Aspen Annual Report 2017

Plain-text annual report

Annual Report 2017 2017 AspenTech Annual Report7 1 0 2 | h c e T n e p s A About AspenTechWe are a leading global supplier of asset optimization solutions that optimize asset design, operations and maintenance in complex, industrial environments. We combine decades of process modeling and operations expertise with big data machine-learning and analytics. Our purpose-built software solutions improve the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production, reducing unplanned downtime, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to support operational excellence. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549____________________________________________FORM 10-K(Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2017oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number: 0-24786____________________________________________Aspen Technology, Inc.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)04-2739697(I.R.S. EmployerIdentification No.) 20 Crosby DriveBedford, MA(Address of principal executive offices)01730(Zip Code)Registrant's telephone number, including area code: 781-221-6400____________________________________________Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of the Act:Common stock, $0.10 par value per shareIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No oIndicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company"in Rule 12b-2 of the Exchange Act.Large accelerated filerýAccelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company)Smaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ýAs of December 31, 2016, the aggregate market value of common stock (the only outstanding class of common equity of the registrant) held by non-affiliates of the registrant was $4,159,380,633 based on a total of 76,067,678 shares of common stock held by non-affiliates and on a closing price of $54.68on December 31, 2016 for the common stock as reported on The NASDAQ Global Select Market.There were 73,099,209 shares of common stock outstanding as of August 3, 2017.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's Proxy Statement related to its 2017 Annual Meeting of Stockholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference inPart III, Items 10-14 of this Form 10-K.Table of ContentsTABLE OF CONTENTS Page PART I Item 1.Business3Item 1A.Risk Factors13Item 1B.Unresolved Staff Comments19Item 2.Properties19Item 3.Legal Proceedings19Item 4.Mine Safety Disclosures19 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20Item 6.Selected Financial Data22Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations23Item 7A.Quantitative and Qualitative Disclosures About Market Risk41Item 8.Financial Statements and Supplementary Data42Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure42Item 9A.Controls and Procedures42Item 9B.Other Information44 PART III Item 10.Directors, Executive Officers and Corporate Governance45Item 11.Executive Compensation45Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters45Item 13.Certain Relationships and Related Transactions, and Director Independence45Item 14.Principal Accounting Fees and Services45 PART IV Item 15.Exhibits, Financial Statement Schedules46 SIGNATURES ____________________________________________Our registered trademarks include aspenONE and Aspen Plus. All other trademarks, trade names and service marks appearing in this Form 10-K arethe property of their respective owners.Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2017"refers to the year ended June 30, 2017).2Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATAThis Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "potential," "should," "target," or thenegative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-lookingstatements is subject to known and unknown risks, uncertainties and other factors that may cause our, our customers' or our industry's actual results, levels ofactivity, performance or achievements expressed or implied by these forward-looking statements, to differ. "Item 1. Business," "Item 1A. Risk Factors" and"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other sections in this Form 10-K, discuss someof the factors that could contribute to these differences. The forward-looking statements made in this Form 10-K relate only to events as of the date on whichthe statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which thestatement is made or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any futureacquisitions, mergers, dispositions, joint ventures or investments we may make. The industry in which we operate is subject to a high degree of uncertaintyand risk due to variety of factors, including those described in "Item 1A. Risk Factors." Unless the context indicates otherwise, references in this report to"we", "us", "our" and other similar references mean Aspen Technology, Inc. and its subsidiaries.PART IItem 1. Business.OverviewWe are a leading global supplier of asset optimization solutions that optimize asset design, operations and maintenance in complex, industrialenvironments. We combine decades of process modeling and operations expertise with big data machine-learning and analytics. Our purpose-built softwaresolutions improve the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production, reducing unplanneddowntime, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to support operational excellence.Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domainexpertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed ourapplications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performancemanagement. We are a recognized market and technology leader in providing process optimization and asset performance management software solutions foreach of these business areas.We have established sustainable competitive advantages based on the following strengths:•Innovative products that can enhance our customers' profitability and productivity;•Long-term customer relationships;•Large installed base of users of our software; and•Long-term license contracts.We have approximately 2,100 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industriessuch as energy, chemicals, engineering and construction, as well as pharmaceuticals, transportation, power, metals and mining, pulp and paper, and consumerpackaged goods.Industry BackgroundThe process manufacturing industries consist of companies that typically manufacture finished products by applying a controlled chemical processeither to a raw material that is fed continuously through the plant or to a specific batch of raw material.Process industry characteristics and dynamics are complex; therefore, any small improvement in the high-volume feedstocks used, or to the chemicalprocess applied, can have a significant impact on the efficiency and cost-effectiveness of manufacturing operations. As a result, process manufacturers, as wellas the engineering and construction firms that partner with these manufacturers, have extensive technical requirements and need sophisticated, integratedsoftware to help design,3Table of Contentsoperate and maintain complex manufacturing assets. The unique characteristics associated with process manufacturing create special demands for businessapplications that frequently exceed the capabilities of generic or non-process manufacturing software packages.Industry Specific Challenges Facing the Process IndustriesCompanies in different segments of the process industries face specific challenges that are driving the need for software solutions that design, operateand maintain manufacturing environments more effectively:Energy. Our energy markets are comprised of three primary sectors: Exploration and Production, also called "upstream," Oil and Gas Production andProcessing, also called "midstream," and Refining and Marketing, also called "downstream":•Companies engaged in Exploration and Production explore for and produce hydrocarbons. They target reserves in increasingly diversegeographies involving geological, logistical and political challenges. They need to design and develop ever larger, more complex andmore remote production, gathering and processing facilities as quickly as possible with the objective of optimizing production andensuring regulatory compliance.•Companies engaged in Oil and Gas Production and Processing produce and gather oil and natural gas from well heads, clean it, process itand separate it into oil and dry natural gas and natural gas liquids in preparation for transport to downstream markets. The number of oiland gas processing plants in North America has increased significantly in recent years to process the oil and gas extracted from shaledeposits.•Companies engaged in Refining and Marketing convert crude oil through a thermal and chemical manufacturing process into endproducts such as gasoline, jet and diesel fuels and into intermediate products for downstream chemical manufacturing companies. Thesecompanies are characterized by high volumes and low operating margins. In order to deliver better margins, they focus on optimizingfeedstock selection and product mix, reducing energy and capital costs, maximizing throughput, and minimizing inventory, all whileoperating safely and in accordance with regulations.Chemicals. The chemicals industry includes both bulk and specialty chemical companies:•Bulk chemical producers manufacture commodity chemicals and compete primarily on price; they seek to achieve economies of scale andmanage operating margin pressure by building larger, more complex plants located near feedstock sources.•Specialty chemical manufacturers, which primarily manufacture highly differentiated customer-specific products, face challenges inmanaging diverse product lines, multiple plants, complex supply chains and product quality.Engineering and construction. Engineering and construction firms that work with process manufacturers compete on a global basis by bidding onand executing on complex, large-scale projects. They need a digital environment in which optimal plant designs can be produced quickly and efficiently,incorporating highly accurate modeling, analysis and cost estimation technology. In addition, these projects require software that enables significantcollaboration internally, with the manufacturer, and in many cases, with other engineering and construction firms.Companies in the consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals and biofuels industries are also seeking assetoptimization solutions that help them deliver improved financial and operating results in the face of varied process manufacturing challenges.Complexity of the Process IndustriesCompanies in the process industries constantly face pressure on margins causing them to continually seek ways to operate more efficiently. At the sametime, these manufacturers face complexity as a result of the following:Globalization of markets. Process manufacturers are continuously expanding their operations to take advantage of growing demand and moreeconomically viable sources of feedstocks. Process manufacturers must be able to design, build and operate plants efficiently and economically whilemanaging and optimizing ever broadening supply chains.Market volatility. Process manufacturers must react quickly to frequent changes in feedstock prices, temporary or longer-term feedstock shortages,and rapid changes in finished product prices. Unpredictable commodity markets strain the manufacturing and supply chain operations of processmanufacturers, which must evaluate and implement changes in inventory levels, feedstock inputs, equipment usage and operational processes to remaincompetitive.4Table of ContentsEnvironmental and safety regulations. Process companies must comply with an expanding array of data maintenance and reporting requirementsunder governmental and regulatory mandates, and the global nature of their operations can subject them to numerous regulatory regimes. These companiesare increasingly relying upon software applications to model potential outcomes, store operating data and develop reporting capabilities in response toheightened scrutiny and oversight because of environmental, safety and other implications of their products and manufacturing processes.Market OpportunityTechnology solutions play a major role in helping companies in the process industries improve their manufacturing productivity. In the 1980s, processmanufacturers implemented distributed control systems, or DCS, to automate the management of plant hardware. DCS use computer hardware,communication networks and industrial instruments to measure, record and automatically control process variables. In the 1990s, these manufacturersadopted enterprise resource planning, or ERP, systems to streamline back office functions and interact with DCS. These systems allowed processmanufacturers to track, monitor and report the performance of each plant, rather than rely on traditional paper and generic desktop spreadsheets.Many process manufacturers have implemented both DCS and ERP systems but have realized that their investments in hardware and back-officesystems are inadequate. DCS are only able to control and monitor processes based on fixed sets of parameters and cannot dynamically react to changes in themanufacturing process unless instructed by end users. ERP systems can only record what is produced in operations. Although DCS and ERP systems helpmanage manufacturing performance, neither of these systems can optimize what is produced, how it is produced or where it is produced. Moreover, neithercan help a process manufacturer understand how to improve its processes or how to identify opportunities to decrease operating expenses.Asset optimization software focuses on the optimum design, operation, and maintenance of the manufacturing process; how the design is optimized foroperations and reliability, how the process is operated and the economics of the process, and how the design and operations impact the longevity andreliability of the equipment. By connecting DCS and ERP systems with intelligent, dynamic applications, asset optimization software allows a manufacturerto make better, faster economic decisions. Examples of how asset optimization software can optimize a manufacturing environment include incorporatingprocess manufacturing domain knowledge, supporting real-time decision making, predicting equipment failure, and providing the ability to forecast andsimulate potential actions. Furthermore, these solutions can optimize the supply chain by helping a manufacturer to understand the operating conditions ineach plant, enabling more efficient and optimized production decisions.Process manufacturers employ highly skilled technical personnel specializing in areas such as process design, equipment design, control engineering,manufacturing operations, analytics, planning, scheduling, and supply chain management. To drive efficiency and improve operating margins, thesepersonnel need to collaborate across functional areas and increasingly rely on software to enable this collaboration as well as automate complex tasksassociated with their jobs. Process companies must adapt to the changing nature of the technical workforce. A generation of highly experienced plantoperators and engineers is nearing retirement. As a result, we believe there is increasing demand for intelligent software applications that capture andautomate expert knowledge and are intuitive and easy-to-learn.aspenONE SolutionsWe provide integrated asset optimization software solutions designed and developed specifically for the process and other capital-intensive industries.Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating andmaintenance costs, enhancing capital efficiency, enabling collaboration among different functions and decreasing working capital requirements. OuraspenONE applications are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management, or APM:Engineering. Our engineering software is used to develop process designs of new plants, re-vamp existing plants, and simulate and optimizeexisting processes.Manufacturing and Supply Chain. Our manufacturing software is used to optimize day-to-day processing activities, enabling processmanufacturers to make better, more profitable decisions and to improve plant performance. Our supply chain management software is designed to enableprocess manufacturers to reduce inventory levels, increase asset efficiency, respond rapidly to market demands and optimize supply chain operations.Asset Performance Management. Our asset performance management suite is used to understand and predict the reliability of a system; be itmultiple assets, a single asset, or equipment in a plant. The factors that impact reliability include how operating conditions degrade equipment performanceover time, or how process conditions lead to equipment failure, and the ability to predict when the equipment will fail and prescribe actions to avoid suchoccurrences. The APM suite is a comprehensive suite of machine learning and analytics technologies when used on a standalone or integrated manner withhistorical and real time asset and equipment data which can help our customers improve their return on capital employed.5Table of ContentsOur aspenONE licensing model is a subscription offering under which customers receive access to all the products within the aspenONE suite(s) theylicense, including the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite.This affords customers the ability to use our software whenever required and to experiment with different applications to best solve whatever critical businesschallenges they face.We offer customer support, professional services and training services to our customers. Under our aspenONE licensing model, software maintenanceand support is included for the term of the arrangement. Professional services are offered to customers as a means to further implement and extend ourtechnology across their corporations.The key benefits of our aspenONE solutions include:Broad and comprehensive software suites. We believe we are the only software provider that has developed comprehensive suites of softwareapplications addressing the engineering, manufacturing and supply chain and maintenance requirements of process manufacturers. While some competitorsoffer solutions in one or two principal business areas, no other vendor can match the breadth of our aspenONE offerings. In addition, we have developed anextensive array of software applications that address extremely specific and complex industry and end user challenges, such as feedstock selection andproduction scheduling for petroleum companies.Integrated software solutions. aspenONE provides a standards-based framework that integrates applications, data and models within each of oursoftware suites. Process manufacturers seeking to improve their business operations can use the integrated software applications in the aspenONEManufacturing and Supply Chain suite to support real-time decision making both for individual production facilities and across multiple sites.Flexible commercial model. Our aspenONE licensing model provides a customer with access to all of the applications within and across theaspenONE suite(s) the customer licenses, including the right to any new unspecified future software products and updates that may be introduced into thelicensed aspenONE software suite. The customer can change or alternate the use of multiple applications in a licensed suite through the use of exchangeableunits of measurement, or tokens, licensed in quantities determined by the customer. This enables the customer to use those applications whenever requiredand to experiment with different applications to best solve whatever critical business challenges the customer faces. The customer can easily increase itsusage of our software as their business requirements evolve.Our Competitive StrengthsIn addition to the breadth and depth of our integrated aspenONE software and the flexibility of our aspenONE licensing model, we believe our keycompetitive advantages include the following:Industry-leading innovation based on substantial process expertise. Over the past 35 years, our significant investment in research and developmenthas led to a number of major process engineering advances considered to be industry-standard applications. Our development organization is comprised ofsoftware engineers, chemical engineers and data scientists. This combination of expertise has been essential to the development of leading productsembedded with chemical engineering principles, optimization algorithms, analytics, and the process industries’ workflows and best practices.Rapid, high return on investment. Many customers purchase our software because they believe it will provide rapid, demonstrable and significantreturns on their investment and increase their profitability. For some customers, cost reductions in the first year following installation have exceeded the totalcost of our software. For many customers, even a relatively small improvement in performance can generate substantial recurring benefits due to the largeproduction volumes and limited profit margins typical in process industries. In addition, our solutions can generate organizational efficiencies andoperational improvements that can further increase a process company's profitability.Growth StrategyWe seek to maintain and extend our position as a leading global provider of process optimization software and related services to the processindustries. In the last twelve months, we have introduced a new strategy to evolve our scope of optimization from the process units in a plant to the processand the equipment in the plant or entire asset. We plan to expand our reach in optimization from conceptualization and design, operations, and supply chainto the maintenance aspects of the plant. We plan to build on our expertise in process optimization, our installed base, and long term customer relationships toexpand our reach in the maintenance area of the plant. By focusing on asset optimization, we would be able to optimize the design and operations of a plantconsidering the performance of process equipment so as to optimize the full asset lifecycle. Our primary growth strategy is to expand organically within ourcore verticals by leveraging our market leadership position and driving increased usage and product adoption of the broad capabilities in our aspenONEofferings. Additionally, we seek acquisitions to accelerate our overall growth in the design and operations of the process, and acquisitions that will expandour maintenance solution to deliver asset optimization. To accomplish these goals, we will pursue the following activities:6Table of ContentsContinue to provide innovative, market-leading solutions. Our recent innovations include adaptive process control, modeling of solids and batchprocesses, rundown blending optimization, crude assays characterization using molecular science, electrolyte and biofuel characterizations, process safety,sulfur recovery, methodologies for carbon management, multivariate analysis, process reliability, and equipment and process analytics. Most recently weintroduced capabilities for column analytics and a solution for integrated steady state and batch process modeling. We intend to continue to invest inresearch and development in order to develop and offer new and enhanced solutions for our aspenONE suites. We have pioneered a number of industrystandard and award-winning software applications. For example, Aspen Plus, our process modeling tool for the chemicals industry, has won the ChemicalProcessing magazine Readers’ Choice Award for “Process Simulation Software” multiple times. We have also been recognized by R&D Magazine forinnovation in out of the box modeling capabilities that we developed with the National Institute of Standards and Technology.Further penetrate existing customer base. We have an installed base of approximately 2,100 customers. Many of our customers only use a fractionof our products. We work with our customers to identify ways in which they can improve their business performance by using the entire licensed suite ofaspenONE applications, both at an individual user level and across all of their plant locations. Our customers are segmented based on their size andcomplexity. Our large complex customers are serviced by our Field Sales organization, while our other customers are serviced by our inside sales group.Additionally, we regularly enhance our products to make them easier to use and seek to increase productivity of users by offering more integrated workflows.Adoption and usage in customer base. We strive for our customers to adopt and sustain the use of our products by maximizing the consumption oftheir token entitlement. We do so by focusing our go-to-market resources through specific customer success management activities that generate and sustainthe value from our products by ensuring that customers are using the latest version of our products, that our software is deployed in the most optimum mannerin their IT networks, and that our customers are familiar with the latest value enhancing functionality in our products.Asset Performance Management (APM) expansion. We introduced a new suite of products that focus on improving the reliability of our customers’assets and equipment using a combination of machine learning, data science and process modeling together with historical and real time asset and equipmentdata. As such, we have increased our investment in the research and development, sales and marketing, and channel sales functions to build out thecapabilities that will enable us to grow this new business area and deliver value for our customers. In addition, we will target a new set of capital-intensiveindustries with the APM functionality that we refer to as the global economy industries. These include transportation, power, pulp and paper, wastewatertreatment, and consumer products goods.Scale through digital channels. We have a broad user base spanning our vertical industries and geographies, and they possess a variety of skills,experience and business needs. To reach our user base in an effective, productive and leveraged manner, we utilize digital customer engagement solutionsincluding webinars, digital communities, social media, videos, email and other digital means that target each of the specific personas that are users of ourdifferent products. We intend to capitalize increasingly on segmentation to ensure we deliver targeted messages intended to address the specific needs ofeach market, customer and user.Build an ecosystem. The relevance of our solutions in the markets we serve means that we have the opportunity to leverage third parties interestedin building or expanding their businesses to increase our market penetration. The breadth of relationships that we establish will depend on the profile of thethird-party company and the objectives specified to be achieved from the promotion and implementation of our products and solutions.Pursue acquisitions. As part of our ongoing make-vs-buy analysis, we regularly explore and evaluate acquisitions. We have made several smallacquisitions in recent years and believe the opportunity exists to do more, especially as we seek to evolve our strategy to asset optimization and themaintenance area of the plant.Expand our total addressable market. Our focus on innovation also means introducing product capabilities or new product categories that createvalue for our customers and therefore expand our total addressable market.ProductsOur integrated asset optimization software solutions are designed and developed specifically for the process industries. Customers use our solutions toimprove their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, anddecreasing working capital requirements. We have designed and developed our software applications across four principal business areas:Engineering. Our engineering software applications are used during both the design and the ongoing operation of plant facilities to model andimprove the way engineers develop and deploy manufacturing assets. Process manufacturers must address a variety of challenges including design,operational improvement, collaborative engineering and economic evaluation.7Table of ContentsThey must, for example, determine where they should locate facilities, how they can lower capital and manufacturing costs, what they should produce andhow they can maximize plant efficiency.Manufacturing. Our manufacturing software products focus on optimizing day-to-day processing activities, enabling customers to make better,faster decisions that lead to improved plant performance and operating results. These solutions include desktop and server applications that help customersmake real-time decisions, which can reduce fixed and variable costs and improve product yields. Process manufacturers must address a wide range ofmanufacturing challenges such as optimizing execution efficiency, reducing costs, selecting the right raw materials, scheduling and coordinating productionprocesses, and identifying an appropriate balance between turnaround times, delivery schedules, product quality, cost and inventory.Supply Chain Management. Our supply chain management solutions include desktop and server applications that help customers optimize criticalsupply chain decisions in order to reduce inventory, increase asset efficiency, and respond more quickly to changing market conditions. Processmanufacturers must address numerous challenges as they strive to effectively and efficiently manage raw materials inventory, production schedules andfeedstock purchasing decisions. Supply chain managers face these challenges in an environment of ever-changing market prices, supply constraints andcustomer demands.Asset Performance Management. Our asset performance management products are used to understand and predict the reliability of a system; be itmultiple assets, a single asset, or equipment in a plant. The factors that impact reliability include how operating conditions degrade equipment performanceover time, or how process conditions lead to equipment failure, and the ability to predict when the equipment will fail and prescribe actions to avoid suchoccurrences. The APM suite is a comprehensive suite of machine learning and analytics technologies when used on a standalone or integrated manner withhistorical and real time asset and equipment data which can help our customers improve their return on capital employed.Our software applications are currently offered in three suites: aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONEAsset Performance Management. These suites are integrated applications that allow end users to design process manufacturing environments, forecast andsimulate potential actions, monitor operational performance, predict the reliability of an asset and equipment failure, and manage planning and schedulingactivities as well as collaborate across these functions and activities. The three suites are designed around core modules and applications that allow customersto design, operate and maintain their process manufacturing environments, as shown below:aspenONE Engineering Business Area aspenONE Module Major Products Product DescriptionEngineering Process Simulation forEnergy Aspen HYSYS Process modeling software for the design and optimization ofhydrocarbon processes, including complete pressure relief analysis Process Simulation forChemicals Aspen Plus Process modeling software for the design and optimization ofchemical processes, including solids and batch processes Economic Evaluation Aspen EconomicEvaluation Economic evaluation software for estimating project capital costs andlifecycle asset economics - from conceptual definition throughdetailed engineering Equipment Design &Rating Aspen Exchanger Designand Rating Software for the design, simulation and rating of various types of heatexchangers Basic Engineering Aspen Basic Engineering Process engineering platform for producing front-end designdeliverables such as multi-disciplinary datasheets, process flowdiagrams, piping and instrument diagrams, and equipment lists Operation Support Aspen Online Solution that connects models to real-time plant data for expediteddecisions, operation guidance and optimization8Table of ContentsaspenONE Manufacturing and Supply Chain Business Area aspenONE Module Major Products Product DescriptionManufacturing Advanced ProcessControl Aspen DMC3 Multi-variable controller software for maintaining processes at theiroptimal operating point under changing process conditions Aspen WatchPerformance Monitor Real-time monitoring and diagnostic information software to helpengineers and operators focus on the problems that erode margins ManufacturingExecution Systems Aspen Info Plus.21 Data historian software for storing, visualizing and analyzing largevolumes of data to improve production execution and enhanceperformance management AspenONE ProcessExplorer Software for combining process measurements, productcharacteristics, alarms, events and unstructured data for a completeview of production Aspen Production RecordManager Easy and fast segmentation of production data into batches,campaigns or other logical groupings for easier analysis andproduction reporting Aspen ProductionExecution Manager Workflow, order and recipe management software per cGMPguidelines that ensures operational consistency for improved yields,higher quality and lower production costsSupply Chain Refinery Planning &Scheduling Aspen PIMS AdvancedOptimization Refinery planning software for optimizing feedstock selection,product slate and operational execution Aspen PetroleumScheduler Refinery scheduling software for scheduling and optimization ofrefinery operations with integration to refinery planning, blendingand dock operations Supply & Distribution Aspen Petroleum SupplyChain Planner Economic planning software for optimizing the profitability of thepetroleum distribution network, including transportation, rawmaterials, sales demands, and processing facilities Aspen Fleet Optimizer Software for inventory management and truck transportationoptimization in secondary petroleum distribution Supply ChainManagement Aspen CollaborativeDemand Manager Software for forecasting market demand and managing forecastthrough changes in the business environment by combining historicaland real time data Aspen Plant Scheduler Software for generating optimal production schedules to meet totaldemand Aspen Supply Planner Software for determining the optimal production plan taking intoaccount labor and equipment, feedstock, inbound /outboundtransportation, storage capacity, and other variables9Table of ContentsaspenONE Asset Performance Management Business Area aspenONE Module Major Products Product DescriptionAsset PerformanceManagement Risk Analysis Aspen Fidelis Reliability Software for predicting the future performance of any system andquantifying the change in performance due to changes in design,capacity, operations, maintenance, logistics, market dynamics, andweather Process Analytics Aspen ProMV Multivariate analysis software for identifying and understandingvariations across multiple variables Aspen Asset Analytics Software for analyzing plant operations in real time to identify causalprecursors that can lead to an unplanned downtime event Equipment Analytics Aspen Mtell Software for recognizing unique data patterns as predictions of futureequipment behaviorOur product development activities are currently focused on strengthening the integration of our applications and adding new capabilities that addressspecific operational business processes in each industry. As of June 30, 2017, we had a total of 513 employees in our research and development group, whichis comprised of product management, software development and quality assurance. Research and development expenses were $79.5 million in fiscal 2017,$67.2 million in fiscal 2016 and $69.6 million in fiscal 2015.Sales and MarketingWe employ a value-based sales approach, offering our customers a comprehensive suite of software and services that enhance the efficiency andproductivity of their engineering, manufacturing and supply chain and maintenance operations. We have increasingly focused on positioning our products asa strategic investment and therefore devote an increasing portion of our sales efforts to our customers’ senior management, including senior decision makersin manufacturing, operations, maintenance and technology. Our aspenONE solution strategy supports this value-based approach by broadening the scope ofoptimization across the entire enterprise over its lifecycle, expanding the use of process models in the operations environment, and enabling the use ofanalytics and data science to enhance equipment and process reliability. We offer a variety of training programs focused on illustrating the capabilities of ourapplications as well as online training built into our applications. We have implemented incentive compensation programs for our sales force to rewardefforts that increase customer usage of our products. Furthermore, we believe our aspenONE licensing model enables our sales force to develop consultativesales relationships with our customers.Historically, most of our license sales have been generated through our direct Field Sales organization. In order to market the specific functionality andother technical features of our software, our account managers work with specialized teams of technical sales personnel and product specialists organized foreach sales and marketing effort. Our technical sales personnel typically have degrees in chemical engineering or related disciplines and actively consult witha customer’s plant engineers. Product specialists share their detailed knowledge of the specific features of our software solutions as they apply to the uniquebusiness processes of different vertical industries. In addition to our direct Field Sales organization, we employ an inside sales team that targets customers incertain market segments.We have established channel relationships with select companies that we believe can help us pursue opportunities in non-core target markets. We alsolicense our software products to universities that agree to use our products in teaching and research. We believe that students' familiarity with our productswill stimulate future demand once the students enter the workplace.We supplement our sales efforts with a variety of marketing initiatives, including industry analyst and public relations activities, campaigns to promoteproduct usage and adoption, user group meetings and customer relationship programs. Our broad user base spans multiple verticals and geographies andthese users possess a variety of skills, experience and business needs. In order to reach each of them in an effective, productive and leveraged manner we willincreasingly capitalize on digital customer engagement solutions. Using webinars, digital communities, social media, videos, email and other digital means,we seek to engage our extensive user base with targeted messages intended to address the specific needs of each market, customer and user.Our overall sales force, which consists of sales account managers, technical sales personnel, indirect-channel personnel, inside sales personnel, andmarketing personnel, consisted of 416 employees as of June 30, 2017.Software Maintenance and Support, Professional Services and Training10Table of ContentsSoftware maintenance and support (“SMS”) consists primarily of providing customer technical support and access to software fixes and upgrades.Customer technical support services are provided throughout the world by our three global call centers as well as via email and through our support website.For license term arrangements entered into subsequent to our transition to a subscription-based licensing model, SMS is included with the licensearrangement. For license arrangements that don’t include SMS, customers can purchase standalone SMS.We offer professional services focused on implementation of our solution. Our professional services team primarily consists of project engineers withdegrees in chemical engineering or a similar discipline, or who have significant relevant industry experience. Our employees include experts in fields such asthermophysical properties, distillation, adsorption processes, polymer processes, industrial reactor modeling, the identification of empirical models forprocess control or analysis, large-scale optimization, supply distribution systems modeling and scheduling methods. Our primary focus is the successfulimplementation and usage of our software, and in many instances, this work can be professionally performed by qualified third parties. As a result, we oftencompete with third-party consulting firms when bidding for professional services contracts, particularly in developed markets. We offer our services on eithera time-and-material or fixed-price basis.We offer a variety of training solutions ranging from standardized training, which can be delivered in a public forum, on-site at a customer's location orover the Internet, to customized training sessions, which can be tailored to fit customer needs. We have also introduced a wide range of online computer-based training courses offering customers on-demand training in basic and advanced features of our products directly from within the products. As of June 30,2017, we had a total of 297 employees in our customer support, professional services and training groups.Business SegmentsWe have two operating and reportable segments: i) subscription and software and ii) services. The subscription and software segment is engaged in thelicensing of asset optimization software solutions and associated support services. The services segment includes professional services and training.CompetitionOur markets in general are competitive, and we expect the intensity of competition in our markets to increase as existing competitors enhance andexpand their product and service offerings and as new participants enter the market. Increased competition may result in price reductions, reducedprofitability and loss of market share. We cannot ensure that we will be able to compete successfully against existing or future competitors. Some of ourcustomers and companies with which we have strategic relationships also are, or may become, competitors.Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, thesecompanies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in astronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they alsohave adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategicpartners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand theircustomer relationships by offering asset optimization software at a discount. In addition, competitors with greater financial resources may make strategicacquisitions to increase their ability to gain market share or improve the quality or marketability of their products. Furthermore, we face challenges in sellingour solutions to large companies in the process industries that have internally developed their own proprietary software solutions.We seek to develop and offer integrated suites of targeted, high-value vertical industry solutions that can be implemented with relatively limitedservice requirements. We believe this approach provides us with an advantage over many of our competitors that offer software products that are pointsolutions or are more service-based. Our key competitive differentiators include:•breadth, depth and integration of our aspenONE software offering;•rapid return on investment and increase in profitability;•domain expertise of chemical engineering personnel;•focus solely on software for the process industries;•flexibility of our usage-based aspenONE licensing model; and•consistent global support.Proprietary Rights11Table of ContentsOur software is proprietary and fundamental to our business. We rely on a combination of copyright, patent, trademark and trade secret laws in theUnited States and other jurisdictions, and on license and confidentiality agreements and technology measures to protect our proprietary technology andbrand, and prevent unauthorized use of our software. We generally seek to protect our trade secrets by entering into non-disclosure agreements with ouremployees and customers, and historically have restricted access to our software and source code, which we regard as proprietary information. We haveobtained or applied for patent protection with respect to some of our intellectual property and have registered or applied to register some of our trademarks inthe United States and in selected other countries. We actively monitor use of our intellectual property and have enforced, and will continue to enforce, ourintellectual property rights. In the United States, we are generally able to maintain our patents for up to 20 years from the earliest effective filing date, and tomaintain our trademark registrations for as long as the trademarks are in use.The laws of many countries in which our products are licensed may not protect our intellectual property rights to the same extent as the laws of theUnited States. While we consider our intellectual property rights to be valuable, we do not believe that our competitive position in the industry can dependsolely on obtaining legal protection for our software products and technology. Instead, we believe that the success of our business also depends on our abilityto maintain a leadership position by continuing to develop innovative software products and technology.Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors” below. You should read that discussion, which isincorporated into this section by reference.LicensesIn connection with our acquisition of Hyprotech Ltd. and related subsidiaries of AEA Technology plc in May 2002 and the consent decree we enteredinto with the Federal Trade Commission in December 2004 to resolve allegations that the acquisition was improperly anticompetitive, we and certain of oursubsidiaries entered into a purchase and sale agreement with Honeywell International Inc. and certain of its subsidiaries, pursuant to which we soldintellectual property and other assets to Honeywell relating to our operator training business and our Hyprotech engineering software products. Under theterms of the transactions, we retained a perpetual, irrevocable, worldwide, royalty-free non-exclusive license to the Hyprotech engineering software and havethe right to continue to develop, license and sell the Hyprotech engineering products.In March 1982, we entered into a System License Agreement with the Massachusetts Institute of Technology, or MIT, granting us a worldwide,perpetual non-exclusive license (with the right to sublicense) to use, reproduce, distribute and create derivative works of the computer program known as"ASPEN" which provides a framework for simulating the steady-state behavior of chemical processes that we utilize in the simulation engine for our AspenPlus product. MIT agreed that we would own any derivative works and enhancements. MIT has the right to terminate the agreement if: we breach it and donot cure the breach within 90 days after receiving a written notice from MIT; we cease to carry on our business; or certain bankruptcy or insolvencyproceedings are commenced and not dismissed. In the event of such termination, sublicenses granted to our customers prior to termination will remain ineffect.EmployeesAs of June 30, 2017, we had a total of 1,419 full-time employees, of whom 777 were located in the United States. None of our employees is representedby a labor union, except for one employee of our subsidiary Hyprotech UK Limited who belongs to the Prospect union for professionals. We haveexperienced no work stoppages and believe that our employee relations are satisfactory.Corporate InformationAspen Technology, Inc. was formed in Massachusetts in 1981 and reincorporated in Delaware in 1998. Our principal executive offices are at 20 CrosbyDrive, Bedford, MA 01730, and our telephone number at that address is (781) 221-6400. Our website address is http://www.aspentech.com. The informationon our website is not part of this Form 10-K, unless expressly noted.Available Information12Table of ContentsWe file reports with the Securities and Exchange Commission, or the SEC, which we make available on our website free of charge. These reportsinclude annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is providedon our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy anymaterials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional informationabout the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) thatcontains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.Item 1A. Risk Factors.Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below beforepurchasing our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertaintiesmay also impair our business operations. If any of the following risks actually13Table of Contentsoccurs, our business, financial condition, results of operations or cash flows would likely suffer. In that case, the trading price of our common stock couldfall, and you may lose all or part of your investment in our common stock.Risks Related to Our BusinessIf we fail to increase usage and product adoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our aspenONEAPM business, or fail to continue to provide innovative, market-leading solutions, we may be unable to implement our growth strategy successfully, andour business could be seriously harmed.The maintenance and extension of our market leadership and our future growth is largely dependent upon our ability to increase usage and productadoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our aspenONE APM business, and to develop new softwareproducts that achieve market acceptance with acceptable operating margins. Enterprises are requiring their application software vendors to provide greaterlevels of functionality and broader product offerings. We must continue to enhance our current product line and develop and introduce new products andservices that keep pace with increasingly sophisticated customer requirements and the technological developments of our competitors. Our business andoperating results could suffer if we cannot successfully execute our strategy and drive usage and product adoption.We have implemented a product strategy that unifies our software solutions under the aspenONE brand with differentiated aspenONE vertical solutionstargeted at specific capital-intensive industries. We cannot ensure that our product strategy will result in products that will continue to meet market needs andachieve significant usage and product adoption. If we fail to increase usage and product adoption or fail to develop or acquire new software products thatmeet the demands of our customers or our target markets, our operating results and cash flows from operations will grow at a slower rate than we anticipateand our financial condition could suffer.Our business could suffer if we do not grow our aspenONE APM business or if the demand for, or usage of, our other aspenONE software declines for anyreason, including declines due to adverse changes in the process and other capital-intensive industries.We have introduced the aspenONE APM suite, and our aspenONE engineering and manufacturing and supply chain suites account for a significantmajority of our revenue and will continue to do so for the foreseeable future. If we do not grow our aspenONE APM business or if demand for, or usage of, ourother suites declines for any reason, our operating results, cash flows from operations and financial position would suffer. Our business could be adverselyaffected by:•insufficient growth in our aspenONE APM business;•any decline in demand for or usage of our aspenONE suites;•the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our aspenONE suites;•technological innovations that our aspenONE suites do not address;•our inability to release enhanced versions of our aspenONE suites on a timely basis; and•adverse changes in capital intensive industries or otherwise that lead to reductions, postponements or cancellations of customer purchases of ourproducts and services, or delays in the execution of license agreement renewals in the same quarter in which the original agreements expire.Because of the nature of their products and manufacturing processes and their global operations, companies in the process and other capital intensiveindustries are subject to risk of adverse or even catastrophic environmental, safety and health accidents or incidents and are often subject to changingstandards and regulations worldwide.In addition, worldwide economic downturns and pricing pressures experienced by energy, chemical, engineering and construction, and other capitalintensive industries have led to consolidations and reorganizations. In particular, we believe that the volatility in oil prices has impacted and may continueto impact the operating levels and capital spending by certain of our customers in the engineering and construction market, which has resulted and couldcontinue to result in less predictable and lower demand for our products and services.Any such adverse environmental, safety or health incident, change in regulatory standards, or economic downturn that affects the capital-intensiveindustries, including continued challenges and uncertainty among customers whose business is adversely affected by volatility in oil prices, as well asgeneral domestic and foreign economic conditions and other factors that reduce spending by companies in these industries, could harm our operating resultsin the future.14Table of ContentsUnfavorable economic and market conditions or a lessening demand in the market for asset optimization software could adversely affect our operatingresults.Our business is influenced by a range of factors that are beyond our control and difficult or impossible to predict. If the market for asset optimizationsoftware grows more slowly than we anticipate, demand for our products and services could decline and our operating results could be impaired. Further, thestate of the global economy may deteriorate in the future. Our operating results may be adversely affected by unfavorable global economic and marketconditions, including significant volatility in oil prices, as well as a lessening demand for asset optimization software generally.Customer demand for our products is linked to the strength of the global economy. If weakness in the global economy persists, many customers,including those whose businesses are negatively impacted by lower oil prices, may delay or reduce technology purchases. This could result in reductions insales of our products, longer sales cycles, slower adoption of new technologies, increased price competition or reduced use of our products by our customers.We will lose revenue if demand for our products is reduced because potential customers experience weak or deteriorating economic conditions, catastrophicenvironmental or other events, and our business, results of operations, financial condition and cash flow from operations would likely be adversely affected.The majority of our revenue is attributable to operations outside the United States, and our operating results therefore may be materially affected by theeconomic, political, military, regulatory and other risks of foreign operations or of transacting business with customers outside the United States.As of June 30, 2017, we operated in 31 countries. We sell our products primarily through a direct sales force located throughout the world. In the eventthat we are unable to adequately staff and maintain our foreign operations, we could face difficulties managing our international operations.Customers outside the United States accounted for the majority of our total revenue during the fiscal years ended June 30, 2017, 2016 and 2015. Weanticipate that revenue from customers outside the United States will continue to account for a significant portion of our total revenue for the foreseeablefuture. Our operating results attributable to operations outside the United States are subject to additional risks, including:•unexpected changes in regulatory or environmental requirements, tariffs and other barriers, including, for example, changes in climate regulations,sanctions or other regulatory restrictions imposed by the United States or foreign governments; and the effects of the United Kingdom EuropeanUnion membership referendum in June 2016 and the subsequent withdrawal process initiated in March 2017;•less effective protection of intellectual property;•requirements of foreign laws and other governmental controls;•delays in the execution of license agreement renewals in the same quarter in which the original agreements expire;•difficulties in collecting trade accounts receivable in other countries;•adverse tax consequences; and•the challenges of managing legal disputes in foreign jurisdictions.Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.During fiscal 2017, 2016 and 2015, 9.8%, 11.5% and 13.8% of our total revenue was denominated in a currency other than the U.S. dollar, respectively.In addition, certain of our operating expenses incurred outside the United States are denominated in currencies other than the U.S. dollar. Our reportedrevenue and operating results are subject to fluctuations in foreign exchange rates. Foreign currency risk arises primarily from the net difference between non-U.S. dollar receipts from customers outside the United States and non-U.S. dollar operating expenses for subsidiaries in foreign countries. Currently, ourlargest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar and Japanese Yen against the U.S. dollar. Duringfiscal 2017, 2016 and 2015, we did not enter into, and were not a party to any, derivative financial instruments, such as forward currency exchange contracts,intended to manage the volatility of these market risks. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations inthe future may adversely affect our revenue and operating results. Any hedging policies we may implement in the future may not be successful, and the costof those hedging techniques may have a significant negative impact on our operating results.Competition from software offered by current competitors and new market entrants, as well as from internally developed solutions by our customers, couldadversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reducesour margins.15Table of ContentsOur markets in general are competitive and differ among our principal product areas: engineering, manufacturing, supply chain management and assetperformance management. We face challenges in selling our solutions to large companies that have internally developed their own proprietary softwaresolutions, and we face competition from well-established vendors as well as new entrants in our markets. Many of our current and potential competitors havegreater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additionalproducts or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to newtechnologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to pursue moreaggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some competitors may beable to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by offering asset optimizationsoftware at a discount. In addition, many of our competitors have established, and may in the future continue to establish, cooperative relationships with thirdparties to improve their product offerings and to increase the availability of their products in the marketplace. Competitors with greater financial resourcesmay make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products.Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses maycontinue to enhance their internally developed solutions, rather than investing in commercial software such as ours. Our current and potential commercialcompetitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, ifthese competitors develop products with similar or superior functionality to our products, we may need to decrease the prices for our products in order toremain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results willbe negatively affected. We cannot ensure that we will be able to compete successfully against current or future competitors or that competitive pressures willnot materially adversely affect our business, financial condition and operating results.Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.Our software products are complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors todate, but we have from time to time found defects in our products and we may discover additional defects in the future. We may not be able to detect andcorrect defects or errors before releasing products. Consequently, we or our customers may discover defects or errors after our products have beenimplemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to remedy defects or errors. The occurrenceof any defects or errors could result in:•lost or delayed market acceptance and sales of our products;•delays in payment to us by customers;•product returns;•injury to our reputation;•diversion of our resources;•increased service and warranty expenses or financial concessions;•increased insurance costs; and•legal claims, including product liability claims.Defects and errors in our software products could result in claims for substantial damages against us.Potential acquisitions could be difficult to consummate and integrate into our operations, and they and investment transactions could disrupt our business,dilute stockholder value or impair our financial results.As part of our business strategy, we may continue from time to time to seek to grow our business through acquisitions of or investments in new orcomplementary businesses, technologies or products that we believe can improve our ability to compete in our existing customer markets or allow us to enternew markets. The potential risks associated with acquisitions and investment transactions include, but are not limited to:•failure to realize anticipated returns on investment, cost savings and synergies;•difficulty in assimilating the operations, policies and personnel of the acquired company;16Table of Contents•unanticipated costs associated with acquisitions;•challenges in combining product offerings and entering into new markets in which we may not have experience;•distraction of management’s attention from normal business operations;•potential loss of key employees of the acquired company;•difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures;•impairment of relationships with customers or suppliers;•possibility of incurring impairment losses related to goodwill and intangible assets; and•other issues not discovered in due diligence, which may include product quality issues or legal or other contingenciesAcquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities,the expenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a materialadverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies have anespecially high degree of risk, with the possibility that we may lose our entire investment or incur unexpected liabilities. We may experience risks relating tothe challenges and costs of closing a business combination or investment transaction and the risk that an announced business combination or investmenttransaction may not close. There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating or executingon our business plan for existing or future acquisitions.We may be subject to significant expenses and damages because of product-related claims.In the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. Thesematters include an April 2004 claim by a customer that certain of our software products and implementation services failed to meet the customer'sexpectations. In March 2014, a judgment was issued by the trial court against us in the amount of approximately 1.9 million Euro (“€”) plus interest and aportion of legal fees. We subsequently filed an appeal of that judgment. In March 2016, the appellate court determined that we were liable for damages inthe amount of approximately €1.7 million plus interest, with the possibility of additional damages to be determined in further proceedings by the appellatecourt. As of June 30, 2017, there has been no change to the appellate court’s determination.The amount of damages cannot be predicted with certainty, and could materially adversely affect our results of operations, cash flows or financialposition.Claims that we infringe the intellectual property rights of others may be costly to defend or settle and could damage our business.We cannot be certain that our software and services do not infringe patents, copyrights, trademarks or other intellectual property rights, so infringementclaims might be asserted against us. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against infringementclaims that third parties may assert against our customers based on use of our software or services. Such claims may have a material adverse effect on ourbusiness, may be time-consuming and may result in substantial costs and diversion of resources, including our management's attention to our business.Furthermore, a party making an infringement claim could secure a judgment that requires us to pay substantial damages and could also include an injunctionor other court order that could prevent us from selling our software or require that we re-engineer some or all of our products. Claims of intellectual propertyinfringement also might require us to enter costly royalty or license agreements. We may be unable to obtain royalty or license agreements on termsacceptable to us or at all. Our business, operating results and financial condition could be harmed significantly if any of these events were to occur, and theprice of our common stock could be adversely affected.We may not be able to protect our intellectual property rights, which could make us less competitive and cause us to lose market share.Our software is proprietary. Our strategy is to rely on a combination of copyright, patent, trademark and trade secret laws in the United States and otherjurisdictions, and to rely on license and confidentiality agreements and software security measures to further protect our proprietary technology and brand.We have obtained or applied for patent protection with respect to some of our intellectual property, but generally do not rely on patents as a principal meansof protecting our intellectual property. We have registered or applied to register some of our trademarks in the United States and in selected other countries.We generally enter into non-disclosure agreements with our employees and customers, and historically have restricted third-party access to our software andsource code, which we regard as proprietary information. In certain cases, we17Table of Contentshave provided copies of source code to customers for the purpose of special product customization or have deposited copies of the source code with a third-party escrow agent as security for ongoing service and license obligations. In these cases, we rely on non-disclosure and other contractual provisions toprotect our proprietary rights.The steps we have taken to protect our proprietary rights may not be adequate to deter misappropriation of our technology or independent developmentby others of technologies that are substantially equivalent or superior to our technology. Our intellectual property rights may expire or be challenged,invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses on commercially reasonable terms. Anymisappropriation of our technology or development of competitive technologies could harm our business and could diminish or cause us to lose thecompetitive advantages associated with our proprietary technology, and could subject us to substantial costs in protecting and enforcing our intellectualproperty rights, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services. The laws of some countries in whichour products are licensed do not protect our intellectual property rights to the same extent as the laws of the United States. Moreover, in some non-U.S.countries, laws affecting intellectual property rights are uncertain in their application, which can affect the scope of enforceability of our intellectual propertyrights.Our software research and development initiatives and our customer relationships could be compromised if the security of our information technology isbreached as a result of a cyber-attack. This could have a material adverse effect on our business, operating results and financial condition, and could harmour competitive position.We devote significant resources to continually updating our software and developing new products, and our financial performance is dependent in partupon our ability to bring new products and services to market. Our customers use our software to optimize their manufacturing processes and manage assetperformance, and they rely on us to provide updates and releases as part of our software maintenance and support services, and to provide remote on-linetroubleshooting support. The security of our information technology environment is therefore important to our research and development initiatives, and animportant consideration in our customers’ purchasing decisions. If the security of our systems is impaired, our development initiatives might be disrupted,and we might be unable to provide service. Our customer relationships might deteriorate, our reputation in the industry could be harmed, and we could besubject to liability claims. This could reduce our revenues, and expose us to significant costs to detect, correct and avoid recurrences of any breach of securityand to defend any claims against us.Risks Related to Our Common StockOur common stock may experience substantial price and volume fluctuations.The equity markets have from time to time experienced extreme price and volume fluctuations, particularly in the high technology sector, and thosefluctuations often have been unrelated to the operating performance of particular companies. In addition, the market price of our common stock may beaffected by other factors, such as: (i) our financial performance; (ii) announcements of technological innovations or new products by us or our competitors;and (iii) market conditions in the computer software or hardware industries.In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been institutedagainst that company. This type of litigation against us could result in substantial liability and costs and divert management's attention and resources.Our corporate documents and provisions of Delaware law may prevent a change in control or management that stockholders may consider desirable.Section 203 of the Delaware General Corporation Law, our charter and our by-laws contain provisions that might enable our management to resist atakeover of our company. These provisions include:•limitations on the removal of directors;•a classified board of directors, so that not all members of the board are elected at one time;•advance notice requirements for stockholder proposals and nominations;•the inability of stockholders to act by written consent or to call special meetings;•the ability of the board to make, alter or repeal our by-laws; and•the ability of the board to designate the terms of and issue new series of preferred stock without stockholder approval.These provisions could:18Table of Contents•have the effect of delaying, deferring or preventing a change in control of our company or a change in our management that stockholders mayconsider favorable or beneficial;•discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions; and•limit the price that investors might be willing to pay in the future for shares of our common stock.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.Our principal executive offices are located in leased facilities in Bedford, Massachusetts, consisting of approximately 143,000 square feet of officespace to accommodate our product development, sales, marketing, operations, finance and administrative functions. The lease for our Bedford executiveoffices commenced in November 2014 and is scheduled to expire March 2025. Subject to the terms and conditions of the lease, we may extend the term of thelease for two successive terms of five years each.We also lease approximately 63,000 square feet in Houston, Texas to accommodate sales, services and product development functions. In addition toour Bedford and Houston locations, we lease office space in Shanghai, Reading (UK), Singapore, Bahrain and Tokyo, to accommodate sales, services andproduct development functions.In the remainder of our other locations, the majority of our leases have lease terms of one year or less that are generally based on the number ofworkstations required. We believe this facilities strategy provides us with significant flexibility to adjust to changes in our business environment. We do notown any real property. We believe that our leased facilities are adequate for our anticipated future needs.Item 3. Legal Proceedings.Refer to Note 16, “Commitments and Contingencies,” to our Consolidated Financial Statements for information regarding certain legal proceedings,the contents of which are herein incorporated by reference.Item 4. Mine Safety DisclosuresNone.19Table of ContentsPART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur common stock currently trades on The NASDAQ Global Select Market under the symbol "AZPN." The closing price of our common stock onJune 30, 2017 was $55.26. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reportedby The NASDAQ Global Select Market: 2017 2016PeriodLow High Low HighQuarter ended June 30$54.42 $63.05 $34.81 $40.31Quarter ended March 3152.79 59.46 30.15 37.58Quarter ended December 3146.07 55.09 37.17 44.16Quarter ended September 3039.67 47.02 36.45 45.75HoldersOn August 3, 2017, there were 385 holders of record of our common stock. The number of record holders does not include persons who held ourcommon stock in nominee or "street name" accounts through brokers.DividendsWe have never declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends on our common stock in theforeseeable future. During fiscal 2016, we entered into a $250.0 million Credit Agreement (the “Credit Agreement”) with various lenders, which restricts usfrom declaring or paying dividends in cash on our capital stock if our Leverage Ratio is in excess of 2.75 to 1.00 (refer to “Item 7. Management's Discussionand Analysis of Financial Condition and Results of Operations” and Note 11, "Credit Agreement," to our Consolidated Financial Statements for furtherdiscussion of the Credit Agreement). Our Leverage Ratio is below 2.75 to 1.00 as of June 30, 2017. Any future determination relating to our dividend policywill be made at the discretion of the Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financialcondition and future prospects and such other factors as the Board of Directors may deem relevant.Purchases of Equity Securities by the IssuerAs of June 30, 2017, the total number of shares of common stock repurchased since November 1, 2010 under all programs approved by the Board ofDirectors was 29,145,976 shares.On January 28, 2015, our Board of Directors approved a share repurchase program for up to $450 million worth of our common stock. On April 26,2016 and June 8, 2017, the Board of Directors approved a $400 million and $200 million increase in our current share repurchase plan, respectively. Underthe share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases, acceleratedbuyback programs, and others. The specific timing, price and size of purchases will depend on prevailing stock prices, general market and economicconditions, and other considerations, including the amount of cash generated in the United States and other potential uses of cash, such as acquisitions.Purchases may be made through a Rule 10b5-1 plan pursuant to predetermined metrics set forth in such plan. The Board of Directors' authorization of theshare repurchase program does not obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at anytime.On August 29, 2016, as part of our common stock repurchase program, we entered into an accelerated share repurchase program (the "ASR Program")with a third-party financial institution. Pursuant to the terms of the ASR Program, we made an upfront payment of $100.0 million in exchange for the deliveryof approximately 2.1 million shares of our common stock, which was determined based on the volume-weighted average price per share of our common stockover the term of the ASR Program, less an agreed-upon discount. These shares were recorded as an increase to treasury stock.During fiscal 2017, we repurchased 5,185,257 shares of our common stock in the open market for $275.0 million and 2,106,709 shares of our commonstock for $100.0 million as part of the ASR Program.As of June 30, 2017, the total remaining value under the share repurchase program was approximately $346.3 million.20Table of ContentsThe following table sets forth, for the month indicated, our purchases of common stock during the fourth quarter of fiscal 2017:Issuer Purchases of Equity SecuritiesPeriodTotal Numberof SharesPurchased (2) Average PricePaid per Share(3) Total Number ofShares Purchased asPart of PubliclyAnnounced Program(1) Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Program (4)April 1 to 30, 2017165,849 $58.64 165,849 May 1 to 31, 2017261,159 58.59 261,159 June 1 to 30, 2017895,824 55.79 895,824 1,322,832 $56.70 1,322,832 $346,292,703(1) On January 22, 2015, our Board of Directors approved a share repurchase program for up to $450 million worth of our common stock. On April 26,2016 and June 8, 2017, the Board of Directors approved a $400 million and $200 million increase in our current share repurchase plan, respectively. (2) As of June 30, 2017, the total number of shares of common stock repurchased under all programs approved by the Board of Directors was29,145,976, including purchases under the ASR Program.(3) The total average price paid per share is calculated as the total amount paid for the repurchase of our common stock during the period divided bythe total number of shares repurchased. (4) As of June 30, 2017, the total remaining value under the share repurchase program approved on January 22, 2015 and amended on April 26, 2016was approximately $346.3 million.Securities Authorized for Issuance Under Equity Compensation PlansThe following table provides information about the securities authorized for issuance under our equity compensation plans as of June 30, 2017:Plan CategoryNumber of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstandingoptions, warrants andrights Number of securitiesremaining available forfuture issuance underequity compensation plansEquity compensation plans approved by security holders1,969,556 $40.37 10,751,481Equity compensation plans approved by security holders consist of our 2010 and 2016 equity incentive plans. Options issuable under the equityincentive plan have a maximum term of ten years.Stockholder Return ComparisonThe information included in this section is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14Cunder the Securities Exchange Act or to the liabilities of Section 18 of the Securities Exchange Act, and will not be deemed to be incorporated by referenceinto any filing under the Securities Act or the Securities Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.The graph below matches the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the NASDAQComposite index and the NASDAQ Computer & Data Processing index. The graph assumes that the value of the investment in our common stock and in eachof the indexes (including reinvestment of dividends) was $100 on June 30, 2012 and tracks it through June 30, 2017.21Table of Contents____________________________________________*$100 invested on 6/30/12 in stock or index, including reinvestment of dividends.Fiscal year ending June 30.The stock price performance included in this graph is not necessarily indicative of future stock price performance. Year Ended June 30, 2012 2013 2014 2015 2016 2017Aspen Technology, Inc.$100.00 $124.36 $200.43 $196.76 $173.82 $238.70NASDAQ Composite$100.00 $117.69 $155.50 $177.19 $173.36 $221.11NASDAQ Computer & Data Processing$100.00 $123.37 $176.05 $197.82 $225.78 $290.57Item 6. Selected Financial Data.The following tables present selected consolidated financial data for Aspen Technology, Inc. The consolidated statements of operations data set forthbelow for fiscal 2017, 2016 and 2015 and the consolidated balance sheets data as of June 30, 2017, and 2016, are derived from our consolidated financialstatements included beginning on page F-1 of this Form 10-K. The consolidated statements of operations data for fiscal 2014 and 2013 and the consolidatedbalance sheet data as of June 30, 2015, 2014, and 2013 are derived from our consolidated financial statements that are not included in this Form 10-K. Thedata presented below should be read in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1 and "Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations."Our historical results should not be viewed as indicative of results expected for any future period.22Table of Contents Year Ended June 30, 2017 2016 2015 2014 2013 (in Thousands, except per share data)Consolidated Statements of Operations Data: Revenue(1)$482,942 $472,344 $440,401 $391,453 $311,387Gross profit435,476 423,733 390,825 338,765 261,039Income from operations212,016 211,381 179,792 129,724 55,600Net income$162,196 $139,951 $118,407 $85,783 $45,262Basic income per share$2.12 $1.69 $1.34 $0.93 $0.48Diluted income per share$2.11 $1.68 $1.33 $0.92 $0.47Weighted average shares outstanding—Basic76,491 82,892 88,398 92,648 93,586Weighted average shares outstanding—Diluted76,978 83,309 89,016 93,665 95,410____________________________________________(1)In July 2009, we introduced our aspenONE licensing model under which license revenue is recognized over the term of a license contract. Wepreviously recognized a substantial majority of our license revenue upfront, upon shipment of software. We substantially completed our transition tothe aspenONE licensing model in fiscal 2015. Year Ended June 30, 2017 2016 2015 2014 2013 (in Thousands)Consolidated Balance Sheet Data: Cash and cash equivalents$101,954 $318,336 $156,249 $199,526 $132,432Marketable securities— 3,006 62,244 98,889 92,368Working (deficit) capital(321,057) (71,300) (32,836) 63,178 69,890Accounts receivable, net27,670 20,476 30,721 38,532 36,988Installments receivable, net— 267 1,842 1,451 14,732Total assets247,942 419,738 315,361 407,972 382,748Deferred revenue300,359 282,078 288,887 274,882 231,353Borrowings(1)140,000 140,000 — — —Total stockholders' (deficit) equity(260,784) (75,034) (48,546) 83,676 101,898____________________________________________(1)In February 2016, we entered into a Credit Agreement and borrowed $140.0 million under the agreement. Refer to “Item 7. Management's Discussionand Analysis of Financial Condition and Results of Operations” and Note 11, "Credit Agreement," to our Consolidated Financial Statements for furtherdiscussion of the Credit Agreement.Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.You should read the following discussion in conjunction with our consolidated financial statements and related notes beginning on page F-1. Inaddition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read “Item 1A. RiskFactors” for a discussion of important factors that could cause our actual results to differ materially from our expectations.Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2017"refers to the year ended June 30, 2017).Business OverviewWe are a leading global supplier of asset optimization solutions that optimize asset design, operations and maintenance in complex, industrialenvironments. We combine decades of process modeling and operations expertise with big data machine-learning and analytics. Our purpose-built softwaresolutions improve the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production, reducing unplanneddowntime, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to support operational excellence.23Table of ContentsOur software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domainexpertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed ourapplications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performancemanagement. We are a recognized market and technology leader in providing process optimization and asset performance management software solutions foreach of these business areas.We have established sustainable competitive advantages based on the following strengths:•Innovative products that can enhance our customers' profitability and productivity;•Long-term customer relationships;•Large installed base of users of our software; and•Long-term license contracts.We have approximately 2,100 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industriessuch as energy, chemicals, engineering and construction, as well as pharmaceuticals, transportation, power, metals and mining, pulp and paper, and consumerpackaged goods.Business SegmentsWe have two operating and reportable segments: i) subscription and software and ii) services. The subscription and software segment is engaged in thelicensing of asset optimization software solutions and associated support services. The services segment includes professional services and training.Key Components of OperationsRevenueWe generate revenue primarily from the following sources: Subscription and Software Revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software productsprimarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known asour Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supplychain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONEsuite(s) they license. Customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units ofmeasurement, called tokens, licensed in quantities determined by the customer. This licensing system enables customers to use products as needed and toexperiment with different products to best solve whatever critical business challenges they face. Customers can increase their usage of our software bypurchasing additional tokens as business needs evolve. We provide customers technical support, access to software fixes and updates and the right to any new unspecified future software products and updatesthat may be introduced into the licensed aspenONE software suite. Our technical support services are provided from our customer support centers throughoutthe world, as well as via email and through our support website.We also license our software through point product arrangements with our Premier Plus SMS offering included for the contract term, as well as perpetuallicense arrangements.Services and Other Revenue. We provide training and professional services to our customers. Our professional services are focused on implementing ourtechnology in order to improve customers' plant performance and gain better operational data. Customers who use our professional services typically engageus to provide those services over periods of up to 24 months. We charge customers for professional services on a time-and-materials or fixed-price basis. Weprovide training services to our customers, including on-site, Internet-based and customized training.24Table of ContentsOur services and other revenue consists of revenue related to professional services and training. The amount and timing of this revenue depend on anumber of factors, including:•whether the professional services arrangement was sold as a single arrangement with, or in contemplation of, a new aspenONE licensingarrangement;•the number, value and rate per hour of service transactions booked during the current and preceding periods;•the number and availability of service resources actively engaged on billable projects;•the timing of milestone acceptance for engagements contractually requiring customer sign-off;•the timing of collection of cash payments when collectability is uncertain; and•the size of the installed base of license contracts. Cost of RevenueCost of Subscription and Software. Our cost of subscription and software revenue consists of (i) royalties, (ii) amortization of capitalized software andintangibles, (iii) distribution fees, and (iv) costs of providing Premier Plus SMS bundled with our aspenONE licensing and point product arrangements.Cost of Services and Other. Our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated withproviding customers professional services and training.Operating ExpensesSelling and Marketing Expenses. Selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license ourproducts and services to current and potential customers, as well as for overall management of customer relationships. Marketing expenses include expensesneeded to promote our company and our products and to conduct market research to help us better understand our customers and their business needs.Research and Development Expenses. Research and development expenses consist primarily of personnel expenses related to the creation of newsoftware products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technologicalfeasibility.General and Administrative Expenses. General and administrative expenses include the costs of corporate and support functions, such as executiveleadership and administration groups, finance, legal, human resources and corporate communications, and other costs, such as outside professional andconsultant fees and provision for bad debts. Other Income and ExpensesInterest Income. Interest income is recorded for the accretion of interest on the investment in marketable securities and short-term money marketinstruments.Interest Expense. During fiscal 2017 and 2016, interest expense was primarily related to our Credit Agreement. During fiscal 2015, interest expense wascomprised of miscellaneous interest charges.Other Income (Expense), Net. Other income (expense), net is comprised primarily of foreign currency exchange gains (losses) generated from thesettlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. During fiscal 2017, otherincome also included a $0.7 million litigation related recovery receipt.Provision for Income Taxes. Provision for income taxes is comprised of domestic and foreign taxes. We record interest and penalties related to incometax matters as a component of income tax expense. Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to itemsarising from discrete events, such as tax benefits from the disposition of employee equity awards, settlements of tax audits and assessments and tax lawchanges. Our effective income tax rate is also impacted by, and may fluctuate in any given period because of, the composition of income in foreignjurisdictions where tax rates differ.Key Business MetricsBackground25Table of ContentsWe utilize certain key non-GAAP and other business measures to track and assess the performance of our business and we make these measuresavailable to investors. We have refined the set of appropriate business metrics in the context of our evolving business and use the following non-GAAPbusiness metrics in addition to GAAP measures to track our business performance: •Annual spend;•Free cash flow; and•Non-GAAP operating income. None of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP. Annual Spend Annual spend is an estimate of the annualized value of our portfolio of term license arrangements, as of a specific date. Management believes that thisfinancial measure is a useful metric to investors as it provides insight into the growth component of license bookings during a fiscal period. Annual spend iscalculated by summing the most recent annual invoice value of each of our active term license contracts. Annual spend also includes the annualized value ofstandalone SMS agreements purchased in conjunction with term license agreements. Comparing annual spend for different dates can provide insight into thegrowth and retention rates of our business, and since annual spend represents the estimated annualized billings associated with our active term licenseagreements, it provides insight into the future value of subscription and software revenue. Annual spend increases as a result of: •New term license agreements with new or existing customers;•Renewals or modifications of existing term license agreements that result in higher license fees due to price escalation or an increase in thenumber of tokens (units of software usage) or products licensed; and•Escalation of annual payments in our active term license contracts. Annual spend is adversely affected by term license and standalone SMS agreements that are renewed at a lower entitlement level or not renewed and, toa lesser extent, by customer contracts that are terminated during the contract term due to the customer’s business ceasing operations.We estimate that annual spend grew by approximately 4.1% during fiscal 2017, from $441.4 million at June 30, 2016 to $459.6 million at June 30,2017. We estimate that annual spend grew by approximately 5.3% during fiscal 2016, from $419.3 million at June 30, 2015 to $441.4 million at June 30,2016. The growth was attributable primarily to an increase in the number of tokens or products sold.Free Cash FlowWe use a non-GAAP measure of free cash flow to analyze cash flows generated from our operations. Management believes that this financial measure isuseful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals.We believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growthinitiatives or to repay borrowings under the Credit Agreement, and it is a basis for comparing our performance with that of our competitors. The presentationof free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity. Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of (a) purchases of property, equipment andleasehold improvements, (b) capitalized computer software development costs, (c) excess tax benefits from stock-based compensation, (d) non-capitalizedacquired technology, and (e) other nonrecurring items, such as acquisition related payments and litigation related payments (receipts).26Table of ContentsThe following table provides a reconciliation of GAAP cash flow from operating activities to free cash flow for the indicated periods: June 30, 2017 2016 2015 (Dollars in Thousands)GAAP cash flow from operating activities$182,386 $153,744 $191,985Purchase of property, equipment, and leasehold improvements(2,720) (3,483) (7,645)Capitalized computer software development costs(405) (269) (359)Excess tax benefits from stock-based compensation5,965 2,208 37,024Non-capitalized acquired technology2,246 1,250 2,621Litigation related (receipts) payments(721) 3,040 —Acquisition related fee payments448 8,649 —Free cash flow (non-GAAP)$187,199 $165,139 $223,626Fiscal 2017 Compared to Fiscal 2016Total free cash flow increased $22.1 million during fiscal 2017 as compared to the prior fiscal year primarily due to higher net income of $22.2 million.Excess tax benefits are related to stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxespayable. We have included the impact of excess tax benefits within free cash flow to be consistent with the treatment of other tax benefits.In fiscal 2017, 2016 and 2015, we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of theacquired technology was expensed as research and development. We have excluded the payment for the acquired technology from free cash flow to beconsistent with transactions where the acquired technology assets were capitalized.Fiscal 2016 Compared to Fiscal 2015Total free cash flow decreased $58.5 million during fiscal 2016 as compared to the prior fiscal year primarily due to higher net income tax payments of$65.3 million.Non-GAAP Operating IncomeNon-GAAP operating income excludes certain non-cash and non-recurring expenses, and is used as a supplement to operating income presented on aGAAP basis. We believe that non-GAAP operating income is a useful financial measure because removing certain non-cash and other items providesadditional insight into recurring profitability and cash flow from operations.27Table of ContentsThe following table presents our net income, as adjusted for stock-based compensation expense, non-capitalized acquired technology and amortizationof purchased technology intangibles, and other items, such as acquisition related expenses, for the indicated periods: June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ %GAAP income from operations$212,016 $211,381 $179,792 $635 0.3 % $31,589 17.6 %Plus: Stock-based compensation18,800 15,727 14,584 3,073 19.5 % 1,143 7.8 %Non-capitalized acquiredtechnology2,250 250 3,277 2,000 800.0 % (3,027) -92.4 %Amortization of intangibles950 147 748 803 546.3 % (601) -80.3 %Acquisition related fees1,754 5,213 — (3,459) -66.4 % 5,213 100.0 %Non-GAAP operating income$235,770 $232,718 $198,401 $3,052 1.3 % $34,317 17.3 %Non-GAAP operating income increased $3.1 million, or approximately 1%, in fiscal year 2017 as compared to the prior year primarily due to a largerbase of license arrangements recognized on a ratable basis amounting to $13.1 million. Non-GAAP operating income increased $34.3 million, orapproximately 17%, in 2016 as compared to the prior year due to an increase in revenue primarily due to a larger base of license arrangements recognized ona ratable basis amounting to $34.8 million.In fiscal 2017, 2016 and 2015, we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of theacquired technology was expensed as research and development. We have excluded the expense of the acquired technology from non-GAAP operatingincome to be consistent with transactions where the acquired assets were capitalized.28Table of ContentsResults of OperationsThe following table sets forth the results of operations, percentage of total revenue and the year-over-year percentage change in certain financial datafor fiscal 2017, 2016 and 2015: Year Ended June 30, 2017 Comparedto 2016 % 2016 Comparedto 2015 % 2017 2016 2015 (Dollars in Thousands)Revenue: Subscription and software$453,512 93.9 % $440,408 93.2 % $405,640 92.1 % 3.0 % 8.6 %Services and other29,430 6.1 31,936 6.8 34,761 7.9 (7.8) (8.1)Total revenue482,942 100.0 472,344 100.0 440,401 100.0 2.2 7.3Cost of revenue: Subscription and software21,051 4.4 20,376 4.3 21,165 4.8 3.3 (3.7)Services and other26,415 5.5 28,235 6.0 28,411 6.5 (6.4) (0.6)Total cost of revenue47,466 9.9 48,611 10.3 49,576 11.3 (2.4) (1.9)Gross profit435,476 90.1 423,733 89.7 390,825 88.7 2.8 8.4Operating expenses: Selling and marketing92,633 19.2 91,536 19.4 92,736 21.1 1.2 (1.3)Research and development79,530 16.5 67,152 14.2 69,584 15.8 18.4 (3.5)General and administrative51,297 10.6 53,664 11.4 48,713 11.1 (4.4) 10.2Total operatingexpenses223,460 46.3 212,352 45.0 211,033 47.9 5.2 0.6Income from operations212,016 43.9 211,381 44.8 179,792 40.8 0.3 17.6Interest income808 0.2 441 0.1 487 0.1 83.2 (9.4)Interest expense(3,787) (0.8) (1,212) (0.3) (30) — 212.5 3,940.0Other income (expense), net1,309 0.3 29 — (778) (0.2) 4,413.8 (103.7)Income before provision forincome taxes210,346 43.6 210,639 44.6 179,471 40.8 (0.1) 17.4Provision for income taxes48,150 10.0 70,688 15.0 61,064 13.9 (31.9) 15.8Net income$162,196 33.6 % $139,951 29.6 % $118,407 26.9 % 15.9 % 18.2 %RevenueFiscal 2017 Compared to Fiscal 2016Total revenue increased by $10.6 million during fiscal 2017 as compared to the prior fiscal year. The increase was due to higher subscription andsoftware revenue of $13.1 million, partially offset by lower services and other revenue of $2.5 million.Fiscal 2016 Compared to Fiscal 2015Total revenue increased by $32.0 million during fiscal 2016 as compared to the prior fiscal year. The increase was due to higher subscription andsoftware revenue of $34.8 million, partially offset by lower services and other revenue of $2.8 million.Total revenue recognized during fiscal 2016 included $6.1 million related to the completion of customer arrangements recognized under completedcontract accounting. This amount was recognized as $5.1 million of subscription and software revenue and $1.0 million of services and other revenue. Wedid not have a comparable event in fiscal 2015.29Table of ContentsSubscription and Software Revenue Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Subscription and softwarerevenue$453,512 $440,408 $405,640 $13,104 3.0% $34,768 8.6%As a percent of revenue93.9% 93.2% 92.1% Fiscal 2017 Compared to Fiscal 2016The increase in subscription and software revenue of $13.1 million during fiscal 2017 as compared to the prior fiscal year was primarily the result of thegrowth of our base of license arrangements being recognized on a ratable basis.Fiscal 2016 Compared to Fiscal 2015The increase in subscription and software revenue during fiscal 2016 as compared to the prior fiscal year was primarily the result of a larger base oflicense arrangements being recognized on a ratable basis.The subscription and software revenue for fiscal 2016 included $5.1 million related to the completion of customer arrangements recognized undercompleted contract accounting, as noted above. We did not have a comparable event in fiscal 2015.Services and Other Revenue Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Services and other revenue$29,430 $31,936 $34,761 $(2,506) (7.8)% $(2,825) (8.1)%As a percent of revenue6.1% 6.8% 7.9% Services and other revenue consists primarily of revenue related to professional services and training.Fiscal 2017 Compared to Fiscal 2016The decrease in services and other revenue of $2.5 million during fiscal 2017 as compared to the prior fiscal year was attributable to lower professionalservices revenue of $1.6 million and lower training revenue of $0.8 million.Under the aspenONE licensing model, revenue from committed professional service arrangements that are sold as a single arrangement with, or incontemplation of, a new aspenONE licensing transaction is deferred and recognized on a ratable basis over the longer of (a) the period the services areperformed or (b) the term of the related software arrangement. As our typical contract term approximates five years, professional services revenue on thesetypes of arrangements will usually be recognized over a longer period than the period over which the services are performed. Revenue from professionalservice arrangements bundled with and recognized over the term of aspenONE transactions was consistent year-over-year.Fiscal 2016 Compared to Fiscal 2015The decrease in services and other revenue of $2.8 million during fiscal 2016 as compared to the prior fiscal year was attributable to lower professionalservices revenue of $1.8 million and lower training revenue of $1.0 million.Professional services revenue during fiscal 2016 included $1.0 million related to the completion of customer arrangements recognized under completedcontract accounting, as noted above. We did not have a comparable event in fiscal 2015.30Table of ContentsCost of RevenueCost of Subscription and Software Revenue Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Cost of subscription and softwarerevenue$21,051 $20,376 $21,165 $675 3.3% $(789) (3.7)%As a percent of revenue4.4% 4.3% 4.8% Cost of subscription and software revenue increased by $0.7 million during fiscal 2017 as compared with the prior fiscal year and decreased by$0.8 million during fiscal year 2016 as compared with the prior fiscal year. Subscription and software gross profit margin was 95.4% in fiscal 2017 and wasconsistent with 95.4% and 94.8% in fiscal years 2016 and 2015, respectively.Cost of Services and Other Revenue Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Cost of services and otherrevenue$26,415 $28,235 $28,411 $(1,820) (6.4)% $(176) (0.6)%As a percent of revenue5.5% 6.0% 6.5% Cost of services and other revenue includes the cost of providing professional services and training.Fiscal 2017 Compared to Fiscal 2016Cost of services and other revenue decreased by $1.8 million during fiscal 2017 as compared to the prior fiscal year. The decrease was due to lower costof training revenue of $1.7 million and lower cost of professional services revenue of $0.1 million.Gross profit margin on services and other revenue decreased from 11.6% during fiscal 2016 to 10.2% during fiscal 2017 primarily due to lower servicesand other revenue.Fiscal 2016 Compared to Fiscal 2015Cost of services and other revenue decreased by $0.2 million during fiscal 2016 as compared to the prior fiscal year. The decrease was due to lower costof professional services revenue of $0.4 million, slightly offset by higher cost of training revenue of $0.2 million.The year-over-year decrease of $0.4 million in cost of professional services revenue is attributable to lower costs of revenue of $0.9 million related tolower professional service business activity during fiscal year 2016, partially offset by higher cost of revenue of $0.5 million related to projects accounted forunder the completed contract method.Gross profit margin on services and other revenue decreased from 18.3% during fiscal 2015 to 11.6% during fiscal 2016 primarily due to lower servicesand other revenue and flat costs.Gross Profit Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Gross profit$435,476 $423,733 $390,825 $11,743 2.8% $32,908 8.4%As a percent of revenue90.1% 89.7% 88.7% Fiscal 2017 Compared to Fiscal 201631Table of ContentsGross profit increased by $11.7 million during fiscal 2017 as compared to the prior fiscal year and gross profit margin remained consistent at 90.1% infiscal 2017 compared to 89.7% in fiscal 2016. The year-to-year increase in gross profit was primarily attributable to the growth of our subscription andsoftware revenue, while gross profit margin remained consistent.Fiscal 2016 Compared to Fiscal 2015Gross profit increased by $32.9 million during fiscal 2016 as compared to the prior fiscal year and gross profit margin increased to 89.7% in fiscal 2016from 88.7% in fiscal 2015. The year-to-year increase in gross profit and gross margin was primarily attributable to the growth of our subscription and softwarerevenue, as well as decreases in costs of subscription and software revenue.Operating ExpensesSelling and Marketing Expense Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Selling and marketing expense$92,633 $91,536 $92,736 $1,097 1.2% $(1,200) (1.3)%As a percent of revenue19.2% 19.4% 21.1% Fiscal 2017 Compared to Fiscal 2016The year-over-year increase in selling and marketing expense in fiscal 2017 as compared to the prior fiscal year was primarily the result of highercommissions expense of $1.2 million, higher marketing costs of $1.0 million due to our biennial customer conference held in fiscal 2017, and higherprofessional fees of $0.9 million, partially offset by lower sales conference costs of $1.6 million due to the holding of one sales conference in the currentfiscal year compared to two sales conferences in the prior fiscal year, and lower stock-based compensation of $0.7 million.Fiscal 2016 Compared to Fiscal 2015The year-over-year decrease in selling and marketing expense in fiscal 2016 as compared to the prior fiscal year was primarily the result of lowercommissions expense of $5.6 million, partially offset by higher compensation costs of $2.0 million, higher stock-based compensation of $1.3 million andhigher overhead allocations of $1.1 million.Overhead allocations consist of information systems costs, facility costs and certain benefit costs. The overhead expenses are allocated to departmentsbased on relative headcount, geographic location and total salary.Research and Development Expense Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Research and developmentexpense$79,530 $67,152 $69,584 $12,378 18.4% $(2,432) (3.5)%As a percent of revenue16.5% 14.2% 15.8% Fiscal 2017 Compared to Fiscal 2016Research and development expenses increased by approximately $12.4 million during fiscal 2017 as compared to the prior fiscal year, which wasprimarily due to acquisitions and hiring related to our new asset performance management suite. The increase resulted primarily from higher compensationcosts of $5.2 million related to an increase in headcount, higher stock-based compensation of $2.4 million, and higher overhead allocations of $1.9 million,as well as higher costs of acquired technology of $1.9 million and higher professional fees of $1.0 million.In fiscal 2017 and 2016, we acquired technology in two separate transactions for $2.3 million and $0.3 million, respectively. At the time we acquiredthe technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibilityand therefore the cost of the acquired technology was expensed as a research and development expense.Fiscal 2016 Compared to Fiscal 201532Table of ContentsResearch and development expenses decreased by approximately $2.4 million during fiscal 2016 as compared to the prior fiscal year. The decreaseresulted primarily from lower costs of acquired technology of $3.0 million and lower stock-based compensation of $0.5 million, partially offset by highercompensation costs of $0.6 million and higher overhead allocations of $0.4 million.In fiscal 2016 and 2015, we acquired technology in two separate transactions for $0.3 million and $3.3 million, respectively. At the time we acquiredthe technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibilityand therefore the cost of the acquired technology was expensed as a research and development expense.General and Administrative Expense Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)General and administrativeexpense$51,297 $53,664 $48,713 $(2,367) (4.4)% $4,951 10.2%As a percent of revenue10.6% 11.4% 11.1% Fiscal 2017 Compared to Fiscal 2016The year-over-year decrease in general and administrative expense during fiscal 2017 as compared to the prior fiscal year was primarily attributable tolower acquisition costs of $3.4 million, lower overhead allocations of $2.2 million and lower compensation costs of $0.6 million, partially offset by higherprofessional fees of $1.9 million, which were primarily related to our assessment and implementation of ASU No. 2014-09 Revenue from Contracts withCustomers, as well as higher stock-based compensation of $1.3 million and higher hardware and software maintenance costs of $0.7 million.Fiscal 2016 Compared to Fiscal 2015The year-over-year increase in general and administrative expense during fiscal 2016 as compared to the prior fiscal year was primarily attributable tothe Acquisition Bid costs of $5.2 million, higher compensation expense of $0.9 million, higher bad debt expense of $0.8 million and a benefit in fiscal 2015of $0.9 million associated with the collection of a business tax refund. These increases were partially offset by lower legal and litigation related expenses of$2.2 million and lower consulting costs of $1.0 million.Interest Income Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Interest income$808 $441 $487 $367 83.2% $(46) (9.4)%As a percent of revenue0.2% 0.1% 0.1% Fiscal 2017 Compared to Fiscal 2016The year-over-year increase in interest income during fiscal 2017 as compared to the prior fiscal year was attributable to a higher level of interestincome from investments.Fiscal 2016 Compared to Fiscal 2015The year-over-year decrease in interest income during fiscal 2016 as compared to the prior fiscal year was attributable to a lower level of interestincome from investments.33Table of ContentsInterest Expense Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Interest expense$(3,787) $(1,212) $(30) $(2,575) 212.5% $(1,182) 3,940.0%As a percent of revenue(0.8)% (0.3)% — % Fiscal 2017 Compared to Fiscal 2016The year-over-year increase in interest expense during fiscal 2017 as compared to the prior fiscal year was primarily attributable to interest expensesrelated to the Credit Agreement we entered into during fiscal 2016.Fiscal 2016 Compared to Fiscal 2015The year-over-year increase in interest expense during fiscal 2016 as compared to the prior fiscal year was primarily attributable to interest expensesrelated to the Credit Agreement we entered into during fiscal 2016.Other Income (Expense), Net Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Other income (expense), net$1,309 $29 $(778) $1,280 4,413.8% $807 (103.7)%As a percent of revenue0.3% —% (0.2)% Other income (expense), net is comprised primarily of unrealized and realized foreign currency exchange gains and losses generated from the settlementand remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Other income (expense), net alsoincludes miscellaneous non-operating gains and losses.During fiscal 2017, other income, net was comprised of a $0.7 million litigation related recovery receipt and other net currency gains. During fiscal2016, other income, net was less than $0.1 million of net currency gains, which was comprised primarily of $3.4 million of foreign currency exchange lossesrelated to the Acquisition Bid, offset by $3.5 million of net currency gains. During fiscal 2015, other expense, net was $0.8 million, which was comprisedprimarily of net currency losses.Provision for Income Taxes Year Ended June 30, 2017 Compared to 2016 2016 Compared to 2015 2017 2016 2015 $ % $ % (Dollars in Thousands)Provision for income taxes$48,150 $70,688 $61,064 $(22,538) (31.9)% $9,624 15.8Effective tax rate22.9% 33.6% 34.0% Fiscal 2017 Compared to Fiscal 2016The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income taxrates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.Our effective tax rate was 22.9% and 33.6% during fiscal 2017 and 2016, respectively.We recognized income tax expense of $48.2 million during fiscal 2017 compared to $70.7 million during fiscal 2016. The $22.5 million year-over-yeardecrease was generally attributable to an income tax benefit of $19.1 million primarily resulting from the release of tax contingency reserves as a result ofconcluding an examination of our fiscal 2015 federal tax return by the IRS and additional federal and state research and development (“R&D”) credits.As of June 30, 2017, we maintained a valuation allowance in the U.S. primarily for certain deferred tax assets related to capital losses that areanticipated to expire unused. We also maintain a valuation allowance on certain foreign subsidiary NOL34Table of Contentscarryforwards and state R&D credits because it is more likely than not that a benefit will not be realized. As of June 30, 2017 and 2016, our total valuationallowance was $11.3 million and $10.1 million, respectively.We made cash tax payments totaling $65.5 million during fiscal 2017. We paid $60.8 million for U.S. federal and state income taxes and $4.7 millionfor foreign tax liabilities.Fiscal 2016 Compared to Fiscal 2015The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income taxrates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.Our effective tax rate was 33.6% and 34.0% during fiscal 2016 and 2015, respectively.We recognized income tax expense of $70.7 million during fiscal 2016 compared to $61.1 million during fiscal 2015. The $9.6 million year-over-yearincrease was generally attributable to additional income tax expense of $10.9 million primarily resulting from higher U.S. pre-tax profit and foreign incomeinclusion. These increases were partially offset by an increased tax benefit of $1.3 million related to a Domestic Production Activity Deduction.As of June 30, 2016, we maintained a valuation allowance in the U.S. primarily for certain deferred tax assets related to capital losses that areanticipated to expire unused. We also maintain a valuation allowance on certain foreign subsidiary NOL carryforwards because it is more likely than not thata benefit will not be realized. As of June 30, 2016 and 2015, our total valuation allowance was $10.1 million.We made cash tax payments totaling $69.4 million during fiscal 2016. We paid $65.4 million for U.S. federal and state income taxes and $4.0 millionfor foreign tax liabilities.Liquidity and Capital ResourcesResourcesIn recent years, we have financed our operations with cash generated from operating activities. As of June 30, 2017, our principal sources of liquidityconsisted of $102.0 million in cash and cash equivalents. As of June 30, 2016, our principal sources of liquidity consisted of $318.3 million in cash and cashequivalents and $3.0 million of marketable securities.We believe our existing cash and cash equivalents and marketable securities, together with our cash flows from operating activities, will be sufficient tomeet our anticipated cash needs for at least the next twelve months. We may need to raise additional funds if we decide to make one or more acquisitions ofbusinesses, technologies or products. If additional funding for such purpose is required beyond existing resources and our Credit Agreement described below,we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.Credit Agreement On February 26, 2016, we entered into a $250.0 million Credit Agreement (the “Credit Agreement”) with various lenders. On August 9, 2017, weentered into an Amendment to increase the Credit Agreement to $350.0 million. The Credit Agreement matures on February 26, 2021. Prior to the maturity ofthe Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, borrowed again whole or inpart without penalty. As of June 30, 2017 and 2016, we had $140.0 million in outstanding borrowings under the Credit Agreement.For a more detailed description of the Credit Agreement, see Note 11, Credit Agreement, of our Consolidated Financial Statements.Cash Equivalents and Cash FlowsOur cash equivalents of $79.7 million and $286.2 million as of June 30, 2017 and 2016, respectively, consisted primarily of money market funds. Ourinvestments in marketable securities of $3.0 million as of June 30, 2016 consisted primarily of investment grade fixed income corporate debt securities withmaturities ranging from less than two months. We had no investments in marketable securities as of June 30, 2017. The fair value of our portfolio is affectedby interest rate movements, credit and liquidity risks. The objective of our investment policy is to manage our cash and investments to preserve principal andmaintain liquidity, while earning a return on our investment portfolio by investing available funds. We diversify our investment portfolio by investing inmultiple types of investment-grade securities and attempt to mitigate a risk of loss by using a third-party investment manager.35Table of ContentsThe following table summarizes our cash flow activities for the periods indicated: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Cash flow provided by (used in): Operating activities$182,386 $153,744 $191,985Investing activities(36,698) 47,221 27,466Financing activities(362,017) (38,659) (261,259)Effect of exchange rates on cash balances(53) (219) (1,469)Increase (decrease) in cash and cash equivalents$(216,382) $162,087 $(43,277)Operating ActivitiesOur primary source of cash is from the annual installments associated with our software license arrangements and related software support services, andto a lesser extent from professional services and training. We believe that cash inflows from our term license business will grow as we benefit from thecontinued growth of our portfolio of term license contracts.Fiscal 2017Cash from operating activities provided $182.4 million during fiscal 2017. This amount resulted from net income of $162.2 million, adjusted for non-cash items of $20.7 million, and net uses of cash of $0.5 million due to increases in operating assets of $9.9 million and increases in operating liabilities of$9.4 million.Cash flow from operations for fiscal 2017 was reduced by expensing $2.3 million related to the purchases of non-capitalized acquired technology.Other acquisitions of technology qualified for capitalization and therefore the cash outflow is shown in the investing section of the consolidated statementsof cash flows. Refer to the ‘Key Business Metrics - Free Cash Flow” and “Non-GAAP Operating Income” for further discussion of the non-capitalized acquiredtechnology transaction.Non-cash expenses within net income consisted primarily of stock-based compensation expense of $18.8 million, depreciation and amortizationexpense of $6.4 million, and net foreign currency gains of $1.0 million.An increase in operating assets of $9.9 million and an increase in operating liabilities of $9.4 million decreased net cash from operating activities by$0.5 million. Uses of cash consisted of net decreases in accounts payable, accrued expenses and other current liabilities of $9.1 million, increases in accountsreceivable of $7.5 million and increases in prepaid expenses, prepaid income taxes and other assets totaling $2.4 million. Partially offsetting these uses ofcash were net increases in deferred revenue of $18.5 million.Fiscal 2016Cash from operating activities provided $153.7 million during fiscal 2016. This amount resulted from net income of $140.0 million, adjusted for non-cash items of $21.2 million, and net uses of cash of $7.4 million due to decreases in operating assets of $3.3 million and decreases in operating liabilities of$10.7 million.During fiscal 2015 and 2014, we utilized tax credits and net operating losses to offset U.S. corporate income taxes payable and paid net taxes of $3.7million and $7.2 million, respectively. We became a tax payer in fiscal year 2016, and paid taxes of $69.4 million.Cash flow from operations for fiscal 2016 was reduced by our expensing a $1.3 million payment related to the purchase of non-capitalized acquiredtechnology. Other past acquisitions of technology qualified for capitalization and therefore the cash outflow was shown in the investing section of theconsolidated statements of cash flows. Refer to the ‘Key Business Metrics - Free Cash Flow” and “Non-GAAP Operating Income” for further discussion of thenon-capitalized acquired technology transaction.Non-cash expenses within net income consisted primarily of stock-based compensation expense of $15.7 million, depreciation and amortizationexpense of $6.1 million, and net foreign currency gains of $3.7 million.A decrease in operating assets of $3.3 million and a decrease in operating liabilities of $10.7 million reduced net cash from operating activities by $7.4million. Uses of cash consisted of decreases in deferred revenue of $6.2 million, net decreases in accounts payable, accrued expenses and other currentliabilities of $4.5 million, and increases in prepaid expenses, prepaid36Table of Contentsincome taxes and other assets totaling $6.1 million. Partially offsetting these uses of cash were decreases in accounts receivable of $9.4 million.Investing ActivitiesFiscal 2017During fiscal 2017, we used $36.7 million of cash from investing activities. The use of cash was from $36.2 million for business acquisitions and $3.1million for capital expenditures. Partially offsetting this use of cash was $2.6 million related to the net maturity of marketable securities.Fiscal 2016During fiscal 2016, we provided $47.2 million of cash from investing activities. The source of cash was from $59.0 million related to the maturity ofmarketable securities. Partially offsetting this source of cash were a $8.0 million use of cash for business acquisitions, a $3.5 million use of cash for capitalexpenditures and a $0.3 million use of cash related to the capitalization of internally developed software costs.Financing ActivitiesFiscal 2017During fiscal 2017, we used $362.0 million of cash for financing activities. We paid $371.5 million for repurchases of our common stock and paidwithholding taxes of $5.8 million on vested and settled restricted stock units. Sources of cash in the period included proceeds of $9.3 million from theexercise of employee stock options and $6.0 million related to stock-based compensation tax deductions in excess of book compensation expense thatreduced taxes payable and increased additional paid in capital.Fiscal 2016During fiscal 2016, we used $38.7 million of cash for financing activities. We paid $178.6 million for repurchases of our common stock, paidwithholding taxes of $4.5 million on vested and settled restricted stock units and paid $1.7 million for issuance costs in connection with the CreditAgreement. Sources of cash in the period included $140.0 million in proceeds from the Credit Agreement, $2.2 million related to stock-based compensationtax deductions in excess of book compensation expense that reduced taxes payable and increased additional paid in capital and proceeds of $3.9 millionfrom the exercise of employee stock options.Contractual Obligations and RequirementsOur contractual obligations consisted primarily of borrowings and interest under our Credit Agreement, operating lease commitments for ourheadquarters and other facilities, royalty and other obligations and were as follows as of June 30, 2017: Payments due by Period Total Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 YearsContractual Cash Obligations: Credit agreement (1)$144,098 $144,098 $— $— $—Operating leases43,809 6,240 15,019 11,058 11,492Royalty obligations4,769 3,365 1,225 85 94Deferred acquisition payments8,650 8,650 — — —Other purchase obligations14,913 8,203 3,679 2,357 674Total contractual cash obligations$216,239 $170,556 $19,923 $13,500 $12,260Other Commercial Commitments: Standby letters of credit$2,943 $2,675 $— $— $268Total commercial commitments$219,182 $173,231 $19,923 $13,500 $12,528____________________________________________(1)The $144.1 million contractual obligation related to our Credit Agreement includes $140.0 million in outstanding borrowings and $4.1 million ofinterest expense and commitment fees as of June 30, 2017.37Table of ContentsExcept for the commitments under the aforementioned lease agreement, we are not currently a party to any other material purchase contracts related tofuture capital expenditures, and we do not expect our future investment in capital expenditures to be materially different from recent levels.The standby letters of credit were issued by Silicon Valley Bank in the United States and secure our performance on professional services contracts andcertain facility leases.The above table does not reflect a liability for uncertain tax positions of $3.9 million as of June 30, 2017. We estimate that none of this amount will bepaid within the next year and we are currently unable to reasonably estimate the timing of payments for the remainder of the liability.Off-Balance Sheet ArrangementsAs of June 30, 2017, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.Critical Accounting Estimates and JudgmentsOur consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires management to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historicalexperience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates underdifferent assumptions or conditions.We believe that the assumptions and estimates associated with the following critical accounting policies have the greatest potential impact on ourconsolidated financial statements:•revenue recognition;•accounting for income taxes; and•loss contingencies.For further information on our significant accounting policies, refer to Note 2, "Significant Accounting Policies," to our Consolidated FinancialStatements.Revenue RecognitionFour basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an enduser; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professionalservices we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required bythe customer, we consider both taken together as evidence of the arrangement.Delivery of our product—Software and the corresponding access keys are generally delivered to customers via disk media with standard shipping termsof Free Carrier, our warehouse (i.e., FCA, named place) or electronic delivery. Our software license agreements do not contain conditions for acceptance.Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved inmaking this assessment.Under our historical upfront revenue model, we are able to demonstrate that the fees are fixed or determinable for all arrangements, including those forour term licenses that contain extended payment terms. We have an established history of collecting under the terms of these contracts without providingconcessions to customers. In addition, we also assess whether a contract modification to an existing term arrangement constitutes a concession. In making thisassessment, significant analysis is performed to ensure that no concessions are given. Our software license agreements do not include a right of return orexchange. For license arrangements executed under the historical upfront revenue model, we recognize license revenue upon delivery of the softwareproduct, provided all other revenue recognition requirements are met.We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinablebecause the rights provided to customers, and the economics of the arrangements, are not38Table of Contentscomparable to our transactions with other customers under the upfront revenue model. As a result, the amount of revenue recognized for these arrangements islimited by the amount of customer payments that become due.Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number offactors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, andgeneral economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditionsfor revenue recognition have been met.Vendor-Specific Objective Evidence of Fair ValueWe have established VSOE for professional services and certain training offerings, but not for our software products or our SMS offerings. We assessVSOE for SMS, professional services, and training based on an analysis of standalone sales of these offerings using the bell-shaped curve approach. We donot have a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for thisdeliverable. As of July 1, 2015, we were no longer able to establish VSOE for SMS offerings sold with our legacy term license arrangements. As a result,legacy term agreements that include legacy SMS entered into subsequent to June 30, 2015, are recognized ratably over the legacy SMS service period. Lossof VSOE on legacy SMS offerings sold with our legacy term arrangements did not have a material impact on our revenue in fiscal 2016 and 2017 and is notexpected to have a material impact on our revenue in future periods.Subscription and Software RevenueSubscription and software revenue consists of product and related revenue from our (i) aspenONE licensing model; (ii) point product arrangements withour Premier Plus SMS offering included for the contract term; (iii) legacy arrangements including (a) amendments to existing legacy term arrangements,(b) renewals of legacy term arrangements and (c) legacy arrangements that are being recognized over time as a result of not previously meeting one or more ofthe requirements for recognition under the upfront revenue model; (iv) legacy SMS arrangements; and (v) perpetual arrangements.When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term ofthe arrangement and the customer receives, for the term of the arrangement, the right to any new unspecified future software products and updates that may beintroduced into the licensed aspenONE software suite. Due to our obligation to provide unspecified future software products and updates, we are required torecognize revenue ratably over the term of the arrangement, once the other revenue recognition criteria noted above have been met.Our point product arrangements with Premier Plus SMS include SMS for the term of the arrangement. Since we do not have VSOE for our Premier PlusSMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements withPremier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once all other revenue recognition criteria have beenmet.Legacy term license arrangements do not include the same rights as those provided to customers under the aspenONE licensing model and pointproduct arrangements with Premier Plus SMS. Legacy SMS revenue is generated from legacy SMS offerings provided in support of legacy term licensearrangements. Customers typically receive SMS for one year and then can elect to renew SMS annually. During fiscal 2015 and prior periods, we had VSOEfor certain legacy SMS offerings sold with term license arrangements and could therefore separate the undelivered elements. Accordingly, license fee revenuefor legacy term license arrangements was recognized upon delivery of the software products using the residual method, provided all other revenuerecognition requirements were met. VSOE of fair value for the undelivered SMS component sold with our term license arrangements was deferred andsubsequently amortized into revenue ratably over the contractual term of the SMS arrangement. As of July 1, 2015, we were no longer able to establish VSOEfor SMS offerings sold with our legacy term license arrangements. As a result, legacy term agreements that include legacy SMS entered into subsequent toJune 30, 2015, are recognized ratably over the legacy SMS service period. Loss of VSOE on legacy SMS offerings sold with our legacy term arrangements didnot have a material impact on our revenue in fiscal 2016 and 2017 and is not expected to have a material impact on our revenue in future periods.Services and Other RevenueProfessional Services RevenueProfessional services are provided to customers on a time-and-materials (T&M) or fixed-price basis. We recognize professional services fees for ourT&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using theproportional performance method based on the ratio of costs incurred to the total estimated project costs. Project costs are typically expensed as incurred. Theuse of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical39Table of Contentsexperience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services areperformed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue is recognized upon completion of the services. Incircumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point productarrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed, or (ii)the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenue fromthe sale of the software and related services using the completed contract or percentage-of-completion method.We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts.Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated.Training RevenueWe provide training services to our customers, including on-site, Internet-based, public and customized training. Revenue is recognized in the periodin which the services are performed. In circumstances in which training services are sold as a single arrangement with, or in contemplation of, a newaspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the periodthe services are performed or (ii) the license term.Accounting for Income TaxesWe utilize the asset and liability method of accounting for income taxes in accordance with ASC 740. Under this method, deferred tax assets andliabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets andliabilities are measured using the enacted tax rates and statutes that will be in effect when the differences are expected to reverse. Deferred tax assets can resultfrom unused operating losses, R&D and foreign tax credit carryforwards and deductions recorded for financial statement purposes prior to them beingdeductible on a tax return.The realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of taxable temporary differences.Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of thedeferred tax assets will not be realized. Significant management judgment is required in determining any valuation allowance recorded against deferred taxassets. We consider, among other available information, projected future taxable income, limitations on the availability of net operating loss ("NOLs") andtax credit carryforwards, scheduled reversals of deferred tax liabilities and other evidence assessing the potential realization of deferred tax assets.Adjustments to the valuation allowance are included in the provision for (benefit from) income taxes in our consolidated statements of operations in theperiod they become known.Our provision for (benefit from) income taxes includes amounts determined under the provisions of ASC 740, and is intended to satisfy additionalincome tax assessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position onan audit does not meet a threshold of "more likely than not." Penalties and interest are recorded as a component of our provision for (benefit from) incometaxes. Tax liabilities under the provisions of ASC 740 were recorded as a component of our income taxes payable and other non-current liabilities. Theultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.Our U.S. and foreign tax returns are subject to periodic compliance examinations by various local and national tax authorities through periods definedby the tax code in applicable jurisdictions. The years prior to 2016 are closed in the United States, although the utilization of tax credits generated in earlierperiods will keep these periods open for examination to the extent of the credits claimed in fiscal 2016. Similarly, the years prior to 2015 are closed in theUnited Kingdom, although the utilization of net operating loss carryforwards generated in earlier periods will keep the periods open for examination. OurCanadian subsidiaries are subject to audit from 2012 forward, and certain other of our international subsidiaries are subject to audit from 2007 forward. Inconnection with examinations of tax filings, tax contingencies can arise from differing interpretations of applicable tax laws and regulations relative to theamount, timing or proper inclusion or exclusion of revenue and expenses in taxable income or loss. For periods that remain subject to audit, we have assertedand unasserted potential assessments that are subject to final tax settlements.Loss Contingencies40Table of ContentsThe outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. We accrue estimated liabilities for losscontingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim,assessment or damages can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has beenincurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and theability to make a reasonable estimate of the loss amount. Change in these factors could materially impact our consolidated financial statements.Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and damages arising from claims againstsuch customers based on, among other things, allegations that our software products infringe the intellectual property rights of a third party. In most cases, inthe event of an infringement claim, we retain the right to procure for the customer the right to continue using the software product or to replace or modify thesoftware product to eliminate the infringement while providing substantially equivalent functionality. These indemnification provisions are accounted for inaccordance with ASC Topic 460, Guarantees. In most cases, and where legally enforceable, the indemnification refund is limited to the amount of the licensefees paid by the customer.Recent Accounting PronouncementsRefer to Note 2 (o) "Recent Accounting Pronouncements," to our Consolidated Financial Statements for information about recent accountingpronouncements.Item 7A. Quantitative and Qualitative Disclosures about Market Risk.In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These marketrisks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage ourexposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financialinstruments such as forward currency exchange contracts.Foreign Currency RiskDuring fiscal 2017 and 2016, 9.8% and 11.5% of our total revenue was denominated in a currency other than the U.S. dollar. In addition, certain of ouroperating costs incurred outside the United States are denominated in currencies other than the U.S. dollar. We conduct business on a worldwide basis and asa result, a portion of our revenue, earnings, net assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange rates. Wemeasure our net exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign exchange risk. Wemay enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate movements, although we have not done soduring fiscal 2017 and fiscal 2016. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar,and Japanese Yen.During fiscal 2017 and fiscal 2016, we recorded net foreign currency gains of less than $0.6 million and losses of less than $0.1 million, respectively,related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysisof operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could haveincreased or decreased the consolidated results of operations by approximately $3.2 million and $5.0 million for fiscal 2017 and 2016, respectively.Interest Rate RiskWe place our investments in money market instruments and high quality, investment grade, fixed-income corporate debt securities that meet highcredit quality standards, as specified in our investment guidelines.We mitigate the risks by diversifying our investment portfolio, limiting the amount of investments in debt securities of any single issuer and using athird-party investment manager. Our debt securities are short-to intermediate-term investments with maturities ranging from less than 2 months as of June 30,2016. We had no investments in debt securities as of June 30, 2017. We do not use derivative financial instruments in our investment portfolio.Our analysis of our investment portfolio and interest rates at June 30, 2017 and 2016 indicated that a hypothetical 100 basis point increase or decreasein interest rates would not have a material impact on the fair value of our investment portfolio determined in accordance with an income-based approachutilizing portfolio future cash flows discounted at the appropriate rates.41Table of ContentsWe had $140.0 million in outstanding borrowings under our Credit Agreement as of June 30, 2017. A hypothetical 10% increase or decrease in interestrates paid on outstanding borrowings under the Credit Agreement would not have a material impact on our financial position, results of operations or cashflows.Item 8. Financial Statements and Supplementary Data.The following consolidated financial statements specified by this Item, together with the reports thereon of KPMG LLP, are presented followingItem 15 of this Form 10-K:Financial Statements:Report of Independent Registered Public Accounting FirmConsolidated Statements of Operations for the years ended June 30, 2017, 2016 and 2015Consolidated Statements of Comprehensive Income for the years ended June 30, 2017, 2016 and 2015Consolidated Balance Sheets as of June 30, 2017 and 2016Consolidated Statements of Stockholders' (Deficit) Equity for the years ended June 30, 2017, 2016 and 2015Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016 and 2015Notes to Consolidated Financial StatementsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Proceduresa) Disclosure Controls and ProceduresOur management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controlsand procedures as of June 30, 2017. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information requiredto be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company'smanagement, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achievingtheir objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based onthe evaluation of our disclosure controls and procedures as of June 30, 2017, our chief executive officer and chief financial officer concluded that, as of suchdate, our disclosure controls and procedures were effective.b) Management's Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal controlover financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervisionof, a company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith 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 the assets of thecompany;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorizations ofmanagement and directors of the company; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets thatcould have a material effect on the financial statements.42Table of ContentsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financialreporting as of June 30, 2017 based on criteria established in "Internal Control—Integrated Frameworks (2013) issued by the Committee of SponsorsOrganizations of the Treadway Commission ("COSO"), and concluded that, as of June 30, 2017, our internal control over financial reporting was effective.KPMG LLP, our independent registered public accounting firm, has audited our consolidated financial statements and the effectiveness of our internalcontrol over financial reporting as of June 30, 2017. This report appears below.c) Changes in Internal Control over Financial ReportingDuring the three months ended June 30, 2017, no changes were identified to our internal controls over financial reporting that materially affected, orwere reasonably likely to materially affect, our internal controls over financial reporting.43Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersAspen Technology, Inc.:We have audited Aspen Technology, Inc.'s internal control over financial reporting as of June 30, 2017, based on criteria established in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company'smanagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal controlover financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to expressan opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2017, based oncriteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Aspen Technology, Inc. and subsidiaries as of June 30, 2017 and 2016, and the related consolidated statements of operations, comprehensiveincome, stockholders' (deficit) equity, and cash flows for each of the years in the three-year period ended June 30, 2017, and our report dated August 10, 2017expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPBoston, MassachusettsAugust 10, 2017Item 9B. Other Information.None.44Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.Certain information required under this Item 10 will appear under the sections entitled “Executive Officers of the Registrant,” “Election of Directors,”“Information Regarding our Board of Directors and Corporate Governance,” “Code of Business Conduct and Ethics,” and “Section 16(a) BeneficialOwnership Reporting Compliance” in our definitive proxy statement for our 2017 annual meeting of stockholders, and is incorporated herein by reference.Item 11. Executive Compensation.Certain information required under this Item 11 will appear under the sections entitled “Director Compensation,” “Compensation Discussion andAnalysis,” “Executive Compensation” and “Employment and Change in Control Agreements” in our definitive proxy statement for our 2017 annual meetingof stockholders, and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Certain information required under this Item 12 will appear under the sections entitled “Stock Owned by Directors, Executive Officers and Greater-than5% Stockholders” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive proxy statement for our 2017 annual meetingof stockholders, and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.Certain information required under this Item 13 will appear under the sections entitled “Information Regarding the Board of Directors and CorporateGovernance” and “Related Party Transactions” in our definitive proxy statement for our 2017 annual meeting of stockholders, and is incorporated herein byreference.Item 14. Principal Accounting Fees and Services.Certain information required under this Item 14 will appear under the section entitled “Independent Registered Public Accountants” in our definitiveproxy statement for our 2017 annual meeting of stockholders, and is incorporated herein by reference.45Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules.(a)(1) Financial StatementsDescriptionPageReport of Independent Registered Public Accounting FirmF-2Consolidated Statements of Operations for the years ended June 30, 2017, 2016 and 2015F-3Consolidated Statements of Comprehensive Income for the years ended June 30, 2017, 2016 and 2015F-4Consolidated Balance Sheets as of June 30, 2017 and 2016F-5Consolidated Statements of Stockholders' (Deficit) Equity for the years ended June 30, 2017, 2016 and 2015F-6Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016 and 2015F-7Notes to Consolidated Financial StatementsF-9The consolidated financial statements appear immediately following page 48 ("Signatures").(a)(2) Financial Statement SchedulesAll schedules are omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto.(a)(3) ExhibitsThe exhibits listed in the accompanying exhibit index are filed or incorporated by reference as part of this Form 10-K.46Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. ASPEN TECHNOLOGY, INC.Date: August 10, 2017By:/s/ ANTONIO J. PIETRI Antonio J. PietriPresident and Chief Executive Officer Date: August 10, 2017By:/s/ KARL E. JOHNSEN Karl E. JohnsenSenior Vice President andChief Financial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.Signature Title Date /s/ ANTONIO J. PIETRI President and Chief Executive Officer and Director(Principal Executive Officer) August 10, 2017Antonio J. Pietri /s/ KARL E. JOHNSEN Senior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) August 10, 2017Karl E. Johnsen /s/ ROBERT M. WHELAN, JR. Chairman of the Board of Directors August 10, 2017Robert M. Whelan, Jr. /s/ DONALD P. CASEY Director August 10, 2017Donald P. Casey /s/ GARY E. HAROIAN Director August 10, 2017Gary E. Haroian /s/ JOAN C. MCARDLE Director August 10, 2017Joan C. McArdle /s/ SIMON OREBI GANN Director August 10, 2017Simon Orebi Gann /s/ R. HALSEY WISE Director August 10, 2017R. Halsey Wise 47Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting FirmF-2Consolidated Statements of Operations for the years ended June 30, 2017, 2016 and 2015F-3Consolidated Statements of Comprehensive Income for the years ended June 30, 2017, 2016 and 2015F-4Consolidated Balance Sheets as of June 30, 2017 and 2016F-5Consolidated Statements of Stockholders' (Deficit) Equity for the years ended June 30, 2017, 2016 and 2015F-6Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016 and 2015F-7Notes to Consolidated Financial StatementsF-9F-1Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersAspen Technology, Inc.:We have audited the accompanying consolidated balance sheets of Aspen Technology, Inc. and subsidiaries as of June 30, 2017 and 2016, and therelated consolidated statements of operations, comprehensive income, stockholders' (deficit) equity, and cash flows for each of the years in the three-yearperiod ended June 30, 2017. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company asof June 30, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2017, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aspen Technology, Inc.'sinternal control over financial reporting as of June 30, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 10, 2017 expressed an unqualified opinion onthe effectiveness of the Company's internal control over financial reporting./s/ KPMG LLPBoston, MassachusettsAugust 10, 2017F-2Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30, 2017 2016 2015 (Dollars in Thousands, Except per Share Data)Revenue: Subscription and software$453,512 $440,408 $405,640Services and other29,430 31,936 34,761Total revenue482,942 472,344 440,401Cost of revenue: Subscription and software21,051 20,376 21,165Services and other26,415 28,235 28,411Total cost of revenue47,466 48,611 49,576Gross profit435,476 423,733 390,825Operating expenses: Selling and marketing92,633 91,536 92,736Research and development79,530 67,152 69,584General and administrative51,297 53,664 48,713Total operating expenses223,460 212,352 211,033Income from operations212,016 211,381 179,792Interest income808 441 487Interest (expense)(3,787) (1,212) (30)Other income (expense), net1,309 29 (778)Income before provision for income taxes210,346 210,639 179,471Provision for income taxes48,150 70,688 61,064Net income$162,196 $139,951 $118,407Net income per common share: Basic$2.12 $1.69 $1.34Diluted$2.11 $1.68 $1.33Weighted average shares outstanding: Basic76,491 82,892 88,398Diluted76,978 83,309 89,016See accompanying notes to these consolidated financial statements.F-3Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Net income$162,196 $139,951 $118,407Other comprehensive loss: Net unrealized gains (losses) on available for sale securities, net of tax effects of $12 and$15 for fiscal years 2016 and 2015— 22 (29)Foreign currency translation adjustments(1,192) (3,841) (2,873)Total other comprehensive loss(1,192) (3,819) (2,902)Comprehensive income$161,004 $136,132 $115,505See accompanying notes to these consolidated financial statements.F-4Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS June 30, 2017 2016 (Dollars in Thousands, Except Share and PerShare Data)ASSETS Current assets: Cash and cash equivalents$101,954 $318,336Short-term marketable securities— 3,006Accounts receivable, net27,670 20,476Prepaid expenses and other current assets12,061 13,948Prepaid income taxes4,501 5,557Total current assets146,186 361,323Property, equipment and leasehold improvements, net13,400 15,825Computer software development costs, net667 720Goodwill51,248 23,438Intangible assets, net20,789 5,000Non-current deferred tax assets14,352 12,236Other non-current assets1,300 1,196Total assets$247,942 $419,738LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable$5,467 $3,559Accrued expenses and other current liabilities48,149 36,105Income taxes payable1,603 439Borrowings under credit agreement140,000 140,000Current deferred revenue272,024 252,520Total current liabilities467,243 432,623Non-current deferred revenue28,335 29,558Other non-current liabilities13,148 32,591Commitments and contingencies (Note 16) Series D redeemable convertible preferred stock, $0.10 par value—Authorized—3,636 shares as of June 30, 2017and 2016 Issued and outstanding—none as of June 30, 2017 and 2016— —Stockholders' deficit: Common stock, $0.10 par value—Authorized—210,000,000 shares Issued—102,567,129 shares at June 30, 2017 and 102,031,960 shares at June 30, 2016 Outstanding—73,421,153 shares at June 30, 2017 and 80,177,950 shares at June 30, 201610,257 10,203Additional paid-in capital687,479 659,287Retained earnings (deficit)156,520 (5,676)Accumulated other comprehensive income1,459 2,651Treasury stock, at cost—29,145,976 shares of common stock at June 30, 2017 and 21,854,010 shares at June 30,2016(1,116,499) (741,499)Total stockholders' deficit(260,784) (75,034)Total liabilities and stockholders' deficit$247,942 $419,738See accompanying notes to these consolidated financial statements.F-5Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY Common Stock AdditionalPaid-inCapital RetainedEarnings(Deficit) Accumulated OtherComprehensiveIncome Treasury Stock TotalStockholders'(Deficit) Equity Number ofShares $0.10 ParValue Number ofShares Cost (Dollars in Thousands, Except Share Data)Balance June 30, 2014101,033,740 $10,103 $591,324 $(264,034) $9,372 9,371,890 $(263,089) $83,676Comprehensive income (loss): Net income— — — 118,407 — — — 118,407Other comprehensive loss— — — — (2,902) (2,902)Exercise of stock options308,847 31 4,635 — — — 4,666Withholding taxes related torestricted stock units net sharesettlement264,933 27 (5,684) — — — — (5,657)Repurchase of common stock— — — — — 7,731,428 (298,344) (298,344)Stock-based compensation— — 14,584 — — — — 14,584Excess tax benefits from stock-based compensation— — 37,024 37,024Balance June 30, 2015101,607,520 $10,161 $641,883 $(145,627) $6,470 17,103,318 $(561,433) $(48,546)Comprehensive income (loss): Net income— — — 139,951 — — — 139,951Other comprehensive loss— — — — (3,819) (3,819)Exercise of stock options201,706 20 3,900 — — — 3,920Withholding taxes related torestricted stock units net sharesettlement222,734 22 (4,431) — — — — (4,409)Repurchase of common stock— — — — — 4,750,692 (180,066) (180,066)Stock-based compensation— — 15,727 — — — — 15,727Excess tax benefits from stock-based compensation— — 2,208 2,208Balance June 30, 2016102,031,960 $10,203 $659,287 $(5,676) $2,651 21,854,010 $(741,499) $(75,034)Comprehensive income (loss): Net income— — — 162,196 — — — 162,196Other comprehensive loss— — — — (1,192) (1,192)Exercise of stock options332,937 34 9,239 — — — 9,273Withholding taxes related torestricted stock units net sharesettlement202,232 20 (5,812) — — — — (5,792)Repurchase of common stock— — — — — 7,291,966 (375,000) (375,000)Stock-based compensation— — 18,800 — — — — 18,800Excess tax benefits from stock-based compensation— — 5,965 5,965Balance June 30, 2017102,567,129 $10,257 $687,479 $156,520 $1,459 29,145,976 $(1,116,499) $(260,784)See accompanying notes to these consolidated financial statements.F-6Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Operating activities: Net income$162,196 $139,951 $118,407Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization6,405 6,061 6,216Net foreign currency gains(1,036) (3,666) (1,552)Stock-based compensation expense18,800 15,727 14,584Deferred income taxes(4,286) 2,499 20,112Provision for (recovery from) bad debts199 260 (513)Tax benefits from stock-based compensation5,965 2,208 37,024Excess tax benefits from stock-based compensation(5,965) (2,208) (37,024)Other non-cash operating activities602 321 1,619Changes in assets and liabilities, excluding initial effects of acquisitions: Accounts receivable(7,480) 9,382 8,028Prepaid expenses, prepaid income taxes, and other assets(2,421) (6,106) 4,232Accounts payable, accrued expenses, income taxes payable and other liabilities(9,070) (4,489) 5,933Deferred revenue18,477 (6,196) 14,919Net cash provided by operating activities182,386 153,744 191,985Investing activities: Purchases of marketable securities(683,748) — (50,065)Maturities of marketable securities686,346 58,973 85,535Purchase of property, equipment and leasehold improvements(2,720) (3,483) (7,645)Payments for business acquisitions, net of cash acquired(36,171) (8,000) —Payments for capitalized computer software costs(405) (269) (359)Net cash (used in) provided by investing activities(36,698) 47,221 27,466Financing activities: Exercise of stock options9,273 3,924 4,662Repurchases of common stock(371,491) (178,604) (297,246)Payment of tax withholding obligations related to restricted stock(5,764) (4,480) (5,699)Excess tax benefits from stock-based compensation5,965 2,208 37,024Proceeds from credit agreement— 140,000 —Payments of credit agreement issuance costs— (1,707) —Net cash used in financing activities(362,017) (38,659) (261,259)Effect of exchange rate changes on cash and cash equivalents(53) (219) (1,469)(Decrease) increase in cash and cash equivalents(216,382) 162,087 (43,277)Cash and cash equivalents, beginning of year318,336 156,249 199,526Cash and cash equivalents, end of year$101,954 $318,336 $156,249F-7Table of ContentsSupplemental disclosure of cash flow information: Income tax paid, net$65,536 $69,028 $3,712Interest paid3,444 963 30Supplemental disclosure of non-cash investing and financing activities: Change in landlord improvement allowance included in leasehold improvements and deferredrent liability$— $— $6,064Change in purchases of property, equipment and leasehold improvements included in accountspayable and accrued expenses(47) (825) 675Change in common stock repurchases included in accounts payable and accrued expenses3,509 1,462 1,098See accompanying notes to these consolidated financial statements.F-8ASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) OperationsAspen Technology, Inc., together with its subsidiaries, is a leading global supplier of asset optimization solutions that optimize asset design, operationsand maintenance lifecycle in complex, industrial environments. Our aspenONE software and related services have been developed specifically for companiesin the process and other capital-intensive industries such as energy, chemicals, engineering and construction, as well as pharmaceuticals, transportation,power, metals and mining, pulp and paper, and consumer packaged goods. Customers use our solutions to improve their competitiveness and profitability byincreasing throughput, energy efficiency, and production, reducing unplanned downtime, enhancing capital efficiency, and decreasing working capitalrequirements over the entire asset lifecycle to support operational excellence. We operate globally in 31 countries as of June 30, 2017.(2) Significant Accounting Policies(a) Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. Allintercompany balances and transactions have been eliminated in consolidation.ReclassificationsCertain line items in prior period financial statements have been reclassified to conform to currently reported presentations.(b) Management EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actualresults could differ from those estimates.(c) Cash and Cash EquivalentsCash and cash equivalents consist of short-term, highly liquid investments with remaining maturities of three months or less when purchased.(d) Revenue RecognitionWe generate revenue from the following sources: (1) Subscription and software revenue; and (2) Services and other revenue. We sell our softwareproducts to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as ouraspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONEproducts are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensingmodel provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to these arrangements as token arrangements.Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased by the customer.We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term, as well asperpetual license arrangements.Four basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an enduser; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professionalservices we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required bythe customer, we consider both taken together as evidence of the arrangement.F-9Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDelivery of our product—Software and the corresponding access keys are generally delivered to customers via electronic delivery or via physicalmedium with standard shipping terms of Free Carrier, our warehouse (i.e., FCA, AspenTech). Our software license agreements do not contain conditions foracceptance.Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved inmaking this assessment.As a standard business practice, we offer fixed-term license arrangements, which are generally payable on an annual basis.We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinablebecause of the rights provided to customers, economics of the arrangements, and because we do not have an established history of our arrangements going toterm end date without providing concessions to customers. As a result, the amount of revenue recognized for these arrangements is limited by the amount ofcustomer payments that become due.Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number offactors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, andgeneral economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditionsfor revenue recognition have been met.Vendor-Specific Objective Evidence of Fair Value (VSOE) We have established VSOE for professional services and certain training offerings, but not for our software products or our SMS offerings. We assessVSOE for SMS, professional services, and training, based on an analysis of standalone sales of the offerings using the bell-shaped curve approach. We do nothave a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for this deliverable. Subscription and Software Revenue Subscription and software revenue consists primarily of product and related revenue from our (i) aspenONE licensing model; (ii) pointproduct arrangements with our Premier Plus SMS offering included for the contract term; and (iii) perpetual arrangements. When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of thearrangement and the customer receives, for the term of the arrangement, the right to any new unspecified future software products and updates that may beintroduced into the licensed aspenONE software suite. Due to our obligation to provide unspecified future software products and updates and because we donot have VSOE for our Premier Plus SMS offering, we are required to recognize revenue ratably over the term of the arrangement, once the other revenuerecognition criteria noted above have been met. Our point product arrangements with Premier Plus SMS include SMS for the term of the arrangement. Since we do not have VSOE for our Premier PlusSMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements withPremier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once the other revenue recognition criteria have beenmet. F-10Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSServices and Other Revenue Professional Services Revenue Professional services are provided to customers on a time-and-materials (T&M) or fixed-price basis. We recognize professional services fees for our T&Mcontracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportionalperformance method based on the ratio of costs incurred to the total estimated project costs. Project costs are typically expensed as incurred. The use of theproportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basisfor future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenseswhich are reimbursed by customers are recorded as revenue. In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services areperformed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue and related costs are recognized upon completion ofthe services. In circumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or pointproduct arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed,or (ii) the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenuefrom the sale of the software and related services using the completed contract or percentage-of-completion method. We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts.Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated. Training Revenue We provide training services to our customers, including on-site, Internet-based, public and customized training. Revenue is recognized in the period inwhich the services are performed. In circumstances in which training services are sold as a single arrangement with, or in contemplation of, a new aspenONElicense or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period theservices are performed or (ii) the license term. Deferred Revenue Deferred revenue includes amounts billed or collected in advance of revenue recognition, including arrangements under the aspenONE licensing model,point product arrangements with Premier Plus SMS, professional services, and training. Deferred revenue is recorded as each invoice becomes due. Other Licensing Matters Our standard licensing agreements include a product warranty provision. We have not experienced significant claims related to software warrantiesbeyond the scope of SMS support, which we are already obligated to provide, and consequently, we have not established reserves for warranty obligations. Our agreements with our customers generally require us to indemnify the customer against claims that our software infringes third-party patent,copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, includingour right to replace an infringing product. As of June 30, 2017 and 2016, we had not experienced any material losses related to these indemnificationobligations and no claims with respect thereto were outstanding. We do not expect significant claims related to these indemnification obligations, andconsequently, have not established any related reserves.(e) Computer Software Development CostsF-11Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCertain computer software development costs are capitalized in the accompanying consolidated balance sheets. Capitalization of computer softwaredevelopment costs begins upon establishing technological feasibility defined as meeting specifications determined by the program design. Amortization ofcapitalized computer software development costs is provided on a product-by-product basis using the greater of (a) the amount computed using the ratio thatcurrent gross revenue for a product bears to total of current and anticipated future gross revenue for that product or (b) the straight-line method, beginningupon commercial release of the product, and continuing over the remaining estimated economic life of the product, not to exceed three years.Total computer software costs capitalized were $0.4 million, $0.3 million and $0.4 million during the years ended June 30, 2017, 2016 and 2015,respectively. Total amortization expense charged to operations was approximately $0.5 million, $0.6 million and $0.7 million for the years ended June 30,2017, 2016 and 2015, respectively. Computer software development accumulated amortization totaled $74.3 million and $73.8 million as of June 30, 2017and 2016, respectively. Weighted average remaining useful life of computer software development costs was 0.6 years and 0.7 years at June 30, 2017 and2016, respectively.At each balance sheet date, we evaluate the unamortized capitalized software costs for potential impairment by comparing the balance to the netrealizable value of the products. During the years ending June 30, 2017, 2016 and 2015, our computer software development costs were not consideredimpaired and as such, we did not recognize impairment losses during the periods then ended.(f) Foreign Currency TranslationThe determination of the functional currency of subsidiaries is based on the subsidiaries' financial and operational environment and is the localcurrency of the subsidiary. Gains and losses from foreign currency translation related to entities whose functional currency is their local currency are creditedor charged to accumulated other comprehensive income included in stockholders' deficit in the consolidated balance sheets. In all instances, foreign currencytransaction and remeasurement gains or losses are credited or charged to the consolidated statements of operations as incurred as a component of otherincome (expense), net. Net foreign currency transaction and remeasurement gains were less than $0.6 million in fiscal 2017 and losses were less than $0.1million and $0.8 million in fiscal 2016 and 2015, respectively.(g) Concentration of Credit RiskFinancial instruments that potentially subject us to concentrations of credit risk are principally cash and cash equivalents, marketable securities,accounts receivable and installments receivable. Our cash is held in financial institutions and our cash equivalents are invested in money market mutualfunds that we believe to be of high credit quality. We diversify our investment portfolio by investing in multiple types of investment-grade securities andattempt to mitigate a risk of loss by using a third-party investment manager.Concentration of credit risk with respect to receivables is limited to certain customers to which we make substantial sales. To reduce risk, we assess thefinancial strength of our customers. We do not require collateral or other security in support of our receivables. As of June 30, 2017, we had one customerreceivable balances that represented approximately 18% of our total receivables. As of June 30, 2016, we had two customer receivable balances thatrepresented approximately 10% and 15% of our total receivables, and were collected subsequent to June 30, 2016.(h) Computer Software Developed for Internal Use and Long-Lived AssetsComputer Software Developed for Internal Use:Computer software developed for internal use is capitalized in accordance with ASC Topic 350-40, Intangibles Goodwill and Other—Internal UseSoftware. We capitalize direct labor costs incurred to develop internal-use software during the application development stage after determining softwaretechnological requirements and obtaining management approval for funding projects probable of completion.In fiscal 2017 and 2016 there were no capitalized direct labor costs associated with our development of software for internal use. In fiscal 2015, wecapitalized direct labor costs of $0.3 million associated with our development of software for internal use. These costs are included within property, plant andequipment in our consolidated balance sheets.Impairment of Long-Lived Assets:F-12Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSWe evaluate our long-lived assets, which include finite-lived intangible assets, property and leasehold improvements for impairment as events andcircumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. We assess the recoverability of the asset or a group ofassets based on the undiscounted future cash flows the asset is expected to generate, and recognize an impairment loss when estimated undiscounted futurecash flows expected to result from the use of the asset are less than its carrying value. If an asset or a group of assets are deemed to be impaired, the amount ofthe impairment loss, if any, represents the excess of the asset's or a group of assets' carrying value compared to their estimated fair values.(i) Comprehensive IncomeComprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstancesfrom non-owner sources. Comprehensive income and its components for fiscal 2017, 2016 and 2015 are disclosed in the accompanying consolidatedstatements of comprehensive income.As of June 30, 2017, 2016 and 2015, accumulated other comprehensive income is comprised of foreign translation adjustments of $1.5 million, $2.7million $6.5 million, respectively, and net unrealized gains (losses) on available for sale securities of less than $0.1 million, $(0.1) million and ($0.1) million,respectively.(j) Accounting for Stock-Based CompensationStock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.(k) Income TaxesDeferred income taxes are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities. Deferredtax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporarydifferences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likelythan not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation offuture taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information,scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and othermatters in making this assessment.We do not provide deferred taxes on unremitted earnings of foreign subsidiaries since we intend to indefinitely reinvest either currently or sometime inthe foreseeable future. Unrecognized provisions for taxes on undistributed earnings of foreign subsidiaries, which are considered indefinitely reinvested, arenot material to our consolidated financial position or results of operations. We are continuously subject to examination by the IRS, as well as various stateand foreign jurisdictions. The IRS and other taxing authorities may challenge certain deductions and credits reported by us on our income tax returns. Inaccordance with provisions of ASC Topic 740, Income Taxes (ASC 740), an entity should recognize a tax benefit when it is more-likely-than-not, based onthe technical merits, that the position would be sustained upon examination by a taxing authority. The amount to be recognized, if the more-likely-than-notthreshold was passed, should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlementwith a taxing authority that has full knowledge of all relevant information. Furthermore, any change in the recognition, de-recognition or measurement of atax position should be recorded in the period in which the change occurs. We account for interest and penalties related to uncertain tax positions as part ofthe provision for income taxes.(l) Loss ContingenciesWe accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liabilityhas been incurred and the amount of the claim assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover anyobligations resulting from claims, assessments or litigation that have met these criteria. Refer to Note 16 for discussion of these matters and related liabilityaccruals.(m) Advertising CostsAdvertising costs are expensed as incurred and are classified as sales and marketing expenses. We incurred advertising expenses of $3.2 million, $2.3million and $2.9 million during fiscal 2017, 2016 and 2015, respectively.F-13Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(n) Research and Development ExpenseWe charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily ofpersonnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technologyprior to establishing technological feasibility.During fiscal 2017, 2016 and 2015, we acquired certain technologies for $2.3 million, $0.3 million and $3.3 million, respectively. At the time weacquired the technology, the project to develop a commercially available product did not meet the definition of having reached technological feasibility andas such, the entire cost of the acquired technology was expensed as research and development expense.(o) Recent Accounting PronouncementsIn May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue when they transferpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goodsor services. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interimperiods within that reporting period, though early adoption is permitted for annual reporting periods beginning after December 15, 2016. We will adopt ASUNo. 2014-09 during the first quarter of fiscal 2019. Based on our preliminary assessment, the adoption of ASU No. 2014-09 will impact the timing of aportion of the revenue recognized from our term contracts. We are continuing to evaluate the impact of ASU No. 2014-09 on our consolidated financialstatements and implementing accounting system changes related to the adoption.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the amendment, lessees will be required to recognize virtually all oftheir leases on the balance sheet, by recording a right-of-use asset and lease liability. The ASU is effective for annual periods, including interim periodswithin those annual periods, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-02 onour consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting. The amendment identifies several areas for simplification applicable to entities that issue share-based payment awards to theiremployees, including income tax consequences, the option to recognize gross stock compensation expense with actual forfeitures recognized when theyoccur, and certain classifications on the statements of cash flows. The ASU is effective for annual periods, including interim periods within those annualperiods, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-09 on our consolidatedfinancial statements.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The amendment changes the impairment model formost financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for lossesfor trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, thelosses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The ASU is effective for annual periods, includinginterim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of ASUNo. 2016-13 on our consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendment updates the guidance as to how certain cashreceipts and cash payments should be presented and classified, and is intended to reduce the existing diversity in practice. The ASU is effective for annualperiods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluatingthe impact of ASU No. 2016-15 on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business. The amendmentchanges the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The ASU is effectivefor annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do notanticipate the adoption of ASU No. 2017-01 will have a material effect on the consolidated financial statements or related disclosures.In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350) - Simplifying the Test for GoodwillImpairment. The amendment eliminates Step 2 of the goodwill impairment test and requires goodwillF-14Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSimpairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of itsgoodwill. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoptionis permitted. We do not anticipate the adoption of ASU No. 2017-04 will have a material effect on the consolidated financial statements or relateddisclosures.(3) Marketable SecuritiesOur marketable securities are classified as available-for-sale and reported at fair value on the consolidated balance sheets. Net unrealized gains (losses)are reported as a separate component of accumulated other comprehensive income, net of tax. Realized gains and losses on investments are recognized inearnings as incurred. We had no investments in marketable securities as of June 30, 2017 and $3.0 million of investments in marketable securities as ofJune 30, 2016, which were comprised of U.S. corporate bonds with maturities of less than one year.We review our marketable securities for impairment at each reporting period to determine if any of our securities have experienced an other-than-temporary decline in fair value in accordance with the provisions of ASC Topic 320, Investments—Debt and Equity Securities. We consider factors, such asthe length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer, our intent tosell, or whether it is more likely than not we will be required to sell the investment before recovery of its amortized cost basis. If we believe that an other-than-temporary decline in fair value has occurred, we write down the investment to fair value and recognize the credit loss in earnings and the non-credit loss inaccumulated other comprehensive income. During fiscal 2017 and 2016, our marketableF-15Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSsecurities were not considered other-than-temporarily impaired and, as such, we did not recognize impairment losses during the periods then ended.(4) Fair ValueWe determine fair value by utilizing a fair value hierarchy that ranks the quality and reliability of the information used in its determination. Fair valuesdetermined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Fairvalues determined using “Level 2 inputs” utilize data points that are observable, such as quoted prices, interest rates and yield curves for similar assets andliabilities. Cash equivalents of $79.7 million and $286.2 million as of June 30, 2017 and June 30, 2016, respectively, were reported at fair value utilizing quotedmarket prices in identical markets, or “Level 1 inputs.” Our cash equivalents consist of short-term, highly liquid investments with remaining maturities ofthree months or less when purchased. We held no marketable securities as of June 30, 2017. Marketable securities of $3.0 million as of June 30, 2016 were reported at fair value calculated inaccordance with the market approach, utilizing market consensus pricing models with quoted prices that were directly or indirectly observable, or “Level 2inputs.” Financial instruments not measured or recorded at fair value in the accompanying unaudited consolidated financial statements consist of accountsreceivable, installments receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates theircarrying value. The estimated fair value of the borrowings under the Credit Agreement (described below in Note 11, Credit Agreement) approximates itscarrying value due to the floating interest rate.(5) Accounts ReceivableOur accounts receivable, net of the related allowance for doubtful accounts, were as follows as of June 30, 2017 and 2016: Gross Allowance Net (Dollars in Thousands)June 30, 2017: Accounts Receivable$28,955 $1,285 $27,670 June 30, 2016: Accounts Receivable$22,080 $1,604 $20,476As of June 30, 2017, we had one customer receivable balance that individually represented approximately 18% of our total receivables.F-16Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(6) Property and EquipmentProperty, equipment and leasehold improvements in the accompanying consolidated balance sheets consist of the following: Year Ended June 30, 2017 2016 (Dollars in Thousands)Property, equipment and leasehold improvements, at cost: Computer equipment$8,262 $10,387Purchased software24,091 23,705Furniture & fixtures6,805 6,712Leasehold improvements12,025 12,523Property, equipment and leasehold improvements, at cost51,183 53,327Accumulated depreciation(37,783) (37,502)Property, equipment and leasehold improvements, net$13,400 $15,825Property and equipment are stated at cost. We provide for depreciation and amortization, primarily computed using the straight-line method, by chargesto operations in amounts estimated to allocate the cost of the assets over their estimated useful lives, as follows:Asset ClassificationEstimated Useful LifeComputer equipment3 yearsPurchased software3 - 5 yearsFurniture and fixtures3 - 10 yearsLeasehold improvementsLife of lease or asset, whichever is shorterDuring fiscal 2017, we wrote off fully depreciated property, equipment and leasehold improvements that were no longer in use with gross book valuesof $3.3 million.Depreciation expense was $5.0 million, $5.1 million and $4.7 million for fiscal 2017, 2016 and 2015, respectively.We account for asset retirement obligations in accordance with ASC Topic 410, Asset Retirement and Environmental Obligations. Our asset retirementobligations relate to leasehold improvements for leased properties. The balance of our asset retirement obligations was $0.9 million as of June 30, 2017 and2016, respectively.(7) AcquisitionsMtelligence CorporationOn October 26, 2016, we completed the acquisition of all the outstanding shares of Mtelligence Corporation (“Mtell”), a provider of predictive andprescriptive maintenance software and related services used to optimize asset performance, for total cash consideration of $37.4 million. The purchase priceconsisted of $31.9 million of cash paid at closing and an additional $5.5 million to be held back until April 2018 as security for certain representations,warranties, and obligations of the sellers. The holdback was recorded at its fair value as of the acquisition date of $5.3 million, and is recorded in other currentliabilities in our consolidated balance sheet.F-17Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSA preliminary allocation of the purchase price is as follows. The valuation of certain acquired customer contract obligations is considered preliminary asof June 30, 2017. Amount (Dollars in Thousands)Tangible assets acquired, net$779Identifiable intangible assets: Developed technology11,385Customer relationships679Non-compete agreements553 Goodwill25,888Deferred tax liabilities, net(2,099)Total assets acquired$37,185We used the income approach to determine the values of the identifiable intangible assets. The weighted-average discount rate (or rate of return) used todetermine the value of the Mtell intangible assets was 19% and the effective tax rate used was 34%. The values of the developed technology, customerrelationships and non-compete agreements are being amortized on a straight-line basis, except technology, which is being amortized on a proportional usebasis, over their estimated useful lives of 12 years, 6 years and 3 years, respectively.The goodwill, which is not deductible for tax purposes, reflects the value of the assembled workforce and the company-specific synergies we expect torealize by selling Mtell products and services to our existing customers. The results of operations of Mtell have been included prospectively in our results ofoperations since the date of acquisition.Technology and TrademarksIn August 2016, we acquired certain technology and trademarks for total cash consideration of $6.0 million. The purchase price consisted of $5.4 millionof cash paid at closing and up to an additional $0.6 million to be paid in August 2017. The acquisition met the definition of a business combination as itcontained inputs and processes that are capable of being operated as a business. We allocated $4.0 million of the purchase price to developed technology and$2.0 million to goodwill. The fair value of the developed technology of $4.0 million was determined using the replacement cost approach. The developedtechnology is being amortized on a straight-line basis over its estimated useful life of 6 years. The acquisition is treated as an asset purchase for tax purposesand accordingly, the goodwill resulting from the acquisition is expected to be deductible.Fidelis Group, LLCIn June 2016, we completed the acquisition of all the outstanding shares of Fidelis Group, LLC ("Fidelis"), a provider of asset reliability software used topredict and optimize asset performance. The purchase price consisted of $8.0 million of cash paid at closing and up to an additional $2.0 million to be paidin December 2017.F-18Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAn allocation of the purchase price is as follows, including adjustments identified subsequent to the acquisition date. Amount (Dollars in Thousands)Tangible assets acquired, net$49Identifiable intangible assets: Developed technology1,272Customer relationships753In-process research and development3,097 Goodwill6,722Deferred tax liabilities, net(1,893)Total assets acquired$10,000(8) Intangible AssetsWe include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquiredintangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimatedremaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period ofamortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.Intangible assets consist of the following as of June 30, 2017 and 2016: Gross CarryingAmount AccumulatedAmortization Net CarryingAmount (Dollars in Thousands)June 30, 2017: Technology and patents$22,350 $(3,254) $19,096Customer relationships1,432 (169) 1,263Non-compete agreements553 (123) 430Total$24,335 $(3,546) $20,789June 30, 2016: Technology and patents$3,696 $(2,596) $1,100In-process research & development3,200 — 3,200Customer relationships700 — 700Total$7,596 $(2,596) $5,000Amortization expense for technology and patents is included in operating expenses and amounted to $1.0 million, $0.1 million and $0.7 million infiscal 2017, 2016 and 2015, respectively. Amortization expense is expected to be approximately $2.1 million in fiscal 2018, $2.1 million in fiscal 2019, $2.1million in fiscal 2020, $2.2 million in fiscal 2021, $2.5 million in fiscal 2022, and $9.8 million thereafter.(9) GoodwillF-19Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe changes in the carrying amount of goodwill for our subscription and software reporting unit during fiscal years ending June 30, 2017 and 2016were as follows: Gross CarryingAmount AccumulatedImpairment Losses Effect of CurrencyTranslation Net CarryingAmountJune 30, 2016:$89,007 $(65,569) $— $23,438Goodwill from Mtell acquisition28,160 — — 28,160Goodwill from technology acquisition2,000 — — 2,000Subsequent Fidelis goodwill adjustment(62) — — (62)Subsequent Mtell goodwill adjustment(2,272) — — (2,272)Foreign currency translation— — (16) (16)June 30, 2017:$116,833 $(65,569) $(16) $51,248 Gross CarryingAmount AccumulatedImpairment Losses Effect of CurrencyTranslation Net CarryingAmountJune 30, 2015:$82,929 $(65,569) $— $17,360Goodwill from Fidelis acquisition6,784 — — 6,784Foreign currency translation— — (706) (706)June 30, 2016:$89,713 $(65,569) $(706) $23,438We test goodwill for impairment annually (or more often if impairment indicators arise), at the reporting unit level. We first assess qualitative factors todetermine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than itscarrying amount. If we determine based on this assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount,we perform the two-step goodwill impairment test. The first step requires us to determine the fair value of the reporting unit and compare it to the carryingamount, including goodwill, of such reporting unit. If the fair value exceeds the carrying amount, no impairment loss is recognized. However, if the carryingamount of the reporting unit exceeds its fair value, the goodwill of the unit may be impaired. The amount of impairment, if any, is measured based upon theimplied fair value of goodwill at the valuation date.Fair value of a reporting unit is determined using a combined weighted average of a market-based approach (utilizing fair value multiples ofcomparable publicly traded companies) and an income-based approach (utilizing discounted projected cash flows). In applying the income-based approach,we would be required to make assumptions about the amount and timing of future expected cash flows, growth rates and appropriate discount rates. Theamount and timing of future cash flows would be based on our most recent long-term financial projections. The discount rate we would utilize would bedetermined using estimates of market participant risk-adjusted weighted-average costs of capital and reflect the risks associated with achieving future cashflows.We have elected December 31st as the annual impairment assessment date and perform additional impairment tests if triggering events occur. Weperformed our annual impairment test for the subscription and software reporting unit as of December 31, 2016 and, based upon the results of our qualitativeassessment, determined that it was not likely that its fair value was less than its carrying amount. As such, we did not perform the two-step goodwillimpairment test and did not recognize impairment losses as a result of our analysis. If an event occurs or circumstances change that would more likely thannot reduce the fair value of a reporting unit below its carrying value, goodwill will be evaluated for impairment between annual tests. No triggering eventsindicating goodwill impairment occurred during fiscal 2017, 2016 and 2015.(10) Accrued Expenses and Other LiabilitiesF-20Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAccrued expenses and other current liabilities in the accompanying consolidated balance sheets consist of the following: June 30, 2017 June 30, 2016 (Dollars in Thousands)Payroll and payroll-related$20,864 $17,809Royalties and outside commissions2,733 2,640Professional fees2,216 1,696Deferred acquisition payments8,548 584Other13,788 13,376Total accrued expenses and other current liabilities$48,149 $36,105Other non-current liabilities in the accompanying consolidated balance sheets consist of the following: June 30, 2017 June 30, 2016 (Dollars in Thousands)Deferred rent$6,916 $6,361Uncertain tax positions3,921 23,535Deferred acquisition payments— 2,000Other2,311 695Total other non-current liabilities$13,148 $32,591(11) Credit AgreementOn February 26, 2016, we entered into a $250.0 million Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., asadministrative agent, Silicon Valley Bank, as syndication agent, and the lenders and other parties named therein (the “Lenders”). On August 9, 2017, weentered into an Amendment to increase the Credit Agreement to $350.0 million. The indebtedness evidenced by the Credit Agreement matures on February26, 2021. Prior to the maturity of the Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the CreditAgreement, borrowed again in whole or in part without penalty. As of June 30, 2017, we had $140.0 million in outstanding borrowings under the CreditAgreement.Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, the sum of (a) the highest of (1) the rate of interest publiclyannounced by JPMorgan Chase Bank, N.A. as its prime rate in effect, (2) the Federal Funds Effective Rate plus 0.5%, and (3) the one-month Adjusted LIBORate plus 1.0%, plus (b) a margin initially of 0.5% for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on ourLeverage Ratio; or the Adjusted LIBO Rate plus a margin initially of 1.5% for the first full fiscal quarter ending after the date of the Credit Agreement andthereafter based on our Leverage Ratio. We must also pay, on a quarterly basis, an unused commitment fee at a rate of between 0.2% and 0.3% per annum,based on our Leverage Ratio. The interest rate as of June 30, 2017 was 2.73%.All borrowings under the Credit Agreement are secured by liens on substantially all of our assets. The Credit Agreement contains affirmative andnegative covenants customary for facilities of this type, including restrictions on: incurrence of additional debt; liens; fundamental changes; asset sales;restricted payments; and transactions with affiliates. The Credit Agreement contains financial covenants regarding maintenance as of the end of each fiscalquarter, commencing with the quarter ending June 30, 2016, of a maximum Leverage Ratio of 3.0 to 1.0 and a minimum Interest Coverage Ratio of 3.0 to 1.0.We were in compliance with all covenants as of June 30, 2017.(12) Stock-Based CompensationStock Compensation PlansF-21Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn December 2016, the shareholders approved the establishment of the 2016 Omnibus Incentive Plan (the 2016 Plan), which provides for the issuanceof a maximum of 6,000,000 shares of common stock. The 2016 Plan provides for the grant of incentive and nonqualified stock options, stock appreciationrights, restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property. As ofJune 30, 2017, there were 6,000,000 shares of common stock available for issuance subject to awards under the 2016 Plan.In April 2010, the shareholders approved the establishment of the 2010 Equity Incentive Plan (the 2010 Plan), which provides for the issuance of amaximum of 7,000,000 shares of common stock. The 2010 Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights,restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property. As of June 30,2017, there were 2,781,925 shares of common stock available for issuance subject to awards under the 2010 Plan.In May 2005, the shareholders approved the establishment of the 2005 Stock Incentive Plan (the 2005 Plan), which provides for the issuance of amaximum of 4,000,000 shares of common stock. The 2005 Plan provides for the grant of incentive and nonqualified stock options and other stock-basedawards, including the grant of shares based upon certain conditions, the grant of securities convertible into common stock and the grant of stock appreciationrights. Restricted stock and other stock-based awards granted under the 2005 Plan may not exceed, in the aggregate, 4,000,000 shares of common stock. The2005 Plan expired on March 31, 2015.General Award TermsWe issue stock options and restricted stock units (RSUs) to our employees and outside directors, pursuant to shareholder-approved equitycompensation plans. Option awards are granted with an exercise price equal to the market closing price of our stock on the trading day prior to the grant date.Those options generally vest over four years and expire within 7 or 10 years of grant. RSUs generally vest over four years. Historically, our practice has beento settle stock option exercises and RSU vesting through newly-issued shares.Stock Compensation AccountingOur stock-based compensation is accounted for as awards of equity instruments. Our policy is to issue new shares upon the exercise of stock awards. Weuse the "with-and-without" approach for determining if excess tax benefits are realized under ASC 718.We utilize the Black-Scholes option valuation model for estimating the fair value of options granted. The Black-Scholes option valuation modelincorporates assumptions regarding expected stock price volatility, the expected life of the option, the risk-free interest rate, dividend yield and the marketvalue of our common stock. The expected stock price volatility is determined based on our stock's historic prices over a period commensurate with theexpected life of the award. The expected life of an option represents the period for which options are expected to be outstanding as determined by historicoption exercises and cancellations. The risk-free interest rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life ofthe options granted. The expected dividend yield is zero, based on our history and expectation of not paying dividends on common shares. We recognizecompensation costs on a straight-line basis, net of estimated forfeitures, over the requisite service period for time-vested awards.The weighted average estimated fair value of option awards granted during fiscal 2017, 2016 and 2015 was $13.16, $13.16, and $13.43, respectively.We utilized the Black-Scholes option valuation model with the following weighted average assumptions: Year Ended June 30, 2017 2016 2015Risk-free interest rate1.2% 1.4% 1.5%Expected dividend yieldNone None NoneExpected life (in years)4.6 4.6 4.6Expected volatility factor31% 34% 35%F-22Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe stock-based compensation expense and its classification in the accompanying consolidated statements of operations for fiscal 2017, 2016 and2015 was as follows: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Recorded as expenses: Cost of service and other$1,477 $1,390 $1,351Selling and marketing3,652 4,351 3,056Research and development5,806 3,423 3,881General and administrative7,865 6,563 6,296Total stock-based compensation$18,800 $15,727 $14,584A summary of stock option and RSU activity under all equity plans in fiscal 2017 is as follows: Stock Options Restricted Stock Units Shares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm AggregateIntrinsicValue(in 000's) Shares WeightedAverageGrantDate FairValueOutstanding at June 30, 20161,314,142 $32.47 7.23 $12,340 493,332 $41.06Granted482,982 46.31 532,656 46.59Settled (RSUs) (310,074) 41.71Exercised(332,937) 27.85 Cancelled / Forfeited(110,629) 39.40 (99,916) 40.42Outstanding at June 30, 20171,353,558 $37.98 7.30 $23,535 615,998 $45.62Exercisable at June 30, 2017808,094 $33.04 6.35 $17,958 Vested and expected to vest atJune 30, 20171,288,241 $37.61 7.23 $22,877 542,323 $45.58During fiscal 2017, 2016 and 2015, the weighted average grant-date fair value of RSUs granted was $46.59, $41.86 and $42.65, respectively. Duringfiscal 2017, 2016 and 2015 the total fair value of vested shares from RSU grants amounted to $16.6 million, $12.7 million and $16.1 million, respectively.As of June 30, 2017, the total future unrecognized compensation cost related to stock options and RSUs was $6.1 million and $23.0 million,respectively, and are expected to be recorded over a weighted average period of 2.5 years and 2.6 years, respectively.During fiscal 2017, 2016 and 2015 the weighted average exercise price of stock options granted was $46.31, $42.66 and $42.66. The total intrinsicvalue of options exercised during fiscal 2017, 2016 and 2015 was $7.9 million, $4.1 million and $8.2 million, respectively. We received $9.3 million, $3.9million and $4.6 million in cash proceeds from option exercises during fiscal 2017, 2016 and 2015, respectively. We paid $5.8 million, $4.4 million and $5.7million for withholding taxes on vested RSUs during fiscal 2017, 2016 and 2015, respectively.At June 30, 2017, common stock reserved for future issuance or settlement under equity compensation plans was 10.8 million shares.(13) Common StockOn January 22, 2015, our Board of Directors approved a share repurchase program for up to $450 million worth of our common stock. On April 26,2016 and June 8, 2017, the Board of Directors approved a $400 million and $200 million increaseF-23Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSin our current share repurchase plan, respectively. The timing and amount of any shares repurchased are based on market conditions and other factors. Allshare repurchases of our common stock have been recorded as treasury stock under the cost method.On August 29, 2016, as part of our common stock repurchase program, we entered into an accelerated share repurchase program (the "ASR Program")with a third-party financial institution. Pursuant to the terms of the ASR Program, we made an upfront payment of $100.0 million in exchange for the deliveryof approximately 2.1 million shares of our common stock, which was determined based on the volume-weighted average price per share of our common stockover the term of the ASR Program, less an agreed-upon discount. These shares were recorded as an increase to treasury stock.During fiscal 2017, we repurchased 5,185,257 shares of our common stock in the open market for $275.0 million and 2,106,709 shares of our commonstock for $100.0 million as part of the ASR Program.We repurchased 4,750,692 shares and 7,731,428 shares of our common stock for $180.1 million and $298.3 million during fiscal 2016 and 2015,respectively.As of June 30, 2017, the remaining dollar value under the stock repurchase program approved on January 22, 2015 and amended on April 26, 2016 was$346.3 million.(14) Net Income Per ShareBasic income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted incomeper share is determined by dividing net income by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect thedilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled incommon stock are included in the calculation of diluted net income per share based on the treasury stock method.The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the years ended June 30,2017, 2016 and 2015 are as follows: Year Ended June 30, 2017 2016 2015 (Dollars and Shares in Thousands, Except per Share Data)Net income$162,196 $139,951 $118,407 Weighted average shares outstanding76,491 82,892 88,398Dilutive impact from: Employee equity awards487 417 618Dilutive weighted average shares outstanding76,978 83,309 89,016Income per share Basic$2.12 $1.69 $1.34Dilutive$2.11 $1.68 $1.33For the years ended June 30, 2017, 2016 and 2015, certain employee equity awards were anti-dilutive based on the treasury stock method. Additionally,during the year ended June 30, 2017, options to purchase 27,778 shares of our common stock were not included in the computation of dilutive weightedaverage shares outstanding, because their exercise prices ranged from $54.22 per share to $63.05 per share and were greater than the average market price ofour common stock during the period then ended. These options were outstanding as of June 30, 2017 and expire at various dates through June 5, 2027.F-24Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following potential common shares were excluded from the calculation of dilutive weighted average shares outstanding because their effect wouldbe anti-dilutive at the balance sheet date: Year Ended June 30, 2017 2016 2015 (Shares in Thousands)Employee equity awards525 1,028 587(15) Income TaxesIncome before provision for income taxes consists of the following: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Domestic$202,053 $201,885 $175,805Foreign8,293 8,754 3,666Income before provision for income taxes$210,346 $210,639 $179,471The provision for income taxes shown in the accompanying consolidated statements of operations is composed of the following: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Federal— Current$69,385 $56,535 $—Deferred(22,449) 7,496 55,895State— Current1,737 1,866 2,176Deferred(1,079) 204 729Foreign— Current2,067 4,554 3,382Deferred(1,511) 33 (1,118) $48,150 $70,688 $61,064F-25Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe provision for income taxes differs from that based on the federal statutory rate due to the following: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Federal tax provision at statutory rate$73,621 $73,723 $62,815State income taxes967 1,153 2,114Subpart F and dividend income2,912 3,581 2,799Foreign taxes and rate differences(206) (663) (222)Stock-based compensation991 1,359 763Tax credits(6,614) (3,867) (3,562)Tax contingencies(19,645) (581) (641)Return to provision adjustments464 658 384Domestic Production Activity Deduction(6,261) (4,892) (3,600)Valuation allowance1,522 49 176Other399 168 38Provision for income taxes$48,150 $70,688 $61,064Deferred tax assets (liabilities) consist of the following at June 30, 2017 and 2016: Year Ended June 30, 2017 2016 (Dollars in Thousands)Deferred tax assets: Federal and state credits$2,553 $1,270Capital loss carryforwards7,940 8,073Net operating loss carryforwards3,028 1,742Deferred revenue5,881 7,821Other reserves and accruals10,701 6,762Intangible assets1,730 1,616Property, leasehold improvements, and other basis differences2,470 1,853Other temporary differences971 870 35,274 30,007Deferred tax liabilities: Deferred revenue(44) (1,276)Intangible assets(7,017) (2,912)Property, leasehold improvements, and other basis differences(2,634) (3,305)Other temporary differences— (508) (9,695) (8,001)Valuation allowance(11,259) (10,119)Net deferred tax assets$14,320 $11,887Reflected in the deferred tax assets above at June 30, 2017, we have foreign net operating loss carryforwards of $3.0 million, some of which will expirebeginning in 2019 and others with unlimited carryforwards, and state research and development credits of $2.4 million which begin to expire in 2025.F-26Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn fiscal 2017 and fiscal 2016, we recorded reductions in the income taxes payable of $6.0 million and $2.2 million, respectively, with an increase toadditional paid in capital, for the benefits of excess stock-based compensation deductions recognized during the period primarily in the United States.Our valuation allowance for deferred tax assets was $11.3 million and $10.1 million as of June 30, 2017 and 2016 respectively. The most significantportion of the valuation allowance is attributable to a reserve against US capital loss carryforward deferred tax assets of $8.0 million and state R&D taxcredits.For fiscal 2017, our income tax provision included amounts determined under the provisions of ASC 740 intended to satisfy additional income taxassessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position on audit doesnot meet a threshold of "more likely than not." Tax liabilities were recorded as a component of our income taxes payable and other non-current liabilities.The ultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.A reconciliation of the reserve for uncertain tax positions is as follows: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Uncertain tax positions, beginning of year$23,535 $19,870 $21,193Gross (decreases) increases—tax positions in prior period(19,116) 67 238Gross increases—tax positions in current period— 5,474 —Gross decreases—lapse of statutes(830) (1,772) (1,024)Currency translation adjustment332 (104) (537)Uncertain tax positions, end of year$3,921 $23,535 $19,870At June 30, 2017, the total amount of unrecognized tax benefits is $3.9 million. Upon being recognized, the amount would reduce the effective tax rate.Our policy is to recognize interest and penalties related to income tax matters as provision for (benefit from) income taxes. At June 30, 2017, we hadapproximately $0.5 million of accrued interest and $0.2 million of penalties related to uncertain tax positions. We recorded a benefit for interest andpenalties of approximately $1.3 million during fiscal 2017.During the fourth quarter of fiscal 2017, we settled an audit with the Internal Revenue Services (“IRS”) for the fiscal 2015. As a result of settling theaudit, we released a significant portion of our reserve for US tax positions. The amount reversed in the fourth quarter related to settling the tax audit was$19.2 million.We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years2007 to 2016, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to ourconsolidated financial statements.(16) Commitments and ContingenciesOperating LeasesWe lease certain facilities and various office equipment under non-cancellable operating leases with terms in excess of one year. Rental expense,including short term leases, maintenance charges and taxes on leased facilities, was approximately $8.4 million, $8.3 million and $8.3 million for fiscal years2017, 2016 and 2015, respectively.F-27Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFuture minimum lease payments under these leases as of June 30, 2017 are as follows:Year Ended June 30,Operating Leases (Dollars in Thousands)2018$6,24020197,92620207,09320215,81020225,248Thereafter11,492Total$43,809Letters of CreditStandby letters of credit for $2.9 million secure our performance on professional services contracts and certain facility leases. The letters of credit expireat various dates through fiscal 2025.Legal MattersIn the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. Thesematters include an April 2004 claim by a customer that certain of our software products and implementation services failed to meet the customer'sexpectations. In March 2014, a judgment was issued by the trial court against us in the amount of approximately 1.9 million Euro (“€”) plus interest and aportion of legal fees. We subsequently filed an appeal of that judgment. In March 2016, the appellate court determined that we are liable for damages in theamount of approximately €1.7 million plus interest, with the possibility of additional damages to be determined in further proceedings by the appellate court.As of June 30, 2017, there has been no change to the appellate court’s determination.While the outcome of the proceedings and claims referenced above cannot be predicted with certainty, there are no such matters, as of June 30, 2017that, in the opinion of management, are reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows.Liabilities, if applicable, related to the aforementioned matters discussed in this Note have been included in our accrued liabilities at June 30, 2017, and arenot material to our financial position for the periods then ended. As of June 30, 2017, we do not believe that there is a reasonable possibility of a material lossexceeding the amounts already accrued for the proceedings or matters discussed above. However, the results of litigation (including the above-referencedappeal) and claims cannot be predicted with certainty; unfavorable resolutions are possible and could materially affect our results of operations, cash flows orfinancial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of attorneys' fees and costs, diversion ofmanagement resources and other factors.(17) Retirement PlansWe maintain a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code (IRC) covering all eligible employees, asdefined. Under the plan, a participant may elect to defer receipt of a stated percentage of his or her compensation, subject to limitation under the IRC, whichwould otherwise be payable to the participant for any plan year. We may make discretionary contributions to this plan, including making matchingcontributions of 50%, up to a maximum of 6% of an employee's pretax contribution. We made matching contributions of approximately $2.5 million, $2.4million and $2.2 million in fiscal 2017, 2016 and 2015, respectively. Additionally, we participate in certain government mandated and defined contributionplans throughout the world for which we comply with all funding requirements.(18) Segment and Geographic InformationOperating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is availableand regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. Our chief operating decisionmaker is our President and Chief Executive Officer.F-28Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSWe have two operating and reportable segments, which are consistent with our reporting units: i) subscription and software and ii) services. Thesubscription and software segment is engaged in the licensing of asset optimization software solutions and associated support services. The services segmentincludes professional services and training.The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (refer to Note 2).We do not track assets or capital expenditures by operating segments. Consequently, it is not practical to present assets, capital expenditures, depreciation oramortization by operating segments.The following table presents a summary of our reportable segments' profits: Subscriptionand software Services Total (Dollars in Thousands)Year Ended June 30, 2017: Segment revenue$453,512 $29,430 $482,942Segment expenses(1)(193,214) (26,415) (219,629)Segment profit$260,298 $3,015 $263,313Year Ended June 30, 2016: Segment revenue$440,408 $31,936 $472,344Segment expenses(1)(179,064) (28,235) (207,299)Segment profit$261,344 $3,701 $265,045Year Ended June 30, 2015: Segment revenue$405,640 $34,761 $440,401Segment expenses(1)(183,485) (28,411) (211,896)Segment profit$222,155 $6,350 $228,505____________________________________________(1)Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling andmarketing, research and development, stock-based compensation and certain corporate expenses incurred in support of the segments. Segmentexpenses do not include allocations of general and administrative; interest income, net; and other income (expense), net.Reconciliation to Income Before Provision for Income TaxesThe following table presents a reconciliation of total segment operating profit to income before provision for income taxes: Year Ended June 30, 2017 2016 2015 (Dollars in Thousands)Total segment profit for reportable segments$263,313 $265,045 $228,505General and administrative(51,297) (53,664) (48,713)Other income (expense), net1,309 29 (778)Interest income (expense), net(2,979) (771) 457Income before provision for income taxes$210,346 $210,639 $179,471F-29Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSGeographic Information:Revenue to external customers is attributed to individual countries based on the location the product or services are sold. Domestic and internationalsales as a percentage of total revenue are as follows: Year Ended June 30, 2017 2016 2015United States37.9% 35.4% 34.6%Europe28.1 29.6 30.6Other(1)34.0 35.0 34.8 100.0% 100.0% 100.0%____________________________________________(1)Other consists primarily of Asia Pacific, Canada, Latin America and the Middle East.We have long-lived assets of approximately $71.9 million that are located domestically and $15.5 million that reside in other geographic locations asof June 30, 2017. We had long-lived assets of approximately $31.6 million that were located domestically and $14.6 million that reside in other geographiclocations as of June 30, 2016.(19) Quarterly Financial Data (Unaudited)The following tables present quarterly consolidated statement of operations data for fiscal 2017 and 2016. The below data is unaudited but, in ouropinion, reflects all adjustments necessary for a fair presentation of this data in accordance with GAAP: Three Months Ended June 30, 2017 March 31,2017 December 31, 2016 September 30,2016 (Dollars and Shares in Thousands, Except per Share Data)Total revenue$123,682 $119,277 $119,933 $120,050Gross profit111,568 107,010 108,354 108,544Income from operations48,948 52,273 56,065 54,730Net income54,352 35,834 37,010 35,000Net income per common share: Basic$0.73 $0.47 $0.48 $0.44Diluted$0.73 $0.47 $0.48 $0.44Weighted average shares outstanding: Basic74,294 75,676 76,905 79,048Diluted74,830 76,182 77,318 79,385F-30Table of ContentsASPEN TECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended June 30, 2016 March 31,2016 December 31, 2015 September 30,2015 (Dollars and Shares in Thousands, Except per Share Data)Total revenue$113,680 $119,217 $119,151 $120,296Gross profit101,949 107,197 107,263 107,324Income from operations48,972 50,681 56,299 55,429Net income33,326 33,171 36,683 36,771Net income per common share: Basic$0.41 $0.40 $0.44 $0.44Diluted$0.41 $0.40 $0.44 $0.44Weighted average shares outstanding: Basic81,282 83,081 83,315 83,876Diluted81,599 83,373 83,703 84,320F-31Table of ContentsEXHIBIT INDEXExhibit Number Description Filed with thisForm 10-K Incorporated by Reference Form Filing Date with SEC(1) ExhibitNumber3.1 Certificate of Incorporation of Aspen Technology, Inc., asamended 8-K August 22, 2003 4 3.2 Amended and Restated By-laws of Aspen Technology, Inc. 8-K October 24, 2016 3.1 4.1 Specimen certificate for common stock, $.10 par value, ofAspen Technology, Inc. 8-A/A June 12, 1998 4 10.1 Lease Agreement dated January 27, 2014 between RAR2-Crosby Corporate Center QRS, Inc. and AspenTechnology, Inc. regarding 20, 22 and 28 Crosby Drive,Bedford, Massachusetts 10-Q January 30, 2014 10.1 10.2 System License Agreement dated March 30, 1982 betweenAspen Technology, Inc. and the Massachusetts Institute ofTechnology 10-K April 11, 2008 10.4 10.3 Amendment dated March 30, 1982 to System LicenseAgreement dated March 30, 1982 between AspenTechnology, Inc. and the Massachusetts Institute ofTechnology 10-K April 11, 2008 10.5 10.4 Rule 2.7 Announcement, dated January 12, 2016 8-K January 19, 2016 2.1 10.5 364-Day Bridge Credit Agreement, dated as of January 12,2016, among Aspen Technology, Inc., as borrower, thelenders party thereto, JPMorgan Chase Bank, N.A., asadministrative agent, and J.P. Morgan Securities LLC, assole lead arranger and sole bookrunner 8-K January 19, 2016 10.1 10.6 Credit Agreement, dated as of February 26, 2016, amongAspen Technology, Inc., as borrower, the lenders, co-documentation agents and issuing banks party thereto,JPMorgan Chase Bank, N.A., as administrative agent, jointlead arranger and joint bookrunner, and Silicon ValleyBank, as syndication agent, joint lead arranger and jointbookrunner 8-K February 29, 2016 10.1 10.7 Incremental Facility Amendment, dated as ofAugust 9, 2017, to the Credit Agreement dated asof February 26, 2016 among Aspen Technology,Inc. as borrower, the lenders, JPMorgan ChaseBank, N.A. as administrative agent and issuingbank, and certain other Lenders acting in suchcapacity from time to time, as issuing banks X 10.8 Master Confirmation-Accelerated Share Repurchase DatedAugust 29, 2016, with J.P. Morgan Securities, as agent forJP Morgan Chase Bank 8-K August 30, 2016 10.1 EX-1Table of ContentsExhibit Number Description Filed with thisForm 10-K Incorporated by Reference Form Filing Date with SEC(1) ExhibitNumber10.9 Stock Purchase Agreement dated October 26, 2016 by andamong AspenTech Holding Corporation, MtelligenceCorporation, each of the stockholders and key sellers ofMtelligence Corporation, and Cito Capital Corporation 10-Q October 27, 2016 10.4 10.10^ Aspen Technology, Inc. 2005 Stock Incentive Plan (asamended) 10-K November 9, 2009 10.39 10.11^ Form of Terms and Conditions of Stock Option Agreementgranted under Aspen Technology, Inc. 2005 StockIncentive Plan 10-Q November 14, 2006 10.8 10.12^ Form of Restricted Stock Unit Agreement granted underAspen Technology, Inc. 2005 Stock Incentive Plan 10-Q November 14, 2006 10.9 10.13^ Form of Restricted Stock Unit Agreement—G grantedunder Aspen Technology, Inc. 2005 Stock Incentive Plan 10-Q November 14, 2006 10.10 10.14^ Terms and Conditions of Restricted Stock Unit Agreementgranted under 2005 Stock Incentive Plan 10-K November 9, 2009 10.43 10.15^ Aspen Technology, Inc. 2010 Equity Incentive Plan 8-K April 21, 2010 10.1 10.16^ Form of Terms and Conditions of Restricted Stock UnitAgreement granted under Aspen Technology, Inc. 2010Equity Incentive Plan 10-K September 2, 2010 10.42 10.17^ Form of Terms and Conditions of Stock Option AgreementGranted under Aspen Technology, Inc. 2010 EquityIncentive Plan 10-K September 2, 2010 10.43 10.18^ Aspen Technology, Inc. 2016 Omnibus Incentive Plan 10-Q October 27, 2016 10.4 10.19^ Form of Terms and Conditions of Restricted Stock UnitAgreement Granted Under Aspen Technology Inc. 2016Omnibus Incentive Plan 10-Q January 26, 2017 10.2^ 10.20^ Form of Terms and Conditions of Stock Option AgreementGranted Under Aspen Technology Inc. 2016 OmnibusIncentive Plan 10-Q January 26, 2017 10.3^ 10.21^ Aspen Technology, Inc. Executive Annual IncentiveBonus Plan (Fiscal Year 2015) 8-K July 25, 2014 10.1 10.22^ Aspen Technology, Inc. Executive Annual IncentiveBonus Plan (Fiscal Year 2016) 8-K July 24, 2015 10.1 10.23^ Aspen Technology, Inc. Executive Annual Bonus Plan(Fiscal Year 2017) 8-K July 22, 2016 10.1 10.24^ Aspen Technology, Inc. Executive Annual Bonus Plan(Fiscal Year 2017)(Correction of the exhibit filed as Exhibit 10.1 of the 8-Kfiled on July 22, 2016, in which Growth in Annual Spendwas referred to as Growth in License Annual Spend) 10-Q October 27, 2016 10.3 EX-2Table of ContentsExhibit Number Description Filed with thisForm 10-K Incorporated by Reference Form Filing Date with SEC(1) ExhibitNumber10.25^ Aspen Technology, Inc. Executive Annual IncentiveBonus Plan (Fiscal Year 2018) 8-K July 19, 2017 10.1 10.26^ Form of Amended and Restated Executive RetentionAgreement entered into by Aspen Technology, Inc. andeach executive officer of Aspen Technology, Inc. (otherthan Antonio J. Pietri) 10-K August 13, 2014 10.29 10.27^ Amended and Restated Executive Retention Agreementdated July 1, 2013 entered into by Aspen Technology, Inc.and Antonio J. Pietri 10-K August 15, 2013 10.29 10.28^ Form of Confidentiality and Non-Competition Agreementof Aspen Technology, Inc. 10-K April 11, 2008 10.45 10.29^ Non-Competition and Non-Solicitation Agreement datedJuly 1, 2013 entered into by Aspen Technology, Inc. andAntonio J. Pietri 10-K August 15, 2013 10.30 21.1 Subsidiaries of Aspen Technology, Inc. X 23.1 Consent of KPMG LLP X 31.1 Certification of Principal Executive Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Principal Financial Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 32.1* Certification Pursuant to 18 U.S.C. Section 1350, AsAdopted Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 X 101.INS Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument X 101.DEF XBRL Taxonomy Extension Definition LinkbaseDocument X 101.LAB XBRL Taxonomy Extension Label Linkbase Document X 101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument X ____________________________________________(1)The SEC File No. is 001-34630 for Exhibits 10.11 through 10.13; and 10.15 through 10.16, inclusive. The SEC File No. for all other exhibits is 000-24786.^Management contract or compensatory plan or arrangement*The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the SEC and is not to be incorporated by referenceinto any filing of Aspen Technology, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the dateof this Form 10-K, irrespective of any general incorporation language contained in such filing.EX-3Exhibit 10.7INCREMENTAL FACILITY AMENDMENTINCREMENTAL FACILITY AMENDMENT, dated as of August 9, 2017 (this “Incremental Facility Amendment”) to the Credit Agreement,dated as of February 26, 2016 (as amended or modified from time to time, the “Credit Agreement”), among Aspen Technology, Inc. (the “Borrower”), eachlender from time to time party thereto (collectively, the “Lenders” and individually, a “Lender”), JPMORGAN CHASE BANK, N.A., as Administrative Agentand Issuing Bank and certain other Lenders acting in such capacity from time to time, as Issuing Banks.W I T N E S S E T H:WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions ofcredit to the Borrower;WHEREAS, the Borrower desires to amend Schedule 3.11 of the Credit Agreement and, pursuant to Section 2.20 of the Credit Agreement,has requested an increase in the aggregate Revolving Credit Commitments under the Credit Agreement in an amount of $100,000,000;WHEREAS, each Lender signatory to this Incremental Facility Amendment (each, an “Incremental Facility Lender”) has agreed to, amongother things, provide the additional Revolving Credit Commitments in the amount set forth opposite to its name in the commitment schedule attached heretoas Schedule A (the “Incremental Commitment Schedule”; such additional Incremental Revolving Commitments set forth in the Incremental CommitmentSchedule, the “Incremental Commitments”) upon the terms and subject to the conditions set forth herein;WHEREAS, JPMorgan Chase Bank, N.A. and Silicon Valley Bank are appointed by the Borrower to act as Joint Lead Arrangers and JointBookrunners for the Incremental Commitments;NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, thesufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have themeanings given to them in the Credit Agreement.SECTION 2. Incremental Revolving Credit Commitments.(a) On the Increase Effective Date (as defined below), this Incremental Facility Amendment shall constitute an increase in the RevolvingCredit Commitments of the Lenders pursuant to Section 2.20 of the Credit Agreement, the Incremental Commitments shall constitute additional “RevolvingCredit Commitments” and any loans made pursuant to the Incremental Commitments shall constitute “Revolving Loans” and “Loans” under the CreditAgreement.(b) The Incremental Commitments shall have the same terms and conditions as those of the Revolving Credit Commitments existing priorto the Increase Effective Date under the Credit Agreement. No increase of the Revolving Increase Commitments pursuant to this Incremental FacilityAmendment increases the Letter of Credit Facility set forth in the Credit Agreement.(c) From the Increase Effective Date until the Maturity Date, all Revolving Loans shall be made in accordance with the Revolving CreditCommitments of the Lenders after giving effect to the Incremental Commitments. If any Revolving Loans are outstanding on the Increase Effective Date, theLenders immediately after effectiveness of such Incremental Commitment shall purchase and assign at par such amounts of the Revolving Loans outstandingat such time as the Administrative Agent may require such that each Lender holds its Pro Rata Share of all Revolving Loans outstanding after giving effect toall such assignments. On the Increase Effective Date, each Incremental Facility Lender will automatically and without further act be deemed to have assumeda portion in outstanding Letters of Credit such that, after giving effect to such deemed assignment and assumption of participations, the percentage of theaggregate outstanding participations in Letters of Credit held by such Incremental Facility Lender equals its Pro Rata Shares (after giving effect to theIncremental Commitments). For the avoidance of doubt, it is understood that facility fees with respect to the Incremental Commitments shall accrue from theIncrease Effective Date.SECTION 3. Schedule 3.11 Amendment. Schedule 3.11 to the Credit Agreement is deleted in its entirety and replaced with the Scheduleattached as Schedule C heretoSECTION 4. Fees. The Borrower agrees to pay on the Increase Effective Date to the Administrative Agent, for the account of eachIncremental Facility Lender, fees in the amounts previously communicated by the Borrower and the Arrangers to each such Incremental Facility Lender.SECTION 5. Amendments to Credit Agreement to Reflect the Incremental Commitments. Schedule 2.01 of the Credit Agreement is herebyreplaced with the revised Revolving Credit Commitments schedule attached hereto as Schedule B.SECTION 6. Effectiveness of Incremental Facility Amendment. This Incremental Facility Amendment shall become effective uponsatisfaction of the following conditions precedent (such date, the “Increase Effective Date”):The Administrative Agent shall have received the following:(a) counterparts to this Incremental Facility Amendment duly executed by the Borrower, each other Loan Party and each IncrementalFacility Lender;(b) a fee for the account of each Incremental Facility Lender that is a party to this Incremental Facility Amendment in accordance withSection 4 hereof;(c) all other fees required to be paid, and all expenses for which invoices have been presented (including the reasonable and documentedfees and reasonable, documented, out-of-pocket expenses of legal counsel) required to be paid in accordance with the Loan Documents;(d) a certificate of the Borrower dated as of the Increase Effective Date (i) certifying and attaching the resolutions adopted by the Borrowerapproving or consenting to such increase, and (ii) certifying that, before and after giving effect to such increase, (A) the representations and warrantiescontained in the Loan Documents are true and correct in all material respects (except for representations and warranties qualified as to materiality andMaterial Adverse Effect, which shall be true and correct in all respects) on and as of Increase Effective Date, as though made on and as of such date (except tothe extent any such representation or warranty specifically relates to an earlier date in which case such representation and warranty shall be accurate in allmaterial respects as of such earlier date), and (B) no event has occurred and its continuing, or would result from the Incremental Commitments, thatconstitutes a Default or Event of Default; and(e) a signed opinion, dated as of the Increase Effective Date, addressed to the Administrative Agent and the Incremental Facility Lendersfrom legal counsel to the Borrower covering the matters reasonably requested by the Administrative Agent.SECTION 7. Representations and Warranties. To induce the other parties hereto to enter into this Incremental Facility Amendment and toprovide the Incremental Commitments, the Borrower and each other Loan Party hereby represents and warrants to the Administrative Agent and to eachIncremental Facility Lender, as of the Increase Effective Date:(a) The Borrower and each other Loan Party has the power and authority, and the legal right, to make, deliver and perform this IncrementalFacility Amendment, and to perform its obligations hereunder. The execution, delivery and performance by the Borrower and each other Loan Party of thisIncremental Facility Amendment has been authorized by all necessary corporate or limited liability company action, and no other corporate, limited liabilitycompany or other organizational proceedings on the part of the Borrower or such other Loan Party is necessary to consummate such transactions.(b) This Incremental Facility Amendment has been duly executed and delivered on behalf of the Borrower and each other Loan Party. ThisIncremental Facility Amendment is a legal, valid and binding obligation of the Borrower and each other Loan Party, enforceable against the Borrower andeach other Loan Party in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rightsgenerally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and an implied covenant of good faith andfair dealing, and is in full force and effect subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generallyand by general equitable principles (whether enforcement is sought by proceedings in equity or at law).SECTION 8. Reaffirmation.(a) The Borrower agrees and reaffirms all of its Obligations and the Liens and security interests granted to secure the Obligations, in eachcase, under the Loan Documents, shall extend to cover the Incremental Commitments and allLoans, interest thereon and fees and expenses and the other Obligations in respect thereof pursuant to the terms of the Loan Documents.(b) Each Loan Party other than the Borrower agrees and reaffirms that its guarantee of all of the Obligations, and the Liens and securityinterests granted to secure the Obligations, in each case, under the Loan Documents, shall extend to cover the Incremental Commitments and all Loans,interest thereon and fees and expenses and the other Obligations in respect thereof pursuant to the terms of the Loan Documents.SECTION 9. Effect on the Credit Agreement. (a) Except as specifically amended above, the Credit Agreement shall continue to be in fullforce and effect and is hereby in all respects ratified and confirmed.(b) The execution, delivery and effectiveness of this Incremental Facility Amendment shall not operate as a waiver of any right, power orremedy of any Lender or the Administrative Agent under the Credit Agreement, nor constitute a waiver of any provision of any of the Credit Agreement.SECTION 10. Expenses. Subject to the terms of the Loan Documents (including, without limitation, Section 9.03 of the CreditAgreement), the Borrower agrees to pay or reimburse the Administrative Agent for all of its out-of-pocket costs and reasonable expenses incurred inconnection with this Incremental Facility Amendment, any other documents prepared in connection herewith and the transaction contemplated hereby,including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent.SECTION 11. Governing Law. THIS INCREMENTAL FACILITY AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTEARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS INCREMENTAL FACILITY AMENDMENT, THE RELATIONSHIP OF THEPARTIES AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES WILL BE GOVERNED BY THELAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES OTHER THAN SECTION 5-1401 OF THE NEWYORK GENERAL OBLIGATIONS LAW. EACH PARTY HERETO HEREBY AGREES TO BE BOUND BY THE JURISDICTIONAL AND SERVICE OFPROCESS PROVISIONS OF SECTION 10.14 OF THE CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.SECTION 12. Counterparts. This Incremental Facility Amendment may be executed in counterparts (and by different parties hereto ondifferent counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This IncrementalFacility Amendment, the Credit Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matterhereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executedcounterpart of a signature page of this Incremental Facility Amendment by facsimile or email shall be effective as delivery of a manually executedcounterpart of this Amendment. THIS INCREMENTAL FACILITY AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTSREPRESENT THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF ANDSUPERCEDE ALL PRIOR ORAL AGREEMENTS OF THE PARTIES.[Remainder of page intentionally left blank.]IN WITNESS WHEREOF, the parties hereto have caused this Incremental Facility Amendment to be duly executed and delivered by theirrespective proper and duly authorized officers as of the day and year first above written.ASPEN TECHNOLOGY, INC.By:/s/ KARL E. JOHNSENName:Karl E. JohnsenTitle:Chief Financial OfficerASPENTECH CANADA HOLDINGS, LLCBy:/s/ FREDERIC G. HAMMONDName:Frederic G. HammondTitle:Sole Manager and Secretary[Signature Page to Incremental Facility Amendment]JPMORGAN CHASE BANK, N.A., as Administrative Agentand an Incremental Facility LenderBy:/s/ DAGLAS PANCHALName:Daglas PanchalTitle:Executive Director[Signature Page to Incremental Facility Amendment]SILICON VALLEY BANK, as an IncrementalFacility LenderBy:/s/ FRANK GROCCIAName:Frank GrocciaTitle:Vice President[Signature Page to Incremental Facility Amendment]CITIBANK, N.A., as an Incremental FacilityLenderBy:/s/ RONALD HOMAName:Ronald HomaTitle:Senior Vice President, as authorized[Signature Page to Incremental Facility Amendment]Wells Fargo Bank, National Association, as anIncremental Facility LenderBy:/s/ TIFFANY ORMONName:Tiffany OrmonTitle:Director[Signature Page to Incremental Facility Amendment]Wells Fargo Bank, N.A., London Branch, as anIncremental Facility LenderBy:/s/ K.J. MCKNIGHTName:K.J. McKnightTitle:Director, Credit Risk By:/s/ GINA FLYNNName:Gina FlynnTitle:Authorized Signatory[Signature Page to Incremental Facility Amendment]Citizens Bank, N.A., as an Incremental FacilityLenderBy:/s/ CHRISTOPHER J. DELAUROName:Christopher J. DeLauroTitle:Vice President[Signature Page to Incremental Facility Amendment]TD Bank, N.A., as an Incremental Facility LenderBy:/s/ CRAIG WELCHName:Craig WelchTitle:Senior Vice President[Signature Page to Incremental Facility Amendment]Schedule AIncremental Commitment ScheduleLenderIncremental CommitmentJPMORGAN CHASE BANK, N.A.$20,000,000SILICON VALLEY BANK$20,000,000CITIBANK, N.A.$16,000,000WELLS FARGO BANK, N.A.WELLS FARGO BANK, N.A. LONDON BRANCH$16,000,000CITIZENS BANK, N.A.$14,000,000TD BANK, N.A.$14,000,000Total$100,0000,000Schedule BCommitmentsLenderRevolving Credit CommitmentPercentageJPMorgan Chase Bank, N.A.$70,000,000.0020.00%Silicon Valley Bank$70,000,000.0020.00%Citibank, N.A.$56,000,000.0016.00%Wells Fargo Bank, N.A.Wells Fargo Bank, N.A. London Branch$56,000,000.0016.00%Citizens Bank, N.A.$49,000,000.0014.00%TD Bank, N.A.$49,000,000.0014.00%Total$350,000,000100.00% Schedule CSchedule 3.11SubsidiariesName of SubsidiaryJurisdiction ofOrganizationOwnership of Equity InterestsAspenTech Argentina S.r.l.Argentina95% of the Equity Interests are owned by the Borrower and theremaining 5% are owned by Aspen Technology International, Inc.Aspen Technology Australia Pty. Ltd.Australia100% of the Equity Interests are owned by the Borrower.Aspen Technology WLLBahrain99% of the Equity Interests are owned by AspenTech Europe BV and theremaining 1% are owned by AspenTech Europe SA/NV.AspenTech Europe S.A./N.V.Belgium95.84% of the Equity Interests are owned by the Borrower and theremaining 4.16% are owned by AspenTech Europe BV.AspenTech Software Brazil Ltda.Brazil99% of the Equity Interests are owned by the Borrower and theremaining 1% are owned by Aspen Technology International, Inc.AspenTech Canada CorporationCanada100% of the Equity Interests are owned by the AspenTech CanadaHoldings, LLC.Aspen Technology S.A.S.Colombia100% of the Equity Interests are owned by the Borrower.Aspen Tech India Pte. Ltd.India15.75% of the Equity Interests are owned by the Borrower and theremaining 84.25% are owned by Aspen Technology (Asia), Inc.Aspen Technology S.r.l.Italy100% of the Equity Interests are owned by the Borrower.AspenTech Japan Co. Ltd.Japan100% of the Equity Interests are owned by Aspen Technology (Asia),Inc.AspenTech Solutions Sdn. Bhd.Malaysia100% of the Equity Interests are owned by AspenTech CanadaCorporation.Aspen Tech de Mexico, S. de R.L. de C.V.Mexico99% of the Equity Interests are owned by the Borrower and theremaining 1% are owned by Aspen Technology International, Inc.AspenTech Europe B.V.Netherlands100% of the Equity Interests are owned by the Borrower.AspenTech (Beijing) Co., Ltd.PRC100% of the Equity Interests are owned by Aspen Technology (Asia),Inc.AspenTech (Shanghai) Co., Ltd.PRC100% of the Equity Interests are owned by Aspen Technology (Asia),Inc.Aspen Technology LLCRussia100% of the Equity Interests are owned by the Borrower.AspenTech Pte. Ltd.Singapore100% of the Equity Interests are owned by the Borrower.AspenTech Africa (Pty.) Ltd.South Africa100% of the Equity Interests are owned by the Borrower.Aspen Technology S.L.Spain100% of the Equity Interests are owned by AspenTech CanadaCorporation.AspenTech (Thailand) Ltd.Thailand100% of the Equity Interests are owned by Aspen Technology (Asia),Inc.AspenTech Ltd.UK100% of the Equity Interests are owned by the Borrower.ATI Global Optimisation Ltd.UK100% of the Equity Interests are owned by the Borrower.Hyprotech UK Ltd.UK100% of the Equity Interests are owned by AspenTech Ltd.AspenTech Canada Holdings, LLCDelaware100% of the Equity Interests are owned by the Borrower.AspenTech Holding CorporationDelaware100% of the Equity Interests are owned by the Borrower.Aspen Technology (Asia) Inc.Delaware100% of the Equity Interests are owned by the Borrower.Aspen Technology International, Inc.Delaware100% of the Equity Interests are owned by the Borrower.Aspen Technology Services CorporationDelaware100% of the Equity Interests are owned by the Borrower.AspenTech Software CorporationDelaware100% of the Equity Interests are owned by the Borrower.AspenTech Venezuela, C.A.Venezuela100% of the Equity Interests are owned by the Borrower.SolidSim Engineering GmbHGermany100% of the Equity Interests are owned by the AspenTech HoldingCorporation.The Fidelis Group, LLCTexas100% of the Equity Interests are owned by the Borrower.Mtelligence CorporationDelaware100% of the Equity Interests are owned by the AspenTech HoldingCorporation.All Subsidiaries of the Borrower are Excluded Subsidiaries except for AspenTech Canada Holdings, LLC.Exhibit 21.1 ASPEN TECHNOLOGY, INC.List of Subsidiaries as of June 30, 2017 State or CountryName of Subsidiaryof Incorporation1Aspen Tech de Mexico, S. de R.L. de C.V.Mexico2Aspen Tech India Private Ltd.India3Aspen Technology (Asia), Inc.Delaware4 Aspen Technology Australia Pty. Ltd. Australia5 Aspen Technology International, Inc. Delaware6 Aspen Technology LLC Russia7 Aspen Technology S.A.S. Colombia8 Aspen Technology S.L. Spain9 Aspen Technology Services Corporation Delaware10 Aspen Technology W.L.L Bahrain11 AspenTech (Beijing) Ltd. PRC12 AspenTech (Shanghai) Ltd. PRC13 AspenTech (Thailand) Ltd. Thailand14 AspenTech Africa (Pty.) Ltd. South Africa15 AspenTech Argentina S.R.L. Argentina16 AspenTech Canada Corporation Canada17 AspenTech Canada Holdings, LLC Delaware18 AspenTech Europe B.V. Netherlands19 AspenTech Europe, S.A./N.V. Belgium20 AspenTech Holding Corporation Delaware21 AspenTech Japan Co. Ltd. Japan22 AspenTech Ltd. UK23 AspenTech Pte. Ltd. Singapore24 AspenTech S.r.l. Italy25 AspenTech Software Brazil Ltda. Brazil26 AspenTech Software Corporation Delaware27 AspenTech Solutions Sdn. Bhd. Malaysia28 AspenTech Venezuela, C.A. Venezuela29 ATI Global Optimisation Ltd. UK30 Hyprotech UK Ltd. UK31 Mtelligence Corporation Delaware32 The Fidelis Group, LLC TexasExhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsAspen Technology, Inc.We consent to the incorporation by reference in the registration statements (No. 333-128423, 333-169657 and 333-215818) on Form S-8 of AspenTechnology, Inc. (the "Company") of our report dated August 10, 2017 with respect to the consolidated balance sheets of the Company as of June 30, 2017and 2016 and the related consolidated statements of operations, comprehensive income, stockholders' (deficit) equity, and cash flows for each of the years inthe three-year period ended June 30, 2017, and the effectiveness of internal control over financial reporting as of June 30, 2017, which reports appear in theJune 30, 2017 annual report on Form 10-K of the Company./s/ KPMG LLPBoston, Massachusetts.August 10, 2017Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Antonio J. Pietri, certify that:1.I have reviewed this Annual Report on Form 10-K of Aspen Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: August 10, 2017/s/ ANTONIO. J. PIETRIAntonio J. PietriPresident and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Karl E. Johnsen, certify that:1.I have reviewed this Annual Report on Form 10-K of Aspen Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: August 10, 2017/s/ KARL E. JOHNSENKarl E. JohnsenSenior Vice President and Chief Financial Officer(Principal Financial Officer)Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Aspen Technology, Inc. (the "Company") for the year ended June 30, 2017, as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), each of the undersigned hereby certifies in his capacity as an officer of the Company,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: August 10, 2017/s/ ANTONIO J. PIETRIAntonio J. PietriPresident and Chief Executive Officer Date: August 10, 2017/s/ KARL E. JOHNSENKarl E. JohnsenSenior Vice President and Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to Aspen Technology, Inc. and will be retained by AspenTechnology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.Executive Officers, Board of Directors and Corporate Information Executive Officers Antonio J. Pietri President and Chief Executive Officer Karl E. Johnsen Senior Vice President and Chief Financial Officer Frederic G. Hammond Senior Vice President, General Counsel and Secretary Board of Directors Robert M. Whelan, Jr. Chairman Whelan & Company, LLC Donald P. Casey Consultant Gary E. Haroian Consultant Joan C. McArdle Consultant Dr. Simon J. Orebi Gann Consultant Antonio J. Pietri President and Chief Executive Officer Aspen Technology, Inc. R. Halsey Wise Chairman and Chief Executive Officer Lime Barrel Advisors, LLC Corporate Information Questions regarding taxpayer identification numbers, transfer procedures, and other stock account matters should be addressed to the Transfer Agent & Registrar at: American Stock Transfer & Trust Company, LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 USA 1–800–937–5449 www.amstock.com info@amstock.com The Annual Meeting of Shareholders will be held on December 8, 2017, at 9:00 a.m. at the offices of: K&L Gates LLP State Street Financial Center One Lincoln Street Boston, Massachusetts 02111 USA Shareholders may obtain a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017, filed with the Securities and Exchange Commission, by sending a written request to: Investor Relations Aspen Technology, Inc. 20 Crosby Drive Bedford, Massachusetts 01730 USA 1–781–221–8385 Worldwide Headquarters Aspen Technology, Inc. 20 Crosby Drive Bedford, Massachusetts 01730 USA 1–781–221–6400 Latin America Headquarters AspenTech Software Brasil Ltda. Edifício Antonio Alves Ferreira Guedes Av. Brigadeiro Faria Lima 3729 - 4.º andar (Piso Regus) CEP: 04538-905-São Paulo-SP-Brasil 55–11–3443–6261 Europe Headquarters AspenTech Ltd. C2 Reading International Business Park Basingstoke Road Reading, Berkshire RG2 6DT United Kingdom 44–1189–226400 Middle East & North Africa Headquarters AspenTech Ltd. Almoayyed Tower 38th Floor Building 2504, Road 2832, Block 428 Al-Seef Bahrain 973–13–606–400 Asia Pacific Headquarters AspenTech Pte. Ltd. #04-20/23 Galaxis 1 Fusionopolis Place Singapore 138522 65–6395–3900 Independent Public Accountants KPMG LLP Two Financial Center 60 South Street Boston, Massachusetts 02111 USA Legal Counsel K&L Gates LLP State Street Financial Center One Lincoln Street Boston, Massachusetts 02111 USA © 2017 Aspen Technology, Inc. AspenTech, aspenONE, the Aspen leaf logo, Aspen Basic Engineering, Aspen Fidelis Reliability, Aspen Mtell, Aspen Unified PIMS and OPTIMIZE are trademarks of Aspen Technology, Inc. All rights reserved. AT-03434-0917Worldwide HeadquartersAspen Technology, Inc. 20 Crosby Drive Bedford, Massachusetts 01730 USAphone: +1–781–221–6400 fax: +1–781–221–6410 info@aspentech.com

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