PMTC » Topics » Arbortext

This excerpt taken from the PMTC 10-K filed Nov 29, 2007.
Arbortext
 
On July 19, 2005, we completed the acquisition of all of the outstanding capital stock of Arbortext, Inc., a provider of enterprise publishing software. The aggregate purchase price for the acquisition was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. Included in the aggregate purchase price was the consideration paid to cancel and terminate all Arbortext unvested and unexercised stock options. No PTC common stock or stock options were issued in the acquisition. Acquisition-related transaction costs included investment banking, legal and accounting fees and other external costs directly related to the acquisition. Results of operations for Arbortext have been included in the accompanying consolidated statement of operations since July 19, 2005.
 
The acquisition of Arbortext was accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of July 19, 2005. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Arbortext and PTC. The excess of the purchase price over the fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. Based upon the valuations, the total purchase price was allocated as follows:
 
         
    (in millions)  
 
Goodwill
  $ 151.6  
Identifiable intangible assets
    46.6  
Cash and cash equivalents
    2.3  
Accounts receivable
    9.8  
Property and equipment
    1.3  
Accounts payable and accrued expenses
    (6.9 )
Deferred revenue, net of fair value adjustment
    (7.6 )
Restructuring accruals
    (3.0 )
Deferred tax liabilities
    (18.2 )
Reduction in valuation allowance for deferred tax assets of PTC
    18.2  
In-process research and development
    0.7  
         
Total purchase price allocation
  $ 194.8  
         
 
Identifiable intangible assets acquired consisted of developed technology, core technology, tradenames, customer contracts, software support agreements and related relationships and consulting contracts. Developed technology (products that have reached technological feasibility) includes products in most of Arbortext’s product lines. Core technology represents a combination of Arbortext’s processes, inventions and trade secrets related to the design and development of its applications products. Developed and core technologies total $10.5 million and are being amortized over 3 to 5 years (weighted average life of 4.7 years). Customer relationship intangibles represent the underlying relationships and agreements with Arbortext’s customers. Customer relationship intangibles total $35.3 million and are being amortized over 10 years. Tradenames totaled $0.8 million and are being amortized over 5 years.
 
Purchased in-process research and development of $0.7 million was written-off in the fourth quarter of 2005 and related to two projects under development, for which technological feasibility had not yet been established at the acquisition date and for which there was no alternative future use. The value of the purchased in-process research and development was determined using the residual income approach, which discounts expected future cash flows from projects under development to their net present value. Risk-adjusted discount rates of 20% and 25% were used to reflect the overall risk associated with the projects. The expected cost to complete was approximately $2 million at the acquisition date. These development projects were completed in 2006, as expected.


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PARAMETRIC TECHNOLOGY CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenue and restructuring accruals, net tangible assets were valued at the respective carrying amounts recorded by Arbortext, as we believed that their carrying values approximated their fair values at the acquisition date. Deferred revenue reflects an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to Arbortext’s software support contracts. Restructuring accruals of $3.0 million recorded in the purchase price allocation included the severance costs related to Arbortext employees, costs of planned closure of certain Arbortext facilities and other costs associated with exiting activities of Arbortext and were fully utilized for these purposes as of September 30, 2007.
 
This transaction resulted in $151.6 million of purchase price that exceeded the estimated fair values of tangible and intangible assets and liabilities, which was allocated to goodwill. We believe that the high amount of goodwill relative to identifiable intangible assets was the result of several factors including: (1) the potential to sell Arbortext’s XML-based authoring and publishing products into our traditional manufacturing customer base; (2) the potential to sell our product development system, primarily our collaboration and control products, into Arbortext’s traditional customer base, including customers in markets such as life sciences, financial services, government and publishing; (3) our intention to combine our products to provide software products that enable customers to create, manage and dynamically publish information concurrently with the development of their related products or services; (4) our intention to leverage our larger direct and indirect sales force and our intellectual property to attract new contracts and revenue; and (5) our intention to leverage our established presence in international regions and markets, specifically the Asia-Pacific region, in which Arbortext did not have a significant presence.
 
None of the goodwill or intangible assets acquired in the acquisition is deductible for income tax purposes. As a result, and in accordance with SFAS 109, Income Taxes, we recorded in the purchase accounting a deferred tax liability of $18.2 million, equal to the tax effect of the amount of the acquired intangible assets other than goodwill. As a result of recording that deferred tax liability, we also reduced our valuation allowance recorded against our U.S. pre-acquisition net deferred tax assets by a corresponding amount. When we acquired Arbortext in the fourth quarter of 2005, we recorded approximately $17.7 million of net deferred tax assets of Arbortext, which consisted primarily of acquired net operating loss carryforwards and are not included in the table above. However, we recorded such assets with a full valuation allowance due to the significant uncertainty about whether those deferred tax assets will be realized. In 2007, we reversed this valuation allowance against these net deferred tax assets and reduced goodwill by $16.9 million.
 
This excerpt taken from the PMTC 10-K filed Dec 14, 2006.

Arbortext

 

On July 19, 2005, we completed the acquisition of all of the outstanding capital stock of Arbortext, Inc., a provider of enterprise publishing software. The aggregate purchase price for the acquisition was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. Included in the aggregate purchase price was the consideration paid to cancel and terminate all Arbortext unvested and unexercised stock options. No PTC common stock or stock options were issued in the acquisition. Acquisition-related transaction costs included investment banking, legal and accounting fees and other external costs directly related to the acquisition. Results of operations for Arbortext have been included in the accompanying consolidated statement of operations since July 19, 2005.

 

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PARAMETRIC TECHNOLOGY CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The acquisition of Arbortext was accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of July 19, 2005. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Arbortext and PTC. The excess of the purchase price over the fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The purchase price allocation is final except for the impact, if any, of a potential legal proceeding surrounding a royalty obligation. Based upon the valuations, the total purchase price was allocated as follows:

 

     (in millions)

 

Goodwill

   $ 151.6  

Identifiable intangible assets

     46.6  

Cash and cash equivalents

     2.3  

Accounts receivable

     9.8  

Property and equipment

     1.3  

Accounts payable and accrued expenses

     (6.9 )

Deferred revenue, net of fair value adjustment

     (7.6 )

Restructuring accruals

     (3.0 )

Deferred tax liabilities

     (18.2 )

Reduction in valuation allowance for deferred tax assets of PTC

     18.2  

In-process research and development

     0.7  
    


Total purchase price allocation

   $ 194.8  
    


 

Identifiable intangible assets acquired consisted of developed technology, core technology, tradenames, customer contracts, software support agreements and related relationships and consulting contracts. Developed technology (products that have reached technological feasibility) includes products in most of Arbortext’s product lines. Core technology represents a combination of Arbortext’s processes, inventions and trade secrets related to the design and development of its applications products. Developed and core technologies total $10.5 million and are being amortized over 3 to 5 years (weighted average life of 4.7 years). Customer relationship intangibles represent the underlying relationships and agreements with Arbortext’s customers. Customer relationship intangibles total $35.3 million and are being amortized over 10 years. Tradenames totaled $0.8 million and are being amortized over 5 years.

 

Purchased in-process research and development of $0.7 million was written-off in the fourth quarter of 2005 and related to two projects under development, for which technological feasibility had not yet been established at the acquisition date and for which there was no alternative future use. The value of the purchased in-process research and development was determined using the residual income approach, which discounts expected future cash flows from projects under development to their net present value. Risk-adjusted discount rates of 20% and 25% were used to reflect the overall risk associated with the projects. The expected cost to complete was approximately $2 million at the acquisition date. These development projects were completed in 2006, as expected.

 

Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenue and restructuring accruals, net tangible assets were valued at the respective carrying amounts recorded by Arbortext, as we believed that their carrying values approximated their fair values at the acquisition date. Deferred revenue reflects an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to Arbortext’s software support contracts. Restructuring accruals of $3.0 million recorded in the purchase price allocation included the severance costs related to Arbortext employees, costs of planned closure of certain Arbortext facilities and other costs associated with exiting activities of Arbortext. As of September 30, 2006, we had made cash disbursements of approximately $2.7 million related to our integration of this business, and the remaining $0.3 million of restructuring accruals was included in current liabilities in our consolidated balance sheet.

 

None of the goodwill or intangible assets acquired in the acquisition is deductible for income tax purposes. As a result, and in accordance with SFAS 109, Income Taxes, we recorded in the purchase accounting a deferred tax liability of $18.2 million, equal

 

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PARAMETRIC TECHNOLOGY CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

to the tax effect of the amount of the acquired intangible assets other than goodwill. As a result of recording that deferred tax liability, we also reduced our valuation allowance recorded against our U.S. pre-acquisition net deferred tax assets by a corresponding amount. In addition, in the acquisition, we acquired approximately $17.7 million of net deferred tax assets of Arbortext, which consisted primarily of net operating loss carryforwards and are not included in the table above. However, we recorded such assets with a full valuation allowance due to the significant uncertainty about whether those deferred tax assets will be realized. If and when such acquired deferred tax assets are realized, we will adjust the purchase price allocation by reducing the amount of goodwill recorded.

 

This transaction resulted in $151.6 million of purchase price that exceeded the estimated fair values of tangible and intangible assets and liabilities, which was allocated to goodwill. We believe that the high amount of goodwill relative to identifiable intangible assets was the result of several factors including: (1) the potential to sell Arbortext’s XML-based authoring and publishing products into our traditional manufacturing customer base; (2) the potential to sell our product development system, primarily our collaboration and control products, into Arbortext’s traditional customer base, including customers in markets such as life sciences, financial services, government and publishing; (3) our intention to combine our products to provide software products that enable customers to create, manage and dynamically publish information concurrently with the development of their related products or services; (4) our intention to leverage our larger direct and indirect sales force and our intellectual property to attract new contracts and revenue; and (5) our intention to leverage our established presence in international regions and markets, specifically the Asia-Pacific region, in which Arbortext did not have a significant presence.

 

This excerpt taken from the PMTC 10-Q filed Aug 11, 2006.

Arbortext

In the fourth quarter of 2005, we acquired Arbortext, Inc., a provider of enterprise publishing software. The aggregate purchase price was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. This acquisition was accounted for as a business combination and resulted in $151.6 million of goodwill and $46.6 million of other acquired intangible assets, primarily comprised of customer relationship intangibles, which are being amortized over a weighted average of 7.9 years. Values assigned to these acquired intangible assets are not deductible for tax purposes. No PTC common stock or stock options were issued in the acquisition. The purchase price allocation is final, except for the impact, if any, of a potential dispute concerning a royalty contract. Results of operations for Arbortext have been included in our accompanying consolidated statement of operations beginning July 20, 2005.

 

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PARAMETRIC TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

This excerpt taken from the PMTC 10-Q filed May 11, 2006.

Arbortext

In the fourth quarter of 2005, we completed the acquisition of all of the outstanding capital stock of Arbortext, Inc., a provider of enterprise publishing software. The aggregate purchase price for the acquisition was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. This acquisition was accounted for as a business combination and resulted in $151.6 million of goodwill and $46.6 million of other acquired intangible assets, primarily comprised of customer relationship intangibles, which are being amortized over a weighted average of 7.9 years. Values assigned to these acquired intangible assets are not deductible for tax purposes. No PTC common stock or stock options were issued in the acquisition. The purchase price allocation is final, except for the impact, if any, of a potential dispute concerning a royalty contract. Results of operations for Arbortext have been included in our accompanying consolidated statement of operations beginning July 20, 2005.

This excerpt taken from the PMTC 10-Q filed Feb 9, 2006.

Arbortext

 

In the fourth quarter of 2005, we completed the acquisition of all of the outstanding capital stock of Arbortext, Inc., a provider of enterprise publishing software. The aggregate purchase price for the acquisition was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. This acquisition was accounted for as a business combination and resulted in $151.6 million of goodwill, including $1.5 million recorded in the first quarter of 2006, and $46.6 million of other acquired intangible assets, primarily comprised of customer relationship intangibles, which are being amortized over an average of 7.9 years. Values assigned to intangible assets are not deductible for tax purposes. No PTC common stock or stock options were issued in the acquisition. The purchase price allocation is final, except for the impact, if any, of a potential dispute concerning a royalty contract. Results of operations for Arbortext have been included in the accompanying consolidated statement of operations beginning July 20, 2005.

 

This excerpt taken from the PMTC 10-K filed Dec 14, 2005.

Arbortext

 

On July 19, 2005, we completed the acquisition of all of the outstanding capital stock of Arbortext, Inc., a provider of enterprise publishing software. We believe that the Arbortext acquisition will enhance our product development system by adding documentation capabilities. The aggregate purchase price for the acquisition was approximately $194.8 million in cash, including $3.1 million of acquisition-related transaction costs. Included in the aggregate purchase price is the consideration paid to cancel and terminate all Arbortext unvested and unexercised stock options. No PTC common stock or stock options were issued in the acquisition. Acquisition-related transaction costs include our estimate of investment banking, legal and accounting fees and other external costs directly related to the acquisition. Results of operations for Arbortext have been included in the accompanying consolidated statement of operations beginning July 20, 2005.

 

There are no contingent payments, options, or commitments specified in the acquisition agreement. Any retention bonuses due to key employees of Arbortext are not material and are being expensed over the relevant service period.

 

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PARAMETRIC TECHNOLOGY CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The acquisition of Arbortext has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of July 19, 2005. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Arbortext and PTC. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The purchase price allocation is final except for the impact, if any, of a potential legal proceeding surrounding a royalty obligation. Based upon the valuations, the total purchase price was allocated as follows:

 

     (in millions)

 

Goodwill

   $ 150.1  

Identifiable intangible assets

     46.6  

Cash and cash equivalents

     2.3  

Accounts receivable

     9.8  

Property and equipment

     1.3  

Accounts payable and accrued expenses

     (5.4 )

Deferred revenue, net of fair value adjustment

     (7.6 )

Restructuring reserves

     (3.0 )

Net deferred tax liabilities

     (18.2 )

Reduction in valuation allowance for deferred tax assets of PTC

     18.2  

In-process research and development

     0.7  
    


Total purchase price allocation

   $ 194.8  
    


 

Identifiable intangible assets acquired consist of developed technology, core technology, tradenames, customer contracts, software support agreements and related relationships and consulting contracts. Developed technology (products that have reached technological feasibility) includes products in most of Arbortext’s product lines. Core technology represents a combination of Arbortext’s processes, inventions and trade secrets related to the design and development of its applications products. Developed and core technologies total $10.5 million and are being amortized over 3 to 5 years (weighted average life of 4.7 years). Customer relationship intangibles represent the underlying relationships and agreements with Arbortext’s customers. Customer relationship intangibles total $35.3 million and are being amortized over 10 years. Tradenames totaled $0.8 million and are being amortized over 5 years.

 

Purchased in-process research and development of $0.7 million was written-off in the fourth quarter of 2005 and relates to two projects under development, for which technological feasibility had not yet been established at the acquisition date and for which there was no alternative future use. The value of the purchased in-process research and development was determined using the residual income approach, which discounts expected future cash flows from projects under development to their net present value. These development projects are expected to be completed by the third quarter of 2006, and the expected cost to complete was approximately $2 million at the acquisition date.

 

Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenues and restructuring reserves, net tangible assets were valued at the respective carrying amounts recorded by Arbortext, as we believed that their carrying values approximated their fair values at the acquisition date. Deferred revenues reflect an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to Arbortext’s software support contracts. Restructuring reserves include the severance costs related to Arbortext employees, planned closure of certain Arbortext facilities and other costs associated with exiting activities of Arbortext. Although we have not completed our integration of Arbortext, we currently estimate that total restructuring costs associated with exiting activities of Arbortext will be approximately $3.0 million.

 

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PARAMETRIC TECHNOLOGY CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

This transaction resulted in $150.1 million of purchase price that exceeded the estimated fair values of tangible and intangible assets and liabilities, which was allocated to goodwill. We believe that the high amount of goodwill relative to identifiable intangible assets was the result of several factors including: (1) the potential to sell Arbortext’s XML-based authoring and publishing products into our traditional manufacturing customer base; (2) the potential to sell our product development system, primarily our collaboration and control products, into Arbortext’s traditional customer base, including customers in markets such as life sciences, financial services, government and publishing; (3) our intention to combine our products to provide software products that enable customers to create, manage and dynamically publish information concurrently with the development of their related products or services; (4) our intention to leverage our larger direct and indirect sales force and our intellectual property to attract new contracts and revenue; and (5) our intention to leverage our established presence in international regions and markets, specifically the Asia/Pacific region, in which Arbortext did not have a significant presence.

 

None of the goodwill or intangible assets acquired in the acquisition is deductible for income tax purposes. As a result, and in accordance with SFAS No. 109, Income Taxes, we recorded in the purchase accounting a deferred tax liability of $18.2 million, equal to the tax effect of the amount of the acquired intangible assets other than goodwill. As a result of recording that deferred tax liability, we also reduced our valuation allowance recorded against our U.S. pre-acquisition net deferred tax assets by a corresponding amount. In addition, in the acquisition, we acquired approximately $17.7 million of net deferred tax assets of Arbortext, which consisted primarily of net operating loss carryforwards. However, we recorded such assets with a full valuation allowance due to the significant uncertainty about whether those deferred tax assets will be realized. If and when such acquired deferred tax assets are realized, we will adjust the purchase price allocation by reducing the amount of goodwill recorded.

 

This excerpt taken from the PMTC 8-K filed Jul 6, 2005.

About Arbortext

 

Arbortext is the leading provider of enterprise publishing software, enabling companies around the world to automate the assembly and publishing of product information, marketing documents, service instructions, maintenance procedures, technical publications, legal information and software documentation. Arbortext software allows companies to efficiently and cost-effectively publish to multiple audiences in multiple languages in multiple hardcopy and electronic output formats. As a result, companies can dramatically improve authoring productivity, reduce translation and publishing costs, enhance information quality and speed time-to-market of new products.

 

Current Arbortext customers include Abbott Laboratories, American Express Financial Services, Audi, Boeing, Bombardier, British Aerospace, Caterpillar, DaimlerChrysler, Ericsson, Ford, General Electric, GlaxoSmithKline, GM, IBM, Thomson Publishing, Lucent, Nokia, Nortel Networks, Oracle, Pfizer, Ricoh, Sun Microsystems, Toyota, United Airlines, Volkswagen, Volvo and the US Department of Defense including the Navy, Air Force, Army and Marine Corps. Arbortext is a founding member and active participant in the XML Activity of the World Wide Web Consortium (W3C). Headquartered in Ann Arbor, Michigan, Arbortext has offices around the world.

 

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