~~Our sales and operations are globally dispersed, which exposes us to additional compliance risks,~~compete successfully, which could adversely affect our business and results of operations.

Finally, while we expect to have sufficient liquidity with cash on hand, cash generated from operations, and amounts available under our credit facility to meet our working capital and capital expenditure requirements through at least the next twelve months and our known long-term capital requirements, declines in cash flows could adversely affect our liquidity and we may be unable to draw on our credit facility as we expect due to covenants under the credit facility. If our liquidity is significantly impaired, it would significantly adversely affect our business due to our inability to pay our suppliers and our employees. Further, a significant liquidity impairment could cause us to be unable to make the required periodic interest payments due on our outstanding Senior Notes due 2028 and 2025, which would constitute an event of default under the applicable notes, and cause the aggregate principal amount of those notes on which we defaulted to become due and payable.

We depend on sales within the discrete manufacturing sector and our business could be adversely affected if manufacturing activity does not grow, or if it contracts, or if manufacturers are adversely affected by other economic factors.

A large amount of our sales are to customers in the discrete manufacturing sector. The global Manufacturing Purchasing Managers' Index (PMI) declined significantly in the second and third quarters of 2020 due to the impact of COVID-19 and, though it has recovered somewhat, remained approximately at the 50% level in September 2020.Although the volatility in Manufacturing PMI did not have a significant adverse effect on our business in FY’20, if the manufacturing sector does not improve or continues to decline, our customers in this sector may, as they have in the past, reduce or defer purchases of our products and services, which could adversely affect our financial results.

In addition, manufacturers worldwide are facing increasing uncertainty about the global economic climate due to, among other factors, the COVID-19 pandemic, the geopolitical environment and ongoing trade tensions and tariffs. In addition, within the technology industry the U.S. Administration’s focus on technology transactions with non-U.S. entities and potential expanded prohibitions has created additional uncertainty. In light of these concerns and challenges, including the potential enactment or expansion of laws that restrict our ability to sell our solutions to customers, customers may delay, reduce or forego purchases of our solutions, which would adversely affect our business and financial results.

If we fail to successfully manage our transition to a subscription-based licensing company, our business and financial results could be adversely affected.

We completed our transition from offering perpetual licenses for our products to offering only subscription-based licenses worldwide in January 2019 (excluding Kepware). While we expect our subscription base, recurring revenue and cash flow to increase over time as a result of this licensing model transition, our ability to achieve these financial objectives is subject to risks and uncertainties. Becoming a subscription-based licensing company requires a considerable investment of technical, financial, legal and sales resources, and a scalable organization. Whether our transition will be successful and will accomplish our business and financial objectives is subject to uncertainties, including but not limited to: customer demand, attach and renewal rates, channel acceptance, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer

requirements, and our costs. If we are unable to successfully establish these new offerings and navigate our business transition due to the foregoing risks and uncertainties, our business and financial results could be adversely impacted.

Because our sales and operations are globally dispersed, we face additional compliance risks and any compliance risk could adversely affect our business and financial results.

We sell and deliver software and services, and maintain support operations, in ~~a large number of~~many countries whose laws and practices differ from one another and are subject to unexpected changes. Managing these geographically dispersed operations requires significant attention and resources to ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.

Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act 2010), data privacy laws and regulations (including the European Union's General Data Privacy Regulation), and trade and economic sanctions laws and regulations (including laws administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities). The FCPA and UK Bribery Act prohibit us and business partners or agents acting on our behalf from offering or providing anything of value to persons considered to be foreign officials under those laws for the purposes of obtaining or retaining business. The UK Bribery Act also prohibits commercial bribery and accepting bribes. Our compliance risks ~~with these laws~~ are heightened due to the ~~global nature of our business, our new~~ go-to-market approach for our ~~IoT~~ business that relies heavily on ~~expanding our~~a partner ecosystem, the fact that we operate in, and are expanding into, countries with a higher incidence of corruption and fraudulent business practices than others, ~~and~~ the fact that we deal with governments and state-owned business enterprises, ~~the employees and representatives of which may be considered foreign officials for purposes of the FCPA~~ and the ~~UK Bribery Act.~~

fact that global enforcement of laws has significantly increased.

Accordingly, while we strive to maintain a comprehensive compliance program, we cannot guarantee that an employee, agent or business partner will not act in violation of our policies or U.S. or other applicable laws or that we may inadvertently violate such laws. Investigations of alleged violations of those laws can be expensive and disruptive. Violations of such laws can lead to civil and/or criminal prosecutions, substantial fines and other sanctions, including the revocation of our rights to continue certain operations, and also cause business and reputation ~~loss.~~

~~Our international businesses present economic and operating risks,~~loss, which could adversely affect our financial results and/or stock price.

II.Risks Related to Acquisitions and Strategic Relationships

Businesses we acquire may not generate the revenue and earnings we anticipate and may otherwise adversely affect our business.

We have acquired, and intend to continue to acquire, new businesses and technologies. If we fail to successfully integrate and manage the businesses and technologies we acquire, if an acquisition does not further our business strategy as we expect, or if a business we acquire has unexpected legal or financial liabilities, our operating results will be adversely affected.

The types of issues that we may face in integrating and operating the acquired business include:

•

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

•

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

•

diversion of management and employee attention;

•

loss of key personnel; and

•

potential incompatibility of business cultures.

Further, if we do not achieve the expected return on our investments it could impair the intangible assets and goodwill that we recorded as part of an acquisition, which could require us to record a reduction to the value of those assets.

We may incur significant debt or issue a material amount of debt or equity securities to finance an acquisition, which could adversely affect our operating flexibility and financial ~~results.~~

~~We expect that~~statements.

If we were to incur a significant amount of debt—whether by borrowing funds or issuing new debt securities—to finance an acquisition, our ~~international operations will continue~~interest expense, debt service requirements and leverage would increase significantly. The increases in these expenses and in our leverage could adversely impact our ability to ~~expand~~operate the company as we might otherwise and to ~~account for~~borrow additional amounts.

If we were to issue a significant ~~portion~~amount of equity securities in connection with an acquisition, existing stockholders would be diluted and earnings per share could decrease.

Our inability to maintain or develop our ~~total revenue. Because~~strategic and technology relationships could adversely affect our business.

We have many strategic and technology relationships with other companies with which we ~~transact business in various foreign currencies, the volatility of foreign exchange rates has had~~work to offer complementary solutions and ~~may in the future have a material adverse effect on~~services, that market and sell our ~~revenue, expenses~~solutions, and ~~operating results.~~

~~Other risks inherent~~that provide technologies that we embed in our ~~international~~solutions. We may not realize the expected benefits from these relationships and such relationships may be terminated by the other party. If these companies fail to perform or if a company terminates or substantially alters the terms of the relationship, we could suffer delays in product development, reduced sales or other operational difficulties and our business, results of operations ~~include, but are not limited~~and financial condition could be materially adversely affected.

III.Risks Related to ~~the following:~~

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

~~possible future limitations upon foreign-owned businesses;~~

~~increased financial accounting and reporting burdens and complexities;~~

~~inadequate local infrastructure; and~~

~~greater difficulty in protecting our intellectual property.~~

Our Intellectual Property

We may be unable to adequately protect our proprietary rights, which could adversely affect our business and our ability to compete effectively.

Our software products are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, the laws of all relevant jurisdictions may not afford adequate protection to our products and other intellectual property. In addition, we frequently encounter attempts by individuals and companies to pirate our software. If our measures to protect our intellectual property rights fail, others may be able to use those rights, which could reduce our competitiveness and revenues.

In addition, any legal action to protect our intellectual property rights that we may bring or be engaged in could be costly, may distract management from day-to-day operations and may lead to additional claims against us, and we may not succeed, all of which would materially adversely affect our operating results.

Intellectual property infringement claims could be asserted against us, which could be expensive to defend and could result in limitations on our use of the claimed intellectual property.

The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property ~~rights, as well as improper disclosure of confidential or proprietary information.~~rights. If a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel. We cannot be sure that we would prevail against any such asserted claims. If we did not prevail, we could be prevented from using the claimed intellectual property or be required to enter into royalty or licensing agreements, which might not be available on terms acceptable to us. In addition to possible claims with respect to our proprietary products, some of our products contain technology developed by and licensed from third parties and we may likewise be susceptible to infringement claims with respect to these third-party technologies.

~~Our financial condition could be adversely affected if significant errors or defects are found in our software.~~

Sophisticated software can sometimes contain errors, defects or other performance problems. If errors or defects are discovered in our products, we may need to expend significant financial, technical and management resources, or divert some of our development resources, in order to resolve or work around those defects, and we may not be able to correct them in a timely manner or provide an adequate response to our customers.

Errors, defects or other performance problems in our products could also cause us to lose revenue, lose customers and lose market share, and could subject us to liability. Such defects or problems could also damage our business reputation and cause us to lose new business opportunities.

~~We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.~~

~~Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:~~

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

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

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

~~changes~~

IV.Risks Related to ~~the financial accounting rules for income taxes;~~

~~unanticipated changes in tax rates; and~~

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

Because we have substantial cash requirements in the United States and a significant portion of our cash is generated and held outside of the United States, if our cash available in the United States and the cash available under our credit facility is insufficient to meet our operating expenses and debt repayment obligations in the United States, we may be required to raise cash in ways that could negatively affect our financial condition, results of operations and the market price of our securities.

We have significant operations outside the United States. As of September 30, 2017, approximately 90% of our cash and cash equivalents balance was held by subsidiaries outside the United States, with the remainder of the balance held by the U.S. parent company or its subsidiaries in the United States. We believe that the combination of our existing United States cash and cash equivalents, future United States operating cash flows and cash available under our credit facility, are sufficient to meet our ongoing United States operating expenses and known capital requirements. However, if these sources of cash are insufficient to meet our future financial obligations in the United States, we will be required to seek other available funding sources or repatriate cash to the United States with potentially incremental tax costs, which could negatively impact our results of operations, financial position and the market price of our securities.

On September 7, 2017, PTC entered into a lease for a new worldwide headquarters location in the Boston Seaport District, beginning in January 2019. Because our current headquarters lease will not expire until November 2022, our rent obligations for those premises will overlap, which could adversely affect our financial condition if we are unable to successfully exit our current headquarters lease or sublease that space.

Under our current headquarters lease, we pay approximately $7.4 million in annual base rent plus operating expenses (together, an annual total of approximately $12.0 million). We will begin paying rent under our new headquarters lease on July 1, 2020. Our rent under the new lease when we begin paying rent will be an annual base rent amount of $11.3 million plus our pro rata portions of building operating expenses and real estate taxes (approximately 63% of such amounts, estimated to be approximately $7.1 million in 2020). The base rent will increase by $0.3 million each year over the term of the lease. Accordingly, we will be required to pay rent for both locations from July 1, 2020 until November 30, 2022 unless we can successfully negotiate to exit our current lease or sublease our current premises. We may be unable to negotiate a financially desirable termination of our current lease or to sublease our current premises for an amount at least equal to our rent obligations under the current lease, which could adversely affect our cash flow and financial condition.

~~II. Other Considerations~~

Indebtedness

Our substantial indebtedness could adversely affect our business, financial condition and results of operations, as well as our ability to meet our payment obligations under our debt.

We have a significant amount of indebtedness. As of November ~~29, 2017,~~20, 2020, our total debt outstanding was approximately ~~$768 million, approximately $268 million of which was under our $600 million secured credit facility (which matures in September 2019) and $500 million~~$1.0 billion, all of which was associated with the 6%3.625% Senior Notes and 4.000% Senior Notes (together, “Senior Notes”) issued ~~May 2016,~~February 2020, which mature in ~~May 2024~~February 2025 and 2028, respectively, and are ~~unsecured (see~~ ~~Liquidity and Capital Resources-Outstanding Notes~~ ~~in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report).~~unsecured. All amounts outstanding under the credit facility and the ~~notes~~Senior Notes will be due and payable in full on their respective maturity dates. As of November ~~29, 2017,~~20, 2020, we had unused commitments under our credit facility of ~~approximately $319 million.~~$1.0 billion. PTC Inc. ~~(the parent company)~~ and one of our foreign subsidiaries are eligible borrowers under the credit facility and certain other foreign subsidiaries may become borrowers under our credit facility in the future, subject to certain conditions.

~~Notwithstanding the limits contained in the credit agreement governing~~

Specifically, our credit facility and the indenture governing our 2024 6% Notes, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt ~~could intensify. Specifically, our high level of debt~~ could:

•

make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults;

•

result in an event of default if we fail to comply with the financial and other covenants contained in the agreements governing our debt instruments, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;

•

limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

~~make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults;~~

•

reduce the availability of our cash to fund working capital, capital expenditures, acquisitions and other general corporate purposes and limit our ability to obtain additional financing for these purposes;

•

increase our vulnerability to the impact of adverse economic and industry conditions;

~~limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;~~

•

expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facility, are at variable rates of interest;

reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes and limit our ability to obtain additional financing for these purposes;

•

limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;

~~increase our vulnerability to the impact of adverse economic and industry conditions;~~

•

place us at a competitive disadvantage compared to other, less leveraged competitors; and

~~expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facility, are at variable rates of interest;~~

•

increase our cost of borrowing.

~~limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;~~

~~place us at a competitive disadvantage compared to other, less leveraged competitors; and~~

~~increase our cost of borrowing.~~

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements.

Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt and other obligations. This could further exacerbate the risks to our financial condition described above.

We and our subsidiaries may be able to incur significant additional indebtedness and other obligations in the future, including secured debt. Although the credit agreement governing our credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. The additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, the credit agreement and the indenture governing the Senior Notes will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, or we incur other obligations, the related risks that we now face could intensify.

We may not be able to generate ~~sufficient~~enough cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors, some of which are beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. Our debt agreements restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our debt obligations.

If we cannot make scheduled payments on our debt, we will be in default and the lenders under our credit facility could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings, the holders of our ~~2024 6%~~Senior Notes could declare all outstanding principal, premium, if any, and interest to be due and payable, and we could be forced into bankruptcy or liquidation. ~~All of these~~These events could result in a loss of your investment.

We are required to comply with certain financial and operating covenants under our debt agreements. Any failure to comply with those covenants could cause amounts borrowed to become immediately due and payable and/or prevent us from borrowing under the credit facility.

We are required to comply with specified financial and operating covenants under our debt agreements and to make payments under our debt, which limit our ability to operate our business as we otherwise might operate it. Our failure to comply with any of these covenants or to meet any debt

payment obligations could result in an event of default which, if not cured or waived, would result in any amounts outstanding, including any accrued interest and/or unpaid fees, becoming immediately due and payable. We might not have ~~sufficient~~enough working capital or liquidity to satisfy any repayment obligations ~~in the event of an acceleration of~~if those ~~obligations.~~obligations were accelerated. In addition, if we are not in compliance with the financial and operating covenants under the credit facility ~~at the time~~when we wish to borrow funds, we will be unable to borrow funds.

In addition, the financial and operating covenants under the credit facility may limit our ability to borrow funds, including for strategic acquisitions and share repurchases.

Our credit facility has variable interest tied to LIBOR and we could become subject to higher interest rates if the replacement rate we agree on with our banks is higher.

Borrowings under our revolving credit facility use the London Interbank Offering Rate (LIBOR) as a benchmark for establishing the interest rate. LIBOR is the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. Although we believe the recent discussions about alternative rates will not materially increase the interest rates on our credit facility, the final agreed rate may increase the cost of our variable rate indebtedness.

V.Risks Related to Our Common Stock

Our operating results fluctuate from quarter to quarter, making future operating results difficult to predict; failure to meet market expectations could cause the price of our securities to decline.

Our quarterly operating results historically have fluctuated and are likely to continue to fluctuate depending on many factors, including:

•

variability in our contracts, including timing of start dates, length of contracts, and mix of on-premises and cloud-based purchases, which would impact our revenue and earnings;

•

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

•

our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 in 2019 creates significant revenue volatility;

•

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

•

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

•

because a significant portion of our revenue and expenses are generated from outside the U.S., shifts in foreign currency exchange rates could adversely affect our reported results; and

•

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

Accordingly, our quarterly results are difficult to predict prior to the end of the quarter and we may be unable to confirm or adjust expectations with respect to our operating results for a quarter until that quarter has closed. Any failure to meet our ~~goal~~quarterly revenue or earnings expectations could adversely impact the market price of ~~returning 40% of free cash flow to shareholders through share repurchases, which could decrease your expected return on investment in PTC stock.~~

Our capital allocation strategy includes a long-term goal of returning approximately 40% of free cash flow (cash flow from operations less capital expenditures) to shareholders through share repurchases. Meeting this goal requires us to generate consistent free cash flow and have available capital in the years ahead in an amount sufficient to enable us to continue investing in organic and inorganic growth as well as to return a significant portion of the cash generated to stockholders in the form of share repurchases. We may not meet this goal if we do not generate the free cash flow we expect, if we use our available cash to satisfy other priorities, if we have insufficient funds available to make such repurchases, or if we are unable to borrow funds under our credit facility to make such repurchases. For example, covenant limitations under our credit facility, specifically, our leverage ratio, as a result of lower earnings due to our subscription transition, limited our ability to repurchase shares in 2017 and 2016.

Additionally, our cash flow fluctuates over the course of the year and over multiple years, so, although our goal is to return 40% of free cash flow to shareholders, that is an average over a longer term and the number of shares repurchased and amount of free cash flow returned in any given period will vary and may be more or less than 40% in any such period. Finally, the number of shares repurchased for a given amount of cash will vary based on PTC’s stock price, so the number of shares repurchased will not be a consistent or predictable number or percentage of outstanding stock.

securities.

Our stock price has been volatile, which may make it harder to resell shares at a favorable time and price.

Market prices for securities of software companies are generally volatile and are subject to significant fluctuations that may be unrelated or disproportionate to the operating performance of these companies. ~~The~~Further, our stock price has been more volatile than that of other software companies. Accordingly, the trading prices and valuations of ~~these~~software companies’ stocks, and of ours, may not be predictable. Negative changes in the public’s perception of the prospects of software companies, or of PTC or the markets we serve, could depress our stock price regardless of our operating results.

Also, a large percentage of our common stock is held by institutional ~~investors.~~investors and by Rockwell Automation. Purchases and sales of our common stock by these ~~institutional~~ investors could have a significant impact on the market price of the stock. For more information about those investors, please see our proxy statement with respect to our most recent annual meeting of stockholders and Schedules 13D and 13G filed with the SEC with respect to our common stock.

VI.Risks Related to Our ~~2024 6%~~Senior Notes

Our Senior Notes are unsecured and do not limit our ability to incur indebtedness, which could reduce any payments to holders of the Senior Notes in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of PTC.

Unlike the credit facility, which is secured, the Senior Notes are not secured. Although the indenture governing the Senior Notes limits our ability to incur secured debt, the covenant is subject to significant exceptions, and we may incur additional secured debt in the future. The effect of this subordination is that upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of bankruptcy, insolvency, liquidation, dissolution or reorganization of our company (collectively, “Adverse Events”), the proceeds from the sale of assets securing our secured indebtedness will be available to pay obligations on the Senior Notes only after all indebtedness under the credit facility and any other secured debt has been paid in full. As a result, the holders of the Senior Notes may receive less, ratably, than the holders of secured debt if an Adverse Event occurs.

In addition, the indenture governing the Senior Notes does not limit our ability to incur unsecured indebtedness. If we incur any additional indebtedness that ranks equally with the Senior Notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with holders of the Senior Notes in any proceeds distributed in connection with any of the Adverse Events described above. This may reduce the amount of proceeds to holders of the Senior Notes.

Our Senior Notes are not guaranteed by any of our subsidiaries, which could adversely affect our ability to pay interest on or redeem the Senior Notes when due.

We conduct a substantial portion of our operations through our subsidiaries, none of which currently guarantees the Senior Notes. Accordingly, payment of interest on the Senior Notes and redemption of the Senior Notes is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they become guarantors of the Senior Notes, our subsidiaries do not have any obligation to pay amounts due on the Senior Notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of the Senior Notes. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. If we do not receive distributions from our subsidiaries, we may be unable to make required payments of principal, premium, if any, and interest on the Senior Notes.

Our Senior Notesare not listed on any national securities exchange or included in any automated quotation system, which could make it harder to resell the notes at a favorable time and price.

Our ~~2024 6%~~Senior Notes are not listed on any national securities exchange or included in any automated quotation system. As a result, an active market for the notes may not exist or be maintained, which would adversely affect the market price and liquidity of the notes. In that case, holders may not be able to sell their notes ~~at a particular time~~when they want to or at a favorable price.

The market for non-investment grade debt historically has been subject to severe disruptions that have caused substantial volatility in the prices of securities similar to the notes. The market, if any, for the notes may experience similar disruptions and any such disruptions may adversely affect the liquidity in that market or the prices at which the notes may be sold.

VII.General Risk Factors

Our international businesses present economic and operating risks, which could adversely affect our business and financial results.

We expect that our international operations will continue to expand and to account for a significant portion of our total revenue. Because we transact business in various foreign currencies, the volatility of foreign exchange rates has had and may in the future have a material adverse effect on our revenue, expenses and operating results.

Other risks inherent in our international operations include, but are not limited to, the following:

•

difficulties in staffing and managing foreign sales and development operations;

•

possible future limitations upon foreign-owned businesses;

•

increased financial accounting and reporting burdens and complexities;

•

inadequate local infrastructure; and

•

greater difficulty in protecting our intellectual property.

We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

As a multinational organization, we are subject to income taxes as well as non-income based taxes in the U.S. and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our tax returns are subject to review by various taxing authorities. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes could be different from what is reflected in our historical income tax provisions and accruals. For example, we have an open tax dispute in South Korea with respect to which we paid $12 million in 2017 to accommodate the potential tax liability through 2015, which we are disputing. If we do not prevail in that challenge, we could be subject to additional liabilities for periods after 2015, which we estimate could be $17 million.

Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:

•

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

•

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

•

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

•

changes to the financial accounting rules for income taxes;

•

unanticipated changes in tax rates; and

•

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

ITEM 1B.

Unresolved Staff Comments

None.

~~None.~~


ITEM 2.	Properties

We currently ~~lease 94 offices~~have 88 office locations used in operations in the United States and internationally, predominately as sales and/or support offices and for research and development work. Of our total of approximately ~~1,367,000~~1,288,000 square feet of leased facilities used in operations, approximately ~~541,000~~521,000 square feet are located in the U.S., including ~~321,000~~250,000 square feet at our headquarters facility located in ~~Needham,~~Boston, Massachusetts, and approximately ~~297,000~~260,000 square feet are located in India, where a significant amount of our research and development is conducted. In addition, ~~we entered into a new lease~~approximately 276,000 feet are associated with facilities that have been restructured, primarily our previous headquarters facility in ~~September 2017 for 250,000 square feet in the Boston Seaport District. We expect to relocate our headquarters to this location in the second quarter of 2019.~~Needham, Massachusetts. We believe that our facilities are adequate for our present and foreseeable needs.


ITEM 3.	Legal Proceedings

Information on legal proceedings can be found in Note 10. Commitments and Contingencies of Notes to Consolidated Financial Statements in this Form 10-K, which information is incorporated herein by reference.

~~None.~~


ITEM 4.	Mine Safety Disclosures

Not applicable.

PART II


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

~~Information with respect to the market for our~~

Our common stock is ~~in Selected Consolidated Financial Data beginning~~traded on ~~page F-1 of this Form 10-K and is incorporated herein by reference.~~

the Nasdaq Global Select Market under the symbol "PTC."

On September 30, ~~2017,~~2020, the close of our fiscal year, and on November ~~27, 2017,~~18, 2020, our common stock was held by ~~1,219~~1,072 and ~~1,209~~1,070 shareholders of record, respectively.

ITEM 6.

Selected Financial Data

We do not pay cash dividends on our common stock and we retain earnings for use in our business or to repurchase our shares. Although we review our dividend policy periodically, our review may not cause us to pay any dividends in the future. Further, our debt instruments require us to maintain specified leverage and fixed-charge ratios that limit the amount of dividends that we could pay. (See "Credit Agreements" and "Outstanding Notes" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.)

~~The table below shows the shares of our common stock we repurchased in the fourth quarter of 2017~~.

Period (1) Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 2, 2017 - July 29, 2017 —
—
—
$375,066,435 (2)
July 30, 2017 - August 26, 2017 73,000
$ 54.59
73,000
$371,081,478 (2)
August 27, 2017 - September 30, 2017 216,100
$ 55.58
216,100
$0 (2)
Total 289,100
$ 55.33
289,100
$0 (2)

~~(1) Periods are our fiscal months within the fiscal quarter.~~

(2) In 2014, our Board authorized us to repurchase up to $600 million worth of our shares in the period August 4, 2014 through September 30, 2017, which repurchase program we announced on August 4, 2014. On September 14, 2017, our Board of Directors authorized us to repurchase up to $500 million of our

~~common stock for the period October 1, 2017 through September 30, 2020, which program we announced on September 19, 2017.~~

~~ITEM 6. Selected Financial Data~~

Our five-year summary of selected financial data and quarterly financial data for the past two years is located on ~~pages~~page A-1 ~~and A-2~~ at the end of this Form 10-K and incorporated herein by reference.


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

Forward-Looking Statements

Statements in this Annual Report about anticipated financial results and growth, as well as about the development of our products and markets, are forward-looking statements that are based on our current plans and assumptions. Important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in Item 1A. “Risk Factors” of this Annual Report.

~~Information about Our Financial Reporting~~

We use certain operating measures, including our Subscription Measures, and non-GAAP financial measures when discussing our business and results. We discuss these measures, how we use them and how they are calculated in “Subscription Measures” and “Non-GAAP Financial Measures” below.

Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.

Operating and Non-GAAP Financial Measures

Our discussion of results includes discussion of our ARR operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.

Executive Overview

~~We executed well across~~

ARR increased 14% to $1,270 million (11% and $1,236 million constant currency) compared to the end of FY’19. ARR growth was strong in our ~~key strategic~~much larger Core business and ~~operational objectives~~accelerated in ~~2017. Bookings grew~~our Growth business, but declined modestly in our Focused Solutions Group (FSG) business. Churn of 8.6% was slightly higher than expected.

FY’20 revenue of $1.46 billion increased 16% year over year ~~reflecting broad-based strength across our IoT, CAD~~driven by 26% recurring revenue growth, due in part to the adoption of ASC 606 and ~~PLM businesses~~related business policy changes. In Q4’20, contract durations were slightly longer than forecasted and strength in Europe, the Americas and our global channel. Our subscription transition initiative also progressed well throughout 2017, with subscription bookings constituting 69% of all software license bookings for the year and subscription revenue up 136% over 2016. Finally, we ~~improved our operating margins over 2016, despite~~had a higher than ~~expected subscription mix for~~anticipated number of conversions, both of which positively impacted the ~~year.~~

Year Ended Constant Currency Change
September 30, 2017 September 30, 2016
Revenue Change
(in millions)
Subscription $ 279.2
$ 118.3
136 % 135 %
Support 574.7
651.8
(12 )% (12 )%
Total recurring revenue 853.9
770.1
11 % 11 %
Perpetual license 133.4
173.5
(23 )% (23 )%
Total subscription, support and license revenue 987.3
943.6
5 % 5 %
Professional services 176.7
196.9
(10 )% (11 )%
Total revenue $ 1,164.0
$ 1,140.5
2 % 2 %

~~The increase in total revenue and~~amount of upfront subscription revenue ~~reflects our exit from~~recognized in the ~~trough~~quarter. FY’20 operating margin of 14% increased approximately 900 basis points and EPS increased significantly year over year due to the increase in revenue and ~~EPS growth that occurs when transitioning from~~ a ~~perpetual~~decrease in the effective tax rate, primarily due to subscription business model. As our mix of subscription sales relative to perpetual license sales has increased, perpetual license revenue and support revenue have declined. Additionally, professional services revenue has declined in accordance with our strategy to migrate more services engagements to our partners and to deliver products that require less consulting and training services.

~~License and subscription bookings grew 4% in 2017 over 2016, to $419 million, and grew 21% over 2015. Excluding~~ a ~~$20 million SLM mega deal from the fourth quarter of 2016, license and subscription bookings grew 10% in 2017 over 2016.~~

The increase in subscription revenue relative to perpetual license revenue has resulted in an increase in our recurring software revenue, with approximately 73% of our total revenue in 2017 from recurring software revenue streams, compared to 68% in 2016 and 59% in 2015. Annualized Recurring Revenue ~~was approximately $905 million as~~reduction of the ~~fourth quarter of 2017, an increase of 12% compared to the fourth quarter of 2016.~~

Year Ended
September 30, 2017 September 30, 2016
Earnings Measures Change

Operating Margin 3.5 % (3.2 )% 208 %
Earnings (Loss) Per Share $ 0.05
$ (0.48 ) 111 %

Non-GAAP Operating Margin⁽¹⁾
16.1 % 15.1 % 7 %
Non-GAAP EPS⁽¹⁾
$ 1.17
$ 1.19
(2 )%
(1) Non-GAAP measures are reconciled to GAAP results under Results of Operations - Non-GAAP Measures below.

GAAP and non-GAAP operating income in 2017 reflect an increase in gross margin associated with higher revenue and a lower mix of professional services revenue, which has lower margins than our software revenue, partially offset by higher costs associated with our cloud services revenue. Additionally, operating margin improved due to lower restructuring charges in 2017, which were $68.3 million lower in 2017 compared to 2016.

Our GAAP and non-GAAP earnings reflect an additional $12.5 million in interest expense due to our 2016 issuance of $500 million of 6.0% senior, unsecured long-term notes and a higher GAAP and non-GAAP tax rate in 2017 compared to 2016.

~~We ended 2017 with cash, cash equivalents and marketable securities of $330 million, up from $328 million at the end of 2016.~~ U.S. valuation allowance.

We generated ~~$135~~$234 million of cash from operations in ~~2017, which included $37~~FY'20 compared to $285 million in FY'19, primarily due to higher interest and restructuring payments in the year. We ended FY’20 with $335 million of ~~restructuring payments~~cash and marketable securities and $1.0 billion of debt outstanding, including $1 billion of Senior Notes with a $3weighted average cost of debt of 3.8%, and $18 million legal settlement payment. We used cash from operations to repurchase $51 million of common stock and to repay $40 million of borrowings under our credit facility in 2017. At September 30, 2017, the balance outstanding under our credit facility, which was ~~$218 million and total debt outstanding was $718 million.~~

~~Future Expectations, Strategies and Risks~~

~~Our transition~~paid down subsequent to ~~a subscription model has been a headwind for revenue and earnings in 2017, the effect of which is moderating as the subscription business matures and we exit the subscription trough. A~~

~~higher mix of subscription bookings is expected to benefit us over the long term, but results in lower revenue and lower earnings in the near term.~~

Our results have been impacted, and we expect will continue to be impacted, by our ability to close large transactions. The amount of bookings and revenue, particularly license and subscriptions, attributable to large transactions, and the number of such transactions, may vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. Such transactions may have long lead times as they often follow a lengthy product selection and evaluation process and, for existing customers, are influenced by contract expiration cycles. This may cause volatility in our results.

~~As we move into 2018, our three overriding goals continue to be:~~



	~~Sustainable Growth~~	~~Our goals for overall growth are predicated on continuing to grow in the IoT market and continuing to drive improvements in operational performance in our core CAD, PLM and SLM Solutions business.~~
	~~Expand Subscription~~	Through 2014, the majority of our software licenses were sold as perpetual licenses, under which customers own the software license and revenue is recognized at the time of sale. We began offering subscription licensing for our core Solutions Group products in 2015 and expanded our subscription program in 2016. Under a subscription, customers pay a periodic fee to license our software and access technical support over a specified period of time. As part of our expanded subscription program, we also launched a program for our existing customers to convert their support contracts to subscription contracts. A number of customers converted their support contracts to subscriptions in 2016 and 2017, and we expect there will be continued opportunities to convert existing support contracts to subscription contracts in 2018 and beyond. Given the subscription adoption rates we have seen in the Americas and Western Europe, effective January 1, 2018, new software licenses for our core solutions and ThingWorx solutions will be available only by subscription in the Americas and Western Europe. We plan to continue to offer both perpetual and subscription licenses to customers outside the Americas and Western Europe until such time as we believe a change may be appropriate. This could affect customer purchasing decisions, particularly in the affected regions, as customers may accelerate purchases of perpetual licenses before January 1, 2018 or, conversely, may delay purchases.
	~~Cost Controls and Margin Expansion~~	We continue to proactively manage our cost structure and invest in what we believe are high return opportunities in our business. Our goal is to drive continued margin expansion over the long term. We expect to deliver continued operating margin expansion in 2018, and we expect further margin expansion in 2019 and beyond, when we expect we will realize the compounding benefit of our maturing subscription model.

year end.

Results of Operations

~~Revenue, Operating Margin, Earnings per Share and Cash Flow~~

The following table shows the financial measures that we consider the most significant indicators of ~~the performance of~~ our ~~business.~~business performance. In addition to providing operating income, operating margin, ~~and~~ diluted earnings per share and cash from operations as calculated under ~~generally accepted accounting principles (“GAAP”), it shows~~GAAP, we provide non-GAAP operating income, non-GAAP operating margin, ~~and~~ non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude fair value adjustments related to acquired deferred revenue, acquired deferred costs, stock-based compensation expense, amortization of acquired intangible assets expense, acquisition-related and pension plan termination costs, restructuring charges, certain identified gains or charges includedthe items described in ~~non-operating other income (expense) and the related tax effects of the preceding items, as well as the tax items identified. These~~Non-GAAP Financial Measures below. Investors should use these non-GAAP financial measures provide investors another view of our operating results that is aligned with management budgets and with performance criteria in our incentive compensation plans. Management uses, and investors should use, non-GAAP financial measuresonly in conjunction with our GAAP results.

For discussion of FY'19 results and comparison with FY'18 results, refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

(Dollar amounts in millions, except per share data)	Year ended September 30,						Percent Change
	2020			2019			Actual			Constant Currency⁽¹⁾
Total recurring revenue	$	1,281.9		$	1,017.4			26	%		27	%
Perpetual license		32.7			70.7			(54	)%		(53	)%
Professional services		143.8			167.5			(14	)%		(13	)%
Total revenue		1,458.4			1,255.6			16	%		17	%
Total cost of revenue		334.3			325.4			3	%		3	%
Gross margin		1,124.1			930.3			21	%		22	%
Operating expenses		913.2			867.2			5	%		6	%
Operating income	$	210.9		$	63.0			234	%		281	%
Non-GAAP operating income⁽¹⁾	$	423.4		$	255.3			66	%		69	%
Operating margin		14.5	%		5.0	%
Non-GAAP operating margin⁽¹⁾		29.0	%		20.3	%
Diluted earnings (loss) per share	$	1.12		$	(0.23	)
Non-GAAP diluted earnings per share⁽¹⁾⁽²⁾	$	2.57		$	1.64
Cash flow from operations⁽³⁾	$	233.8		$	285.1
Free cash flow⁽⁴⁾	$	213.6		$	220.7

2017 2016 Percent change 2016 to 2017 2015 Percent change 2015 to 2016
Actual
Constant
Currency
Actual
Constant
Currency
(Dollar amounts in millions, except per share data)
Subscription $ 279.2
$ 118.3
136 % 135 % $ 65.2
81 % 83 %
Support 574.7
651.8
(12 )% (12 )% 681.5
(4 )% (2 )%
Total recurring revenue 853.9
770.1
11 % 11 % 746.8
3 % 5 %
Perpetual license 133.4
173.5
(23 )% (23 )% 282.8
(39 )% (37 )%
Total subscription, support and license revenue 987.3
943.6
5 % 5 % 1,029.5
(8 )% (6 )%
Professional services 176.7
196.9
(10 )% (11 )% 225.7
(13 )% (10 )%
Total revenue 1,164.0
1,140.5
2 % 2 % 1,255.2
(9 )% (7 )%
Total cost of revenue 329.0
325.7
1 % 334.7
(3 )%
Gross margin 835.0
814.9
2 % 920.5
(11 )%
Operating expenses 794.1
851.9
(7 )% 878.9
(3 )%
Total costs and expenses (1) 1,123.1
1,177.5
(5 )% (4 )% 1,213.6
(3 )% (1 )%
Operating income (loss) (1) $ 40.9
$ (37.0 ) 211 % 214 % $ 41.6
(189 )% (182 )%
Non-GAAP operating income (1) $ 188.4
$ 172.7
9 % 7 % $ 340.3
(49 )% (41 )%
Operating margin (1) 3.5 % (3.2 )% 3.3 %
Non-GAAP operating margin (1) 16.1 % 15.1 % 24.2 %
Diluted earnings (loss) per share (2) $ 0.05
$ (0.48 ) $ 0.41

Non-GAAP diluted earnings per share (2) $ 1.17
$ 1.19
$ 2.23

Cash flow from operations $ 134.6
$ 183.2
$ 179.9

(1)

~~(1)~~

~~Costs~~

See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP measures and ~~expenses in 2017 included $7.9 million~~Impact of ~~restructuring charges. Costs and expenses in 2016 included $76.3 million~~Foreign Currency Exchange on Results of ~~restructuring charges,~~Operations below for a ~~$3.2 million legal accrual, and $3.5 million~~description of ~~acquisition-related costs. Costs and expenses in 2015 included $73.2 million of pension plan termination-related costs, $43.4 million of restructuring charges,~~how we calculate our results on a $28.2 million legal accrual, and $8.9 million of acquisition-related costs. These restructuring, acquisition-related, pension plan termination and legal accrual costs have been excluded from non-GAAP operating income, non-GAAP operating margin and non-GAAP diluted EPS.constant currency basis.

(2)

~~(2)~~

We have a full valuation allowance against our U.S. net deferred tax assets and a valuation allowance against net deferred tax assets in certain foreign jurisdictions. As we are profitable on a non-GAAP basis, the non-GAAP tax provisions are calculated assuming there is no valuation allowance. Income ~~taxes for non-GAAP diluted earnings per share~~tax adjustments reflect the tax effects of non-GAAP adjustments, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments ~~described~~listed above.

(3)	Cash flow from operations for FY’20 and FY’19 includes $42 million and $25 million of restructuring payments, respectively, and $60.6 million and $40.8 million of interest payments, respectively. Cash from operations for FY’20 includes $9.6 million of acquisition-related payments.

(4)	Free cash flow is cash from operations net of capital expenditures of $20.2 million and $64.4 million in ~~Non-GAAP Financial Measures~~,FY’20 and ~~also exclude certain non-operating income and tax items. The GAAP diluted earnings per share in 2015 reflect a tax benefit of~~FY’19, respectively.

~~$18.7 million~~ ~~related to the reversal of a portion of the U.S. valuation allowance related to reducing deferred tax assets in connection with settling the U.S. pension plan.~~

~~Subscription Measures~~

Given the difference in revenue recognition between the sale of a perpetual software license (revenue is recognized at the time of sale) and a subscription (revenue is recognized ratably over the subscription term), we use bookings for internal planning, forecasting and reporting of new license and subscription sales and cloud services transactions.

~~Bookings~~

~~In order to normalize between perpetual and subscription licenses, we define~~ ~~subscription bookings~~ as the subscription annualized contract value (subscription ACV) of new subscription bookings multiplied by a conversion factor of 2. We arrived at the conversion factor of 2 by considering a number of variables, including pricing, support, length of term, and renewal rates. In 2017, 2016 and 2015, the average subscription contract term was approximately two years.

~~We define~~ ~~subscription ACV~~ as the total value of a new subscription booking divided by the term of the contract (in days), multiplied by 365. If the term of the subscription contract is less than a year, the ACV is equal to the total contract value.

S~~ubscription ACV increased 25% over 2016 to $143 million due to continued adoption of our subscription offerings around the globe.~~

~~We define~~ ~~license and subscription bookings~~ ~~as subscriptions bookings (as defined above) plus perpetual license bookings during the period.~~

License and subscription bookings for 2017 were $419 million, up 4% over 2016. Excluding a $20 million booking from a mega-deal in 2016, bookings increased 10% over 2016. CAD and PLM bookings grew 14% and 6%, respectively, for the full year and our IoT bookings grew above the market growth rate of 30%-40% organically and in total.

Because subscription bookings is a metric we use to approximate the value of subscription sales if sold as perpetual licenses, it does not represent the actual revenue that will be recognized with respect to subscription sales or that would be recognized if the sales had been perpetual licenses.

We believe that over time the revenue from these contracts will exceed the initial booking value as we expect customers will renew their subscriptions for more than two years and will expand their subscriptions as well.

~~Annualized Recurring Revenue (ARR)~~

Annualized Recurring Revenue (ARR) for a given period is calculated by dividing the non-GAAP subscription and support software revenue for the period by the number of days in the period and multiplying by 365. ARR should be viewed independently of revenue and deferred revenue as it is an operating measure and is not intended to be combined with or to replace either of those items. ARR is not a forecast and does not include perpetual license or professional services revenues.

~~ARR was approximately $905 million as of the fourth quarter of 2017, which increased 12% compared to the fourth quarter of 2016.~~

Impact of Foreign Currency Exchange on Results of Operations

Approximately ~~two thirds~~60% of our revenue and ~~half~~40% of our expenses are transacted in currencies other than the U.S. dollar. ~~Currency~~Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Starting in Q1’20, our constant currency disclosures are calculated by multiplying the results ~~which are~~ in ~~U.S. Dollars. Changes in~~local currency for FY’20 and FY’19 by the exchange rates ~~particularly for~~in effect on September 30, 2019, excluding the ~~Yen and the Euro, compared to the prior year decreased revenue and decreased expenses in 2017 and 2016.~~effect of any hedging. If ~~actual~~FY'20 reported results were converted into U.S. dollars based on ~~the corresponding prior year’s foreign currency exchange rates, 2017 and 2016~~this methodology, FY'20 revenue would have been ~~higher~~lower by ~~$1.0~~$12 million ~~and $24.4 million, respectively,~~ and expenses would have been ~~higher~~lower by ~~$3.0 million and $24.1 million, respectively.~~$4 million. The net impact on year-over-year results would have been a decrease in operating income of ~~$2.0~~$8 million in ~~2017 and an increase in operating income of $0.3 million in 2016.~~ FY'20.

The results of operations in the table above and revenue by line of business, product group, and ~~revenue by~~ geographic region in the tables that follow present both actual percentage changes year over year and percentage changes on a constant currency basis.

~~Acquisitions~~

~~There were no significant acquisitions~~

Revenue

Our revenue results period to period are impacted by contract terms, including the duration and start dates of our subscription contracts. Early in ~~2017. In 2017,~~Q4’19, we ~~had a full year~~discontinued offering cancellation rights for multi-year subscription contracts, which results in the recognition of the license portion of revenue for Kepware, which we acquired on January 12, 2016. Kepware contributed $16.1 million to 2016 revenue. In 2016, we also acquired Vuforia (on November 3, 2015) and in 2015, we acquired ColdLight (on May 7, 2015). Prior to their acquisitions, Vuforia and ColdLight revenues were not material.

~~Reclassifications~~

~~Effective with~~all years of the contract at the beginning of the ~~third quarter~~multiyear contract period for our on-premises subscription licenses. The discontinuation of ~~2017, we report cost~~the cancellation clause is expected to have less of ~~license and subscription revenue separately from cost of support revenue~~an impact in FY’21. We are expanding our SaaS offerings and are presenting cost of revenue in three categories: 1) cost of license and subscription revenue, 2) cost of support revenue, and 3) cost of professional services revenue. The discussion that follows reflectsreleasing additional cloud functionality into our ~~revised reporting structure.~~

~~Deferred Revenue and Backlog (Unbilled Deferred Revenue)~~

Deferred revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized. Unbilled deferred revenue (backlog) consists of contractually committed orders for license, subscription and support withproducts. As a ~~customer for which the customer has not yet been invoiced and the associated revenue has not been recognized. We do not record unbilled deferred revenue on~~result, our ~~Consolidated Balance Sheet until we invoice the customer.~~

September 30, 2017 September 30, 2016 September 30, 2015
(Dollar amounts in millions)
Unbilled deferred revenue $ 633
$ 369
$ 211
Deferred revenue 459
414
387
Total $ 1,092
$ 783
$ 598

Of the unbilled deferred revenue balance at September 30, 2017, we expect to invoice customers approximately $355 million within the next twelve months. Unbilled deferred revenue grew 72% year-over-year due to the high volume of new subscription bookings in the fourth quarter of 2017 with a billing and subscription start date of October 1, 2017 or later (which are booked in the quarter when the order is received if the start date is less than 100 days from the end of the quarter) and a large number of subscription renewals, with billing renewal dates of October 1, 2017 or later (in accordance with the 100 day booking rule), as well as the second or third year billing of multi-year subscription contracts. Many of our subscription bookings are for multiple years and are typically billed annually at the start of each

~~annual subscription period. The average contract duration was approximately 2 years for new subscription contracts in 2017 and 2016.~~

~~We expect that the amount of deferred revenue and unbilled deferred~~ revenue will ~~fluctuate from quarter to quarter due to the specific timing, duration and size~~be impacted as a higher portion of ~~customer subscription and support agreements, varying billing cycles of such agreements, the specific timing of customer renewals, foreign currency fluctuations, the timing of when deferred revenue is~~it will be recognized ~~as revenue and the timing of our fiscal quarter ends.~~ratably.

~~Revenue~~

Revenue is reported below by line of business (subscription, support, perpetual license and professional services), by product area (Solutions and IoT Groups) and by geographic region (Americas, Europe, Asia Pacific). Results include combined revenue from direct sales and our channel.

Revenue by Line of Business

(Dollar amounts in millions)	Year ended September 30,				Percent Change
	2020		2019		Actual			Constant Currency
License	$	509.8	$	324.4		57	%		58	%
Support and cloud services		804.8		763.7		5	%		6	%
Total software revenue		1,314.6		1,088.1		21	%		22	%
Professional services		143.8		167.5		(14	)%		(13	)%
Total revenue	$	1,458.4	$	1,255.6		16	%		17	%

~~Revenue~~

Software revenue increased in FY’20 compared to FY’19 due to subscription revenue growth, offset by ~~Group~~

Year ended September 30,
Percent Change Percent Change
2017 Actual
Constant
Currency
2016 Actual
Constant
Currency
2015
(Dollar amounts in millions)
Solutions Group
Software revenue 893.7
3 % 3 % 871.2
(11 )% (9 )% 980.3
Professional services 167.1
(12 )% (12 )% 189.0
(15 )% (12 )% 222.1
Total revenue $ 1,060.7
— % — % $ 1,060.2
(12 )% (10 )% $ 1,202.4
IoT Group

Software revenue 93.7
29 % 29 % 72.4
47 % 47 % 49.2
Professional services 9.6
22 % 21 % 7.9
120 % 121 % 3.6
Total revenue $ 103.3
28 % 28 % $ 80.3
52 % 52 % $ 52.9

~~Software Revenue Performance~~

~~Software revenue consists of subscription, support,~~declines in perpetual license and perpetual support revenue due to conversions of support contracts to subscriptions. In FY’20, subscription license ~~revenue. Subscription~~ revenue ~~is comprised of time-based licenses whereby customers use our software and receive related~~

~~support for a specified term, and for which revenue is recognized ratably over~~increased 88% (89% constant currency) compared to the ~~term~~year-ago period, due in part to the discontinuation of the ~~contract. Support revenue is composed of~~annual cancellation right in new multi-year contracts and in part to ~~maintain~~ new and/or previously purchased perpetual licenses, for which revenue is recognized ratably over the term of the contract. Perpetual licenses include a perpetual right to use the software, for which revenue is generally recognized up front upon delivery to the customer.

~~Solutions Group~~

~~Software revenue returned to growth~~conversions in 2017 after a trough in 2016, as the subscription model transition accelerated, customers purchased fewer perpetual licenses and associated support, and some existing support contracts converted to subscriptions. The strength in our Solutions business was driven by our CAD and core PLM businesses. CAD delivered 14% bookings growth for the full year, well above estimated market growth rates. Our CAD business has now delivered two consecutive years of double-digit constant currency bookings growth. Creo growth has benefited from our go-to-market improvement initiatives, evidenced by seven consecutive quarters of double-digit bookings growth in our reseller channel. In core PLM, full-year bookings grew 6%, which is in line with estimated market growth rates. PLM continues to benefit from sales of ThingWorx Navigate, for which we closed transactions across a variety of vertical markets, and which we believe presents an opportunity to drive continued PLM growth. We also closed several major strategic PLM deals in the Americas and Europe. Growth in CAD and PLM was offset by a significant decline in SLM bookings. Our SLM business is characterized by low volume, high dollar transactions and we have experienced volatility period to period in this business.

~~The decline in software revenue in 2016 compared to 2015 was driven primarily by a higher mix of subscription bookings as well as foreign currency rate changes and macroeconomic conditions.~~

~~IoT Group~~

The IoT Group delivered revenue growth in 2017 and 2016. In 2017, software revenue growth was driven by continued adoption of our IoT solutions, with IoT bookings growing above estimated market rates of 30% to 40% for the fiscal year, partially offset by higher subscription mix. IoT bookings continue to come from a wide variety of vertical markets and use cases, led by the industrial factory operations. In 2017, customer expansions comprised approximately 70% of ThingWorx bookings.

Additionally, Kepware, which we acquired on January 12, 2016, contributed to IoT revenue growth from 2015 to 2016 (with $16.1 million of revenue in 2016) and to a lesser extent in 2017 which included a full year of Kepware revenue.

FY’20.

Professional ~~Services Revenue~~

~~Consulting and training~~ services engagements typically result from sales of new ~~perpetual licenses and subscriptions, particularly~~licenses; revenue is recognized over the term of ~~our PLM and SLM solutions. The decline in professional services revenue in 2017 and 2016 was due in part to strong growth in bookings by our service partners, which~~the engagement. Our expectation is ~~in line with~~ ~~our strategy for professional services revenue to trend flat-to-down over time as we e~~xpand our service partner program under which service engagements are referred to third party service providers. Additionally, over time, we anticipate offering solutions that require less service. As a result, we do not expect that professional services revenue will ~~increase proportionately with software revenue. Foreign currency exchange rates impacted~~trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training services, and in the near-term will trend down due to the effects of the COVID-19 pandemic.

Professional services revenue ~~positively by $0.5 million~~declined in ~~2017~~FY’20 due to challenges with project scoping and ~~negatively by $5.9 million~~implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic. Additionally, there was an increase in ~~2016.~~

the estimated costs to complete a large fixed price professional services contract, which led to a corresponding decrease in the estimated percent complete and a related reversal of revenue.

Revenue by ~~Geographic Region~~Product Group

Software Revenue by Product Group
(Dollar amounts in millions)	Year ended September 30,				Percent Change
	2020		2019		Actual			Constant Currency
Core (CAD and PLM)	$	947.1	$	762.2		24	%		25	%
Growth (IoT, AR, Onshape)		183.8		140.2		31	%		32	%
FSG (Focused Solutions Group)		183.7		185.7		(1	)%		(1	)%
Software revenue	$	1,314.6	$	1,088.1		21	%		22	%

Total Revenue by Product Group
(Dollar amounts in millions)	Year ended September 30,				Percent Change
	2020		2019		Actual			Constant Currency
Core (CAD and PLM)	$	1,025.7	$	869.0		18	%		19	%
Growth (IoT, AR, Onshape)		222.6		167.5		33	%		34	%
FSG (Focused Solutions Group)		210.1		219.1		(4	)%		(4	)%
Total revenue	$	1,458.4	$	1,255.6		16	%		17	%

2017 Percent Change 2016 Percent Change 2015
% of Total Revenue Actual
Constant
Currency
% of Total Revenue Actual
Constant
Currency
% of Total Revenue
(Dollar amounts in millions)
Revenue by region:
Americas $ 500.9
43 % 3 % 2 % $ 487.6
43 % (8 )% (8 )% $ 530.3
42 %
Europe $ 435.1
37 % 3 % 4 % $ 424.3
37 % (9 )% (5 )% $ 467.8
37 %
Asia Pacific $ 228.0
20 % — % (2 )% $ 228.7
20 % (11 )% (11 )% $ 257.1
21 %

~~A significant percentage of our annual revenue comes from large customers in the broader manufacturing space. As a result,~~

Core product software revenue growth in ~~our core CAD and PLM products historically has correlated to growth in broader measures of the global manufacturing economy, including GDP, industrial production and manufacturing PMI.~~

~~The increase in revenue in 2017~~FY’20 compared to ~~2016~~FY’19 was driven by ~~our exit from the~~ subscription ~~trough coupled with strong new bookings performance despite a 1300 basis point increase in our subscription mix to 69% in 2017. Europe and Americas were strong, with full-year bookings~~revenue growth of ~~29% (28% on~~68% (69% constant currency), offset by expected declines in perpetual license and perpetual support revenue due to the end of sales of perpetual licenses at the end of Q1’19 and conversions of support contracts to subscriptions. Total revenue growth was lower than software revenue growth due to a decline in professional services revenue. In FY’20, professional services revenue declined 26% (actual and constant ~~currency basis) in Europe and flat in the Americas, up 15% excluding the $20 million mega deal from the fourth quarter of 2016. Asia Pacific bookings were down 16% in 2017~~currency) compared to ~~2016 (16% decline on a constant currency basis), primarily~~the year-ago period due ~~to Japan, which was down 42%. We believe that the decline~~ in ~~Japan is due primarily~~part to ~~sales execution issues, which we are addressing.~~

~~The decrease in revenue in 2016 compared to 2015 was driven primarily by a higher mix of subscription bookings as well as~~ the impact of ~~currency movements on reported revenue, particularly~~ the ~~Euro~~COVID-19 pandemic and the ~~Yen.~~impact of the professional services contract described above. ARR increased 14% (11% constant currency) for FY’20 compared to FY’19, reflecting solid ARR growth for both PLM and CAD.

~~Americas~~

Growth product software revenue growth in FY’20 was driven by subscription revenue growth of 49% (50% constant currency) compared to the year-ago period, offset by an expected decline in perpetual license revenue due to the end of sales of perpetual licenses at the end of Q1’19. The ~~increase in~~ revenue growth rate has been impacted by a decrease in the ~~Americas in 2017~~proportion of license revenue recognized upfront as we have released additional cloud functionality (for which revenue is recognized ratably) into our IoT products. Growth product ARR increased 34% (32% constant currency) for FY’20 compared to ~~2016 was~~FY’19, including growth from sales of our products through our strategic alliance with Rockwell Automation and reflecting strong growth in all three product lines.

FSG product software revenue declined in FY’20 compared to FY’19, primarily driven by a 13% (actual and constant currency) decrease in perpetual support revenue due to ~~strong bookings,~~conversions of support contracts to subscriptions. This decline was partially offset by a ~~higher subscription mix. The increase in revenue in the Americas in 2017 compared to 2016 consisted of an~~12% (13% constant currency) increase in subscription revenue ~~of 126% offset by decreases of 33%, 15% and 8%~~ in ~~perpetual license~~FY’20 compared to the year-ago period. The total revenue ~~support revenue and, professional services revenue, respectively.~~

~~The~~ decrease in ~~revenue~~FY’20 was higher than the decline in ~~the Americas in 2016 compared to 2015 consisted of decreases of 39%, 24% and 3% in perpetual license~~software revenue ~~professional services revenue and support revenue (primarily PLM), respectively, partially offset by an increase in subscription revenue of 58%.~~

~~Europe~~

~~The increase in revenue in Europe in 2017 compared to 2016 was~~ due to the strong bookings, partially offset by a higher subscription mix. The increase in revenue in Europe in 2017 compared to 2016 consisted of an increase of 139% in subscription revenue, offset by decreases of 17% in perpetual license revenue, 11% in professional services revenue, and 10% in support revenue. Currency did not have a material impact on revenue in 2017 relative to 2016.

The decrease in revenue in Europe in 2016 compared to 2015 consisted of decreases in perpetual license revenue of 46% (43% on a constant currency basis) and in support revenue of 6% (1% on a constant currency basis), partially offset by an increase in subscription revenue of 84% (91% on a constant currency basis).

~~Year-over-year changes in foreign currency exchange rates, particularly the Euro, unfavorably impacted European revenue by $3.9 million and $21.3 million in 2017 and 2016, respectively.~~

~~Asia Pacific~~

Asia Pacific revenue in 2017 compared to 2016 was flat, primarily due to a higher subscription mix and in part due to sales execution challenges in Japan. Asia Pacific bookings declined 16% on a constant currency basis in 2017 compared to 2016. Although below historical bookings, we saw some progress in Japan in the fourth quarter of 2017, with bookings growth of 80% sequentially to approximately $8 million.

In 2017 compared to 2016, subscription revenue increased by 178% offset by decreases in perpetual license revenue of 20%, in professional services revenue of 13% and in support revenue of 6%. Currency did not have a material effect on revenue in 2017 relative to 2016.

The decrease in revenue in Asia Pacific in 2016 compared to 2015 consisted of decreases in perpetual license revenue of 31% (29% on a constant currency basis), in professional services revenue of 10% (10% on a constant currency basis) and in support revenue of 4% (4% on a constant currency basis) partially offset by an increase in subscription revenue of 414% (374% on a constant currency basis).

~~Year-over-year changes in foreign currency exchange rates favorably impacted revenue by $1.6 million in 2017, and unfavorably by $0.2 million in 2016.~~

~~Gross Margin~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Gross margin $ 835.0
2 % $ 814.9
(11 )% $ 920.5
Non-GAAP gross margin 876.5
3 % 853.2
(11 )% 953.4
Gross margin as a % of revenue:
License and subscription gross margin 79 % 76 % 85 %
Support gross margin 84 % 87 % 88 %
Professional Services 15 % 14 % 12 %
Gross margin as a % of total revenue 72 % 71 % 73 %
Non-GAAP gross margin as a % of total non-GAAP revenue 75 % 75 % 76 %

The increase in total gross margin in 2017 compared to 2016 is in line with total revenue growth. Total revenue in 2017 grew 2% over 2016. Margins for license and subscription are beginning to expand as the subscription model matures and revenue that has been deferred begins to contribute to current periods. Support gross margins are down for 2017 compared to 2016 primarily due to the 12% decrease in support revenue associated with an increase in our subscription mix and the conversion of existing customers from support contracts to subscription. Support revenue comprised 49% of our total revenue in 2017 compared to 57% in 2016 and 54% in 2015.

Gross margin as a percentage of total revenue in 2016 compared to 2015 reflects lower software margins due to lower perpetual license revenue as a result of the acceleration of our subscription transition.

~~Costs and Expenses~~

2017
Percent
Change
2016
Percent
Change
2015

Cost of license and subscription revenue $ 86.0
23 % $ 69.7
31 % $ 53.2
Cost of support revenue 92.2
8 % 85.7
4 % 82.8
Cost of professional services revenue 150.8
(11 )% 170.2
(14 )% 198.7
Sales and marketing 372.9
1 % 367.5
6 % 346.8
Research and development 236.1
3 % 229.3
1 % 227.5
General and administrative 145.1
— % 145.6
(8 )% 158.7
U.S. pension settlement loss —

—

66.3
Amortization of acquired intangible assets 32.1
(3 )% 33.2
(8 )% 36.1
Restructuring charges 7.9
(90 )% 76.3
76 % 43.4
Total costs and expenses $ 1,123.1
(5 )% (1) $ 1,177.5
(3 )% (1) $ 1,213.6
Total headcount at end of period 6,041
4 % 5,800
(3 )% 5,982


~~(1)~~	~~On a constant currency basis from the prior period, total costs and expenses decreased~~ 4% ~~from~~ ~~2016~~ to ~~2017~~ ~~and decreased~~ 1% ~~from~~ ~~2015~~ to ~~2016~~.

~~2017 compared to 2016~~

~~Costs and expenses in 2017 compared to 2016 decreased primarily as a result of the following:~~

~~substantial completion of restructuring activities in 2016, for which restructuring charges totaled $76.3 million in 2016 compared to $7.9 million in 2017; and~~

a decrease in professional services revenue, which declined 21% (20% constant currency) in FY’20 compared to FY’19 due in part to the impact of the COVID-19 pandemic on our ability to execute professional services projects. FSG product ARR decreased 2% (4% constant currency) for FY’20 compared to FY’19, largely due to the impact of COVID-19 on FSG markets, primarily due to the non-renewal of a government contract which did not receive renewed funding.

Software Revenue by Geographic Region

A significant portion of our software revenue is generated outside the U.S. In both FY'19 and FY'20, approximately 45% of software revenue was generated in the Americas, 35% in Europe, and 20% in Asia Pacific.

(Dollar amounts in millions)	Year ended September 30,				Percent Change
	2020		2019		Actual			Constant Currency
Americas	$	592.7	$	484.1		22	%		23	%
Europe		482.5		379.9		27	%		28	%
Asia Pacific		239.4		224.1		7	%		7	%
Total revenue	$	1,314.6	$	1,088.1		21	%		22	%

Americas software revenue growth in FY’20 was driven by growth in subscription revenue of 44% (actual and constant currency) as compared to FY’19,partially offset by a decline of 16% (15% constant currency) in perpetual support revenue, resulting in recurring revenue growth of 24% (25% constant currency).

Europe software revenue growth in FY’20 was driven by growth in subscription revenue of 67% (69% constant currency) as compared to FY’19, partially offset by a decline in perpetual support revenue, resulting in recurring revenue growth of 28% (30% constant currency).

Asia Pacific software revenue growth in FY’20 was driven by growth in subscription revenue of 70% (actual and constant currency) as compared to FY’19, partially offset by declines of 86% (actual and constant currency) and 20% (actual and constant currency) in perpetual license and support revenue, respectively. Recurring revenue growth was 26% (actual and constant currency).

Gross Margin

(Dollar amounts in millions)	Year ended September 30,
	2020			2019			Percent Change
Gross margin:
License gross margin	$	456.6		$	272.5			68	%
License gross margin percentage		90	%		84	%
Support and cloud services gross margin	$	659.4		$	630.2			5	%
Support and cloud services gross margin percentage		82	%		83	%
Professional services	$	8.1		$	27.6			(71	)%
Professional services gross margin percentage		6	%		16	%

Total gross margin	$	1,124.1		$	930.3			21	%
Total gross margin percentage		77	%		74	%

Non-GAAP gross margin⁽¹⁾	$	1,165.5		$	970.0			20	%
Non-GAAP gross margin percentage⁽¹⁾		80	%		77	%

(1)	Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.

License gross margin increased in FY’20 compared to FY’19 due to revenue increasing significantly as a result of ASC 606 and the discontinuation of the cancellation clause, while cost of license expenses increased only slightly. License revenue growth was driven by an 88% (89% constant currency) increase in subscription license revenue year over year, partially offset by a 54% (53% constant currency) decrease in perpetual license revenue.

Support and cloud services gross margin decreased in FY’20 compared to FY’19 due to a decrease in perpetual support revenue and increases in costs associated with our cloud services business due to increased demand for those services, royalty expenses, and outside service costs. This was partially offset by increases in subscription support and cloud services revenue.

Professional services gross margin decreased in FY’20 compared to FY’19 primarily due to a decrease in ~~headcount as we migrated more service engagements~~revenue driven by the impact of the COVID-19 pandemic and a revenue reversal on a fixed price professional services contract due to ~~our partners and we delivered products that required less consulting and training services.~~

~~The decreases above were~~a change in the estimated cost to complete, partially offset by ~~increases~~decreases in outside services and travel costs.

Operating Expenses

(Dollar amounts in millions)	Year ended September 30,
	2020			2019			Percent Change
Sales and marketing	$	435.5		$	417.4			4	%
% of total revenue		30	%		33	%
Research and development		256.6			246.9			4	%
% of total revenue		18	%		20	%
General and administrative		159.8			127.9			25	%
% of total revenue		11	%		10	%
Amortization of acquired intangible assets		28.7			23.8			20	%
% of total revenue		2	%		2	%
Restructuring and other charges, net		32.7			51.1			(36	)%
% of total revenue		2	%		4	%
Total operating expenses	$	913.3		$	867.2			5	%

Total headcount increased by 3% in FY’20 to 6,243 from 6,055 at the end of FY’19. Headcount at the end of FY’20 includes approximately 130 people from Onshape and other smaller acquisitions.

Operating expenses in FY'20 compared to FY'19 increasedprimarily due ~~to:~~

to the following:

~~an increase of $18.1 million in total cost of license, subscription and support compensation costs primarily driven by increased headcount;~~

•

an increase in general and administrative expenses driven by a $17.6 million increase in compensation (including benefit costs), primarily related to stock-based compensation; a $6.1 million increase in professional fees; and a $5.5 million increase in acquisition-related charges;

•

a $37.3 million increase in sales and marketing compensation (including benefit costs) due to higher salaries related partially to higher headcount, higher commissions due to amortization of capitalized commissions under ASC 606, and higher stock-based compensation;

~~an increase of $8.7~~

•

an increase in research and development costs primarily related to a $9.2 million increase in compensation (including benefit costs) primarily due to higher salaries and stock-based compensation; and

•

an increase of $4.9 million in intangible amortization related to the acquisition of Onshape;

partially offset by:

•

decreases of $16.1 million in travel costs and $8.3 million in event and meeting expenses, both of which primarily impacted sales and marketing, due to the COVID-19 global pandemic; and

•

an $18.4 million decrease in restructuring and other charges.

Restructuring and other charges in ~~cloud services hosting costs due to an increase in SaaS revenue and related expenses and an increase in applications hosted in the cloud that support our IT infrastructure.~~

~~an increase of $5.0 million in total research and development compensation costs~~FY’20 primarily ~~driven by increased headcount; and~~

~~annual merit salary increases.~~

~~2016 compared to 2015~~

~~Costs and expenses in 2016 compared to 2015 decreased primarily as a result of the following:~~

~~cost savings from restructuring actions in 2016 and 2015;~~

acquisition and pension termination-related costs, which were $75.4 million lower in 2016 compared to 2015 due to costs associated with terminating our U.S. pension plan which totaled $73.2 million (including a $66.3 million settlement loss) in 2015;

~~a $28.2 million accrual recorded in 2015~~ related to an ~~investigation~~employee restructuring plan in ~~China; and~~

~~foreign currency rates which favorably impacted costs and expenses of 2016 by $24.1 million.~~

~~The decreases above were partially offset by increases due to:~~

cash-based incentive compensation expense, which was higher by $30.3 million in 2016 compared to 2015 (as a result of over performance on subscription mix in 2016 and because 2015 incentive targets were not achieved in full);

~~costs from acquired businesses (ColdLight, Vuforia, and Kepware added approximately 255 employees at~~ the ~~date~~first half of the ~~acquisitions);~~

~~an increase~~fiscal year to shift resources to support our SaaS initiatives. Restructuring and other charges in ~~stock-based compensation expense of $15.8 million in 2016, compared to 2015, due in part to a modification of performance-based awards previously granted under our long-term incentive programs;~~

~~investments in our IoT business; and~~

~~annual merit salary increases.~~

~~Cost of License and Subscription Revenue~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Cost of license and subscription revenue $ 86.0
23 % $ 69.7
31 % $ 53.2
% of total revenue 7 % 6 % 4 %
% of total license and subscription revenue 21 % 24 % 15 %

Our cost of license and subscription includes cost of license, which consists of fixed and variable costs associated with reproducing and distributing software and documentation, as well as royalties paid to third parties for technology embedded in or licensed with our software products, and amortization of intangible assets associated with acquired products, and cost of subscription, which includes our cost of cloud services and software as a service revenue, including hosting fees. Costs associated with providing post-contract support such as providing software updates and technical support for both our subscription offerings and our perpetual licenses are included in cost of support revenue. Cost of license and subscription revenue as a percent of license and subscription revenue can vary depending on the subscription mix percentage, the product mix sold, the effect of fixed and variable royalties, headcount and the level of amortization of acquired software intangible assets.

Costs in 2017 compared to 2016 increased primarily as a result of a $15.0 million increase in total compensation, benefit and travel expense due to increased headcount, primarily associated with supporting our Cloud products, and a $3.4 million increase in cloud services hosting costs.

Costs in 2016 compared to 2015 increased primarily as a result of a $5.2 million increase in total compensation, benefit and travel expense due to increased headcount, a $4.9 million increase in cloud services hosting costs and $1.9 million increase in amortization of acquired purchase software.

~~Cost of Support Revenue~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Cost of support $ 92.2
8 % $ 85.7
4 % $ 82.8
% of total revenue 8 % 8 % 7 %
% of total support revenue 16 % 13 % 12 %

Cost of support revenue consists of costs such as salaries, benefits, and computer equipment and facilities associated with customer support and the release of support updates (including related royalty costs) associated with providing support for both our perpetual licenses and subscription licenses.

~~Costs and expense in 2017 compared to 2016 increased primarily due to an increase of $3.1 million (5%) in total compensation, benefit and travel costs.~~

~~Costs and expense in 2016 compared to 2015 increased primarily due to an increase of $3.0 million (5%) in total compensation, benefit and travel costs.~~

~~Cost of Professional Services Revenue~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Cost of professional services revenue $ 150.8
(11 )% $ 170.2
(14 )% $ 198.7
% of total revenue 13 % 15 % 16 %
% of total professional services revenue 85 % 86 % 88 %

Our cost of professional services revenue includes costs such as salaries, benefits, information technology costs and facilities expenses for our training and consulting personnel, and third-party subcontractor fees.

~~In 2017 compared to 2016, total compensation, benefit costs and travel expenses decreased by $18.8 million. The cost of third-party consulting services was $4.7 million lower in 2017 compared to 2016.~~

~~In 2016 compared to 2015, total compensation, benefit costs and travel expenses decreased by $24.8 million. The cost of third-party consulting services was $2.6 million lower in 2016 compared to 2015.~~

As a result of decreases in professional services revenue in 2017, 2016 and 2015, we have reduced headcount, resulting in lower compensation-related costs. The decreases in 2017 and 2016 compared to the prior years in the cost of third-party consulting services is a result of our strategy to have our strategic services partners perform services for customers directly, which has decreased revenue and improved services margins.

~~Sales and Marketing~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Sales and marketing expenses $ 372.9
1 % $ 367.5
6 % $ 346.8
% of total revenue 32 % 32 % 28 %

~~Our sales and marketing expenses primarily include salaries and benefits, sales commissions, advertising and marketing programs, travel, information technology costs and facility expenses.~~

~~In 2017 compared to 2016, event costs increased $3.1 million due to our LiveWorx event held in May 2017. Our compensation, benefits and travel costs were $3.5 million lower in 2017 compared to 2016~~

~~primarily due to lower commissions, which were higher in 2016 as a result of significantly higher than planned subscription bookings.~~

Our compensation, benefit costs and travel expenses were higher by an aggregate of 5% ($14.4 million) in 2016 compared to 2015, which reflects lower salaries, offset by higher incentive-based compensation, including commissions (due primarily to higher than anticipated subscription bookings), and increased headcount.

~~Research and Development~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
Research and development expenses $ 236.1
3 % $ 229.3
1 % $ 227.5
% of total revenue 20 % 20 % 18 %

Our research and development expenses consist principally of salaries and benefits, information technology costs and facility expenses. Major research and development activities include developing new releases and updates of our software that enhance functionality and add features.

In 2017 compared to 2016, total compensation, benefit and travel expenses were higher by 3% ($5.0 million) due to an increase in headcount and a $1.6 million increase in cloud services hosting costs as some product testing has moved to a cloud environment. The percentage increase in headcount is greater than the percentage increase in total compensation costs due to a shift in headcount to lower cost geographies.

Total compensation, benefit costs and travel expenses were higher by 2% ($4.3 million) in 2016 compared to 2015. The decrease in research and development headcount from 2015 to 2016 reflects restructuring actions offset by approximately 132 employees added from businesses acquired since the second quarter of 2015.

~~General and Administrative (G&A)~~

2017
Percent
Change
2016
Percent
Change
2015
(Dollar amounts in millions)
General and administrative $ 145.1
— % $ 145.6
(8 )% $ 158.7
% of total revenue 12 % 13 % 13 %

Our G&A expenses include the costs of our corporate, finance, information technology, human resources, legal and administrative functions, as well as acquisition-related charges, bad debt expense and outside professional services, including accounting and legal fees. Acquisition-related costs include direct costs of acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, retention bonuses and severance, and professional fees, including legal and accounting costs,FY’19 largely related to the ~~acquisition. In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included in acquisition-related charges.~~

In 2017 compared to 2016, total compensation, benefit and travel cost increased by $7.0 million primarily because of merit increases and increased severance costs, as well as higher stock-based compensation due to a higher attainment of performance-based awards, an award modification, and the launch of the employee stock purchase plan (ESPP) in the fourth quarter of 2016. Offsetting the increases, acquisition-related charges decreased $4.9 million because there were no significant acquisitions in the year, and tax and audit fees decreased $1.8 million during the year.

The decrease in overall general and administrative costs in 2016 compared to 2015 was due primarily to a $28.2 million accrual recorded in 2015 related to the settlement of an investigation in China, partially offset by an increase in performance-based bonus and stock-based compensation of $23.7 million (due in part to a modification of performance-based awards previously granted under our long-term incentive programs).

~~U.S. pension settlement loss~~

2017 Percent
Change 2016 Percent
Change 2015
(Dollar amounts in millions)
U.S. pension termination loss $ —
$ —
$ 66.3
% of total revenue — % — % 5 %

~~U.S. pension settlement loss reflects the loss recognized in the fourth quarter of 2015 related to the termination~~exit of our ~~U.S. pension plan, due to the amortization of actuarial losses previously recorded in equity.~~Needham headquarters facility.

Interest Expense

(Dollar amounts in millions)	Year ended September 30,
	2020			2019			Percent Change
Interest expense	$	(76.4	)	$	(43.0	)		78	%

~~Amortization of Acquired Intangible Assets~~

2017 Percent
Change 2016 Percent
Change 2015
(Dollar amounts in millions)
Amortization of acquired intangible assets $ 32.1
(3 )% $ 33.2
(8 )% $ 36.1
% of total revenue 3 % 3 % 3 %

Amortization of acquired intangible assets reflects the amortization of acquired non-product related intangible assets, primarily customer and trademark-related intangible assets, recorded in connection with completed acquisitions. Amortization of intangible assets typically follows the economic benefit pattern of the acquired intangible assets.

The decrease in amortization of acquired intangible assets from 2015 to 2016 is due to certain intangibles becoming fully amortized, partially offset by an increase in amortization related to recent acquisitions.

~~Restructuring Charges~~

2017 2016 2015
(Dollar amounts in millions)
Restructuring charges $ 7.9
$ 76.3
$ 43.4
% of total revenue 1 % 7 % 3 %

Restructuring charges for 2017 were $7.9 million, including $5.6 million of facility related charges and $2.4 million of employee termination-related costs. As of September 30, 2017, we were materially complete with the restructuring actions and had incurred total restructuring charges of approximately $84.2 million. The cost savings associated with our 2017 and 2016 restructuring actions were largely offset by planned cost increases and investments in our business.

Restructuring charges for 2016 were $76.3 million, $77.1 million related to the plan announced in October 2015 described below, offset by a $0.8 million credit related to prior year restructuring actions.

The charge of $77.1 million in 2016 included $1.3 million of facility related charges and $75.8 million of employee related termination costs, primarily related to termination benefits associated with approximately 800 employees.

Our 2015 restructuring was undertaken to enable us to increase investment in our IoT 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. The restructuring actions resulted in charges of $43.4 million during 2015, including $1.4 million of facility related charges and $42.0 million of employee-related termination costs, primarily related to termination benefits associated with 411 employees. This reorganization resulted in net annualized

Interest expense ~~reductions of approximately $30 million.~~

~~In 2017, 2016 and 2015, we made cash payments related to restructuring charges of $37.1 million, $55.0 million and $53.6 million, respectively. At September 30, 2017, accrued expenses for unpaid~~

~~restructuring charges totaled $6.2 million, of which we expect to pay $4.1 million within the next twelve months.~~

~~Interest Expense~~

2017 2016 2015
(Dollar amounts in millions)
Interest expense $ (42.4 ) (29.9 ) (14.7 )

~~The increase in~~includes interest expense in 2017 compared to 2016 was due to a full year of interest being incurred on the $500 million 6% senior notes (the 2024 6% Notes) which were issued in the third quarter of 2016, and higher average interest rates on our revolving credit facility in 2017 compared to 2016.

~~The increase in interest expense in 2016 compared to 2015 was due to higher amounts outstanding~~ under our credit facility and senior notes. Interest expense was higher in FY’20 as compared to FY’19 primarily due to increased debt to complete the ~~issuance~~Onshape acquisition: we had $1,018 million of ~~the 2024 6% Notes. We had $758 million~~ total debt at September 30, ~~2016,~~2020, compared to ~~$668~~$673 million at September 30, ~~2015. We used~~2019. Additionally, we recognized $15 million of expense in FY’20 related to penalties for the ~~net proceeds from the issuance~~early redemption of the ~~2024 6%~~6.000% Senior Notes due 2024. For additional detail on the changes in our debt structure, see Note 9. Debt, included in the Notes to repay a portion of our outstanding revolving loan under our credit facility. Because the interest rate on the notes is higher than the variable rate we paid under our credit facility, our annual interest expense has increased.

Consolidated Financial Statements in this Annual Report.

The average interest rate on our total borrowings was ~~4.9%~~4.3% in ~~2017, 3.0%~~FY'20 and 5.4% in ~~2016~~FY'19. Our average interest rate on the $1.0 billion in Senior Notes will be 3.8% in FY’21.

Other Income (Expense)

(Dollar amounts in millions)	Year ended September 30,
	2020			2019			Percent Change
Interest income	$	3.8		$	4.1			(7	)%
Other expense, net		(3.5	)		(3.8	)		(6	)%
Other income (expense), net	$	0.3		$	0.3			(11	)%

Interest income represents earnings on the investment of our available cash and ~~1.7% in 2015.~~

~~Interest Income~~marketable securities.

Other expense, net includes foreign currency gains and ~~Other Expense, net~~

2017 2016 2015
(Dollar amounts in millions)
Foreign currency losses, net $ (5.7 ) $ (1.9 ) $ (2.7 )
Interest income 3.2
3.4
3.7
Other income (expense), net 2.5
(1.8 ) (1.3 )
$ 0.1
$ (0.3 ) $ (0.3 )

losses and other non-operating gains and losses. Foreign currency ~~net~~gains and losses include costs of hedging contracts, certain realized and unrealized foreign currency transaction gains or losses, and foreign exchange gains or losses resulting from the required period-end currency ~~re-measurement~~remeasurement of the assets and liabilities of our subsidiaries that use the U.S. dollar as their functional currency. ~~Because a large portion of~~

Income Taxes

(Dollar amounts in millions)	Year ended September 30,
	2020			2019			Percent Change
Income before income taxes	$	134.7		$	20.3			564	%
Provision for income taxes		4.0			47.8			(92	)%
Effective income tax rate		3	%		235	%

In FY’20 and FY’19, our revenue and expenses is transacted in foreign currencies, we engage in hedging transactions involving the use of foreign currency forward contracts to reduce our exposure to fluctuations in foreign exchange rates. Changes in the balance year over year are due to required period-end currency re-measurement of the assets and liabilities of our subsidiaries that usetax rate differed from the U.S. ~~Dollar as their functional currency. Hedging costs increased $1.3 million in 2017 compared to 2016.~~

~~Interest~~statutory federal income represents earnings on the investment of our available cash balances and interest on financing provided to customers as described in Note B Summary of Significant Accounting Policies of "Notes to Consolidated Financial Statements" in this Annual Report.

~~Other income (expense), net is primarily made up other non-operating gains and losses. In January 2017, we sold a cost method investment for a gain of $3.7 million.~~

~~Income Taxes~~

~~Tax Provision and Effective Income Tax Rate~~

2017 2016 2015
(Dollar amounts in millions)
Pre-tax income (loss) $ (1.4 ) $ (67.2 ) $ 26.5
Tax benefit (7.6 ) (12.7 ) (21.0 )
Effective income tax rate 544 % 19 % (79 )%

~~In 2017 and 2016 our effective~~ tax rate ~~was materially impacted by~~due to our corporate structure in which our foreign taxes are at ana net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland. In ~~2017, 2016~~FY’20 and ~~2015,~~FY’19 the foreign rate differential predominantly relates to these Irish ~~earnings.~~earnings.

In FY’20, in addition to the foreign rate differential, our tax rate differed from the statutory federal income tax rate due to U.S. tax reform, the excess tax benefit related to stock-based compensation and the indirect effects of the adoption of ASC 606. Additionally, we ~~have a full~~recorded benefits for the reduction of the U.S. valuation allowance as a result of the Onshape acquisition. A further reduction to the valuation allowance was also recorded to reflect the impact from the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets.

On March 27, 2020, the U.S. Federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES ACT”). The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic, which among other things contains numerous income tax provisions. We have determined that the impact of the CARES Act was not material to our consolidated financial statements.

In FY’19, our effective tax rate was higher than the statutory federal income tax rate due in large part to the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets inrequiring an increase to the U.S.~~, primarily~~ valuation allowance, U.S. tax reform and foreign withholding taxes, an obligation of the U.S. parent. This is offset by foreign rate differences, the excess tax benefit related to ~~net operating loss~~stock-based compensation and the indirect effects of the adoption of ASC 606.

In Q4’16, we received an assessment of approximately $12 million from the tax ~~credit carry forwards. As~~authorities in South Korea. The assessment relates to various tax issues, primarily foreign withholding taxes. We have appealed and intend to vigorously defend our positions. We believe that upon completion of a ~~result,~~multi-level appeal process it is more likely than not that our positions will be sustained. Accordingly, we have not recorded a ~~benefit related~~tax reserve for this matter. We paid this assessment in Q1’17 and have recorded the amount in other assets, pending resolution of the appeal process. If the South Korean tax authorities were to ~~ongoing U.S. losses. Our foreign rate differential~~prevail then, in ~~2017, 2016~~addition to the $12 million already assessed, the potential additional exposure through FY’20 would be approximately $17 million. We are continuing to work with our advisors during the court process and ~~2015~~still believe our position is sustainable.

In April 2020, we became aware of a potential new interpretation of a withholding tax law in a non-U.S. jurisdiction and its application to certain transactions that was not previously reasonably knowable by us. We have evaluated this new interpretation and made an estimate of the potential tax liability, a reserve for which was recorded in Q3’20 and had an immaterial impact to our consolidated financial statements.

Operating Measure

ARR

ARR (Annual Run Rate) represents the annual value of our portfolio of active renewable customer contracts as of the end of the reporting period, including subscription software, cloud, and support contracts. ARR includes IoT and AR orders placed under our Strategic Alliance Agreement with Rockwell Automation and includes orders placed to satisfy contractual quarterly minimum commitments.

We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from new customers, existing customer renewals and expansions, and includes the ~~continuing rate benefit from a business realignment completed on September 30, 2014 in~~impact of churn, which ~~intellectual property was transferred between two wholly-owned foreign subsidiaries. The realignment allows us to more efficiently manage~~reflects gross churn, offset by the ~~distribution~~impact of ~~our products to European customers. In 2017 and 2016,~~any pricing increases.

Because this ~~realignment resulted in a tax benefit~~measure represents the annual value of ~~approximately $28 million each year and a benefit~~renewable customer contracts as of $24 million in 2015. In 2017 and 2016, we released valuation allowances in certain foreign subsidiaries and recorded benefits of $9.0 and $3.1 million, respectively. Also, in 2017, we recorded a tax benefit of $3.5 million related to the ~~release~~end of a ~~tax reserve upon completion of a favorable agreement with tax authorities~~reporting period, ARR does not represent revenue for any particular period or remaining revenue that will be recognized in ~~a foreign jurisdiction.~~

Additionally, in 2015, U.S. permanent items include the tax effect of a $14.5 million expense related to the settlement of an investigation in China. Other factors that impacted the 2015 effective tax rate included: 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.

~~Valuation Allowance~~

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 our valuation allowance requirements each financial reporting period.

~~Tax Audits and Examinations~~

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service (IRS) in the U. S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates.

~~Our Future Effective Income Tax Rate~~

~~Our~~ future effective income tax rate may be materially impacted by the amount of income taxes associated with our foreign earnings, which are taxed at rates different from the U.S. federal statutory income tax rate, as well as the timing and extent of the realization of deferred tax assets and changes in the tax law. Further, our tax rate may fluctuate within a fiscal year, including from quarter to quarter, due to items arising from discrete events, including settlements of tax audits and assessments, the resolution or identification of tax position uncertainties, and acquisitions of other companies.

periods.

Non-GAAP Financial Measures

The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:

•

free cash flow—cash flow from operations

•

non-GAAP revenue—GAAP revenue

•

non-GAAP gross margin—GAAP gross margin

•

non-GAAP operating income—GAAP operating income

•

non-GAAP operating margin—GAAP operating margin

•

non-GAAP net income—GAAP net income

•

non-GAAP diluted earnings or loss per share—GAAP diluted earnings or loss per share

Free cash flow is cash flow from operations net ~~income—GAAP net income~~

~~non-GAAP diluted earnings per share—GAAP diluted earnings per share~~

of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements (including our construction expenses for our new Seaport headquarters in FY’19), office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.

The non-GAAP financial measures other than free cash flow exclude, as applicable: fair value adjustments related to acquired deferred revenue and deferred ~~costs,~~costs; stock-based compensation ~~expense,~~expense; amortization of acquired intangible ~~assets expense,~~assets; acquisition-related ~~charges, pension plan termination-related costs, a legal settlement~~

~~accrual, restructuring charges, non-operating credit facility refinancing costs, identified discrete~~and other transactional charges included in general and administrative expenses; restructuring and other charges, net; non-operating ~~other expense, net~~charges; and ~~the related~~income tax ~~effects of the preceding~~adjustments.

The items ~~and any other identified tax items.~~

~~These items~~excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors.

Fair value adjustment of acquired deferred revenue is a purchase accounting adjustment recorded to reduce acquired deferred revenue to the fair value of the remaining obligation, so our GAAP revenue after an acquisition does not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. We believe excluding these adjustments to revenue from these contracts (and associated costs in fair value adjustment toof acquired deferred ~~services cost~~costs) is useful to investors as an additional means to assess revenue trends of our business.

Stock-based compensation is a non-cash expense relating to stock-based awards issued to executive officers, employees and outside directors, consisting of ~~restricted stock, stock options and~~ restricted stock units. We exclude this expense as it is a non-cash expense and we assess our internal operations excluding this expense and believe it facilitates comparisons to the performance of other companies in our industry.

Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.

Acquisition-related and other transactional charges included in general and administrative ~~costs~~ expenses aredirect costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. ~~In addition, subsequent~~Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition-related charges. Other transactional charges include third-party costs related to structuring unusual transactions. We do not include these costs when reviewing our operating results internally. The occurrence and amount of these costs will vary depending on the timing and size of acquisitions.

~~U.S. pension plan termination-related costs~~ ~~include~~

Restructuring and other charges, net includes excess facility restructuring charges (credits); headquarters relocation charges; impairment and accretion expense charges related to ~~our plan that we began terminating in~~ the ~~second quarter~~lease assets of ~~2014. Costs associated with termination of the plan are not considered part of our regular operations.~~

~~Legal accrual~~ ~~includes amounts accrued to settle our SEC~~exited facilities; sublease income from previously impaired facilities; and DOJ FCPA investigation in China, which was ultimately settled and paid in the second quarter of 2016 for $28.2 million, and other amounts in respect of related regulatory and other matters. We view these matters as non-ordinary course events and exclude the amounts when reviewing our operating performance.

~~Restructuring charges~~ ~~include~~ severance costs ~~and excess facility restructuring charges~~ resulting from reductions of personnel driven by modifications to our business strategy. Headquarters relocation charges are non-cash accelerated depreciation expense recorded in advance of exiting our prior headquarters facility due to changes in the estimated useful lives of fixed assets and overlapping rental expense for the Needham and Seaport facilities. We do not include these costs when reviewing our operating results internally. These costs may vary in size based on our restructuring plan.

Non-operating ~~credit facility refinancing~~charges. In Q2’20, we incurred an early redemption interest penalty and in Q3’20, we wrote off debt issuance costs, ~~are non-operating charges we record as a result~~ both of which were related to the settlement of the ~~refinancing~~6.000% Senior Notes due 2024 and which are also excluded from our non-GAAP financial measures as they are non-ordinary course in nature and not included in management’s review of our ~~credit facility. We assess our internal operations excluding these costs and believe it facilitates comparisons to the performance of other companies in our industry.~~

results.

Income tax adjustments include the tax impact of the items above and assumes that we are profitable on a non-GAAP basis in the U.S. and one foreign ~~jurisdiction, and~~jurisdiction. It also eliminates the effect of the valuation allowance recorded against our net deferred tax assets in those jurisdictions. Additionally, we exclude other material tax items that we ~~view as non-ordinary course.~~

do not include when reviewing our operating results internally.

We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of ~~peer companies.~~

other companies in our industry that use similar financial measures to supplement their GAAP results.

The items excluded from the non-GAAP financial measures often have a material impact on our financial results and such items often recur. Accordingly, the non-GAAP financial measures included in this Annual Report should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.

(in millions, except per share amounts)	Year ended September 30,
	2020			2019
GAAP revenue	$	1,458.4		$	1,255.6
Fair value adjustment of acquired deferred revenue		—			0.8
Non-GAAP revenue	$	1,458.4		$	1,256.4
GAAP gross margin	$	1,124.1		$	930.3
Fair value adjustment of acquired deferred revenue		—			0.8
Fair value adjustment to deferred services cost		—			(0.3	)
Stock-based compensation		14.0			11.9
Amortization of acquired intangible assets included in cost of revenue		27.4			27.3
Non-GAAP gross margin	$	1,165.5		$	970.0
GAAP operating income	$	210.9		$	63.0
Fair value adjustment of acquired deferred revenue		—			0.8
Fair value adjustment to deferred services cost		—			(0.3	)
Stock-based compensation		115.1			86.4
Amortization of acquired intangible assets included in cost of revenue		27.4			27.3
Amortization of acquired intangible assets		28.7			23.8
Acquisition-related and other transactional charges included in general and administrative expenses		8.6			3.1
Restructuring and other charges, net		32.7			51.1
Non-GAAP operating income	$	423.4		$	255.3
GAAP net income (loss)	$	130.7		$	(27.5	)
Fair value adjustment of acquired deferred revenue		—			0.8
Fair value adjustment to deferred services cost		—			(0.3	)
Stock-based compensation		115.1			86.4
Amortization of acquired intangible assets included in cost of revenue		27.4			27.3
Amortization of acquired intangible assets		28.7			23.8
Acquisition-related and other transactional charges included in general and administrative expenses		8.6			3.1
Restructuring and other charges, net		32.7			51.1
Non-operating charges⁽¹⁾		18.5			—
Income tax adjustments⁽²⁾		(63.3	)		29.7
Non-GAAP net income	$	298.4		$	194.5
GAAP diluted earnings (loss) per share	$	1.12		$	(0.23	)
Fair value adjustment of acquired deferred revenue		—			0.01
Stock-based compensation		0.99			0.73
Total amortization of acquired intangible assets		0.48			0.43
Acquisition-related and other transactional charges included in general and administrative expenses		0.07			0.03
Restructuring and other charges, net		0.28			0.43
Non-operating charges⁽¹⁾		0.16			—
Income tax adjustments⁽²⁾		(0.54	)		0.25
Non-GAAP diluted earnings per share⁽³⁾	$	2.57		$	1.64

Year ended September 30,
2017 2016 2015
(in millions, except per share amounts)
GAAP revenue $ 1,164.0
$ 1,140.5
$ 1,255.2
Fair value of acquired deferred revenue 2.7
3.5
3.9
Non-GAAP revenue $ 1,166.8
$ 1,144.0
$ 1,259.1

GAAP gross margin $ 835.0
$ 814.9
$ 920.5
Fair value of acquired deferred revenue 2.7
3.5
3.9
Fair value to acquired deferred costs (0.4 ) (0.5 ) (0.5 )
Stock-based compensation 12.6
10.8
10.2
Amortization of acquired intangible assets included in cost of revenue 26.6
24.6
19.4
Non-GAAP gross margin $ 876.5
$ 853.2
$ 953.4

GAAP operating income (loss) $ 40.9
$ (37.0 ) $ 41.6
Fair value of acquired deferred revenue 2.7
3.5
3.9
Fair value to acquired deferred costs (0.4 ) (0.5 ) (0.5 )
Stock-based compensation 76.7
66.0
50.2
Amortization of acquired intangible assets included in cost of revenue 26.6
24.6
19.4
Amortization of acquired intangible assets 32.1
33.2
36.1
Acquisition-related charges included in general and administrative expenses 1.6
3.5
8.9
U.S. pension plan termination-related costs (1) 0.3
—
73.2
Legal accrual —
3.2
28.2
Restructuring charges (credits), net 7.9
76.3
43.4
Non-GAAP operating income $ 188.4
$ 172.7
$ 304.3

GAAP net income (loss) $ 6.2
$ (54.5 ) $ 47.6
Fair value of acquired deferred revenue 2.7
3.5
3.9
Fair value to acquired deferred costs (0.4 ) (0.5 ) (0.5 )
Stock-based compensation 76.7
66.0
50.2
Amortization of acquired intangible assets included in cost of revenue 26.6
24.6
19.4
Amortization of acquired intangible assets 32.1
33.2
36.1
Acquisition-related charges included in general and administrative expenses 1.6
3.5
8.9
U.S. pension plan termination-related costs (1) 0.3
—
73.2
Legal accrual —
3.2
28.2
Restructuring charges (credits), net 7.9
76.3
43.4
Non-operating credit facility refinancing costs 1.2
2.4
—
Income tax adjustments (2) (17.4 ) (19.8 ) (51.1 )
Non-GAAP net income $ 137.6
$ 137.8
$ 259.2

GAAP diluted earnings (loss) per share $ 0.05
$ (0.48 ) $ 0.41
Fair value of acquired deferred revenue 0.02
0.03
0.03
Fair value to acquired deferred costs —
—
—
Stock-based compensation 0.65
0.57
0.43
Total amortization of acquired intangible assets 0.50
0.50
0.48

Acquisition-related charges included in general and administrative expenses 0.01
0.03
0.08
U.S. pension plan termination-related costs —
—
0.63
Legal accrual —
0.03
0.24
Restructuring charges (credits), net 0.07
0.66
0.37
Non-operating credit facility refinancing costs 0.01
0.02
—
Income tax adjustments (2) (0.15 ) (0.17 ) (0.44 )
Non-GAAP diluted earnings per share (3) $ 1.17
$ 1.19
$ 2.23

Year ended September 30,
Operating margin impact of non-GAAP adjustments: 2017 2016 2015
GAAP operating margin 3.5 % (3.2 )% 3.3 %
Fair value of acquired deferred revenue 0.2 % 0.3 % 0.3 %
Fair value to acquired deferred costs — % — % — %
Stock-based compensation 6.6 % 5.8 % 4.0 %
Total amortization of acquired intangible assets 5.0 % 5.1 % 4.4 %
Acquisition-related charges included in general and administrative expenses 0.1 % 0.3 % 0.7 %
U.S. pension plan termination-related costs — % — % 5.8 %
Legal accrual — % 0.3 % 2.2 %
Restructuring charges (credits), net 0.7 % 6.7 % 3.5 %
Non-GAAP operating margin 16.1 % 15.1 % 24.2 %

(1)
~~(1)~~	~~Represents charges~~ We recognized $15 million of expense in Q2’20 related to ~~terminating a U.S. pension plan, including a settlement loss~~penalties for the early redemption of ~~$66.3~~the 6.000% Senior Notes due in 2024 and wrote off approximately $3 million of related debt issuance costs in ~~2015.~~Q3’20.

(2)

~~(2)~~

We have recorded a full valuation allowance against our U.S. net deferred tax assets and a valuation allowance against net deferred tax assets in certain foreign jurisdictions. As we are profitable on a non-GAAP basis, the ~~2017~~FY’20 and ~~2016~~FY’19 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, we recorded a tax benefit in 2016 for the write-off of a deferred tax liability that resulted from the change in tax status of a foreign subsidiary. This tax benefit has been excluded from non-GAAP tax expense.

(3)
~~(3)~~	Diluted earnings per share impact of non-GAAP adjustments is calculated by dividing the dollar amount of the non-GAAP adjustment by the non-GAAP diluted weighted average shares outstanding for the respective year. Non-GAAP diluted weighted average shares outstanding is equal to GAAP diluted weighted average shares outstanding unless we have a GAAP net loss and non-GAAP net income.

Reconciliation of GAAP and non-GAAP diluted weighted average shares outstanding:

(in millions)	Year ended September 30,
	2020		2019
GAAP diluted weighted average shares outstanding		116.3		117.7
Dilutive effect of stock-based compensation plans		-		1.0
Non-GAAP diluted weighted average shares outstanding		116.3		118.7

Operating margin impact of non-GAAP adjustments:

	Year ended September 30,
	2020			2019
GAAP operating margin		14.5	%		5.0	%
Fair value of acquired deferred revenue		—	%		0.1	%
Stock-based compensation		7.9	%		6.9	%
Total amortization of acquired intangible assets		3.8	%		4.1	%
Acquisition-related and other transactional charges included in general and administrative expenses		0.6	%		0.2	%
Restructuring and other charges, net		2.2	%		4.1	%
Non-GAAP operating margin		29.0	%		20.3	%

Critical Accounting Policies and Estimates

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our reported revenues, results of operations, and net income, as well as on the value of certain assets and liabilities on our balance sheet. These estimates, assumptions and judgments are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time.

The accounting policies, methods and estimates used to prepare our financial statements are described generally in Note B 2. Summary of Significant Accounting Policies of ~~“Notes~~Notes to Consolidated Financial ~~Statements"~~Statements in this Annual Report. The most important accounting judgments and estimates that we made in preparing the financial statements involved:

•

revenue recognition;

~~revenue recognition;~~

•

accounting for income taxes; and

~~accounting for income taxes;~~

•

valuation of assets and liabilities acquired in business combinations.

~~valuation of assets and liabilities acquired in business combinations;~~

~~valuation of goodwill;~~

~~accounting for pensions; and~~

~~legal contingencies.~~

A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make subjective or complex judgments that could have a material effect on our financial condition and results of operations. Critical accounting policies require us to make assumptions about matters that are uncertain at the time of the estimate, and different estimates that we could have used, or changes in the estimates that are reasonably likely to occur, may have a material impact on our financial condition or results of operations. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.

Accounting policies, guidelines and interpretations related to our critical accounting policies and estimates are generally subject to numerous sources of authoritative guidance and are often reexamined by accounting standards rule makers and regulators. These rule makers and/or regulators may promulgate interpretations, guidance or regulations that may result in changes to our accounting policies, which could have a material impact on our financial position and results of operations.

Revenue Recognition

Effective October 1, 2018, we record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers. For a full description of our revenue accounting policy, please refer to Note 2. Summary of Significant Accounting Policies, included in the Notes to Consolidated Financial Statements in this Annual Report.

Our sources of revenue include: (1) subscription, (2) ~~support, (3)~~ perpetual license, (3) support for perpetual licenses and (4) professional services. ~~We record revenues for~~Subscriptions include term-based on-premises licenses, Software-as-a-Service (SaaS), and hosting services. Revenue is derived from the licensing of computer software products and from related ~~deliverables in accordance with the guidance provided by ASC 985-605,~~ ~~Software-Revenue Recognition~~ support and/or professional services contracts.

Judgments and ~~revenues for non-software deliverables in accordance withASC 605-25, Revenue Recognition, Multiple-Element Arrangements~~ ~~when the following criteria~~Estimates

Determination of performance obligations. Our subscriptions are ~~met: (1) persuasive evidence~~frequently sold as a bundle 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 licenseproducts and services, ~~revenues~~typically pairing on-premises term software licenses with support and/or cloud services over the same term. On-premises software is typically determined to be a distinct performance obligation, and is thus recognized separately from the support and/or cloud components. On-premises software revenue is generally recognized at the point in ~~each accounting period. Our primary judgments involve~~time that the ~~following:~~

~~determining whether collection~~software 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~~made available to the ~~functionality of~~customer, while the ~~licensed software~~support and ~~thus would result in the~~cloud 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~~components 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.~~

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 since we do not have VSOE of fair value for our coterminous support. 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 licensecontract. In cases where subscriptions include cloud functionality and ~~related support.~~

Cloud services revenue (which in 2017, 2016 and 2015 represented less than 5% of our total revenue) includes fees for hosting and application management of customers’ perpetual or subscription-based licenses (hosting services) and fees for Software as a Service (SaaS) arrangements. Generally, customers have the righton-premises software, an assessment has been performed to terminate a hosting services contract and take possession of the licenses without a significant penalty. When hosting services are sold as part of a multi-element transaction, revenue is allocated to hosting 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 hosting 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 terminatedetermine whether the cloud services are distinct from the on-premises software. In the substantial majority of instances, cloud services provide incremental functionality to customers and ~~cannot take possession~~have been considered distinct and recognized separately from the on-premises software. This assessment could have a significant impact on the timing of revenue recognition and may change as our product offerings evolve.

Allocation of transaction price. We estimate the standalone selling price of each identified performance obligation and use that estimate to allocate the transaction price among said performance obligations. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. Significant judgment is used in determining the standalone selling prices of the on-premises license, support, and cloud components of our subscription products. These estimates are subject to change as our product offerings change and could have a significant impact due to the difference in the timing of revenue recognition for on-premises licenses and support and/or cloud.

Right to exchange. Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the original subscription with other software. ~~Cloud services include set-up fees, which are recognized ratably over the contract term or~~We account for this right as a refund liability. For most contracts, we use the expected ~~customer life, whichever is longer.~~

~~Support~~

~~Support~~value method to determine the refund liability associated with this right across a portfolio of contracts. Where 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~~are outside of the ~~support~~standard portfolio of contracts due to contract ~~on a straight-line basis.~~

~~Perpetual License~~

~~Under perpetual license arrangements,~~size, longer contract duration, or other unique contractual terms, we ~~generally recognize license revenue up front upon shipment to the customer. We~~ use the ~~residual~~most likely amount 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~~determine the ~~fair value of all undelivered elements exists, and~~refund liability for each individual contract. In both circumstances, 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)~~transaction price is constrained based on our ~~vendor-specific objective evidence (“VSOE”)~~estimates, which impacts the amount 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~~

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 serviceestimates could significantly impact 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 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.~~

any given period.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to calculate our income tax expense based on taxable income by jurisdiction. There are many transactions and calculations about which the ultimate tax outcome is uncertain; as a result, our calculations involve estimates by management. Some of these uncertainties arise as a consequence of revenue-sharing, cost-reimbursement and transfer pricing arrangements among related entities and the differing tax treatment of revenue and cost items across various jurisdictions. If we were compelled to revise or to account differently for our arrangements, that revision could affect our recorded tax ~~liability.~~

liabilities.

The income tax accounting process also involves estimating our actual current tax liability, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our

consolidated balance sheets. We must then 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 our deferred tax assets will not be realized, we must establish a valuation allowance as a charge to income tax expense.

As of September 30, ~~2017,~~2020, we have a valuation allowance of ~~$239.3~~$171.3 million against net deferred tax assets in the U.S. and a valuation allowance of ~~$40.4~~$34.1 million against net deferred tax assets in certain foreign jurisdictions. 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 our valuation allowance requirements each financial reporting period.

The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our ~~net operating~~capital loss carryforwards, the majority of which do not expire. ~~There~~

However, there are limitations imposed on the utilization of such ~~net operating~~capital losses that could further restrict the recognition of any tax benefits.

Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax and there is therefore no longer a material cumulative basis difference associated with the undistributed earnings. We ~~have not provided for U.S. income taxes or foreign withholding taxes on foreign unrepatriated earnings as it is~~maintain our ~~current intention~~assertion to permanently reinvest these earnings outside the U.S. unless repatriation can be done ~~with no significant tax cost,~~substantially tax-free, with the exception of a foreign holding company formed in ~~2014~~2018 and our Taiwan subsidiary. In 2017, we established a deferred tax liability of $11 million to provide for taxes on the unremitted earnings of this foreign holding company and in 2016, we incurred U.S. tax expense of $12 million on the repatriation of the 2016 earnings of this foreign holding company. In 2017 and 2016, the tax provision associated with these earnings was offset by a corresponding change in the valuation allowance. If we decide to repatriate any additional non-U.S. earnings in the future, 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 $882 million and $789 million as of September 30, 2017 and 2016, respectively. The~~ amount of unrecognized deferred tax liability on the undistributed earnings ~~cannot~~would not be ~~practicably determined at this time.~~

material.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service (IRS) in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates.

Valuation of Assets and Liabilities Acquired in Business Combinations

In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Our identifiable intangible assets acquired consist of developed technology, core technology, tradenames, customer lists and contracts, and software support agreements and related relationships. Developed technology consists of products that have reached technological feasibility. Core technology represents a combination of processes, inventions and trade secrets related to the design and development of acquired products. Customer lists and contracts and software support agreements and related relationships represent the underlying relationships and agreements with customers of the acquired company’s installed base. We have generally valued intangible assets using a discounted cash flow model. Critical estimates in valuing certain of the intangible assets include but are not limited to:

•

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

•

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

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

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

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

In addition, we estimate the useful lives of our intangible assets based upon the expected period over which we anticipate generating economic benefits from the related intangible asset.

Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenues, net tangible assets were generally valued by us at the respective carrying amounts recorded by the acquired company, if we believed that their carrying values approximated their fair values at the acquisition date. The values assigned to deferred revenue reflect an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to the acquired company’s software support contracts.

In addition, uncertain tax positions and ~~tax related~~tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and we reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period (up to one year from the acquisition date) and we continue to collect information in order to determine their estimated values. Subsequent to the measurement period or our final determination of the estimated value of uncertain tax positions or ~~tax related~~tax-related valuation allowances, whichever comes first, changes to these uncertain tax positions and ~~tax related~~tax-related valuation allowances will affect our provision for income taxes in our Consolidated Statements of Operations.

Our estimates of fair value are based upon assumptions believed to be reasonable at that time, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results.

When events or changes in circumstances indicate that the carrying value of a finite-lived intangible asset may not be recoverable, we perform an assessment of the asset for potential impairment. This assessment is based on projected undiscounted future cash flows over the asset’s remaining life. If the carrying value of the asset exceeds its undiscounted cash flows, we record an impairment loss equal to the excess of the carrying value over the fair value of the asset, determined using projected discounted future cash flows of the asset.

~~Valuation of Goodwill~~

Our goodwill totaled $1,182.8 million and $1,169.8 million as of September 30, 2017 and 2016, respectively. 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. We have three operating and reportable segments: (1) the Solutions Group, (2) the IoT Group and (3) Professional Services.

As of September 30, 2017, goodwill and acquired intangible assets in the aggregate attributable to our Solutions Group, IoT Group and Professional Services segment was $1,175.6 million, $234.4 million and $30.6 million, respectively. 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. We test goodwill for impairment in the third quarter of our fiscal year, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting segment below its carrying value. Factors we consider important (on an overall company basis and reportable segment basis, as 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 a significant change in the strategy for our business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, or a reduction of our market capitalization relative to net book value.

We completed our annual goodwill impairment review as of July 1, 2017 based on a qualitative assessment. Our qualitative assessment included company specific (financial performance and long-range plans), industry, and macroeconomic factors, and consideration of the fair value of each reporting unit, which was approximately double its carrying value or higher at July 2, 2016, the last valuation date. Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required.

~~Accounting for Pensions~~

We sponsor several international pension plans. We make assumptions that are used in calculating the expense and liability of these plans. These key assumptions include the expected long-term rate of return on plan assets and the discount rate used to determine the present value of benefit obligations. In selecting the expected long-term rate of return on assets, we consider the average future rate of earnings expected on the funds invested to provide for the benefits under the pension plan. This includes considering the plans' asset allocations and the expected returns likely to be earned over the life of the plans. The discount rate reflects the estimated rate at which an amount that is invested in a portfolio of high-quality debt instruments would provide the future cash flows necessary to pay benefits when they come due. The actuarial assumptions used by us may differ materially from actual results due to

changing market and economic conditions or longer or shorter life spans of the participants. Our actual results could differ materially from those we estimated, which could require us to record a greater amount of pension expense in future years and/or require higher than expected cash contributions.

Accounting and reporting for these plans requires the use of country-specific assumptions for discount rates and expected rates of return on assets. We apply a consistent methodology in determining the key assumptions that, in addition to future experience assumptions such as mortality rates, are used by our actuaries to determine our liability and expense for each of these plans. The discount rate for Germany was selected with reference to a spot-rate yield curve based on the yields of AA-rated Euro-denominated corporate bonds. In addition, our actuarial consultants determine the expense and liabilities of the plan using other assumptions for future experience, such as mortality rates. In determining our pension cost for 2017, 2016, and 2015, we used weighted average discount rates of 1.3%, 2.2% and 2.4%, respectively, and weighted average expected returns on plan assets of 5.4%, 5.7% and 5.8%, respectively. In 2017, 2016 and 2015, our actual return (loss) on plan assets was $6.3 million, $1.7 million and $(0.4) million, respectively. If actual returns are below our expected rates of return, it will impact the amount and timing of future contributions and expense for these plans.

As of September 30, 2017 and 2016, our plans in total were underfunded, representing the difference between our projected benefit obligation and fair value of plan assets, by $16.7 million and $30.8 million, respectively. The projected benefit obligation as of September 30, 2017 was determined using a weighted average discount rate of 1.8%. The most sensitive assumptions used in calculating the expense and liability of our pension plans are the discount rate and the expected return on plan assets. Total GAAP net periodic pension cost was $2.6 million in 2017 and we expect it to be approximately $0.8 million in 2018. A 50 basis point change to our discount rate and expected return on plan assets assumptions would have changed our pension expense for the year ended September 30, 2017 by less than $1 million. A 50 basis point decrease in our discount rate assumptions would increase our projected benefit obligation as of September 30, 2017 by approximately $7 million.

~~Legal Contingencies~~

We are periodically subject to various legal claims and involved in various legal proceedings. We routinely review the status of each significant matter and assess our potential financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably estimated, we record a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Because of inherent uncertainties related to these legal matters, we base our loss accruals on the best information available at the time. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in the accompanying Consolidated Financial Statements. As additional information becomes available, we reassess our potential liability and may revise our estimates. Such revisions could have a material impact on future quarterly or annual results of operations.

Liquidity and Capital Resources

(in millions)	September 30,
	2020			2019
Cash and cash equivalents	$	275.5		$	269.6
Restricted cash		0.5			1.1
Marketable securities		59.1			57.4
Total	$	335.1		$	328.1
Activity for the year included the following:
Cash provided by operating activities	$	233.8		$	285.1
Cash used in investing activities		(526.0	)		(150.0	)
Cash provided by (used in) financing activities		297.4			(123.0	)

September 30,
2017 2016 2015
(in thousands)
Cash and cash equivalents $ 280,003
$ 277,935
$ 273,417
Marketable securities 50,315
49,616
—
Total $ 330,318
$ 327,551
$ 273,417

Activity for the year included the following:
Cash provided by operating activities $ 134,590
$ 183,168
$ 179,903
Cash used by investing activities (16,127 ) (237,156 ) (140,039 )
Cash provided (used) by financing activities (117,461 ) 51,699
(42,155 )

Cash, ~~and~~ cash equivalents

and restricted cash

We invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. In addition, we hold investments in marketable securities totaling approximately ~~$50.3~~$59 million with an average maturity of 1812 months. At September 30, ~~2017,~~2020, cash and cash equivalents totaled ~~$280.0~~$275 million, compared to ~~$277.9~~$270 million at September 30, ~~2016, reflecting $134.6~~2019.

A significant portion of our cash is generated and held outside the U.S. As of September 30, 2020, we had cash and cash equivalents of $39 million in the U.S., $108 million in Europe, $99 million in Asia Pacific (including India) and $29 million in other non-U.S. countries. All our marketable securities are held in the U.S. We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, marketable securities, our ability to repatriate cash to the U.S. more cost effectively with the recent U.S. tax law changes, future U.S. operating cash flow, $15.2 million of proceeds from sales of investments, $10.8 million of proceeds from issuance of common stock under our employee stock purchase plan, offset by $51.0 million used for repurchases of common stock, $40.0 million of net repaymentsflows and cash available under our credit facility ~~$26.7 million used~~will be sufficient to ~~pay withholding taxes on stock-based awards that vested in the period, $25.4 million used for~~meet our ongoing U.S. operating expenses and known capital ~~expenditures, $11.1 million used for payment of contingent consideration and $5.0 million used for acquisitions.~~requirements.

Cash provided by operating activities

Cash provided by operating activities was ~~$134.6~~$234 million in ~~2017~~FY'20 compared to ~~$183.2~~$285 million in ~~2016 and $179.9 million in 2015.~~FY'19. The year-over-year decrease ~~in 2017~~ is primarily due to a $20 million increase in interest payments, a $17 million increase in restructuring payments, an $12 million decrease in tenant improvement reimbursements related to our Seaport facility, and an increase in ~~bonus and commission~~tax payments, ~~of approximately $33 million, lower~~offset by higher cash collections ~~from~~of accounts ~~receivable of $27 million~~ ~~(due to higher 2016 collections of receivables with extended payment terms and a higher subscription mix in 2017),~~ ~~higher interest payments of approximately $26 million,~~ ~~and a $12 million payment related to a Korean tax audit, partially offset by a~~ ~~$35 million increase in cash flows from accounts payable and accrued expenses due to renegotiations with vendors, and more effective utilization of available payment terms,~~ ~~$18 million of lower restructuring payments and $28 million paid in 2016 to resolve the regulatory investigation with respect to our China business.~~

~~Cash provided by operations in 2016 reflects lower contributions to pension plans ($44.7 million lower in 2016 compared to 2015).~~

receivable.

Restructuring payments totaled ~~$37.1~~$42 million in ~~2017,~~FY’20, compared to ~~$55.0~~$25 million in ~~2016 and $53.6 million in 2015.~~FY’19. Cash paid for income taxes was ~~$35.4 million, $25.5 million, and $30.1~~$53 million in ~~2017, 2016, and 2015, respectively.~~

FY’20 compared to $39 million in FY’19.

Cash used byin investing activities

(in millions)	Year ended September 30,
	2020			2019
Additions to property and equipment	$	(20.2	)	$	(64.4	)
Proceeds (purchases) of short- and long-term marketable securities, net		(1.8	)		(1.1	)
Acquisitions of businesses, net of cash acquired		(483.5	)		(86.7	)
Purchases of investments		—			(7.5	)
Purchase of intangible assets		(11.1	)		—
Settlement of net investment hedges		(9.4	)		9.7
Net cash used in investing activities	$	(526.0	)	$	(150.0	)

Year ended September 30,
2017 2016 2015
(in thousands)
Acquisitions of businesses, net of cash acquired $ (4,960 ) $ (165,802 ) $ (98,411 )
Additions to property and equipment (25,444 ) (26,189 ) (30,628 )
Purchases of short- and long-term marketable securities (19,726 ) (44,605 ) —
Proceeds from maturities of short- and long-term marketable securities 18,785
—
—
Proceeds from sales of investments 15,218
—
—
Purchases of investments —
(560 ) (11,000 )
$ (16,127 ) $ (237,156 ) $ (140,039 )

~~We spent approximately $5~~

Cash used in investing activities reflects $483 million onused for acquisitions in ~~2017. In the second quarter~~FY’20 ($469 million of ~~2016, we acquired Kepware for $99.4~~which related to Onshape), compared to $87 million ~~net of cash acquired, and~~in FY’19. For additional detail on our acquisitions, see Note 6. Acquisitions,included in the ~~first quarter of 2016, we acquired Vuforia for $64.8 million, net of cash acquired. In the third quarter of 2015, we acquired ColdLight for $98.6 million, net of cash acquired.~~

~~In 2017, we disposed of minority investments~~Notes to Consolidated Financial Statements in ~~preferred stock for proceeds of approximately $15 million, which we purchased in 2015 for $11 million.~~

~~In 2016, we invested in investment grade securities with maturities up to three years.~~

this Annual Report. Our expenditures for property and equipment consist primarily of facility improvements (including our construction expenses for our new Seaport headquarters in FY’19), office equipment, computer equipment, ~~software, office equipment~~ and ~~facility improvements.~~

software.

Cash provided ~~(used)~~ by financing activities

(in millions)	Year ended September 30,
	2020			2019
Borrowings (payments) on debt, net	$	344.9		$	25.0
Repurchases of common stock		—			(115.0	)
Proceeds from issuance of common stock		18.3			13.0
Debt issuance costs		(17.1	)		—
Contingent consideration		—			(1.6	)
Debt early redemption premium		(15.0	)		—
Payments of withholding taxes in connection with stock-based awards		(33.7	)		(44.4	)
Net cash provided by (used in) financing activities	$	297.4		$	(123.0	)

Year ended September 30,
2017 2016 2015
(in thousands)
Borrowings under debt agreements $ 150,000
$ 670,000
$ 185,000
Repayments of borrowings under credit facility (190,000 ) (580,000 ) (128,750 )
Repurchases of common stock (50,991 ) —
(64,940 )
Proceeds from issuance of common stock 10,778
21
41
Payments of withholding taxes in connection with vesting of stock-based awards (26,654 ) (20,939 ) (29,207 )
Excess tax benefits from stock-based awards 644
93
24
Credit facility origination costs (184 ) (6,855 ) —
Contingent consideration $ (11,054 ) $ (10,621 ) $ (4,323 )
$ (117,461 ) $ 51,699
$ (42,155 )

~~In 2017, we resumed our stock repurchase program~~

Our net borrowings in FY’20 of $345 million were primarily used to fund the Onshape acquisition. These net borrowings reflect the issuance of $1 billion in new notes in February 2020 and ~~used $51.0~~the repayment of $500 million ~~to repurchase our common stock, repaid $40.0~~of earlier issued notes in May 2020, as well as net repayments of $155 million under our revolving credit ~~facility, and received $10.8 million of proceeds from our employee stock purchase plan.~~facility. In 2016, credit facility origination costs included costs associated with issuing our 2024 6% Notes. In 2015, we borrowed $100 million as a result of the purchase of ColdLight and used $64.9 million to repurchase shares.

~~Credit Agreement~~

In November 2015, we entered into a multi-currency credit facility with a syndicate of banks. As a result of an amendment to the credit facility in March 2017, the revolving loan commitment was reduced to $600 million from $900 million. The revolving loan commitment may be increased by an additional $500 million if the existing or additional lenders are willing to make such increased commitments. Due to the decrease in the loan commitment amountFY’19, net borrowings under the credit facility ~~associated annual commitment fees will decline by approximately $0.9 million. Outstanding revolving loan amounts may be repaid in whole or in part, without penalty or premium, prior~~were $25 million, used to ~~the September 15, 2019 maturity date, when all remaining amounts outstanding will be due and payable in full.~~

~~We use the credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and~~fund working capital ~~requirements.~~ requirements and the Frustum acquisition.

Outstanding Debt

As of September 30, ~~2017,~~2020, we ~~had $218.1 million in revolving loans outstanding under the credit facility, the fair value of which approximated its book value.~~ had:

(in millions)	September 30, 2020
4.000% Senior notes due 2028	$	500.0
3.625% Senior notes due 2025		500.0
Credit facility revolver		18.0
Total debt		1,018.0
Unamortized debt issuance costs for the Senior notes		(12.7	)
Total debt, net of issuance costs	$	1,005.3

Undrawn under credit facility revolver	$	982.0
Undrawn under credit facility revolver available for borrowing	$	956.5

As of September 30, ~~2017, we have approximately $382 million undrawn, of which $369 million would be available to borrow, the availability of which is reduced by letters of credit and certain other long term liabilities.~~

Any borrowings by PTC Inc. or certain of our foreign subsidiaries under the credit facility would be guaranteed, respectively, by our material domestic subsidiaries that become parties to the subsidiary guaranty, if any, and/or by PTC Inc. Borrowings are also secured by first priority liens on property of PTC and certain of our material domestic subsidiaries, including 100% of the voting equity interests of certain of our domestic subsidiaries and 65% of our material first-tier foreign subsidiaries. Loans under the credit facility bear interest at variable rates that reset every 30 to 180 days depending on the rate and period selected by us and based upon our total leverage ratio. During 2017, the weighted average annual interest rate for all borrowings outstanding was 4.94% and, as of September 30, 2017, the rate on the credit facility was 3.125%. We also pay a quarterly commitment fee on the undrawn portion of the credit facility ranging from 0.175% to 0.30% per year based on our total leverage ratio.

The credit facility imposes customary covenants that limit our ability to incur liens or guarantee obligations, pay dividends and make other distributions, make investments and engage in certain other transactions. In addition, we and our material domestic subsidiaries may not invest in, or loan to, our foreign subsidiaries in aggregate amounts exceeding $75 million for any purpose and an additional $200 million for acquisitions of businesses. We also must maintain the following financial ratios:

Ratio as of September 30, 2017
Total Leverage Ratio
Ratio of consolidated total indebtedness to the consolidated trailing four quarters EBITDA, not to exceed 4.50 to 1.00 as of the last day of any fiscal quarter.
2.82 to 1.00
Fixed Charge Coverage Ratio
Ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges as of the last day of any fiscal quarter, to be not less than 3.50 to 1.00.
5.96 to 1.00
Senior Secured Leverage Ratio
Ratio of senior consolidated total indebtedness (which excludes unsecured indebtedness) to consolidated trailing four quarters EBITDA as of the last day of any fiscal quarter, not to exceed 3.00 to 1.00.
0.86 to 1.00

Any failure to comply with such covenants would prevent us from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding and terminate the credit facility. As of September 30, 2017,2020, we were in compliance with all financial and operating covenants of the credit ~~facility.~~

~~Outstanding Notes~~

On May 12, 2016, we issued $500 million of 6.00% Senior Notes due 2024 (the “2024 6% Notes”) in a registered offering and used the net proceeds to prepay indebtedness under our senior credit facility. As of September 30, 2017, unamortized deferred financing fees associated with the offering and presented as a direct reduction from the carrying amount of the 2024 6% Notes were $5.7 million.

The 2024 6% Notes are unsecured, mature on May 15, 2024, and bear interest at a rate of 6.00% per annum, payable semi-annually (November and May). At any time before May 15, 2019, (i) we may redeem up to 40% of the aggregate principal amount of the 2024 6% Notes with the net cash proceeds of certain public equity offerings at a price equal to 106.00% of the aggregate principal amount redeemed plus accrued and unpaid interest, provided that at least 60% of the 2024 6% Notes that were originally issued remain outstanding immediately thereafter, and (ii) we may redeem some or all of the 2024 6% Notes at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest and a make-whole premium. On or after May 15, 2019, we may redeem some or all of the 2024 6% Notes at redemption prices specified in the 2024 6% Notes plus accrued and unpaid interest. In addition, if we undergo a change of control, we will be required to make an offer to purchase all the 2024 6% Notes at a price equal to 101% of the principal amount of the 2024 6% Notes plus accrued and unpaid interest.

The notes were issued under an indenture that contains customary covenants. Subject to certain exceptions, our ability to incur certain additional debt is limited unless, after giving pro forma effect to such incurrencefacility and the application of the proceeds thereof, the ratio of our EBITDA to our Consolidated Fixed Charges (as both terms are defined in the indenture) is not greater than 2.00 to 1.00. The indenture also restricts our ability to incur liens, pay dividends or make certain other distributions, sell assets or engage in sale/leaseback transactions.note indentures. Any failure to comply with ~~these~~such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, ~~other~~as with any failure to comply with such covenants ~~included in~~under the ~~indenture~~note indentures, could constitute ~~an event of~~a default that could ~~result~~cause all amounts outstanding to become due and payable immediately.

Our credit facility and our Senior Notes are described in Note 9. Debt to the ~~acceleration of the payment of the aggregate principal amount of 2024 6% Notes then outstanding and accrued interest. As of September 30, 2017, we were~~Condensed Consolidated Financial Statements in ~~compliance with all such covenants.~~

this Form 10-K.

Share Repurchase Authorization

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. In August 2014, our Board of Directors authorized us to repurchase up to $600 million of our common stock through

~~September 30, 2017. On September 14, 2017, our Board of Directors authorized us to repurchase up to $500 million of our common stock from October 1, 2017 through September 30, 2020.~~

We ~~intend to use~~used cash from operations and borrowings under our credit facility to make such repurchases. In 2017, we repurchased (0.9) million shares at cost of $51.0 million. In 2016, we did not repurchase any shares due to the accelerated pace of our transition to a subscription business model and the near-term impact on free cash flow and EBITDA. We repurchased (2.7) million shares at a cost of $64.9 millionrepurchases in ~~2015.~~FY’19. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

~~Expectations for Fiscal 2018~~

~~Our transition~~

On November 13, 2020, the Board of Directors authorized us to a subscription licensing model has had, and will continue to have, an adverse impact on revenue, operating margin and EPS relative to periods in which we primarily sold perpetual licenses until the expected transitionrepurchase $1 billion of our ~~customer base to subscription is completed. This also affects consolidated EBITDA as calculated~~common stock through September 30, 2023. We may use cash from operations and borrowings under our credit facility and, as a result of the Total Leverage Ratio under the facility, limits the amount we can borrow under the facility. Notwithstanding the effect of the subscription transition and those limitations, weto make any such repurchases.

Expectations for Fiscal 2021

We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be ~~$40~~approximately $25 million in ~~2018)~~FY’21) through at least the next twelve months and to meet our known long-term capital requirements.

Our expected uses and sources of cash could change, payments due to us may be delayed due to the COVID-19 pandemic, our cash position could be reduced, and we could incur additional debt obligations if we ~~purchase our outstanding shares or~~decide to retire debt, or engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such ~~purchases~~repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. ~~We also evaluate possible strategic transactions on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible strategic transactions.~~ The amounts involved in any ~~share~~debt retirement or ~~debt~~issuance, share repurchases, or strategic transactions may be material.

~~We ended 2017 with a cash balance of $280 million and marketable securities of $50 million. A significant portion of our cash is generated and held outside of the United States.~~

Contractual Obligations

At September 30, 2017, we had cash and cash equivalents of $26.8 million in the United States, $128.1 million in Europe, $68.1 million in the Pacific Rim (including India), $30.2 million in Japan and $26.8 million in other non-U.S. countries. All of the marketable securities are held in Europe. We have substantial cash requirements in the United States, but we believe that the combination of our existing U.S. cash and cash equivalents, marketable securities, and future U.S. operating cash flows and cash available under our credit facility, will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.

~~Contractual Obligations~~

~~At September 30, 2017,~~2020, our contractual obligations were as follows:

(in millions)	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt⁽¹⁾	$	1,260.2	$	58.6	$	81.1	$	570.5	$	550.0
Operating leases⁽²⁾		305.1		44.7		53.3		36.8		170.3
Purchase obligations⁽³⁾		100.9		53.4		44.8		2.0		0.7
Pension liabilities⁽⁴⁾		25.8		3.8		8.4		9.5		4.1
Unrecognized tax benefits⁽⁵⁾		16.1
Total	$	1,708.1	$	160.5	$	187.6	$	618.8	$	725.1

Payments due by period
Contractual Obligations Total
Less than
1 year
1-3 years 3-5 years
More than
5 years
(in millions)
Debt (1) $ 945.2
$ 38.1
$ 287.1
$ 60.0
$ 560.0
Operating leases (2) 360.6
39.3
56.9
52.2
212.2
Purchase obligations (3) 48.1
28.4
18.9
0.8
—
Pension liabilities (4) 16.7
2.3
5.2
5.9
3.3
Unrecognized tax benefits (5) 14.8
—
—
—
—
Total $ 1,385.4
$ 108.1

$ 368.1

$ 118.9

$ 775.5

(1)

~~(1)~~

Includes required principal repayments and interest and commitment fees on our ~~2024 6%~~Senior Notes and our revolving credit facility based on the balance outstanding as of September 30, ~~2017~~2020 and the interest rates in effect as of September 30, ~~2017, 6.0%~~2020 (4.000% and 3.625% for ~~our 2024 6%~~the 2028 and 2025 Senior Notes, respectively, and ~~3.125%~~1.81% for our revolving credit ~~facility.~~facility). The credit facility matures on ~~September 15, 2019,~~February 13, 2025, when all remaining

amounts outstanding will be due and payable in full. Principal and interest on any additional borrowing that may be required to refinance the credit facility upon its maturity are not included in the contractual obligations above.

(2)

~~(2)~~

The future minimum lease payments above include minimum future lease payments for ~~excess~~ facilities under ~~non-cancelable~~non-cancellable operating ~~leases. These~~ leases ~~qualify for operating lease accounting treatment and, as such, are not included on our balance sheet.~~with original terms of greater than 12 months. See Note I ~~Commitments and Contingencies~~19. Leases of ~~“Notes~~Notes to Consolidated Financial ~~Statements”~~Statements in this Annual Report for additional information regarding our operating leases. On September 7, 2017, we entered into a lease for approximately 250,000 square feet located at 121 Seaport Boulevard, Boston, Massachusetts. The term of the lease is expected to run from January 1, 2019 through June 30, 2037, subject to adjustment based on the initial occupancy date. Base rent for the first year of the lease is $11.0 million and will increase by $1 per square foot leased per year thereafter ($0.3 million per year). Base rent which first becomes payable on July 1, 2020, subject to adjustment based on the lease commencement date, is included in the operating lease obligations above. In addition to the base rent, PTC must pay its pro rata portions of building operating costs and real estate taxes (together, “Additional Rent”). Additional rent, equal to approximately 63% of total building operating costs and real estate taxes, is estimated to be approximately $7.1 million for the first year we begin paying rent and is not included in the operating lease payments above.

further discussion.

(3)

~~(3)~~

Purchase obligations represent minimum commitments due to third parties, including royalty contracts, research and development contracts, telecommunication contracts, information technology maintenance contracts in support of internal-use software and hardware, financing leases, operating leases with original terms of less than 12 months, and other marketing and consulting contracts. Contracts for which our commitment is variable, based on volumes, with no fixed minimum quantities, and contracts that can be canceled without payment penalties have been excluded. The purchase obligations included above are in addition to amounts included in current liabilities and prepaid expenses recorded on our September 30, ~~2017 consolidated balance sheet.~~2020 Consolidated Balance Sheet.

(4)

~~(4)~~

These obligations relate to our international pension plans and are not subject to fixed payment terms. Payments have been estimated based on the plans’ current funded status, planned employer contributions and actuarial assumptions. In addition, we may, at our discretion, make additional voluntary contributions to the plans. See Note M 14. Pension Plans of ~~“Notes~~Notes to Consolidated Financial ~~Statements”~~Statements in this Annual Report for further discussion.

(5)

~~(5)~~

~~As of~~ ~~September 30, 2017, we had recorded total unrecognized tax benefits of~~ ~~$14.8 million~~.

This liability, recorded on the Consolidated Balance Sheet, is not subject to fixed payment terms and the amount and timing of payments, if any, which we will make related to this liability, are not known. See Note G 8. Income Taxes of ~~“Notes~~Notes to Consolidated Financial ~~Statements”~~Statements in this Annual Report for additional information.

As of September 30, ~~2017,~~2020, we had letters of credit and bank guarantees outstanding of approximately ~~$4.3~~$16.4 million (of which ~~$1.2~~$0.5 million was collateralized)~~, primarily related to our corporate headquarters lease in Needham, Massachusetts.~~

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated (to the extent of our ownership interest therein) into our financial statements. We have not entered into any transactions with unconsolidated entities whereby we have subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

Recent Accounting Pronouncements

In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and ~~regulations.~~regulations, none of which are expected to have a material impact on our consolidated financial statements. Refer to Note B.2. Summary of Significant Accounting Policies to the Condensed Consolidated Financial Statements in this Form 10-K for all recently issued accounting ~~pronouncements. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Outlined below are the recent accounting~~ pronouncements, ~~that we believe will have the most significant impact on us.~~

which is incorporated herein by reference.

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

~~Income Taxes~~

In October 2016, the 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 (our fiscal 2019) including interim reporting periods within those annual reporting periods and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements. We expect to record a net deferred tax asset of approximately $77 million upon adoption, primarily relating to deductible amortization of intangibles in Ireland. Post adoption, our effective tax rate will no longer include the benefit of this amortization which is reflected in our effective tax rate reconciliation under the current guidance.

~~Leases~~

In February 2016, the FASB issued 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.

~~Revenue Recognition~~

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The FASB has also issued additional standards to provide clarification and implementation guidance on ASU 2014-09.

The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to a customer in an amount that reflects the consideration that is expected to be received for those goods or services. Under the new guidance, an entity is required to evaluate revenue recognition through a five-step process: (1) identifying a contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In applying the principles in ASU 2014-09, it is possible more judgment and estimates may be required within the revenue recognition process than is required under existing U.S. GAAP, including identifying performance obligations, estimating the amount of variable consideration to include in the transaction price, and estimating the value of each performance obligation to allocate the total transaction price to each separate performance obligation.

ASU 2014-09 is effective for us in our first quarter of fiscal 2019. Companies may adopt ASU 2014-09 using either the retrospective method, under which each prior reporting period is presented under ASU 2014-09, with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU 2014-09 from the beginning of the year of initial application with no restatement of comparative periods, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application, with certain additional required disclosures. We currently expect to adopt ASU 2014-09 using the modified retrospective method.

While we are continuing to assess the impact of the new standard, we currently believe the most significant impact relates to accounting for our subscription arrangements that include term-based on premise software licenses bundled with support. Under current GAAP, the revenue attributable to these subscription licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered support element as it is not sold separately. Under the new standard, the requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated. Accordingly, under the new standard we will be required to recognize as revenue a portion of the subscription fee upon delivery of the software license. We currently expect revenue related to our perpetual license revenue and related support contracts, professional services and cloud offerings to remain substantially unchanged. Due to the complexity of certain of our contracts, the actual revenue

~~recognition treatment required under the new standard may be dependent on contract-specific terms and, therefore, may vary in some instances.~~

Upon implementation of the new standard in fiscal 2019, we expect to make revisions to contract terms with our customers that will result in shortening the initial, non-cancellable term of our multi-year subscriptions to one year. This change will result in annual contractual periods for the majority of our software subscriptions, the license portion of which will be recognized at the beginning of each annual contract period upon delivery of the licenses and the support portion of which will be recognized ratably over the one year contractual period. As a result, we anticipate one year of subscription revenue will be recognized for each contract each year; however, more of the revenue will be recognized in the quarter that the contract period begins and less will be recognized in the subsequent three quarters of the contract than under the current accounting rules.

Under the modified retrospective method, we will evaluate each contract that is ongoing on the adoption date as if that contract had been accounted for under ASU 2014-09 from contract inception. Some license revenue related to subscription arrangements that would have been recognized in future periods under current GAAP will be recast under ASU 2014-09 as if the revenue had been recognized in prior periods. Under this transition method, we will not adjust historical reported revenue amounts. Instead, the revenue that would have been recognized under this method prior to the adoption date will be an adjustment to retained earnings and will not be recognized as revenue in future periods as previously planned. Because we expect that license revenue associated with subscription contracts will be recognized up front instead of over time under ASU 2014-09, we expect to have some portion of our deferred revenue to be adjusted to retained earnings upon adoption, which could be material. During the first year of adoption, we will disclose the amount of this retained earnings adjustment and intend to provide supplemental disclosure of how this revenue would have been recognized under the current rules.

Another significant provision under ASU 2014-09 includes the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Currently, we expense sales commissions in the period incurred. Under ASU 2014-09, direct and incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. While we are continuing to assess the impact of this provision of ASU 2014-09, we likely will be required to capitalize incremental costs such as commissions and amortize those costs over the period the capitalized assets are expected to contribute to future cash flows.

Furthermore, we have made and will continue to make investments in systems and processes to enable timely and accurate reporting under the new standard. We currently expect that necessary operational and internal control structural changes will be implemented prior to the adoption date.

~~ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk~~

We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.

Foreign currency exchange risk

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, Israel, China and Canada. We enter into foreign currency forward contracts to manage our exposure to fluctuations in foreign exchange rates that arise from receivables and payables denominated in foreign currencies. We do not enter into or hold foreign currency derivative financial instruments for trading or speculative purposes nor do we enter into derivative financial instruments to hedge future cash ~~flow~~flows or forecast transactions.

Our non-U.S. revenues generally are transacted through our non-U.S. subsidiaries and typically are denominated in their local currency. In addition, expenses that are incurred by our non-U.S. subsidiaries typically are denominated in their local currency. ~~In 2017, 2016, and 2015, approximately two-thirds~~Approximately 60% of our revenue and ~~half~~40% of our expenses were transacted in currencies other than the U.S. dollar. Currency translation affects our reported results because we report our results of operations in U.S. Dollars. Historically, our most significant currency risk has been changes in the Euro and Japanese Yen relative to the U.S. Dollar. Based on current revenue and expense levels (excluding restructuring charges and stock-based compensation), a $0.10 change in the USD to ~~European exchange rates~~EUR and a 10 Yen change in

the Yen to USD exchange rate would impact operating income by approximately ~~$14~~$19 million and $5$9 million, respectively.

Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany transactions, with most intercompany transactions occurring between a U.S. dollar functional currency entity and a foreign currency denominated entity. Intercompany transactions typically are denominated in the local currency of the non-U.S. dollar functional currency subsidiary in order to centralize foreign currency risk. Also, both PTC (the parent company) and our non-U.S. subsidiaries may transact business with our customers and vendors in a currency other than their functional currency (transaction risk). In addition, we are exposed to foreign exchange rate fluctuations as the financial results and balances of our non-U.S. subsidiaries are translated into U.S. dollars (translation risk). If sales to customers outside of the United States increase, our exposure to fluctuations in foreign currency exchange rates will increase.

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 balances denominated in foreign currency, resulting from changes in foreign currency exchange rates. Our foreign currency hedging program uses forward contracts to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are primarily ~~are~~ denominated in ~~Canadian Dollars~~Japanese Yen and European currencies, and have maturities of less than three months.

Generally, we do not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign currency denominated receivables and payables are included in foreign currency net losses.

As of September 30, ~~2017~~2020 and ~~2016,~~2019, we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

	September 30,
Currency Hedged (in thousands)	2020		2019
Canadian / U.S. Dollar	$	6,847	$	9,408
Euro / U.S. Dollar		390,673		308,282
British Pound / U.S. Dollar		6,328		3,756
Israeli Shekel / U.S. Dollar		9,503		10,272
Japanese Yen / U.S. Dollar		50,379		37,462
Swiss Franc / U.S. Dollar		12,874		12,001
Swedish Krona / U.S. Dollar		18,871		20,636
Singapore Dollar / U.S. Dollar		3,281		34,585
Chinese Renminbi / U.S. Dollar		5,415		52,466
All other		8,291		9,487
Total	$	512,462	$	498,355

September 30,
Currency Hedged 2017 2016
(in thousands)
Canadian/U.S. Dollar $ 12,809
$ 14,685
Euro/U.S. Dollar 244,000
174,120
Israeli Sheqel/U.S. Dollar 8,820
7,271
Japanese Yen/Euro 17,694
32,782
Japanese Yen/U.S. Dollar 3,198
6,716
Swiss Franc / Euro 7,157
—
Swedish Krona / U.S. Dollar 4,627
3,852
Chinese Yuan offshore / Euro 10,423
—
Singapore Dollar / U.S. Dollar 1,186
1,448
All other 8,605
8,660
Total $ 318,519
$ 249,534

~~As of September 30, 2017 and 2016, we had outstanding forward contracts designated as cash flow hedges with notional amounts equivalent to the following:~~

Currency Hedged September 30,
2017 September 30,
2016
(in thousands)
Euro / U.S. Dollar $ 64,831
$ 26,181
Japanese Yen / U.S. Dollar 22,675
8,800
SEK / U.S. Dollar 14,091
4,078
Total $ 101,597
$ 39,059

Debt

In addition to ~~amounts~~the $1 billion due under our ~~2024 6%~~2025 and 2028 Senior Notes, ~~as described above,~~ as of September 30, ~~2017,~~2020, we had ~~$218.1~~$18 million outstanding under our ~~variable-rate~~ 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 us. These loans are subject to interest rate risk as interest rates will be adjusted at each rollover date to the extent such amounts are not repaid. As of September 30, ~~2017,~~2020, the annual rate on the credit facility loans was ~~3.125%~~1.81%. If there was a hypothetical 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be ~~$2.2 million.~~immaterial. This hypothetical change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, ~~2017~~2020 and a 100 basis point per annum change in interest rate applied over a one-year period.

Cash and cash equivalents

As of September 30, ~~2017,~~2020, cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased. We invest our cash with highly rated financial institutions in North America, Europe and ~~Asia-Pacific~~Asia Pacific and in diversified domestic and international money market mutual funds. At September 30, ~~2017,~~2020, we had cash and cash equivalents of ~~$26.8~~$39 million in the United States, ~~$128.1~~$108 million in Europe, ~~$68.1~~$99 million in ~~the~~Asia Pacific ~~Rim~~ (including India), ~~$30.2 million in Japan~~ and ~~$26.8~~$29 million in other non-U.S. countries. Given the short maturities and investment grade quality of the portfolio holdings at September 30, ~~2017,~~2020, a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents.

Our invested cash is subject to interest rate fluctuations and, for non-U.S. operations, foreign currency risk. In a declining interest rate environment, we would experience a decrease in interest income. The opposite holds true in a rising interest rate environment. Over the past several years, the U.S. Federal Reserve Board, European Central Bank and Bank of England have changed certain benchmark interest rates, which ~~have~~has led to declines and increases in market interest rates. These changes in market interest rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest income will continue to fluctuate based on changes in market interest rates and levels of cash available for investment. ~~Our consolidated cash balances were impacted favorably by $1.1 million and $6.8 million in 2017 and 2016, respectively and unfavorably by $17.9 million in 2015, due to changes~~Changes in foreign currencies relative to the U.S. dollar ~~particularly~~had an immaterial impact on our consolidated cash balances in 2020 and an unfavorable impact of $2.6 million and $7.8 million in 2019 and 2018, respectively, in particular due to changes in the Euro and the Japanese Yen.

ITEM 8.

Financial Statements and Supplementary Data

~~ITEM 8.Financial Statements and Supplementary Data~~

The consolidated financial statements and notes to the consolidated financial statements are attached as APPENDIX A.

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

~~ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

~~None.~~

~~ITEM 9A.Controls and Procedures~~

Evaluation of Disclosure Controls and Procedures

Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, ~~2017.~~

2020.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, 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 and includes those policies and procedures that:

•

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

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

•

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

•

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, ~~2017~~2020 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment and those criteria, our management concluded that, as of September 30, ~~2017,~~2020, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of September 30, ~~2017~~2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8.

Change in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2017~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

Other Information

None.

~~ITEM 9B.Other Information~~

~~None.~~

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

~~ITEM 10.Directors, Executive Officers and Corporate Governance~~

The information required by this item with respect to our directors and executive officers may be found in the sections captioned “Proposal 1: Election of Directors,” “Corporate Governance,” ~~“Section 16(a) Beneficial Ownership Reporting Compliance,”~~"Our Executive Officers," and “Transactions With Related Persons” appearing in our ~~2018~~2021 Proxy Statement. Such information is incorporated into this Item 10 by reference.

~~Our executive officers are:~~



~~James Heppelmann, President and Chief Executive Officer, Age 53~~
	Mr. Heppelmann has been our President and Chief Executive Officer since October 2010. Mr. Heppelmann was our President and Chief Operating Officer from March 2009 through September 2010. Prior to that, Mr. Heppelmann served as our Executive Vice President and Chief Product Officer from February 2003 to March 2009. Mr. Heppelmann joined PTC in 1998.
~~Craig Hayman, Chief Operating Officer, Age 54~~
	Mr. Hayman has been our Solutions Group President since November 2015 when he joined PTC. Mr. Hayman was the President of eBay’s enterprise business, an e-commerce platform business, from July 2014 to November 2015. Before that, Mr. Hayman was the General Manager of the Software as a Service and Industry Solutions business at IBM, an information technology and services company, from August 2010 to June 2014. Before that, Mr. Hayman held a number of other executive positions at IBM.
~~Andrew Miller, Executive Vice President, Chief Financial Officer, Age 57~~
	Mr. Miller has been our Executive Vice President, Chief Financial Officer since February 2015 when he joined PTC. Mr. Miller was Executive Vice President, Chief Financial Officer of Cepheid, a publicly-traded medical technology company from April 2008 to February 2015. Prior to that, Mr. Miller was employed by Autodesk Inc., a publicly-traded software company, where he was the Vice President of Finance and Chief Accounting Officer.
~~Barry Cohen, Executive Vice President, Chief Strategy Officer, Age 73~~
	Mr. Barry Cohen has been our Executive Vice President, Strategy since October 2010. Mr. Cohen was our Executive Vice President, Strategic Services and Partners from August 2002 through September 2010. Mr. Cohen joined PTC in 1998.
~~Matthew Cohen, Executive Vice President, Customer Success, Age 41~~
	Mr. Matthew Cohen has been our Executive Vice President, Global Services since April 2014. Mr. Cohen was a Divisional Vice President, Global Services from September 2010 to March 2014. Mr. Cohen joined PTC in 2001.
~~Anthony Dibona, Executive Vice President, Focused Solutions Group, Age 61~~
	Mr. DiBona became our Executive Vice President, for our Focused Solutions Group in October 2017. Mr. DiBona was our Executive Vice President for Renewal Sales from October 2016 to September 2017 and our Executive Vice President, Global Support from April 2003 to September 2016. Mr. DiBona joined PTC in 1998.
~~Aaron Von Staats, Corporate Vice President, General Counsel and Secretary, Age 51~~
	Mr. von Staats has been Corporate Vice President, General Counsel and Secretary since March 2008. Prior to that, he served as Senior Vice President, General Counsel and Clerk from February 2003 to February 2008. Mr. von Staats joined PTC in 1997.

Code of Ethics for Senior Executive Officers

We have adopted a Code of Ethics for Senior Executive Officers that applies to our Chief Executive Officer, President, Chief Financial Officer, and Controller, as well as others. The Code is embedded in our Code of Business Conduct and Ethics applicable to all employees. A copy of the Code of Business Conduct and Ethics is publicly available on our website at ~~www.ptc.com~~.www.ptc.com. If we make any substantive amendments to, or grant any waiver from, including any implicit waiver, the Code of Ethics for Senior Executive Officers to or for our Chief Executive Officer, President, Chief Financial Officer or Controller, we will disclose the nature of such amendment or waiver in a current report on Form 8-K.

ITEM 11.

Executive Compensation

~~ITEM 11.Executive Compensation~~

Information with respect to director and executive compensation may be found under the headings “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” and “Compensation Committee Report” appearing in our ~~2018~~2021 Proxy Statement. Such information is incorporated herein by reference.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

~~ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~

Information required by this item may be found under the ~~heading~~headings “Information about PTC Common Stock Ownership” in our ~~2018~~2021 Proxy Statement. Such information is incorporated herein by reference.

EQUITY COMPENSATION PLAN INFORMATION

as of September 30, 2020

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders:
2000 Equity Incentive Plan⁽¹⁾		3,507,317		—	⁽¹⁾		5,282,903
2016 Employee Stock Purchase Plan⁽²⁾		—		—			875,488	⁽²⁾
Total		3,507,317		—			6,158,391

(1)	All of the shares issuable upon vesting are restricted stock units, which have no exercise price.

(2)	This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which 146,691shares are subject to purchase during the current offering period.

EQUITY COMPENSATION PLAN INFORMATION
as of SEPTEMBER 30, 2017
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders:
2000 Equity Incentive Plan (1) 3,486,669
—
(1) 3,739,910

2016 Employee Stock Purchase Plan (2) —
—
1,730,865
(2)
Total 3,486,669
—
5,470,775

(1) All of the shares issuable upon vesting are restricted stock units, which have no exercise price.
(2) This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which 165,820 shares are subject to purchase during the current offering period.

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

~~ITEM 13.Certain Relationships and Related Transactions, and Director Independence~~

Information with respect to this item may be found under the headings “Independence of Our Directors,” “Review of Transactions with Related Persons” and “Transactions with Related Persons” in our ~~2018~~2021 Proxy Statement. Such information is incorporated herein by reference.

ITEM 14.

Principal Accounting Fees and Services

~~ITEM 14.Principal Accounting Fees and Services~~

Information with respect to this item may be found under the headings “Engagement of Independent Auditor and Approval of Professional Services and Fees” and “PricewaterhouseCoopers LLP Professional Services and Fees” in our ~~2018~~2021 Proxy Statement. Such information is incorporated herein by reference.

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

~~ITEM 15.Exhibits and Financial Statement Schedules~~

(a) Documents Filed as Part of Form 10-K



1.	Financial Statements
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets as of September 30, ~~2017~~2020 and ~~2016~~2019	~~F-2~~F-4
	Consolidated Statements of Operations for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015~~2018	~~F-3~~F-5
	Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015~~2018	~~F-4~~F-6
	Consolidated Statements of Cash Flows for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015~~2018	~~F-5~~F-7
	Consolidated Statements of Stockholders’ Equity for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015~~2018	~~F-6~~F-8
	Notes to Consolidated Financial Statements	~~F-7~~F-9
2.	Financial Statement Schedules
	Schedules have been omitted since they are either not required, not applicable, or the information is otherwise included in the Financial Statements per Item 15(a)1 above.

3.	Exhibits
	The list of exhibits in the Exhibit Index is incorporated herein by reference.

(b) Exhibits

We hereby file the exhibits listed in the attached Exhibit Index.

None.

~~ITEM 16.Form 10-K Summary~~

~~None~~

~~EXHIBIT INDEX~~

ITEM 16.

Form 10-K Summary

None.

EXHIBIT INDEX

Exhibit Number		Exhibit

~~Exhibit~~ ~~Number~~ 3.1	—	~~Exhibit~~

~~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~~February 13, 2020, between PTC Inc. and ~~between the Company and The~~Wells Fargo Bank, ~~of New York Mellon,~~National Association, as ~~Trustee~~trustee (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on ~~May 18, 2016~~February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

4.2	—	~~First Supplemental Indenture, dated as~~Form of ~~May 12, 2016, by and between the Company and The Bank of New York Mellon, as Trustee~~3.625% senior unsecured notes due 2025 (filed as Exhibit 4.2 to our Current Report on Form 8-K filed on ~~May 18, 2016~~February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

4.3	—	~~6.000% Senior Notes~~Form of 4.000% senior unsecured notes due ~~2024~~2028 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on ~~May 18, 2016~~February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

10.1.1* 4.4	—	~~2000 Equity Incentive Plan.~~

10.1.2*	—	~~Form~~Description of ~~Restricted Stock Agreement (Non-Employee Director)~~Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit ~~10.2~~4.4 to our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~fiscal quarter~~year ended ~~April 4, 2009~~September 30, 2019 (File No. 0-18059) and incorporated herein by reference).

10.1.3* 10.1.1*	—	~~Form of Restricted Stock Agreement (Employee)~~2000 Equity Incentive Plan (filed as Exhibit ~~10.2~~10 to our ~~Quarterly~~Current Report on Form ~~10-Q for the fiscal quarter ended July 2, 2005~~8-K filed on March 8, 2019 (File No. 0-18059) and incorporated herein by ~~reference).~~reference.

~~10.1.4~~ 10.1.2	—	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~~ 10.1.3*	—	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~~ 10.1.4	—	Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.9 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.1.10~~ 10.1.5	—	Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.10 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.1.11~~ 10.1.6	—	Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.11 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.1.12~~ 10.1.7	—	Form of Restricted Stock Unit Certificate (U.S. EVP) (filed as Exhibit 10.1.12 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

10.1.13* 10.1.8*	—	Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.13 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).



10.1.9	—
~~10.1.14~~	—	Form of Restricted Stock Unit Certificate (U.S. EVP) (filed as Exhibit 10.1.14 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.1.15~~ 10.1.10	—	Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.15 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016(File No. 0-18059) and incorporated herein by reference).

10.1.16* 10.1.11*	—	Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.16 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

10.1.17* 10.1.12*	—	Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.17 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).

10.2*	—	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 ~~(filed as Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).~~

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~~December 28, 2019 (File No. 0-18059) and incorporated herein by reference).

10.11* 10.3*	—	Executive Agreement by and between the Company and James Heppelmann, President and Chief Executive Officer, dated ~~February 11, 2015 between PTC Inc. and Andrew Miller~~September 30, 2020 (filed as Exhibit ~~10.2~~10.1 to our ~~Quarterly~~Current Report on Form ~~10-Q for the fiscal quarter ended April 4, 2015~~8-K dated September 30, 2020 (File No. 0-18059) and incorporated herein by reference).

10.12* 10.4*	—	Form of ~~Amendment to~~Amended and Restated Executive Agreement ~~dated August 4, 2015 by and~~ between ~~PTC Inc.~~the Company and each of ~~Andrew Miller, Barry Cohen, Matthew Cohen, Anthony DiBona,~~Kristian Talvitie, Kathleen Mitford and Aaron von Staats (filed as Exhibit ~~10.2~~10.3 to ~~our Current~~PTC’s Quarterly Report on Form ~~8-K dated August 10, 2015 (File~~10-Q for the period ended December 28, 2019 (File. 0-18059) and incorporated herein by reference).

10.5*	—	Form of Executive Agreement between the Company and each of Eduarda Camacho, Michael DiTullio and Kevin Wrenn (filed as Exhibit 10.1 to PTC’s Quarterly Report on Form 10-Q for the period ended March 28, 2020 (File. No. 0-18059) and incorporated herein by reference).

~~10.13~~ 10.6*	—	Executive Agreement between the Company and Troy Richardson dated December 2, 2015 between PTC Inc. and Craig Hayman (filed as Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).November 16, 2020.

~~10.14~~ 10.7	—	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).



10.8	—
~~10.15~~	—	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).

~~10.16~~ 10.9	—	~~Credit Agreement~~Fifth Amendment dated ~~as of November 4, 2015~~April 10, 2020 to Lease dated December 14, 1999 by and ~~among~~between PTC Inc.~~, JPMorgan Chase Bank, N.A., as Administrative Agent,~~ and ~~the lenders party thereto~~Boston Properties Limited Partnership (filed as Exhibit 1010.2 to ~~our Current~~PTC’s Quarterly Report on Form ~~8-K dated November 4, 2015 (File~~10-Q for the period ended March 28, 2020 (File. No. 0-18059) and incorporated herein by reference).

~~10.17~~ 10.10	—	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).

~~10.18~~	—	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).

~~10.19~~	—	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 (filed as Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.20~~	—	Amendment No. 4 dated January 13, 2017 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 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2016 (File No. 0-18059) and incorporated herein by reference).

~~10.21~~	—	Amendment No. 5 dated March 24, 2017 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 to our Current Report on Form 8-K filed on March 30, 2017 (File No. 0-18059) and incorporated herein by reference).

~~10.22~~	—	Office Lease Agreement dated as of September 7, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC (filed as Exhibit 10 to our Current Report on Form 8-K filed on September 7, 2017 (File No. 0-18059) and incorporated herein by reference).

~~10.23~~ 10.11	—	First Amendment to Lease dated as of October 5, 2017 by and between PTC Inc. and SCD L2 Seaport Square ~~LLC.~~LLC (filed as Exhibit 10.23 to our Annual Report on Form 10-K for the period ended September 30, 2017 (File No. 0-18059) and incorporated herein by reference).

~~21.1~~ 10.12***	—	Third Amended and Restated Strategic Alliance Agreement by and between PTC Inc. and Rockwell Automation, Inc. dated as of October 28, 2020 (filed as Exhibit 10.1 to our Current Report on Form 8-K dated October 28, 2020 (File No. 0-18059) and incorporated herein by reference).

10.13	—	Registration Rights Agreement by and between the Company and Rockwell Automation, Inc., dated July 19, 2018 (filed as Exhibit 10.1 in our Current Report on Form 8-K filed on July 19, 2018 (File No. 0-18059) and incorporated herein by reference).
10.14	—	Securities Purchase Agreement by and between PTC Inc. and Rockwell Automation, Inc., dated as of June 11, 2018 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 11, 2018 (File No. 0-18059) and incorporated herein by reference).
10.15	—	Third Amended and Restated Credit Agreement, by and among the Company, PTC (IFSC) Limited, the lenders listed thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 4.4 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

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, ~~2017,~~2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, ~~2017~~2020 and ~~2016;~~2019; (ii) Consolidated Statements of Operations for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015;~~2018; (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015;~~2018; (iv) Consolidated Statements of Cash Flows for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015;~~2018; (v) Consolidated Statements of Stockholders’ Equity for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015;~~2018; and (vi) Notes to Consolidated Financial Statements.

104	—	The cover page of the Annual Report on Form 10-K formatted in Inline XBRL (included in Exhibit 101).


*
*	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.

***	Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant if publicly disclosed.

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 ~~29th~~20th day of November, ~~2017.~~

2020.



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

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 ~~29th~~20th day of November, ~~2017.~~

2020.

Signature		Title

~~Signature~~		~~Title~~
(i) Principal Executive Officer:

/s/ JAMES HEPPELMANN		President and Chief Executive Officer
James Heppelmann

(ii) Principal Financial and Accounting Officer:

/s/ A~~NDREW~~ M~~ILLER~~ KRISTIAN TALVITIE		Executive Vice President and Chief Financial Officer
~~Andrew Miller~~ Kristian Talvitie

(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/ D~~ONALD~~ G~~RIERSON~~ JAMES HEPPELMANN		Director
~~Donald Grierson~~ James Heppelmann

/s/ J~~AMES~~KLAUS H~~EPPELMANN~~ OEHN		Director
~~James Heppelmann~~ Klaus Hoehn

/s/ K~~LAUS~~ H~~OEHN~~ PAUL LACY		Director
~~Klaus Hoehn~~ Paul Lacy

/s/ P~~AUL~~CORINNA L~~ACY~~ ATHAN		Director
~~Paul Lacy~~ Corinna Lathan

/s/ ~~Corinna Lathan~~BLAKE MORET		Director
~~Corinna Lathan~~ Blake Moret

APPENDIX A

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and ~~Shareholders~~Stockholders of PTC Inc.:

~~In our opinion,~~

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of PTC Inc. and its subsidiaries (the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity, and of cash flows for each of the three years in the period ended September 30, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~PTC Inc. and its subsidiaries~~the Company as of September 30, ~~2017~~2020 and ~~September 30, 2016,~~2019, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended September 30, ~~2017~~2020 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, ~~2017,~~2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the ~~Committee of Sponsoring Organizations of~~COSO.

Changes in Accounting Principles

As discussed in Note 2 and Note 3 to the ~~Treadway Commission (COSO).~~ consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020 and the manner in which it accounts for revenues from contracts with customers in fiscal 2019.

Basis for Opinions

The Company's management is responsible for these consolidated 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~~Management’s Annual Report on Internal Control over Financial ~~Reporting”~~Reporting appearing under Item 9A. Our responsibility is to express opinions on ~~these~~the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our ~~integrated~~ audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the consolidated financial ~~statements, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall presentation of the consolidated financial ~~statement presentation.~~statements. 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 accounts for debt issuance costs in 2017.~~

Definition and Limitations of Internal Control over Financial Reporting

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue from Contracts with Customers - Identification of Distinct Performance Obligations and Estimate of Standalone Selling Price

As described in Note 2 to the consolidated financial statements, the Company’s sources of revenue include: (1) subscription, (2) perpetual license, (3) support for perpetual licenses and (4) professional services. Revenue is derived from the licensing of computer software products and from related support and/or professional services contracts. During the year ended September 30, 2020, the Company recognized revenue from contracts with customers of $1,458.4 million. The Company’s contracts with customers for subscriptions typically include commitments to transfer term-based, on-premise software licenses bundled with support and/or cloud services. On-premise software is determined to be a distinct performance obligation from support. Judgment is required by management to allocate the transaction price to each performance obligation. Management uses the estimated standalone selling price method to allocate the transaction price for items that are not sold separately. The estimated standalone selling price is determined using all information reasonably available to management, including market conditions and other observable inputs. The corresponding revenues are recognized as the related performance obligations are satisfied.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically related to management’s identification of distinct performance obligations and their estimate of standalone selling price, is a critical audit matter are the significant judgment by management in both the identification of distinct performance obligations, specifically the determination that the on-premise software is determined to be a distinct performance obligation from support, and in estimating the standalone selling price using market pricing conditions and other observable inputs, such as historical pricing practices for each distinct performance obligation, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s identification of distinct performance obligations within contracts with customers and the estimated standalone selling price used to allocate the transaction price to the distinct performance obligations.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the identification of distinct performance obligations and estimate of standalone selling prices used to allocate transaction price to distinct performance obligations in its contracts with customers. These procedures also included, among others, (i) evaluating the Company’s revenue recognition accounting policy; (ii) testing management’s identification of distinct performance obligations in its contracts with customers; (iii) testing management’s process for estimating standalone selling price which included testing the completeness and accuracy of input data used and evaluating the reasonableness of significant assumptions used by management, principally market and pricing conditions and other observable inputs such as historical pricing practices; and (iv) evaluation of the accuracy of management’s allocation of transaction price to the performance obligations contained within a sample of contracts with customers.

Acquisition of Onshape Inc. – Valuation of Customer Relationship and Purchased Software Intangible Assets

As described in Note 6 to the consolidated financial statements, the Company completed its acquisition of Onshape Inc. on November 1, 2019, for purchase consideration of $469 million, net of cash acquired. The acquisition of Onshape has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The purchase price allocation resulted in $56.8 million for customer relationships and $47.3 million for purchased software being recorded. Management estimated the fair values of intangible assets based on valuations using a discounted cash flow model which included significant judgment and assumptions relating to estimating future revenues and costs.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired customer relationships and purchased software intangible assets in the acquisition of Onshape, LLC is a critical audit matter are the significant judgment by management when estimating the fair value of the these intangible assets, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the discounted cash flow model utilized to value the intangibles and management’s assumptions for future revenues and costs used to develop cash flow projections. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the fair value of the customer relationship and purchased software intangible assets. These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for estimating the fair value of the customer relationships and purchased software intangible assets, (iii) evaluating the appropriateness of the discounted cash flow models used by management, (iv) testing the completeness and accuracy of the underlying data used in the valuation, and (v) evaluating the reasonableness of the significant assumptions related to future revenue and costs. Evaluating management’s assumptions related to future revenues and costs involved evaluating whether the assumptions used by management were reasonable considering (i) the consistency with external economic and industry data and (ii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s discounted cash flow model.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

November 20, 2020

We have served as the Company’s auditor since 1992.

~~Boston, Massachusetts~~

~~November 29, 2017~~

PTC Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	275,458		$	269,579
Short-term marketable securities		28,129			27,891
Accounts receivable, net of allowance for doubtful accounts of $543 and $744 at September 30, 2020 and 2019, respectively		415,221			372,743
Prepaid expenses		69,408			52,701
Other current assets		45,231			59,707
Total current assets		833,447			782,621
Property and equipment, net		101,499			105,531
Goodwill		1,625,786			1,238,179
Acquired intangible assets, net		237,570			169,949
Long-term marketable securities		30,970			29,544
Deferred tax assets		190,963			198,634
Operating right-of-use lease assets		149,933			0
Other assets		212,570			140,130
Total assets	$	3,382,738		$	2,664,588
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,910		$	42,442
Accrued expenses and other current liabilities		96,313			104,028
Accrued compensation and benefits		101,087			88,769
Accrued income taxes		7,011			17,407
Deferred revenue		416,804			385,509
Short-term lease obligations		34,635			0
Total current liabilities		680,760			638,155
Long-term debt		1,005,314			669,134
Deferred tax liabilities		12,431			41,683
Deferred revenue		9,661			11,123
Long-term lease obligations		180,388			0
Other liabilities		55,936			102,495
Total liabilities		1,944,490			1,462,590
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; NaN issued		0			0
Common stock, $0.01 par value; 500,000 shares authorized; 116,125 and 114,899 shares issued and outstanding at September 30, 2020 and 2019, respectively		1,161			1,149
Additional paid-in capital		1,602,728			1,502,949
Accumulated deficit		(62,267	)		(191,390	)
Accumulated other comprehensive loss		(103,374	)		(110,710	)
Total stockholders’ equity		1,438,248			1,201,998
Total liabilities and stockholders’ equity	$	3,382,738		$	2,664,588

September 30,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 280,003
$ 277,935
Short-term marketable securities 18,408
18,695
Accounts receivable, net of allowance for doubtful accounts of $1,062 and $1,012 at September 30, 2017 and 2016, respectively 152,299
161,357
Prepaid expenses 49,913
52,819
Other current assets 165,933
131,783
Total current assets 666,556
642,589
Property and equipment, net 63,600
67,113
Goodwill 1,182,772
1,169,813
Acquired intangible assets, net 257,908
310,305
Long-term marketable securities 31,907
30,921
Deferred tax assets 123,166
89,692
Other assets 34,475
35,296
Total assets $ 2,360,384
$ 2,345,729
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 35,160
$ 18,022
Accrued expenses and other current liabilities 80,761
84,141
Accrued compensation and benefits 110,957
145,633
Accrued income taxes 5,735
6,303
Deferred revenue 446,296
400,420
Total current liabilities 678,909
654,519
Long-term debt, net of current portion 712,406
751,601
Deferred tax liabilities 17,880
13,754
Deferred revenue 12,611
13,237
Other liabilities 53,142
69,952
Total liabilities 1,474,948
1,503,063
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; 115,333 and 114,968 shares issued and outstanding at September 30, 2017 and 2016, respectively 1,153
1,150
Additional paid-in capital 1,609,030
1,598,548
Accumulated deficit (650,840 ) (657,079 )
Accumulated other comprehensive loss (73,907 ) (99,953 )
Total stockholders’ equity 885,436
842,666
Total liabilities and stockholders’ equity $ 2,360,384
$ 2,345,729

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

PTC Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year ended September 30,
	2020			2019			2018
Revenue:
License	$	509,792		$	324,400		$	529,265
Support and cloud services		804,825			763,700			559,222
Total software revenue		1,314,617			1,088,100			1,088,487
Professional services		143,798			167,531			153,337
Total revenue		1,458,415			1,255,631			1,241,824
Cost of revenue:
Cost of license revenue		53,195			51,936			47,737
Cost of support and cloud services revenue		145,386			133,478			135,106
Total cost of software revenue		198,581			185,414			182,843
Cost of professional services revenue		135,690			139,964			143,659
Total cost of revenue		334,271			325,378			326,502
Gross margin		1,124,144			930,253			915,322
Operating expenses:
Sales and marketing		435,451			417,449			414,764
Research and development		256,575			246,888			249,786
General and administrative		159,826			127,919			143,045
Amortization of acquired intangible assets		28,713			23,841			31,350
Restructuring and other charges, net		32,716			51,114			3,764
Total operating expenses		913,281			867,211			842,709
Operating income		210,863			63,042			72,613
Interest and debt premium expense		(76,428	)		(43,047	)		(41,673	)
Other income (expense), net		271			305			(2,284	)
Income before income taxes		134,706			20,300			28,656
Provision (benefit) for income taxes		4,011			47,760			(23,331	)
Net income (loss)	$	130,695		$	(27,460	)	$	51,987
Earnings (loss) per share—Basic	$	1.13		$	(0.23	)	$	0.45
Earnings (loss) per share—Diluted	$	1.12		$	(0.23	)	$	0.44
Weighted-average shares outstanding—Basic		115,663			117,724			116,390
Weighted-average shares outstanding—Diluted		116,267			117,724			118,158

Year ended September 30,
2017 2016 2015
Revenue:
Subscription $ 279,246
$ 118,322
$ 65,239
Support 574,680
651,807
681,524
Total recurring revenue 853,926
770,129
746,763
Perpetual license 133,390
173,467
282,760
Total subscription, support and license revenue 987,316
943,596
1,029,523
Professional services 176,723
196,937
225,719
Total revenue 1,164,039
1,140,533
1,255,242
Cost of revenue:
Cost of license and subscription revenue 86,047
69,710
53,163
Cost of support revenue 92,202
85,729
82,829
Total cost of software revenue 178,249
155,439
135,992
Cost of professional services revenue 150,770
170,226
198,742
Total cost of revenue 329,019
325,665
334,734
Gross margin 835,020
814,868
920,508
Operating expenses
Sales and marketing 372,946
367,465
346,794
Research and development 236,059
229,331
227,513
General and administrative 145,067
145,615
158,715
U.S. pension settlement loss —
—
66,332
Amortization of acquired intangible assets 32,108
33,198
36,129
Restructuring charges 7,942
76,273
43,409
Total operating expenses 794,122
851,882
878,892
Operating income (loss) 40,898
(37,014 ) 41,616
Foreign currency losses, net (5,686 ) (1,889 ) (2,706 )
Interest income 3,249
3,437
3,697
Interest expense (42,400 ) (29,882 ) (14,742 )
Other income (expense), net 2,533
(1,844 ) (1,340 )
Income (loss) before income taxes (1,406 ) (67,192 ) 26,525
Benefit from income taxes (7,645 ) (12,727 ) (21,032 )
Net income (loss) $ 6,239
$ (54,465 ) $ 47,557
Earnings (loss) per share—Basic $ 0.05
$ (0.48 ) $ 0.41
Earnings (loss) per share—Diluted $ 0.05
$ (0.48 ) $ 0.41
Weighted average shares outstanding—Basic 115,523
114,612
114,775
Weighted average shares outstanding—Diluted 117,356
114,612
116,012

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

PTC Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year ended September 30,
	2020			2019			2018
Net income (loss)	$	130,695		$	(27,460	)	$	51,987
Other comprehensive income (loss), net of tax:
Hedge gain (loss) arising during the period, net of tax of $1.7 million, $1.7 million, and $0.2 million in 2020, 2019, and 2018, respectively		(13,242	)		5,251			1,445
Net hedge gain (loss) reclassified into earnings, net of tax of $0 million, $0.1 million, and $0.1 million in 2020, 2019, and 2018, respectively		0			(549	)		483
Realized and unrealized gain (loss) on hedging instruments		(13,242	)		4,702			1,928
Foreign currency translation adjustment, net of tax of $0 for all periods		22,076			(24,755	)		(11,767	)
Unrealized gain on marketable securities, net of tax of $0 for all periods		188			530			(269	)
Amortization of net actuarial pension gain included in net income, net of tax of $0.9 million, $0.7 million, and $0.7 million in 2020, 2019, and 2018, respectively		2,983			1,691			1,629
Pension net loss arising during the period net of tax of $0.7 million, $3.6 million, and $1.5 million in 2020, 2019, and 2018, respectively		(2,791	)		(8,743	)		(3,787	)
Change in unamortized pension gain (loss) during the period related to changes in foreign currency		(1,878	)		1,450			588
Other comprehensive income (loss)		7,336			(25,125	)		(11,678	)
Comprehensive income (loss)	$	138,031		$	(52,585	)	$	40,309

Year ended September 30,
2017 2016 2015
Net income (loss) $ 6,239
$ (54,465 ) $ 47,557
Other comprehensive income (loss), net of tax:
Unrealized hedge gain (loss) arising during the period, net of tax of $0.1 million in 2017 and $0 million in 2016 and 2015, respectively (758 ) (3,375 ) —
Net hedge (gain) loss reclassified into earnings, net of tax of ($0.1 million) in 2017 and $0 million in 2016 and 2015, respectively 459
2,131
—
Unrealized loss on hedging instruments (299 ) (1,244 ) —
Foreign currency translation adjustment, net of tax of $0 for all periods 16,593
408
(47,177 )
Unrealized loss on marketable securities, net of tax of $0 for all periods (22 ) (122 ) —
Amortization of net actuarial pension loss included in net income, net of tax of ($1.0 million), ($0.7 million), and ($18.5 million) in 2017, 2016 and 2015, respectively 2,392
1,609
52,249
Pension net gain (loss) arising during the period net of tax of ($3.6 million), $3.5 million and $1.6 million in 2017, 2016, and 2015, respectively 8,636
(8,646 ) (4,797 )
Change in unamortized pension loss during the period related to changes in foreign currency (1,254 ) (216 ) 2,350
Other comprehensive income (loss) 26,046
(8,211 ) 2,625
Comprehensive income (loss) $ 32,285
$ (62,676 ) $ 50,182

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

PTC Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended September 30,
	2020			2019			2018
Cash flows from operating activities:
Net income (loss)	$	130,695		$	(27,460	)	$	51,987
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		80,817			77,824			87,408
Amortization of right-of-use lease assets		38,687			0			0
Stock-based compensation		115,149			86,400			82,939
Other non-cash items, net		(3,167	)		(4,148	)		534
Provision (benefit) from deferred income taxes		(24,641	)		1,708			(56,556	)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable		(32,365	)		29,446			20,396
Accounts payable and accrued expenses		(5,135	)		16,200			5,251
Accrued compensation and benefits		10,282			(12,098	)		(6,988	)
Deferred revenue		17,046			45,875			56,141
Accrued income taxes		(26,616	)		232			10,323
Other current assets and prepaid expenses		36,189			(2,829	)		(10,642	)
Operating lease liabilities		(11,110	)		0			0
Other noncurrent assets and liabilities		(92,023	)		73,995			6,959
Net cash provided by operating activities		233,808			285,145			247,752
Cash flows from investing activities:
Additions to property and equipment		(20,196	)		(64,411	)		(36,041	)
Purchases of short- and long-term marketable securities		(33,869	)		(33,027	)		(24,311	)
Proceeds from sales of short- and long-term marketable securities		1,521			1,507			0
Proceeds from maturities of short- and long-term marketable securities		30,521			30,469			18,140
Acquisitions of businesses, net of cash acquired		(483,478	)		(86,737	)		(3,000	)
Purchases of investments		0			(7,500	)		(1,000	)
Purchase of intangible assets		(11,050	)		0			(3,000	)
Settlement of net investment hedges		(9,421	)		9,675			0
Net cash used in investing activities		(525,972	)		(150,024	)		(49,212	)
Cash flows from financing activities:
Proceeds from issuance of Senior Notes		1,000,000			0			0
Borrowings under credit facility		455,000			205,000			250,000
Repayments of Senior Notes		(500,000	)		0			0
Repayments of borrowings under credit facility		(610,125	)		(180,000	)		(320,000	)
Repurchases of common stock		0			(114,994	)		(1,100,000	)
Proceeds from issuance of common stock		18,382			12,975			1,015,654
Debt issuance costs		(17,107	)		0			(2,851	)
Contingent consideration		0			(1,575	)		(8,275	)
Debt early redemption premium		(15,000	)		0			0
Payments of withholding taxes in connection with stock-based awards		(33,740	)		(44,366	)		(45,374	)
Net cash provided by (used in) financing activities		297,410			(122,960	)		(210,846	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		25			(2,565	)		(7,810	)
Net change in cash, cash equivalents, and restricted cash		5,271			9,596			(20,116	)
Cash, cash equivalents, and restricted cash, beginning of period		270,689			261,093			281,209
Cash, cash equivalents, and restricted cash, end of period	$	275,960		$	270,689		$	261,093
Supplemental disclosure of non-cash financing activities:
Fair value of contingent consideration recorded for acquisition	$	0		$	0		$	2,100

Year ended September 30,
2017 2016 2015
Cash flows from operating activities:
Net income (loss) $ 6,239
$ (54,465 ) $ 47,557
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation 76,708
65,996
50,182
Depreciation and amortization 86,742
86,554
84,433
Benefit from deferred income taxes (28,289 ) (44,182 ) (49,361 )
Excess tax benefits realized from stock-based awards (644 ) (93 ) (24 )
Pension settlement loss —
—
66,332
Other non-cash costs, net 2,272
966
157
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable 12,832
52,617
29,723
Accounts payable and accrued expenses 20,315
(14,185 ) 31,134
Accrued compensation and benefits (34,846 ) 60,944
(56,950 )
Deferred revenue 5,808
16,232
8,852
Accrued income taxes, net of income tax receivable (798 ) 6,749
(3,536 )
Other current assets and prepaid expenses 721
4,591
(10,716 )
Other noncurrent assets and liabilities (12,470 ) 1,444
(17,880 )
Net cash provided by operating activities 134,590
183,168
179,903
Cash flows from investing activities:
Additions to property and equipment (25,444 ) (26,189 ) (30,628 )
Purchases of short- and long-term marketable securities (19,726 ) (44,605 ) —
Proceeds from maturities of short- and long-term marketable securities 18,785
—
—
Acquisitions of businesses, net of cash acquired (4,960 ) (165,802 ) (98,411 )
Purchases of investments —
(560 ) (11,000 )
Proceeds from sales of investments 15,218
—
—
Net cash used by investing activities (16,127 ) (237,156 ) (140,039 )
Cash flows from financing activities:
Borrowings under credit facility and senior notes 150,000
670,000
185,000
Repayments of borrowings under credit facility (190,000 ) (580,000 ) (128,750 )
Repurchases of common stock (50,991 ) —
(64,940 )
Proceeds from issuance of common stock 10,778
21
41
Excess tax benefits realized from stock-based awards 644
93
24
Payments of withholding taxes in connection with vesting of stock-based awards (26,654 ) (20,939 ) (29,207 )
Credit facility origination costs (184 ) (6,855 ) —
Contingent consideration (11,054 ) (10,621 ) (4,323 )
Net cash provided (used) by financing activities (117,461 ) 51,699
(42,155 )
Effect of exchange rate changes on cash and cash equivalents 1,066
6,807
(17,946 )
Net increase (decrease) in cash and cash equivalents 2,068
4,518
(20,237 )
Cash and cash equivalents, beginning of year 277,935
273,417
293,654
Cash and cash equivalents, end of year $ 280,003
$ 277,935
$ 273,417
Supplemental disclosure of non-cash financing activities:
Fair value of contingent consideration recorded for acquisitions $ —
$ 16,900
$ 3,800

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

PTC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Common Stock						Additional						Accumulated Other			Total
	Shares			Amount			Paid-in Capital			Accumulated Deficit			Comprehensive Loss			Stockholders’ Equity
Balance as of September 30, 2017		115,333		$	1,153		$	1,609,030		$	(650,840	)	$	(73,907	)	$	885,436
ASU 2016-09 adoption		—			—			681			(556	)		—			125
Common stock issued for employee stock-based awards		1,830			18			(18	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(664	)		(6	)		(45,368	)		—			—			(45,374	)
Common stock issued		10,582			106			995,394			—			—			995,500
Common stock issued for employee stock purchase plan		292			2			15,652			—			—			15,654
Compensation expense from stock-based awards		—			—			82,939			—			—			82,939
Net income		—			—			—			51,987			—			51,987
Repurchases of common stock		(9,392	)		(93	)		(1,099,907	)		—			—			(1,100,000	)
Unrealized gain on cash flow hedges, net of tax		—			—			—			—			1,928			1,928
Foreign currency translation adjustment		—			—			—			—			(11,767	)		(11,767	)
Unrealized loss on available-for-sale securities, net of tax		—			—			—			—			(269	)		(269	)
Change in pension benefits, net of tax		—			—			—			—			(1,570	)		(1,570	)
Balance as of September 30, 2018		117,981		$	1,180		$	1,558,403		$	(599,409	)	$	(85,585	)	$	874,589
ASU 2016-16 adoption		—			—			—			72,261			—			72,261
ASC 606 adoption		—			—			—			363,218			—			363,218
Common stock issued for employee stock-based awards		1,495			15			(15	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(504	)		(5	)		(44,361	)		—			—			(44,366	)
Common stock issued		—			—			(140	)		—			—			(140	)
Common stock issued for employee stock purchase plan		275			3			17,612			—			—			17,615
Compensation expense from stock-based awards		—			—			86,400			—			—			86,400
Net loss		—			—			—			(27,460	)		—			(27,460	)
Repurchases of common stock		(4,348	)		(44	)		(114,950	)		—			—			(114,994	)
Unrealized loss on cash flow hedges, net of tax		—			—			—			—			(385	)		(385	)
Unrealized gain on net investment hedges, net of tax		—			—			—			—			5,087			5,087
Foreign currency translation adjustment		—			—			—			—			(24,755	)		(24,755	)
Unrealized gain on available-for-sale securities, net of tax		—			—			—			—			530			530
Change in pension benefits, net of tax		—			—			—			—			(5,602	)		(5,602	)
Balance as of September 30, 2019		114,899		$	1,149		$	1,502,949		$	(191,390	)	$	(110,710	)	$	1,201,998
ASU 2016-02 (ASC 842) adoption		—			—			—			(1,572	)		—			(1,572	)
Common stock issued for employee stock-based awards		1,392			14			(14	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(455	)		(4	)		(33,736	)		—			—			(33,740	)
Common stock issued for employee stock purchase plan		289			2			18,380			—			—			18,382
Compensation expense from stock-based awards		—			—			115,149			—			—			115,149
Net income		—			—			—			130,695			—			130,695
Unrealized loss on net investment hedges, net of tax		—			—			—			—			(13,242	)		(13,242	)
Foreign currency translation adjustment		—			—			—			—			22,076			22,076
Unrealized gain on available-for-sale securities, net of tax		—			—			—			—			188			188
Change in pension benefits, net of tax		—			—			—			—			(1,686	)		(1,686	)
Balance as of September 30, 2020		116,125		$	1,161		$	1,602,728		$	(62,267	)	$	(103,374	)	$	1,438,248

Common Stock
Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Equity
Shares Amount
Balance as of October 1, 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
Common stock issued for employee stock-based awards 1,586
15
(15 ) —
—
—
Shares surrendered by employees to pay taxes related to stock-based awards (544 ) (5 ) (26,649 ) —
—
(26,654 )
Common stock issued for employee stock purchase plan 269
3
10,775
—
—
10,778
Compensation expense from stock-based awards —
—
76,708
—
—
76,708
Excess tax benefits from stock-based awards —
—
644
—
—
644
Net income —
—
—
6,239
—
6,239
Repurchases of common stock (946 ) (10 ) (50,981 ) —
—
(50,991 )
Unrealized loss on hedging instruments, net of tax —
—
—
—
(299 ) (299 )
Foreign currency translation adjustment —
—
—
—
16,593
16,593
Unrealized loss on available-for-sale securities, net of tax —
—
—
—
(22 ) (22 )
Change in pension benefits, net of tax —
—
—
—
9,774
9,774
Balance as of September 30, 2017 115,333
$ 1,153
$ 1,609,030
$ (650,840 ) $ (73,907 ) $ 885,436

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

PTC Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

Business

PTC Inc. was incorporated in 1985 and is headquartered in ~~Needham,~~Boston, Massachusetts. PTC is a global software and services company that delivers a technology platform and solutions to help companies design, manufacture, operate, and service things for a smart, connected world.

Risks and Uncertainties - COVID-19 Pandemic

In December 2019, the COVID-19 coronavirus surfaced. The virus has spread worldwide, including the United States, and has been declared a pandemic by the World Health Organization. The COVID-19 pandemic has significantly impacted global economic activity and has created macroeconomic uncertainty.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of September 30, 2020, and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the year ended September 30, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

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.

Changes in Presentation and Reclassifications

~~Effective with~~

On October 1, 2019, we adopted ASU No. 2016-02, Leases: Topic 842 (ASC 842), which replaced the ~~beginning~~existing guidance in ASC 840, Leases. ASC 842 requires lessees to recognize lease assets and lease liabilities on the balance sheet. Upon the adoption of ASC 842 on October 1, 2019, we recognized an operating lease liability of $224.0 million and a right-of-use asset in the ~~third quarter~~amount of ~~2017,~~$167.9 million. We adopted ASC 842 using a modified retrospective transition method in the period of adoption and did not recast prior periods. Since we adopted ASC 842 using the period of adoption transition method, we are ~~reporting cost~~not required to present 2020 comparative disclosures under ASC 842. However, we are required to present annual disclosures under the previous U.S. GAAP lease accounting standard (ASC 840). We also elected an accounting policy not to recognize leases with an initial term of license and subscription revenue separately from cost of support revenue and are presenting cost of revenue in three categories: 1) cost of license and subscription revenue, 2) cost of support revenue, and 3) cost of professional services revenue. Cost of license and subscription includesone year or less on the cost of perpetual and subscription licenses; cost of support includes the cost of supporting both perpetual and subscription licenses. Costs of revenue for previous periods in the accompanying Consolidated Statements of Operations are presented on a basis consistent with the current period presentation.

B.balance sheet.

2. 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~~

non-monetary 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

Nature of Products and Services

Our sources of revenue include: (1) subscription, (2) ~~support, (3)~~ perpetual license, (3) support for perpetual licenses and (4) professional services. WeRevenue is derived from the licensing of computer software products and from related support and/or professional services contracts. Effective October 1, 2018, we record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for ~~software related~~these products or services. To achieve the core principle of this standard, we apply the following five steps:

(1)

identify the contract with the customer,

(2)

identify the performance obligations in the contract,

(3)

determine the transaction price,

(4)

allocate the transaction price to performance obligations in the contract, and

(5)

recognize revenue when or as we satisfy a performance obligation.

We enter into contracts that include combinations of license, support and professional services, which are accounted for as separate performance obligations with differing revenue recognition patterns referenced below.

Performance Obligation		When Performance Obligation is Typically Satisfied
Term-based subscriptions
On-premises software licenses		Point in Time: Upon the later of when the software is made available or the subscription term commences
Support and cloud-based offerings		Over Time: Ratably over the contractual term; commencing upon the later of when the software is made available or the subscription term commences
Perpetual software licenses		Point in Time: when the software is made available
Support for perpetual software licenses		Over Time: Ratably over the contractual term
Professional services		Over time: As services are provided

Through 2018, we recorded 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 withASC 605-25, Revenue Recognition, Multiple-Element ~~Arrangements~~ Arrangements. Under those standards, revenue was recordedwhen the following criteria ~~are~~were met: (1) persuasive evidence of an arrangement ~~exists,~~existed, (2) delivery ~~has~~had occurred (generally, FOB shipping point or electronic distribution), (3) the fee iswas fixed or determinable, and (4) collection iswas probable. We ~~exercise~~exercised judgment and ~~use~~used estimates in connection with determining the amounts of software license and services revenues to be recognized in each accounting period.

Judgments and Estimates

Our ~~primary judgments involve~~contracts with customers for subscriptions typically include commitments to transfer term-based, on-premises software licenses bundled with support and/or cloud services. On-premises software is determined to be a distinct performance obligation from support which is sold for the ~~following:~~

~~determining whether collection is probable;~~

~~assessing whether the fee is fixed or determinable;~~

~~determining whether service arrangements, including modifications and customization~~same term 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~~subscription. For subscription arrangements which include cloud 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,on-premises licenses, we assess whether ~~fees are fixed or determinable and free~~the cloud component is highly interrelated with the on-premises term-based software licenses. Other than a limited population of ~~contingencies or significant uncertainties. In assessing whether~~subscriptions, the ~~fee~~cloud component 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 currently deemed to be ~~fixed or determinable, revenue is recognized only~~interrelated with the on-premises term software and, 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.

~~Generally, our contracts~~a result, cloud services are accounted for ~~individually. However, when contracts are closely interrelated~~as a distinct performance obligation from the software and ~~dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance~~support components of the ~~group of contracts.~~subscription.

~~Subscription~~

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

~~Subscription-based licenses include~~

Judgment is required to allocate the ~~right for a customer~~transaction price to use our licenses and receive related support for a specified term and revenue is recognized ratably over the term of the arrangement since we do not have VSOE of fair value for our coterminous support. 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 revenue (which in 2017, 2016 and 2015 represented less than 5% of our total revenue) includes fees for hosting and application management of customers’ perpetual or subscription-based licenses (hosting services) and fees for Software as a Service (SaaS) arrangements. Generally, customers have the right to terminate a hosting services contract and take possession of the licenses without a significant penalty. When hosting services are sold as part of a multi-element transaction, revenue is allocated to hosting 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 hosting 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.~~performance obligation. We use the ~~residual~~estimated standalone selling price method to ~~recognize revenue from perpetual license software arrangements~~allocate the transaction price for items 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 doesare 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~~The estimated standalone selling price 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 elementsusing all information reasonably available 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,us, 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 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 salariesmarket conditions and other ~~costs.~~

~~Training services include on-site and classroom training. Training~~observable inputs. The corresponding revenues are recognized as the related ~~training services~~performance obligations are ~~provided.~~

~~Deferred Revenue~~

~~Billed deferred revenue primarily relates~~satisfied. Where subscriptions include on-premises software and support only, we determined that 55% of the estimated standalone selling price for subscriptions is attributable to software licenses and 45% is attributable to support for those licenses. Some of our subscription offerings include a combination of on-premises and ~~support agreements billed~~cloud-based technology. In such cases, the cloud-based technology is considered distinct and receives an allocation of 5% to 50% of the estimated standalone selling price of the subscription. The amounts allocated to cloud are based on assessment of the relative value of the cloud functionality in the subscription, with the remaining amounts allocated between software and support.

Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the original subscription with other software. Although the exchange right is limited to software products within a similar product grouping, the exchange right is not limited to products with substantially similar features and functionality as those originally delivered. We determined that this right to exchange previously delivered software for ~~which~~different software represents variable consideration to be accounted for as a liability. We have identified a standard portfolio of contracts with common characteristics and applied the ~~services have not yet been provided. The liability~~expected value method of determining variable consideration associated with ~~performing these~~this right. Additionally, where there are isolated situations that are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the amount of variable consideration. In both circumstances, the variable consideration included in the transaction price is constrained to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As ofSeptember 30, 2020 and 2019, the total refund liability was $34.5million and $22.9 million, respectively, primarily associated with the annual right to exchange on-premises subscription software.

Practical Expedients

We elected certain practical expedients with the adoption of the new revenue standard. We do not account for significant financing components if the period between revenue recognition and when the customer pays for the products or services is ~~included in deferred~~one year or less. Additionally, we recognize revenue ~~and, if not yet paid,~~equal to the ~~related~~amount we have a right to invoice when the amount corresponds directly with the value to the customer receivable is included in other current assets. Billed but uncollected support and subscription-related amounts included in other current assets at September 30, 2017 and 2016 were $160.9 million and $126.3 million, respectively. Deferred revenue consisted of ~~the following:~~

September 30,
2017 2016
(in thousands)
Deferred subscription revenue $ 193,376
$ 102,847
Deferred support revenue 256,999
297,684
Deferred perpetual license revenue 1,773
4,151
Deferred professional services revenue 6,759
8,975
Total deferred revenue $ 458,907
$ 413,657

our performance to date.

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, 2017 and 2016 were as follows:~~

September 30, 2017
Amortized cost Gross unrealized gains Gross unrealized losses Fair value
(in thousands)
Certificates of deposit $ 240
$ —
$ —
$ 240
Corporate notes/bonds 47,811
2
(140 ) 47,673
U.S. government agency securities 2,407
—
(5 ) 2,402
$ 50,458
$ 2
$ (145 ) $ 50,315

September 30, 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
U.S. 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 primarily due to changes in market interest rates ~~bond yields~~ and/or ~~credit ratings.~~

bond yields.

We review our investments to identify and evaluate investments that have an indication of possible impairment. We concluded that, at September 30, ~~2017,~~2020, the unrealized losses were temporary. The following table summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017. As of September 30, 2016, all securities were held for less than twelve months.

September 30, 2017
Less than twelve months Greater than twelve months Total
Fair Value Gross unrealized loss Fair Value Gross unrealized loss Fair Value Gross unrealized loss
(in thousands)
Certificates of deposit $ 240
$ —
$ —
$ —
$ 240
$ —
Corporate notes/bonds 15,254
(43 ) 28,885
(97 ) 44,139
(140 )
US government agency securities —
—
2,402
(5 ) 2,402
(5 )
$ 15,494
$ (43 ) $ 31,287
$ (102 ) $ 46,781
$ (145 )

~~The following table presents our available-for-sale marketable securities by contractual maturity date, as of September 30, 2017 and 2016.~~

September 30, 2017 September 30, 2016
Amortized cost Fair value Amortized cost Fair value
(in thousands) (in thousands)
Due in one year or less $ 18,274
$ 18,244
$ 18,585
$ 18,549
Due after one year through three years 32,184
32,071
31,153
31,067
$ 50,458
$ 50,315
$ 49,738
$ 49,616

~~Cost Method~~

Non-Marketable Equity Investments

We ~~generally~~ account for non-marketable equity investments ~~under~~at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the ~~cost method.~~same issuer. 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~~Changes in ~~the investment, we record a charge to other expense for the difference between the estimated~~ fair value ~~and~~of non-marketable equity investments are recorded in other income (expense), net on the ~~carrying value.~~Consolidated Statements of Operations. In the year ended September 30, 2020, we recorded an impairment charge of $0.5 million related to one of our investments. The carrying value of our non-marketable equity investments ~~are~~is recorded in ~~noncurrent~~other assets on the Consolidated Balance Sheets and totaled ~~$0.7~~$8.9 million and ~~$11.6~~$9.4 million as of September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~In 2017, we sold a cost method investment in a private company for $13.7 million for a gain of approximately $3.7 million.~~

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~~many geographically diverse customers dispersed across many industries. No individual customer comprised more than 10% of our trade accounts receivable as of September 30, ~~2017~~2020 or ~~2016~~2019 or ~~comprised~~ more than 10% of our revenue for the years ended September 30, ~~2017, 2016~~2020, 2019 or ~~2015.~~

2018.

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 1:~~

•

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices ~~(unadjusted)~~ 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 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;

•

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.

~~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 are usually large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data 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 is 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, 2017 and 2016 were as follows:~~

September 30, 2017
Level 1 Level 2 Level 3 Total
(in thousands)
Financial assets:
Cash equivalents (1) $ 49,845
$ —
$ —
$ 49,845
Marketable securities
Certificates of deposit —
240
—
240
Corporate notes/bonds 47,673
—
—
47,673
U.S. government agency securities —
2,402
—
2,402
Forward contracts —
1,163
—
1,163
$ 97,518
$ 3,805
$ —
$ 101,323
Financial liabilities:
Contingent consideration related to acquisitions $ —
$ —
$ 8,400
$ 8,400
Forward contracts —
4,347
—
4,347
$ —
$ 4,347
$ 8,400
$ 12,747

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

~~(1) Money market funds and time deposits.~~

Since 2013, we have had three acquisitions resulting in contingent consideration: ThingWorx, ColdLight and Kepware. Changes in the fair value of Level 3 contingent consideration liability associated with these acquisitions were as follows:

Contingent Consideration
(in thousands)
ThingWorx ColdLight Kepware Total
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 October 1, 2016 —
2,500
17,070
19,570
Change in fair value of contingent consideration —
—
930
930
Payment of contingent consideration —
(2,500 ) (9,600 ) (12,100 )
Balance at September 30, 2017 $ —
$ —
$ 8,400
$ 8,400

As of September 30, 2017, all contingent consideration liabilities are included in accrued expenses and other current liabilities. Contingent consideration is valued using a discounted cash flow method and a probability weighted estimate of achievement of the targets. Of the payments made in 2017, 2016 and 2015, $11.0 million, $10.6 million and $4.3 million, respectively, was included in financing activities in the Consolidated Statement of Cash Flows based on the fair value of the liabilities recorded at the acquisition dates with the balance recorded in operating activities.

In connection with our acquisition of Kepware, the former shareholders were eligible to receive additional consideration of up to $18.0 million, which was 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 were achieved within the defined 12 month, 18 month and 24 month earn-out periods. 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, 2017, our estimate of the liability was $8.4 million, net of $9.6 million in payments made in 2017.

In connection with our 2015 acquisition of ColdLight, the former shareholders were eligible to receive contingent consideration of up to $5.0 million. In connection with accounting for the business combination, we recorded a liability of $3.8 million, representing the fair value of the contingent consideration.

In connection with our 2014 acquisition of ThingWorx, the former shareholders were eligible to receive contingent consideration of up to $18.0 million if certain profitability and bookings targets were achieved within two years of the acquisition. As of October 1, 2015, the contingent consideration had been fully earned and $9.0 million of the total contingent consideration was paid in July 2015, with the remainder paid in July 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 ~~$1.1~~$0.5 million as of September 30, ~~2017, $1.0~~2020, $0.7 million as of September 30, ~~2016~~, ~~$1.0~~2019, and $0.6 million as of September 30, ~~2015 and $1.6 million as of September 30, 2014.~~2018. Uncollectible trade accounts receivable written-off, net of recoveries, were ~~$1.5~~$0.2 million, ~~$0.3~~$0.2 million and ~~$0.8~~$1.0 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. Bad debt expense was ~~$1.5~~$0.0 million, $0.3 million and ~~$0.2~~$0.5 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively, and is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

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,~~currencies 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, net investment hedge, and cash flow hedge ~~activities~~activity see Note N 17. 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 or losses on the underlying foreign-denominated balance are offset by the loss or gain on the forward contract and are included in foreign currency losses, net.

~~Cash Flow~~

Net Investment Hedges

~~Our~~

We translate balance sheet accounts of subsidiaries with foreign ~~exchange risk management program objective is to identify foreign exchange exposures and implement appropriate hedging strategies to minimize earnings fluctuations resulting from foreign~~functional currencies into U.S. Dollars using the exchange rate ~~movements.~~at each balance sheet date. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the Consolidated Balance Sheet. We designate certain foreign exchange forward contracts as ~~cash flow~~net investment hedges against exposure on translation of balance sheet accounts of Euro ~~Yen and SEK denominated intercompany forecast revenue transactions (supported by third party sales).~~functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in accumulated other comprehensive loss on the Consolidated Balance Sheet. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance ~~Sheets~~Sheet and the maximum duration of foreign exchange forward contracts is 15approximately three months.

~~Cash flow~~

Net investment hedge relationships are designated at inception, and effectiveness is assessed ~~prospectively and~~ retrospectively ~~using regression analysis~~ on a ~~monthly basis.~~quarterly basis using the net equity position of Euro functional subsidiaries. As the forward contracts are highly effective in offsetting ~~changes to future cash flows on the hedged transactions,~~exchange rate exposure, we record ~~the effective portion of~~ changes in these ~~cash flow~~net investment hedges in accumulated other comprehensive ~~income~~loss and subsequently reclassify ~~into earnings~~them to foreign currency translation adjustment in accumulated other comprehensive loss at the ~~same period during which the hedged transactions are recognized in earnings.~~time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are ~~included in~~excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with ~~counter-parties~~counterparties by trading among several ~~counter-parties~~counterparties, and we review our ~~counter-parties’~~counterparties’ credit at least quarterly.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease obligations on our Consolidated Balance Sheets. Our operating leases are primarily for office space, cars, servers, and office equipment. We made an election not to separate lease components from non-lease components for office space, servers and office equipment. We combine fixed payments for non-lease components with lease payments and account for them together as a single lease component which increases the amount of our lease assets and liabilities. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities on our Consolidated Balance Sheets.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as that of the lease payments at the commencement date. The right-of-use assets include any lease payments made and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term.

Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base non-cancellable lease term when determining the lease assets and liabilities.

Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities. These variable payments include insurance, taxes, consumer price index payments, and payments for maintenance and utilities.

Our operating leases expire at various dates through 2037.

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~~seven 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~~term 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

We incur costs to develop computer software to be licensed or otherwise marketed to customers. Our research and development expenses consist principally of salaries and benefits, costs of computer equipment, and facility expenses. 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. NoNaN development costs for software to be sold externally were capitalized in ~~2017, 2016~~2020, 2019 or ~~2015.~~2018. In ~~connection with acquisitions~~2020, we purchased software of ~~businesses described in Note E,~~$11.5 million. Additionally, we acquired capitalized software ~~of $6.0 million and $71.5 million in 2017 and 2016, respectively.~~through business combinations (for further detail, see Note 6. Acquisitions). These assets are included in acquired intangible assets in the accompanying Consolidated Balance Sheets.

Business Combinations

We allocate the purchase price of acquisitions to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value. Goodwill is measured as the excess of the purchase price over the value of net identifiable assets acquired. While best estimates and assumptions are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. Any adjustments to estimated fair value are recorded to goodwill, provided that we are within the measurement period (up to one year from the acquisition date) and that we continue to collect information to determine estimated fair value. Subsequent to the measurement period or our final determination of estimated fair value, whichever comes first, adjustments are recorded in the Consolidated Statements of Operations.

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~~value 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~~segment basis, when applicable, that could trigger an impairment review include significant under-performance 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.

Our annual goodwill impairment test is based on either a quantitative or qualitative ~~(Step 0) or~~assessment. A quantitative ~~(Step 1)~~ assessment and is designed to conclude whether we believe it is more likely than not that the fair values of our reporting units exceed their carrying values. A Step 0 assessment includes a review of qualitative factors including company specific (financial performance and long-range plans), industry, and macroeconomic factors, and a consideration of the fair value of each reporting unit at the last valuation date. A Step 1 assessment is a quantitative analysis that compares the fair value of the reporting unit 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~~estimated 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,~~trends; current budgets and operating plans, including consideration of the impact of the COVID-19 pandemic on our future results; and industry data.

A qualitative assessment is designed to determine whether we believe it is more likely than not that the fair values of our reporting units exceed their carrying values. Qualitative assessment includes a review of qualitative factors, including company-specific (financial performance and long-range plans), industry, and macroeconomic factors, and a consideration of the fair value of each reporting unit at the last valuation date.

We completed our annual goodwill impairment review as of ~~July 1, 2017~~June 27, 2020, based on a ~~Step 0 assessment and concluded that no impairment charge was required~~quantitative assessment. The estimated fair value of each reporting unit exceeded its carrying value as of June 27, 2020. Through September 30, 2020, there were no events or changes in circumstances that ~~date.~~

indicated that the carrying values of goodwill or acquired intangible assets may not be recoverable.

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 1116 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. An 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 ~~$2.5~~$3.8 million, ~~$2.1~~$3.6 million and ~~$1.1~~$2.9 million in ~~2017, 2016~~2020, 2019 and ~~2015, respectively.~~

2018, respectively and are included in sales and marketing expenses in the accompanying Consolidated Statements of Operations.

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~~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, ~~2017 and 2016, was~~2020, comprised ofthe following: cumulative translation adjustment losses of ~~$54.6~~$69.1 million, ~~and $71.2 million, respectively,~~ unrecognized actuarial losses related to pension benefits of ~~$24.7~~$37.2 million ($~~17.6 million net of tax) and $38.7 million ($27.4~~26.4 million net of tax), ~~respectively,~~ unrecognized ~~loss~~gains on ~~hedging instruments~~marketable securities of ~~$1.8~~$0.3 million ($~~1.5~~0.3 million net of tax), and ~~$1.4~~accumulated net losses from net investment hedges of $8.2 million ~~respectively, and~~($8.2 million net of tax). As of September 30, 2019, accumulated other comprehensive loss comprised the following: cumulative translation adjustment losses of $91.2 million, unrecognized actuarial losses related to pension benefits of $34.9 million ($24.8 million net of tax), unrecognized gains on marketable securities of $0.1 million, and ~~$0.1~~accumulated net gains from net investment hedges of $6.8 million ~~respectively.~~

($5.1 million net of tax).

Earnings (Loss) 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,~~2019, approximately ~~1.7~~1.0 million restricted stock units ~~have been~~were excluded from the computation of diluted EPS in that year as the effect would have been anti-dilutive.

Anti-dilutive shares excluded from the calculations of diluted EPS were immaterial in the years ended September 30, 2020 and 2018.

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

(in thousands, except per share data)	Year ended September 30,
	2020		2019			2018
Net income (loss)	$	130,695	$	(27,460	)	$	51,987
Weighted average shares outstanding		115,663		117,724			116,390
Dilutive effect of employee stock options, restricted shares and restricted stock units		604		0			1,768
Diluted weighted average shares outstanding		116,267		117,724			118,158
Basic earnings (loss) per share	$	1.13	$	(0.23	)	$	0.45
Diluted earnings (loss) per share	$	1.12	$	(0.23	)	$	0.44

Year ended September 30,
2017 2016 2015
(in thousands, except per share data)
Net income (loss) $ 6,239
$ (54,465 ) $ 47,557
Weighted average shares outstanding 115,523
114,612
114,775
Dilutive effect of employee stock options, restricted shares and restricted stock units 1,833
—
1,237
Diluted weighted average shares outstanding 117,356
114,612
116,012
Basic earnings (loss) per share $ 0.05
$ (0.48 ) $ 0.41
Diluted earnings (loss) per share $ 0.05
$ (0.48 ) $ 0.41

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 K12. Equity Incentive Plan 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 G8. Income Taxes for detail of the tax benefit related to stock-based compensation recognized in the Consolidated Statements of Operations.

Recently Adopted Accounting Pronouncements

~~Cash Flows~~

Leases

In ~~August~~February 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) 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 (our fiscal 2019) and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this new guidance in our fourth quarter ended September 30, 2017 with no impact on the 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. We adopted this new guidance in our first quarter ended December 31, 2016 and applied this guidance retrospectively. As a result, debt issuance costs of $6.5 million previously included in other long-term assets on the Consolidated Balance Sheet as of September 30, 2016 have been reclassified. See Note H. Debt for our debt balances at September 30, 2017 and 2016 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 adopted this new guidance in our fourth quarter ended September 30, 2017 with no impact on the financial statements.

~~Pending Accounting Pronouncements~~

~~Derivative Financial Instruments~~

~~In August 2017,~~ the Financial Accounting Standards Board (FASB) issued Accounting ~~Standards~~Standard Update (ASU) No. 2017-12, "Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities", which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2018 (our fiscal 2020) including interim reporting periods within those annual reporting periods and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

~~Income Taxes~~

adoption, primarily relating to deductible amortization of intangible assets in Ireland. Post adoption, our effective tax rate will no longer include the benefit of this amortization which is reflected in our effective tax rate reconciliation under the current guidance.

~~Stock Compensation~~

In March 2016, the FASB issued 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. 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 will adopt the guidance in the first quarter of 2018. We do not expect adoption of the guidance to have a material impact on our consolidated financial statements. Previously unrecognized excess tax benefits will increase deferred tax assets, which will be substantially offset by an increase in the valuation allowance. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures, which will result in a cumulative effect adjustment of approximately $1 million to reduce retained earnings as of October 1, 2017.

~~Leases~~

~~In February 2016, the FASB issued ASU No.~~ 2016-02, ~~Leases (Topic~~Leases: Topic 842 (ASC 842), which ~~will replace~~replaced the existing guidance in ASC 840, ~~Leases.~~Leases. The updated standard aims to increase transparency and comparability ~~among~~across organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose important information about leasing arrangements. We adopted ASC 842 effective October 1, 2019 (the effective date). ASC 842 requires a modified retrospective transition method that could either be applied at the earliest comparative period in the financial statements or in the period of adoption. We elected to use the period of adoption (October 1, 2019) transition method and therefore did not recast prior periods. Since we adopted the new standard using the period of adoption transition method, we are not required to present 2020 comparative disclosures under ASC 842. However, we are required to present the required annual disclosures under the previous U.S. GAAP lease accounting standard (ASC 840).

We elected the package of practical expedients as permitted under the transition guidance, which allowed us: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and (3) not to reassess the treatment of initial direct costs for existing leases. In addition, we elected an accounting policy not to recognize leases with an initial term of one year or less on the balance sheet.

Upon the adoption of this standard on October 1, 2019, we recognized an operating lease liability of $224.0 million, representing the present value of the minimum lease payments remaining as of the adoption date, and a right-of-use asset in the amount of $167.9 million. The right-of-use asset reflects adjustments for derecognition of deferred leasing incentives. We also recorded a $1.6 million decrease to retained earnings as a result of the change in scheduling of reversal of temporary tax differences due to the adoption of ASC 842.

Pension Plans

In August 2018, FASB issued ASU ~~2016-02~~2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), which amends, adds and removes disclosure requirements for pension and other postretirement plans. We adopted ASU 2018-14 for the year ended September 30, 2020 with no impact on our consolidated financial statements. See Note 14. Pension Plans for disclosure changes made.

Pending Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. ASU 2020-04 is effective for ~~annual periods beginning after~~all entities upon issuance through December ~~15, 2018 (our fiscal 2020) and interim periods within those annual periods. Early~~31, 2022. We are still evaluating the impact, but do not expect the standard to have a material impact on our consolidated financial statements.

Income Taxes

In December 2019, the FASB issued Accounting Standards Update ASU 2019-12, Income Taxes (Topic 740) on Simplifying the Accounting for Income Taxes. The decisions reflected in ASU 2019-12 update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The new standard will be effective for us in the first quarter of 2022, though early adoption of the amendments is ~~permitted and modified retrospective application is required.~~permitted. We are currently evaluating the impact of the ~~new guidance~~standard will have on our consolidated financial ~~statements.~~statements, but at this time we do not expect it to be material.

~~Revenue Recognition~~

Goodwill and Other—Internal-Use Software

In ~~May 2014,~~August 2018, the FASB issued ASU ~~No. 2014-09,~~2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 will be effective for us in the first quarter of 2021. Entities can choose to adopt the new guidance prospectively or retrospectively. We plan to adopt this standard using the prospective adoption approach. We do not expect this accounting standard to have a material impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. The new standard will be effective for us in the first quarter of 2021. We do not expect this accounting standard to have a material impact on our consolidated financial statements.

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, along with subsequent amendments, which replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. The new standard will be effective for us in the first quarter of 2021. We are currently evaluating the impact the standard will have on our consolidated financial statements, but at this time we do not expect it to be material.

3. Revenue from Contracts with ~~Customers: Topic~~Customers

We adoptedASC 606, ~~(ASU 2014-09). ASU 2014-09 supersedes nearly all existing~~Revenue from Contracts with Customers, effective October 1, 2018, using the modified retrospective method. Upon adoption of ASC 606, we recorded a decrease in accumulated deficit of $432.2 million ($363.2 million, net of tax) due to the cumulative effect of the ASC 606 adoption, with an impact from revenue adjustments of $366.8 million primarily derived from acceleration of revenue related to on-premises subscription software licenses. The revenue-related adjustment was reflected on the adjusted opening balance sheet as an increase to unbilled receivables of $218.5 million, a decrease to deferred revenue of $143.2 million and an increase to other assets of $5.1 million.

Contract Assets and Contract Liabilities

(in thousands)	September 30,
	2020		2019
Contract asset	$	11,984	$	21,038
Deferred revenue	$	426,465	$	396,632

As of September 30, 2020, $6.9 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. As of September 30, 2019, the entire contract asset balance was included in other current assets.

Approximately $15.1 million of the September 30, 2019 contract asset balance was transferred to receivables during the year ended September 30, 2020 as a result of the right to payment becoming unconditional. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. The net decrease in contract assets of $9.0million includes an increase of approximately $6.1 million related to revenue recognized in the period, net of billings.

During the year ended September 30, 2020, we recognized $379.8 million of revenue that was included in deferred revenue as of September 30, 2019 and there were additional deferrals of $409.7

million, primarily related to new billings. The additional deferrals include an immaterial amount from the acquisition of Onshape. For subscription contracts, we generally invoice customers annually. The balance of total short- and long-term receivables as of September 30, 2020 was $511.3 million, compared to $412.5 million as of September 30, 2019.

Costs to Obtain or Fulfill a Contract

ASC 606 requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our commission expense. Prior to our adoption of ASC 606, we recognized commissions expense as incurred. Under ASC 606, we are required to recognize these expenses over the period of benefit associated with these costs. This results in a deferral of certain commission expenses each period. Upon adoption of ASC 606 on October 1, 2018, we recognized a $70.0 million asset for deferred commission related to contracts that were not completed prior to October 1, 2018. As the revenue recognition ~~guidance~~pattern has changed under ~~U.S. GAAP. The FASB~~ASC 606, the recognition of costs to fulfill contracts has also ~~issued additional standards~~changed to ~~provide clarification and implementation guidance on ASU 2014-09.~~

~~The core principle~~match this pattern of ~~ASU 2014-09 is to~~recognition. As of October 1, 2018, this resulted in a $2.8 million increase in our accumulated deficit with recognition of an offsetting current liability.

We recognize ~~revenue when promised goods or services are transferred to~~an asset for the incremental costs of obtaining a contract with a customer ~~in an amount that reflects~~if the ~~consideration that~~benefit of those costs is expected to be ~~received~~longer than one year. These deferred costs (primarily commissions) are amortized proportionately related to revenue over five years, which is generally longer than the term of the initial contract because of anticipated renewals as commissions for ~~those goods or services. Under the new guidance, an entity is required~~renewals are not commensurate with commissions related to ~~evaluate revenue recognition through a five-step process: (1) identifying~~our initial contracts. As of September 30, 2020 and September 30, 2019, deferred costs of $33.9 million and $27.7 million, respectively, were included in other current assets and $72.9 million and $64.8 million, respectively, were included in other assets (non-current). Amortization expense related to costs to obtain a contract with a ~~customer; (2) identifying~~customer was $36.2 million and $30.4 million in the years ended September 30, 2020 and 2019, respectively. There were 0 impairments of the contract cost asset in the years ended September 30, 2020 and 2019.

Remaining Performance Obligations

Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of September 30, 2020, the amounts include additional performance obligations of $426.5 million recorded in deferred revenue and $794.4 million that are not yet recorded in the ~~contract; (3) determining the transaction price; (4) allocating the transaction price~~consolidated balance sheets. We expect to ~~the performance obligations in the contract; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. The standard also requires disclosure~~recognize approximately 85% of the ~~nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In applying~~total $1,220.9 million over the principles of ASU 2014-09, it is possible more judgment and estimates may be required within the revenue recognition process than is required under existing U.S. GAAP, including identifying performance obligations, estimating the amount of variable consideration to include in the transaction price, and estimating the value of each performance obligation to allocate the total transaction price to each separate performance obligation.

ASU 2014-09 is effective for us in our first quarter of fiscal 2019. Companies may adopt ASU 2014-09 using either the retrospective method, under which each prior reporting period is presented under ASU 2014-09,next 24 months, with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU 2014-09 from the beginning of the year of initial application with no restatement of comparative periods, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application, with certain additional required disclosures. We currently expect to adopt ASU 2014-09 using the modified retrospective method.

licenses is eliminated. Accordingly, under the new standard we will be required to recognize as revenue a portion of the subscription fee upon delivery of the software license. We currently expect revenue related to our perpetual license revenue and related support contracts, professional services and cloud offerings to remain substantially unchanged. Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the new standard may be dependent on contract-specific terms and, therefore, may vary in some instances.

~~Upon implementation of the new standard in fiscal 2019, we expect to make revisions to contract terms with our customers that will result in shortening the initial, non-cancellable term~~remaining amount thereafter. Some of our multi-year ~~subscriptions to one year. This change will result in~~subscription contracts with start dates on or after October 1, 2018 contain a limited annual ~~contractual periods for the majority of our software subscriptions, the license portion of which will be recognized at the beginning of~~cancellation right. For such contracts, we consider each annual ~~contract~~ period ~~upon delivery of the licenses and the support portion of which will be recognized ratably over the one year contractual period. As~~ a ~~result, we anticipate one year of subscription revenue will be recognized for each contract each year; however, more of the revenue will be recognized~~discrete contract. Early in the fourth quarter ~~that~~of 2019, we discontinued offering the ~~contract period begins~~cancellation right for substantially all new contracts. Remaining performance obligations do not include the cancellable value for subscriptions which contain this clause.

Disaggregation of Revenue

(in thousands)	Year ended September 30,
	As Reported ASC 606		As Reported ASC 606		ASC 605		As Reported ASC 605
	2020		2019		2019		2018
Total recurring revenue	$	1,281,949	$	1,017,398	$	1,078,627	$	978,853
Perpetual license		32,668		70,702		72,191		109,634
Professional services		143,798		167,531		160,676		153,337
Total revenue	$	1,458,415	$	1,255,631	$	1,311,494	$	1,241,824

For further disaggregation of revenue by geographic region and ~~less will be recognized in the subsequent three quarters~~product group see Note 18. Segment and Geographic Information.

4. Restructuring and Other Charges

Restructuring and other charges, net includes restructuring charges (credits), headquarters relocation charges, and impairment and accretion expense charges of ~~the contract than under the current accounting rules.~~

~~C. Restructuring Charges~~

~~Restructuring charges for 2017 were $7.9 million, $8.1~~$5.6 million related to the ~~plan announced in October 2015 described below, offset by~~lease assets of exited facilities. Refer to Note 19. Leases for additional information about exited facilities.

In 2020, restructuring and other charges, net totaled $32.7 million, of which $26.4 million is attributable to restructuring charges, $5.6 million is attributable to impairment and accretion expense related to exited lease facilities, and $0.7 million is attributable to accelerated depreciation related to the planned exit of a ~~$0.2~~facility. We made cash payments related to restructuring charges of $31.5 million ~~credit~~($27.3 million related to the 2020 restructuring, $3.9 million related to the 2019 restructuring, and $0.3 million related to the 2016 restructuring).

In 2019, restructuring and other charges, net totaled $51.1 million, of which $48.6 million was attributable to restructuring charges ($0.2 million of which related to prior ~~year~~facility restructuring ~~actions.~~

~~On October 23,~~actions) and $2.5 million was attributable to headquarters relocation charges. We made cash payments related to restructuring charges of $24.7 million ($23.6 million related to the 2019 restructuring and $1.1 million related to the 2016 restructuring).

In 2018, restructuring and other charges, net totaled $1.0 million, all of which was attributable to restructuring charges (of which $0.2 million related to the 2016 restructuring and $0.8 million related to the 2015 restructuring). We made cash payments related to restructuring charges of $2.8 million ($2.6 million related to the 2016 restructuring and $0.2 million related to the 2015 restructuring).

Restructuring Charges

During the first quarter of 2020, 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 actions resulted in total~~ restructuring ~~charges~~program as part of ~~$85.3 million, primarily~~a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. In the year ended September 30, 2020, we incurred $30.8 million in connection with this restructuring plan for termination benefits associated with approximately ~~800~~250 employees.

During the first quarter of 2019, we initiated a restructuring plan to realign our workforce to shift investment to support Industrial Internet of Things and Augmented Reality strategic opportunities. As this was a realignment of resources rather than a cost-savings initiative, it did not result in significant cost savings. The restructuring plan was completed in the first quarter of 2019 and resulted in restructuring charges of $16.3 million for termination benefits associated with approximately 240 employees, substantially all of which has been paid. In ~~2017,~~the year ended September 30, 2020, we recorded $0.1 million of credits related to this restructuring plan.

During the second quarter of 2019, we relocated our worldwide headquarters to the Boston Seaport District. We incurred a restructuring charge for the former headquarters lease, which expires in November 2022. As a result, we bear overlapping rent obligations for those premises and, in 2019, we recorded restructuring charges of ~~$2.6~~approximately $32.7 million, ~~attributable to termination benefits and $5.6 million related to~~based on the ~~closure~~net present value of ~~excess facilities.~~ remaining lease commitments net of estimated sublease income. Other costs associated with the move were recorded as incurred.In ~~2016,~~2020, we recorded a $4.3 million net credit for accrued variable operating restructuring charges, ~~of $75.8 million attributable to termination benefits and $1.3 million related to the closure of excess facilities. As of September 30, 2017, this restructuring plan was substantially complete.~~

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 IoT 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. The actions resulted in total restructuring charges of $42.1 million, primarily associated with ~~termination benefits~~

the exit of a portion of our former headquarters lease under a partial buy-out agreement with the landlord.

associated with 411 employees. In 2015, we recorded restructuring charges of $41.8 million attributable termination benefits and $1.4 million related to the closure of excess facilities and in 2016 and 2017, we recorded restructuring credits of $0.8 million and $0.2 million, respectively, attributable to termination benefits.

The following table summarizes restructuring ~~charges reserve~~accrual activity for the three years ended September 30, ~~2017:~~2020:

(in thousands)	Employee severance and related benefits			Facility closures and other costs			Consolidated total
Balance, September 30, 2017	$	1,736		$	4,508		$	6,244
Charges (credits) to operations, net		(509	)		(494	)		(1,003	)
Cash disbursements		(1,247	)		(1,509	)		(2,756	)
Foreign exchange impact		20			(90	)		(70	)
Balance, September 30, 2018		0			2,415			2,415
Charges to operations, net		15,704			32,908			48,612
Cash disbursements		(15,402	)		(9,319	)		(24,721	)
Other non-cash charges		0			4,812			4,812
Foreign exchange impact		(4	)		(28	)		(32	)
Balance, September 30, 2019		298			30,788			31,086
ASC 842 adoption		0			(16,462	)		(16,462	)
Charges (credits) to operations, net		30,690			(4,263	)		26,427
Cash disbursements		(27,256	)		(4,246	)		(31,502	)
Other non-cash		0			164			164
Foreign exchange impact		260			14			274
Balance, September 30, 2020	$	3,992		$	5,995		$	9,987

Employee Severance
and Related Benefits

Facility Closures
and Other Costs
Consolidated Total
(in thousands)
Balance, October 1, 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
Charges to operations 2,373
5,569
7,942
Cash disbursements (35,069 ) (2,005 ) (37,074 )
Other non-cash charges —
(704 ) (704 )
Foreign currency impact (745 ) 217
(528 )
Balance, September 30, 2017 $ 1,736
$ 4,508
$ 6,244

Of the accrual for facility closures and related costs, as of September 30, 2017 $2.3 million is included in accrued expenses and other current liabilities and $2.2 million is included in other liabilities in the Consolidated Balance Sheets. The accrual for facility closures is net of assumed sublease income of $4.2 million.

The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.

Upon adoption of ASC 842, $16.5 million of accrued expenses and other current liabilities, representing the present value of lease commitments net of estimated sublease income, were reclassified to lease assets and obligations: $7.6 million to lease assets, $9.2 million to short-term lease obligations and $14.9 million to long-term lease obligations.

As of September 30, 2020, the remaining restructuring facility accrual of $6.0 million relates to variable non-lease costs not subject to ASC 842, of which, $2.8 million is included in accrued expenses and other current liabilities and $3.2 million is included in other liabilities in the Consolidated Balance Sheets.

Of the accrual for facility closures and related costs, as of September 30, 2019, $11.9 million is included in accrued expenses and other current liabilities and $18.9 million is included in other liabilities in the Consolidated Balance Sheets.

Other - Headquarters Relocation Charges

Headquarters relocation charges represent other expenses associated with exiting our prior Needham headquarters facility and relocating to our new worldwide headquarters in the Boston Seaport District. In 2019 and 2018, we recorded $1.9 million and $4.8 million, respectively, of accelerated depreciation expense related to shortening the estimated useful lives of leasehold improvements related to the Needham location. Headquarters relocation charges for 2019 also included $0.6 million of rental expense for the Needham facility that overlapped with rental expense for the new Seaport headquarters.

5. Property and Equipment

Property and equipment consisted of the following:

(in thousands)	September 30,
	2020			2019
Computer hardware and software	$	330,392		$	313,967
Furniture and fixtures		30,251			28,445
Leasehold improvements		99,883			97,657
Gross property and equipment		460,526			440,069
Accumulated depreciation and amortization		(359,027	)		(334,538	)
Net property and equipment	$	101,499		$	105,531

September 30,
2017 2016
(in thousands)
Computer hardware and software $ 286,380
$ 267,928
Furniture and fixtures 21,145
20,742
Leasehold improvements 47,658
43,769
Gross property and equipment 355,183
332,439
Accumulated depreciation and amortization (291,583 ) (265,326 )
Net property and equipment $ 63,600
$ 67,113

Depreciation expense was ~~$28.0~~$24.7 million, ~~$28.8~~$26.7 million and ~~$28.9~~$29.4 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, 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). 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 and ColdLight 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 and ColdLight 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.

6. Acquisitions

Acquisition-related costs were ~~$1.6~~$8.6 million, ~~$3.5~~$3.1 million and ~~$8.9~~$0.5 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. Acquisition-related costs include direct costs of ~~completing an acquisition~~potential and completed acquisitions (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)~~severance). In addition, subsequent adjustments to our initial estimated ~~amounts~~amount of contingent consideration ~~primarily net present value changes,~~associated with specific acquisitions are included within acquisition-related charges. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.

~~2016 Acquisitions~~

~~Kepware~~

Our results of operations include the results of acquired businesses beginning on their respective acquisition date. For all acquisitions made in 2020, our results of operations, if presented on a pro forma basis, would not differ materially from our reported results.

Onshape

On ~~January 12, 2016,~~November 1, 2019, we ~~acquired all~~completed our acquisition of Onshape Inc. pursuant to an Agreement and Plan of Merger dated as of October 23, 2019 by and among Onshape Inc., OPAL Acquisition Corporation and the ~~ownership interest~~Stockholder Representative named therein, the material terms of which are described in ~~Kepware, Inc. for $99.4~~the Form 8-K filed by PTC on October 23, 2019 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $469 million, ~~in cash (net~~net of cash acquired of ~~$0.6 million) and, $16.9~~$7.5 million, ~~representing the fair value of contingent consideration payable upon achievement of targets described below. We~~for Onshape, which amount we borrowed ~~$100.0 million~~ under our existing credit ~~facility in January of 2016 to fund the acquisition.~~

facility. The acquisition of ~~Kepware's KEPServerEX~~^® ~~communication platform enhanced our portfolio~~Onshape did not add material revenue in 2020.

The acquisition of ~~Internet of Things (IoT) technology,~~Onshape has been accounted for as a business combination. Assets acquired and ~~accelerated our entry into the factory setting and industrial IoT. At the time~~liabilities assumed have been recorded at their estimated fair values as of the acquisition ~~Kepware had historical annualized~~date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant judgment and assumptions, including estimating future revenues ~~which were immaterial to our financial results. Kepware added approximately $16 million to our 2016 revenue~~ and ~~approximately $15 million in costs~~costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and ~~expenses.~~

assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in ~~$77.1~~$364.9 million of goodwill, ~~which will be deductible for income tax purposes. Intangible assets~~$56.8 million of ~~$34.5~~customer relationships, $47.3 million ~~includes~~of purchased software, $3.6 million of ~~$28.7~~trademarks and $4.1 million of other net liabilities. The acquired customer relationships, ~~of $5.2 million~~purchased software, and trademarks ~~of $0.6 million, which~~ are being amortized over useful lives of 10 years, 1016 years, and 615 years, respectively, based ~~upon~~on the ~~pattern in which economic benefits related to such assets are~~ expected ~~to be realized.~~

~~The resulting amount of goodwill reflects our expectations~~benefit pattern 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~~assets. The 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.

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 immaterialgoodwill was allocated to our ~~financial results. The purchase price allocation resulted in $23.3 million of goodwill, which~~software products segment and will not be deductible for income tax ~~purposes, $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.~~purposes. The resulting amount of goodwill reflects the expected value that will be created by the expected acceleration of CAD and PLM growth, especially in the low end of the ~~synergies created by integrating Vuforia’s augmented~~market, and participation in expected future growth of the CAD and PLM SaaS market. In addition, over the longer term, we anticipate building products based on the Onshape SaaS 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~~

platform.

Frustum

On ~~May 7, 2015,~~November 19, 2018, we acquired ~~all of the ownership interest of ColdLight Solutions, LLC, a company that offered solutions~~Frustum Inc. for ~~data machine learning and predictive analytics, for approximately $98.6~~$69.5 million ~~in cash~~ (net of cash acquired of ~~$1.3~~$0.7 million). We financed the acquisition with borrowings under our credit facility. Frustum engaged in next-generation computer-aided design, including generative design, an approach that leverages artificial intelligence to generate design options. At the time of the acquisition, Frustum had approximately 12 employees and historical annualized revenues were not material. The acquisition of Frustum did not add material revenue in 2019.

The acquisition of Frustum has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in ~~$85.3~~$53.7 million of goodwill, ~~which~~$17.9 million of purchased software and $2.1 million of other net liabilities. The acquired technology is being amortized over a useful life of 15 years based on the expected benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. ~~Intangible~~The resulting amount of goodwill reflects the expected value that will be created by integrating Frustum generative design technology into our CAD solutions.

Other Acquisitions

In the fourth quarter of 2020, we completed an acquisition for $15.0 million (net of cash acquired of $0.1 million). At the time of acquisition, the company had approximately 20 employees and historical annualized revenues were not material. This acquisition did not add material revenue in 2020.

The acquisition was accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition dates. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of ~~$17.6~~significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in $12.3 million ~~includes~~of goodwill, $3.4 million of purchased software, $0.7 of ~~$13.6 million,~~ customer relationships and $1.4 million of ~~$3.5 million~~other net liabilities. The purchased software and ~~trademarks of $0.5 million, which~~customer relationships are being amortized over useful lives of 7 years and 10 years, ~~9 years~~respectively,based on the expected benefit pattern of the assets. The acquired goodwill was allocated to our software segment and ~~7 years, respectively,~~will not be deductible for income tax purposes.

In the third quarter of 2019, we completed two acquisitions for $17.3 million (net of cash acquired of $0.3 million). At the time of acquisitions, the combined companies had approximately 95 employees and historical annualized revenues were not material. These acquisitions did not add material revenue in 2019.

The acquisitions were accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition dates. The fair values of intangible assets were based ~~upon~~on valuations using a discounted cash flow model which requires the ~~pattern~~use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in ~~which economic benefits related~~$12.6 million of goodwill, $3.4 million of customer relationships and $1.3 million of other net assets. The acquired goodwill was allocated to ~~such assets are expected to~~our services segment and will not be ~~realized.~~

F.deductible for income tax purposes.

7. Goodwill and Acquired Intangible Assets

~~Effective with the beginning of the third quarter of 2016, we~~

We have ~~three~~2 operating and reportable segments: (1) ~~Solutions Group,~~Software Products and (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. Prior to the change in 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.

As of September 30, ~~2017,~~2020, goodwill and acquired intangible assets in the aggregate attributable to our ~~Solutions Group, IoT Group~~Software Products segment was $1,818.1 million and attributable to our Professional Services segment was ~~$1,175.6 million, $234.4 million and $30.6 million, respectively.~~$45.3 million. As of September 30, ~~2016,~~2019, goodwill and acquired intangible assets in the aggregate attributable to our ~~Solutions Group, IoT Group~~Software Products segment was $1,362.4 million and attributable to our Professional Services segment was ~~$1,196.6 million, $252.8 million and $30.7 million, respectively.~~

Goodwill is tested for impairment 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 1, 2017 and concluded that no impairment charge was required as of that date. We completed our annual goodwill impairment review as of July 1, 2017 based on a qualitative assessment. Our qualitative assessment included company specific (financial performance and long-range plans), industry, and macroeconomic factors, and consideration of the fair value of each reporting unit, which was approximately double its carrying value or higher at July 2, 2016, the last valuation date. Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required. Through September 30, 2017, there have not been any events or changes

$45.7 million.

~~in circumstances that indicate that the carrying values of goodwill or acquired intangible assets may not be recoverable.~~

Goodwill and acquired intangible assets consisted of the following:

(in thousands)	September 30, 2020						September 30, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Goodwill (not amortized)					$	1,625,786					$	1,238,179
Intangible assets with finite lives (amortized)⁽¹⁾:
Purchased software	$	443,275	$	309,124	$	134,151	$	377,359	$	278,144	$	99,215
Capitalized software		22,877		22,877		0		22,877		22,877		0
Customer lists and relationships		418,953		322,092		96,861		355,931		288,828		67,103
Trademarks and trade names		22,687		16,129		6,558		18,891		15,260		3,631
Other		4,017		4,017		0		3,910		3,910		0
	$	911,809	$	674,239	$	237,570	$	778,968	$	609,019	$	169,949
Total goodwill and acquired intangible assets					$	1,863,356					$	1,408,128

(1)	The weighted-average useful lives of purchased software, customer lists and relationships, and trademarks and trade names with a remaining net book value are 11 years, 10 years, and 11 years, respectively.

September 30, 2017 September 30, 2016

Gross
Carrying
Amount

Accumulated
Amortization

Net Book
Value

Gross
Carrying
Amount

Accumulated
Amortization

Net Book
Value
(in thousands)
Goodwill (not amortized) $ 1,182,772
$ 1,169,813
Intangible assets with finite lives (amortized) (1):
Purchased software $ 362,955
$ 228,377
$ 134,578
$ 354,595
$ 199,192
$ 155,403
Capitalized software 22,877
22,877
—
22,877
22,877
—
Customer lists and relationships 359,932
241,554
118,378
355,698
206,515
149,183
Trademarks and trade names 19,138
14,186
4,952
19,007
13,323
5,684
Other 4,030
4,030
—
3,955
3,920
35
$ 768,932
$ 511,024
$ 257,908
$ 756,132
$ 445,827
$ 310,305
Total goodwill and acquired intangible assets $ 1,440,680
$ 1,480,118

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

The changes in the carrying amounts of goodwill from ~~October 1, 2016~~September 30, 2019 to September 30, ~~2017~~2020 are due to the impact of acquisitions 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:

(in thousands)	Software Products			Professional Services			Total
Balance, September 30, 2018	$	1,152,720		$	29,737		$	1,182,457
Frustum acquisition		53,673			0			53,673
Other acquisitions		0			12,645			12,645
Foreign currency translation adjustments		(10,329	)		(267	)		(10,596	)
Balance, September 30, 2019	$	1,196,064		$	42,115		$	1,238,179
Onshape Acquisition		364,910			0			364,910
Other acquisitions		12,262			0			12,262
Foreign currency translation adjustments		10,080			355			10,435
Balance, September 30, 2020	$	1,583,316		$	42,470		$	1,625,786

Software
Products
Segment

Services
Segment
Total
(in thousands)
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
Acquisition 2,847
—
—
2,847
Foreign currency translation adjustments 9,077
778
257
10,112
Balance, September 30, 2017 $ 1,062,074
$ 90,843
$ 29,855
$ 1,182,772

The aggregate amortization expense for intangible assets with finite lives recorded for the years ended September 30, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was reflected in our Consolidated Statements of Operations as follows:

(in thousands)	Year ended September 30,
	2020		2019		2018
Amortization of acquired intangible assets	$	28,713	$	23,841	$	31,350
Cost of software revenue		27,391		27,307		26,706
Total amortization expense	$	56,104	$	51,148	$	58,056

Year ended September 30,
2017 2016 2015
(in thousands)
Amortization of acquired intangible assets $ 32,108
$ 33,198
$ 36,129
Cost of software revenue 26,621
24,604
19,402
Total amortization expense $ 58,729
$ 57,802
$ 55,531

The estimated aggregate future amortization expense for intangible assets with finite lives remaining as of September 30, ~~2017~~2020 is ~~$58.1 million for 2018, $50.8 million for 2019, $48.0 million for 2020, $42.5~~$52.9 million for 2021, ~~$29.2~~$39.1 million for 2022, $29.0 million for 2023, $20.3 million for 2024, $17.3 million for 2025 and ~~$29.2~~$79.0 million thereafter.

8. Income Taxes

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

(in thousands)	Year ended September 30,
	2020			2019			2018
Domestic	$	(73,865	)	$	(112,077	)	$	(114,591	)
Foreign		208,571			132,377			143,247
Total income before income taxes	$	134,706		$	20,300		$	28,656

Year ended September 30,
2017 2016 2015
(in thousands)
Domestic $ (140,150 ) $ (156,166 ) $ (110,867 )
Foreign 138,744
88,974
137,392
Total income (loss) before income taxes $ (1,406 ) $ (67,192 ) $ 26,525

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

(in thousands)	Year ended September 30,
	2020			2019			2018
Current:
Federal	$	2,187		$	13,130		$	3,009
State		1,266			(945	)		2,003
Foreign		25,199			33,867			28,213
		28,652			46,052			33,225
Deferred:
Federal		(26,811	)		22,911			(12,594	)
State		(4,063	)		1,759			(445	)
Foreign		6,233			(22,962	)		(43,517	)
		(24,641	)		1,708			(56,556	)
Total provision (benefit) for income taxes	$	4,011		$	47,760		$	(23,331	)

Year ended September 30,
2017 2016 2015
(in thousands)
Current:
Federal $ 2,423
$ 2,417
$ 3,907
State 340
571
599
Foreign 17,881
28,467
23,823
20,644
31,455
28,329
Deferred:
Federal 4,911
965
(20,809 )
State 877
515
(566 )
Foreign (34,077 ) (45,662 ) (27,986 )
(28,289 ) (44,182 ) (49,361 )
Total provision (benefit) for income taxes $ (7,645 ) $ (12,727 ) $ (21,032 )

Taxes computed at the statutory federal income tax rates are reconciled to the provision (benefit) for income taxes as ~~follows (in thousands):~~follows:

(in thousands)	Year ended September 30,
	2020					2019					2018
Statutory federal income tax rate	$	28,288		21	%	$	4,263		21	%	$	7,021		25	%
Change in valuation allowance		(16,489	)	(12	)%		66,417		327	%		(181,047	)	(632	)%
Transition impact of U.S. Tax Act		0		0	%		0		0	%		126,122		440	%
Federal rate change		0		0	%		0		0	%		69,648		243	%
State income taxes, net of federal tax benefit		(2,998	)	(2	)%		607		3	%		2,401		8	%
Federal research and development credits		(5,483	)	(4	)%		(3,731	)	(18	)%		(3,058	)	(11	)%
Uncertain tax positions		3,072		2	%		2,611		13	%		(4,646	)	(16	)%
Foreign rate differences		(22,074	)	(16	)%		(26,952	)	(133	)%		(38,743	)	(135	)%
Foreign tax on U.S. provision		4,523		3	%		6,547		32	%		2,736		10	%
Excess tax benefits from restricted stock		(1,743	)	(1	)%		(5,940	)	(29	)%		(11,641	)	(41	)%
Audits and settlements		0		0	%		51		0	%		2,352		8	%
U.S. permanent items		6,590		5	%		2,483		12	%		5,408		19	%
BEAT		(1,759	)	(1	)%		1,759		9	%		0		0	%
GILTI, net of foreign tax credits		14,899		11	%		6,170		31	%		0		0	%
Foreign-Derived Intangible Income (FDII)		(2,461	)	(2	)%		(6,409	)	(32	)%		0		0	%
Other, net		(354	)	(1	)%		(116	)	(1	)%		116		1	%
Provision (benefit) for income taxes	$	4,011		3	%	$	47,760		235	%	$	(23,331	)	(81	)%

Year ended September 30,
2017 2016 2015
Statutory federal income tax rate $ (492 ) (35 )% $ (23,517 ) (35 )% $ 9,284
35 %
Change in valuation allowance 17,334
1,233 % 37,996
57 % 16,718
63 %
State income taxes, net of federal tax benefit 627
45 % (82 ) — % 1,788
7 %
Federal research and development credits (2,182 ) (155 )% (5,981 ) (9 )% (2,097 ) (8 )%
Resolution of uncertain tax positions (3,840 ) (273 )% —
— % (2,991 ) (11 )%
Foreign rate differences (27,932 ) (1,987 )% (27,513 ) (41 )% (56,375 ) (213 )%
Foreign tax on U.S. provision 2,737
195 % 1,987
3 % 3,764
14 %
U.S. permanent items 6,030
429 % 2,886
4 % 9,062
34 %
Other, net 73
4 % 1,497
2 % (185 ) — %
Benefit for income taxes $ (7,645 ) (544 )% $ (12,727 ) (19 )% $ (21,032 ) (79 )%

In ~~2017~~2020, 2019, and ~~2016,~~2018, our ~~effective~~ tax rate ~~was materially impacted by~~differed from the U.S. statutory federal income tax rate due to our corporate structure in which our foreign taxes are at ana net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland. In ~~2017, 2016~~2020, 2019, and ~~2015,~~2018, the foreign rate differential predominantly relates to these Irish earnings.

In 2020, in addition to the foreign rate differential, our tax rate differed from the statutory federal income tax rate due to U.S. tax reform, the excess tax benefit related to stock-based compensation and the indirect effects of the adoption of ASC 606. Additionally, we recorded benefits for the reduction of the U.S. valuation allowance as a result of the Onshape acquisition. A further reduction to the valuation allowance was also recorded to reflect the impact from the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets.

In 2019, our effective tax rate was higher than the statutory federal income tax rate due in large part to the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets requiring an increase to the U.S. valuation allowance, U.S. tax reform (as described below) and foreign withholding taxes, an obligation of the U.S. parent. This is offset by foreign rate differences, the excess tax benefit related to stock-based compensation and the indirect effects of the adoption of ASC 606.

In 2018, our effective tax rate was lower than the statutory federal income tax rate due to U.S. tax reform, as described below. Additionally, we have a full valuation allowance against deferred tax assets in the U.S., primarily related to net operating ~~loss and~~losses, tax credit ~~carry forwards.~~carryforwards, capitalized research and development and deferred revenue. As a result, we have not recorded a benefit related to ongoing U.S. losses. Our foreign rate differential in ~~2017, 2016 and 2015~~2018 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 ~~2017 and 2016,~~2018, this realignment resulted in a tax benefit of approximately ~~$28 million in each year and a benefit of~~ $24 million in 2015. In 2017 and 2016, the change in valuation allowance primarily relates to U.S. losses not benefitted, partially offset by the release of valuation allowances in foreign subsidiaries of $9.0 million and $3.1 million, respectively. Also, in 2017, we recorded a tax benefit of $3.5 million related to the release of a tax reserve upon completion of a favorable agreement with tax authorities in a foreign jurisdiction. In 2017 and 2016, wemillion. We recorded foreign withholding taxes, an obligation of the U.S. parent, of ~~$2.0~~$2.7 million ~~respectively. Additionally,~~ in 2018.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and ~~2016, our provision reflects~~Jobs Act, (the "Tax Act"), which significantly changed existing U.S. tax laws by a reduction of the corporate tax ~~benefit related to U.S. research and development tax credits which were offset by corresponding provisions to increase our U.S. valuation allowance of $2.2 million and $6.0 million, respectively.~~

~~In 2015, U.S. permanent items include~~rate, the ~~tax effect~~implementation of a ~~$14.5 million expense related to a pending legal settlement. Other factors impacting~~new system of taxation for non-U.S. earnings, the ~~effective tax rate in 2015 include: the release~~imposition of a ~~valuation allowance totaling $18.7 million relating to~~one-time tax on the ~~U.S. pension plan termination, foreign withholding taxes~~deemed repatriation of ~~$3.8 million, a tax benefit~~undistributed earnings of ~~$3.1 million relating to~~non-U.S. subsidiaries, and 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 extensionexpansion of the limitations on the deductibility of executive compensation and interest expense. As we have a September 30 fiscal year-end, a blended U.S. ~~research~~statutory federal rate of approximately 24.5% applied for our fiscal year ended September 30, 2018 and ~~development~~21% for subsequent fiscal years. The Tax Act also provides that net operating losses generated in years ending after December 31, 2017 (our fiscal 2018) will be carried forward indefinitely and can no longer be carried back, and that net operating losses generated in years beginning after December 31, 2017 (our fiscal 2019) can only reduce taxable income by up to 80% when utilized in a future period. The Tax Act includes a provision to tax ~~credit enacted~~global intangible low-tax income (GILTI) of foreign subsidiaries, a deduction for Foreign-Derived Intangible Income (FDII), and the base erosion anti-abuse tax (BEAT) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI, FDII and BEAT provisions were effective for us beginning October 1, 2018. Our accounting policy is to treat tax on GILTI as a current period cost included in tax expense in the ~~first quarter~~year incurred.

In 2018, we provided no federal income taxes payable as a result of ~~2015. This benefit~~the deemed repatriation of undistributed earnings as the tax was offset by a ~~corresponding provision~~combination of current year losses and existing attributes which had a full valuation allowance recorded against the related deferred tax assets. In 2018, we recorded state income taxes payable on the deemed repatriation of $1.7 million. We also recorded a deferred tax benefit of $14.1 million for the impact of the Tax Act on our net U.S. deferred income tax balances. This was primarily attributable to ~~increase our~~the reduction of the federal tax rate on the net deferred tax liability in the U.S. ~~valuation allowance.~~

, and the ability to realize net operating losses from the reversal of existing deferred tax assets which can now be carried forward indefinitely and can therefore be netted against deferred tax liabilities for indefinite-lived intangible assets.

The U.S. Securities and Exchange Commission issued rules that allow for a period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We finalized recording the impacts of the Tax Act in the quarter ended December 29, 2018 and did not record any significant adjustments.

At September 30, ~~2017~~2020 and ~~2016,~~2019, income taxes payable and income tax accruals recorded on the accompanying Consolidated Balance Sheets were ~~$16.2~~$15.4 million ($~~5.7~~7.0 million in accrued income taxes, ~~$2.3~~$1.0 million in other current liabilities and ~~$8.2~~$7.4 million in other liabilities) and ~~$18.7~~$23.4 million ($~~6.3~~17.4 million in accrued income taxes, ~~$5.5~~$0.4 million in other current liabilities and ~~$6.9~~$5.6 million in other liabilities), respectively. At September 30, ~~2017~~2020 and ~~2016,~~2019, prepaid taxes recorded in prepaid expenses on the accompanying Consolidated Balance Sheets were ~~$7.1~~$17.3 million and ~~$9.9~~$5.3 million, respectively. We made net income tax payments of ~~$35.4~~$52.6 million, ~~$25.5~~$38.9 million and ~~$30.1~~$22.6 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

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

(in thousands)	September 30,
	2020			2019
Deferred tax assets:
Net operating loss carryforwards	$	61,495		$	26,462
Foreign tax credits		8,074			0
Capitalized research and development		30,109			34,560
Pension benefits		14,370			14,838
Prepaid expenses		13,579			41,739
Deferred revenue		6,021			9,899
Stock-based compensation		13,630			12,306
Other reserves not currently deductible		15,130			20,986
Amortization of intangible assets		162,426			168,376
Research and development and other tax credits		70,695			49,995
Lease liabilities		52,224			0
Fixed assets		47,457			45,450
Capital loss carryforward		35,851			31,248
Deferred interest		0			10,864
Other		1,849			1,623
Gross deferred tax assets		532,910			468,346
Valuation allowance		(205,423	)		(177,663	)
Total deferred tax assets		327,487			290,683
Deferred tax liabilities:
Acquired intangible assets not deductible		(65,894	)		(42,554	)
Lease assets		(35,885	)		0
Pension prepayments		(1,155	)		(2,532	)
Deferred revenue		(594	)		(19,312	)
Depreciation		(7,481	)		0
Unbilled accounts receivable		(12,699	)		(31,005	)
Deferred income		(5,821	)		(19,040	)
Prepaid commissions		(17,124	)		(17,423	)
Other		(2,302	)		(1,866	)
Total deferred tax liabilities		(148,955	)		(133,732	)
Net deferred tax assets	$	178,532		$	156,951

September 30,
2017 2016
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 143,793
$ 100,033
Foreign tax credits 21,099
18,041
Capitalized research and development expense 13,044
22,504
Pension benefits 12,107
14,348
Deferred revenue 59,022
65,145
Stock-based compensation 25,360
19,846
Other reserves not currently deductible 16,905
25,993
Amortization of intangible assets 78,351
54,069
Other tax credits 42,652
41,381
Depreciation 3,095
3,002
Capital loss carryforward 33,535
8,019
Deferred interest 11,666
7,622
Other 15,849
14,778
Gross deferred tax assets 476,478
394,781
Valuation allowance (279,683 ) (235,503 )
Total deferred tax assets 196,795
159,278
Deferred tax liabilities:
Acquired intangible assets not deductible (70,570 ) (78,663 )
Pension prepayments (2,093 ) (542 )
Deferred revenue (6,214 ) (2,039 )
U.S taxes on unremitted foreign earnings (11,440 ) (67 )
Other (1,192 ) (2,025 )
Total deferred tax liabilities (91,509 ) (83,336 )
Net deferred tax assets $ 105,286
$ 75,942

In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. 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. We adopted this standard beginning in the first quarter of 2019 using the modified retrospective method with a cumulative effect adjustment to accumulated deficit of $72.3 million, with a corresponding increase of $75.3 million to deferred tax assets, a $6.0 million decrease to income tax assets and a $3.0 million decrease to income tax liabilities. The adjustment primarily relates to deductible amortization of intangible assets in Ireland. Post adoption, our effective tax rate no longer includes the benefit of this amortization.

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, ~~2017,~~2020, we had U.S. federal NOL carryforwards ~~of $383.0 million that expire in 2018 to 2037. These include NOL carryforwards~~ from acquisitions of ~~$82.2 million.~~$128.7 million, of which $53.2 million expire in 2021 to 2037. The remaining carryforwards of $75.5 million do not expire. 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 $61.4 million relate to windfall tax benefits that have not been recognized. The deferred tax asset associated with this benefit will be recorded to retained earnings in the first quarter of 2018, as a result of the adoption of ASU 2016-09. This benefit will be offset in full by an increase to the valuation allowance. See Note B. ~~Summary of Significant Accounting Policies.~~

As of September 30, ~~2017,~~2020, we had Federal R&D credit carryforwards of ~~$27.4~~$42.2 million, which expire beginning in 2030 and ending in 2040, and Massachusetts R&D credit carryforwards of $26.9 million, which expire beginning in 2021 and ending in ~~2037, and Massachusetts R&D credit carryforwards of $23.5 million, which expire beginning in 2018 and ending in 2032.~~2035. We also had foreign tax credits of ~~$20.8~~$8.1 million, which expire ~~beginning~~ in ~~2023 and ending in 2027.~~2030. A full valuation allowance is recorded against ~~these~~the carryforwards. Federal R&D credits totaling $13.4 million relate to windfall tax benefits that have not been recorded as a deferred tax asset as of September 30, 2017. The deferred tax asset associated with this benefit will be recorded to retained earnings in the first quarter of 2018, as a result of the adoption of ASU 2016-09. This

~~benefit will be offset in full by an increase to the valuation allowance. See Note B.~~ ~~Summary of Significant Accounting Policies.~~

We also have NOL carryforwards in non-U.S. jurisdictions totaling ~~$90.2~~$58.4 million, the majority of which do not ~~expire. We also have~~expire, and non-U.S. tax credit carryforwards of ~~$5.4~~$4.4 million that expire beginning in ~~2029~~2030 and ending in 2035. Additionally, we have ~~interest and~~ amortization carryforwards of ~~$93.3~~$907.4 million ~~and $535.6 million, respectively~~ in a foreign jurisdiction. There are limitations imposed on the utilization of such ~~NOLs~~attributes that could restrict the recognition of any tax benefits.

As of September 30, ~~2017,~~2020, we have a valuation allowance of ~~$239.3~~$171.3 million against net deferred tax assets in the U.S. and a valuation allowance of ~~$40.4~~$34.1 million against net deferred tax assets in certain foreign jurisdictions. The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our ~~net operating~~capital loss carryforwards, the majority of which do not expire. However, there are limitations imposed on the utilization of such ~~net operating~~capital losses that could restrict the recognition of any tax benefits.

The changes to the valuation allowance were primarily due to the following:

(in thousands)	Year ended September 30,
	2020		2019			2018
Valuation allowance, beginning of year	$	177,663	$	141,950		$	279,683
Net release of valuation allowance⁽¹⁾		0		(1,772	)		(2,791	)
Net increase (decrease) in deferred tax assets with a full valuation allowance⁽²⁾		27,760		37,485			(134,942	)
Valuation allowance, end of year	$	205,423	$	177,663		$	141,950

Year ended September 30,
2017 2016 2015
(in millions)
Valuation allowance beginning of year $ 235.5
$ 198.2
$ 177.5
Net release of valuation allowance (1) (9.1 ) (3.1 ) (18.7 )
Net increase/decrease in deferred tax assets with a full valuation allowance 53.3
39.8
39.4
Establish valuation allowance in foreign jurisdictions —
0.6
—
Valuation allowance end of year $ 279.7
$ 235.5
$ 198.2

(1)
~~(1)~~	In ~~2017~~2019 and ~~2016,~~2018 this is attributable to the release in foreign jurisdictions.

(2)

In ~~2015,~~2020, this change is largely attributed to the Onshape acquisition, the adoption of ASC 842 and the impact to the change in scheduling of the reversal of existing temporary differences. In 2019, this is ~~attributable~~due in large part to a ~~reduction~~change in method of accounting for federal income tax purposes resulting in deferred tax liabilities that cannot be offset against available tax attributes in the scheduling of the reversal of existing temporary differences, and by the adoption of ASC 606. In 2018, this is primarily attributable to U.S. tax reform: the utilization of tax attributes used to offset the transition tax, the revaluation of the U.S. net deferred tax assets ~~associated with our U.S. pension plan.~~and liabilities, the ability to realize net operating losses from the reversal of existing deferred tax assets which can now be carried forward indefinitely and can therefore be netted against deferred tax liabilities for indefinite-lived intangibles.

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 ~~2017,~~2020 and 2019, we recorded interest expense of $0.3 million and $0.1 million, respectively, and in 2018 we reduced interest expense by ~~$0.9 million~~$0.6 million. In 2020, 2019 and ~~in 2016 and 2015, we recorded interest expense of $0.5 million and $0.1 million, respectively. In 2017, 2016 and 2015,~~2018, we had no0 tax penalty expense in our income tax provision. As of September 30, ~~2017~~2020 and ~~2016,~~2019, we had accrued ~~$1.1~~$0.6 million and ~~$2.0~~$0.5 million ~~respectively,~~ of net estimated interest expense related to income tax ~~accruals.~~accruals, respectively. We had no0 accrued tax penalties as of September 30, ~~2017, 2016~~2020, 2019 or ~~2015.~~2018.

	Year ended September 30,
Unrecognized tax benefits (in thousands)	2020			2019			2018
Unrecognized tax benefit, beginning of year	$	11,484		$	9,812		$	14,752
Tax positions related to current year:
Additions		2,173			1,466			1,456
Tax positions related to prior years:
Additions		2,452			1,375			0
Reductions		(2	)		(9	)		(4,631	)
Settlements		0			(1,160	)		0
Statute expirations		0			0			(1,765	)
Unrecognized tax benefit, end of year	$	16,107		$	11,484		$	9,812

Year ended September 30,
Unrecognized tax benefits 2017 2016 2015
(in millions)
Unrecognized tax benefit beginning of year $ 15.5
$ 14.1
$ 15.0
Tax positions related to current year:
Additions 0.9
1.0
1.3
Tax positions related to prior years:
Additions 1.0
0.4
0.8
Reductions (1.6 ) —
(3 )
Settlements (1.0 ) —
—
Statute expirations —
—
—
Unrecognized tax benefit end of year $ 14.8
$ 15.5
$ 14.1

If all of our unrecognized tax benefits as of September 30, ~~2017~~2020 were to become recognizable in the future, we would record a benefit to the income tax provision of ~~$14.8~~$16.1 million (which would be partially offset by an increase in the U.S. valuation allowance of ~~$5.1~~ $7.7million). Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the

next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $6$1 million as audits close and statutes of limitations expire.

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

appeal process. If the South Korean tax authorities were to prevail then, in addition to the $12 million already assessed, the potential additional exposure through 2020 would be approximately $17 million. We are continuing to work with our advisors during the court process and still believe our position is sustainable.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the IRS in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates. As of September 30, ~~2017,~~2020, we remained subject to examination in the following major tax jurisdictions for the tax years indicated:



Major Tax Jurisdiction		Open Years
United States		~~2014~~ 2016 through ~~2017~~2020
Germany		~~2011~~ 2015 through ~~2017~~2020
France		~~2014~~ 2017 through ~~2017~~2020
Japan		~~2012~~ 2015 through ~~2017~~2020
Ireland		~~2013~~ 2016 through ~~2017~~2020

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 ~~2017, 2016~~2020, 2019 and ~~2015~~2018 of ~~$76.7~~$115.1 million, ~~$66.0~~$86.4 million and ~~$50.2~~$82.9 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 ~~$1.3~~$13.4 million, ~~$0.7~~$16.6 million and ~~$0.7~~$28.3 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. Upon the settlement of the stock-based awards (i.e., exercise or vesting), 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”~~recorded 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.~~provision. In ~~2017, 2016~~2020, 2019 and ~~2015, we recorded~~2018, windfall tax benefits of ~~$0.6~~$1.3 million, ~~$0.1~~$6.7 million and ~~$0.0~~$13.2 million were recorded to the tax provision. Prior to the adoption of ASU 2016-09, windfall tax benefits were recorded 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, 2017, the tax effect of windfall tax deductions which had not yet reducedwhen they resulted in a reduction in taxes ~~payable was $38.3 million.~~ payable.

In the first quarter of 2018, as a result of the ~~company will adopt~~adoption of ASU ~~2016-09. See Note B. Note B.~~ ~~Summary~~2016-09, we recognized previously unrecognized tax benefits of ~~Significant Accounting Policies.~~

$37.0 million as increases in deferred tax assets for tax loss carryovers and tax credits, primarily in the U.S. A corresponding increase to the valuation allowance of $36.9 million was recorded because it was not more likely than not that these benefits would be realized.

In April 2020, we became aware of a potential new interpretation of a withholding tax law in a non-U.S. jurisdiction and its application to certain transactions that was not previously reasonably knowable by us. We have evaluated this new interpretation and made an estimate of the potential tax liability, a reserve for which was recorded in the third quarter of 2020 and had an immaterial impact to our consolidated financial statements.

In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The Company follows the 2015 Tax Court opinion, which was subsequently overturned by the Ninth Circuit Court of Appeals. All appeals have now been exhausted and the Altera decision is considered to be final in the Ninth Circuit. Because the Company does not ~~provided for~~reside in the Ninth Circuit and is therefore not bound by this decision, we have determined no adjustment is required to the consolidated financial statements as a result of this ruling.

Prior to the passage of the U.S. ~~income~~Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes ~~or foreign withholding taxes on foreign unrepatriated~~were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings ~~as it~~were subjected to U.S. federal taxation via a one-time transition tax, and there is therefore no longer a material cumulative basis difference associated with the undistributed earnings. We maintain our ~~current~~assertion of our intention to permanently reinvest these earnings outside the U.S. unless repatriation can be done ~~with no significant tax cost,~~substantially tax-free, with the exception of a foreign holding company formed in ~~2014~~2018 and our Taiwan subsidiary. In 2017, we established a deferred tax liability of $11 million to provide for taxes on these unremitted earnings. This liability was offset by a corresponding release in valuation allowance. 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 repatriate any additional non-U.S. earnings in the future, 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 $882 million and $789 million as of September 30, 2017 and 2016, respectively. The~~ amount of unrecognized deferred tax liability on the undistributed earnings ~~cannot~~would not be ~~practicably determined at this time.~~

H.material.

9. Debt

As of September 30, ~~2017~~2020 and ~~2016,~~2019, we had the following long-term borrowing obligations:

(in thousands)	September 30,
	2020			2019
4.000% Senior notes due 2028	$	500,000		$	0
3.625% Senior notes due 2025		500,000			0
6.000% Senior notes due 2024		0			500,000
Credit facility revolver⁽¹⁾		18,000			173,125
Total debt		1,018,000			673,125
Unamortized debt issuance costs for the Senior notes⁽²⁾		(12,686	)		(3,991	)
Total debt, net of issuance costs⁽³⁾	$	1,005,314		$	669,134

(1)	Unamortized debt issuance costs related to the credit facility were $4.9 million and $3.1 million as of September 30, 2020 and 2019, respectively, and were included in other assets on the Consolidated Balance Sheets.

(2)

Of the $14.1 million in financing costs incurred in connection with the issuance of the 2028 and 2025 notes, unamortized debt issuance costs were $12.7 million as of September 30, 2020 and were included in long-term debt on the Consolidated Balance Sheet. Unamortized debt issuance costs as of September 30, 2019 related to the 2024 notes and were included in long-term debt on the Consolidated Balance Sheet.

September 30,
2017 2016
(in thousands)
6.000% Senior notes due 2024 $ 500,000
$ 500,000
Credit facility-revolver 218,125
258,125
Total debt 718,125
758,125
Unamortized debt issuance costs for the Senior notes (1) (5,719 ) (6,524 )
Total debt, net of issuance costs (2) $ 712,406
$ 751,601
(1) Unamortized debt issuance costs related to the credit facility were $2.0 million and $4.2 million as of September 30, 2017 and September 30, 2016, respectively, and were included in other assets.
(2) As of September 30, 2017 and 2016 all debt was included in long-term debt.

(3)	As of September 30, 2020 and 2019, all debt was classified as long term.

Senior Unsecured Notes

In ~~May 2016,~~February 2020, we issued $500 million in aggregate principal amount of ~~6.0%~~4.0% senior, unsecured long-term debt at par value, due in ~~2024. We~~2028 (the 2028 notes) and $500 million in aggregate principal amount of 3.625% senior, unsecured long-term debt at par value, due in 2025 (the 2025 notes). In the second quarter of 2020, we used $460 million of the net proceeds from the sale of the notes to repay a portion of ~~our~~the outstanding revolving loan under our ~~current~~ credit facility. In the third quarter of 2020, we used the remaining net proceeds from the sale of the notes to redeem the $500 million aggregate principal amount of our outstanding 6.0% senior notes due in 2024 (the 2024 notes). The redemption price for the 2024 notes was 103% of the aggregate principal amount of the notes, plus accrued and unpaid interest.

As of September 30, 2020, the total estimated fair value of the 2028 and 2025 senior notes was approximately $515.1 million and $507.5 million respectively, based on quoted prices for the notes on that date.

We were in compliance with all the covenants for all of our senior notes as of September 30, 2020.

Terms of the 2028 and 2025 Notes

Interest on the 2028 and 2025 notes is payable semi-annually on ~~November~~February 15 and ~~May~~August 15. The debt indenture for the 2028 and 2025 notes 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, 2017.~~

~~On and after May 15, 2019, we~~ may, on one or more occasions, redeem the ~~senior~~2025 and 2028 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~~would 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 inupon 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, 2017, the total estimated fair value of the Notes was approximately $538.7 million, which is based on quoted prices for the notes on that date.~~

Credit Agreement

In ~~November 2015,~~February 2020, we entered into a Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, for a new secured multi-currency bank credit facility with a syndicate of ~~sixteen banks for which JPMorgan Chase Bank, N.A. acts as Administrative Agent. We~~banks. The new credit facility replaced our prior credit facility. As with the prior credit facility, we expect to use the new credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements. As of September 30, ~~2017,~~2020, the fair value of our credit facility approximates its book value.

The credit facility ~~initially consisted~~consists of a $1 billion revolving ~~loan commitment,~~credit facility, which was reduced to $900 million in June 2016 and further reduced to $600 million March 2017 pursuant to an amendment to the Credit Agreement. The March 2017 amendment also increased the maximum permissible leverage ratio, defined as consolidated total indebtedness to the consolidated trailing four quarters EBITDA, from 4.00 to 1.00 to 4.50 to 1.00. The loan commitment may be increased by up to an additional $500 million ~~(in~~in the ~~form of revolving loans or term loans, or a combination thereof)~~aggregate if the existing or additional lenders are willing to make such increased commitments. As of September 30, 2020, unused commitments under our credit facility were approximately $982.0 million. The maturity date of the credit facility is February 13, 2025, when all remaining amounts outstanding will be due and payable. 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 no0 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~~funds were borrowed by an eligible foreign subsidiary borrower. In addition, owned property (including equity interests) of 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 ofunder 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, ~~2017,~~2020, the annual rate for borrowing outstanding was ~~3.125%~~1.81%. Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.75% above an adjusted ~~LIBO rate~~London Interbank Offering Rate (LIBOR) 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~~NYFRB rate plus 0.5%, or an adjusted ~~LIBO rate~~LIBOR 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~~LIBOR 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 limits PTC’s and its subsidiaries’ ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic

subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts exceeding ~~$75~~$100 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 4.50 to 1.00 as of the last day of any fiscal quarter;

~~a total leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, not to exceed~~ ~~4.50~~ to ~~1.00~~ ~~as of the last day of any fiscal quarter;~~

•

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 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~~

•

an interest coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA to consolidated trailing our quarters of cash basis interest expense, of not less than 3.00 to 1.00 as of the last day of any fiscal quarter.

~~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, ~~2017,~~2020, our total leverage ratio was ~~2.82~~2.34 to 1.00, our senior secured leverage ratio was ~~0.86~~0.08 to 1.00 and our ~~fixed charge~~interest coverage ratio was ~~5.96~~5.85 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~~$2.0 million in financing costs in connection with the ~~Senior Notes~~February 2020 credit facility and $1.0 million in ~~2016.~~connection with a November 2019 amendment to our prior credit facility. These origination costs ~~were~~are recorded as deferred debt issuance costs ~~when incurred~~ and ~~were being~~are included in other assets. Financing costs are expensed over the remaining term of the obligations.

In ~~April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation~~2020, 2019 and 2018, we incurred interest expense of Interest (Subtopic 835-30), 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. We adopted this new guidance in our first quarter ended December 31, 2016 and applied this guidance retrospectively. As a result, the debt issuance costs of $6.5$76.4 million, ~~previously included in other long-term assets on the Consolidated Balance Sheet as of September 30, 2016 have been reclassified.~~

~~In 2017, 2016 and 2015, we paid $38.9 million, $13.3~~$43.0 million, and ~~$10.1~~$41.7 million, respectively, and paid $60.6 million, $40.8 million and $39.8 million, respectively, of interest on our debt. Additionally, in the third quarter of 2020, we paid $15.0 million in penalties for the early redemption of the 2024 notes. The average interest rate on borrowings outstanding during ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was approximately ~~4.9%~~4.3%, ~~3.0%~~5.4% and ~~1.7%~~5.2%, respectively.

10. Commitments and Contingencies

~~Leasing Arrangements~~

We lease office facilities under operating leases expiring at various dates through 2037. Certain leases require us to pay for taxes, insurance, maintenance and other operating expenses in addition to rent. Lease expense was $35.8 million, $37.2 million and $36.9 million in 2017, 2016 and 2015, respectively. At September 30, 2017, our future minimum lease payments under noncancelable operating leases are as follows:

Year ending September 30, (in thousands)
2018 $ 39,261
2019 30,988
2020 25,941
2021 28,134
2022 24,018
Thereafter 212,234
Total minimum lease payments $ 360,576

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. Utilities related to this lease are excluded from the above table due to variability year to year. These costs were approximately $1.5 million in 2017. 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.

On September 7, 2017, we entered into a lease agreement with SCD L2 Seaport Square LLC for approximately 250,000 square feet located at 121 Seaport Boulevard, Boston, Massachusetts. Upon completion of construction of the new facility, we expect to move our headquarters from Needham to Boston. The term of the lease is expected to run from January 1, 2019 through June 30, 2037, subject to adjustment based on the initial occupancy date. Base rent for the first year of the lease is $11.0 million and will increase by $1 per square foot leased per year thereafter ($0.3 million per year). Base rent, which first becomes payable on July 1, 2020, subject to adjustment based on the lease commencement date, is included in the operating lease obligations above. In addition to the base rent, PTC shall pay its pro rata portions of building operating costs and real estate taxes (together, “Additional Rent”). Additional rent, equal to approximately 63% of total building operating costs and real estate taxes, is estimated to be approximately $7.1 million for the first year we begin paying rent and is not included in the operating lease payments above. The lease provides for up to approximately $25 million in landlord funding for leasehold improvements ($100 per square foot). We capitalize leasehold improvements as the assets are placed in service and amortize them to expense over the shorter of the lease term or their expected useful life. The $25 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, ~~2017~~2020 and ~~2016,~~2019, we had letters of credit and bank guarantees outstanding of ~~$4.3~~$16.4 million (of which ~~$1.2~~$0.5 million was collateralized) and ~~$4.2~~$15.1 million (of which ~~$1.2~~$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. We estimate potential additional exposure of $17 million through 2020. See Note G. 8. Income Taxes for additional information.

Legal Proceedings

On ~~March 7, 2016,~~September 17, 2020, 3 individual plaintiffs filed a putative ~~call~~class action lawsuit ~~captioned~~ ~~Matthew Crandall v.~~against PTC, the Investment Committee for the PTC Inc. ~~et al.~~401(k) Plan (“Plan”), ~~No. 1:16-cv-10471, was filed against us~~ and ~~certain~~the Board of ~~our current and former officers and directors~~Directors in the U.S. District Court for the District of Massachusetts ~~ostensibly~~alleging claims regarding the Plan. The case alleges that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in the oversight of the Plan, principally by selecting and retaining certain investment options despite their higher fees and costs than other available investment options, causing participants in the Plan to pay excessive recordkeeping fees and suffer lower returns on their investments, and by failing to

monitor other fiduciaries. The plaintiffs seek unspecified damages on behalf of ~~purchasers~~a class of Plan participants from September 17, 2014 through the date of any judgment. PTC has not yet responded to the complaint, but we believe that defenses are available to us and will defend the case vigorously. We are currently unable to reasonably estimate what effect the ultimate outcome might have, if any, on our stock during the period November 24, 2011 through July 29, 2015. The lawsuit, which sought 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. The parties settled the lawsuit for an amount that is not material to ourfinancial position, results of operations. The associated liability was accrued in our fiscal 2016 results and was paid into escrow in the third quarter of 2017. The settlement received final court approval on July 14, 2017 and all claims against PTC and the other defendants have been dismissed with prejudice.

operations or cash flows.

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

Accruals

With respect to legal proceedings and claims, we record an accrual for a contingency when it is 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, ~~2017 and 2016,~~2020, we ~~had a~~estimate that the range of possible outcomes in legal proceedings and claims ~~accrual of $0.3 million and $3.6 million, respectively.~~

~~Accounts Receivable~~

Accounts receivable as of September 30, 2017 includes an amount invoiced under a multi-year contract for which the period of performance, and related revenue recognized, has spanned a number of years (with no revenue recognized since the first quarter of 2017). The invoiced amount is being disputed by the customer. If we are unable to recover amounts owed through a mutual business resolution, we intend to vigorously pursue collection of the full invoiced amount. If we are unsuccessful in collecting the full invoiced amount, there could be a write-down of accounts receivable and professional services revenue, which could range from $0 to $17.3 million.

immaterial.

Guarantees and Indemnification Obligations

We enter into standard indemnification agreements in the ordinary course of our business. ~~Pursuant to~~Under 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.~~subcontractors and data breaches. The maximum potential amount of future payments we could be required to make under ~~these~~ indemnification agreements for intellectual property and damage and injury claims is ~~unlimited.~~unlimited; in most cases the maximum potential amount for indemnification for data breaches is capped in those contracts. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and, accordingly, 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.

11. 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~~us to repurchase ~~of shares~~up to $1.5 billion of our common ~~stock.~~stock for the period October 1, 2017 through September 30, 2020. On ~~August 4, 2014, our~~November 13, 2020, the Board of Directors authorized us to repurchase ~~up to $600 million~~$1 billion of our common stock through September 30, ~~2017. On September 14, 2017, our Board of Directors authorized us to repurchase up to $500 million of our common stock after October 1, 2017 through September 30, 2020.~~2023. We ~~intend to~~ use cash from operations and borrowings under our credit facility to make such repurchases. ~~In 2017, we repurchased 0.9 million shares at cost of $51.0 million. In 2016, we did not repurchase any shares. We repurchased 2.7 million shares at a cost of $64.9 million in 2015.~~ All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

We did 0t repurchase any shares in 2020.In 2019, we repurchased 1.4 million shares for $115 million. In addition, in 2019 and 2018, we repurchased 3.0 million and 8.2 million shares, respectively, under an accelerated share repurchase ("ASR") agreement. On July 20, 2018, we entered into an 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 $1 billion of our common stock, in total, with an initial delivery to us in July 2018 of 8.2 million shares (“Initial Shares”), which represented the number of shares at the current market price equal to 80% of the total fixed purchase price of $1 billion. The remainder of the total purchase price of $200 million reflected the value of the stock held by the Bank pending final settlement and, accordingly, was recorded as a reduction to additional paid-in capital in 2018. In addition, we initiated and completed an ASR repurchase of 1.2 million shares for $100 million in the third quarter of 2018.

As part of a strategic alliance, in the fourth quarter of 2018, Rockwell Automation made a $1 billion equity investment in PTC, by acquiring 10,582,010 shares at a price of $94.50 per share.

12. 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 (RSUs) 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~~1 share of our common stock.

In the fourth quarter of 2020, we modified certain performance-based awards for executives by adjusting the performance criteria for the current and future periods, as well as removing certain provisions for catch up of unearned awards. There was not a material impact in 2020 due to the timing of the modifications, but there is expected to be an increase in stock-based compensation in 2021 and 2022.

The fair value of ~~restricted stock units~~RSUs granted in ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was based on the fair market value of our stock on the date of ~~grant.~~grant for performance- and service-based RSUs and based on Monte Carlo simulation model for total shareholder return (TSR) RSUs. The weighted average fair value per share of restricted stock units granted in ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$51.27, $37.25~~$77.57, $82.77 and ~~$38.19,~~$76.17, respectively. ~~In 2017, the weighted average fair value per share of restricted stock was increased by $2.27 by the additional shares earned~~

We account for the 2016 TSR grant upon measurement on the vest date in 2017. Pre-vesting forfeiture rates for purposes of determining stock-based compensation for 2017 and 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 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.

forfeitures as they occur, rather than estimate expected forfeitures.

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

(in thousands)	Year ended September 30,
	2020		2019		2018
Cost of license revenue	$	47	$	509	$	144
Cost of support and cloud services revenue		6,910		5,004		4,302
Cost of professional services revenue		7,012		6,426		7,079
Sales and marketing		37,351		32,026		24,893
Research and development		27,005		22,019		13,488
General and administrative		36,824		20,416		33,033
Total stock-based compensation expense	$	115,149	$	86,400	$	82,939

Year ended September 30,
2017 2016 2015
(in thousands)
Cost of license subscription revenue $ 1,379
$ 805
$ 521
Cost of support revenue 5,116
4,593
3,775
Cost of professional services revenue 6,116
5,393
5,871
Sales and marketing 15,373
14,659
14,189
Research and development 13,968
10,174
11,623
General and administrative 34,756
30,372
14,203
Total stock-based compensation expense $ 76,708
$ 65,996
$ 50,182

Stock-based compensation expense in ~~2017~~2020, 2019 and ~~2016~~2018 includes ~~$3.2~~$5.8 million, $6.2 million, and ~~$0.4~~$4.3 million respectively, related to our employee stock purchase plan (ESPP). 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, ~~2017,~~2020, total unrecognized compensation cost related to unvested restricted stock units expected to vest was approximately ~~$84.5~~$213.5 million and the weighted average remaining recognition period for unvested awards was 1719 months.

As of September 30, ~~2017, 3.7~~2020, 5.3 million shares of common stock were available for grant under the 2000 Plan and 3.5 million shares of common stock were reserved for issuance upon the exercise of stock options and vesting of restricted stock units granted and outstanding.

Our ESPP, initiated in the fourth quarter of 2016, allows eligible employees to contribute up to 10% of their base salary, up to a maximum of $25,000 per year and subject to any other plan limitations, toward the purchase of our common stock at a discounted price. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code. We estimate the fair value of each purchase right under the ESPP on the date of grant using the Black-Scholes option valuation model and use the straight-line attribution approach to record the expense over the six-month offering period.

Restricted stock unit activity for the year ended September 30, 2020 (in thousands, except grant date fair value data)	Shares			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Balance of outstanding restricted stock units, October 1, 2019		3,232		$	80.52
Granted		2,770		$	77.57
Vested		(1,391	)	$	71.55
Forfeited or not earned		(1,102	)	$	89.09
Balance of outstanding restricted stock units, September 30, 2020		3,509		$	79.13	$	290,227

(in thousands)

Restricted Stock Units

Grant period

Performance-

based RSUs⁽¹⁾

Service-based

RSUs⁽²⁾

Total Shareholder Return RSUs⁽³⁾

Year ended September 30, 2020

501

2,168

101

Shares
Weighted
Average
Grant Date
Fair Value
Aggregate Intrinsic Value as of September 30, 2017
Restricted stock unit activity for the year ended September 30, 2017 (in thousands except grant date fair value data)
Balance of nonvested outstanding restricted stock units October 1, 2016 3,776
$ 37.30

Granted 1,946
$ 51.27

Vested (1,586 ) $ 36.05

Forfeited or not earned (649 ) $ 37.83

Balance of nonvested outstanding restricted stock units September 30, 2017 3,487
$ 45.57
$ 196,230

Restricted Stock Units
Restricted stock unit grants TSR Units (1) Performance-based RSUs (2) Service-based RSUs (3)
(Number of Units in thousands)
Year ended September 30, 2017 358
325
1,263

(1)

~~(1)~~

The ~~TSR units~~performance-based RSUs were granted to our executive officers and are eligible to vest based upon annual increasing performance measures, measured over a three-year period. To the extent earned, those performance-based RSUs will vest in 3 substantially equal installments. Approximately 101 thousand RSUs are eligible to vest on November 15, 2020, 2021 and 2022, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. Up to a maximum of two times the number of RSUs can be earned (a maximum aggregate of 202 thousand RSUs). An additional 400 thousand RSUs are eligible to vest on November 15, 2021, 2022 and 2023, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. Up to a maximum of 110% of the number of RSUs can be earned (a maximum aggregate of 440 thousand RSUs).

(2)	The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will vest in 3 substantially equal annual installments on or about the anniversary of the date of grant.

(3)	The Total Shareholder Return RSUs (TSR RSUs) were granted to our executives pursuant to the terms described below.

~~(2) The performance-based RSUs were issued to employees, our executive officers, our directors and a consultant. Executive officers may earn up to one or,~~

As of September 30, 2020, weighted average remaining vesting term for our CEO, two times the number of time-based RSUs (up to a maximum of 325 thousand shares) if certain performance conditions are met. Of the service-based RSUs, approximately 108 thousand shares will vest in one installment on or about the anniversary of the date of grant. Approximately 217 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, 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.

(3) The service-based RSUs were granted to employees, our executive officers and our directors. All service-based RSUs will vest in three substantially equal annual installments on or about the anniversary of the date of grant.

In the first quarter of 2017, 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. outstanding awards is 1.3 years.

The number of TSR ~~units to~~RSUs that 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, ~~2017, 2018~~

2020, 2021 and ~~2019,~~2022, respectively. The ~~shares~~RSUs earned for each period will vest on November 15 following each measurement period, up to a maximum of two times the number of ~~target~~TSR RSUs eligible to be earned for the period (up to a maximum aggregate of ~~499~~202 thousand ~~shares)~~RSUs). 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~~TSR RSUs will vest for the measurement period. TSR ~~units~~RSUs not earned in either of the first two measurement periods are eligible to be earned in the third measurement period.

The ~~weighted average~~weighted-average fair value of the TSR ~~units~~RSUs was ~~$68.02~~ $106.69per target RSU on the grant date. The fair value of the TSR ~~units~~RSUs 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 historical 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	~~29.3~~	28.0	%
~~Risk free~~ Risk-free interest rate	~~0.99~~	1.59	%
Dividend yield	—	0	%

~~Until July 2005, we generally granted stock options. For those options, the option exercise price was typically the~~

Total fair ~~market~~ value ~~at the date~~ of ~~grant, and they generally~~RSUs vested ~~over four years and expired ten years from the date of grant. There were no options outstanding and exercisable at September 30, 2017 and 2016.~~ are as follows:

(in thousands)	Year ended September 30,
Value of stock option and stock-based award activity	2020		2019		2018
Total fair value of restricted stock unit awards vested	$	103,265	$	131,659	$	127,525

Year ended September 30,
2017 2016 2015
Value of stock option and stock-based award activity (in thousands)
Total intrinsic value of stock options exercised $ —
$ 88
$ 182
Total fair value of restricted stock unit awards vested $ 78,573
$ 63,655
$ 84,189

In ~~2017,~~2020, shares issued upon vesting of restricted stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of ~~$26.7~~$33.7 million. In ~~2016,~~2019, shares issued upon vesting of restricted stock units were net of ~~0.6~~0.5 million shares retained by us to cover employee tax withholdings of ~~$20.9~~$44.4 million. In ~~2015,~~2018, shares issued upon vesting of restricted stock and restricted stock units were net of ~~0.8~~0.7 million shares retained by us to cover employee tax withholdings of ~~$29.2~~$45.4 million.

13. 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 ~~$5.6~~$6.7 million, ~~$5.4~~$6.0 million, and ~~$5.3~~$5.8 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

14. Pension Plans

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, and 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:

	2020			2019			2018
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate		1.1	%		0.9	%		1.9	%
Rate of increase in future compensation		2.8	%		2.8	%		3.0	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate		0.9	%		1.9	%		1.8	%
Rate of increase in future compensation		2.8	%		3.0	%		2.8	%
Rate of return on plan assets		5.4	%		5.4	%		5.4	%

U.S. Plan International Plans
2017 2016 2015 2017 2016 2015
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate — % — % — % 1.8 % 1.3 % 2.2 %
Rate of increase in future compensation — % — % — % 2.8 % 2.8 % 3.0 %
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate — % — % 3.80 % 1.3 % 2.2 % 2.4 %
Rate of increase in future compensation — % — % — % 2.8 % 3.0 % 3.0 %
Rate of return on plan assets — % — % 1.35 % 5.4 % 5.7 % 5.8 %

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 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, 2017,~~ The discount rate is based on yield curves for ~~the international plans, the~~highly rated corporate fixed income securities matched against cash flows for each future year.

The weighted long-term rate of return assumption, ~~is 5.42%. These rates of return,~~ together with the assumptions used to determine the benefit obligations as of September 30, ~~2017~~2020 in the table above, will be used to determine our ~~2018~~2021 net periodic pension cost, which we expect to be approximately ~~$0.8~~$2.3 million.

As of September 30, 2020, the weighted average interest crediting rate used in our only cash balance pension plan is 6%.

All non-service net periodic pension costs are presented in other income (expense), net on the Consolidated Statement of Operations. The actuarially computed components of net periodic pension cost recognized in our Consolidated Statements of Operations for each year are shown below:

(in thousands)	Year ended September 30,
	2020			2019			2018
Interest cost of projected benefit obligation	$	527		$	1,199		$	1,260
Service cost		1,426			1,372			1,535
Expected return on plan assets		(3,878	)		(3,728	)		(4,180	)
Amortization of prior service cost		(5	)		(5	)		(5	)
Recognized actuarial loss		3,854			2,390			2,293
Settlement loss		0			(30	)		9
Net periodic pension cost	$	1,924		$	1,198		$	912

U.S. Plan International Plans
2017 2016 2015 2017 2016 2015
(in thousands)
Interest cost of projected benefit obligation $ —
$ —
$ 4,591
$ 815
$ 1,374
$ 1,828
Service cost —
—
—
1,696
1,599
1,466
Expected return on plan assets —
—
(1,364 ) (3,327 ) (3,305 ) (3,364 )
Amortization of prior service cost —
—
—
(5 ) (5 ) (4 )
Recognized actuarial loss —
—
2,577
3,385
2,292
1,815
Settlement loss —
—
66,332
—
—
—
Net periodic pension cost $ —
$ —
$ 72,136
$ 2,564
$ 1,955
$ 1,741

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:

(in thousands)	Year ended September 30,
	2020			2019
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	94,983		$	87,864
Service cost		1,426			1,372
Interest cost		527			1,199
Actuarial (gain) loss		(2,835	)		12,059
Foreign exchange impact		6,452			(4,674	)
Participant contributions		86			154
Benefits paid		(2,234	)		(1,836	)
Curtailments		(573	)		0
Settlements		0			(1,155	)
Projected benefit obligation, end of year	$	97,832		$	94,983
Change in plan assets and funded status:
Plan assets at fair value, beginning of year	$	69,879		$	70,141
Actual return on plan assets		(2,990	)		3,512
Employer contributions		2,622			2,576
Participant contributions		86			154
Foreign exchange impact		4,700			(3,513	)
Settlements		0			(1,155	)
Benefits paid		(2,234	)		(1,836	)
Plan assets at fair value—end of year		72,063			69,879
Projected benefit obligation, end of year		97,832			94,983
Underfunded status	$	(25,769	)	$	(25,104	)
Accumulated benefit obligation, end of year	$	96,270		$	92,280
Amounts recognized in the balance sheet:
Non-current liability	$	(25,437	)	$	(24,868	)
Current liability	$	(332	)	$	(236	)
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	37,175		$	34,920

International Plans
Year ended September 30,
2017 2016
(in thousands)
Change in benefit obligation:
Projected benefit obligation—beginning of year $ 92,695
$ 78,188
Service cost 1,696
1,599
Interest cost 815
1,374
Actuarial loss (gain) (8,496 ) 10,556
Foreign exchange impact 2,379
2,431
Participant contributions 183
147
Benefits paid (2,104 ) (1,600 )
Settlements —
—
Projected benefit obligation—end of year $ 87,168
$ 92,695
Change in plan assets and funded status:
Plan assets at fair value—beginning of year $ 61,935
$ 57,961
Actual return on plan assets 6,261
1,742
Employer contributions 2,036
1,978
Participant contributions 183
147
Foreign exchange impact 2,183
1,707
Settlements —
—
Benefits paid (2,104 ) (1,600 )
Plan assets at fair value—end of year 70,494
61,935
Projected benefit obligation—end of year 87,168
92,695
Underfunded status $ (16,674 ) $ (30,760 )
Accumulated benefit obligation—end of year $ 84,298
$ 88,768
Amounts recognized in the balance sheet:
Non-current liability $ (16,674 ) $ (30,760 )
Current liability $ —
$ —
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss $ 24,738
$ 38,667

~~We expect to recognize approximately $2.1 million of the unrecognized actuarial loss as~~

As of September 30, ~~2017 as a component~~2020 and 2019 all of ~~net periodic~~our pension ~~cost~~plans had project benefit obligations and accumulated benefit obligations in ~~2018.~~

excess of plan assets.

The following table shows the change in accumulated other comprehensive loss:

(in thousands)	Year ended September 30,
	2020			2019
Accumulated other comprehensive loss, beginning of year	$	34,920		$	27,027
Recognized during year - net actuarial losses		(3,850	)		(2,385	)
Occurring during year - settlement loss		0			30
Occurring during year - net actuarial losses		3,460			12,274
Foreign exchange impact		2,645			(2,026	)
Accumulated other comprehensive loss, end of year	$	37,175		$	34,920

International Plans
Year ended September 30,
2017 2016
(in thousands)
Accumulated other comprehensive loss- beginning of year $ 38,667
$ 28,339
Recognized during year - net actuarial (losses) (3,380 ) (2,288 )
Occurring during year - settlement loss —
—
Occurring during year - net actuarial losses (gains) (11,430 ) 12,119
Foreign exchange impact 881
497
Accumulated other comprehensive loss- end of year $ 24,738
$ 38,667

In 2020 our net actuarial losses occurring during the year were primarily driven by poor asset performance due to COVID-19 pandemic, offset by favorable impact on liabilities due primarily to a higher assumed discount rate.

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

	September 30,
Asset category	2020			2019
Equity securities		33	%		32	%
Fixed income securities		34	%		46	%
Commodities		11	%		2	%
Insurance company funds		13	%		12	%
Options		1	%		0	%
Cash		8	%		8	%
		100	%		100	%

International Plans
September 30,
2017 2016
Asset category:
Equity securities 23 % 49 %
Fixed income securities 57 % 30 %
Commodities 6 % 4 %
Insurance company 12 % 16 %
Cash 2 % 1 %
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~~For the CoCreate plan in Germany, assets are actively allocated between equity and ~~100%~~ fixed income securities ~~for~~to achieve target return. For the other international ~~plans.~~plans, assets are allocated 100% to fixed income securities. 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 ~~2017, 2016~~2020, 2019 and ~~2015~~2018 our actual return on plan assets was ~~$6.3~~$(3.0) million, ~~$1.7~~$3.5 million and ~~$1.9~~$1.0 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed ~~$2.0~~$2.6 million, ~~$2.0~~$2.6 million, and ~~$46.7~~$2.5 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively, to the plans.

We expect to pay $3.5 million in contributions in 2021, of which $0.8 million will be paid directly to the plans.

As of September 30, ~~2017,~~2020, benefit payments expected to be paid over the next ten years are ~~outlined in the following table:~~as follows:

(in thousands)	Future Benefit Payments
2021	$	3,813
2022		4,321
2023		4,133
2024		4,822
2025		4,651
2026 to 2030		23,538

Future Benefit Payments
(in thousands)
Year ending September 30,
2018 $ 2,472
2019 2,627
2020 3,054
2021 3,315
2022 3,954
2023 to 2027 22,648

Fair Value of Plan Assets

The ~~International Plan~~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~~publicly-traded 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.

(in thousands)	September 30, 2020
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	20,663	$	—	$	—	$	20,663
Corporate investment grade		3,599		—		—		3,599
Large capitalization stocks		23,878		—		—		23,878
Commodities		7,750		—		—		7,750
Insurance company funds⁽¹⁾		—		9,131		—		9,131
Options		1,126		—		—		1,126
Cash		5,916		—		—		5,916
Total plan assets	$	62,932	$	9,131	$	—	$	72,063

(in thousands)	September 30, 2019
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	26,996	$	—	$	—	$	26,996
Corporate investment grade		4,816		—		—		4,816
Large capitalization stocks		22,648		—		—		22,648
Commodities		1,086		—		—		1,086
Insurance company funds⁽¹⁾		—		8,494		—		8,494
Cash		5,839		—		—		5,839
Total plan assets	$	61,385	$	8,494	$	—	$	69,879

(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.

15. Fair Value Measurements

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.

The principal market in which we execute our foreign currency forward 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 forward contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and 2019 were as follows:

September 30, 2017
Level 1 Level 2 Level 3 Total
(in thousands)
International plan assets:
Fixed income securities:
Government $ 29,445
$ —
$ —
$ 29,445
European corporate investment grade 10,675
—
—
10,675
European large capitalization stocks 16,164
—
—
16,164
Commodities 3,966
—
—
3,966
Insurance company funds (1) —
8,714
—
8,714
Cash 1,530
—
—
1,530
$ 61,780
$ 8,714
$ —
$ 70,494

(in thousands)	September 30, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents⁽¹⁾	$	105,299	$	0	$	0	$	105,299
Marketable securities:
Corporate notes/bonds		59,099		0		0		59,099
Forward contracts		0		903		0		903
	$	164,398	$	903	$	0	$	165,301
Financial liabilities:
Forward contracts		0		1,073		0		1,073
	$	0	$	1,073	$	0	$	1,073

(in thousands)	September 30, 2019
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents⁽¹⁾	$	108,020	$	0	$	0	$	108,020
Marketable securities:
Commercial paper		0		999		0		999
Corporate notes/bonds		56,436		0		0		56,436
Forward contracts		0		3,064		0		3,064
	$	164,456	$	4,063	$	0	$	168,519
Financial liabilities:
Forward contracts		0		2,771		0		2,771
	$	0	$	2,771	$	0	$	2,771

(1)	Money market funds and time deposits.

16. Marketable Securities

The amortized cost and fair value of marketable securities as of September 30, 2020 and 2019 were as follows:

(in thousands)

September 30, 2020

Amortized

cost

Gross

unrealized

gains

Gross

unrealized

losses

Fair value

Corporate notes/bonds

58,793

323

(17

)

59,099

September 30, 2016
Level 1 Level 2 Level 3 Total
(in thousands)
International plan assets:
Fixed income securities:
Government $ 8,518
$ —
$ —
$ 8,518
European corporate investment grade 10,218
—
—
10,218
European 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

(in thousands)	September 30, 2019
	Amortized cost		Gross unrealized gains			Gross unrealized losses			Fair value
Commercial paper	$	999	$	0	��	$	0		$	999
Corporate notes/bonds		56,318		146			(28	)		56,436
	$	57,317	$	146		$	(28	)	$	57,435

The following tables summarize the fair value and gross unrealized losses aggregated by category and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2020 and 2019.

(in thousands)	September 30, 2020
	Less than twelve months					Greater than twelve months				Total
	Fair value		Gross unrealized loss			Fair value		Gross unrealized loss		Fair value		Gross unrealized loss
Corporate notes/bonds	$	9,841	$	(17	)	$	0	$	0	$	9,841	$	(17	)

(in thousands)	September 30, 2019
	Less than twelve months					Greater than twelve months					Total
	Fair value		Gross unrealized loss			Fair value		Gross unrealized loss			Fair value		Gross unrealized loss
Corporate notes/bonds	$	12,419	$	(14	)	$	16,369	$	(14	)	$	28,788	$	(28	)

~~(1) These investments are comprised primarily~~

The following table presents our available-for-sale marketable securities by contractual maturity date as of ~~funds invested with an insurance company in Japan with a guaranteed rate of return. The insurance company invests these assets primarily in government~~September 30, 2020 and ~~corporate bonds.~~2019.

(in thousands)	September 30, 2020				September 30, 2019
	Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	27,727	$	27,899	$	27,725	$	27,735
Due after one year through three years		31,066		31,200		29,592		29,700
	$	58,793	$	59,099	$	57,317	$	57,435

17. Derivative Financial Instruments

Non-Designated Hedges

As of September 30, ~~2017~~2020 and ~~2016,~~2019, we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

	September 30,
Currency Hedged (in thousands)	2020		2019
Canadian / U.S. Dollar	$	6,847	$	9,408
Euro / U.S. Dollar		390,673		308,282
British Pound / U.S. Dollar		6,328		3,756
Israeli Shekel / U.S. Dollar		9,503		10,272
Japanese Yen / U.S. Dollar		50,379		37,462
Swiss Franc / U.S. Dollar		12,874		12,001
Swedish Krona / U.S. Dollar		18,871		20,636
Singapore Dollar / U.S. Dollar		3,281		34,585
Chinese Renminbi / U.S. Dollar		5,415		52,466
All other		8,291		9,487
Total	$	512,462	$	498,355

The following table shows the effect of our non-designated hedges, inall of which were forward contracts, on the Consolidated Statements of Operations for the ~~twelve months~~years ended September 30, ~~2017~~2020, 2019 and ~~2016:~~2018:

(in thousands)		Year ended September 30,
	Location of gain (loss)	2020		2019			2018
Net realized and unrealized gain (loss), excluding the underlying foreign currency exposure being hedged	Other income (expense), net	$	3,518	$	(11,314	)	$	(9,720	)

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,
2017 September 30,
2016 September 30,
2015
(in thousands)
Forward Contracts Interest income and other expense, net $ 870
$ (883 ) $ 615

Cash Flow Hedges

We stopped entering into cash flow hedges in the first quarter of ~~September 30, 2017 and 2016, we~~2019. We had no outstanding forward contracts designated as cash flow hedges ~~with notional amounts equivalent to the following:~~

~~We had no derivative instruments designated~~ as ~~cash flow hedges in the Consolidated Statements~~ of ~~Operations for the twelve months ended~~either September 30, ~~2015.~~ 2020 or 2019.

The following table shows the effect of our derivative instruments designated as cash flow hedges, all of which were forward contracts, in the Consolidated Statements of Operations for the ~~twelve months~~years ended September 30, ~~2017~~2020, 2019, and ~~2016 (in thousands):~~2018:

(in thousands)		Year ended September 30,
	Location of gain (loss)	2020		2019		2018
Gain (loss) recognized in OCI—effective portion	OCI	$	0	$	187	$	1,652
Gain (loss) reclassified from OCI into income—effective portion	Software revenue	$	0	$	627	$	(552	)
Gain (loss) recognized—ineffective portion	Other income (expense), net	$	0	$	0	$	21

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,
2017 September 30,
2016 September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
Forward Contracts $ (866 ) $ (3,859 ) Software Revenue $ (524 ) $ (2,436 ) Other Income (Expense) $ (49 ) $ (24 )

~~As of September 30, 2017, 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)”~~other income (expense), net on the Consolidated Statements of Operations. For the ~~twelve months~~years ended September 30, ~~2017,~~2020, 2019 and 2018, there were no such gains or losses.

Net Investment Hedges

As of September 30, 2020 and 2019, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:

	September 30,
Currency Hedged (in thousands)	2020		2019
Euro / U.S. Dollar	$	164,885	$	183,396

The following table shows the effect of our derivative instruments designated as net investment hedges, all of which were forward contracts, on the Consolidated Statements of Operations for the years ended September 30, 2020, 2019, and 2018:

(in thousands)		Year ended September 30,
	Location of gain (loss)	2020			2019			2018
Gain (loss) recognized in OCI—effective portion	OCI	$	(5,483	)	$	(2,925	)	$	0
Gain (loss) reclassified from OCI—effective portion	OCI	$	109		$	(7,630	)	$	0
Gain (loss) recognized—portion excluded from effectiveness testing	Other income (expense), net	$	3,506		$	4,598		$	0

As of September 30, 2020, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

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

(in thousands)	Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments
	September 30,
	2020		2019		2020		2019
Derivative assets:⁽¹⁾
Forward contracts	$	3	$	1,674	$	900	$	1,390
Derivative liabilities:⁽²⁾
Forward contracts	$	306	$	0	$	767	$	2,771

(1)	As of September 30, 2020 and 2019, current derivative assets of $0.9 million and $3.1 million, respectively, are recorded in other current assets on the Consolidated Balance Sheets.

(2)	As of September 30, 2020 and 2019, current derivative liabilities of $1.1 million and $2.8 million, respectively, are recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets.

Fair Value of Derivatives Designated As Hedging Instruments Fair Value of Derivatives Not Designated As Hedging Instruments
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
(in thousands) (in thousands)
Derivative assets (a):
Forward Contracts $ 540
$ 44
$ 623
$ 216
Derivative liabilities (b):
Forward Contracts $ 2,352
$ 1,477
$ 1,995
$ 1,693
(a) As of September 30, 2017, $1,128 thousand current derivative assets are recorded in other current assets, and $35 thousand long-term derivative assets are recorded in other assets in the Consolidated Balance Sheets. As of September 30, 2016, all derivative assets were recorded in other current assets in the Consolidated Balance Sheet.

(b) As of September 30, 2017, $4,329 thousand current derivative liabilities are recorded in accrued expenses and other current liabilities, and $18 thousand long term derivative liabilities are recorded in other liabilities in the Consolidated Balance Sheets. As of September 30, 2016, all derivative liabilities were 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, ~~2017:~~2020:

(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of September 30, 2020	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
Forward Contracts	$	903	$	0	$	903	$	(903	)	$	0	$	0

Gross Amounts Offset in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets
September 30, 2017 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 $ 1,163
$ —
$ 1,163
$ (1,163 ) $ —
$ —

The following table sets forth the offsetting of derivative liabilities as of September 30, ~~2017:~~2020:

(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of September 30, 2020	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
Forward Contracts	$	1,073	$	0	$	1,073	$	(903	)	$	0	$	170

Gross Amounts Offset in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets
September 30, 2017 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 $ 4,347
$ —
$ 4,347
$ (1,163 ) $ —
$ 3,184

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 ~~$5.7~~$1.7 million, ~~$1.9~~$3.2 million and ~~$2.7~~$7.0 million ~~for 2017, 2016~~in 2020, 2019 and ~~2015,~~2018, respectively. Net realized and unrealized gains and losses on forward contracts included in foreign currency net losses were a net ~~loss~~gain of ~~1.8~~$7.0 million in ~~2017, a~~2020 and net ~~loss~~losses of ~~0.5~~$8.4 million and $7.5 million in ~~2016,~~2019 and ~~a net gain of 0.6 million in 2015.~~

O.2018, respectively.

18. Segment and Geographic Information

We operate within a single industry ~~segment-computer~~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~~2 operating and reportable segments: (1) ~~the Solutions Group,~~Software Products, which includes license, subscription and related support revenue (including updates and ~~cloud services revenue~~technical support) for all our ~~core CAD, SLM~~products; 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~~services. We do not allocate 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~~or general and administrative ~~costs that are incurred in support of all of our segments and are not specifically allocated~~expense to our operating segments ~~for management reporting.~~as these activities are managed on a consolidated basis. 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.

(in thousands)	Year ended September 30,
	As reported ASC 606			As reported ASC 606			ASC 605			As reported ASC 605
	2020			2019			2019			2018
Software Products
Revenue	$	1,314,617		$	1,088,100		$	1,150,818		$	1,088,487
Operating costs⁽¹⁾		393,803			377,464			375,268			387,989
Profit		920,814			710,636			775,550			700,498

Professional Services
Revenue		143,798			167,531			160,676			153,337
Operating costs⁽²⁾		128,678			133,846			128,818			136,964
Profit		15,120			33,685			31,858			16,373

Total segment revenue		1,458,415			1,255,631			1,311,494			1,241,824
Total segment costs		522,481			511,310			504,086			524,953
Total segment profit		935,934			744,321			807,408			716,871

Unallocated operating expenses:⁽³⁾
Sales and marketing expenses		398,100			385,423			409,932			389,871
General and administrative expenses		114,386			104,393			104,393			108,159
Intangibles amortization		56,104			51,147			51,147			58,056
Restructuring and other charges, net		32,716			51,114			51,114			3,764
Stock-based compensation		115,149			86,400			86,400			82,939
Other unallocated operating expenses⁽⁴⁾		8,616			2,802			2,802			1,469
Total operating income		210,863			63,042			101,620			72,613

Interest expense		(76,428	)		(43,047	)		(43,047	)		(41,673	)
Other income (expense), net		271			305			131			(2,284	)
Income before income taxes	$	134,706		$	20,300		$	58,704		$	28,656

Year ended September 30,
2017 2016 2015
(in thousands)
Solutions Group
Revenue $ 893,606
$ 871,225
$ 980,274
Direct costs 184,160
186,174
224,042
Profit 709,446
685,051
756,232

IoT Group
Revenue 93,710
72,371
49,249
Direct costs 96,535
83,747
28,998
Profit (loss) (2,825 ) (11,376 ) 20,251

Professional Services
Revenue 176,723
196,937
225,719
Direct costs 145,091
165,325
193,397
Profit 31,632
31,612
32,322

Total segment revenue 1,164,039
1,140,533
1,255,242
Total segment costs 425,786
435,246
446,437
Total segment profit 738,253
705,287
808,805

Other unallocated operating expenses (1) 689,413
666,028
723,780
Restructuring charges 7,942
76,273
43,409
Total operating income (loss) 40,898
(37,014 ) 41,616
Interest and other expense, net 42,304
30,178
15,091
Income (loss) before income taxes $ (1,406 ) $ (67,192 ) $ 26,525

(1)

~~(1)~~

~~The Solutions Group~~

Operating costs for the Software Products segment ~~includes~~include all costs of software revenue and research and development costs, excluding stock-based compensation and intangible amortization. Operating costs for the Software Products segment include depreciation of ~~$5.4~~$4.2 million, ~~$5.4~~$4.6 million and ~~$5.6~~$5.1 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. ~~The IoT Group~~

(2)

Operating costs for the Professional Services segment ~~includes depreciation~~include all costs of ~~$1.5 million, $1.6 million~~professional services revenue, excluding stock-based compensation, intangible amortization, and ~~$1.0 million in 2017, 2016 and 2015, respectively.~~fair value adjustments for deferred services costs. The Professional Services segment includes depreciation of ~~$1.8~~$1.1 million, ~~$2.0~~$1.4 million and ~~$2.2~~$1.6 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

(3)	Unallocated departments include depreciation of ~~$19.3~~$19.4 million, ~~$19.7~~$20.6 million and ~~$20.1~~$22.7 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

(4)	Other unallocated operating expenses include acquisition-related and other transactional costs and fair value adjustments for deferred services costs.

We report revenue by the following ~~four~~3 product ~~areas:~~groups:

(in thousands)	Year ended September 30,
	As reported ASC 606		As reported ASC 606		ASC 605		As reported ASC 605
	2020		2019		2019		2018
Core	$	1,025,668	$	868,970	$	921,386	$	895,149
Growth		222,646		167,544		175,619		139,278
Focused Solutions Group (FSG)		210,101		219,117		214,489		207,397
Total revenue	$	1,458,415	$	1,255,631	$	1,311,494	$	1,241,824


•	~~CAD: Creo~~^®~~and Mathcad~~^®.


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


•	~~SLM: Arbortext~~^® ~~and Servigistics~~^®.


•	~~IoT: ThingWorx~~^®~~, Vuforia~~^®~~and Kepware~~^®.

Year ended September 30,
2017 2016 2015
(in thousands)
CAD $ 474,608
$ 462,307
$ 511,582
PLM 454,299
456,285
524,741
SLM 131,773
141,644
166,060
IoT 103,359
80,297
52,859
Total revenue $ 1,164,039
$ 1,140,533
$ 1,255,242

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

Year ended September 30,
2017 2016 2015
(in thousands)
Revenue:
Americas (1) $ 500,879
$ 487,594
$ 530,311
Europe (2) 435,183
424,268
467,805
Asia-Pacific 227,977
228,671
257,126
Total revenue $ 1,164,039
$ 1,140,533
$ 1,255,242

September 30,
2017 2016 2015
(in thousands)
Long-lived tangible assets:
Americas (3) $ 47,055
$ 48,281
$ 47,509
Europe 6,284
6,915
7,424
Asia-Pacific 10,261
11,917
10,229
Total long-lived tangible assets $ 63,600
$ 67,113
$ 65,162


~~(1)~~	~~Includes revenue in the United States totaling $475.5 million, $463.1 million and $500.6 million for 2017, 2016 and 2015, respectively.~~


~~(2)~~	~~Includes revenue in Germany totaling~~ ~~$164.7 million~~, ~~$167.2 million~~ ~~and~~ ~~$177.1 million~~ ~~for~~ ~~2017~~, ~~2016~~ ~~and~~ ~~2015, 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.~~Asia Pacific region. Intercompany sales and transfers between geographic areas are accounted for at prices that are designed to be representative of unaffiliated party transactions. Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.

(in thousands)	Year ended September 30,
	As reported ASC 606		As reported ASC 606		ASC 605		As reported ASC 605
	2020		2019		2019		2018
Revenue:
Americas⁽¹⁾	$	649,383	$	537,548	$	565,362	$	511,237
Europe⁽²⁾		543,779		464,666		494,864		485,851
Asia Pacific		265,253		253,417		251,268		244,736
Total revenue	$	1,458,415	$	1,255,631	$	1,311,494	$	1,241,824

(1)	Includes revenue in the United States totaling $621.8 million, $514.4 million (ASC 606) and $541.7 million (ASC 605), and $487.3 million for 2020, 2019 and 2018, respectively.

(2)	Includes revenue in Germany totaling $198.7 million, $185.4million (ASC606) and $197.2 million (ASC 605), and $193.3 million for 2020, 2019 and 2018, respectively.

19. Leases

Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts (the Boston lease). The Boston lease is for approximately 250,000 square feet and runs from January 1, 2019 through June 30, 2037. Base rent for the first year of the lease is $11.0 million and will increase by $1 per square foot per year thereafter ($0.3 million per year). Base rent first became payable on July 1, 2020. In addition to the base rent, we are required to pay our pro rata portions of building operating costs and real estate taxes (together, “Additional Rent”). Annual Additional Rent is estimated to be approximately $7.1 million. The lease provides for $25 million in landlord funding for leasehold improvements ($100 per square foot). The leasehold improvement funding provision was fully utilized by us and was reflected as a derecognition adjustment to the right-of-use asset.

The components of lease cost reflected in the Consolidated Statement of Operations for the year ended September 30, 2020 were as follows:

(in thousands)	Year ended September 30, 2020
Operating lease cost	$	38,687
Short-term lease cost		4,430
Variable lease cost		5,247
Sublease income		(4,267	)
Total lease cost	$	44,097

Supplemental cash flow and right-of use assets information for the year ended September 30, 2020 was as follows:

(in thousands)	Year ended September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	38,553
Right-of-use assets obtained in exchange for new operating lease liabilities	$	7,632
Right-of-use assets obtained in exchange for new financing lease liabilities	$	1,500

Supplemental balance sheet information related to the leases as of September 30, 2020 was as follows:

	As of September 30, 2020
Weighted-average remaining lease term - operating leases	12.41 years
Weighted-average remaining lease term - financing leases	5 years
Weighted-average discount rate - operating leases		5.5	%
Weighted-average discount rate - financing leases		3.0	%

Maturities of lease liabilities as of September 30, 2020 are as follows:

(in thousands)	Operating Leases
2021	$	44,710
2022		30,993
2023		22,326
2024		19,686
2025		17,051
Thereafter		170,303
Total future lease payments		305,069
Less: imputed interest		(90,046	)
Total	$	215,023

Under the prior lease standard (ASC 840), as of September 30, 2019 future minimum lease payments under non-cancellable operating leases were as follows:

(in thousands)	Operating Leases
2020	$	31,868
2021		33,094
2022		25,624
2023		19,279
2024		16,909
Thereafter		186,037
Total minimum lease payments	$	312,811

Exited (Restructured) Facilities

As of September 30, 2020, we have net liabilities of $11.3 million related to excess facilities (compared to $16.5 million at September 30, 2019), representing $3.2 million of right-of-use assets and $14.5 million of lease obligations, of which $9.7 million is classified as short term and $4.8 million is classified as long term.

In determining the amount of right-of-use assets for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties, and sublease rates. Updates to these estimates may result in revisions to the value of right-of-use assets recorded. The amounts recorded are based on the net present value of estimated sublease income. As of September 30, 2020, the right-of-use assets for exited facilities reflect discounted committed sublease income of approximately $2.8 million and uncommitted sublease income of approximately $0.4 million. As a result of changes in our sublease income assumptions and an incremental obligation to exit a portion of our former headquarters facility early, in the year ended September 30, 2020, we recorded a facility impairment charge of $4.4 million. In addition, in the year ended September 30, 2020, we exited the former Onshape headquarters lease and recorded a related $1.2 million impairment charge.

In the year ended September 30, 2020, we made payments of $10.5 million related to lease costs for exited facilities.

20. Subsequent Events

~~Restricted~~

Credit Facility Revolving Loan Repayment

On October 27, 2020, we repaid the $18 million outstanding balance on our revolving credit facility.

Stock ~~Unit~~Repurchase Authorization

On November 13, 2020, the Board of Directors authorized us to repurchase $1 billion of our common stock through September 30, 2023.

Equity Grants

In November ~~2017,~~2020, we granted shares valued at approximately $14.0 million to our employees, including our executive officers ($2.6 million), in payment of amounts earned under our annual Corporate Incentive Plan.

In November 2020, we granted service-based restricted stock units (RSUs) valued at approximately ~~$65.5~~$53.0 million to employees, including ~~$28.1 million target value of performance-based~~our executive officers ($19.6 million). The service-based RSUs ~~granted to our executives and $37.4 million of time-based RSUs granted to employees and executives.~~

~~The performance-based RSUs are eligible to vest based upon annual performance measures, measured over a three-year period that commenced on October 1, 2017. To the extent earned, these units~~ will vest in three substantially equal installments on the later of November 15, 2018, 2019 and 2020, 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 performance-based RSUs allow for upside based on 2018, 2019 and 2020 performance measures, and provide the opportunity to earn up to one time the number of performance-based RSUs (up to a maximum of 189,000 shares) if certain performance conditions are met.

~~The time-based RSUs will~~generally vest in three substantially equal annual installments on November 15, ~~2018, 2019~~2021, 2022 and 2020. The time-based RSUs allow for upside based on a 2018 performance measure. Executives have the opportunity to earn up to one or, for our CEO, two times the number of time-based RSUs (up to a maximum of 250,000 shares) if certain performance conditions are met.

~~Borrowings~~

2023.

In November ~~2017,~~2020, we ~~borrowed $50~~granted performance-based restricted stock units (RSUs) valued at approximately $17.0 million ~~under our credit facility~~ to ~~fund working capital requirements, including 2017 year end incentive-based compensation accruals.~~

executive officers. The performance-based RSUs will generally vest in three substantially equal annual installments on November 15, 2021, 2022 and 2023.

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, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018 and the Consolidated Balance Sheets data as of September 30, ~~2017~~2020 and ~~2016~~2019 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, ~~2014~~2017 and ~~2013~~2016 and the Consolidated Balance ~~Sheet~~Sheets data as of September 30, ~~2015, 2014~~2018, 2017, and ~~2013~~2016 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)	2020		2019			2019			2018			2017			2016
	As reported ASC 606		As reported ASC 606			ASC 605			As reported ASC 605			As reported ASC 605			As reported ASC 605
Revenue	$	1,458,415	$	1,255,631		$	1,311,494		$	1,241,824		$	1,164,039		$	1,140,533
Gross margin		1,124,144		930,253			993,340			915,322			835,537			814,868
Operating income (loss)⁽²⁾		210,863		63,042			101,620			72,613			41,766			(37,014	)
Net income (loss)⁽²⁾		130,695		(27,460	)		2,979			51,987			6,239			(54,465	)
Earnings (loss) per share—Basic⁽²⁾		1.13		(0.23	)		0.03			0.45			0.05			(0.48	)
Earnings (loss) per share—Diluted⁽²⁾		1.12		(0.23	)		0.03			0.44			0.05			(0.48	)
Total assets		3,382,738		2,664,588			2,471,908			2,329,022			2,360,384			2,345,729
Working capital (deficit)		152,687		144,466			(140,437	)		(101,495	)		(12,353	)		(11,930	)
Long-term liabilities		1,263,730		824,435			795,850			719,154			796,039			848,544
Stockholders’ equity		1,438,248		1,201,998			876,333			874,589			885,436			842,666

~~(in thousands, except per share data)~~

2017 2016 2015 2014 2013
Revenue $ 1,164,039
$ 1,140,533
$ 1,255,242
$ 1,356,967
$ 1,293,541
Gross margin 835,020
814,868
920,508
983,284
920,502
Operating income (loss) (2) 40,898
(37,014 ) 41,616
196,576
127,324
Net income (loss) (2) (3) 6,239
(54,465 ) 47,557
160,194
143,769
Earnings (loss) per share—Basic (2) (3) 0.05
(0.48 ) 0.41
1.36
1.20
Earnings (loss) per share—Diluted (2) (3) 0.05
(0.48 ) 0.41
1.34
1.19
Total assets 2,360,384
2,345,729
2,209,913
2,199,954
1,828,906
Working capital (12,353 ) (11,930 ) 87,419
105,500
151,603
Long-term liabilities 796,039
848,544
732,482
719,398
373,813
Stockholders’ equity 885,436
842,666
860,171
853,889
926,480

~~QUARTERLY FINANCIAL INFORMATION (UNAUDITED)~~

~~(in thousands, except per share data)~~

September 30, 2017 July 1, 2017
April 1,
2017
December 31 2016
Revenue $ 306,379
$ 291,293
$ 280,040
$ 286,327
Gross margin 223,574
209,025
198,210
204,212
Operating income (loss) (2) 17,569
11,256
7,513
4,561
Net income (loss) (2) (3) 17,435
(951 ) (1,104 ) (9,141 )
Earnings (loss) per share (2) (3):
Basic $ 0.15
$ (0.01 ) $ (0.01 ) $ (0.08 )
Diluted $ 0.15
$ (0.01 ) $ (0.01 ) $ (0.08 )
Common Stock prices: (4)
High $ 59.29
$ 60.22
$ 56.73
$ 49.93
Low $ 52.20
$ 51.00
$ 45.93
$ 43.10

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: (4)
High $ 44.75
$ 39.44
$ 34.20
$ 37.09
Low $ 36.57
$ 31.58
$ 27.06
$ 30.53

(1)

~~(1)~~

The consolidated financial position and results of operations data reflect our acquisitions of Onshape on November 1, 2019 for $468.5 million in cash, Frustum on November 19, 2018 for $69.5 million in cash, Kepware on January 12, 2016 for ~~$99.4~~$99.4 million in cash, and 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~~$64.8 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)

~~(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~~2020, 2019, 2018, 2017, 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 20142016 includes pre-tax restructuring and other charges of ~~$28.4~~$32.7 million, ~~($26.8~~$51.1 million, ~~in the fourth quarter, $0.5~~$1.0 million, ~~in the third quarter~~$7.9 million, and ~~$1.1~~$76.3 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).

respectively.

~~(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.


~~(4)~~	~~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".~~

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(in thousands, except per share data)	September 30, 2020		June 27, 2020		March 28, 2020		December 28, 2019
Revenue	$	390,981	$	351,721	$	359,603	$	356,110
Gross margin		306,366		272,497		276,576		268,705
Operating income		67,012		63,401		50,025		30,425
Net income		53,406		34,678		7,156		35,455
Earnings per share:
Basic	$	0.46	$	0.30	$	0.06	$	0.31
Diluted	$	0.46	$	0.30	$	0.06	$	0.31

~~A-2~~

(in thousands, except per share data)	September 30, 2019		June 29, 2019			March 30, 2019			December 29, 2018
Revenue	$	335,004	$	295,486		$	290,451		$	334,689
Gross margin		249,587		212,781			210,547			257,337
Operating income (loss)		46,551		9,305			(22,858	)		30,044
Net income (loss)		9,826		(14,758	)		(45,513	)		20,985
Earnings (loss) per share:
Basic	$	0.09	$	(0.13	)	$	(0.37	)	$	0.18
Diluted	$	0.08	$	(0.13	)	$	(0.37	)	$	0.18

A-1



Massachusetts		04-2866152
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $.01 par value per share	PTC	NASDAQ Global Select Market



Large Accelerated Filerþ	☑	Accelerated Filero	☐	Non-accelerated Filero	☐	Smaller Reporting Companyo	☐
		~~(Do not check if a smaller reporting company)~~
			Emerging growth companyo	☐

		Page
PART I.
Item 1.	Business	~~Page~~ 1
~~PART I.~~ Item 1A.	Risk Factors	7
~~Item 1.~~	~~Business~~	1
~~Item 1A.~~	~~Risk Factors~~	6
Item 1B.	Unresolved Staff Comments	1416
Item 2.	Properties	1517
Item 3.	Legal Proceedings	1517
Item 4.	Mine Safety Disclosures	1517
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1517
Item 6.	Selected Financial Data	1617
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	4935
Item 8.	Financial Statements and Supplementary Data	5136
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	5136
Item 9A.	Controls and Procedures	5137
Item 9B.	Other Information	5238
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	5239
Item 11.	Executive Compensation	5439
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5439
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5439
Item 14.	Principal Accounting Fees and Services	5439
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	5540
Item 16.	Form 10-K Summary	5540
Exhibit Index		5641
Signatures		5943
APPENDIX A
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Financial Statements	~~F-2~~F-4
	Notes to Consolidated Financial Statements	~~F-7~~F-9
	Selected Consolidated Financial Data	A-1



~~PTC~~
~~IoT Group~~		~~Solutions Group~~
~~Internet of Things (IoT)~~	~~Augmented Reality (AR)~~	~~Computer Aided Design (CAD)~~	~~Product Lifecycle Management (PLM)~~	~~Service Lifecycle Management (SLM)~~
~~Enabling connectivity, application development.~~	~~Applications for smart, connected products and environments.~~	~~Effective and collaborative product design across the globe.~~	~~Efficient and consistent management of product development, including embedded software development, from concept to retirement across functional processes and distributed teams.~~	~~Planning and delivery of service, including product intelligence, connected service, predictive service, and remote diagnostics.~~



~~FORM 10-K~~ ☑	ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	~~Our~~ ~~ThingWorx®~~ ~~industrial innovation platform~~delivers tools and technologies that empower companies to rapidly develop and deploy powerful industrial IoT applications and augmented reality (AR) experiences, enabling customers to transform their products and services and unlock new business models. ThingWorx enables customers to reduce the time, cost, and risk required to build IoT applications and AR experiences; connect devices, systems, and applications; manage connected products; and analyze industrial IoT data. Our ThingWorx solutions include cloud-based tools that allow customers to easily and more securely connect products and devices to the cloud, and intelligently process and store product and sensor data. Additionally, ThingWorx offers sophisticated artificial intelligence and machine learningapplication development, Vuforia Chalk™ collaboration and remote assistance solution, and Vuforia Spatial Toolbox™ technology that enables customers to simplify and automate complex analytical processes that enhance industrial IoT solutions through real-time insights, predictions and recommendations from information collected from smart, connected products.
	~~Our~~ ~~KEPServerEX®~~ solution provides communications connectivity to industrial automation environments, enabling users to connect, manage, monitor, and control disparate devices and software applications, providing users with a single source of real-time industrial sensor and machine data to improve operations, accelerate troubleshooting, perform preventative maintenance, and improve productivity.
	~~Our~~ ~~Vuforia Studio™~~ solution is a powerful, easy-to-use tool that enables industrial enterprises to rapidly author and publish augmented reality experiences. These augmented reality experiences overlay important digital information from IoT onto the view of the physical things on which the user is working, such as a dashboard of sensors and analytics data, or 3D step-by-step operating or repair instructions.
	~~Our~~ ~~Vuforia®~~ augmented reality technology platform enables users to build applications that see and interact with things in the physical world. Using computer vision technologies and building them for mobile platforms, the technology is accessible through an application programming interface and developer workflows.



	~~Our~~ ~~Creo~~^®interoperable suite of product design software provides a scalable set of packages for design engineers to meet a variety of specialized needs. Creo provides capabilities for design flexibility, advanced assembly design, piping and cabling design, advanced surfacing, comprehensive virtual prototyping and other essential design functions.



	~~Our~~ ~~Mathcad~~^® ~~engineering math~~ Our Onshape^®Software-as-a-Service (SaaS) product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics. A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from anywhere. Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design. Core Products Our Creo^® interoperable suite of product design software provides a scalable set of packages for design engineers to meet a variety of specialized needs. Creo provides capabilities for generative design, real-time simulation (through our collaboration with ANSYS), additive manufacturing, design flexibility, advanced assembly design, piping and cabling design, advanced surfacing, comprehensive virtual prototyping and other essential design functions. Our Creo solutions also include augmented and virtual reality through a native cloud-dependent integration with our Vuforia® augmented reality (AR) solution. With every seat of Creo, our customers can create and publish AR experiences and share their designs instantly to collaborate with anyone across the entire enterprise around the world on virtually any device. Our Windchill^® suite of PLM software enables users to solve, analyze and share vital engineering calculations. Mathcad combines the ease and familiarity of an engineering notebook with the powerful features of a dedicated engineering calculations application.



	~~Our~~ ~~Windchill~~^®suite of PLM software provides product lifecycle management capabilities - from design to service. Windchill offers a single repository for all product information. As such, it is designed to create a “single source of truth” for all product-related content such as CAD models, documents, technical illustrations, embedded software, calculations and requirement specifications for all phases of the product lifecycle to help companies streamline enterprise-wide communication and make informed decisions. Additionally, our Windchill product family includes solutions that allow manufacturers, distributors and retailers to collaborate across product development and the supply chain, including sourcing and procurement, to identify an optimal set of parts, materials and suppliers. This functionality provides automated cost modeling and visibility into supply chain risk information to balance cost and quality, and enables customers to design products that meet compliance requirements and performance targets.
	~~Our~~ ~~ThingWorx Navigate™~~ solution, a ThingWorx-based PLM offering launched in 2016, is a collection of focused, role-based applications that provides complete, contextual, up-to-date and accurate product information from Windchill and other systems of record. Leveraging ThingWorx technology, ThingWorx Navigate applications can easily be tailored and deployed to roles across an enterprise, and extended to include data from other systems of record and even data from smart, connected products.
	~~Our~~ ~~Integrity™~~ solution provides a set of Application Lifecycle Management and Model Based Systems Engineering capabilities that enable users to manage system models, software configurations, test plans and defects. With Integrity, engineering teams can improve productivity and quality, streamline compliance, and gain greater product visibility, ultimately enabling them to bring more innovative products to market.
	~~Our~~ ~~Creo~~^® ~~View~~™ solution allows users to share 3D CAD information internally and with partners and suppliers outside the organization and supports drawings and documents from a multitude of sources. Creo View provides access to designs and related data without requiring the original authoring tool.



	~~Our~~ ~~Servigistics®~~ suite of SLM software products integrates service planning, delivery and analysis to optimize service outcomes. Servigistics products enable a systematic approach to service lifecycle management by providing a single view of service throughout the service network, enabling customers to continuously improve their products and services and increase customer satisfaction.
	~~Our~~ ~~Servigistics Arbortext®~~ enterprise software suite enables manufacturers to create, illustrate, manage and publish technical and service parts information to improve the operation, maintenance, service and upgrade of equipment throughout its lifecycle. These products are available in stand-alone configurations as well as integrated with our Windchill products to deliver dynamic, product-centric service and parts information.



Period (1)	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 2, 2017 - July 29, 2017	—	—		—	$375,066,435 (2)
July 30, 2017 - August 26, 2017	73,000	$	54.59	73,000	$371,081,478 (2)
August 27, 2017 - September 30, 2017	216,100	$	55.58	216,100	$0 (2)
Total	289,100	$	55.33	289,100	$0 (2)



	Year Ended						Constant Currency Change
	September 30, 2017		September 30, 2016
Revenue	September 30, 2017		September 30, 2016		Change
	(in millions)
Subscription	$	279.2	$	118.3	136	%	135	%
Support	574.7		651.8		(12	)%	(12	)%
Total recurring revenue	853.9		770.1		11	%	11	%
Perpetual license	133.4		173.5		(23	)%	(23	)%
Total subscription, support and license revenue	987.3		943.6		5	%	5	%
Professional services	176.7		196.9		(10	)%	(11	)%
Total revenue	$	1,164.0	$	1,140.5	2	%	2	%



	2017			2016			Percent change 2016 to 2017				2015			Percent change 2015 to 2016
	2017			2016			Actual		Constant Currency		2015			Actual		Constant Currency
	(Dollar amounts in millions, except per share data)
Subscription	$	279.2		$	118.3		136	%	135	%	$	65.2		81	%	83	%
Support	574.7			651.8			(12	)%	(12	)%	681.5			(4	)%	(2	)%
Total recurring revenue	853.9			770.1			11	%	11	%	746.8			3	%	5	%
Perpetual license	133.4			173.5			(23	)%	(23	)%	282.8			(39	)%	(37	)%
Total subscription, support and license revenue	987.3			943.6			5	%	5	%	1,029.5			(8	)%	(6	)%
Professional services	176.7			196.9			(10	)%	(11	)%	225.7			(13	)%	(10	)%
Total revenue	1,164.0			1,140.5			2	%	2	%	1,255.2			(9	)%	(7	)%
Total cost of revenue	329.0			325.7			1	%			334.7			(3	)%
Gross margin	835.0			814.9			2	%			920.5			(11	)%
Operating expenses	794.1			851.9			(7	)%			878.9			(3	)%
Total costs and expenses (1)	1,123.1			1,177.5			(5	)%	(4	)%	1,213.6			(3	)%	(1	)%
Operating income (loss) (1)	$	40.9		$	(37.0	)	211	%	214	%	$	41.6		(189	)%	(182	)%
Non-GAAP operating income (1)	$	188.4		$	172.7		9	%	7	%	$	340.3		(49	)%	(41	)%
Operating margin (1)	3.5		%	(3.2		)%					3.3		%
Non-GAAP operating margin (1)	16.1		%	15.1		%					24.2		%
Diluted earnings (loss) per share (2)	$	0.05		$	(0.48	)					$	0.41
Non-GAAP diluted earnings per share (2)	$	1.17		$	1.19						$	2.23
Cash flow from operations	$	134.6		$	183.2						$	179.9



	September 30, 2017		September 30, 2016		September 30, 2015
	(Dollar amounts in millions)
Unbilled deferred revenue	$	633	$	369	$	211
Deferred revenue	459		414		387
Total	$	1,092	$	783	$	598



	2017			Percent Change		2016			Percent Change		2015
	(Dollar amounts in millions)
Gross margin	$	835.0		2	%	$	814.9		(11	)%	$	920.5
Non-GAAP gross margin	876.5			3	%	853.2			(11	)%	953.4
Gross margin as a % of revenue:
License and subscription gross margin	79		%			76		%			85		%
Support gross margin	84		%			87		%			88		%
Professional Services	15		%			14		%			12		%
Gross margin as a % of total revenue	72		%			71		%			73		%
Non-GAAP gross margin as a % of total non-GAAP revenue	75		%			75		%			76		%



	Ratio as of September 30, 2017
Total Leverage Ratio Ratio of consolidated total indebtedness to the consolidated trailing four quarters EBITDA, not to exceed 4.50 to 1.00 as of the last day of any fiscal quarter.	2.82	to	1.00
Fixed Charge Coverage Ratio Ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges as of the last day of any fiscal quarter, to be not less than 3.50 to 1.00.	5.96	to	1.00
Senior Secured Leverage Ratio Ratio of senior consolidated total indebtedness (which excludes unsecured indebtedness) to consolidated trailing four quarters EBITDA as of the last day of any fiscal quarter, not to exceed 3.00 to 1.00.	0.86	to	1.00



	September 30,
Currency Hedged	2017		2016
	(in thousands)
Canadian/U.S. Dollar	$	12,809	$	14,685
Euro/U.S. Dollar	244,000		174,120
Israeli Sheqel/U.S. Dollar	8,820		7,271
Japanese Yen/Euro	17,694		32,782
Japanese Yen/U.S. Dollar	3,198		6,716
Swiss Franc / Euro	7,157		—
Swedish Krona / U.S. Dollar	4,627		3,852
Chinese Yuan offshore / Euro	10,423		—
Singapore Dollar / U.S. Dollar	1,186		1,448
All other	8,605		8,660
Total	$	318,519	$	249,534



Currency Hedged	September 30, 2017		September 30, 2016
	(in thousands)
Euro / U.S. Dollar	$	64,831	$	26,181
Japanese Yen / U.S. Dollar	22,675		8,800
SEK / U.S. Dollar	14,091		4,078
Total	$	101,597	$	39,059



	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of October 1, 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
Common stock issued for employee stock-based awards	1,586		15			(15		)	—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards	(544	)	(5		)	(26,649		)	—			—			(26,654		)
Common stock issued for employee stock purchase plan	269		3			10,775			—			—			10,778
Compensation expense from stock-based awards	—		—			76,708			—			—			76,708
Excess tax benefits from stock-based awards	—		—			644			—			—			644
Net income	—		—			—			6,239			—			6,239
Repurchases of common stock	(946	)	(10		)	(50,981		)	—			—			(50,991		)
Unrealized loss on hedging instruments, net of tax	—		—			—			—			(299		)	(299		)
Foreign currency translation adjustment	—		—			—			—			16,593			16,593
Unrealized loss on available-for-sale securities, net of tax	—		—			—			—			(22		)	(22		)
Change in pension benefits, net of tax	—		—			—			—			9,774			9,774
Balance as of September 30, 2017	115,333		$	1,153		$	1,609,030		$	(650,840	)	$	(73,907	)	$	885,436



	September 30, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(in thousands)
Certificates of deposit	$	240	$	—	$	—		$	240
Corporate notes/bonds	47,811		2		(140		)	47,673
U.S. government agency securities	2,407		—		(5		)	2,402
	$	50,458	$	2	$	(145	)	$	50,315



	September 30, 2017
	Less than twelve months					Greater than twelve months					Total
	Fair Value		Gross unrealized loss			Fair Value		Gross unrealized loss			Fair Value		Gross unrealized loss
	(in thousands)
Certificates of deposit	$	240	$	—		$	—	$	—		$	240	$	—
Corporate notes/bonds	15,254		(43		)	28,885		(97		)	44,139		(140		)
US government agency securities	—		—			2,402		(5		)	2,402		(5		)
	$	15,494	$	(43	)	$	31,287	$	(102	)	$	46,781	$	(145	)



	Contingent Consideration
	(in thousands)
	ThingWorx			ColdLight			Kepware			Total
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 October 1, 2016	—			2,500			17,070			19,570
Change in fair value of contingent consideration	—			—			930			930
Payment of contingent consideration	—			(2,500		)	(9,600		)	(12,100		)
Balance at September 30, 2017	$	—		$	—		$	8,400		$	8,400



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



	Software Products Segment		Services Segment			Total
	(in thousands)
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
Acquisition	2,847		—			—		2,847
Foreign currency translation adjustments	9,077		778			257		10,112
Balance, September 30, 2017	$	1,062,074	$	90,843		$	29,855	$	1,182,772



	Year ended September 30,
Unrecognized tax benefits	2017			2016		2015
	(in millions)
Unrecognized tax benefit beginning of year	$	15.5		$	14.1	$	15.0
Tax positions related to current year:
Additions	0.9			1.0		1.3
Tax positions related to prior years:
Additions	1.0			0.4		0.8
Reductions	(1.6		)	—		(3		)
Settlements	(1.0		)	—		—
Statute expirations	—			—		—
Unrecognized tax benefit end of year	$	14.8		$	15.5	$	14.1



Year ending September 30,	(in thousands)
2018	$	39,261
2019	30,988
2020	25,941
2021	28,134
2022	24,018
Thereafter	212,234
Total minimum lease payments	$	360,576



	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value as of September 30, 2017
Restricted stock unit activity for the year ended September 30, 2017	(in thousands except grant date fair value data)
Balance of nonvested outstanding restricted stock units October 1, 2016	3,776		$	37.30
Granted	1,946		$	51.27
Vested	(1,586	)	$	36.05
Forfeited or not earned	(649	)	$	37.83
Balance of nonvested outstanding restricted stock units September 30, 2017	3,487		$	45.57	$	196,230



	Restricted Stock Units
Restricted stock unit grants	TSR Units (1)	Performance-based RSUs (2)	Service-based RSUs (3)
	(Number of Units in thousands)
Year ended September 30, 2017	358	325	1,263



	U.S. Plan						International Plans
	2017		2016		2015		2017		2016		2015
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate	—	%	—	%	—	%	1.8	%	1.3	%	2.2	%
Rate of increase in future compensation	—	%	—	%	—	%	2.8	%	2.8	%	3.0	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate	—	%	—	%	3.80	%	1.3	%	2.2	%	2.4	%
Rate of increase in future compensation	—	%	—	%	—	%	2.8	%	3.0	%	3.0	%
Rate of return on plan assets	—	%	—	%	1.35	%	5.4	%	5.7	%	5.8	%



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, 2017		September 30, 2016			September 30, 2015
		(in thousands)
Forward Contracts	Interest income and other expense, net	$	870	$	(883	)	$	615



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, 2017			September 30, 2016				September 30, 2017			September 30, 2016				September 30, 2017			September 30, 2016
Forward Contracts	$	(866	)	$	(3,859	)	Software Revenue	$	(524	)	$	(2,436	)	Other Income (Expense)	$	(49	)	$	(24	)



	Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	(in thousands)				(in thousands)
Derivative assets (a):
Forward Contracts	$	540	$	44	$	623	$	216
Derivative liabilities (b):
Forward Contracts	$	2,352	$	1,477	$	1,995	$	1,693
(a) As of September 30, 2017, $1,128 thousand current derivative assets are recorded in other current assets, and $35 thousand long-term derivative assets are recorded in other assets in the Consolidated Balance Sheets. As of September 30, 2016, all derivative assets were recorded in other current assets in the Consolidated Balance Sheet.
(b) As of September 30, 2017, $4,329 thousand current derivative liabilities are recorded in accrued expenses and other current liabilities, and $18 thousand long term derivative liabilities are recorded in other liabilities in the Consolidated Balance Sheets. As of September 30, 2016, all derivative liabilities were recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets.



	September 30, 2017		July 1, 2017			April 1, 2017			December 31 2016
Revenue	$	306,379	$	291,293		$	280,040		$	286,327
Gross margin	223,574		209,025			198,210			204,212
Operating income (loss) (2)	17,569		11,256			7,513			4,561
Net income (loss) (2) (3)	17,435		(951		)	(1,104		)	(9,141		)
Earnings (loss) per share (2) (3):
Basic	$	0.15	$	(0.01	)	$	(0.01	)	$	(0.08	)
Diluted	$	0.15	$	(0.01	)	$	(0.01	)	$	(0.08	)
Common Stock prices: (4)
High	$	59.29	$	60.22		$	56.73		$	49.93
Low	$	52.20	$	51.00		$	45.93		$	43.10