Description of Business and Basis of Presentation

Business

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

Basis of Presentation

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

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

Reclassifications

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

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

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



	Year Ended September 30,
	2015		2014
Reclassifications within revenue	(in millions)
From L&S to Perpetual License	$	282.8	$	362.6
From L&S to Subscription	65.2		27.1

Reclassifications within cost of revenue
From L&S to Software	$	53.2	$	45.0
From Support to Software	82.8		84.7

Reclassifications within operating expenses
From General and Administrative to Selling and Marketing	$	8.0	$	10.0

Segments

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

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

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