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Acquisitions | 12 Months Ended
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Sep. 30, 2014
Business Combinations [Abstract] |
Acquisition | Acquisitions In 2014, we completed the acquisitions of Axeda, Atego and ThingWorx, and in 2013 we completed the acquisitions of Servigistics, Enigma and NetIDEAS. The results of operations of these acquired businesses have been included in our consolidated financial statements beginning on their respective acquisition dates. Axeda, Atego and ThingWorx collectively added $9.8 million to our 2014 revenue and approximately $12 million in operating losses. Servigistics, Enigma and NetIDEAS collectively added $94.9 million to our 2013 revenue. These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of the acquired companies and PTC. The process for estimating the fair values of identifiable intangible assets and the ThingWorx contingent consideration liability requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. In accounting for these business combinations, we recorded net deferred tax liabilities of $21.6 million and $38.7 million in 2014 and 2013, respectively, primarily related to the tax effect of the acquired intangible assets other than goodwill that are not deductible for income tax purposes, partially offset by net operating loss carryforwards. As described in Note G, these net deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit to decrease our valuation allowance in the U.S. and the U.K. Acquisition-related costs were $12.7 million, $9.9 million and $3.8 million in 2014, 2013 and 2012, respectively. Acquisition-related costs include direct costs of completing an acquisition (e.g., investment banker fees and professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees, severance, and retention bonuses). In addition, subsequent adjustments to our initial estimated amount of ThingWorx contingent consideration, primarily net present value changes, are included within acquisition-related charges. These costs have been classified in general and administrative expenses in the accompanying consolidated statements of operations. 2014 Acquisitions Axeda On August 11, 2014, pursuant to an Agreement and Plan of Merger with Aztec Acquisition Corporation, a wholly-owned subsidiary of PTC ("Merger Sub"), Axeda Corporation ("Axeda"), and Fortis Advisors LLC, as the Securityholder Representative, we acquired all of the outstanding shares of capital stock of Axeda for approximately $165.9 million in cash (net of cash acquired of $9.6 million). We borrowed $170 million under our credit facility to fund the acquisition. Axeda is a developer of solutions to securely connect machines and sensors to the cloud. Axeda had approximately 160 employees, primarily located in the United States. The purchase price allocation resulted in $130.4 million of goodwill, which will not be deductible for income tax purposes. Of the acquired goodwill, $126.0 million was allocated to our software products segment and $4.4 million was allocated to our services segment. The resulting amount of goodwill reflects our expectations of the following benefits: (1) acceleration of our entry into the emerging Internet of Things (IoT) market including supporting manufacturers seeking to create and service smart, connected products and helping companies in a wide range of other industries seeking to manage connected products and machines and develop applications for the IoT; (2) our intention to leverage our larger sales force and our intellectual property to attract new contracts and revenue; (3) our intention to leverage Axeda's customer base to sell PTC existing products; and (4) our intention to leverage our established presence in global markets. Atego On June 30, 2014, we acquired all of the outstanding shares of capital stock of Atego Group Limited for approximately $46.0 million in cash (net of cash acquired of $3.6 million). At the time of the acquisition, Atego had approximately 110 employees. Atego developed a Model-Based Systems Engineering (MBSE) solution for safety-critical applications and product line engineering. This technology drives process standardization, allowing distributed teams to collaboratively develop and manage models of complex systems. The purchase price allocation resulted in $27.3 million of goodwill, which will not be deductible for income tax purposes. The resulting amount of goodwill reflects the value of the additional functionality added to our ALM product solutions through the acquisition that we can leverage to increase sales to our customers. The capabilities added with this acquisition are increasingly important to manufacturers as they develop smart, connected products with sophisticated mechanical, electrical and software components. ThingWorx On December 30, 2013, pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), we acquired all of the outstanding shares of capital stock of ThingWorx, Inc., creators of a platform for building and running applications for the IoT, for $111.5 million in cash (net of cash acquired of $0.1 million) and $13.0 million representing the fair value of contingent consideration payable upon achievement of targets described below. We borrowed $110.0 million under our existing credit facility to fund the acquisition. We acquired ThingWorx to accelerate our ability to support manufacturers as they create and service smart, connected products. At the time of the acquisition, ThingWorx had approximately 40 employees. The former shareholders of ThingWorx are eligible to receive additional consideration of up to $18.0 million, which is contingent on the achievement of certain profitability and bookings targets (as defined in the Merger Agreement) within the period from December 30, 2013 to January 1, 2016. If such targets are achieved, the consideration is payable in cash in two installments, up to half of which will become payable in fiscal 2015, after the first year measurement period, and the remainder of which, including any such amounts not earned in the first measurement period that are subsequently earned, will become payable in fiscal 2016 after the second year measurement period. In connection with accounting for the business combination, we recorded a liability of $13.0 million representing the fair value of the contingent consideration. The liability was valued using a discounted cash flow method and a probability weighted estimate of achievement of the financial targets. The estimated undiscounted range of outcomes for the contingent consideration is $16.5 million to $18.0 million. We will assess the probability that the targets will be met and at what level each reporting period. Any subsequent changes in the estimated fair value of the liability will be reflected in earnings until the liability is fully settled (activity in 2014 was $2.1 million, see Note B). The purchase price allocation resulted in $102.2 million of goodwill, which will not be deductible for income tax purposes. All of the acquired goodwill was allocated to our software products segment. Additionally, we recorded in process research and development (IPR&D) of $0.5 million related to a version of ThingWorx software released in the third quarter of 2014. The value of the IPR&D was determined using an income approach. The resulting amount of goodwill reflects our expectations of the following benefits: (1) acceleration of our entry into the emerging IoT market including supporting manufacturers seeking to create and service smart, connected products and helping companies in a wide range of other industries seeking to develop applications for the IoT; (2) our intention to leverage our larger sales force and our intellectual property to attract new contracts and revenue; and (3) our intention to leverage our established presence in global markets. Purchase price for our 2014 acquisitions was allocated to assets and liabilities acquired as follows:
Purchase price allocation: | Axeda | Atego | ThingWorx
| (in thousands)
Goodwill | $ | 130,443 |  | $ | 27,256 |  | $ | 102,190 |
Identifiable intangible assets | 59,170 |  | 27,750 |  | 32,520 |
Cash | 9,575 |  | 3,550 |  | 133 |
Deferred revenue | (18,242 | ) | (6,058 | ) | (900 | )
Deferred tax assets and liabilities, net | (9,145 | ) | (3,476 | ) | (8,934 | )
Other assumed assets and liabilities, net | 3,674 |  | 634 |  | (309 | )
Total allocation of purchase price consideration | 175,475 |  | 49,656 |  | 124,700 |
Less: cash acquired | (9,575 | ) | (3,550 | ) | (133 | )
Total purchase price allocation, net of cash acquired | 165,900 |  | 46,106 |  | 124,567 |
Less: contingent consideration | — |  | — |  | (13,048 | )
Net cash used for acquisitions of businesses | $ | 165,900 |  | $ | 46,106 |  | $ | 111,519 |
Intangible assets are being amortized over weighted average useful lives based upon the pattern in which economic benefits related to such assets are expected to be realized. Intangible assets for our 2014 acquisitions and their respective average useful lives are in the table that follows.
Intangible asset allocation: | Axeda |  | Atego |  | ThingWorx
| ($ amounts in thousands)
| Amount | Life |  | Amount | Life |  | Amount | Life
Purchased software | $ | 19,700 |  | 9 |  | $ | 8,200 |  | 11 |  | $ | 21,000 |  | 11
Customer lists | 36,600 |  | 9 |  | 19,400 |  | 11 |  | 8,800 |  | 9
Trademarks | 2,800 |  | 12 |  | 150 |  | 3 |  | 2,300 |  | 12
Other | 70 |  | 2 |  | — |  |  |  | 420 |  | 3
Total identifiable intangible assets | $ | 59,170 |  |  |  | $ | 27,750 |  |  |  | $ | 32,520 |  |
2013 Acquisitions NetIDEAS and Enigma In the fourth quarter of 2013, we acquired all of the outstanding common stock of NetIDEAS, Inc. (a privately-held U.S.- based company) and Enigma Information Systems LTD (a privately-held company with operations in Israel, the U.S., the U.K and Sweden) for a total of $25.0 million, net of $1.0 million of cash acquired. The acquisitions resulted in goodwill of $14.3 million, intangible assets of $15.2 million and deferred tax liabilities related to the intangible assets of $5.3 million. Our results of operations prior to these acquisitions, if presented on a pro forma basis, would not differ materially from our reported results. Servigistics On October 2, 2012, we acquired all of the outstanding shares of capital stock of Servigistics, Inc. (a privately held developer of a suite of service lifecycle management (SLM) software solutions) for $220.8 million in cash, net of $1.4 million cash acquired. We acquired Servigistics to expand our products that support service organizations within manufacturing companies, including managing service and spare parts information and the delivery of service for warranty and product support processes. Servigistics had annualized revenues of approximately $80.0 million and approximately 400 employees. The unaudited financial information in the table below summarizes the combined results of operations of PTC and Servigistics, on a pro forma basis, as though the companies had been combined as of the beginning of PTC's fiscal year 2012. The pro forma information for all periods presented includes the effects of business combination accounting resulting from the acquisition as though the acquisition had been consummated as of the beginning of fiscal year 2012, including amortization charges from acquired intangible assets, the fair value adjustment of acquired deferred support revenue being recorded in fiscal year 2012 versus fiscal year 2013, interest expense on borrowings in connection with the acquisition, the exclusion of acquisition-related costs and the related tax effects. In 2013, we recorded a tax benefit of $32.6 million to decrease our valuation allowance as a result of Servigistics' net deferred tax liabilities recorded in accounting for the business combination. This tax benefit is excluded from the 2013 pro forma results and is reflected in the 2012 pro forma results because the deferred tax liabilities would have resulted in a lower tax charge when we established a valuation allowance against all of our U.S. net deferred tax assets in the fourth quarter of 2012. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place at the beginning of 2012. Unaudited Pro Forma Financial Information
| Year ended September 30,
| 2013 |  | 2012
| (in millions, except per share amounts)
Revenue | $ | 1,296.6 |  |  | $ | 1,328.5 |
Net income (loss) | $ | 116.5 |  |  | $ | (11.6 | )
Earnings (loss) per share—Basic | $ | 0.98 |  |  | $ | (0.10 | )
Earnings (loss) per share—Diluted | $ | 0.96 |  |  | $ | (0.10 | )

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6996-128479 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4922-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4934-128472 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4926-128472 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7000-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6927-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7008-128479 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4845-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 + Details
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