Statements in this Quarterly Report on Form 10-Q about our anticipated financial results and profitability, the development of our products and markets, and adoption of our solutions are forward-looking statements that are subject to the inherent uncertainties in predicting future results and conditions. Risks and uncertainties that could cause actual results to differ materially from those projected include the following: our customers may continue to decrease, delay or forego investments in our solutions in this weakened global economic climate; customers may delay, or become unable to pay, payments due to us in this weakened global economic climate; our efforts to reduce our operating costs may not become effective as quickly as we expect, thereby impacting our profitability, and such reductions could harm our business by decreasing our investments in necessary or strategic initiatives; our cost reduction initiatives may delay our ability to take advantage of business opportunities when the economy recovers; we may be unable to increase revenues or successfully execute strategic and other business initiatives while containing expenses; our ability to successfully differentiate our products and services from those of our competitors and otherwise compete could be adversely affected by changes in the competitive landscape that have increased both the size and number of companies with which we compete, some of which have larger operating budgets on an absolute and relative basis; as well as other risks and uncertainties referenced in Part II, Item 1A. "Risk Factors" of this report.

We develop, market and support product lifecycle management (PLM) software solutions and related services that help companies develop physical and information products. The PLM market encompasses the mechanical computer-aided design, manufacturing and engineering (CAD, CAM and CAE) market and the collaboration and product data management solutions market, as well as many previously isolated markets that address various other phases of a product's lifecycle.

Our PLM software solutions provide our customers with a product development system that enables them to create digital product content, collaborate internally and externally, control content and automate processes, configure products and content, and communicate product information to people and systems across the extended enterprise and design chain. We have devoted significant resources to developing our PLM offerings into an integrated product development system.

The most significant challenge we faced in the first six months of 2009 was the current global economic environment, which has weakened considerably since 2008. We expect this economic environment to continue at least for the near term and that our customers (including those of our resellers) may continue delaying purchase decisions or reducing the size of their purchases. Our other significant challenge was the decline in the value of certain non-U.S. currencies in which we transact business, particularly the Euro, relative to the U.S. dollar, which adversely affected, and may continue to adversely affect, our reported results as amounts earned in these currencies are translated into dollars for reporting purposes.

We recorded $225 million and $466 million of total revenue in the second quarter and first six months of 2009, respectively, compared to $258 million and $499 million in the year-ago periods. This reflects a decrease in license revenue of 46%, or $36 million, and 38%, or $56 million, in the second quarter and first six months of 2009, respectively. This decrease was partially offset by CoCreate revenue which was higher by $12 million in the first six months of 2009, primarily because the first six months of 2008 only included four months of results for CoCreate, which we acquired on November 30, 2007.

We view the decline in license revenue as particularly significant and, accordingly, have reduced our revenue expectations for the year. We expect license revenues for the remainder of 2009 will continue to be below 2008 levels and that the declines in license sales could negatively impact consulting and training services sales and maintenance sales in 2009 and beyond.

Primarily as a result of revenue declines, our operating income declined by $32 million and $44 million in the second quarter and first six months of 2009, respectively. Net income declined by $12 million and $17 million in the second quarter and first six months of 2009, respectively, primarily due to lower operating income, partially offset by a decrease in our income tax provision of $21 million and $29 million over the same periods.

As a result of our lowered revenue expectations for 2009, we took actions in the second quarter of 2009 that reduced or contained our operating costs, including:

• implementing a hiring freeze other than for selected positions that support our key strategic initiatives;

• eliminating annual merit increases for our employees;

• reducing travel and marketing related expenses; and

• reducing our workforce.

We recorded a $10 million restructuring charge in the second quarter of 2009 primarily related to headcount reductions of 4% of our workforce. We expect that additional workforce reductions, and potential associated facility consolidations, will result in total combined restructuring charges during the remainder of 2009 of approximately $3 million.

While we remain focused on reducing costs to increase our profitability, we intend to continue to make strategic investments we believe are critical to gaining market share and improving operating profitability over the longer term. Such investments include:

• improving the breadth and competitiveness of our product portfolio through both internal development and strategic acquisitions;

• expanding our reseller channel and developing a network of enterprise reseller partners; and

• expanding our services ecosystem with the addition of strategic services partners.

Continued macroeconomic pressure or additional declines in revenue beyond that which we expect could cause us to reduce or delay these strategic investments and/or take further actions to reduce our operating costs.

Explanatory Note about a Change in Our Revenue Reporting

In the first quarter of 2009, we began classifying revenue from sales of our computer-based training products as license and maintenance revenue to better align our reporting with how these training products are sold to customers. Prior to that, computer-based training product revenue, and maintenance thereon, was classified as consulting and training service revenue and included in total service revenue. Revenue for the first six months of 2008 has been reclassified to conform to the current classification and the discussion below gives effect to this change.

Impact of Foreign Currency Exchange on Results of Operations

Approximately two-thirds of our revenue and half of our expenses are transacted in currencies other than the U.S. dollar. Because we report our results of operations in U.S. dollars, currency translation affects our reported results. On a year-over-year comparative basis, our revenues for the second quarter and first six months of 2009

were unfavorably impacted as a result of changes in currency exchange rates, primarily the Euro. Conversely, our expenses were lower as a result of changes in these rates. If actual reported results for the second quarter and first six months of 2009 had been converted into U.S. dollars based on the corresponding prior year's foreign currency exchange rates, revenue would have been higher by approximately $8.8 million and $16.6 million, respectively, and expenses would have been higher by approximately $11.3 million and $19.0 million, respectively. The net impact on year-over-year results for the second quarter and first six months of 2009 would have been a decrease in operating income of $2.5 million and $2.4 million, respectively. The results of operations, revenue by category, and revenue by geographic region in the tables that follow present both actual percentage changes year over year and percentage changes year over year on a constant currency basis.

Total Operating Results

Total revenue, costs and expenses, operating income and net income for the
second quarters and first six months of 2009 and 2008 were as follows:



                                   Three months ended              Percent Change                Six months ended             Percent Change
                               April 4,         March 29,                    Constant        April 4,        March 29,                  Constant
                                 2009             2008          Actual       Currency          2009            2008        Actual       Currency
                                                                         (Dollar amounts in millions)
Total revenue                 $    225.3       $     257.8         (13 )%          (9 )%    $    465.7      $     499.0        (7 )%          (3 )%
Total costs and expenses           226.7             226.8          -  %            5 %          463.6            453.1         2 %            6 %

Operating income (loss)             (1.4 )            31.0        (105 )%        (113 )%           2.1             45.9       (95 )%        (100 )%
Other income (expense),
net                                 (0.2 )            (0.3 )                                      (1.3 )            1.2

Income (loss) before
income taxes                        (1.6 )            30.7                                         0.8             47.1
Provision for (benefit
from) income taxes                  (8.8 )            11.8                                       (11.0 )           18.4

Net income                    $      7.2       $      18.9                                  $     11.8      $      28.7

Revenue in the second quarter and first six months of 2009 compared to the second quarter and first six months of 2008 decreased primarily due to:

• a decrease in license revenue; and

• the unfavorable impact of foreign currency exchange rate movements described above.

These decreases were partially offset by:

• an additional $12.2 million of revenue from the CoCreate business, which we acquired on November 30, 2007, for the first six months of 2009, compared to the first six months of 2008 (which included only four months of CoCreate revenue);

• consulting and training service revenue which, excluding CoCreate, was higher by $3.0 million and $5.8 million in the second quarter and first six months of 2009; and

• maintenance revenue, which, excluding CoCreate, was relatively flat in the second quarter of 2009 and higher by $4.2 million in the first six months of 2009.

Costs and expenses in the second quarter and first six months of 2009 were lower due to:

• actions taken in the second quarter described above in "Executive Overview"; and

• the favorable impact of foreign currency exchange rate movements described above.

These decreases were partially offset by:

• two additional months of costs from the CoCreate business for the first six months of 2009; and

• restructuring charges of $9.8 million.

Details of Results of Operations

We discuss our results of operations for the second quarters and first six months of 2009 and 2008 in detail below, beginning with a table showing certain consolidated financial data as a percentage of total revenue, followed by a discussion of revenue and costs and expenses. Our results of operations include the results of operations of companies we acquired beginning on their respective acquisition dates.

                                                         Percentage of Total Revenue
                                             Three months ended                Six months ended
                                          April 4,        March 29,        April 4,        March 29,
                                            2009            2008             2009            2008
Revenue:
License                                         19 %             30 %            20 %             30 %
Service                                         81               70              80               70

Total revenue                                  100              100             100              100

Costs and expenses:
Cost of license revenue                          3                2               3                2
Cost of service revenue                         32               29              32               29
Sales and marketing                             32               28              33               29
Research and development                        20               18              20               18
General and administrative                       8                8               8                9
Amortization of acquired intangible
assets                                           2                2               2                2
In-process research and development             -                -               -                -
Restructuring charges                            4                1               2                2

Total costs and expenses                       101               88             100               91

Operating income (loss)                         (1 )             12              -                 9
Interest and other income
(expense), net                                  -                -               -                -

Income (loss) before income taxes               (1 )             12              -                 9
Provision for (benefit from) income
taxes                                           (4 )              5              (2 )              4

Net income                                       3 %              7 %             2 %              5 %

Revenue

Total Revenue

Our revenue consists of software license revenue and service revenue, which includes software maintenance revenue (consisting of providing our customers software updates and technical support) as well as consulting and training revenue (including implementation services).

In connection with our reclassification of computer-based training product revenue in 2009, for the second quarter and first six months of 2008, we reclassified $4.9 million and $8.7 million, respectively, to license revenue and $0.9 million and $1.8 million, respectively, to maintenance revenue from consulting and training service revenue, to conform to the current classification. The table and discussion below gives effect to this reclassification. The amount of computer-based training product revenue varies from quarter to quarter and, for the second quarter and first half of 2009, was below such revenue recorded in the second quarter and first half of 2008.

The following table shows our revenue by category for the periods indicated.

                                 Three months ended           Percent Change               Six months ended            Percent Change
                              April 4,      March 29,                   Constant        April 4,      March 29,                  Constant
                                2009           2008        Actual       Currency          2009          2008        Actual       Currency
                                                                     (Dollar amounts in millions)
License Revenue              $     42.1    $       77.9       (46 )%         (44 )%    $     92.6    $     148.8       (38 )%         (35 )%
Service revenue:
Maintenance revenue               122.6           122.0         1 %            4 %          253.4          236.7         7 %           10 %
Consulting and training
service revenue                    60.6            57.9         5 %           11 %          119.7          113.5         6 %           11 %

Total service revenue             183.2           179.9         2 %            6 %          373.1          350.2         7 %           10 %

Total revenue                $    225.3    $      257.8       (13 )%          (9 )%    $    465.7    $     499.0        (7 )%          (3 )%

Revenue results for the second quarter and first six months of 2009 reflect weak license sales. We believe this was primarily attributable to the adverse macroeconomic environment in which customers reduced the amount of their purchases and delayed purchasing decisions. Additionally, revenue in the first six months of 2009, compared to the year-ago period, was negatively impacted by unfavorable foreign currency exchange rates in most currencies in which we do business. Our maintenance and services businesses, however, performed well in the second quarter and first six months of 2009. Revenue for the first six months of 2009 also included $12.2 million more revenue from the sale of CoCreate products, primarily because the first six months of 2008 included only four months of CoCreate revenue. CoCreate revenues are primarily concentrated in Europe and Japan.

License Revenue

License revenue in the second quarter and first six months of 2009 decreased year over year in every region and across most of our major product families. License revenue was also unfavorably impacted in the second quarter and first six months of 2009 by approximately $1.3 million and $3.5 million, respectively, due to unfavorable foreign currency exchange rate movements.

Maintenance Revenue

Maintenance revenue represented 54% of total revenue in the second quarter and first six months of 2009 and 47% of total revenue in the second quarter and first six months of 2008. Increases in maintenance revenue in the second quarter and first six months of 2009 were partially offset by unfavorable foreign currency exchange rate movements of approximately $3.9 million and $6.4 million, respectively. Maintenance revenue in the first six months of 2009 continued to benefit from CoCreate's maintenance base, which contributed $12.5 million more maintenance revenue in the first six months of 2009 than the first six months of 2008, primarily because the first six months of 2009 included two additional months of revenue. Excluding the CoCreate business, compared to the prior year periods, maintenance revenue declined 1% and increased 2% in the second quarter and first six months of 2009, respectively.

While the total number of active maintenance-paying seats has increased compared to the prior year, we experienced a modest sequential decline in active maintenance paying seats in the second quarter of 2009 compared to the first quarter of 2009. This sequential seat decline is partially attributable to fewer licenses sold over the two preceding quarters, resulting in a reduced number of new maintenance paying seats, as well as a decline or delay in maintenance seat renewals. The declines are primarily in Europe and North America, where the macroeconomic environment has been most challenging. Further declines in license seats sold would likely have an adverse effect on future maintenance revenue.

Consulting and Training Service Revenue

Consulting and training service revenue, which has a lower gross profit margin than license and maintenance revenues, accounted for 27% and 26% of total revenue in the second quarter and first six months of 2009, respectively, and 23% of total revenue in the second quarter and first six months of 2008.

The increase in consulting and training service revenue in the second quarter and first six months of 2009 compared to the second quarter and first six months of 2008 was primarily the result of growth in consulting services. Year over year, consulting services revenue was up 6% for both the second quarter and first six months of 2009. The second quarter increase reflects a 23% increase in Europe, offset by an 8% decrease in Asia-Pacific. The increase for the first six months of 2009 reflects growth in all major geographic regions. Year over year, training revenue, which typically represents about 15% of our total consulting and training services revenue, declined 5% in the second quarter and increased 1% for the first six months of 2009.

Although we have pending service engagements that we expect to perform, continued declines in new licenses sold, particularly Windchill licenses, will likely have an adverse effect on future services revenue.

Revenue by Geographic Region



                                Three months ended           Percent Change               Six months ended            Percent Change
                              April 4,      March 29,                  Constant        April 4,      March 29,                  Constant
                                2009          2008        Actual       Currency          2009          2008        Actual       Currency
                                                                    (Dollar amounts in millions)
Revenue by region:
North America                $     79.5    $      88.2       (10 )%         (10 )%    $    163.0    $     172.7        (6 )%          (6 )%
Europe                       $     89.9    $     106.2       (15 )%          (3 )%    $    189.2    $     207.8        (9 )%           3 %
Asia-Pacific                 $     55.9    $      63.4       (12 )%         (19 )%    $    113.4    $     118.5        (4 )%         (11 )%
Revenue by region as a %
of total revenue:
North America                       35%            34%                                       35%            35%
Europe                              40%            41%                                       41%            41%
Asia-Pacific                        25%            25%                                       24%            24%

North America. The decrease in revenue in North America in the second quarter and first six months of 2009 compared to the second quarter and first six months of 2008 was primarily due to decreases in license revenue of $9.4 million and $14.9 million, respectively, partially offset by increases in maintenance revenue of $0.9 million and $4.4 million, respectively.

Europe. European revenue in the second quarter and first six months of 2009 was unfavorably impacted by foreign currency exchange rate movements, particularly the Euro. At foreign currency exchange rates consistent with the comparable year-ago periods, revenue in the second quarter and first six months of 2009 would have been higher by $13.4 million and $24.0 million, respectively. Excluding the impact of currency movements, revenue in the second quarter of 2009 reflects a $14.6 million decline in license revenue, partially offset by an $8.4 million increase in consulting and training services revenue, and a $3.3 million increase in maintenance revenue. Sales of CoCreate products in Europe were higher by $5.5 million for the first six months of 2009 compared to the first six months of 2008. Revenue in Europe in the first six months of 2009 reflects a $24.6 million decline in license revenue, partially offset by an increase of $3.6 million in consulting and training services revenue and a $2.5 million increase in maintenance revenue. European revenue in the first six months of both 2009 and 2008 included significant consulting service revenue from a single customer. Revenue from that customer in the second quarters and first six months of 2009 and 2008 ranged from 10-14% of total European revenue and was less than 6% of total worldwide revenue for all periods.

Asia-Pacific. Revenue in Asia-Pacific for the second quarter of 2009 reflects a decline of 24% year over year in the Pacific Rim, and 2% growth in Japan. The growth in Japan, which comprised 54% of total Asia-Pacific revenue in the second quarter of 2009, was primarily due to changes in the Yen exchange rate relative to the U.S. dollar which favorably impacted revenue by $4.7 million, offset by a $3.8 million decrease in license revenue. The decline in revenue in the Pacific Rim was primarily due to a decrease in license revenue of $6.7 million. Revenue in Asia-Pacific for the first six months of 2009 reflects a decline of 10% year over year in the Pacific Rim and 2% growth in Japan. The growth in Japan, which comprised 50% of total Asia-Pacific revenue in the first six months of 2009, was primarily due to changes in the Yen exchange rate relative to the U.S. dollar and an increase in revenue from CoCreate products of $4.3 million, partially offset by an $8.0 million decrease in license revenue. The favorable foreign exchange impact in Japan in the first six months of 2009 was $7.7 million. The decrease in revenue in the Pacific Rim in the first six months of 2009 was primarily attributable to an $8.6 million decrease in license revenue.

Revenue from Individual Customers

We enter into customer contracts that may result in revenue being recognized over multiple reporting periods. Accordingly, revenue recognized in a current quarter may be attributable to contracts entered into during the current period or in prior periods. License and/or consulting and training service revenue of $1 million or more recognized from individual customers in the second quarters of 2009 and 2008 was $24.7 million (attributable to nine customers) and $37.6 million (attributable to sixteen customers), respectively; for the first six months of 2009 and 2008, such revenue was $48.9 million and $69.6 million, respectively. The declines in revenue with respect to these customers were primarily declines in license revenue. We attribute the decline in the number of such large transactions and the decline in license revenue to the unfavorable macroeconomic environment.

The current adverse global economic conditions have resulted in longer sales lead times and smaller deal sizes, which we expect to continue at least for the near term. While we expect fluctuations and uncertainty in the level of customer spending for at least the next year, over the longer term we believe our historically strong performance in large accounts will continue as we believe that customers will continue to invest in PLM solutions relative to other IT spending initiatives and that customers will continue to invest in our PLM solutions due to the strength and breadth of our solutions.

Channel Revenue

We have been building and diversifying our reseller channel to provide the resources necessary for more effective distribution of our products. We believe that using diverse and geographically dispersed resellers that focus on smaller businesses provides an efficient and cost effective means to reach these customers and allows our direct sales force to focus on larger sales opportunities. Revenue from our reseller channel was 25% and 26% for the second quarter of 2009 and 2008, respectively, and 26% and 25% for the first six months of 2009 and 2008, respectively. Revenue from our reseller channel declined 16% in the second quarter of 2009 to $56.8 million from $67.5 million in the second . . .