01—Abstract
Summary
Summary of the 10-K filed December 14, 2005. Cited figures are marked; the original filing is the authoritative source.
Parametric Technology Corporation (PTC) develops, markets and supports product lifecycle management (PLM) and enterprise content management (ECM) software and related services.
For fiscal 2005 (year ended September 30, 2005), total revenue was $720.7 milliona, up from $660.0 million in 2004, and net income rose to $83.6 million from $34.8 million. Operating income was $85.8 million compared with $37.4 million the prior year. License revenue was $209.7 million and service revenue was $511.0 million, with maintenance making up the bulk of services.
The filing attributes the improvement to higher revenue, lower restructuring charges (a $(1.3) million credit in 2005 versus $42.9 millionb in 2004) and growth in Enterprise Solutions, which rose to $217.6 million from $179.3 million. The company's main 2005 event was the July 19, 2005 acquisition of Arbortext, Inc., an enterprise publishing software provider, for approximately $194.8 million in cash. The acquisition added $150.1 million of goodwill and expanded PTC's ECM offerings into life sciences, publishing, government and financial services markets.
Cash and cash equivalents fell to $204.4 millionc from $294.9 million, reflected in part by $198.9 million of cash paid for acquisitions and $12.7 million paid in a stock option exchange. Stockholders' equity increased to $323.8 million. Investors should note the pending Rand A Technology Corporation and Rand Technologies Limited lawsuit, in which Rand quantified claimed actual damages above $50 million and asserted trebling, while the company says the claims are without merit and that it cannot predict the outcome.
The filing also discloses an internal review of sales order irregularities in the Asia-Pacific region, which management concluded were not material and did not require restatement. The company does not pay cash dividends, and management reported internal control over financial reporting as effective as of September 30, 2005.
02—Key points
Key Highlights
- Total revenue of $720.7 million in 2005, up from $660.0 million in 2004, with net income of $83.6 million versus $34.8 million
- Operating income of $85.8 million in 2005 compared with $37.4 million in 2004
- Restructuring and other charges were a $(1.3) million credit in 2005, versus $42.9 million in 2004
- Acquired Arbortext, Inc. on July 19, 2005 for approximately $194.8 million in cash, adding $150.1 million of goodwill
- Enterprise Solutions revenue rose to $217.6 million from $179.3 million; Desktop Solutions revenue rose to $503.1 million from $480.7 million
- Cash and cash equivalents decreased to $204.4 million from $294.9 million, mainly due to acquisitions and the stock option exchange
- Rand lawsuit seeks more than $50 million in damages (subject to trebling); the company disputes the claims and cannot predict the outcome
03—Questions
Frequently Asked Questions
How did PTC perform financially in fiscal 2005?
Total revenue rose 9% to $720.7 million from $660.0 million, and net income more than doubled to $83.6 million from $34.8 million. Diluted earnings per share were $0.30, compared with $0.13 in 2004. The improvement was attributed mainly to higher revenue and lower restructuring charges, partly offset by higher operating costs.
What was the significance of the Arbortext acquisition?
PTC acquired Arbortext, Inc., an enterprise publishing software provider, on July 19, 2005 for approximately $194.8 million in cash. Arbortext had generated revenue of approximately $40 million for the twelve months ended June 30, 2005. The company said the deal entered new vertical markets such as life sciences, publishing, government and financial services.
What legal risks does PTC face?
PTC is defending a lawsuit filed in 2003 by Rand A Technology Corporation and Rand Technologies Limited, its former largest distributor. Rand quantified its claimed actual damages at more than $50 million and asserts they should be trebled. Some claims have been dismissed and the court excluded Rand's damages expert, but several claims remain for trial. PTC believes the claims are without merit, has recorded no liability as of September 30, 2005, and cannot predict the outcome.
Does PTC pay dividends, and what is its share repurchase status?
PTC does not pay cash dividends on its common stock and retains earnings for use in the business, though it periodically reviews its dividend policy. Through September 30, 2005, the company had repurchased 31.2 million shares of the 40.0 million authorized, at a cost of $366.8 million. It made no repurchases in 2005 or 2004.
Were there any control or accounting issues disclosed?
PTC disclosed that on November 2, 2005 it identified irregularities in certain Asia-Pacific sales orders. An Audit Committee investigation found errors, principally in fiscal 2001 to 2003, that were not material and did not require restatement. The company is implementing enhanced sales and finance procedures in the region in fiscal 2006. Management concluded that internal control over financial reporting was effective as of September 30, 2005.
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