##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 333-123664
 
 UGS Corp.
  
 Delaware
    
    75-2728894(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 5800 Granite Parkway, Suite 600
Plano, TX 75024
 (972) 987-3000
 
 þ o
 o þ
 o þ




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UGS CORP.
INDEX TO FORM 10-Q
 PagePart I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Operations for the three months
ended September 30, 2005 (Successor) and 2004 (Successor)
    
    
    1Condensed Consolidated Statements of Operations for the nine months
ended September 30, 2005 (Successor), for the period of January 1,
2004 through May 26, 2004 (Predecessor) and for the period of May 27,
2004 through September 30, 2004 (Successor)
    
    
    2Condensed Consolidated Balance Sheets as of September 30, 2005
(Successor) and as of December 31, 2004 (Successor)
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2005 (Successor), for the period of January 1,
2004 through May 26, 2004 (Predecessor) and for the period of May 27,
2004 through September 30, 2004 (Successor)
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    29Item 3.
    
    Qualitative and Quantitative Disclosures About Market Risk
    
    
    50Item 4.
    
    Controls and Procedures
    
    
    51Part II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    51Signatures
    
    
    52Outside Director Compensation PackageCertification of President and CEO Pursuant to Rules 13a-14(a) and 15d-14(a)Certification of CEO Pursuant to Rules 13a-14(a) and 15d-14(a)Certification of President and CEO and CFO Pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 SuccessorUGS Corp.Three months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Revenue:Software
    
    $
    89,842
    
    
    $
    71,890Maintenance
    
    
    129,706
    
    
    
    95,749Services and other
    
    
    70,701
    
    
    
    67,483Total revenue
    
    
    290,249
    
    
    
    235,122Cost of revenue:Software
    
    
    4,761
    
    
    
    5,017Maintenance
    
    
    14,459
    
    
    
    12,843Services and other
    
    
    58,451
    
    
    
    54,443Amortization of capitalized software and acquired intangible assets
    
    
    32,059
    
    
    
    25,471Total cost of revenue
    
    
    109,730
    
    
    
    97,774Gross profit
    
    
    180,519
    
    
    
    137,348Operating expenses:Selling, general and administrative
    
    
    107,803
    
    
    
    88,976Research and development
    
    
    44,350
    
    
    
    33,464Amortization of other intangible assets
    
    
    9,018
    
    
    
    7,274Total operating expenses
    
    
    161,171
    
    
    
    129,714Operating income
    
    
    19,348
    
    
    
    7,634Interest expense and amortization of deferred financing fees
    
    
    (25,197
    )
    
    
    (22,452
    )Other (expense) income, net
    
    
    (919
    )
    
    
    7,045Loss before income taxes
    
    
    (6,768
    )
    
    
    (7,773
    )Provision (benefit) for income taxes
    
    
    (2,002
    )
    
    
    (2,942
    )Net loss
    
    $
    (4,766
    )
    
    $
    (4,831
    )
  1




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Successor
    
    
    
    PredecessorUGS Corp.
    
    
    
    UGS PLMSolutions Inc.Period of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004Revenue:Software
    
    $
    244,738
    
    
    $
    112,360
    
    
    
    $
    100,780Maintenance
    
    
    369,614
    
    
    
    130,548
    
    
    
    
    163,012Services and other
    
    
    213,472
    
    
    
    94,188
    
    
    
    
    94,011Total revenue
    
    
    827,824
    
    
    
    337,096
    
    
    
    
    357,803Cost of revenue:Software
    
    
    15,161
    
    
    
    7,493
    
    
    
    
    7,163Maintenance
    
    
    42,317
    
    
    
    18,222
    
    
    
    
    21,177Services and other
    
    
    181,148
    
    
    
    75,504
    
    
    
    
    81,259Amortization of capitalized software and
acquired intangible assets
    
    
    89,283
    
    
    
    34,461
    
    
    
    
    23,540Total cost of revenue
    
    
    327,909
    
    
    
    135,680
    
    
    
    
    133,139Gross profit
    
    
    499,915
    
    
    
    201,416
    
    
    
    
    224,664Operating expenses:Selling, general and administrative
    
    
    313,382
    
    
    
    120,899
    
    
    
    
    136,817Research and development
    
    
    118,990
    
    
    
    44,470
    
    
    
    
    52,851In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    Restructuring
    
    
    1,774
    
    
    
    
    
    
    
    
    Amortization of other intangible assets
    
    
    25,327
    
    
    
    10,798
    
    
    
    
    2,500Total operating expenses
    
    
    463,573
    
    
    
    226,986
    
    
    
    
    192,168Operating income (loss)
    
    
    36,342
    
    
    
    (25,570
    )
    
    
    
    32,496Interest expense and amortization of deferred
financing fees
    
    
    (71,576
    )
    
    
    (30,408
    )
    
    
    
    (2,021
    )Other (expense) income, net
    
    
    (14,326
    )
    
    
    7,265
    
    
    
    
    2,010(Loss) income before income taxes
    
    
    (49,560
    )
    
    
    (48,713
    )
    
    
    
    32,485Provision (benefit) for income taxes
    
    
    (14,601
    )
    
    
    806
    
    
    
    
    10,092Net (loss) income
    
    $
    (34,959
    )
    
    $
    (49,519
    )
    
    
    $
    22,393
  2




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 SuccessorSeptember 30,
    
    
    December 31,2005
    
    
    2004Assets:Current assetsCash and cash equivalents
    
    $
    76,253
    
    
    $
    58,400Accounts receivable, net
    
    
    230,688
    
    
    
    233,180Prepaids and other
    
    
    18,903
    
    
    
    23,869Deferred income taxes
    
    
    43,696
    
    
    
    62,890Total current assets
    
    
    369,540
    
    
    
    378,339Property and equipment, net
    
    
    35,309
    
    
    
    33,751Goodwill
    
    
    1,429,059
    
    
    
    1,317,948Capitalized and acquired software, net
    
    
    482,221
    
    
    
    435,816Customer accounts, net
    
    
    209,548
    
    
    
    217,961Other intangible assets, net
    
    
    141,072
    
    
    
    116,501Other assets
    
    
    40,806
    
    
    
    42,696Total assets
    
    $
    2,707,555
    
    
    $
    2,543,012Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    171,061
    
    
    $
    150,290Deferred revenue
    
    
    143,398
    
    
    
    110,027Income taxes payable
    
    
    1,117
    
    
    
    337Current portion of long-term debt
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    315,576
    
    
    
    265,654Other long-term liabilities
    
    
    48,103
    
    
    
    41,011Deferred income taxes
    
    
    198,066
    
    
    
    217,122Long-term debt
    
    
    1,232,086
    
    
    
    1,049,623Stockholders equityCommon stock, $ .01 par value, 3,000 shares authorized;
100 issued and outstanding at September 30, 2005 and
December 31, 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,005,751
    
    
    
    1,005,479Retained deficit
    
    
    (76,096
    )
    
    
    (41,136
    )Accumulated other comprehensive (loss) income, net of tax
    
    
    (15,931
    )
    
    
    5,259Total stockholders equity
    
    
    913,724
    
    
    
    969,602Total liabilities and stockholders equity
    
    $
    2,707,555
    
    
    $
    2,543,012
  3




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Successor
    
    
    
    PredecessorUGS Corp.
    
    
    
    UGS PLMSolutions Inc.Period ofNine months
    
    
    May 27, 2004
    
    
    
    Period ofended
    
    
    through
    
    
    
    January 1, 2004September
30,2005
    
    
    September 30,2004
    
    
    

throughMay 26, 2004Cash flows from operating activitiesNet (loss) income
    
    $
    (34,959
    )
    
    $
    (49,519
    )
    
    
    $
    22,393Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Benefit for deferred income taxes
    
    
    (40,246
    )
    
    
    (13,386
    )
    
    
    
    (47,410
    )Depreciation and amortization
    
    
    126,792
    
    
    
    50,979
    
    
    
    
    33,471Amortization of deferred financing fees
    
    
    4,231
    
    
    
    1,743
    
    
    
    
    In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    Stock-based compensation
    
    
    467
    
    
    
    
    
    
    
    
    Unrealized loss (gain) on revaluation of foreign denominated
assets and liabilities
    
    
    22,782
    
    
    
    (3,711
    )
    
    
    
    2,362Unrealized (gain) loss on foreign currency revaluation of
derivative instruments
    
    
    (17,044
    )
    
    
    4,290
    
    
    
    
    Other
    
    
    2,920
    
    
    
    607
    
    
    
    
    2,277Changes in operating assets and liabilities, net of effect of
acquisitions:Accounts receivable
    
    
    10,128
    
    
    
    2,041
    
    
    
    
    13,062Prepaids and other
    
    
    6,468
    
    
    
    (1,083
    )
    
    
    
    3,357Accounts payable and accrued liabilities
    
    
    990
    
    
    
    (4,864
    )
    
    
    
    (8,319
    )Deferred revenue
    
    
    32,375
    
    
    
    15,959
    
    
    
    
    32,479Income taxes payable
    
    
    (118
    )
    
    
    3,541
    
    
    
    
    22,520Other long-term liabilities
    
    
    (425
    )
    
    
    1,348
    
    
    
    
    1,777Total adjustments
    
    
    153,420
    
    
    
    108,283
    
    
    
    
    55,576Net cash provided by operating activities
    
    
    118,461
    
    
    
    58,764
    
    
    
    
    77,969Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (218,437
    )
    
    
    (2,039,702
    )
    
    
    
    Cash received from prior parent for acquisition related tax matters
    
    
    11,354
    
    
    
    
    
    
    
    
    Payments for purchases of property and equipment
    
    
    (8,542
    )
    
    
    (5,163
    )
    
    
    
    (4,342
    )Capitalized software costs
    
    
    (56,889
    )
    
    
    (22,077
    )
    
    
    
    (24,753
    )Proceeds from sale of marketable securities
    
    
    23,194
    
    
    
    
    
    
    
    
    Other
    
    
    (842
    )
    
    
    (2,006
    )
    
    
    
    456Net cash used in investing activities
    
    
    (250,162
    )
    
    
    (2,068,948
    )
    
    
    
    (28,639
    )Cash flows from financing activitiesPayments under intercompany credit agreement, net
    
    
    
    
    
    
    
    
    
    
    
    (60,986
    )Proceeds from revolver credit line
    
    
    118,551
    
    
    
    55,056
    
    
    
    
    Payments on revolver credit line
    
    
    (124,551
    )
    
    
    (31,197
    )
    
    
    
    Proceeds from note payable
    
    
    10,297
    
    
    
    1,025
    
    
    
    
    Payments on note payable
    
    
    (2,773
    )
    
    
    
    
    
    
    
    Proceeds from bank notes and bonds, net
    
    
    225,271
    
    
    
    1,015,832
    
    
    
    
    Payments on bank notes and bonds
    
    
    (74,597
    )
    
    
    (1,250
    )
    
    
    
    Capital contributed by parent
    
    
    508
    
    
    
    1,001,502
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    152,706
    
    
    
    2,040,968
    
    
    
    
    (60,986
    )Effect of exchange rates on cash and cash equivalents
    
    
    (3,152
    )
    
    
    678
    
    
    
    
    (196
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,853
    
    
    
    31,462
    
    
    
    
    (11,852
    )Cash and cash equivalents at beginning of period
    
    
    58,400
    
    
    
    28,462
    
    
    
    
    40,314Cash and cash equivalents at end of period
    
    $
    76,253
    
    
    $
    59,924
    
    
    
    $
    28,462
  4




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##### Table of Contents



UGS Corp.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1: Basis of Presentation
       Note 2: Acquisition
 Tecnomatix Technologies, Ltd.
  5




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UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    IntangiblesWeighted-AverageUsefulAmount
    
    
    LifeWorking capital and other
    
    $
    (80,885
    )Fixed assets
    
    
    3,931Intangibles:Software
    
    
    70,500
    
    
    
    5.0Customer accounts
    
    
    10,400
    
    
    
    4.0Maintenance agreements
    
    
    33,400
    
    
    
    10.0Noncompete agreement
    
    
    4,600
    
    
    
    2.0Trademarks/tradenames
    
    
    2,500
    
    
    
    7.0Acquired in-process research and development
    
    
    4,100Goodwill
    
    
    169,890Total purchase price
    
    $
    218,436
   Note 3: Stock-Based Compensation
   6




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UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Net lossAs reported
    
    $
    (4,766
    )
    
    $
    (4,831
    )Add: Total stock-based
employee compensation
expense included in
reported net loss under
APB Opinion No. 25, net
of related tax effects
    
    
    219
    
    
    
    Deduct: Total
stock-based employee
compensation expense
determined under
fair-value based method
for all awards, net of
related tax effects
    
    
    (189
    )
    
    
    (59
    )Pro forma
    
    $
    (4,736
    )
    
    $
    (4,890
    )Successor
    
    
    
    PredecessorNine
monthsendedSeptember 30,2005
    
    

Period
ofMay 27, 2004throughSeptember 30,2004
    
    
    
    Period
ofJanuary 1, 2004through   May 26, 2004Net (loss) incomeAs reported
    
    $
    (34,959
    )
    
    $
    (49,519
    )
    
    
    $
    22,393Add: Total
stock-based
employee
compensation
expense
included in
reported net
loss under
APB Opinion
No. 25, net
of related
tax effects
    
    
    329
    
    
    
    
    
    
    
    
    Deduct: Total
stock-based
employee
compensation
expense
determined
under
fair-value
based method
for all
awards, net
of related
tax effects
    
    
    (488
    )
    
    
    (66
    )
    
    
    
    (2,040
    )Pro forma
    
    $
    (35,118
    )
    
    $
    (49,585
    )
    
    
    $
    20,353The following weighted average assumptions were used in the estimated grant date fair value
calculations for stock option and stock purchase awards:SuccessorThree months
    
    Three monthsended
    
    endedSeptember 30, 2005
    
    September 30, 2004Expected term (in years)
    
    
    5.5
    
    
    
    5.5Dividend yields
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.06
    %
    
    
    3.69
    %
 7




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofNine months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughSeptember 30, 2005
    
    September 30, 2004
    
    
    May 26, 2004Expected term (in years)
    
    
    5.5
    
    
    
    5.5
    
    
    
    
    3.4Dividend yields
    
    
    0
    %
    
    
    0
    %
    
    
    
    1.73
    %Expected volatility
    
    
    0
    %
    
    
    0
    %
    
    
    
    39.84
    %Risk-free interest rate
    
    
    3.98
    %
    
    
    3.69
    %
    
    
    
    3.8
    %
 Note 4: Property and Equipment
  SuccessorThree months
    
    Three monthsended
    
    endedSeptember 30, 2005
    
    September 30, 2004Depreciation expense
    
    $
    3,573
    
    
    $
    3,447Successor
    
    
    PredecessorPeriod of
    
    
    Period ofNine months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughSeptember 30, 2005
    
    September 30, 2004
    
    
    May 26, 2004Depreciation expense
    
    $
    9,842
    
    
    $
    4,669
    
    
    
    $
    6,298
 Note 5: Goodwill
  Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalBalance as of December 31, 2004
(Successor)
    
    $
    492,115
    
    
    $
    447,282
    
    
    $
    378,551
    
    
    $
    1,317,948UGS PLM Solutions Inc. purchase price
allocation adjustments
    
    
    (535
    )
    
    
    (425
    )
    
    
    (412
    )
    
    
    (1,372
    )D-Cubed, Ltd. purchase price
allocation adjustments
    
    
    
    
    
    
    (1,040
    )
    
    
    
    
    
    
    (1,040
    )Recording of goodwill for acquisition
of Tecnomatix
    
    
    53,458
    
    
    
    110,275
    
    
    
    6,157
    
    
    
    169,890Impact of foreign currency translation
    
    
    
    
    
    
    (56,367
    )
    
    
    
    
    
    
    (56,367
    )Balance as of September 30, 2005
(Successor)
    
    $
    545,038
    
    
    $
    499,725
    
    
    $
    384,296
    
    
    $
    1,429,059
  8




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 6: Other Intangible Assets
  September 30, 2005 (Successor)Weighted
    
    
    GrossAverage Useful
    
    
    Carrying
    
    
    AccumulatedLife
    
    
    Amount
    
    
    Amortization
    
    
    TotalDefinite Useful LivesCapitalized software
    
    
    3.0
    
    
    $
    92,179
    
    
    $
    6,158
    
    
    $
    86,021Acquired software
    
    
    5.0
    
    
    
    528,050
    
    
    
    131,850
    
    
    
    396,200Customer accounts
    
    
    10.0
    
    
    
    242,273
    
    
    
    32,725
    
    
    
    209,548Maintenance agreements
    
    
    10.0
    
    
    
    110,039
    
    
    
    11,993
    
    
    
    98,046Noncompete agreements
    
    
    2.0
    
    
    
    11,460
    
    
    
    5,714
    
    
    
    5,746Trademarks/tradenames
    
    
    7.0
    
    
    
    45,786
    
    
    
    8,506
    
    
    
    37,280Total other intangible assets
    
    
    
    
    
    $
    1,029,787
    
    
    $
    196,946
    
    
    $
    832,841
 December 31, 2004 (Successor)Weighted
    
    
    GrossAverage Useful
    
    
    Carrying
    
    
    AccumulatedLife
    
    
    Amount
    
    
    Amortization
    
    
    TotalDefinite Useful LivesCapitalized software
    
    
    3.0
    
    
    $
    35,314
    
    
    $
    828
    
    
    $
    34,486Acquired software
    
    
    5.0
    
    
    
    456,614
    
    
    
    55,284
    
    
    
    401,330Customer accounts
    
    
    10.0
    
    
    
    231,873
    
    
    
    13,912
    
    
    
    217,961Maintenance agreements
    
    
    10.0
    
    
    
    76,639
    
    
    
    4,574
    
    
    
    72,065Noncompete agreements
    
    
    2.0
    
    
    
    6,860
    
    
    
    2,021
    
    
    
    4,839Trademarks/tradenames
    
    
    7.0
    
    
    
    43,286
    
    
    
    3,689
    
    
    
    39,597Total other intangible assets
    
    
    
    
    
    $
    850,586
    
    
    $
    80,308
    
    
    $
    770,278
  SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Capitalized software
    
    $
    2,641
    
    
    $
    125Acquired software
    
    
    26,001
    
    
    
    22,475Acquired and other intangible assets
    
    
    13,174
    
    
    
    10,927Total amortization expense
    
    $
    41,816
    
    
    $
    33,527Amortization of certain acquired
software allocated to operating
expense
    
    $
    739
    
    
    $
    782
 9




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004Capitalized software
    
    $
    5,353
    
    
    $
    125
    
    
    
    $
    14,038Acquired software
    
    
    74,480
    
    
    
    31,353
    
    
    
    
    9,595Acquired and other intangible assets
    
    
    37,118
    
    
    
    14,832
    
    
    
    
    3,540Total amortization expense
    
    $
    116,951
    
    
    $
    46,310
    
    
    
    $
    27,173Amortization of certain acquired
software allocated to operating
expense
    
    $
    2,341
    
    
    $
    1,051
    
    
    
    $
    1,133
  Note 7: Restructuring Activities
  Stock
    
    
    Employee
    
    
    ExitRelated
    
    
    Separations
    
    
    Costs
    
    
    TotalBalance at December 31, 2004 (Successor)
    
    $
    40
    
    
    $
    
    
    
    $
    11,869
    
    
    $
    11,909Additions for Tecnomatix acquisition
    
    
    
    
    
    
    8,100
    
    
    
    6,310
    
    
    
    14,410Cash payments
    
    
    
    
    
    
    (3,317
    )
    
    
    (2,207
    )
    
    
    (5,524
    )Reduction of accrual
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )Balance at September 30, 2005 (Successor)
    
    $
    
    
    
    $
    4,783
    
    
    $
    15,972
    
    
    $
    20,755
   10




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 8: Debt
  Note payable, due December 31, 2014 (913.6 million yen)
    
    $
    8,086Senior unsecured subordinated notes, due June 1, 2012, 10.0%
    
    
    550,000Secured term loan, due March 31, 2012, LIBOR plus 2.0%
    
    
    674,000Total long-term debt
    
    
    1,232,086Less current portion
    
    
    Total long-term debt, less current portion
    
    $
    1,232,086
  Note payable, due December 31, 2014 (115.0 million yen)
    
    $
    1,123Revolving credit facility, due May 27, 2010, LIBOR plus 2.50%
    
    
    6,000Senior unsecured subordinated notes, due June 1, 2012, 10.0%
    
    
    550,000Secured term loan, due May 27, 2011, LIBOR plus 2.25%
    
    
    497,500Total long-term debt
    
    
    1,054,623Less current portion
    
    
    (5,000
    )Total long-term debt, less current portion
    
    $
    1,049,623
 Senior Secured Credit Facility Refinancing
  Debt Covenants
  Note 9: Income Taxes
  SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Current
    
    $
    12,504
    
    
    $
    6,805Deferred
    
    
    (14,506
    )
    
    
    (9,747
    )Total
    
    $
    (2,002
    )
    
    $
    (2,942
    )
 11




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    

May
26, 2004Current
    
    $
    25,645
    
    
    $
    14,192
    
    
    
    $
    57,502Deferred
    
    
    (40,246
    )
    
    
    (13,386
    )
    
    
    
    (47,410
    )Total
    
    $
    (14,601
    )
    
    $
    806
    
    
    
    $
    10,092
  SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004U.S. loss
    
    $
    (8,035
    )
    
    $
    (15,708
    )Non-U.S. income
    
    
    1,267
    
    
    
    7,935Total
    
    $
    (6,768
    )
    
    $
    (7,773
    )
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    

May
26, 2004U.S. (loss) income
    
    $
    (37,641
    )
    
    $
    (60,398
    )
    
    
    $
    13,466Non-U.S. (loss) income
    
    
    (11,919
    )
    
    
    11,685
    
    
    
    
    19,019Total
    
    $
    (49,560
    )
    
    $
    (48,713
    )
    
    
    $
    32,485
    12




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note 10: Pension Benefits of Certain Foreign Subsidiaries
 Successor Period
   Service cost
    
    $
    2,019Interest cost
    
    
    629Expected return on plan assets
    
    
    (164
    )Amortization of net actuarial loss
    
    
    44Net periodic benefit cost
    
    $
    2,528
 Predecessor Period
  Note 11: Segment Information
   13




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Revenue
    
    Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalThree months ended September 30, 2005 (Successor)Software
    
    $
    32,535
    
    
    $
    34,682
    
    
    $
    22,625
    
    
    $
    89,842Maintenance
    
    
    54,575
    
    
    
    48,420
    
    
    
    26,711
    
    
    
    129,706Services and other
    
    
    36,737
    
    
    
    27,718
    
    
    
    6,246
    
    
    
    70,701Total revenue
    
    $
    123,847
    
    
    $
    110,820
    
    
    $
    55,582
    
    
    $
    290,249Three months ended September 30, 2004 (Successor)Software
    
    $
    22,945
    
    
    $
    29,408
    
    
    $
    19,537
    
    
    $
    71,890Maintenance
    
    
    39,925
    
    
    
    36,595
    
    
    
    19,229
    
    
    
    95,749Services and other
    
    
    39,081
    
    
    
    22,562
    
    
    
    5,840
    
    
    
    67,483Total revenue
    
    $
    101,951
    
    
    $
    88,565
    
    
    $
    44,606
    
    
    $
    235,122
 Revenue
    
    Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalNine months ended September 30, 2005 (Successor)Software
    
    $
    88,704
    
    
    $
    92,247
    
    
    $
    63,787
    
    
    $
    244,738Maintenance
    
    
    156,465
    
    
    
    139,718
    
    
    
    73,431
    
    
    
    369,614Services and other
    
    
    113,199
    
    
    
    81,416
    
    
    
    18,857
    
    
    
    213,472Total revenue
    
    $
    358,368
    
    
    $
    313,381
    
    
    $
    156,075
    
    
    $
    827,824Period of May 27, 2004 through
September 30, 2004 (Successor)Software
    
    $
    36,838
    
    
    $
    43,437
    
    
    $
    32,085
    
    
    $
    112,360Maintenance
    
    
    53,234
    
    
    
    49,719
    
    
    
    27,595
    
    
    
    130,548Services and other
    
    
    54,904
    
    
    
    31,637
    
    
    
    7,647
    
    
    
    94,188Total revenue
    
    $
    144,976
    
    
    $
    124,793
    
    
    $
    67,327
    
    
    $
    337,096Period of January 1, 2004 through
May 26, 2004 (Predecessor)Software
    
    $
    36,766
    
    
    $
    36,347
    
    
    $
    27,667
    
    
    $
    100,780Maintenance
    
    
    69,885
    
    
    
    62,765
    
    
    
    30,362
    
    
    
    163,012Services and other
    
    
    55,229
    
    
    
    31,811
    
    
    
    6,971
    
    
    
    94,011Total revenue
    
    $
    161,880
    
    
    $
    130,923
    
    
    $
    65,000
    
    
    $
    357,803
 Operating Income
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalThree months
ended September 30,
2005 (Successor)
    
    $
    56,123
    
    
    $
    51,322
    
    
    $
    30,382
    
    
    $
    137,827Three months ended
September 30, 2004
(Successor)
    
    $
    38,640
    
    
    $
    39,053
    
    
    $
    24,693
    
    
    $
    102,386
 Operating Income
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalNine months
ended September 30,
2005 (Successor)
    
    $
    157,293
    
    
    $
    133,194
    
    
    $
    82,887
    
    
    $
    373,374Period of May 27,
2004 through
September 30, 2004
(Successor)
    
    $
    57,837
    
    
    $
    56,882
    
    
    $
    39,255
    
    
    $
    153,974Period of January
1, 2004 through May
26, 2004
(Predecessor)
    
    $
    64,060
    
    
    $
    50,884
    
    
    $
    33,212
    
    
    $
    148,156
 Accounts Receivable
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalAs of September 30, 2005 (Successor)
    
    $
    85,370
    
    
    $
    101,608
    
    
    $
    43,710
    
    
    $
    230,688As of December 31, 2004 (Successor)
    
    $
    79,371
    
    
    $
    108,356
    
    
    $
    45,453
    
    
    $
    233,180
 14




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember
30,2005
    
    

September
30,2004Total operating income for reportable segments
    
    $
    137,827
    
    
    $
    102,386Research and development
    
    
    (44,350
    )
    
    
    (33,464
    )Amortization of capitalized and acquired software
and other intangible assets
    
    
    (41,077
    )
    
    
    (32,745
    )Corporate and unallocated costs
    
    
    (33,052
    )
    
    
    (28,543
    )Operating income
    
    $
    19,348
    
    
    $
    7,634
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember
30,2005
    
    

September
30,2004
    
    
    

May
26,2004Total operating income for reportable segments
    
    $
    373,374
    
    
    $
    153,974
    
    
    
    $
    148,156Research and development
    
    
    (118,990
    )
    
    
    (44,470
    )
    
    
    
    (52,851
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software
and other intangible assets
    
    
    (114,610
    )
    
    
    (45,259
    )
    
    
    
    (26,040
    )Corporate and unallocated costs
    
    
    (97,558
    )
    
    
    (38,996
    )
    
    
    
    (36,769
    )Operating income (loss)
    
    $
    36,342
    
    
    $
    (25,570
    )
    
    
    $
    32,496
  SuccessorThree months
    
    
    Three monthsended
    
    
    endedTotal Revenue:
    

September
30,2005
    
    

September
30,2004United States
    
    $
    116,575
    
    
    $
    97,198Germany
    
    
    40,353
    
    
    
    24,216Japan
    
    
    30,514
    
    
    
    24,920All Other
    
    
    102,807
    
    
    
    88,788Total
    
    $
    290,249
    
    
    $
    235,122
 15




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughTotal
Revenue:
    
    September 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004United States
    
    $
    337,572
    
    
    $
    137,495
    
    
    
    $
    152,253Germany
    
    
    104,966
    
    
    
    31,960
    
    
    
    
    42,309Japan
    
    
    85,304
    
    
    
    34,460
    
    
    
    
    38,828All Other
    
    
    299,982
    
    
    
    133,181
    
    
    
    
    124,413Total
    
    $
    827,824
    
    
    $
    337,096
    
    
    
    $
    357,803
 SuccessorSeptember 30,
    
    
    December 31,Net Property, Plant and Equipment:
    
    2005
    
    
    2004United States
    
    $
    22,414
    
    
    $
    22,798Germany
    
    
    923
    
    
    
    768Japan
    
    
    1,840
    
    
    
    774All Other
    
    
    10,132
    
    
    
    9,411Total
    
    $
    35,309
    
    
    $
    33,751
 Note 12: Commitments and Contingencies
 Legal Proceedings
  Guarantees
  Note 13: Comprehensive (Loss) Income
  16




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Net loss
    
    $
    (4,766
    )
    
    $
    (4,831
    )Currency translation adjustments, net of taxes
    
    
    490
    
    
    
    684Change in fair value of derivative
instruments, net of taxes
    
    
    (773
    )
    
    
    (4,146
    )Comprehensive loss
    
    $
    (5,049
    )
    
    $
    (8,293
    )Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004Net (loss) income
    
    $
    (34,959
    )
    
    $
    (49,519
    )
    
    
    $
    22,393Currency translation adjustments, net of taxes
    
    
    (21,041
    )
    
    
    661
    
    
    
    
    (3,390
    )Change in fair value of derivative
instruments, net of taxes
    
    
    (151
    )
    
    
    (4,146
    )
    
    
    
    Change in minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    (651
    )Comprehensive (loss) income
    
    $
    (56,151
    )
    
    $
    (53,004
    )
    
    
    $
    18,352
 Note 14: Recent Accounting Pronouncements
   Note 15: Financial Statements of Guarantors
  17




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Three months ended September 30, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:Software
    
    $
    27,042
    
    
    $
    993
    
    
    $
    61,807
    
    
    $
    
    
    
    $
    89,842Maintenance
    
    
    48,735
    
    
    
    54
    
    
    
    80,917
    
    
    
    
    
    
    
    129,706Services and other
    
    
    33,974
    
    
    
    44,939
    
    
    
    36,604
    
    
    
    (44,816
    )(a)
    
    
    70,701Total revenue
    
    
    109,751
    
    
    
    45,986
    
    
    
    179,328
    
    
    
    (44,816
    )
    
    
    290,249Cost of revenue:Software
    
    
    1,890
    
    
    
    368
    
    
    
    2,503
    
    
    
    
    
    
    
    4,761Maintenance
    
    
    4,973
    
    
    
    49
    
    
    
    9,437
    
    
    
    
    
    
    
    14,459Services and other
    
    
    27,234
    
    
    
    
    
    
    
    76,033
    
    
    
    (44,816
    )(a)
    
    
    58,451Amortization of capitalized software and
acquired intangible assets
    
    
    12,355
    
    
    
    14,010
    
    
    
    5,694
    
    
    
    
    
    
    
    32,059Total cost of revenue
    
    
    46,452
    
    
    
    14,427
    
    
    
    93,667
    
    
    
    (44,816
    )
    
    
    109,730Gross profit
    
    
    63,299
    
    
    
    31,559
    
    
    
    85,661
    
    
    
    
    
    
    
    180,519Operating expenses:Selling, general and adminstrative
    
    
    49,061
    
    
    
    1,368
    
    
    
    57,374
    
    
    
    
    
    
    
    107,803Research and development
    
    
    44,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,350Amortization of other intangibles assets
    
    
    2,623
    
    
    
    
    
    
    
    6,395
    
    
    
    
    
    
    
    9,018Total operating expenses
    
    
    96,034
    
    
    
    1,368
    
    
    
    63,769
    
    
    
    
    
    
    
    161,171Operating (loss) income
    
    
    (32,735
    )
    
    
    30,191
    
    
    
    21,892
    
    
    
    
    
    
    
    19,348Interest expense and amortization of
deferred financing fees
    
    
    (25,064
    )
    
    
    13,686
    
    
    
    (13,819
    )
    
    
    
    
    
    
    (25,197
    )Other (expense) income, net
    
    
    (2,367
    )
    
    
    236
    
    
    
    1,212
    
    
    
    
    
    
    
    (919
    )(Loss) income before income taxes
    
    
    (60,166
    )
    
    
    44,113
    
    
    
    9,285
    
    
    
    
    
    
    
    (6,768
    )(Benefit) provision for income taxes
    
    
    (20,692
    )
    
    
    15,440
    
    
    
    3,250
    
    
    
    
    
    
    
    (2,002
    )Net (loss) income
    
    $
    (39,474
    )
    
    $
    28,673
    
    
    $
    6,035
    
    
    $
    
    
    
    $
    (4,766
    )
 
 (a)
    
    - Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 18




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Three months ended September 30, 2004Parent
    
    

Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    

Eliminations
    
    

ConsolidatedRevenue:Software
    
    $
    21,295
    
    
    $
    393
    
    
    $
    50,202
    
    
    $
    
    
    
    $
    71,890Maintenance
    
    
    36,781
    
    
    
    292
    
    
    
    58,676
    
    
    
    
    
    
    
    95,749Services and other
    
    
    38,741
    
    
    
    53,906
    
    
    
    28,634
    
    
    
    (53,798
    )(a)
    
    
    67,483Total revenue
    
    
    96,817
    
    
    
    54,591
    
    
    
    137,512
    
    
    
    (53,798
    )
    
    
    235,122Cost of revenue:Software
    
    
    177
    
    
    
    99
    
    
    
    4,741
    
    
    
    
    
    
    
    5,017Maintenance
    
    
    6,221
    
    
    
    28
    
    
    
    6,594
    
    
    
    
    
    
    
    12,843Services and other
    
    
    30,347
    
    
    
    40
    
    
    
    77,854
    
    
    
    (53,798
    )(a)
    
    
    54,443Amortization of capitalized software and
acquired intangible assets
    
    
    10,144
    
    
    
    14,010
    
    
    
    1,317
    
    
    
    
    
    
    
    25,471Total cost of revenue
    
    
    46,889
    
    
    
    14,177
    
    
    
    90,506
    
    
    
    (53,798
    )
    
    
    97,774Gross profit
    
    
    49,928
    
    
    
    40,414
    
    
    
    47,006
    
    
    
    
    
    
    
    137,348Operating expenses:Selling, general and adminstrative
    
    
    46,314
    
    
    
    1,545
    
    
    
    41,117
    
    
    
    
    
    
    
    88,976Research and development
    
    
    20,254
    
    
    
    13,210
    
    
    
    
    
    
    
    
    
    
    
    33,464Amortization of other intangibles assets
    
    
    2,332
    
    
    
    
    
    
    
    4,942
    
    
    
    
    
    
    
    7,274Total operating expenses
    
    
    68,900
    
    
    
    14,755
    
    
    
    46,059
    
    
    
    
    
    
    
    129,714Operating (loss) income
    
    
    (18,972
    )
    
    
    25,659
    
    
    
    947
    
    
    
    
    
    
    
    7,634Interest (expense) income and amortization of
deferred financing fees
    
    
    (20,309
    )
    
    
    12,329
    
    
    
    (14,472
    )
    
    
    
    
    
    
    (22,452
    )Other income, net
    
    
    926
    
    
    
    4,377
    
    
    
    1,742
    
    
    
    
    
    
    
    7,045(Loss) income before income taxes
    
    
    (38,355
    )
    
    
    42,365
    
    
    
    (11,783
    )
    
    
    
    
    
    
    (7,773
    )(Benefit) provision for income taxes
    
    
    (13,646
    )
    
    
    14,828
    
    
    
    (4,124
    )
    
    
    
    
    
    
    (2,942
    )Net (loss) income
    
    $
    (24,709
    )
    
    $
    27,537
    
    
    $
    (7,659
    )
    
    $
    
    
    
    $
    (4,831
    )
 
 (a)
    
    - Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 19




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Nine months ended September 30, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:Software
    
    $
    76,763
    
    
    $
    1,403
    
    
    $
    166,572
    
    
    $
    
    
    
    $
    244,738Maintenance
    
    
    141,129
    
    
    
    300
    
    
    
    228,185
    
    
    
    
    
    
    
    369,614Services and other
    
    
    106,995
    
    
    
    134,242
    
    
    
    106,276
    
    
    
    (134,041
    )(a)
    
    
    213,472Total revenue
    
    
    324,887
    
    
    
    135,945
    
    
    
    501,033
    
    
    
    (134,041
    )
    
    
    827,824Cost of revenue:Software
    
    
    5,940
    
    
    
    520
    
    
    
    8,701
    
    
    
    
    
    
    
    15,161Maintenance
    
    
    15,345
    
    
    
    91
    
    
    
    26,881
    
    
    
    
    
    
    
    42,317Services and other
    
    
    82,837
    
    
    
    26
    
    
    
    232,326
    
    
    
    (134,041
    )(a)
    
    
    181,148Amortization of capitalized software and
acquired intangible assets
    
    
    34,525
    
    
    
    42,030
    
    
    
    12,728
    
    
    
    
    
    
    
    89,283Total cost of revenue
    
    
    138,647
    
    
    
    42,667
    
    
    
    280,636
    
    
    
    (134,041
    )
    
    
    327,909Gross profit
    
    
    186,240
    
    
    
    93,278
    
    
    
    220,397
    
    
    
    
    
    
    
    499,915Operating expenses:Selling, general and adminstrative
    
    
    145,638
    
    
    
    2,655
    
    
    
    165,089
    
    
    
    
    
    
    
    313,382Research and development
    
    
    118,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,990In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    
    
    
    
    4,100Restructuring
    
    
    
    
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    1,774Amortization of other intangibles assets
    
    
    7,868
    
    
    
    
    
    
    
    17,459
    
    
    
    
    
    
    
    25,327Total operating expenses
    
    
    272,496
    
    
    
    2,655
    
    
    
    188,422
    
    
    
    
    
    
    
    463,573Operating (loss) income
    
    
    (86,256
    )
    
    
    90,623
    
    
    
    31,975
    
    
    
    
    
    
    
    36,342Interest expense and amortization of
deferred financing fees
    
    
    (71,279
    )
    
    
    42,683
    
    
    
    (42,980
    )
    
    
    
    
    
    
    (71,576
    )Other (expense) income, net
    
    
    (2,902
    )
    
    
    (12,475
    )
    
    
    1,051
    
    
    
    
    
    
    
    (14,326
    )(Loss) income before income taxes
    
    
    (160,437
    )
    
    
    120,831
    
    
    
    (9,954
    )
    
    
    
    
    
    
    (49,560
    )(Benefit) provision for income taxes
    
    
    (53,408
    )
    
    
    42,291
    
    
    
    (3,484
    )
    
    
    
    
    
    
    (14,601
    )Net (loss) income
    
    $
    (107,029
    )
    
    $
    78,540
    
    
    $
    (6,470
    )
    
    $
    
    
    
    $
    (34,959
    )
 
 (a)
    
    - Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 20




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 For the period of May 27, 2004 through September 30, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:Software
    
    $
    34,050
    
    
    $
    814
    
    
    $
    77,496
    
    
    $
    
    
    
    $
    112,360Maintenance
    
    
    48,861
    
    
    
    366
    
    
    
    81,321
    
    
    
    
    
    
    
    130,548Services and other
    
    
    54,228
    
    
    
    65,134
    
    
    
    39,810
    
    
    
    (64,984
    )(a)
    
    
    94,188Total revenue
    
    
    137,139
    
    
    
    66,314
    
    
    
    198,627
    
    
    
    (64,984
    )
    
    
    337,096Cost of revenue:Software
    
    
    989
    
    
    
    212
    
    
    
    6,292
    
    
    
    
    
    
    
    7,493Maintenance
    
    
    8,205
    
    
    
    33
    
    
    
    9,984
    
    
    
    
    
    
    
    18,222Services and other
    
    
    42,047
    
    
    
    60
    
    
    
    98,381
    
    
    
    (64,984
    )(a)
    
    
    75,504Amortization of capitalized software and
acquired intangible assets
    
    
    13,307
    
    
    
    19,458
    
    
    
    1,696
    
    
    
    
    
    
    
    34,461Total cost of revenue
    
    
    64,548
    
    
    
    19,763
    
    
    
    116,353
    
    
    
    (64,984
    )
    
    
    135,680Gross profit
    
    
    72,591
    
    
    
    46,551
    
    
    
    82,274
    
    
    
    
    
    
    
    201,416Operating expenses:Selling, general and adminstrative
    
    
    62,847
    
    
    
    3,022
    
    
    
    55,030
    
    
    
    
    
    
    
    120,899Research and development
    
    
    31,260
    
    
    
    13,210
    
    
    
    
    
    
    
    
    
    
    
    44,470In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    
    
    
    
    50,819Amortization of other intangibles assets
    
    
    3,972
    
    
    
    
    
    
    
    6,826
    
    
    
    
    
    
    
    10,798Total operating expenses
    
    
    148,279
    
    
    
    16,232
    
    
    
    62,475
    
    
    
    
    
    
    
    226,986Operating (loss) income
    
    
    (75,688
    )
    
    
    30,319
    
    
    
    19,799
    
    
    
    
    
    
    
    (25,570
    )Interest (expense) income and amortization of
deferred financing fees
    
    
    (28,267
    )
    
    
    16,045
    
    
    
    (18,186
    )
    
    
    
    
    
    
    (30,408
    )Other income, net
    
    
    6,643
    
    
    
    618
    
    
    
    4
    
    
    
    
    
    
    
    7,265(Loss) income before income taxes
    
    
    (97,312
    )
    
    
    46,982
    
    
    
    1,617
    
    
    
    
    
    
    
    (48,713
    )(Benefit) provision for income taxes
    
    
    (16,204
    )
    
    
    16,444
    
    
    
    566
    
    
    
    
    
    
    
    806Net (loss) income
    
    $
    (81,108
    )
    
    $
    30,538
    
    
    $
    1,051
    
    
    $
    
    
    
    $
    (49,519
    )
 
 (a)
    
    - Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 21




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 For the period of January 1, 2004 through May 26, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:Software
    
    $
    33,411
    
    
    $
    1,609
    
    
    $
    65,760
    
    
    $
    
    
    
    $
    100,780Maintenance
    
    
    63,974
    
    
    
    204
    
    
    
    98,834
    
    
    
    
    
    
    
    163,012Services and other
    
    
    53,866
    
    
    
    73,969
    
    
    
    40,095
    
    
    
    (73,919
    )(a)
    
    
    94,011Total revenue
    
    
    151,251
    
    
    
    75,782
    
    
    
    204,689
    
    
    
    (73,919
    )
    
    
    357,803Cost of revenue:Software
    
    
    3,937
    
    
    
    275
    
    
    
    2,951
    
    
    
    
    
    
    
    7,163Maintenance
    
    
    7,709
    
    
    
    51
    
    
    
    13,417
    
    
    
    
    
    
    
    21,177Services and other
    
    
    43,487
    
    
    
    (1
    )
    
    
    111,692
    
    
    
    (73,919
    )(a)
    
    
    81,259Amortization of capitalized software and
acquired intangible assets
    
    
    23,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,540Total cost of revenue
    
    
    78,673
    
    
    
    325
    
    
    
    128,060
    
    
    
    (73,919
    )
    
    
    133,139Gross profit
    
    
    72,578
    
    
    
    75,457
    
    
    
    76,629
    
    
    
    
    
    
    
    224,664Operating expenses:Selling, general and adminstrative
    
    
    78,282
    
    
    
    439
    
    
    
    58,096
    
    
    
    
    
    
    
    136,817Research and development
    
    
    48,685
    
    
    
    3,084
    
    
    
    1,082
    
    
    
    
    
    
    
    52,851Amortization of other intangibles assets
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Total operating expenses
    
    
    129,467
    
    
    
    3,523
    
    
    
    59,178
    
    
    
    
    
    
    
    192,168Operating (loss) income
    
    
    (56,889
    )
    
    
    71,934
    
    
    
    17,451
    
    
    
    
    
    
    
    32,496Interest (expense) income, net
    
    
    (2,070
    )
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    (2,021
    )Other (expense) income, net
    
    
    395
    
    
    
    2,042
    
    
    
    (427
    )
    
    
    
    
    
    
    2,010(Loss) income before income taxes
    
    
    (58,564
    )
    
    
    73,976
    
    
    
    17,073
    
    
    
    
    
    
    
    32,485(Benefit) provision for income taxes
    
    
    (21,775
    )
    
    
    25,891
    
    
    
    5,976
    
    
    
    
    
    
    
    10,092Net (loss) income
    
    $
    (36,789
    )
    
    $
    48,085
    
    
    $
    11,097
    
    
    $
    
    
    
    $
    22,393
 
 (a)
    
    - Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 22




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING BALANCE SHEET
(in thousands)
 September 30, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    

Subsidiaries
    
    

Eliminations
    

ConsolidatedAssets:Current assetsCash and cash equivalents
    
    $
    (3,100
    )
    
    $
    1,202
    
    
    $
    78,151
    
    
    $
    
    
    
    $
    76,253Accounts receivable, net
    
    
    74,451
    
    
    
    637
    
    
    
    155,600
    
    
    
    
    
    
    
    230,688Prepaids and other
    
    
    10,199
    
    
    
    
    
    
    
    8,704
    
    
    
    
    
    
    
    18,903Deferred income taxes
    
    
    43,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,696Total current assets
    
    
    125,246
    
    
    
    1,839
    
    
    
    242,455
    
    
    
    
    
    
    
    369,540Property and equipment, net
    
    
    21,580
    
    
    
    
    
    
    
    13,729
    
    
    
    
    
    
    
    35,309Goodwill
    
    
    324,106
    
    
    
    542,785
    
    
    
    562,168
    
    
    
    
    
    
    
    1,429,059Capitalized and acquired software, net
    
    
    207,231
    
    
    
    204,702
    
    
    
    70,288
    
    
    
    
    
    
    
    482,221Customer accounts, net
    
    
    79,086
    
    
    
    
    
    
    
    130,462
    
    
    
    
    
    
    
    209,548Other intangible assets, net
    
    
    48,262
    
    
    
    
    
    
    
    92,810
    
    
    
    
    
    
    
    141,072Intercompany balances
    
    
    
    
    
    
    598,748
    
    
    
    
    
    
    
    (598,748
    )(b)
    
    
    Other assets
    
    
    823,645
    
    
    
    
    
    
    
    5,414
    
    
    
    (788,253
    )(a)
    
    
    40,806Total assets
    
    $
    1,629,156
    
    
    $
    1,348,074
    
    
    $
    1,117,326
    
    
    $
    (1,387,001
    )
    
    $
    2,707,555Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    72,250
    
    
    $
    467
    
    
    $
    98,344
    
    
    $
    
    
    
    $
    171,061Deferred revenue
    
    
    64,314
    
    
    
    706
    
    
    
    78,378
    
    
    
    
    
    
    
    143,398Income taxes payable
    
    
    
    
    
    
    
    
    
    
    1,117
    
    
    
    
    
    
    
    1,117Intercompany balances
    
    
    150,091
    
    
    
    
    
    
    
    448,657
    
    
    
    (598,748
    )(b)
    
    
    Total current liabilities
    
    
    286,655
    
    
    
    1,173
    
    
    
    626,496
    
    
    
    (598,748
    )
    
    
    315,576Other long-term liabilities
    
    
    
    
    
    
    9,578
    
    
    
    38,525
    
    
    
    
    
    
    
    48,103Deferred income taxes
    
    
    23,813
    
    
    
    71,646
    
    
    
    102,607
    
    
    
    
    
    
    
    198,066Long-term debt
    
    
    1,224,000
    
    
    
    
    
    
    
    8,086
    
    
    
    
    
    
    
    1,232,086Total stockholders equity
    
    
    94,688
    
    
    
    1,265,677
    
    
    
    341,612
    
    
    
    (788,253
    )(a)
    
    
    913,724Total liabilities and
stockholders equity
    
    $
    1,629,156
    
    
    $
    1,348,074
    
    
    $
    1,117,326
    
    
    $
    (1,387,001
    )
    
    $
    2,707,555
 
 (a)
    
     Elimination of investment in guarantor subsidiary.(b)
    
     Elimination of intercompany balances. 23




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING BALANCE SHEET
(in thousands)
 December 31, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Current assetsCash and cash equivalents
    
    $
    (1,951
    )
    
    $
    251
    
    
    $
    60,100
    
    
    $
    
    
    
    $
    58,400Accounts receivable, net
    
    
    74,211
    
    
    
    1,980
    
    
    
    156,989
    
    
    
    
    
    
    
    233,180Prepaids and other
    
    
    14,458
    
    
    
    220
    
    
    
    9,191
    
    
    
    
    
    
    
    23,869Deferred income taxes
    
    
    60,978
    
    
    
    
    
    
    
    1,912
    
    
    
    
    
    
    
    62,890Total current assets
    
    
    147,696
    
    
    
    2,451
    
    
    
    228,192
    
    
    
    
    
    
    
    378,339Property and equipment, net
    
    
    21,884
    
    
    
    
    
    
    
    11,867
    
    
    
    
    
    
    
    33,751Goodwill
    
    
    325,681
    
    
    
    542,785
    
    
    
    449,482
    
    
    
    
    
    
    
    1,317,948Capitalized and acquired software, net
    
    
    182,737
    
    
    
    246,732
    
    
    
    6,347
    
    
    
    
    
    
    
    435,816Customer accounts, net
    
    
    85,941
    
    
    
    
    
    
    
    132,020
    
    
    
    
    
    
    
    217,961Other intangible assets, net
    
    
    54,073
    
    
    
    
    
    
    
    62,428
    
    
    
    
    
    
    
    116,501Intercompany credit agreement
    
    
    70,888
    
    
    
    205,734
    
    
    
    
    
    
    
    (276,622
    )(b)
    
    
    Other assets
    
    
    592,688
    
    
    
    
    
    
    
    5,874
    
    
    
    (555,866
    )(a)
    
    
    42,696Total assets
    
    $
    1,481,588
    
    
    $
    997,702
    
    
    $
    896,210
    
    
    $
    (832,488
    )
    
    $
    2,543,012Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    67,243
    
    
    $
    325
    
    
    $
    82,722
    
    
    $
    
    
    
    $
    150,290Deferred revenue
    
    
    49,376
    
    
    
    1,242
    
    
    
    59,409
    
    
    
    
    
    
    
    110,027Income taxes payable
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    337Intercompany credit agreement
    
    
    
    
    
    
    
    
    
    
    276,622
    
    
    
    (276,622
    )(b)
    
    
    Current portion of long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    121,619
    
    
    
    1,567
    
    
    
    419,090
    
    
    
    (276,622
    )
    
    
    265,654Other long-term liabilities
    
    
    
    
    
    
    26,390
    
    
    
    14,621
    
    
    
    
    
    
    
    41,011Deferred income taxes
    
    
    63,736
    
    
    
    86,357
    
    
    
    67,029
    
    
    
    
    
    
    
    217,122Long-term debt
    
    
    1,048,500
    
    
    
    
    
    
    
    1,123
    
    
    
    
    
    
    
    1,049,623Total stockholders equity
    
    
    247,733
    
    
    
    883,388
    
    
    
    394,347
    
    
    
    (555,866
    )(a)
    
    
    969,602Total liabilities and
stockholders equity
    
    $
    1,481,588
    
    
    $
    997,702
    
    
    $
    896,210
    
    
    $
    (832,488
    )
    
    $
    2,543,012
 
 (a)
    
     Elimination of investment in guarantor subsidiary.(b)
    
     Elimination of intercompany balances. 24




---



##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 Nine months ended September 30, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    

Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (107,029
    )
    
    $
    78,540
    
    
    $
    (6,470
    )
    
    $
    (34,959
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Benefit for deferred income taxes
    
    
    (14,970
    )
    
    
    (14,711
    )
    
    
    (10,565
    )
    
    
    (40,246
    )Depreciation and amortization
    
    
    50,653
    
    
    
    42,030
    
    
    
    34,109
    
    
    
    126,792Amortization of deferred financing fees
    
    
    4,231
    
    
    
    
    
    
    
    
    
    
    
    4,231In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    4,100Stock-based compensation
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    467Other
    
    
    817
    
    
    
    (157
    )
    
    
    2,260
    
    
    
    2,920Unrealized loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    22,782
    
    
    
    22,782Unrealized gain on foreign currency revaluation of
derivative instruments
    
    
    
    
    
    
    (17,044
    )
    
    
    
    
    
    
    (17,044
    )Changes in operating assets and liabilities, net
of effect
of acqusitions:Accounts receivable
    
    
    182
    
    
    
    1,500
    
    
    
    8,446
    
    
    
    10,128Prepaids and other
    
    
    4,611
    
    
    
    220
    
    
    
    1,637
    
    
    
    6,468Accounts payable and accrued
liabilities
    
    
    6,062
    
    
    
    142
    
    
    
    (5,214
    )
    
    
    990Deferred revenue
    
    
    11,869
    
    
    
    (536
    )
    
    
    21,042
    
    
    
    32,375Income taxes payable
    
    
    
    
    
    
    
    
    
    
    (118
    )
    
    
    (118
    )Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    (425
    )
    
    
    (425
    )Total adjustments
    
    
    63,922
    
    
    
    11,444
    
    
    
    78,054
    
    
    
    153,420Net cash (used in) provided by operating activities
    
    
    (43,107
    )
    
    
    89,984
    
    
    
    71,584
    
    
    
    118,461Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (218,437
    )
    
    
    (218,437
    )Cash received from prior parent for acquisition
related tax matters
    
    
    11,354
    
    
    
    
    
    
    
    
    
    
    
    11,354Payments for purchases of property and equipment
    
    
    (5,805
    )
    
    
    
    
    
    
    (2,737
    )
    
    
    (8,542
    )Capitalized software costs
    
    
    (55,061
    )
    
    
    
    
    
    
    (1,828
    )
    
    
    (56,889
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    23,194
    
    
    
    23,194Other
    
    
    (2,278
    )
    
    
    280
    
    
    
    1,156
    
    
    
    (842
    )Net cash (used in) provided by investing activities
    
    
    (51,790
    )
    
    
    280
    
    
    
    (198,652
    )
    
    
    (250,162
    )Cash flows from financing activitiesIntercompany borrowings (payments)
    
    
    (74,961
    )
    
    
    (89,313
    )
    
    
    164,274
    
    
    
    Proceeds from revolver credit line
    
    
    118,551
    
    
    
    
    
    
    
    
    
    
    
    118,551Payments on revolver credit line
    
    
    (124,551
    )
    
    
    
    
    
    
    
    
    
    
    (124,551
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    10,297
    
    
    
    10,297Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (2,773
    )
    
    
    (2,773
    )Proceeds from bank notes and bonds, net
    
    
    225,201
    
    
    
    
    
    
    
    8,903
    
    
    
    234,104Payments on bank notes and bonds
    
    
    (51,000
    )
    
    
    
    
    
    
    (32,430
    )
    
    
    (83,430
    )Capital contributed by parent
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    508Net cash provided by (used in) financing activities
    
    
    93,748
    
    
    
    (89,313
    )
    
    
    148,271
    
    
    
    152,706Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (3,152
    )
    
    
    (3,152
    )Net decrease in cash and cash equivalents
    
    
    (1,149
    )
    
    
    951
    
    
    
    18,051
    
    
    
    17,853Cash and cash equivalents at beginning of period
    
    
    (1,951
    )
    
    
    251
    
    
    
    60,100
    
    
    
    58,400Cash and cash equivalents at end of period
    
    $
    (3,100
    )
    
    $
    1,202
    
    
    $
    78,151
    
    
    $
    76,253
 25




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 For the period of May 27, 2004 through September 30, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (81,108
    )
    
    $
    30,538
    
    
    $
    1,051
    
    
    $
    (49,519
    )Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Provision for deferred income taxes
    
    
    (2,847
    )
    
    
    (6,810
    )
    
    
    (2,983
    )
    
    
    (12,640
    )Depreciation and amortization
    
    
    21,242
    
    
    
    19,458
    
    
    
    10,279
    
    
    
    50,979Amortization of deferred financing fees
    
    
    1,743
    
    
    
    
    
    
    
    
    
    
    
    1,743In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    50,819Unrealized gain on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    (3,711
    )
    
    
    (3,711
    )Unrealized loss on foreign currency revaluation of
derivative instruments
    
    
    4,290
    
    
    
    
    
    
    
    
    
    
    
    4,290Other
    
    
    492
    
    
    
    
    
    
    
    115
    
    
    
    607Changes in operating assets and liabilities, net
of effect
of acqusitions:Accounts receivable
    
    
    (10,124
    )
    
    
    782
    
    
    
    11,383
    
    
    
    2,041Prepaids and other
    
    
    2,722
    
    
    
    10
    
    
    
    (3,815
    )
    
    
    (1,083
    )Accounts payable and accrued
liabilities
    
    
    245
    
    
    
    (5,149
    )
    
    
    40
    
    
    
    (4,864
    )Deferred revenue
    
    
    9,598
    
    
    
    (256
    )
    
    
    6,617
    
    
    
    15,959Income taxes payable
    
    
    
    
    
    
    
    
    
    
    2,795
    
    
    
    2,795Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    1,348
    
    
    
    1,348Total adjustments
    
    
    77,561
    
    
    
    8,035
    
    
    
    22,687
    
    
    
    108,283Net cash (used in) provided by operating activities
    
    
    (3,547
    )
    
    
    38,573
    
    
    
    23,738
    
    
    
    58,764Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (2,023,367
    )
    
    
    
    
    
    
    (16,335
    )
    
    
    (2,039,702
    )Payments for purchases of property and equipment
    
    
    (3,442
    )
    
    
    
    
    
    
    (1,721
    )
    
    
    (5,163
    )Capitalized software costs
    
    
    (22,077
    )
    
    
    
    
    
    
    
    
    
    
    (22,077
    )Other
    
    
    (1,778
    )
    
    
    30
    
    
    
    (258
    )
    
    
    (2,006
    )Net cash (used in) provided by investing activities
    
    
    (2,050,664
    )
    
    
    30
    
    
    
    (18,314
    )
    
    
    (2,068,948
    )Cash flows from financing activitiesPayments under intercompany credit agreement
    
    
    18,024
    
    
    
    (37,533
    )
    
    
    19,509
    
    
    
    Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    1,025
    
    
    
    1,025Proceeds from revolver credit line
    
    
    55,056
    
    
    
    
    
    
    
    
    
    
    
    55,056Borrowings from revolver credit line
    
    
    (31,197
    )
    
    
    
    
    
    
    
    
    
    
    (31,197
    )Proceeds from bank notes and bonds, net
    
    
    1,015,832
    
    
    
    
    
    
    
    
    
    
    
    1,015,832Borrowings from bank notes and bonds
    
    
    (1,250
    )
    
    
    
    
    
    
    
    
    
    
    (1,250
    )Proceeds from private investors
    
    
    1,001,502
    
    
    
    
    
    
    
    
    
    
    
    1,001,502Net cash provided by (used in) financing activities
    
    
    2,057,967
    
    
    
    (37,533
    )
    
    
    20,534
    
    
    
    2,040,968Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    678
    
    
    
    678Net increase in cash and cash equivalents
    
    
    3,756
    
    
    
    1,070
    
    
    
    26,636
    
    
    
    31,462Cash and cash equivalents at beginning of period
    
    
    741
    
    
    
    
    
    
    
    27,721
    
    
    
    28,462Cash and cash equivalents at end of period
    
    $
    4,497
    
    
    $
    1,070
    
    
    $
    54,357
    
    
    $
    59,924
 26




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 For the period of January 1, 2004 through May 26, 2004Parent
    
    

Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    

ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (36,789
    )
    
    $
    48,085
    
    
    $
    11,097
    
    
    $
    22,393Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Benefit for deferred income taxes
    
    
    (47,410
    )
    
    
    
    
    
    
    
    
    
    
    (47,410
    )Depreciation and amortization
    
    
    30,921
    
    
    
    
    
    
    
    2,550
    
    
    
    33,471Unrealized loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    2,362
    
    
    
    2,362Other
    
    
    376
    
    
    
    570
    
    
    
    1,331
    
    
    
    2,277Changes in
operating assets andliabilities, net of effect
of acqusitions:Accounts receivable
    
    
    21,080
    
    
    
    1,162
    
    
    
    (9,180
    )
    
    
    13,062Prepaids and other
    
    
    (2,635
    )
    
    
    37
    
    
    
    5,955
    
    
    
    3,357Accounts
payable and accruedliabilities
    
    
    (12,260
    )
    
    
    (425
    )
    
    
    4,366
    
    
    
    (8,319
    )Deferred revenue
    
    
    6,864
    
    
    
    (712
    )
    
    
    26,327
    
    
    
    32,479Income taxes payable
    
    
    
    
    
    
    
    
    
    
    22,520
    
    
    
    22,520Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    1,777Total adjustments
    
    
    (3,064
    )
    
    
    632
    
    
    
    58,008
    
    
    
    55,576Net cash (used in) provided by operating activities
    
    
    (39,853
    )
    
    
    48,717
    
    
    
    69,105
    
    
    
    77,969Cash flows from investing activitiesPurchases of property and equipment
    
    
    (2,997
    )
    
    
    
    
    
    
    (1,345
    )
    
    
    (4,342
    )Capitalized software costs
    
    
    (24,753
    )
    
    
    
    
    
    
    
    
    
    
    (24,753
    )Other
    
    
    (922
    )
    
    
    
    
    
    
    1,378
    
    
    
    456Net cash (used in) provided by investing activities
    
    
    (28,672
    )
    
    
    
    
    
    
    33
    
    
    
    (28,639
    )Cash flows from financing activitiesBorrowings (payments) under intercompany credit
agreement, net
    
    
    74,764
    
    
    
    (49,371
    )
    
    
    (86,379
    )
    
    
    (60,986
    )Net cash provided by (used in) financing activities
    
    
    74,764
    
    
    
    (49,371
    )
    
    
    (86,379
    )
    
    
    (60,986
    )Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    (196
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,239
    
    
    
    (654
    )
    
    
    (17,437
    )
    
    
    (11,852
    )Cash and cash equivalents at beginning of period
    
    
    (5,498
    )
    
    
    654
    
    
    
    45,158
    
    
    
    40,314Cash and cash equivalents at end of period
    
    $
    741
    
    
    $
    
    
    
    $
    27,721
    
    
    $
    28,462
 27




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 Note 16: Subsequent Event
    28




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##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Statements contained in this Quarterly Report on Form 10-Q that relate to our future
performance, including, without limitation, statements with respect to our anticipated results of
operations or level of business for fiscal 2005 or any other future period, are forward-looking
statements within the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on current expectations only, and are subject to
certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated, or projected. The factors that could cause actual results to
materially differ include a failure of the PLM market to develop, loss or downsizing of key
customers, highly competitive industry, inability to deliver new and innovative PLM software
products and services, substantial, prolonged economic downturn in the markets, disruptions in
international markets, future terrorist attacks, an increase in interest rates, changes in pricing
models for PLM software products, and intellectual property rights protection and infringement
claims. These risks are described in our Registration Statement on Form S-4 (File No. 333-123664)
under the heading Risk Factors. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events, or otherwise.
 Basis of Presentation
  Key Business Metrics
  Revenue
  29




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##### Table of Contents



Cost of Revenue
  Sales and Marketing
    Research and Development Costs
   30




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##### Table of Contents



SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30, 2005
    
    
    September 30, 2004Research and development costs
    
    $
    44,350
    
    
    $
    33,464Capitalized software costs
    
    
    17,444
    
    
    
    15,741Total Research and Development Costs
    
    $
    61,794
    
    
    $
    49,205
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofNine months
    
    
    May 27, 2004
    
    
    
    January 1, 2004ended
    
    
    through
    
    
    
    throughSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004Research and development costs
    
    $
    118,990
    
    
    $
    44,470
    
    
    
    $
    52,851Capitalized software costs
    
    
    56,889
    
    
    
    22,077
    
    
    
    
    24,753Total Research and Development Costs
    
    $
    175,879
    
    
    $
    66,547
    
    
    
    $
    77,604
 Factors Affecting our Results of Operations
  Impact of the Acquisition of UGS PLM Solutions Inc.
   Deferred Revenue
  31




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##### Table of Contents



Amortization of Acquired Intangible Assets
  Capitalization of Software Development Costs
  Other Acquisitions
 D-Cubed. Ltd.
  Tecnomatix Technologies Ltd.
  32




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##### Table of Contents



Acquisition Related Interest Expense
  Services Arrangement
   Critical Accounting Policies and Estimates
  Capitalized Software Development Costs
  33




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##### Table of Contents



Revenue Recognition
   
    
    Persuasive Evidence of an Arrangement Exists.It is our practice to require that a
written order signed by both the customer and us, or a purchase order from those
customers that have previously negotiated an end user license arrangement, be received.
    
    Delivery Has Occurred.We deliver software by both physical and electronic means.
Both means of delivery transfer title and risk to the customer. For electronic delivery
of the software, delivery is complete when the customer has been provided electronic
access to their software. Acceptance provisions included in a software license agreement
generally grant customers a right of refund or replacement only if the licensed software
does not perform in accordance with its published specifications. Based on our history,
the likelihood of non-acceptance in these situations is remote, and we recognize revenue
when all other criteria of revenue recognition are met. If the likelihood of
nonacceptance is determined to be other than remote, revenue is recognized upon the
earlier of receipt of written acceptance or when the acceptance period has lapsed.
    
    The Vendors Fee is Fixed or Determinable.Fees are generally considered fixed or
determinable when payment terms are set forth at the contract execution date, with our
payment terms being generally less than 90 days. We recognize revenue for delivered
elements only when the fair value of the undelivered elements is known, uncertainties
regarding customer acceptance are resolved, and there are no refund, cancellation, or
return rights affecting the revenue recognized for delivered elements.
    
    Collectibility is Probable.Customers must meet collectibility requirements
pursuant to our credit policy. We perform a collectibility assessment for each
transaction. For contracts that do not meet our collectibility criteria, revenue is
recognized when cash is received.
  34




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##### Table of Contents



Business Combinations
    35




---



##### Table of Contents



Recoverability of Goodwill, Acquired Intangible Assets and Long-Lived Assets
   Income Taxes
    36




---



##### Table of Contents



Pricing of Historic EDS Services
  Recent Accounting Pronouncements
   Segment Revenue and Operating Income
  Geographic Segment Revenue
   37




---



##### Table of Contents



Geographic Segment Operating Income
  38




---



##### Table of Contents



39




---



##### Table of Contents



SuccessorThree
    
    
    Threemonths ended
    
    
    months endedSeptember 30, 2005
    
    
    September 30, 2004Americas:Revenue
    
    $
    123,847
    
    
    $
    101,951Operating income
    
    
    56,123
    
    
    
    38,640Europe:Revenue
    
    
    110,820
    
    
    
    88,565Operating income
    
    
    51,322
    
    
    
    39,053Asia Pac:Revenue
    
    
    55,582
    
    
    
    44,606Operating income
    
    
    30,382
    
    
    
    24,693Total Segments:Revenue
    
    
    290,249
    
    
    
    235,122Operating income
    
    $
    137,827
    
    
    $
    102,386Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period of
    
    
    Combined (a)Nine
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Ninemonths ended
    
    
    through
    
    
    
    through
    
    
    months endedSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004
    
    
    September 30, 2004Americas:Revenue
    
    $
    358,368
    
    
    $
    144,976
    
    
    
    $
    161,880
    
    
    $
    306,856Operating income
    
    
    157,293
    
    
    
    57,837
    
    
    
    
    64,060
    
    
    
    121,897Europe:Revenue
    
    
    313,381
    
    
    
    124,793
    
    
    
    
    130,923
    
    
    
    255,716Operating income
    
    
    133,194
    
    
    
    56,882
    
    
    
    
    50,884
    
    
    
    107,766Asia Pac:Revenue
    
    
    156,075
    
    
    
    67,327
    
    
    
    
    65,000
    
    
    
    132,327Operating income
    
    
    82,887
    
    
    
    39,255
    
    
    
    
    33,212
    
    
    
    72,467Total Segments:Revenue
    
    
    827,824
    
    
    
    337,096
    
    
    
    
    357,803
    
    
    
    694,899Operating income
    
    $
    373,374
    
    
    $
    153,974
    
    
    
    $
    148,156
    
    
    $
    302,130
 
 (a)
    
    As described above, our combined results for the nine months ended September 30, 2004
represent the addition of the Predecessor period from January 1, 2004 through May 26,
2004 and the Successor period from May 27, 2004 through June 30, 2004. This combination
does not comply with GAAP or with the rules for pro forma presentation, but is presented
because we believe it enables the most meaningful comparison of our results.  SuccessorThree months
    
    
    Three monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2004Total operating income for reportable segments
    
    $
    137,827
    
    
    $
    102,386Research and development
    
    
    (44,350
    )
    
    
    (33,464
    )Amortization of capitalized and acquired software and
other intangible assets
    
    
    (41,077
    )
    
    
    (32,745
    )Corporate and unallocated costs
    
    
    (33,052
    )
    
    
    (28,543
    )Operating income
    
    $
    19,348
    
    
    $
    7,634
 40




---



##### Table of Contents



Successor
    
    
    
    PredecessorPeriod of
    
    
    
    
    

    
    Combined (a)Nine months
    
    
    May 27, 2004
    
    
    
    Period of
    
    
    Nine monthsended
    
    
    through
    
    
    
    January 1, 2004
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    
    through
    
    
    September 30,2005
    
    
    2004
    
    
    
    May 26, 2004
    
    
    2004Total operating income for reportable segments
    
    $
    373,374
    
    
    $
    153,974
    
    
    
    $
    148,156
    
    
    $
    302,130Research and development
    
    
    (118,990
    )
    
    
    (44,470
    )
    
    
    
    (52,851
    )
    
    
    (97,321
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    (50,819
    )Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software and
other intangible assets
    
    
    (114,610
    )
    
    
    (45,259
    )
    
    
    
    (26,040
    )
    
    
    (71,299
    )Corporate and unallocated costs
    
    
    (97,558
    )
    
    
    (38,996
    )
    
    
    
    (36,769
    )
    
    
    (75,765
    )Operating income (loss)
    
    $
    36,342
    
    
    $
    (25,570
    )
    
    
    $
    32,496
    
    
    $
    6,926
 
 (a)
    
    As described above, our combined results for the nine months ended September 30,
2004 represent the addition of the Predecessor period from January 1, 2004 through May
26, 2004 and the Successor period from May 27, 2004 through June 30, 2004. This
combination does not comply with GAAP or with the rules for pro forma presentation, but
is presented because we believe it enables the most meaningful comparison of our results. Results of Operations
  41




---



##### Table of Contents



SuccessorThree months ended
    
    
    Three months endedSeptember 30, 2005
    
    
    September 30, 2004Revenue:
    
    
    
    
    
    (percentage oftotal revenue)
    
    
    
    
    
    
    (percentage oftotal revenue)Software
    
    $
    89,842
    
    
    
    31.0
    %
    
    $
    71,890
    
    
    
    30.6
    %Maintenance
    
    

129,706
    
    
    
    44.6
    %
    
    
    95,749
    
    
    
    40.7
    %Services and other (a)
    
    
    70,701
    
    
    
    24.4
    %
    
    
    67,483
    
    
    
    28.7
    %Total revenue
    
    
    290,249
    
    
    
    100.0
    %
    
    

235,122
    
    
    
    100.0
    %Cost of revenue (includesamortization of
capitalized andacquired software)
    
    
    109,730
    
    
    
    37.8
    %
    
    
    97,774
    
    
    
    41.6
    %Gross profit
    
    
    180,519
    
    
    
    62.2
    %
    
    
    137,348
    
    
    
    58.4
    %Operating expenses:Selling, general and administrative
    
    
    107,803
    
    
    
    37.1
    %
    
    
    88,976
    
    
    
    37.8
    %Research and development
    
    
    44,350
    
    
    
    15.3
    %
    
    
    33,464
    
    
    
    14.2
    %Amortization of other intangible assets
    
    
    9,018
    
    
    
    3.1
    %
    
    
    7,274
    
    
    
    3.1
    %Total operating expenses
    
    
    161,171
    
    
    
    55.5
    %
    
    
    129,714
    
    
    
    55.2
    %Operating income
    
    
    19,348
    
    
    
    6.7
    %
    
    
    7,634
    
    
    
    3.2
    %Interest expense and amortization of deferred financing fees
    
    
    (25,197
    )
    
    
    -8.7
    %
    
    
    (22,452
    )
    
    
    -9.5
    %Other (expense) income, net
    
    
    (919
    )
    
    
    -0.3
    %
    
    
    7,045
    
    
    
    3.0
    %Loss before taxes
    
    
    (6,768
    )
    
    
    -2.3
    %
    
    
    (7,773
    )
    
    
    -3.3
    %Provision (benefit) for income taxes
    
    
    (2,002
    )
    
    
    -0.7
    %
    
    
    (2,942
    )
    
    
    -1.3
    %Net loss
    
    $
    (4,766
    )
    
    
    -1.6
    %
    
    $
    (4,831
    )
    
    
    -2.1
    %
 
 (a)
    
    Other revenue consists primarily of hardware
sales. Successor
    
    
    
    
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofMay 27, 2004
    
    
    
    January 1, 2004
    
    
    Combined (b)Nine months ended
    
    
    through
    
    
    
    through
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2004
    
    
    
    May 26, 2004
    
    
    September 30, 2004Revenue:
    
    
    
    
    
    (percentage of 
total revenue)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (percentage of total revenue)Software
    
    $
    244,738
    
    
    
    29.6
    %
    
    $
    112,360
    
    
    
    $
    100,780
    
    
    $
    213,140
    
    
    
    30.7
    %Maintenance
    
    
    369,614
    
    
    
    44.6
    %
    
    
    130,548
    
    
    
    
    163,012
    
    
    
    293,560
    
    
    
    42.2
    %Services and other (a)
    
    
    213,472
    
    
    
    25.8
    %
    
    
    94,188
    
    
    
    
    94,011
    
    
    
    188,199
    
    
    
    27.1
    %Total revenue
    
    
    827,824
    
    
    
    100.0
    %
    
    
    337,096
    
    
    
    
    357,803
    
    
    
    694,899
    
    
    
    100.0
    %Cost of revenue (includesamortization of
capitalized andacquired software)
    
    
    327,909
    
    
    
    39.6
    %
    
    
    135,680
    
    
    
    
    133,139
    
    
    
    268,819
    
    
    
    38.7
    %Gross profit
    
    
    499,915
    
    
    
    60.4
    %
    
    
    201,416
    
    
    
    
    224,664
    
    
    
    426,080
    
    
    
    61.3
    %Operating expenses:Selling, general and administrative
    
    
    313,382
    
    
    
    37.9
    %
    
    
    120,899
    
    
    
    
    136,817
    
    
    
    257,716
    
    
    
    37.1
    %Research and development
    
    
    118,990
    
    
    
    14.4
    %
    
    
    44,470
    
    
    
    
    52,851
    
    
    
    97,321
    
    
    
    14.0
    %In-process research and development
    
    
    4,100
    
    
    
    0.5
    %
    
    
    50,819
    
    
    
    
    
    
    
    
    50,819
    
    
    
    7.3
    %Restructuring
    
    
    1,774
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of other intangible assets
    
    
    25,327
    
    
    
    3.1
    %
    
    
    10,798
    
    
    
    
    2,500
    
    
    
    13,298
    
    
    
    1.9
    %Total operating expenses
    
    
    463,573
    
    
    
    56.0
    %
    
    
    226,986
    
    
    
    
    192,168
    
    
    
    419,154
    
    
    
    60.3
    %Operating income (loss)
    
    
    36,342
    
    
    
    4.4
    %
    
    
    (25,570
    )
    
    
    
    32,496
    
    
    
    6,926
    
    
    
    1.0
    %Interest expense and amortization of deferred financing fees
    
    
    (71,576
    )
    
    
    -8.6
    %
    
    
    (30,408
    )
    
    
    
    (2,021
    )
    
    
    (32,429
    )
    
    
    -4.7
    %Other (expense) income, net
    
    
    (14,326
    )
    
    
    -1.7
    %
    
    
    7,265
    
    
    
    
    2,010
    
    
    
    9,275
    
    
    
    1.3
    %(Loss) income before taxes
    
    
    (49,560
    )
    
    
    -6.0
    %
    
    
    (48,713
    )
    
    
    
    32,485
    
    
    
    (16,228
    )
    
    
    -2.3
    %Provision (benefit) for income taxes
    
    
    (14,601
    )
    
    
    -1.8
    %
    
    
    806
    
    
    
    
    10,092
    
    
    
    10,898
    
    
    
    1.6
    %Net (loss) income
    
    $
    (34,959
    )
    
    
    -4.2
    %
    
    $
    (49,519
    )
    
    
    $
    22,393
    
    
    $
    (27,126
    )
    
    
    -3.9
    %
 
 (a)
    
    Other revenue consists primarily of hardware sales.(b)
    
    As described above, our combined results for the nine months ended September 30, 2004
represent the addition of the Predecessor period from January 1, 2004 through May 26, 2004 and
the Successor period from May 27, 2004 through June 30, 2004. This combination does not comply
with GAAP or with the rules for pro forma presentation, but is presented because we believe it
enables the most meaningful comparison of our results 42




---



##### Table of Contents



Three Months Ended September 30, 2005 (Successor) Compared to the Three Months ended September
30, 2004 (Successor)
 Total Revenue
  
    
    Software. Software revenue accounted for 31.0% of total revenue for the three months
ended September 30, 2005 compared to 30.6% for the three months ended September 30, 2004.
For the three months ended September 30, 2005, software revenue grew $17.9 million, or
24.9%, to $89.8 million from $71.9 million for the three months ended September 30, 2004.
Software revenue was aided by increased transaction volume and higher average deal size.
Software revenue in the 2005 period includes Tecnomatix, which contributed revenue of
$7.5 million.
    
    Maintenance. Maintenance revenue accounted for 44.6% of total revenue for the three
months ended September 30, 2005 and 40.7% of total revenue for the three months ended
September 30, 2004. For the three months ended September 30, 2005, maintenance revenue
increased $34.0 million, or 35.5%, to $129.7 million from $95.7 million for the three
months ended September 30, 2004. The increase in maintenance revenue was due, in part, to
the net impact of purchase accounting adjustments for deferred revenue described above.
The increase was also due to an increase of $5.9 million as a result of the
classification of revenue from one of our largest customers that is now recognized as
maintenance revenue rather than services revenue due to a modification to our services
agreement with this customer. Maintenance revenue also increased as a result renewals on
the existing customer base. Maintenance revenue in the 2005 period includes Tecnomatix,
which contributed revenue of $7.5 million.
    
    Services and other. Services and other revenue accounted for 24.4% of total revenue
for the three months ended September 30, 2005 and 28.7% of total revenue for the three
months ended September 30, 2004. For the three months ended September 30, 2005, services
and other revenue grew $3.2 million, or 4.7%, to $70.7 million from $67.5 million for the
three months ended September 30, 2004. Services revenue benefited from the addition of
Tecnomatix, which contributed revenue of $5.5 million. This growth was partially offset
by $3.7 million for the classification of revenue from one of our largest customers as
maintenance revenue rather than services revenue as discussed above.
 Gross Profit
  43




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##### Table of Contents



Operating Expenses
 Selling, General and Administrative
  Research and Development
   Amortization of Other Intangible Assets
  Operating Income
  Interest Expense and Amortization of Deferred Financing Fees
  Provision (Benefit) for Income Taxes
  44




---



##### Table of Contents



Nine Months Ended September 30, 2005 (Successor) Compared to the Period of January 1, 2004 through
May 26, 2004 (Predecessor) and the Period of May 27, 2004 through September 30, 2004 (Successor)
Combined
 Total Revenue
  
    
    Software. Software revenue accounted for 29.6% of total revenue for the nine months
ended September 30, 2005 compared to 30.7% for the nine months ended September 30, 2004.
For the nine months ended September 30, 2005, software revenue grew $31.6 million, or
14.8%, to $244.7 million from $213.1 million for the nine months ended September 30,
2004. Software revenue growth was due, in part, to increased transaction volume and
higher average deal size. The increase was also due to higher software revenue in Europe
which benefited, in part, from greater market presence in Russia. The increase in
software was also partially due to the inclusion of Tecnomatix, which contributed revenue
of $15.2 million.
    
    Maintenance. Maintenance revenue accounted for 44.6% of total revenue for the nine
months ended September 30, 2005 and 42.2% of total revenue for the nine months ended
September 30, 2004. For the nine months ended September 30, 2005, maintenance revenue
increased $76.0 million, or 25.9%, to $369.6 million from $293.6 million for the nine
months ended September 30, 2004. A portion of the increase in maintenance revenue
resulted from the classification of $19.1 million of revenue from one of our largest
customers that is now recognized as maintenance revenue rather than services revenue due
to a modification to our services agreement with this customer. Maintenance revenue also
benefited from the addition of Tecnomatix, which contributed revenue of $14.6 million.
The growth is also due to increased maintenance revenue in our Europe segment that
resulted from maintenance associated with new license sales and renewals on the existing
customer base. In addition, the increase in total maintenance revenue was more pronounced
due to the $16.7 million impact from purchase accounting described above.
    
    Services and other. Services and other revenue accounted for 25.8% of total revenue
for the nine months ended September 30, 2005 and 27.1% of total revenue for the nine
months ended September 30, 2004. For the nine months ended September 30, 2005, services
and other revenue grew $25.3 million, or 13.4%, to $213.5 million from $188.2 million for
the nine months ended September 30, 2004. Services revenue grew across all segments with
the Europe segment having the largest growth due growth in cPDM services projects, which
are generally larger in scope than CAx services projects. Services revenue also benefited
from the addition of Tecnomatix, which contributed revenue of $10.0 million. This growth
was partially offset by the classification of revenue from one of our largest customers
as maintenance revenue rather than services revenue as discussed above.
 Gross Profit
  45




---



##### Table of Contents



Operating Expenses
 Selling, General and Administrative
  Research and Development
   In-Process Research and Development
   46




---



##### Table of Contents



Restructuring
  Amortization of Other Intangible Assets
  Operating Income
  Interest Expense and Amortization of Deferred Financing Fees
  Provision (Benefit) for Income Taxes
  47




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##### Table of Contents



Liquidity and Capital Resources
 Non-GAAP Measures
  Nine months
    
    
    Nine monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2004Reconciliation of EBITDA to net cash
provided by operating activities:EBITDA
    
    $
    148,808
    
    
    $
    100,651Benefit for deferred income taxes
    
    
    (40,246
    )
    
    
    (60,796
    )Amortization of deferred financing fees
    
    
    4,231
    
    
    
    1,743In-process research and development
    
    
    4,100
    
    
    
    50,819Stock-based compensation
    
    
    467
    
    
    
    Other
    
    
    2,920
    
    
    
    2,884Unrealized loss (gain) on revaluation of foreign
denominated assets and liabilities
    
    
    22,782
    
    
    
    (1,349
    )Unrealized (gain) loss on foreign currency revaluation
of derivative instruments
    
    
    (17,044
    )
    
    
    4,290Changes in operating assets and liabilities
    
    
    49,418
    
    
    
    81,818Interest expense
    
    
    (71,576
    )
    
    
    (32,429
    )Benefit (provision) for income taxes
    
    
    14,601
    
    
    
    (10,898
    )Net cash provided by operating activities
    
    $
    118,461
    
    
    $
    136,733Reconciliation of EBITDA to net loss:EBITDA
    
    $
    148,808
    
    
    $
    100,651Interest expense
    
    
    (71,576
    )
    
    
    (32,429
    )Benefit (provision) for income taxes
    
    
    14,601
    
    
    
    (10,898
    )Depreciation and amortization
    
    
    (126,792
    )
    
    
    (84,450
    )Net loss
    
    $
    (34,959
    )
    
    $
    (27,126
    )
 Debt and Commitments
  48




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##### Table of Contents



Capital Expenditures
  49




---



##### Table of Contents



Historical Cash Flow
    Inflation
  Seasonality
  
 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Risk
    50




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##### Table of Contents



Interest
    
    Notional
    
    USD ExchangeExpiration
    
    Rate
    
    Value
    
    Rate to  1(in millions)Pay fixed
    
    December 15, 2014
    
    
    9.0
    %
    
    
    51.5
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.025
    %Pay fixed
    
    December 15, 2016
    
    
    9.0
    %
    
    
    44.9
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.08
    %
  Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  51




---



##### Table of Contents



SIGNATURES
  /s/    Douglas E. BarnettDouglas E. BarnettSenior Vice President and Chief Financial Officer
(on behalf of the Registrant and as Chief Financial Officer) 52




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.21
    
    Outside Director Compensation Package31.1
    
    Certification of President and Chief Executive Officer
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)31.2
    
    Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14(a) and 15d-14(a)32.1
    
    Certification of President and Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 53