01—Abstract
Summary
Summary of the 10-K filed March 16, 2005. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated's annual report on Form 10-K for fiscal year 2004 shows a sharp turnaround in results.
Total revenues rose to $231.2 milliona in 2004 from $175.6 million in 2003, with product licenses at $97.0 million and product support and other services at $134.2 million. Income from operations was $68.5 million, compared with $28.0 million a year earlier, and net income was $168.3 million, or $9.83 per diluted share. That net income figure is driven largely by a $107.4 million release of deferred tax valuation allowance recorded as an income tax benefit, which management notes will not recur in future periods.
The balance sheet strengthened considerably over the year. Cash, cash equivalents and short- and long-term investments totaled $132.5 millionb at December 31, 2004, up from $51.9 million, and stockholders' equity rose to $240.6 million from $44.3 million. The company repaid its remaining debt in 2003, reported interest expense of only $53,000 in 2004, and terminated its $15 million revolving credit facility on March 15, 2005.
Management believes existing cash and internally generated cash will be sufficient for at least the next twelve months. The filing also highlights ongoing risks. Class B common stock held by Michael J.
Saylor and other holders carries 72.6%c of total voting power, giving Mr. Saylor control of the company. Litigation with Business Objects, S.A. over patents and trade secrets remains unresolved, with the outcome described as not presently determinable, and a separate patent suit against Crystal Decisions, Inc. is scheduled for trial in November 2005. International revenues accounted for 40.7% of total revenues in 2004.
02—Key points
Key Highlights
- Total revenues grew 31.7% to $231.2 million in 2004 from $175.6 million in 2003, with product support and other services revenue up 36.5% to $134.2 million.
- Net income was $168.3 million ($9.83 per diluted share), versus a net loss of $3.9 million in 2003, but includes a $107.4 million income tax benefit from releasing deferred tax valuation allowance that management says will not recur.
- Income from operations rose to $68.5 million (29.6% of revenues) from $28.0 million in 2003, as total operating expenses fell to 56.2% of revenues from 68.2%.
- Cash, cash equivalents and short- and long-term investments reached $132.5 million at year-end 2004, compared with $51.9 million at year-end 2003.
- Stockholders' equity increased to $240.6 million from $44.3 million, and the accumulated deficit narrowed to $177.6 million from $345.9 million.
- International revenues were $94.2 million, or 40.7% of total revenues, up 57.5% year over year, including a 16.0% favorable foreign currency impact on international product license revenue.
- Class B shareholders, principally Michael J. Saylor, hold 72.6% of total voting power, and the company is controlled by these holders.
03—Questions
Frequently Asked Questions
Why did net income jump so much in 2004?
Net income of $168.3 million includes a $107.4 million benefit from income taxes, recorded when the company released most of its U.S. and Canadian deferred tax asset valuation allowance during the third and fourth quarters of 2004. Income from operations was $68.5 million, and the filing states that the tax benefit will not recur in future periods.
How strong is the company's liquidity and debt position?
At December 31, 2004, cash, cash equivalents and short- and long-term investments totaled $132.5 million, and no amounts were outstanding under the credit facility. Interest expense fell to $53,000 in 2004 after the Series A Notes were converted or repaid in 2003. The revolving credit facility was terminated on March 15, 2005, with $5.1 million in cash posted to secure letters of credit for office leases.
Who controls MicroStrategy and what does that mean for shareholders?
Holders of class B common stock hold 72.6% of total voting power as of March 1, 2005, and Michael J. Saylor, Chairman, President and CEO, beneficially owned 2,849,700 class B shares and 882 class A shares, representing 61.3% of voting power. The filing states that Mr. Saylor can determine the outcome of director elections and can approve or block a change of control without the approval of class A holders.
What are the main litigation risks disclosed?
The company is in ongoing patent and trade secret litigation with Business Objects, S.A. and Business Objects Americas, Inc. The Federal Circuit ruled on January 6, 2005 that MicroStrategy does not literally infringe the asserted claims of the ’403 patent, and appeals on the ’050 patent claims are pending. The filing states that the outcome of this litigation is not presently determinable, so no provision has been recorded. A separate suit against Crystal Decisions, Inc. is scheduled for trial in November 2005.
04—Continue