##### 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 1934For the quarterly period ended June 30, 2005o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to
 333-123664  (Commission File number)
 
 UGS Corp.
  
 Delaware
(State or other jurisdiction of
incorporation or organization)
    
    75-2728894
(I.R.S. Employer
Identification No.)
 5800 Granite Parkway, Suite 600
Plano, TX 75024
 (972) 987-3000
 
 þ o
 o þ




---



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 June 30, 2005 (Successor), for the period of April 1, 2004
through May 26, 2004 (Predecessor) and for the period of May 27, 2004
through June 30, 2004 (Successor)
    
    
    1Condensed Consolidated Statements of Operations for the six months
ended June 30, 2005 (Successor), for the period of January 1, 2004
through May 26, 2004 (Predecessor) and for the period of May 27, 2004
through June 30, 2004 (Successor)
    
    
    2Condensed Consolidated Balance Sheets as of June 30, 2005 (Successor)
and as of December 31, 2004 (Successor)
    
    
    3Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2005 (Successor), for the period of January 1, 2004
through May 26, 2004 (Predecessor) and for the period of May 27, 2004
through June 30, 2004 (Successor)
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3.
    

    Qualitative and Quantitative Disclosures About Market Risk
    
    
    49Item 4.
    
    Controls and Procedures
    
    
    50Part II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    50Signatures
    
    
    51Certification of President & Chief Executive OfficerCertification of Chief Financial OfficerCertifications of President and CEO and CFO




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands)
 Successor
    
    
    PredecessorUGS Corp.
    
    
    UGS PLMSolutions Inc.Period of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Revenue:Software
    
    $
    81,777
    
    
    $
    40,470
    
    
    
    $
    28,236Maintenance
    
    
    128,301
    
    
    
    34,799
    
    
    
    
    60,982Services and other
    
    
    74,932
    
    
    
    26,705
    
    
    
    
    33,942Total revenue
    
    
    285,010
    
    
    
    101,974
    
    
    
    
    123,160Cost of revenue:Software
    
    
    5,944
    
    
    
    2,476
    
    
    
    
    1,517Maintenance
    
    
    14,495
    
    
    
    5,379
    
    
    
    
    6,777Services and other
    
    
    66,701
    
    
    
    21,061
    
    
    
    
    32,208Amortization of capitalized software
and acquired intangible assets
    
    
    31,038
    
    
    
    8,990
    
    
    
    
    9,568Total cost of revenue
    
    
    118,178
    
    
    
    37,906
    
    
    
    
    50,070Gross profit
    
    
    166,832
    
    
    
    64,068
    
    
    
    
    73,090Operating expenses:Selling, general and administrative
    
    
    110,410
    
    
    
    31,923
    
    
    
    
    57,277Research and development
    
    
    38,659
    
    
    
    11,006
    
    
    
    
    19,254In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    Restructuring
    
    
    1,774
    
    
    
    
    
    
    
    
    Amortization of other intangible assets
    
    
    8,739
    
    
    
    3,524
    
    
    
    
    1,000Total operating expenses
    
    
    163,682
    
    
    
    97,272
    
    
    
    
    77,531Operating income (loss)
    
    
    3,150
    
    
    
    (33,204
    )
    
    
    
    (4,441
    )Interest expense and amortization of deferred
financing fees
    
    
    (25,216
    )
    
    
    (7,956
    )
    
    
    
    (812
    )Other (expense) income, net
    
    
    (8,583
    )
    
    
    220
    
    
    
    
    569Loss before income taxes
    
    
    (30,649
    )
    
    
    (40,940
    )
    
    
    
    (4,684
    )Provision (benefit) for income taxes
    
    
    (8,625
    )
    
    
    3,748
    
    
    
    
    (1,616
    )Net loss
    
    $
    (22,024
    )
    
    $
    (44,688
    )
    
    
    $
    (3,068
    )
  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 ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Revenue:Software
    
    $
    154,896
    
    
    $
    40,470
    
    
    
    $
    100,780Maintenance
    
    
    239,908
    
    
    
    34,799
    
    
    
    
    163,012Services and other
    
    
    142,771
    
    
    
    26,705
    
    
    
    
    94,011Total revenue
    
    
    537,575
    
    
    
    101,974
    
    
    
    
    357,803Cost of revenue:Software
    
    
    10,400
    
    
    
    2,476
    
    
    
    
    7,163Maintenance
    
    
    27,858
    
    
    
    5,379
    
    
    
    
    21,177Services and other
    
    
    122,697
    
    
    
    21,061
    
    
    
    
    81,259Amortization of capitalized software and
acquired intangible assets
    
    
    57,224
    
    
    
    8,990
    
    
    
    
    23,540Total cost of revenue
    
    
    218,179
    
    
    
    37,906
    
    
    
    
    133,139Gross profit
    
    
    319,396
    
    
    
    64,068
    
    
    
    
    224,664Operating expenses:Selling, general and administrative
    
    
    205,579
    
    
    
    31,923
    
    
    
    
    136,817Research and development
    
    
    74,640
    
    
    
    11,006
    
    
    
    
    52,851In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    Restructuring
    
    
    1,774
    
    
    
    
    
    
    
    
    Amortization of other intangible assets
    
    
    16,309
    
    
    
    3,524
    
    
    
    
    2,500Total operating expenses
    
    
    302,402
    
    
    
    97,272
    
    
    
    
    192,168Operating income (loss)
    
    
    16,994
    
    
    
    (33,204
    )
    
    
    
    32,496Interest expense and amortization of deferred
financing fees
    
    
    (46,379
    )
    
    
    (7,956
    )
    
    
    
    (2,021
    )Other (expense) income, net
    
    
    (13,407
    )
    
    
    220
    
    
    
    
    2,010(Loss) income before income taxes
    
    
    (42,792
    )
    
    
    (40,940
    )
    
    
    
    32,485Provision (benefit) for income taxes
    
    
    (12,599
    )
    
    
    3,748
    
    
    
    
    10,092Net (loss) income
    
    $
    (30,193
    )
    
    $
    (44,688
    )
    
    
    $
    22,393
  2




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 SuccessorJune 30,
    
    December 31,2005
    
    2004Assets:Current assetsCash and cash equivalents
    
    $
    73,074
    
    
    $
    58,400Accounts receivable, net
    
    
    238,291
    
    
    
    233,180Prepaids and other
    
    
    19,945
    
    
    
    23,869Deferred income taxes
    
    
    56,978
    
    
    
    62,890Total current assets
    
    
    388,288
    
    
    
    378,339Property and equipment, net
    
    
    36,651
    
    
    
    33,751Goodwill
    
    
    1,429,655
    
    
    
    1,317,948Capitalized and acquired software, net
    
    
    493,620
    
    
    
    435,816Customer accounts, net
    
    
    216,032
    
    
    
    217,961Other intangible assets, net
    
    
    146,880
    
    
    
    116,501Other assets
    
    
    42,252
    
    
    
    42,696Total assets
    
    $
    2,753,378
    
    
    $
    2,543,012Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    164,608
    
    
    $
    150,290Deferred revenue
    
    
    157,867
    
    
    
    110,027Income taxes payable
    
    
    299
    
    
    
    337Current portion of long-term debt
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    322,774
    
    
    
    265,654Other long-term liabilities
    
    
    47,255
    
    
    
    41,011Deferred income taxes
    
    
    221,170
    
    
    
    217,122Long-term debt
    
    
    1,243,719
    
    
    
    1,049,623Stockholders equityCommon stock, $ .01 par value, 3,000 shares authorized;
100 issued and outstanding at June 30, 2005 and December
31, 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,005,439
    
    
    
    1,005,479Retained deficit
    
    
    (71,329
    )
    
    
    (41,136
    )Accumulated other comprehensive (loss) income, net of tax
    
    
    (15,650
    )
    
    
    5,259Total stockholders equity
    
    
    918,460
    
    
    
    969,602Total liabilities and stockholders equity
    
    $
    2,753,378
    
    
    $
    2,543,012
  3




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Successor
    
    
    PredecessorUGS Corp.
    
    
    UGS PLMSolutions Inc.Period of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Cash flows from operating activitiesNet (loss) income
    
    $
    (30,193
    )
    
    $
    (44,688
    )
    
    
    $
    22,393Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Benefit for deferred income taxes
    
    
    (25,740
    )
    
    
    (3,640
    )
    
    
    
    (47,410
    )Depreciation and amortization
    
    
    81,403
    
    
    
    14,005
    
    
    
    
    33,471In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    Amortization of deferred financing fees
    
    
    2,842
    
    
    
    486
    
    
    
    
    Stock-based compensation
    
    
    154
    
    
    
    
    
    
    
    
    Unrealized loss (gain) on revaluation of foreign denominated
assets and liabilities
    
    
    23,486
    
    
    
    (535
    )
    
    
    
    2,362Unrealized gain on foreign currency revaluation of derivative
instruments
    
    
    (16,965
    )
    
    
    
    
    
    
    
    Other
    
    
    2,239
    
    
    
    672
    
    
    
    
    2,277Changes in operating assets and liabilities, net of effect of
acquisitions:Accounts receivable
    
    
    4,385
    
    
    
    (5,304
    )
    
    
    
    13,062Prepaids and other
    
    
    6,466
    
    
    
    (1,170
    )
    
    
    
    3,357Accounts payable and accrued liabilities
    
    
    (10,894
    )
    
    
    9,262
    
    
    
    
    (8,319
    )Deferred revenue
    
    
    46,982
    
    
    
    7,479
    
    
    
    
    32,479Income taxes payable
    
    
    (1,000
    )
    

    
    4,144
    
    
    
    
    22,520Other long-term liabilities
    
    
    (164
    )
    
    
    190
    
    
    
    
    1,777Total adjustments
    
    
    117,294
    
    
    
    76,408
    
    
    
    
    55,576Net cash provided by operating activities
    
    
    87,101
    
    
    
    31,720
    
    
    
    
    77,969Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (218,392
    )
    
    
    (2,039,703
    )
    
    
    
    Cash received from prior parent for acquisition related tax matters
    
    
    8,054
    
    
    
    
    
    
    
    
    Payments for purchases of property and equipment
    
    
    (5,804
    )
    
    
    (721
    )
    
    
    
    (4,342
    )Capitalized software costs
    
    
    (39,445
    )
    
    
    (6,336
    )
    
    
    
    (24,753
    )Proceeds from sale of marketable securities
    
    
    23,194
    
    
    
    
    
    
    
    
    Other
    
    
    (62
    )
    
    
    (19
    )
    
    
    
    456Net cash used in investing activities
    
    
    (232,455
    )
    
    
    (2,046,779
    )
    
    
    
    (28,639
    )Cash flows from financing activitiesPayments under intercompany credit agreement, net
    
    
    
    
    
    
    
    
    
    
    
    (60,986
    )Proceeds from revolver credit line
    
    
    81,351
    
    
    
    49,056
    
    
    
    
    Payments on revolver credit line
    
    
    (87,351
    )
    
    
    
    
    
    
    
    Proceeds from note payable
    
    
    6,802
    
    
    
    
    
    
    
    
    Payments on note payable
    
    
    (2,773
    )
    
    
    
    
    
    
    
    Proceeds from bank notes and bonds, net
    
    
    234,094
    
    
    
    1,013,369
    
    
    
    
    Payments on bank notes and bonds
    
    
    (69,351
    )
    
    
    
    
    
    
    
    Capital contributed by parent
    
    
    508
    
    
    
    1,001,502
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    163,280
    
    
    
    2,063,927
    
    
    
    
    (60,986
    )Effect of exchange rates on cash and cash equivalents
    
    
    (3,252
    )
    
    
    69
    
    
    
    
    (196
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,674
    
    
    
    48,937
    
    
    
    
    (11,852
    )Cash and cash equivalents at beginning of period
    
    
    58,400
    
    
    
    28,462
    
    
    
    
    40,314Cash and cash equivalents at end of period
    
    $
    73,074
    
    
    $
    77,399
    
    
    
    $
    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. Acquisition
  5




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
    IntangiblesWeighted-AverageUsefulAmount
    
    LifeWorking capital and other
    
    $
    (75,580
    )Fixed assets
    
    
    4,351Intangibles: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
    
    
    164,121Total purchase price
    
    $
    218,392
   Note 3: Stock-Based Compensation
  6




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Net (loss) incomeAs reported
    
    $
    (22,024
    )
    
    $
    (44,688
    )
    
    
    $
    (3,068
    )Add: Total
stock-based
employee
compensation
expense
included in
reported net
loss under
APB Opinion
No. 25, net
of related
tax effects
    
    
    96
    
    
    
    
    
    
    
    
    Deduct: Total
stock-based
employee
compensation
expense
determined
under
fair-value
based method
for all
awards, net
of related
tax effects
    
    
    (147
    )
    
    
    (500
    )
    
    
    
    (620
    )Pro forma
    
    $
    (22,075
    )
    
    $
    (45,188
    )
    
    
    $
    (3,688
    )
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Net (loss) incomeAs reported
    
    $
    (30,193
    )
    
    $
    (44,688
    )
    
    
    $
    22,393Add: Total
stock-based
employee
compensation
expense
included in
reported net
loss under
APB Opinion
No. 25, net
of related
tax effects
    
    
    96
    
    
    
    
    
    
    
    
    Deduct: Total
stock-based
employee
compensation
expense
determined
under
fair-value
based method
for all
awards, net
of related
tax effects
    
    
    (263
    )
    
    
    (500
    )
    
    
    
    (2,040
    )Pro forma
    
    $
    (30,360
    )
    
    $
    (45,188
    )
    
    
    $
    20,353
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Expected term (in years)
    
    
    5.5
    
    
    
    5.5
    
    
    
    
    2.9Dividend yields
    
    
    0
    %
    
    
    0
    %
    
    
    
    3.13
    %Expected volatility
    
    
    0
    %
    
    
    0
    %
    
    
    
    37.7
    %Risk-free interest rate
    
    
    4.01
    %
    
    
    3.69
    %
    
    
    
    2.84
    %
 7




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##### Table of Contents



UGS Corp.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 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
    
    
    3.97
    %
    
    
    3.69
    %
    
    
    
    3.8
    %
 Note 4: Property and Equipment
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Depreciation expense
    
    $
    3,243
    
    
    $
    1,222
    
    
    
    $
    2,410
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Depreciation expense
    
    $
    6,269
    
    
    $
    1,222
    
    
    
    $
    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
    
    
    506
    
    
    
    402
    
    
    
    390
    
    
    
    1,298D-Cubed, Ltd. purchase price
allocation adjustments
    
    
    
    
    
    
    (1,040
    )
    
    
    
    
    
    
    (1,040
    )Recording of goodwill for acquisition
of Tecnomatix
    
    
    51,643
    
    
    
    106,530
    
    
    
    5,948
    
    
    
    164,121Impact of foreign currency translation
    
    
    
    
    
    
    (52,672
    )
    
    
    
    
    
    
    (52,672
    )Balance as of June 30, 2005 (Successor)
    
    $
    544,264
    
    
    $
    500,502
    
    
    $
    384,889
    
    
    $
    1,429,655
  8




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Note 6: Other Intangible Assets
  June 30, 2005 (Successor)Weighted
    
    GrossAverage Useful
    
    Carrying
    
    AccumulatedLife
    
    Amount
    
    Amortization
    
    TotalDefinite Useful LivesCapitalized software
    
    
    3.0
    
    
    $
    74,760
    
    
    $
    3,538
    
    
    $
    71,222Acquired software
    
    
    5.0
    
    
    
    527,500
    
    
    
    105,102
    
    
    
    422,398Customer accounts
    
    
    10.0
    
    
    
    242,273
    
    
    
    26,241
    
    
    
    216,032Maintenance agreements
    
    
    10.0
    
    
    
    110,039
    
    
    
    9,242
    
    
    
    100,797Noncompete agreements
    
    
    2.0
    
    
    
    11,460
    
    
    
    4,292
    
    
    
    7,168Trademarks/tradenames
    
    
    7.0
    
    
    
    45,786
    
    
    
    6,871
    
    
    
    38,915Total other intangible assets
    
    
    
    
    
    $
    1,011,818
    
    
    $
    155,286
    
    
    $
    856,532
 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
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Capitalized software
    
    $
    1,601
    
    
    $
    
    
    
    
    $
    5,823Acquired software
    
    
    26,001
    
    
    
    8,878
    
    
    
    
    3,838Acquired and other intangible assets
    
    
    13,024
    
    
    
    3,905
    
    
    
    
    1,179Total amortization expense
    
    $
    40,626
    
    
    $
    12,783
    
    
    
    $
    10,840Amortization of certain acquired
software allocated to operating
expense
    
    $
    849
    
    
    $
    269
    
    
    
    $
    272
 9




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Capitalized software
    
    $
    2,712
    
    
    $
    
    
    
    
    $
    14,038Acquired software
    
    
    48,478
    
    
    
    8,878
    
    
    
    
    9,595Acquired and other intangible assets
    
    
    23,944
    
    
    
    3,905
    
    
    
    
    3,540Total amortization expense
    
    $
    75,134
    
    
    $
    12,783
    
    
    
    $
    27,173Amortization of certain acquired
software allocated to operating
expense
    
    $
    1,601
    
    
    $
    269
    
    
    
    $
    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
    
    
    
    
    
    
    7,500
    
    
    
    6,010
    
    
    
    13,510Cash payments
    
    
    
    
    
    
    (254
    )
    
    
    (712
    )
    
    
    (966
    )Reduction of accrual
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )Balance at June 30, 2005 (Successor)
    
    $
    
    
    
    $
    7,246
    
    
    $
    17,167
    
    
    $
    24,413
   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 (521.7 million yen)
    
    $
    4,719Senior unsecured subordinated notes, due June 1, 2012, 10.0%
    
    
    550,000Secured term loan, due March 31, 2012, LIBOR plus 2.0%
    
    
    689,000Total long-term debt
    
    
    1,243,719Less current portion
    
    
    Total long-term debt, less current portion
    
    $
    1,243,719
  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
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Current
    
    $
    5,683
    
    
    $
    7,387
    
    
    
    $
    (6,737
    )Deferred
    
    
    (14,308
    )
    
    
    (3,639
    )
    
    
    
    5,121Total
    
    $
    (8,625
    )
    
    $
    3,748
    
    
    
    $
    (1,616
    )
 11




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Current
    
    $
    13,141
    
    
    $
    7,387
    
    
    
    $
    57,502Deferred
    
    
    (25,740
    )
    
    
    (3,639
    )
    
    
    
    (47,410
    )Total
    
    $
    (12,599
    )
    
    $
    3,748
    
    
    
    $
    10,092
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004U.S. (loss) income
    
    $
    (7,656
    )
    
    $
    (44,690
    )
    
    
    $
    19,850Non-U.S. income
    
    
    (22,993
    )
    
    
    3,750
    
    
    
    
    (24,534
    )Total
    
    $
    (30,649
    )
    
    $
    (40,940
    )
    
    
    $
    (4,684
    )
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004U.S. (loss) income
    
    $
    (29,606
    )
    
    $
    (44,690
    )
    
    
    $
    13,466Non-U.S. income
    
    
    (13,186
    )
    
    
    3,750
    
    
    
    
    19,019Total
    
    $
    (42,792
    )
    
    $
    (40,940
    )
    
    
    $
    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
    
    $
    1,382Interest cost
    
    
    423Expected return on plan assets
    
    
    (112
    )Amortization of net actuarial loss
    
    
    28Net periodic benefit cost
    
    $
    1,721
 Predecessor Period
  Note 11: Segment Information
   Revenue
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalThree months ended June 30, 2005 (Successor)Software
    
    $
    30,891
    
    
    $
    31,106
    
    
    $
    19,780
    
    
    $
    81,777Maintenance
    
    
    52,902
    
    
    
    51,139
    
    
    
    24,260
    
    
    
    128,301Services and other
    
    
    40,468
    
    
    
    28,486
    
    
    
    5,978
    
    
    
    74,932Total revenue
    
    $
    124,261
    
    
    $
    110,731
    
    
    $
    50,018
    
    
    $
    285,010
 13




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Revenue
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalPeriod of May 27, 2004 through
June 30, 2004 (Successor)Software
    
    $
    13,893
    
    
    $
    14,029
    
    
    $
    12,548
    
    
    $
    40,470Maintenance
    
    
    13,309
    
    
    
    13,124
    
    
    
    8,366
    
    
    
    34,799Services and other
    
    
    15,822
    
    
    
    9,075
    
    
    
    1,808
    
    
    
    26,705Total revenue
    
    $
    43,024
    
    
    $
    36,228
    
    
    $
    22,722
    
    
    $
    101,974Period of April 1, 2004 through
May 26, 2004 (Predecessor)Software
    
    $
    9,464
    
    
    $
    11,918
    
    
    $
    6,854
    
    
    $
    28,236Maintenance
    
    
    27,454
    
    
    
    23,909
    
    
    
    9,619
    
    
    
    60,982Services and other
    
    
    21,453
    
    
    
    11,108
    
    
    
    1,381
    
    
    
    33,942Total revenue
    
    $
    58,371
    
    
    $
    46,935
    
    
    $
    17,854
    
    
    $
    123,160
 Revenue
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalSix months ended June 30, 2005 (Successor)Software
    
    $
    56,169
    
    
    $
    57,565
    
    
    $
    41,162
    
    
    $
    154,896Maintenance
    
    
    100,791
    
    
    
    92,264
    
    
    
    46,853
    
    
    
    239,908Services and other
    
    
    76,462
    
    
    
    53,698
    
    
    
    12,611
    
    
    
    142,771Total revenue
    
    $
    233,422
    
    
    $
    203,527
    
    
    $
    100,626
    
    
    $
    537,575Period 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 June 30, 2005
(Successor)
    
    $
    54,535
    
    
    $
    44,429
    
    
    $
    23,983
    
    
    $
    122,947Period of May 27,
2004 through June
30, 2004
(Successor)
    
    $
    19,197
    
    
    $
    17,829
    
    
    $
    14,562
    
    
    $
    51,588Period of April 1,
2004 through May
26, 2004
(Predecessor)
    
    $
    21,138
    
    
    $
    14,121
    
    
    $
    5,791
    
    
    $
    41,050
 Operating Income
    
    Americas
    
    Europe
    
    Asia Pacific
    
    TotalSix months ended June 30, 2005 (Successor)
    
    $
    100,071
    
    
    $
    82,838
    
    
    $
    52,638
    
    
    $
    235,547Period 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 June 30, 2005 (Successor)
    
    $
    85,169
    
    
    $
    105,440
    
    
    $
    47,682
    
    
    $
    238,291As 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)
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Total operating income for reportable segments
    
    $
    122,947
    
    
    $
    51,588
    
    
    
    $
    41,050Research and development
    
    
    (38,659
    )
    
    
    (11,006
    )
    
    
    
    (19,254
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software
and other intangible assets
    
    
    (39,777
    )
    
    
    (12,514
    )
    
    
    
    (10,568
    )Corporate and unallocated costs
    
    
    (35,487
    )
    
    
    (10,453
    )
    
    
    
    (15,669
    )Operating
income (loss)
    
    $
    3,150
    
    
    $
    (33,204
    )
    
    
    $
    (4,441
    )
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Total operating income for reportable segments
    
    $
    235,547
    
    
    $
    51,588
    
    
    
    $
    148,156Research and development
    
    
    (74,640
    )
    
    
    (11,006
    )
    
    
    
    (52,851
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software
and other intangible assets
    
    
    (73,533
    )
    
    
    (12,514
    )
    
    
    
    (26,040
    )Corporate and unallocated costs
    
    
    (64,506
    )
    
    
    (10,453
    )
    
    
    
    (36,769
    )Operating
income (loss)
    
    $
    16,994
    
    
    $
    (33,204
    )
    
    
    $
    32,496
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughTotal Revenue:
    
    June 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004United States
    
    $
    116,709
    
    
    $
    40,297
    
    
    
    $
    55,011Germany
    
    
    37,447
    
    
    
    7,744
    
    
    
    
    15,677Japan
    
    
    24,786
    
    
    
    9,540
    
    
    
    
    10,755All Other
    
    
    106,068
    
    
    
    44,393
    
    
    
    
    41,717Total
    
    $
    285,010
    
    
    $
    101,974
    
    
    
    $
    123,160
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughTotal Revenue:
    
    June 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004United States
    
    $
    219,898
    
    
    $
    40,297
    
    
    
    $
    152,253Germany
    
    
    65,579
    
    
    
    7,744
    
    
    
    
    42,309Japan
    
    
    54,923
    
    
    
    9,540
    
    
    
    
    38,828All Other
    
    
    197,175
    
    
    
    44,393
    
    
    
    
    124,413Total
    
    $
    537,575
    
    
    $
    101,974
    
    
    
    $
    357,803
 SuccessorJune 30,
    
    December 31,Net Property, Plant and Equipment:
    
    2005
    
    2004United States
    
    $
    23,094
    
    
    $
    22,798Germany
    
    
    1,002
    
    
    
    768Japan
    
    
    1,966
    
    
    
    774All Other
    
    
    10,589
    
    
    
    9,411Total
    
    $
    36,651
    
    
    $
    33,751
 15




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Note 12: Commitments and Contingencies
 Legal Proceedings
  Guarantees
  Note 13: Comprehensive (Loss) Income
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Net loss
    
    $
    (22,024
    )
    
    $
    (44,688
    )
    
    
    $
    (3,068
    )Currency translation adjustments, net of taxes
    
    
    (15,309
    )
    
    
    (23
    )
    
    
    
    (1,737
    )Change in fair value of derivative
instruments, net of taxes
    
    
    1,819
    
    
    
    
    
    
    
    
    Change in minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    (1,136
    )Comprehensive loss
    
    $
    (35,514
    )
    
    $
    (44,711
    )
    
    
    $
    (5,941
    )
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Net (loss) income
    
    $
    (30,193
    )
    
    $
    (44,688
    )
    
    
    $
    22,393Currency translation adjustments, net of taxes
    
    
    (21,531
    )
    
    
    (23
    )
    
    
    
    (3,390
    )Change in fair value of derivative
instruments, net of taxes
    
    
    622
    
    
    
    
    
    
    
    
    Change in minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    (651
    )Comprehensive (loss) income
    
    $
    (51,102
    )
    
    $
    (44,711
    )
    
    
    $
    18,352
 16




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##### Table of Contents



UGS Corp.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(Continued)
 Note 14: Recent Accounting Pronouncements
   Note 15: Financial Statements of Guarantors
  17




---



##### 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 June 30, 2005Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue:Software
    
    $
    25,920
    
    
    $
    140
    
    
    $
    55,717
    
    
    $
    
    
    
    $
    81,777Maintenance
    
    
    48,283
    
    
    
    109
    
    
    
    79,909
    
    
    
    
    
    
    
    128,301Services and other
    
    
    37,904
    
    
    
    44,839
    
    
    
    36,964
    
    
    
    (44,775
    )(a)
    
    
    74,932Total revenue
    
    
    112,107
    
    
    
    45,088
    
    
    
    172,590
    
    
    
    (44,775
    )
    
    
    285,010Cost of revenue:Software
    
    
    1,801
    
    
    
    50
    
    
    
    4,093
    
    
    
    
    
    
    
    5,944Maintenance
    
    
    5,493
    
    
    
    12
    
    
    
    8,990
    
    
    
    
    
    
    
    14,495Services and other
    
    
    28,096
    
    
    
    26
    
    
    
    83,354
    
    
    
    (44,775
    )(a)
    
    
    66,701Amortization
of capitalized software and acquired intangible assets
    
    
    11,329
    
    
    
    14,010
    
    
    
    5,699
    
    
    
    
    
    
    
    31,038Total cost of revenue
    
    
    46,719
    
    
    
    14,098
    
    
    
    102,136
    
    
    
    (44,775
    )
    
    
    118,178Gross profit
    
    
    65,388
    
    
    
    30,990
    
    
    
    70,454
    
    
    
    
    
    
    
    166,832Operating expenses:Selling, general and adminstrative
    
    
    49,158
    
    
    
    629
    
    
    
    60,623
    
    
    
    
    
    
    
    110,410Research and development
    
    
    38,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,659In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    
    
    
    
    4,100Restructuring
    
    
    
    
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    1,774Amortization of other intangibles
assets
    
    
    2,623
    
    
    
    
    
    
    
    6,116
    
    
    
    
    
    
    
    8,739Total operating expenses
    
    
    90,440
    
    
    
    629
    
    
    
    72,613
    
    
    
    
    
    
    
    163,682Operating (loss) income
    
    
    (25,052
    )
    
    
    30,361
    
    
    
    (2,159
    )
    
    
    
    
    
    
    3,150Interest expense and amortization of
deferred financing fees
    
    
    (24,202
    )
    
    
    12,416
    
    
    
    (13,430
    )
    
    
    
    
    
    
    (25,216
    )Other income (expense), net
    
    
    1,490
    
    
    
    (9,389
    )
    
    
    (684
    )
    
    
    
    
    
    
    (8,583
    )(Loss) income before income taxes

    
    
    (47,764
    )
    
    
    33,388
    
    
    
    (16,273
    )
    
    
    
    
    
    
    (30,649
    )Provision (benefit) for income taxes
    
    
    (14,615
    )
    
    
    11,686
    
    
    
    (5,696
    )
    
    
    
    
    
    
    (8,625
    )Net (loss) income
    
    $
    (33,149
    )
    
    $
    21,702
    
    
    $
    (10,577
    )
    
    $
    
    
    
    $
    (22,024
    )
 
 (a) 
    
    Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 18




---



##### 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 June 30, 2004Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue:Software
    
    $
    12,755
    
    
    $
    421
    
    
    $
    27,294
    
    
    $
    
    
    
    $
    40,470Maintenance
    
    
    12,080
    
    
    
    74
    
    
    
    22,645
    
    
    
    
    
    
    
    34,799Services and other
    
    
    15,487
    
    
    
    11,228
    
    
    
    11,176
    
    
    
    (11,186
    ) (a)
    
    
    26,705Total revenue
    
    
    40,322
    
    
    
    11,723
    
    
    
    61,115
    
    
    
    (11,186
    )
    
    
    10,974Cost of revenue:Software
    
    
    812
    
    
    
    113
    
    
    
    1,551
    
    
    
    
    
    
    
    2,476Maintenance
    
    
    1,984
    
    
    
    5
    
    
    
    3,390
    
    
    
    
    
    
    
    5,379Services and other
    
    
    11,700
    
    
    
    20
    
    
    
    20,527
    
    
    
    (11,186
    ) (a)
    
    
    21,061Amortization of capitalized software and
acquired intangible assets
    
    
    3,163
    
    
    
    5,448
    
    
    
    379
    
    
    
    
    
    
    
    8,990Total cost of revenue
    
    
    17,659
    
    
    
    5,586
    
    
    
    25,847
    
    
    
    (11,186
    )
    
    
    37,906Gross profit
    
    
    22,663
    
    
    
    6,137
    
    
    
    35,268
    
    
    
    
    
    
    
    64,068Operating expenses:Selling, general and adminstrative
    
    
    16,533
    
    
    
    1,477
    
    
    
    13,913
    
    
    
    
    
    
    
    31,923Research and development
    
    
    11,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,006In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    
    
    
    
    50,819Amortization of other intangibles assets
    
    
    1,640
    
    
    
    
    
    
    
    1,884
    
    
    
    
    
    
    
    3,524Total operating expenses
    
    
    79,379
    
    
    
    1,477
    
    
    
    16,416
    
    
    
    
    
    
    
    97,272Operating (loss) income
    
    
    (56,716
    )
    
    
    4,660
    
    
    
    18,852
    
    
    
    
    
    
    
    (33,204
    )Interest (expense) income and
amortization of
deferred financing fees
    
    
    (7,958
    )
    
    
    3,716
    
    
    
    (3,714
    )
    
    
    
    
    
    
    (7,956
    )Other income (expense), net
    
    
    5,717
    
    
    
    (3,759
    )
    
    
    (1,738
    )
    
    
    
    
    
    
    220(Loss) income before income taxes
    
    
    (58,957
    )
    
    
    4,617
    
    
    
    13,400
    
    
    
    
    
    
    
    (40,940
    )Provision for income taxes
    
    
    (2,558
    )
    
    
    1,616
    
    
    
    4,690
    
    
    
    
    
    
    
    3,748Net (loss) income
    
    $
    (56,399
    )
    
    $
    3,001
    
    
    $
    8,710
    
    
    $
    
    
    
    $
    (44,688
    )
 
 (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)
 For the period of April 1, 2004 through May 26, 2004Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue:Software
    
    $
    8,607
    
    
    $
    (29
    )
    
    $
    19,658
    
    
    $
    
    
    
    $
    28,236Maintenance
    
    
    25,207
    
    
    
    (13
    )
    
    
    35,788
    
    
    
    
    
    
    
    60,982Services and other
    
    
    20,900
    
    
    
    40,440
    
    
    
    12,992
    
    
    
    (40,390
    ) (a)
    
    
    33,942Total revenue
    
    
    54,714
    
    
    
    40,398
    
    
    
    68,438
    
    
    
    (40,390
    )
    
    
    123,160Cost of revenue:Software
    
    
    1,581
    
    
    
    (265
    )
    
    
    201
    
    
    
    
    
    
    
    1,517Maintenance
    
    
    2,141
    
    
    
    21
    
    
    
    4,615
    
    
    
    
    
    
    
    6,777Services and other
    
    
    16,750
    
    
    
    (20
    )
    
    
    55,868
    
    
    
    (40,390
    ) (a)
    
    
    32,208Amortization of capitalized software and
acquired intangible assets
    
    
    9,568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,568Total cost of revenue
    
    
    30,040
    
    
    
    (264
    )
    
    
    60,684
    
    
    
    (40,390
    )
    
    
    50,070Gross profit
    
    
    24,674
    
    
    
    40,662
    
    
    
    7,754
    
    
    
    
    
    
    
    73,090Operating expenses:Selling, general and adminstrative
    
    
    26,558
    
    
    
    (1,335
    )
    
    
    32,054
    
    
    
    
    
    
    
    57,277Research and development
    
    
    15,978
    
    
    
    1,924
    
    
    
    1,352
    
    
    
    
    
    
    
    19,254Amortization of other intangibles assets
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Total operating expenses
    
    
    43,536
    
    
    
    589
    
    
    
    33,406
    
    
    
    
    
    
    
    77,531Operating (loss) income
    
    
    (18,862
    )
    
    
    40,073
    
    
    
    (25,652
    )
    
    
    
    
    
    
    (4,441
    )Interest (expense) income and amortization of
deferred financing fees
    
    
    (833
    )
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    (812
    )Other income (expense), net
    
    
    (184
    )
    
    
    1,444
    
    
    
    (691
    )
    
    
    
    
    
    
    569(Loss) income before income taxes
    
    
    (19,879
    )
    
    
    41,517
    
    
    
    (26,322
    )
    
    
    
    
    
    
    (4,684
    )Provision (benefit) for income taxes
    
    
    (6,934
    )
    
    
    14,531
    
    
    
    (9,213
    )
    
    
    
    
    
    
    (1,616
    )Net (loss) income
    
    $
    (12,945
    )
    
    $
    26,986
    
    
    $
    (17,109
    )
    
    $
    
    
    
    $
    (3,068
    )
 
 (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)
 Six months ended June 30, 2005Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue:Software
    
    $
    49,721
    
    
    $
    410
    
    
    $
    104,765
    
    
    $
    
    
    
    $
    154,896Maintenance
    
    
    92,394
    
    
    
    246
    
    
    
    147,268
    
    
    
    
    
    
    
    239,908Services and other
    
    
    73,021
    
    
    
    89,303
    
    
    
    69,672
    
    
    
    (89,225
    ) (a)
    
    
    142,771Total revenue
    
    
    215,136
    
    
    
    89,959
    
    
    
    321,705
    
    
    
    (89,225
    )
    
    
    537,575Cost of revenue:Software
    
    
    4,050
    
    
    
    152
    
    
    
    6,198
    
    
    
    
    
    
    
    10,400Maintenance
    
    
    10,372
    
    
    
    42
    
    
    
    17,444
    
    
    
    
    
    
    
    27,858Services and other
    
    
    55,603
    
    
    
    26
    
    
    
    156,293
    
    
    
    (89,225
    ) (a)
    
    
    122,697Amortization of capitalized software and
acquired intangible assets
    
    
    22,170
    
    
    
    28,020
    
    
    
    7,034
    
    
    
    
    
    
    
    57,224Total cost of revenue
    
    
    92,195
    
    
    
    28,240
    
    
    
    186,969
    
    
    
    (89,225
    )
    
    
    218,179Gross profit
    
    
    122,941
    
    
    
    61,719
    
    
    
    134,736
    
    
    
    
    
    
    
    319,396Operating expenses:Selling, general and adminstrative
    
    
    96,577
    
    
    
    1,287
    
    
    
    107,715
    
    
    
    
    
    
    
    205,579Research and development
    
    
    74,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,640In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    
    
    
    
    4,100Restructuring
    
    
    
    
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    1,774Amortization of other intangibles assets
    
    
    5,245
    
    
    
    
    
    
    
    11,064
    
    
    
    
    
    
    
    16,309Total operating expenses
    
    
    176,462
    
    
    
    1,287
    
    
    
    124,653
    
    
    
    
    
    
    
    302,402Operating (loss) income
    
    
    (53,521
    )
    
    
    60,432
    
    
    
    10,083
    
    
    
    
    
    
    
    16,994Interest expense and amortization of
deferred financing fees
    
    
    (46,215
    )
    
    
    28,997
    
    
    
    (29,161
    )
    
    
    
    
    
    
    (46,379
    )Other (expense) income, net
    
    
    (535
    )
    
    
    (12,711
    )
    
    
    (161
    )
    
    
    
    
    
    
    (13,407
    )(Loss) income before income taxes
    
    
    (100,271
    )
    
    
    76,718
    
    
    
    (19,239
    )
    
    
    
    
    
    
    (42,792
    )Provision (benefit) for income taxes
    
    
    (32,716
    )
    
    
    26,851
    
    
    
    (6,734
    )
    
    
    
    
    
    
    (12,599
    )Net (loss) income
    
    $
    (67,555
    )
    
    $
    49,867
    
    
    $
    (12,505
    )
    
    $
    
    
    
    $
    (30,193
    )
 
 (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)
 June 30, 2005Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssets:Current assetsCash and cash equivalents
    
    $
    (42
    )
    
    $
    1,602
    
    
    $
    71,514
    
    
    $
    
    
    
    $
    73,074Accounts receivable, net
    
    
    74,404
    
    
    
    300
    
    
    
    163,587
    
    
    
    
    
    
    
    238,291Prepaids and other
    
    
    10,389
    
    
    
    
    
    
    
    9,556
    
    
    
    
    
    
    
    19,945Deferred income taxes
    
    
    56,978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,978Total current assets
    
    
    141,729
    
    
    
    1,902
    
    
    
    244,657
    
    
    
    
    
    
    
    388,288Property and equipment, net
    
    
    21,611
    
    
    
    
    
    
    
    15,040
    
    
    
    
    
    
    
    36,651Goodwill
    
    
    326,966
    
    
    
    542,785
    
    
    
    559,904
    
    
    
    
    
    
    
    1,429,655Capitalized and acquired software, net
    
    
    201,670
    
    
    
    218,712
    
    
    
    73,238
    
    
    
    
    
    
    
    493,620Customer accounts, net
    
    
    81,371
    
    
    
    
    
    
    
    134,661
    
    
    
    
    
    
    
    216,032Other intangible assets, net
    
    
    50,201
    
    
    
    
    
    
    
    96,679
    
    
    
    
    
    
    
    146,880Intercompany balances
    
    
    70,402
    
    
    
    383,099
    
    
    
    (891
    )
    
    
    (452,610
    )(b)
    
    
    Other assets
    
    
    732,327
    
    
    
    
    
    
    
    5,472
    
    
    
    (695,547
    )(a)
    
    
    42,252Total assets
    
    $
    1,626,277
    
    
    $
    1,146,498
    
    
    $
    1,128,760
    
    
    $
    (1,148,157
    )
    
    $
    2,753,378Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    70,279
    
    
    $
    429
    
    
    $
    93,900
    
    
    $
    
    
    
    $
    164,608Deferred revenue
    
    
    65,092
    
    
    
    713
    
    
    
    92,062
    
    
    
    
    
    
    
    157,867Income taxes payable
    
    
    
    
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    299Intercompany balances
    
    
    
    
    
    
    
    
    
    
    452,610
    
    
    
    (452,610
    )(b)
    
    
    Total current liabilities
    
    
    135,371
    
    
    
    1,142
    
    
    
    638,871
    
    
    
    (452,610
    )
    
    
    322,774Other long-term liabilities
    
    
    
    
    
    
    8,469
    
    
    
    38,786
    
    
    
    
    
    
    
    47,255Deferred income taxes
    
    
    38,330
    
    
    
    76,550
    
    
    
    106,290
    
    
    
    
    
    
    
    221,170Long-term debt
    
    
    1,239,000
    
    
    
    
    
    
    
    4,719
    
    
    
    
    
    
    
    1,243,719Total stockholders equity
    
    
    213,576
    
    
    
    1,060,337
    
    
    
    340,094
    
    
    
    (695,547
    )(a)
    
    
    918,460Total liabilities and
stockholders equity
    
    $
    1,626,277
    
    
    $
    1,146,498
    
    
    $
    1,128,760
    
    
    $
    (1,148,157
    )
    
    $
    2,753,378
 
 (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)
 Six months ended June 30, 2005Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (67,555
    )
    
    $
    49,867
    
    
    $
    (12,505
    )
    
    $
    (30,193
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Benefit for deferred income taxes
    
    
    (9,599
    )
    
    
    (9,807
    )
    
    
    (6,334
    )
    
    
    (25,740
    )Depreciation and amortization
    
    
    32,881
    
    
    
    28,020
    
    
    
    20,502
    
    
    
    81,403Amortization of deferred financing fees
    
    
    2,842
    
    
    
    
    
    
    
    
    
    
    
    2,842In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    4,100Stock-based compensation
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    154Other
    
    
    588
    
    
    
    9
    
    
    
    1,642
    
    
    
    2,239Unrealized
gain on foreign currency revaluation of derivative instruments
    
    
    
    
    
    
    (16,965
    )
    
    
    
    
    
    
    (16,965
    )Unrealized loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    23,486
    
    
    
    23,486Changes in operating assets and liabilities, net of effect
of acqusitions:Accounts receivable
    
    
    (90
    )
    
    
    1,671
    
    
    
    2,804
    
    
    
    4,385Prepaids and other
    
    
    5,463
    
    
    
    220
    
    
    
    783
    
    
    
    6,466Accounts payable and accrued liabilities
    
    
    3,050
    
    
    
    104
    
    
    
    (14,048
    )
    
    
    (10,894
    )Deferred revenue
    
    
    13,180
    
    
    
    (529
    )
    
    
    34,331
    
    
    
    46,982Income taxes payable
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,000
    )Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    (164
    )
    
    
    (164
    )Total adjustments
    
    
    48,469
    
    
    
    2,723
    
    
    
    66,102
    
    
    
    117,294Net cash (used in) provided by operating activities
    
    
    (19,086
    )
    
    
    52,590
    
    
    
    53,597
    
    
    
    87,101Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (218,392
    )
    
    
    (218,392
    )Cash received from prior parent for acquisition
related tax matters
    
    
    8,054
    
    
    
    
    
    
    
    
    
    
    
    8,054Payments for purchases of property and equipment
    
    
    (3,795
    )
    
    
    
    
    
    
    (2,009
    )
    
    
    (5,804
    )Capitalized software costs
    
    
    (38,501
    )
    
    
    
    
    
    
    (944
    )
    
    
    (39,445
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    23,194
    
    
    
    23,194Other
    
    
    (1,762
    )
    
    
    280
    
    
    
    1,420
    
    
    
    (62
    )Net cash (used in) provided by investing activities
    
    
    (36,004
    )
    
    
    280
    
    
    
    (196,731
    )
    
    
    (232,455
    )Cash flows from financing activitiesIntercompany borrowings (payments)
    
    
    (126,710
    )
    
    
    (51,519
    )
    
    
    178,229
    
    
    
    Proceeds from revolver credit line
    
    
    81,351
    
    
    
    
    
    
    
    
    
    
    
    81,351Payments on revolver credit line
    
    
    (87,351
    )
    
    
    
    
    
    
    
    
    
    
    (87,351
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    6,802
    
    
    
    6,802Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (2,773
    )
    
    
    (2,773
    )Proceeds from bank notes and bonds, net
    
    
    225,201
    
    
    
    
    
    
    
    8,893
    
    
    
    234,094Payments on bank notes and bonds
    
    
    (36,000
    )
    
    
    
    
    
    
    (33,351
    )
    
    
    (69,351
    )Capital contributed by parent
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    508Net cash provided by (used in) financing activities
    
    
    56,999
    
    
    
    (51,519
    )
    
    
    157,800
    
    
    
    163,280Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (3,252
    )
    
    
    (3,252
    )Net increase in cash and cash equivalents
    
    
    1,909
    
    
    
    1,351
    
    
    
    11,414
    
    
    
    14,674Cash and cash equivalents at beginning of period
    
    
    (1,951
    )
    
    
    251
    
    
    
    60,100
    
    
    
    58,400Cash and cash equivalents at end of period
    
    $
    (42
    )
    
    $
    1,602
    
    
    $
    71,514
    
    
    $
    73,074
 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 June 30, 2004Parent
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (56,400
    )
    
    $
    3,001
    
    
    $
    8,711
    
    
    $
    (44,688
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Provision for deferred income taxes
    
    
    (941
    )
    
    
    (1,907
    )
    
    
    (792
    )
    
    
    (3,640
    )Depreciation and amortization
    
    
    5,884
    
    
    
    5,448
    
    
    
    2,673
    
    
    
    14,005Amortization of deferred financing fees
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    486In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    50,819Other
    
    
    127
    
    
    
    
    
    
    
    545
    
    
    
    672Unrealized gain on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    (535
    )
    
    
    (535
    )Changes in operating assets and liabilities, net of effect
of acqusitions:Accounts receivable
    
    
    (6,589
    )
    
    
    653
    
    
    
    632
    
    
    
    (5,304
    )Prepaids and other
    
    
    4,517
    
    
    
    
    
    
    
    (5,687
    )
    
    
    (1,170
    )Accounts payable and accrued liabilities
    
    
    (5,036
    )
    
    
    4,332
    
    
    
    9,966
    
    
    
    9,262Deferred revenue
    
    
    996
    
    
    
    (273
    )
    
    
    6,756
    
    
    
    7,479Income taxes payable
    
    
    
    
    
    
    
    
    
    
    4,144
    
    
    
    4,144Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    190Total adjustments
    
    
    49,644
    
    
    
    8,253
    
    
    
    18,511
    
    
    
    76,408Net cash (used in) provided by operating activities
    
    
    (6,756
    )
    
    
    11,254
    
    
    
    27,222
    
    
    
    31,720Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (2,039,703
    )
    
    
    
    
    
    
    
    
    
    
    (2,039,703
    )Payments for purchases of property and equipment
    
    
    (183
    )
    
    
    
    
    
    
    (538
    )
    
    
    (721
    )Capitalized software costs
    
    
    (6,336
    )
    
    
    
    
    
    
    
    
    
    
    (6,336
    )Other
    
    
    (1,585
    )
    
    
    
    
    
    
    1,566
    
    
    
    (19
    )Net cash (used in) provided by investing activities
    
    
    (2,047,807
    )
    
    
    
    
    
    
    1,028
    
    
    
    (2,046,779
    )Cash flows from financing activitiesIntercompany borrowings (payments)
    
    
    (2,714
    )
    
    
    (9,995
    )
    
    
    12,709
    
    
    
    Proceeds from revolver credit line
    
    
    49,056
    
    
    
    
    
    
    
    
    
    
    
    49,056Proceeds from bank notes and bonds, net
    
    
    1,013,369
    
    
    
    
    
    
    
    
    
    
    
    1,013,369Capital contributed by parent
    
    
    1,001,502
    
    
    
    
    
    
    
    
    
    
    
    1,001,502Net cash provided by (used in) financing activities
    
    
    2,061,213
    
    
    
    (9,995
    )
    
    
    12,709
    
    
    
    2,063,927Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    69Net increase in cash and cash equivalents
    
    
    6,650
    
    
    
    1,259
    
    
    
    41,028
    
    
    
    48,937Cash and cash equivalents at beginning of period
    
    
    741
    
    
    
    
    
    
    
    27,721
    
    
    
    28,462Cash and cash equivalents at end of period
    
    $
    7,391
    
    
    $
    1,259
    
    
    $
    68,749
    
    
    $
    77,399
 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 (gain) loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    2,362
    
    
    
    2,362Other
    
    
    376
    
    
    
    570
    
    
    
    1,331
    
    
    
    2,277Changes in operating assets and liabilities, 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 accrued liabilities
    
    
    (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




---



##### 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, 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
  28




---



##### Table of Contents



Cost of Revenue
  Sales and Marketing
    Research and Development Costs
   29




---



##### Table of Contents



Successor
    
    
    PredecessorPeriod of
    
    
    Period ofThree months
    
    May 27, 2004
    
    
    April 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Research and development costs
    
    $
    38,659
    
    
    $
    11,006
    
    
    
    $
    19,254Capitalized software costs
    
    
    22,056
    
    
    
    6,336
    
    
    
    
    10,375Total research and development costs
    
    $
    60,715
    
    
    $
    17,342
    
    
    
    $
    29,629
 Successor
    
    
    PredecessorPeriod of
    
    
    Period ofSix months
    
    May 27, 2004
    
    
    January 1, 2004ended
    
    through
    
    
    throughJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004Research and development costs
    
    $
    74,460
    
    
    $
    11,006
    
    
    
    $
    52,851Capitalized software costs
    
    
    39,445
    
    
    
    6,336
    
    
    
    
    24,753Total research and development costs
    
    $
    113,905
    
    
    $
    17,342
    
    
    
    $
    77,604
 Factors Affecting our Results of Operations
  Impact of the Acquisition of UGS PLM Solutions Inc.
   Deferred Revenue
  30




---



##### Table of Contents



Amortization of Acquired Intangible Assets
  Capitalization of Software Development Costs
  Other Acquisitions
 D-Cubed. Ltd.
  Tecnomatix Technologies Ltd.
  Acquisition Related Interest Expense
  31




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##### Table of Contents



Services Arrangement
   Critical Accounting Policies and Estimates
  Capitalized Software Development Costs
  32




---



##### 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.
   33




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##### Table of Contents



Business Combinations
    34




---



##### Table of Contents



Recoverability of Goodwill, Acquired Intangible Assets and Long-Lived Assets
   Income Taxes
    35




---



##### Table of Contents



Pricing of Historic EDS Services
  Recent Accounting Pronouncements
   Segment Revenue and Operating Income
  Geographic Segment Revenue
   36




---



##### Table of Contents



Geographic Segment Operating Income
     37




---



##### Table of Contents



Successor
    
    
    PredecessorPeriod of
    
    
    Period of
    
    Combined (a)Three
    
    May 27, 2004
    
    
    April 1, 2004
    
    Threemonths ended
    
    through
    
    
    through
    
    months endedJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004
    
    June 30, 2004Americas:Revenue
    
    $
    124,261
    
    
    $
    43,024
    
    
    
    $
    58,371
    
    
    $
    101,395Operating income
    
    
    54,535
    
    
    
    19,197
    
    
    
    
    21,138
    
    
    
    40,335Europe:Revenue
    
    
    110,731
    
    
    
    36,228
    
    
    
    
    46,935
    
    
    
    83,163Operating income
    
    
    44,429
    
    
    
    17,829
    
    
    
    
    14,121
    
    
    
    31,950Asia Pac:Revenue
    
    
    50,018
    
    
    
    22,722
    
    
    
    
    17,854
    
    
    
    40,576Operating income
    
    
    23,983
    
    
    
    14,562
    
    
    
    
    5,791
    
    
    
    20,353Total Segments:Revenue
    
    
    285,010
    
    
    
    101,974
    
    
    
    
    123,160
    
    
    
    225,134Operating income
    
    $
    122,947
    
    
    $
    51,588
    
    
    
    $
    41,050
    
    
    $
    92,638
 
 (a)
    
    As described above, our combined results for the three months ended June 30, 2004
represent the addition of the Predecessor period from April 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. 38




---



##### Table of Contents



Successor
    
    
    PredecessorPeriod of
    
    
    Period of
    
    Combined (a)Six

    
    May 27, 2004
    
    
    January 1, 2004
    
    Sixmonths ended
    
    through
    
    
    through
    
    months endedJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004
    
    June 30, 2004America:Revenue
    
    $
    233,422
    
    
    $
    43,024
    
    
    
    $
    161,880
    
    
    $
    204,904Operating income
    
    
    100,071
    
    
    
    19,197
    
    
    
    
    64,060
    
    
    
    83,257Europe:Revenue
    
    
    203,527
    
    
    
    36,228
    
    
    
    
    130,923
    
    
    
    167,151Operating income
    
    
    82,838
    
    
    
    17,829
    
    
    
    
    50,884
    
    
    
    68,713Asia Pac:Revenue
    
    
    100,626
    
    
    
    22,722
    
    
    
    
    65,000
    
    
    
    87,722Operating income
    
    
    52,638
    
    
    
    14,562
    
    
    
    
    33,212
    
    
    
    47,774Total Segments:Revenue
    
    
    537,575
    
    
    
    101,974
    
    
    
    
    357,803
    
    
    
    459,777Operating income
    
    $
    235,547
    
    
    $
    51,588
    
    
    
    $
    148,156
    

    
    $
    199,744
 
 (a)
    
    As described above, our combined results for the six months ended June 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.  Successor
    
    
    PredecessorPeriod of
    
    
    Period of
    
    Combined (a)Three months
    
    May 27, 2004
    
    
    April 1, 2004
    
    Three monthsended
    
    through
    
    
    through
    
    endedJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004
    
    June 30, 2004Total operating income for reportable segments
    
    $
    122,947
    
    
    $
    51,588
    
    
    
    $
    41,050
    
    
    $
    92,638Research and development
    
    
    (38,659
    )
    
    
    (11,006
    )
    
    
    
    (19,254
    )
    
    
    (30,260
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    (50,819
    )Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software
and other intangible assets
    
    
    (39,777
    )
    
    
    (12,514
    )
    
    
    
    (10,568
    )
    
    
    (23,082
    )Corporate and unallocated costs
    
    
    (35,487
    )
    
    
    (10,453
    )
    
    
    
    (15,669
    )
    
    
    (26,122
    )Operating
income (loss)
    
    $
    3,150
    
    
    $
    (33,204
    )
    
    
    $
    (4,441
    )
    
    $
    (37,645
    )
 
 (a)
    
    As described above, our combined results for the three months ended June 30, 2004
represent the addition of the Predecessor period from April 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. Successor
    
    
    PredecessorPeriod of
    
    
    Period of
    
    Combined (a)Six months
    
    May 27, 2004
    
    
    January 1, 2004
    
    Six monthsended
    
    through
    
    
    through
    
    endedJune 30, 2005
    
    June 30, 2004
    
    
    May 26, 2004
    
    June 30, 2004Total operating income for reportable segments
    
    $
    235,547
    
    
    $
    51,588
    
    
    
    $
    148,156
    
    
    $
    199,744Research and development
    
    
    (74,640
    )
    
    
    (11,006
    )
    
    
    
    (52,851
    )
    
    
    (63,857
    )In-process research and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    (50,819
    )Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    
    
    
    
    Amortization of capitalized and acquired software
and other intangible assets
    
    
    (73,533
    )
    
    
    (12,514
    )
    
    
    
    (26,040
    )
    
    
    (38,554
    )Corporate and unallocated costs
    
    
    (64,506
    )
    
    
    (10,453
    )
    
    
    
    (36,769
    )
    
    
    (47,222
    )Operating
income (loss)
    
    $
    16,994
    
    
    $
    (33,204
    )
    
    
    $
    32,496
    
    
    $
    (708
    )
 
 (a)
    
    As described above, our combined results for the six months ended June 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. 39




---



##### Table of Contents



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
  Successor
    
    PredecessorPeriod of
    
    Period ofMay 27, 2004
    
    April 1, 2004
    
    Combined (b)Three months ended
    
    through
    
    through
    
    Three months endedJune 30, 2005
    
    June 30, 2004
    
    May 26, 2004
    
    June 30, 2004(percentage of
    
    
    
    
    
    
    
    
    
    
    
    
    
    (percentage oftotal revenue)
    
    
    
    
    
    
    
    
    
    
    
    
    
    total revenue)Revenue:Software
    
    $
    81,777
    
    
    
    28.7
    %
    
    $
    40,470
    
    
    $
    28,236
    
    
    $
    68,706
    
    
    
    30.5
    %Maintenance
    
    
    128,301
    
    
    
    45.0
    %
    
    
    34,799
    
    
    
    60,982
    
    
    
    95,781
    
    
    
    42.5
    %Services and other (a)
    
    
    74,932
    
    
    
    26.3
    %
    
    
    26,705
    
    
    
    33,942
    
    
    
    60,647
    
    
    
    27.0
    %Total revenue
    
    
    285,010
    
    
    
    100.0
    %
    
    
    101,974
    
    
    
    123,160
    
    
    
    225,134
    
    
    
    100.0
    %Cost of revenue (includes amortization of
capitalized and acquired software)
    
    
    118,178
    
    
    
    41.5
    %
    
    
    37,906
    
    
    
    50,070
    
    
    
    87,976
    
    
    
    39.1
    %Gross profit
    
    
    166,832
    
    
    
    58.5
    %
    
    
    64,068
    
    
    
    73,090
    
    
    
    137,158
    
    
    
    60.9
    %Operating expenses:Selling, general and administrative
    
    
    110,410
    
    
    
    38.7
    %
    
    
    31,923
    
    
    
    57,277
    
    
    
    89,200
    
    
    
    39.6
    %Research and development
    
    
    38,659
    
    
    
    13.6
    %
    
    
    11,006
    
    
    
    19,254
    
    
    
    30,260
    
    
    
    13.4
    %In-process research and development
    
    
    4,100
    
    
    
    1.4
    %
    
    
    50,819
    
    
    
    
    
    
    
    50,819
    
    
    
    22.6
    %Restructuring
    
    
    1,774
    
    
    
    0.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0
    %Amortization of other intangible assets
    
    
    8,739
    
    
    
    3.1
    %
    
    
    3,524
    
    
    
    1,000
    
    
    
    4,524
    
    
    
    2.0
    %Total operating expenses
    
    
    163,682
    
    
    
    57.4
    %
    
    
    97,272
    
    
    
    77,531
    
    
    
    174,803
    
    
    
    77.6
    %Operating income
    
    
    3,150
    
    
    
    1.1
    %
    
    
    (33,204
    )
    
    
    (4,441
    )
    
    
    (37,645
    )
    
    
    -16.7
    %Interest expense and amortization of deferred financing fees
    
    
    (25,216
    )
    
    
    -8.8
    %
    
    
    (7,956
    )
    
    
    (812
    )
    
    
    (8,768
    )
    
    
    -3.9
    %Other (expense) income, net
    
    
    (8,583
    )
    
    
    -3.0
    %
    
    
    220
    
    
    
    569
    
    
    
    789
    
    
    
    0.4
    %(Loss) income before taxes
    
    
    (30,649
    )
    
    
    -10.8
    %
    
    
    (40,940
    )
    
    
    (4,684
    )
    
    
    (45,624
    )
    
    
    -20.3
    %(Benefit) provision for income taxes
    
    
    (8,625
    )
    
    
    -3.0
    %
    
    
    3,748
    
    
    
    (1,616
    )
    
    
    2,132
    
    
    
    0.9
    %Net (loss) income
    
    $
    (22,024
    )
    
    
    -7.7
    %
    
    $
    (44,688
    )
    
    $
    (3,068
    )
    
    $
    (47,756
    )
    
    
    -21.2
    %
 
 (a)
    
    Other revenue consists primarily of hardware sales.(b)
    
    As described above, our combined results for the three months ended June 30, 2004
represent the addition of the Predecessor period from April 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. Successor
    
    PredecessorPeriod of
    
    Period ofMay 27, 2004
    
    January 1, 2004
    
    Combined (b)Six months ended
    
    through
    
    through
    
    Six months endedJune 30, 2005
    
    June 30, 2004
    
    May 26, 2004
    
    June 30, 2004(percentage of
    
    
    
    
    
    
    
    
    
    
    
    
    
    (percentage oftotal revenue)
    
    
    
    
    
    
    
    
    
    
    
    
    
    total revenue)Revenue:Software
    
    $
    154,896
    
    
    
    28.8
    %
    
    $
    40,470
    
    
    $
    100,780
    
    
    $
    141,250
    
    
    
    30.7
    %Maintenance
    
    
    239,908
    
    
    
    44.6
    %
    
    
    34,799
    
    
    
    163,012
    
    
    
    197,811
    
    
    
    43.0
    %Services and other (a)
    
    
    142,771
    
    
    
    26.6
    %
    
    
    26,705
    
    
    
    94,011
    
    
    
    120,716
    
    
    
    26.3
    %Total revenue
    
    
    537,575
    
    
    
    100.0
    %
    
    
    101,974
    
    
    
    357,803
    
    
    
    459,777
    
    
    
    100.0
    %Cost of revenue (includes amortization of
capitalized and acquired software)
    
    
    218,179
    
    
    
    40.6
    %
    
    
    37,906
    
    
    
    133,139
    
    
    
    171,045
    
    
    
    37.2
    %Gross profit
    
    
    319,396
    
    
    
    59.4
    %
    
    
    64,068
    
    
    
    224,664
    
    
    
    288,732
    
    
    
    62.8
    %Operating expenses:Selling, general and administrative
    
    
    205,579
    
    
    
    38.2
    %
    
    
    31,923
    
    
    
    136,817
    
    
    
    168,740
    
    
    
    36.7
    %Research and development
    
    
    74,640
    
    
    
    13.9
    %
    
    
    11,006
    
    
    
    52,851
    
    
    
    63,857
    
    
    
    13.9
    %In-process research and development
    
    
    4,100
    
    
    
    0.8
    %
    
    
    50,819
    
    
    
    
    
    
    
    50,819
    
    
    
    11.1
    %Restructuring
    
    
    1,774
    
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0
    %Amortization of other intangible assets
    
    
    16,309
    
    
    
    3.0
    %
    
    
    3,524
    
    
    
    2,500
    
    
    
    6,024
    
    
    
    1.3
    %Total operating expenses
    
    
    302,402
    
    
    
    56.3
    %
    
    
    97,272
    
    
    
    192,168
    
    
    
    289,440
    
    
    
    63.0
    %Operating income
    
    
    16,994
    
    
    
    3.2
    %
    
    
    (33,204
    )
    
    
    32,496
    
    
    
    (708
    )
    
    
    -0.2
    %Interest expense and amortization of deferred financing fees
    
    
    (46,379
    )
    
    
    -8.6
    %
    
    
    (7,956
    )
    
    
    (2,021
    )
    
    
    (9,977
    )
    
    
    -2.2
    %Other (expense) income, net
    
    
    (13,407
    )
    
    
    -2.5
    %
    
    
    220
    
    
    
    2,010
    
    
    
    2,230
    
    
    
    0.5
    %(Loss) income before taxes
    
    
    (42,792
    )
    
    
    -8.0
    %
    
    
    (40,940
    )
    
    
    32,485
    
    
    
    (8,455
    )
    
    
    -1.8
    %(Benefit) provision for income taxes
    
    
    (12,599
    )
    
    
    -2.3
    %
    
    
    3,748
    
    
    
    10,092
    
    
    
    13,840
    
    
    
    3.0
    %Net (loss) income
    
    $
    (30,193
    )
    
    
    -5.6
    %
    
    $
    (44,688
    )
    
    $
    22,393
    
    
    $
    (22,295
    )
    
    
    -4.8
    %
 
 (a)
    
    Other revenue consists primarily of hardware sales.(b)
    
    As described above, our combined results for the six months ended June 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. 40




---



##### Table of Contents



Three Months Ended June 30, 2005 (Successor) Compared to the Period of April 1, 2004 through
May 26, 2004 (Predecessor) and the Period of May 27, 2004 through June 30, 2004 (Successor)
Combined
 Total Revenue
  
    
    Software. Software revenue accounted for 28.7% of total revenue for the three months
ended June 30, 2005 compared to 30.5% for the three months ended June 30, 2004. For the
three months ended June 30, 2005, software revenue grew $13.1 million, or 19.1%, to $81.8
million from $68.7 million for the three months ended June 30, 2004. The increase in
software was partially due to the inclusion of Tecnomatix, which contributed revenue of
$8.1 million. Software revenue was also aided by the addition of several sizeable
software deals during the quarter.
    
    Maintenance. Maintenance revenue accounted for 45.0% of total revenue for the three
months ended June 30, 2005 and 42.5% of total revenue for the three months ended June 30,
2004. For the three months ended June 30, 2005, maintenance revenue increased $32.5
million, or 33.9%, to $128.3 million from $95.8 million for the three months ended June
30, 2004. The increase was due, in part, to the addition of Tecnomatix, which contributed
revenue of $8.7 million. The increase was also due to an increase of $6.7 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. In addition, the increase in total maintenance
revenue was more pronounced due to the net impact of lower maintenance revenue from the
purchase accounting impact described above.
    
    Services and other. Services and other revenue accounted for 26.3% of total revenue
for the three months ended June 30, 2005 and 27.0% of total revenue for the three months
ended June 30, 2004. For the three months ended June 30, 2005, services and other revenue
grew $14.3 million, or 23.6%, to $74.9 million from $60.6 million for the three months
ended June 30, 2004. Services revenue grew across all segments. Services revenue also
benefited from the addition of Tecnomatix, which contributed revenue of $4.4 million.
This growth was partially offset by $3.1 million for the classification of revenue from
one of our largest customers as maintenance revenue rather than services revenue as
discussed above.
 Gross Profit
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Operating Expenses
 Selling, General and Administrative
  Research and Development
   In-Process Research and Development
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##### Table of Contents



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



Six Months Ended June 30, 2005 (Successor) Compared to the Period of January 1, 2004 through May
26, 2004 (Predecessor) and the Period of May 27, 2004 through June 30, 2004 (Successor) Combined
 Total Revenue
  
    
    Software. Software revenue accounted for 28.8% of total revenue for the six months
ended June 30, 2005 compared to 30.7% for the six months ended June 30, 2004. For the six
months ended June 30, 2005, software revenue grew $13.6 million, or 9.6%, to $154.9
million from $141.3 million for the six months ended June 30, 2004. Software revenue
growth was driven by the addition of sizeable software deals in the Americas and Europe
segments. The increase in software was also partially due to the inclusion of Tecnomatix,
which contributed revenue of $8.1 million.
    

    Maintenance. Maintenance revenue accounted for 44.6% of total revenue for the six
months ended June 30, 2005 and 43.0% of total revenue for the three months ended June 30,
2004. For the six months ended June 30, 2005, maintenance revenue increased $42.1
million, or 21.3%, to $239.9 million from $197.8 million for the six months ended June
30, 2004. A portion of the increase in maintenance revenue resulted from 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 benefited from the addition of
Tecnomatix, which contributed revenue of $8.7 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.
    
    Services and other. Services and other revenue accounted for 26.6% of total revenue
for the six months ended June 30, 2005 and 26.3% of total revenue for the six months
ended June 30, 2004. For the six months ended June 30, 2005, services and other revenue
grew $22.1 million, or 18.3%, to $142.8 million from $120.7 million for the six months
ended June 30, 2004. Services revenue grew across all segments. Services revenue grew
across all segments with the Europe segment having the largest growth due to the addition
of sizeable services projects. Services revenue also benefited from the addition of
Tecnomatix, which contributed revenue of $4.4 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
  Operating Expenses
 Selling, General and Administrative
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Research and Development
   In-Process Research and Development
   Restructuring
  45




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Amortization of Other Intangible Assets
  Operating Income
  Interest Expense and Amortization of Deferred Financing Fees
  Provision (Benefit) for Income Taxes
  Liquidity and Capital Resources
 Non-GAAP Measures
  46




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Six months
    
    Six monthsended
    
    endedJune 30, 2005
    
    June 30, 2004Reconciliation of EBITDA to net cash
provided by operating activities:EBITDA
    
    $
    84,990
    
    
    $
    48,998Benefit for deferred income taxes
    
    
    (25,740
    )
    
    
    (51,050
    )Amortization of deferred financing fees
    
    
    2,842
    
    
    
    486In-process research and development
    
    
    4,100
    
    
    
    50,819Stock-based compensation
    
    
    154
    
    
    
    Other
    
    
    2,239
    
    
    
    2,949Unrealized loss (gain) on revaluation of foreign
denominated assets and liabilities
    
    
    23,486
    
    
    
    1,827Unrealized gain on foreign currency revaluation
of derivative instruments
    
    
    (16,965
    )
    
    
    Changes in operating assets and liabilities
    
    
    45,775
    
    
    
    79,477Interest expense
    
    
    (46,379
    )
    
    
    (9,977
    )Benefit (provision) for income taxes
    
    
    12,599
    
    
    
    (13,840
    )Net cash provided by operating activities
    
    $
    87,101
    
    
    $
    109,689Reconciliation of EBITDA to net (loss) income:EBITDA
    
    $
    84,990
    
    
    $
    48,998Interest expense
    
    
    (46,379
    )
    
    
    (9,977
    )Benefit (provision) for income taxes
    
    
    12,599
    
    
    
    (13,840
    )Depreciation and amortization
    
    
    (81,403
    )
    
    
    (47,476
    )Net loss
    
    $
    (30,193
    )
    
    $
    (22,295
    )
 Debt and Commitments
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Capital Expenditures
  Historical Cash Flow
   48




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##### Table of Contents



Inflation
  Seasonality
  
 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Risk
    USDInterest
    
    Notional
    
    ExchangeExpiration
    
    Rate
    
    Value
    
    Rate to  1(in millions)Pay fixed
    
    December 15, 2014
    
    
    9.0
    %
    
    
    55.8
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.025
    %Pay fixed
    
    December 15, 2016
    
    
    9.0
    %
    
    
    46.6
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.08
    %
  49




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##### Table of Contents



Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  50




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##### 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)
 51




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    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
 52