Acquisitions

In 2013, we completed the acquisitions of Servigistics, Enigma and NetIDEAS. In 2011, we completed the acquisitions of MKS and 4CS. The results of operations of these acquired businesses have been included in our consolidated financial statements beginning on their respective acquisition dates. Servigistics, Enigma and NetIDEAS collectively added $94.9 million to our 2013 revenue. MKS and 4CS collectively added $81.5 million and $26.8 million to our 2012 and 2011 revenue, respectively.

Acquisition-related costs were $9.9 million, $3.8 million and $7.8 million in 2013, 2012 and 2011, respectively. Acquisition-related costs include direct costs of completing an acquisition (e.g., investment banker fees, professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees, severance, and retention bonuses). These costs have been classified in general and administrative expenses in the accompanying consolidated statements of operations.

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 acquisition of Servigistics has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the October 2, 2012 acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Servigistics and PTC. The process for estimating the fair values of identifiable intangible assets and certain tangible assets 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.

Based upon a valuation, the total purchase price allocation was as follows:



	(in thousands)
Goodwill	$	139,833
Identifiable intangible assets	118,300
Cash	1,355
Accounts receivable	20,536
Property and equipment	3,588
Deferred support revenue	(11,714		)
Deferred tax assets and liabilities, net	(35,566		)
Net assumed liabilities	(14,159		)
Total purchase price allocation	222,173
Less: Servigistics cash acquired	(1,355		)
Total purchase price allocation, net of cash acquired	$	220,818

The purchase price allocation resulted in $139.8 million of goodwill, the majority of which will not be deductible for income tax purposes. Of the acquired goodwill, $127.0 million was allocated to our software products segment and $12.8 million was allocated to our services segment. Intangible assets of $118.3 million includes purchased software of $49.9 million, customer relationships of $66.0 million and trademarks of $2.4 million, which are being amortized over weighted average useful lives of 9 years, 10 years and 7 years, respectively, based upon the pattern in which economic benefits related to such assets are expected to be realized. In accounting for the business combination we recorded net deferred tax liabilities of $35.6 million, primarily related to the tax effect of the acquired intangible assets other than goodwill and the fair value adjustment for deferred revenue that are not deductible for income tax purposes. The resulting amount of goodwill reflects our expectations of the following synergistic benefits: (1) the potential to sell Servigistics products into our customer base and to sell PTC products into Servigistics' customer base; (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.

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	)

4CS

In the fourth quarter of 2011, we acquired all of the outstanding common stock of 4C Solutions, Inc. (4CS), a U.S.-based privately-held company with approximately 200 employees, for $14.9 million in cash (net of $0.1 million of cash acquired). Our results of operations prior to this acquisition, if presented on a pro forma basis, would not differ materially from our reported results.

MKS

On May 31, 2011, we acquired all of the outstanding common stock of MKS Inc. (a publicly-held company based in Ontario, Canada) for $265.2 million, net of $33.2 million of cash acquired.

MKS’s results of operations have been included in PTC’s consolidated financial statements beginning May 31, 2011. The unaudited financial information in the table below summarizes the combined results of operations of PTC and MKS, on a pro forma basis, as though the companies had been combined as of the beginning of PTC’s fiscal year 2010. The pro forma information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including amortization charges from acquired intangible assets, stock-based compensation charges for unvested stock options, interest expense on borrowings in connection with the acquisition, and the related tax effects as though the acquisition had been consummated as of the beginning of 2010. These pro forma results exclude the impact of the purchase accounting adjustment to deferred revenue and the transaction costs included in the historical results and the related tax effects. 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 2010. For the year ended September 30, 2011, the pro forma financial information is based on PTC’s results of operations for the year ended September 30, 2011, which includes MKS’s results beginning May 31, 2011, combined with MKS’s results of operations for the eight months ended May 30, 2011.

Unaudited Pro Forma Financial Information



	Year ended
	September 30, 2011
	(in millions, except per share amounts)
Revenue	$	1,227.8
Net income	$	93.0
Earnings per share—Basic	$	0.79
Earnings per share—Diluted	$	0.77