomes. As of September 30, 2016 and 2015, we had a legal proceedings and claims accrual of $3.6 million and $30.5 million (including and accrual of $28.2 million for the China Investigation), respectively.

Guarantees and Indemnification Obligations

We enter into standard indemnification agreements in the ordinary course of our business. Pursuant to such agreements with our business partners or customers, we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products, as well as claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and we accordingly believe the estimated fair value of liabilities under these agreements is immaterial.

We warrant that our software products will perform in all material respects in accordance with our standard published specifications in effect at the time of delivery of the licensed products for a specified period of time. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our product or services warranties. As a result, we believe the estimated fair value of these liabilities is immaterial.

J. Stockholders’ Equity

Preferred Stock

We may issue up to 5.0 million shares of our preferred stock in one or more series. 0.5 million of these shares are designated as Series A Junior Participating Preferred Stock. Our Board of Directors is authorized to fix the rights and terms for any series of preferred stock without additional shareholder approval.

Common Stock

Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has periodically authorized the repurchase of shares of our common stock. We were authorized to repurchase up to $100 million worth of shares with cash from operations in fiscal year 2014. Additionally, on August 4, 2014, our Board of Directors authorized us to repurchase up to an additional $600 million of our common stock through September 30, 2017. We intend to

F-31

use cash from operations and borrowings under our credit facility to make such repurchases. In 2016, we did not repurchase any shares. We repurchased 2.7 million shares at a cost of $64.9 million in 2015 and 5.1 million shares at a cost of $224.9 million in 2014 (including $37.5 million held by the bank pending final settlement of the accelerated share repurchase ("ASR") agreement described below). All shares of our common stock repurchased are automatically restored to the status of authorized and unissued. Future repurchases of shares will reduce our cash balances.

On August 14, 2014, we entered into an accelerated share repurchase (“ASR”) agreement with a major financial institution (“Bank”). The ASR allowed us to buy a large number of shares immediately at a purchase price determined by an average market price over a period of time. Under the ASR, we agreed to purchase $125.0 million of our common stock, in total, with an initial delivery to us in August 2014 of 2.3 million shares. We settled the ASR in December 2014 and the Bank delivered to us 1.1 million additional shares.

K. Equity Incentive Plan

Our 2000 Equity Incentive Plan (2000 Plan) provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units and stock appreciation rights to employees, directors, officers and consultants. We award restricted stock units as the principal equity incentive awards, including certain performance-based awards that are earned based on achieving performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Each restricted stock unit represents the contingent right to receive one share of our common stock.

The fair value of restricted stock units granted in 2016, 2015 and 2014 was based on the fair market value of our stock on the date of grant. The weighted average fair value per share of restricted stock units granted in 2016, 2015 and 2014 was $37.25, $38.19 and $33.88, respectively. Pre-vesting forfeiture rates for purposes of determining stock-based compensation for 2016 were estimated by us to be 0% for directors and executive officers, 6% to 8% for vice president-level employees and 11% for all other employees. Pre-vesting forfeiture rates for purposes of determining stock-based compensation for 2015 and 2014 were estimated by us to be 0% for directors and executive officers, 2% to 4% for vice president-level employees and 7% for all other employees.

The following table shows total stock-based compensation expense recorded from our stock-based awards as reflected in our Consolidated Statements of Operations:

	Year ended September 30,
	2016				2015				2014
	(in thousands)
Cost of software revenue	$	5,398			$	4,296			$	4,059
Cost of professional services revenue	5,393				5,871				6,351
Sales and marketing	14,659				14,189				13,441
Research and development	10,174				11,623				10,119
General and administrative	30,372				14,203				16,919
Total stock-based compensation expense	$	65,996			$	50,182			$	50,889

The stock-based compensation expense in 2016 included $10 million of expense related to modifications of certain performance-based RSUs previously granted under our long-term incentive programs. The Compensation Committee of our Board of Directors amended these equity awards due to the impact of changes in our business model and strategy and foreign currency on our financial results.

As of September 30, 2016, total unrecognized compensation cost related to unvested restricted stock units expected to vest was approximately $81.9 million and the weighted average remaining recognition period for unvested awards was 17 months.

As of September 30, 2016, 5.1 million shares of common stock were available for grant under the 2000 Plan and 3.8 million shares of common stock were reserved for issuance upon the exercise of stock options and vesting of restricted stock units granted and outstanding.

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	Shares			Weighted Average Grant Date Fair Value				Aggregate Intrinsic Value as of September 30, 2016
Restricted stock unit activity for the year ended September 30, 2016	(in thousands except grant date fair value data)
Balance of nonvested outstanding restricted stock units October 1, 2015	3,654			$	33.64
Granted	2,484			$	37.25
Vested	(1,818	)		$	30.10
Forfeited or not earned	(544	)		$	36.49
Balance of nonvested outstanding restricted stock units September 30, 2016	3,776			$	37.30			$	167,314

		Restricted Stock Units
Restricted stock unit grants		TSR Units (1)			Performance-based RSUs (2)			Service-based RSUs (2)
		(Number of Units in thousands)
Year ended September 30, 2016		326			343			1,815

(1)	The TSR units were granted to our executive officers pursuant to the terms described below.

(2) The service-based RSUs were issued to employees, our executive officers, our directors and a consultant. Executive officers may earn up to one or, for our CEO, two times the number of time-based RSUs (up to a maximum of 343 thousand shares) if certain performance conditions are met. Of the service-based RSUs, approximately 64 thousand shares will vest in one installment on or about the anniversary of the date of grant. Approximately 121 thousand shares will vest in two substantially equal annual installments on or about the anniversary of the date of grant. All other service-based RSUs will vest in three substantially equal annual installments on or about the anniversary of the date of grant. The performance-based RSUs will vest in three substantially equal installments on the later of November 15, 2016, November 15, 2017 and November 15, 2018, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved.

In the first quarter of 2016, we granted the target performance-based TSR units ("target RSUs") shown in the table above to our executive officers. These RSUs are eligible to vest based upon our total shareholder return relative to a peer group (the “TSR units”), measured annually over a three year period. The number of TSR units to vest over the three year period will be determined based on the performance of PTC stock relative to the stock performance of an index of PTC peer companies established as of the grant date, as determined at the end of three measurement periods ending on September 30, 2016, 2017 and 2018, respectively. The shares earned for each period will vest on November 15 following each measurement period, up to a maximum of two times the number of target RSUs (up to a maximum of 652 thousand shares). No vesting will occur in a period unless an annual threshold requirement is achieved. The employee must remain employed by PTC through the applicable vest date for any RSUs to vest. If the return to PTC shareholders is negative but still meets or exceeds the peer group indexed return, a maximum of 100% of the target RSUs will vest for the measurement period. TSR units not earned in either of the first two measurement periods are eligible to be earned in the third measurement period.

The weighted average fair value of the TSR units was $46.96 per target RSU on the grant date. The fair value of the TSR units was determined using a Monte Carlo simulation model, a generally accepted statistical technique used to simulate a range of possible future stock prices for PTC and the peer group. The method uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pairwise correlations of each entity being modeled. The fair value for each simulation is the product of the payout percentage determined by PTC’s TSR rank against the peer group, the projected price of PTC stock, and a discount factor based on the risk-free rate.

The significant assumptions used in the Monte Carlo simulation model were as follows:

Average volatility of peer group	28.1	%
Risk free interest rate	1.05	%
Dividend yield	—	%

Until July 2005, we generally granted stock options. For those options, the option exercise price was typically the fair market value at the date of grant, and they generally vested over four years and expired ten years from the date of grant. There were no options outstanding and exercisable at September 30, 2016.

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	Year ended September 30,
	2016				2015				2014
Value of stock option and stock-based award activity	(in thousands)
Total intrinsic value of stock options exercised	$	88			$	182			$	2,040
Total fair value of restricted stock unit awards vested	$	63,655			$	84,189			$	79,660

In 2016, shares issued upon vesting of restricted stock units were net of 0.6 million shares retained by us to cover employee tax withholdings of $20.9 million. In 2015, shares issued upon vesting of restricted stock units were net of 0.8 million shares retained by us to cover employee tax withholdings of $29.2 million. In 2014, shares issued upon vesting of restricted stock and restricted stock units were net of 0.8 million shares retained by us to cover employee tax withholdings of $26.9 million.

L. Employee Benefit Plan

We offer a savings plan to eligible U.S. employees. The plan is intended to qualify under Section 401(k) of the Internal Revenue Code. Participating employees may defer a portion of their pre-tax compensation, as defined, but not more than statutory limits. We contribute 50% of the amount contributed by the employee, up to a maximum of 3% of the employee’s earnings. Our matching contributions vest at a rate of 25% per year of service, with full vesting after 4 years of service. We made matching contributions of $5.4 million, $5.3 million, and $5.1 million in 2016, 2015 and 2014, respectively.

M. Pension Plans

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, CoCreate, which we acquired in 2008 and covering employees in Japan. Benefits are based upon length of service and average compensation with vesting after one to five years of service. The pension cost was actuarially computed using assumptions applicable to each subsidiary plan and economic environment. We adjust our pension liability related to our plans due to changes in actuarial assumptions and performance of plan investments, as shown below. Effective in 1998, benefits under one of the international plans were frozen indefinitely.

We maintained a U.S. defined benefit pension plan (the Plan) that covered certain persons who were employees of Computervision Corporation (acquired by us in 1998). Benefits under the Plan were frozen in 1990. In the second quarter of 2014, we began the process of terminating the Plan, which included settling Plan liabilities by offering lump sum distributions to plan participants and purchasing annuity contracts to cover vested benefits. We completed the termination in the fourth quarter of 2015. In connection with the termination, we contributed $25.5 million to the Plan and recorded a settlement loss of $66.3 million.

The following table presents the actuarial assumptions used in accounting for the pension plans:

	U.S. Plan									International Plans
	2016			2015			2014			2016			2015			2014
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate	—	%		—	%		3.80	%		1.3	%		2.2	%		2.4	%
Rate of increase in future compensation	—	%		—	%		—	%		2.8	%		3.0	%		3.0	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate	—	%		3.80	%		4.90	%		2.2	%		2.4	%		3.3	%
Rate of increase in future compensation	—	%		—	%		—	%		3.0	%		3.0	%		3.0	%
Rate of return on plan assets	—	%		1.35	%		7.25	%		5.7	%		5.8	%		5.7	%

In selecting the expected long-term rate of return on assets, we considered the current investment portfolio and the investment return goals in the plans’ investment policy statements. We, with input from the plans’ professional investment managers and actuaries, also considered the average rate of earnings expected on the funds invested or to be invested to provide plan benefits. This process included determining expected returns for the various asset classes that comprise the plans’ target asset allocation. This basis for selecting the long-term asset return assumptions is consistent with the prior year. Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual portfolio level, are invested so that the

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total portfolio risk exposure and risk-adjusted returns best meet the plans’ long-term liabilities to employees. Plan asset allocations are reviewed periodically and rebalanced to achieve target allocation among the asset categories when necessary.

As of September 30, 2016, for the international plans, the weighted long-term rate of return assumption is 5.44%. These rates of return, together with the assumptions used to determine the benefit obligations as of September 30, 2016 in the table above, will be used to determine our 2017 net periodic pension cost, which we expect to be approximately $2.7 million.

The actuarially computed components of net periodic pension cost recognized in our Consolidated Statements of Operations for each year are shown below:

	U.S. Plan												International Plans
	2016				2015				2014				2016				2015				2014
	(in thousands)
Interest cost of projected benefit obligation	$	—			$	4,591			$	5,461			$	1,374			$	1,828			$	2,442
Service cost	—				—				—				1,599				1,466				1,659
Expected return on plan assets	—				(1,364		)		(7,151		)		(3,305		)		(3,364		)		(2,506		)
Amortization of prior service cost	—				—				—				(5		)		(4		)		(5		)
Recognized actuarial loss	—				2,577				2,213				2,292				1,815				1,181
Settlement loss	—				66,332				—				—				—				—
Net periodic pension cost	$	—			$	72,136			$	523			$	1,955			$	1,741			$	2,771

The following tables display the change in benefit obligation and the change in the plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets:

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	U.S. Plan								International Plans								Total
	Year ended September 30,
	2016				2015				2016				2015				2016				2015
	(in thousands)
Change in benefit obligation:
Projected benefit obligation—beginning of year	$	—			$	134,453			$	78,188			$	84,106			$	78,188			$	218,559
Service cost	—				—				1,599				1,466				1,599				1,466
Interest cost	—				4,591				1,374				1,828				1,374				6,419
Actuarial loss	—				1,606				10,556				1,988				10,556				3,594
Foreign exchange impact	—				—				2,431				(9,515		)		2,431				(9,515		)
Participant contributions	—				—				147				198				147				198
Benefits paid	—				(5,300		)		(1,600		)		(1,883		)		(1,600		)		(7,183		)
Settlements	—				(135,350		)		—				—				—				(135,350		)
Projected benefit obligation—end of year	$	—			$	—			$	92,695			$	78,188			$	92,695			$	78,188
Change in plan assets and funded status:
Plan assets at fair value—beginning of year	$	—			$	112,859			$	57,961			$	44,491			$	57,961			$	157,350
Actual return on plan assets	—				2,316				1,742				(438		)		1,742				1,878
Employer contributions	—				25,475				1,978				21,225				1,978				46,700
Participant contributions	—				—				147				198				147				198
Foreign exchange impact	—				—				1,707				(5,632		)		1,707				(5,632		)
Settlements	—				(135,350		)		—				—				—				(135,350		)
Benefits paid	—				(5,300		)		(1,600		)		(1,883		)		(1,600		)		(7,183		)
Plan assets at fair value—end of year	—				—				61,935				57,961				61,935				57,961
Projected benefit obligation—end of year	—				—				92,695				78,188				92,695				78,188
Underfunded status	$	—			$	—			$	(30,760	)		$	(20,227	)		$	(30,760	)		$	(20,227	)
Accumulated benefit obligation—end of year	$	—			$	—			$	88,768			$	74,928			$	88,768			$	74,928
Amounts recognized in the balance sheet:
Non-current liability	$	—			$	—			$	(30,760	)		$	(20,227	)		$	(30,760	)		$	(20,227	)
Current liability	$	—			$	—			$	—			$	—			$	—			$	—
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	—			$	—			$	38,667			$	28,339			$	38,667			$	28,339

We expect to recognize approximately $3.4 million of the unrecognized actuarial loss as of September 30, 2016 as a component of net periodic pension cost in 2017.

The following table shows change in accumulated other comprehensive loss:

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	U.S. Plan								International Plans								Total
	Year ended September 30,
	2016				2015				2016				2015				2016				2015
	(in thousands)
Accumulated other comprehensive loss- beginning of year	$	—			$	68,256			$	28,339			$	27,669			$	28,339			$	95,925
Recognized during year - net actuarial (losses)	—				(2,577		)		(2,288		)		(1,811		)		(2,288		)		(4,388		)
Occurring during year - settlement loss	—				(66,332		)		—				—				—				(66,332		)
Occurring during year - net actuarial losses	—				653				12,119				5,792				12,119				6,445
Foreign exchange impact	—				—				497				(3,311		)		497				(3,311		)
Accumulated other comprehensive loss- end of year	$	—			$	—			$	38,667			$	28,339			$	38,667			$	28,339

The following table shows the percentage of total plan assets for each major category of plan assets:

	International Plans
	September 30,
	2016		2015
Asset category:
Equity securities	49%		53%
Fixed income securities	30%		32%
Commodities	4%		—%
Insurance company	16%		13%
Cash	1%		2%
	100%		100%

We periodically review the pension plans’ investments in the various asset classes. The current asset allocation target is 60% equity securities and 40% fixed income securities for the CoCreate plan in Germany, and 100% fixed income securities for the other international plans. The fixed income securities for the other international plans primarily include investments held with insurance companies with fixed returns. The plans’ investment managers are provided specific guidelines under which they are to invest the assets assigned to them. In general, investment managers are expected to remain fully invested in their asset class with further limitations on risk as related to investments in a single security, portfolio turnover and credit quality.

The German CoCreate plan's investment policy prohibits the use of derivatives associated with leverage and speculation or investments in securities issued by PTC, except through index-related strategies and/or commingled funds. An investment committee oversees management of the pension plans’ assets. Plan assets consist primarily of investments in mutual funds invested in equity and fixed income securities.

In 2016, 2015 and 2014 our actual return on plan assets was $1.7 million, $1.9 million and $15.9 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $2.0 million, $46.7 million, and $12.9 million in 2016, 2015 and 2014, respectively, to the plans.

As of September 30, 2016, benefit payments expected to be paid over the next ten years are outlined in the following table:

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	Future Benefit Payments
	(in thousands)
Year ending September 30,
2017	$	1,899
2018	2,314
2019	2,566
2020	2,861
2021	3,175
2022 to 2026	22,034

Fair Value of Plan Assets

The International Plan assets are comprised primarily of investments in a trust and an insurance company. The underlying investments in the trust are primarily publicly traded European DJ EuroStoxx50 equities and European governmental fixed income securities. They are classified as Level 1 because the underlying units of the trust are traded in open public markets. The fair value of the underlying investments in equity securities and fixed income are based upon publicly-traded exchange prices.

	September 30, 2016
	Level 1				Level 2				Level 3				Total
	(in thousands)
International plan assets:
Fixed income securities:
Government	$	8,518			$	—			$	—			$	8,518
Europe corporate investment grade	10,218				—				—				10,218
Europe large capitalization stocks	30,615				—				—				30,615
Commodities	2,709				—				—				2,709
Insurance company funds (1)	—				9,578				—				9,578
Cash	297				—				—				297
	$	52,357			$	9,578			$	—			$	61,935

	September 30, 2015
	Level 1				Level 2				Level 3				Total
	(in thousands)
International plan assets:
Fixed income securities:
Government	$	11,086			$	—			$	—			$	11,086
Europe corporate investment grade	7,487				—				—				7,487
Europe large capitalization stocks	30,887				—				—				30,887
Insurance company funds (1)	—				7,668				—				7,668
Cash	833				—				—				833
	$	50,293			$	7,668			$	—			$	57,961

(1) These investments are comprised primarily of funds invested with an insurance company in Japan with a guaranteed rate of return. The insurance company invests these assets primarily in government and corporate bonds.

N. Derivative Financial Instruments

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As of September 30, 2016 and 2015, we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

	September 30,
Currency Hedged	2016				2015
	(in thousands)
Canadian/U.S. Dollar	$	14,685			$	17,448
Euro/U.S. Dollar	174,120				82,917
British Pound/Euro	1,382				9,409
Israeli Sheqel/U.S. Dollar	7,271				4,607
Japanese Yen/Euro	32,782				25,133
Japanese Yen/U.S. Dollar	6,716				—
Swiss Franc/U.S. Dollar	730				5,149
All other	11,848				12,592
Total	$	249,534			$	157,255

The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the twelve months ended September 30, 2016 and 2015:

Derivatives Not Designated as Hedging Instruments		Location of Gain or (Loss) Recognized in Income		Net realized and unrealized gain or (loss) (excluding the underlying foreign currency exposure being hedged)
				Twelve months ended
				September 30, 2016				September 30, 2015				September 30, 2014
				(in thousands)
Forward Contracts		Other Income (Expense)		$	(883	)		$	615			$	(3,769	)

As of September 30, 2016 and 2015, we had outstanding forward contracts designated as cash flow hedges with notional amounts equivalent to the following:

Currency Hedged	September 30, 2016				September 30, 2015
	(in thousands)
Euro / U.S. Dollar	$	26,181			$	—
Japanese Yen / U.S. Dollar	8,800				—
SEK / U.S. Dollar	4,078				—
Total	$	39,059			$	—

We had no derivative instruments designated as cash flow hedges in the Consolidated Statements of Operations for the twelve months ended September 30, 2015 and 2014. The following table shows the effect of the our derivative instruments designated as cash flow hedges in the Consolidated Statements of Operations for the twelve months ended September 30, 2016 (in thousands):

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Derivatives Designated as Hedging Instruments		Gain or (Loss)Recognized in OCI-Effective Portion				Location of Gain or (Loss) Reclassified from OCI into Income-Effective Portion		Gain or (Loss) Reclassified from OCI into Income-Effective Portion				Location of Gain or (Loss) Recognized-Ineffective Portion		Gain or (Loss) Recognized-Ineffective Portion
		Twelve Months Ended						Twelve Months Ended						Twelve Months Ended
		September 30, 2016						September 30, 2016						September 30, 2016
Forward Contracts		$	(3,859	)		Software Revenue		$	(2,436	)		Other Income (Expense)		$	(24	)

As of September 30, 2016, we estimated that approximately all values reported in accumulated other comprehensive income will be reclassified to income within the next twelve months.

In the event the underlying forecast transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to “Other Income (Expense)” on the Consolidated Statements of Operations. For the twelve months ended September 30, 2016, there were no such gains or losses.

The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:

	Fair Value of Derivatives Designated As Hedging Instruments								Fair Value of Derivatives Not Designated As Hedging Instruments
	September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
	(in thousands)								(in thousands)
Derivative assets (a):
Forward Contracts	$	44			$	—			$	216			$	507
Derivative liabilities (b):
Forward Contracts	$	1,477			$	—			$	1,693			$	46
(a) All derivative assets are recorded in “other current assets” in the Consolidated Balance Sheets.
(b) All derivative liabilities are recorded in "accrued expenses and other current liabilities" in the Consolidated Balance Sheets.

Offsetting Derivative Assets and Liabilities

We have entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.

The following table sets forth the offsetting of derivative assets as of September 30, 2016:

	Gross Amounts Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
September 30, 2016	Gross Amount of Recognized Assets				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amounts of Assets Presented in the Consolidated Balance Sheets				Financial Instruments				Cash Collateral Received				Net Amount
	(in thousands)
Forward Contracts	$	260			$	—			$	260			$	(260	)		$	—			$	—

The following table sets forth the offsetting of derivative liabilities as of September 30, 2016:

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	Gross Amounts Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
September 30, 2016	Gross Amount of Recognized Liabilities				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amounts of Liabilities Presented in the Consolidated Balance Sheets				Financial Instruments				Cash Collateral Pledged				Net Amount
	(in thousands)
Forward Contracts	$	3,170			$	—			$	3,170			$	(260	)		$	—			$	2,910

Net gains and losses on foreign currency exposures, including realized and unrealized gains and losses on forward contracts, included in foreign currency net losses, were net losses of $1.9 million, $2.7 million and $4.5 million for 2016, 2015 and 2014, respectively. Net realized and unrealized gains and losses on forward contracts included in foreign currency net losses were a net loss of 0.5 million in 2016, a net gain of 0.6 million in 2015, and a net loss of 3.8 million in 2014.

O. Segment Information

We operate within a single industry segment-computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have three operating and reportable segments: (1) the Solutions Group, which includes license, subscription, support and cloud services revenue for our core CAD, SLM and PLM products; (2) the IoT Group, which includes license, subscription, support and cloud services revenue for our IoT, analytics and augmented reality solutions, and (3) Professional Services, which includes consulting, implementation and training revenue. Our reported segment profit includes revenue from third party sales of our products and services, less direct controllable segment costs. Direct costs of the segments include certain costs of revenue, research and development and certain marketing costs. Costs excluded from segment margin include cost of revenue, selling expenses, corporate marketing and general and administrative costs that are incurred in support of all of our segments and are not specifically allocated to our segments for management reporting. Additionally, the segment profit does not include stock-based compensation, amortization of intangible assets, restructuring charges and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.

The revenue and profit attributable to our operating segments are summarized below. We do not produce asset information by reportable segment; therefore, it is not reported.

F-41

	Year ended September 30,
	2016				2015				2014
	(in thousands)
Solutions Group
Revenue	$	871,225			$	980,274			$	1,073,426
Direct costs	186,174				224,042				244,020
Profit	685,051				756,232				829,406
IoT Group
Revenue	72,371				49,249				4,815
Direct costs	83,747				28,998				8,534
Profit (loss)	(11,376		)		20,251				(3,719		)
Professional Services
Revenue	196,937				225,719				278,726
Direct costs	165,325				193,397				237,689
Profit	31,612				32,322				41,037
Total segment revenue	1,140,533				1,255,242				1,356,967
Total segment costs	435,246				446,437				490,243
Total segment profit	705,287				808,805				866,724
Other unallocated operating expenses (1)	666,028				723,780				641,742
Restructuring charges	76,273				43,409				28,406
Total operating income (loss)	(37,014		)		41,616				196,576
Interest and other expense, net	30,178				15,091				10,464
Income (loss) before income taxes	$	(67,192	)		$	26,525			$	186,112

(1)

The Solutions Group segment includes depreciation of $5.4 million, $5.6 million and $5.7 million in 2016, 2015 and 2014, respectively. The IoT Group segment includes depreciation of $1.6 million, $1.0 million and $0.1 million in 2016, 2015 and 2014, respectively. The Professional Services segment includes depreciation of $2.0 million, $2.2 million and $2.3 million in 2016, 2015 and 2014, respectively. Unallocated departments includes depreciation of $19.7 million, $20.1 million and $19.0 million in 2016, 2015 and 2014, respectively.

We report revenue by the following four product areas:

•	CAD: PTC Creo® and PTC Mathcad®.

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

•	SLM: PTC Arbortext® and PTC Servigistics®.

•	IoT: ThingWorx®, Axeda® and Vuforia.

	Year ended September 30,
	2016				2015				2014
	(in thousands)
CAD	$	462,307			$	511,582			$	581,508
PLM	456,285				524,741				599,312
SLM	141,644				166,060				170,980
IoT	80,297				52,859				5,167
Total revenue	$	1,140,533			$	1,255,242			$	1,356,967

F-42

Revenue and long-lived tangible assets for the geographic regions in which we operate is presented below.

	Year ended September 30,
	2016				2015				2014
	(in thousands)
Revenue:
Americas (1)	$	487,594			$	530,311			$	558,671
Europe (2)	424,268				467,805				528,090
Pacific Rim	123,766				139,165				148,151
Japan	104,905				117,961				122,055
Total revenue	$	1,140,533			$	1,255,242			$	1,356,967

	September 30,
	2016				2015				2014
	(in thousands)
Long-lived tangible assets:
Americas (3)	$	48,281			$	47,509			$	51,027
Europe	6,915				7,424				7,020
Asia-Pacific	11,917				10,229				9,736
Total long-lived tangible assets	$	67,113			$	65,162			$	67,783

(1)	Includes revenue in the United States totaling $463.1 million, $500.6 million and $518.7 million for 2016, 2015 and 2014, respectively.

(2)	Includes revenue in Germany totaling $167.2 million, $177.1 million and $200.3 million for 2016, 2015 and 2014, respectively.

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

Our international revenue is presented based on the location of our customer. We license products to customers worldwide. Our sales and marketing operations outside the United States are conducted principally through our international sales subsidiaries throughout Europe and the Asia-Pacific regions. Intercompany sales and transfers between geographic areas are accounted for at prices that are designed to be representative of unaffiliated party transactions.

P. Subsequent Events

Korea Tax Payment

In October 2016, we paid $12.0 million related the Korea tax assessment described in Note G. Income Taxes.

Restricted Stock Unit Grants

In November 2016, we granted the restricted stock units shown in the table below to employees, including some of our executive officers. The performance-based RSUs were granted to our executive officers. The RSUs granted to our executive officers are eligible to vest based upon our total shareholder return relative to a peer group target (the “TSR units”), measured annually over a three-year period that commenced on October 1, 2016. To the extent earned, these TSR units will vest in three substantially equal installments on the later of November 15, 2017, November 15, 2018 and November 15, 2019, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. RSUs not earned for a period may be earned in the third period. The number of TSR units that will vest will be based on the level of achievement up to a maximum of 495,000 shares, with no vesting if the annual threshold requirement is not achieved, or the employee is no longer with the Company at the end of the relevant performance period.

The time-based RSUs were issued to both employees and our executive officers. In addition, executive officers have opportunity to earn up to one or, for our CEO, two times the number of time-based RSUs (up to a maximum of 305,000 shares) if certain performance conditions are met. The time-based RSUs will vest in three substantially equal annual installments on November 15, 2017, 2018 and 2019. The performance-based RSUs will vest in three substantially equal installments on the later of November 15, 2017, November 15, 2018 and November 15, 2019, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved.

F-43

	TSR units				Performance-Based RSUs				Time-Based RSUs
	(in thousands)
Maximum number of RSUs eligible to vest	495				316				711
Intrinsic value on grant date based on the maximum number of RSUs eligible to vest	$	23,482			$	14,991			$	33,731

Borrowings

In November 2016, we borrowed $60 million under our credit facility to fund working capital requirements, including 2016 year end incentive-based compensation accruals.

F-44

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report.

The Consolidated Statements of Operations data for the years ended September 30, 2016, 2015, and 2014 and the Consolidated Balance Sheets data as of September 30, 2016 and 2015 are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report. The Consolidated Statements of Operations data for the years ended September 30, 2013 and 2012 and the Consolidated Balance Sheet data as of September 30, 2014, 2013 and 2012 are derived from our audited consolidated financial statements that are not included in this Annual Report. The historical results are not necessarily indicative of results in any future period.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (1)

(in thousands, except per share data)

	2016				2015				2014				2013				2012
Revenue	$	1,140,533			$	1,255,242			$	1,356,967			$	1,293,541			$	1,255,679
Gross margin	814,868				920,508				983,284				920,502				883,551
Operating income (loss) (2)	(37,014		)		41,616				196,576				127,324				128,096
Net income (loss) (2) (3)	(54,465		)		47,557				160,194				143,769				(35,398		)
Earnings (loss) per share—Basic (2) (3)	(0.48		)		0.41				1.36				1.20				(0.30		)
Earnings (loss) per share—Diluted (2) (3)	(0.48		)		0.41				1.34				1.19				(0.30		)
Total assets	2,352,253				2,209,913				2,199,954				1,828,906				1,791,634
Working capital (4)	(11,930		)		87,419				105,500				151,603				397,408
Long-term liabilities	855,068				732,482				719,398				373,813				512,631
Stockholders’ equity	842,666				860,171				853,889				926,480				797,259

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(in thousands, except per share data)

	September 30, 2016				July 2, 2016				April 2, 2016				January 2, 2016
Revenue	$	288,237			$	288,652			$	272,627			$	291,017
Gross margin	205,381				206,182				192,436				210,870
Operating income (loss) (2)	(33,075		)		7,596				1,758				(13,292		)
Net income (loss) (2) (3)	(28,473		)		3,073				(5,173		)		(23,892		)
Earnings (loss) per share (2) (3):
Basic	$	(0.25	)		$	0.03			$	(0.05	)		$	(0.21	)
Diluted	$	(0.25	)		$	0.03			$	(0.05	)		$	(0.21	)
Common Stock prices: (5)
High	$	44.75			$	39.44			$	34.20			$	37.09
Low	$	36.57			$	31.58			$	27.06			$	30.53

A-1

	September 30, 2015				July 4, 2015				April 4, 2015				January 3, 2015
Revenue	$	312,568			$	303,113			$	314,119			$	325,442
Gross margin	236,206				223,737				228,065				232,500
Operating income (loss) (2)	(21,610		)		21,607				3,988				37,631
Net income (loss) (2) (3)	(5,553		)		17,435				5,392				30,284
Earnings (loss) per share (2) (3):
Basic	$	(0.05	)		$	0.15			$	0.05			$	0.26
Diluted	$	(0.05	)		$	0.15			$	0.05			$	0.26
Common Stock prices: (5)
High	$	41.48			$	42.75			$	37.06			$	39.38
Low	$	30.97			$	36.09			$	31.15			$	33.61

(1)

The consolidated financial position and results of operations data reflect our acquisitions of Kepware on January 12, 2016 for $99.4 million in cash, Vuforia on November 3, 2015 for $64.8 million in cash, 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 and Servigistics on October 2, 2012 for $220.8 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 (loss) and net income (loss) in 2016 includes pre-tax restructuring charges of $76.3 million ($31.7 million in the fourth quarter, $2.8 million in the third quarter, $4.6 million in the second quarter and $37.2 million in the first quarter). 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".

A-2