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                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                               ----------------

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1999

                          Commission File No. 1-14155

                          UNIGRAPHICS SOLUTIONS INC.
            (Exact name of registrant as specified in its charter)

               Delaware                              75-2728894
     (State or other jurisdiction                 (I.R.S. Employer
   of incorporation or organization)             Identification No.)

            13736 Riverport Drive, Maryland Heights, MO 63043-4826
         (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code: (314) 344-5900

          Securities registered pursuant to Section 12(b) of the Act:

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<CAPTION>
      Title of each class           Name of each exchange on which registered
      -------------------           -----------------------------------------
      <S>                           <C>
      Common Stock, $.01 Par Value           New York Stock Exchange
</TABLE>

       Securities registered pursuant to Section 12(g) of the Act: None

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]  No [_].

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   As of March 1, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the closing price on such date as
reported on the New York Stock Exchange Composite Transactions) was
$136,769,634.

   As of March 1, 2000, there were 5,043,203 outstanding shares of the
registrant's Class A Common Stock and 31,265,000 shares of registrant's Class
B Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Certain portions of registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 2000 (the "2000 Proxy Statement") are
incorporated by reference in Part III of this Form 10-K. The 2000 Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after registrant's fiscal year end of December 31, 1999.

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                          UNIGRAPHICS SOLUTIONS INC.

                  FISCAL YEAR 1999 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

<TABLE>
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                                                                           Page
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IMPORTANT RISK FACTORS THAT MAY AFFECT FUTURE RESULTS.....................   2

PART I.
  Item 1.Business.........................................................   3
  Item 2.Properties.......................................................   8
  Item 3.Legal Proceedings................................................   9
  Item 4.Submission of Matters to a Vote of Security Holders..............   9
  Item 4A.Executive Officers..............................................   9
PART II.
  Item 5.Market for Registrant's Common Equity and Related Stockholder
   Matters................................................................  11
  Item 6.Selected Financial Data..........................................  11
  Item 7.Management's Discussion and Analysis of Financial Condition and
   Results of Operation...................................................  12
  Item 7A.Quantitative and Qualitative Disclosures about Market Risk......  25
  Item 8.Financial Statements and Supplementary Data......................  25
  Item 9.Changes In and Disagreements with Accountants on Accounting and
   Financial Disclosure...................................................  25
PART III.
  Item 10.Directors and Executive Officers of Registrant..................  26
  Item 11.Executive Compensation..........................................  26
  Item 12.Security Ownership of Certain Beneficial Owners and Management..  26
  Item 13.Certain Relationships and Related Transactions..................  26
PART IV.
  Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K.  26
  Signatures..............................................................  29
Financial Statements
</TABLE>

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             IMPORTANT RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

   Information periodically provided by the Company and its spokespersons,
including information contained in this Annual Report on Form 10-K, may
contain forward-looking statements such as (1) statements and projections
about the Company's future financial performance, including Solid Edge net
cash flow projections, (2) the continued strong competition in the MCAD
market, (3) the Company's expectation that it will be able to complete
negotiations on a follow-on products and services agreement with its largest
customer, General Motors Corporation, (4) the planned future decline in
Company hardware revenues, (5) Euro conversion exposure and related costs, and
(6) market trends, product developments and other factors noted in this Annual
Report on Form 10-K. These statements are based on estimates and assumptions
of the Company's management at the time such statements are made. Such
forward-looking statements are subject to various risks and uncertainties that
may cause the Company's future results to differ from those disclosed or
projected in a forward-looking statement, as detailed in "Risk Factors That
May Affect Future Results" included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Part II, Item 7 of
this Annual Report on Form 10-K beginning on page 21.

                                       2
<PAGE>

                                    PART I

ITEM 1. BUSINESS

Development of Business

   Unigraphics Solutions Inc. ("UGS" or "Company") was incorporated in
Delaware on October 2, 1997. Pursuant to a reorganization effective as of
January 1, 1998 (the "Reorganization"), UGS became the successor to the
mechanical computer-aided design ("MCAD") businesses of its parent, Electronic
Data Systems Corporation ("EDS"). Prior to January 1, 1998, the MCAD
businesses of EDS were operated within several business units of EDS. Between
January 1, 1998 and June 23, 1998, UGS was a direct, wholly owned subsidiary
of EDS. On June 23, 1998, a public offering (the "Offering") of 5,000,000
shares of Class A Common Stock of UGS was concluded. Currently, there are
5,043,203 Class A shares (not including the 1,907,036 unexercised Class A
Common Stock options awarded under the Company's 1998 and 1999 Incentive
Plans) and 31,265,000 Class B Common shares outstanding. EDS owns 100% of the
outstanding Class B Common Stock of UGS representing approximately 98.4% of
the combined voting power of all classes of voting stock of UGS.

   On March 2, 1998, the Company completed the acquisition (the "Solid Edge
Acquisition") of the MCAD business of Intergraph Corporation ("Intergraph")
consisting of the Solid Edge and EMS product lines (the "Solid Edge/EMS
Business") for a purchase price of $105 million (excluding approximately $2
million of acquisition costs). The Solid Edge Acquisition involved the direct
transfer to the Company of the intellectual property rights (through the
ownership of some intellectual property and a perpetual, royalty-free license
for the remaining intellectual property) needed to modify and improve all
acquired or licensed intellectual property and to own any modifications or
improvements that it makes.

   UGS also completed two acquisitions in 1999. On July 28, 1999 the Company's
German subsidiary, Unigraphics Solutions GmbH, purchased the shares of the
Berlin-based dCADE Gesellschaft fur Produktionsinformatik mbH ("dCADE"),
including all rights to dCADE's software and business portfolio. dCADE is
operating as a separate unit of Unigraphics Solutions GmbH. Similarly, at the
end of August 1999, the Company purchased most of the worldwide assets of
Applicon, Inc., including Applicon's Bravo(R) software assets and related
business. The combined purchase price for these transactions was $10.4
million.

Business Overview

   UGS is a leading global provider of collaborative product design and
development software and services. Company software products include
mechanical computer-aided design ("CAD"), computer-aided engineering ("CAE"),
computer aided manufacturing ("CAM") and product data management ("PDM")
software products and related services. In this report, the CAD/CAE/CAM/PDM
market is sometimes referred to as the mechanical computer-aided design or
"MCAD" industry. The Company's products and services currently are used for
product development, engineering and manufacturing principally in the
automotive and transportation, aerospace, consumer products, equipment and
machinery, and electronics industries. The Company's software products allow
customers to reduce design, engineering and manufacturing costs and to
minimize the time between a product's inception and its introduction to the
market while simultaneously improving product quality. MCAD systems produce
large volumes of data that can be managed by the Company's product data
management software. The Company's PDM software makes the most current product
data readily accessible to all appropriate users throughout a manufacturing
enterprise.

   Because the Internet now delivers digital models produced by CAD systems to
the desktop, an increasing number of people can access "virtual products." The
web provides an opportunity to expand the use of, and access to, CAD data by
internal users and external suppliers and customers, thus increasing the value
of CAD data and related information across an extended enterprise. This broad,
undefined and often spontaneous company/supplier/customer interaction is
called Collaborative Commerce ("c-Commerce"). The digital model produced by
UGS design and development software is the cornerstone of c-Commerce; and UGS,
together with

                                       3
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its c-Commerce partners are providing software applicatons and services which
enable c-Commerce and leverage the capabilities and value of digital product
models.

Products

   The Company offers a broad line of design, analysis, manufacturing, and PDM
software products that meet the diverse needs of its customer base which
includes a spectrum of companies from multinational corporations to small
machine shops. The Company's software applications are based upon five core
product lines:

  . Unigraphics(R). Unigraphics software is a suite of high-end software
    applications for large scale Unix and Windows NT-based design,
    manufacture and assembly projects. For the years ended December 31, 1999,
    1998 and 1997, approximately half of the Company's software revenues were
    attributable to Unigraphics software sales. Unigraphics is available in
    four scalable, pre-configured software bundles that can be tailored to
    meet a customer's feature, function and price requirements. All four
    bundles are built upon certain core modules. In addition, the Company has
    created specialized modules to provide specific features. The Company has
    designed Unigraphics with an open, object-oriented architecture to allow
    users and third parties to create applications that can be integrated
    with Unigraphics.

  . Solid Edge(R). Solid Edge is a mid-range, easy-to-use Windows MCAD
    modeling system for mechanical part and assembly design that incorporates
    high-performance computer design functions into an affordable package.
    Solid Edge was developed specifically as a native Windows application, is
    available on Windows operating systems and is fully integrated into the
    Windows environment. Solid Edge software is used in machinery, consumer
    electronics, other consumer product producers and other manufacturing
    industries.

  . Parasolid(R). Parasolid is a geometric modeling kernel used widely in
    CAD/CAM/CAE software. The Company has invested over 350 man years in
    Parasolid development. Today it is one of the fastest and most robust
    kernel modelers in the world. It is available to the entire MCAD
    community. It is the kernel modeler that is used in the Unigraphics high-
    end system and the Solid Edge mid-range product, and it has become a
    catalyst for the growth of the mid-range MCAD market.

  . iMAN(R). iMAN is a product data management software application that
    organizes, manages, and distributes throughout the manufacturing
    enterprise the product and process information used in the design and
    development of products. Using iMAN, enterprise functions such as product
    design, manufacturing, engineering, planning, scheduling and other
    organizations can globally access and manage applicable data such as CAD
    files, bills of material, specifications and purchase orders.

  . ProductVision(TM). ProductVision consists of visualization software
    applications that allow technical as well as non-technical users to view,
    mark-up and analyze two-dimensional and three-dimensional product
    information. ProductVision enables customers to communicate and
    collaborate within the extended enterprise early in the design and
    development process.

   The Company also sells computer hardware to customers on an as-needed
basis. The Company purchases hardware for resale to customers from a variety
of well-known computer hardware suppliers. In 1996, the Company began de-
emphasizing hardware sales in order to focus on the provision of higher margin
software products and consulting-type services. In 1999 the Company entered
into an alliance arrangement with a hardware distributor under which the
Company will refer certain UGS customers to the distributor for the
acquisition of hardware and related services and under which both parties will
benefit from the sale of hardware and related services.

Services

   The Company offers an extensive range of customization, implementation and
integration consulting services, and support services to its customers. Core
services provided include:

  . Customization, Implementation and Integration Consulting. The Company's
    customization, implementation and integration consulting services help
    customers (i) identify, acquire, customize and

                                       4
<PAGE>

   install hardware, software and communications components and (ii) build
   and modify interfaces to allow different application components to
   function effectively.

  . Technical Support. The Company makes available comprehensive technical
    support services, including 24-hour a day support for certain users,
    operating system support, Web tools and services, and an electronic
    bulletin board system, which provides electronic conferencing, electronic
    mail, file transfer, call logging, and a symptom/solution database.

  . Training. The Company's training services include instructor-led courses,
    computer assisted self teaching modules, on-line library access, custom
    course development and education, instructor placement, training
    assessments and a Master Certificate Program providing a series of
    classes that ensure users have mastered the skills needed to use specific
    software.

  . Data Exchange. Data exchange services focus on facilitating the seamless
    flow of data from one MCAD system to the other in enterprises that might
    have a variety of MCAD products and systems. To optimize data exchange,
    the Company offers platform transfers, standards and premium-based
    translator services, media transfers, and rapid prototyping translations.

  . Engineering. The Company provides both on-site and remote access
    engineering services. Engineering services include modeling and drafting
    consulting, data conversion and translation services, numerical control
    programming, and customized programming.

Sales and Distribution Methods

   License Agreements. The Company typically charges a fixed license fee per
seat for Unigraphics, Solid Edge, iMAN, ProductVision and other software based
upon the number of modules and features within each seat. Typically, the
customer receives a perpetual license for each of these products. The license
fee often includes short-term maintenance and integration services as well as
training services. The Company normally provides maintenance services to its
customers on an annual basis with automatic renewals, subject to certain
termination provisions. The Company usually licenses Parasolid software
directly to value-added resellers ("VARs") or distributors who embed Parasolid
products in their own proprietary software. These customers typically pay an
initial development license fee for the use of Parasolid and royalty payments
related to sales of their own proprietary software products. A small number of
customers license Parasolid solely for use in their own internal operations.

   Direct Sales and Distributors. The Company has a worldwide direct sales
force and distributor network. The Company's direct sales force is organized
by geographic zones covering North and South America; Europe, Africa, the
Middle East and South Asia; and Asia-Pacific. Each regional zone operates
autonomously, but industry groups, which focus on the automotive and
transportation and aerospace industries, have been organized from a cross-
section of sales, marketing and technical personnel in each region.
Unigraphics, iMAN, and ProductVision are primarily marketed and sold by the
Company's direct sales force. The sales cycle for such "high-end" products can
take up to a year or longer and could involve extensive competitive processes,
including technical benchmarking and multi-stage business proposals. The
Company currently markets and sells Solid Edge primarily through its VARs and
distributors, with support from Company-generated marketing materials as well
as shared support of industry trade shows and seminars, advertising within
trade publications and journals and direct mail and telemarketing solicitation
programs. Additionally, the Company has entered into innovative distribution
agreements such as the arrangement with Dell Computer under which Dell
hardware customers have the option to order equipment pre-loaded with Solid
Edge software. The customer can either license the software on a trial or
permanent basis. Similarly, the Company has entered into partnership
arrangements with government sponsored agencies such as the Hong Kong
Productivity Council and GINTIC Institute of Manufacturing Technology of
Singapore under which such agencies distribute, or sponsor the distribution
of, specially-configured Solid Edge software or bundles to local companies.
The sales cycle for the Solid Edge product typically is shorter than the sales
cycle for Unigraphics, Parasolid, ProductVision and iMAN products.

                                       5
<PAGE>

   The Company endeavors to ship software products within one to five days of
acceptance of orders, except in the case of large installations to new
customers which often take longer due to preparation and training periods
prior to software shipment. Because most software products are shipped within
a few days of order acceptance, the backlog is not indicative of future sales
or revenues.

   Business Partnerships. The Company has established two business partnership
programs, the Alliance Program and the Voyager Program, to facilitate
relationships with various software developers to ensure that the Company's
software products are fully integrated with other software products in the
MCAD market. The Alliance Program is an extensive and growing group of niche
software suppliers that provide specialized software applications to be used
in conjunction with Company's Unigraphics and iMAN software. The Company
typically enters into joint marketing agreements with Alliance Program
software suppliers whereby the Company and the software suppliers undertake
joint marketing and promotional efforts. The Company provides its customers
with both print and online catalogs listing the names of the Alliance Program
members and the software that each member provides. The Voyager Program is a
worldwide consortium of leading software vendors offering products that
complement Solid Edge's mechanical design and drafting capabilities. The
typical Voyager Program agreement provides for joint marketing and promotional
activities.

Customers

   The Company's customers come from a wide range of industries. In 1999, no
single customer accounted for more than ten percent of total Company revenues.
General Motors Corporation is the single largest Company customer. In 1996, GM
and EDS signed the Unigraphics Corporate Software License Agreement (the "Site
License") in which GM selected Unigraphics software as GM's only vehicle
development software platform. By recognizing Unigraphics software as its
single MCAD product development system, GM expressed its intent to consolidate
its usage of MCAD software systems. Under the Site License, GM has installed
approximately 10,000 seats of Unigraphics and was entitled to install up to
10,000 iMAN seats. Additionally, the Site License covered the provision of
maintenance and other services to GM. The Site License was due to expire in
mid-1999; however, the agreement was extended on a month-to-month basis
pending renegotiation of a follow-on agreement. The Company and GM currently
are in the final stages of negotiation leading toward agreement on a follow-on
contract covering primarily software maintenance, development, and other
services.

Seasonality

   Historically, the Company has experienced uneven sales over the course of a
calendar year with the fourth quarter typically being the strongest quarter.
Also, the last month of each quarter often has the largest sales volume for
that quarter. Future quarterly results could be negatively influenced by order
deferrals resulting from, for example, changes in economic conditions,
declining market demand, and other customer priorities. Please refer to Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," under "Risk Factors That May Affect Future Results--Significant
Quarterly Fluctuations," below for additional information.

Research and Product Development

   The MCAD industry is characterized by rapid technological innovation and
change. The Company's competitiveness in the market depends in large part upon
its ability to develop and incorporate into new product offerings the advances
in technology demanded by its customers. The Company develops most of its new
or enhanced product functionality using its internal research and development
staff composed of approximately 500 people located primarily at seven
worldwide research and development offices. Major enhancements of the
Company's core software products are distributed approximately twice each
year. The Company also purchases or licenses certain technology from third
parties and embeds such technology in its products. Finally, the Company works
closely with its Alliance and Voyager partners to facilitate the development
by such partners of products complementary to the Company's products.

                                       6
<PAGE>

   During 1999, the Company spent about $71 million on software research and
development, constituting approximately 15% of its total revenue. In 1998 and
1997, the Company had software research and development expenditures of
approximately $64 million and $48 million, respectively, or approximately 16%
of total revenue in 1998 and 15% of total revenue in 1997.

Intellectual Property

   The Company relies on a combination of contracts, copyrights, patents, and
common law rights such as trade secret and unfair competition laws to
establish and protect the proprietary rights to its technology. The Company
distributes its products under software licenses that grant customers licenses
to, rather than ownership of, the Company's products and that contain various
provisions protecting the Company's ownership and confidentiality of the
licensed technology. The source code for Unigraphics, iMAN, ProductVision, and
Parasolid software is protected as a trade secret and as an unpublished
copyright work and, in certain instances, with patents. However, no assurances
can be made that others will not copy or otherwise obtain and use the
Company's products or technology without authorization. In addition, effective
copyright, trade secret and patent protection or enforcement may be
unavailable or limited in certain countries. The Company believes that,
because of rapid technological advances within the industry, factors such as
the technological and creative skills of its personnel are more important to
establishing and maintaining a technology leadership position within the
industry than are the various legal protections of the technology.

   The Solid Edge Acquisition involved (i) the direct transfer to the Company
of the intellectual property rights unique to the Solid Edge and EMS products
and (ii) a perpetual, royalty-free license to the Company for certain patents,
patent applications and other intellectual property for the Solid Edge and EMS
products that are also used across other Intergraph business lines and in
other Intergraph products. Similarly, the Company's acquisition of the assets
of Applicon and dCADE included the transfer of intellectual property rights to
Applicon's Bravo(R) products lines and other Applicon and dCADE products. The
Company has the right to modify and improve all acquired or licensed
intellectual property and to own any modifications or improvements that it
makes.

   Unigraphics Solutions, Unigraphics, Solid Edge, Parasolid, iMAN, and Bravo
among others, are trademarks that are registered to, and owned by, the
Company. The Company has trademark applications pending in the United States
and many foreign countries for other marks, including ProductVision.

Competition

   Markets for the Company's products are highly competitive and are
characterized by rapidly changing technology and evolving standards. The
Company's competitors include (i) generalist MCAD and product development
software companies that offer broad-range systems, such as Autodesk Inc.,
Dassault Systemes, Parametric Technology Corporation, and Structural Dynamics
Research Corporation, (ii) specialist software developers whose product lines
are focused on CAD, CAM, CAE or PDM products, (iii) enterprise resource
planning ("ERP") software providers, and (iv) numerous smaller niche software
developers.

   The Company's products compete on the basis of functionality, technical
performance, price, operating system compatibility, integration, customization
capability, marketing and technical support and training. The ability of the
Company to compete successfully depends on factors both within and outside the
Company's control, including, among others, the successful and timely
development of new products, versions and features, product performance and
quality, pricing, customer service and support and both MCAD and PDM industry
and general economic conditions.

   The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. Current and potential competitors may establish strategic
alliances or undertake acquisitions to increase the ability of their products
to address the needs of the Company's current and prospective customer base.


                                       7
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Regulation

   Various aspects of the Company's business are subject to United States and
foreign jurisdiction regulation which, depending upon the nature of the
noncompliance, could result in the termination or loss of business or the
imposition of damages, fines or criminal penalties. Such regulations that
might affect Company business include United States Export Control laws and
regulations that prevent the Company from licensing certain technology to
companies or government agencies in certain countries. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Risk Factors That May Affect Future Results--Risks Associated
with International Operations."

Employees

   As of March 1, 2000, the Company employed over 2,700 persons who conduct
business in approximately 100 offices worldwide. The Company's future success
will depend, in part, on its ability to attract, retain and motivate highly
qualified technical, engineering, marketing and management personnel. None of
the Company's U.S. employees are represented by a labor union.

Other Information

   Financial information about industry and geographic segments is contained
in Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," under "Results of Operations," "Revenues" and in Note
10 of the Notes to Consolidated Financial Statements, "Segment Information" of
this Annual Report on Form 10-K.

ITEM 2. PROPERTIES

   As of March 1, 2000, the Company had approximately 34 locations operating
in 24 states and 32 cities in the United States and approximately 65 locations
in 60 cities in 29 countries outside the United States. The Company occupies
approximately 810,000 square feet of space. All space is leased.

   In connection with the January 1, 1998 Reorganization, the Company entered
into sublease agreements with EDS covering substantially all of the real
property occupied by the Company. The terms of such sublease agreements
incorporate the financial and other material terms of EDS' lease agreements
for the subject property (other than the sublease for the Company's St. Louis
headquarters for which the rental rate charged to the Company is based on an
estimate of current market rates). Following the initial public offering, the
Company has begun to lease new and existing space in its own name.

   The Company's principal operating locations are as follows: The Company's
corporate headquarters is located in St. Louis, Missouri, where it subleases
from EDS approximately 96,000 square feet of office space for general and
administrative, marketing, research and development and consulting services
activities. That sublease will expire in September 2001. The Company subleases
approximately 127,000 square feet of office space in Cypress, California from
EDS until the expiration of EDS' lease in June 2002. The Cypress facility is
the Company's principal technical development and support center, where the
principal activities and functions include research and development, a global
technical access center, consulting services, product manufacturing and
distribution, marketing, demonstration and training, and general
administration. The Company's European headquarters is located in Fleet,
Hampshire, United Kingdom. This facility is being sublet from EDS until
expiration of EDS' master lease in 2001. Activities at the United Kingdom
office include oversight of European operations, marketing and finance. The
Company's Asia Pacific headquarters is located in Hong Kong where 9,500 square
feet is leased through 2002. The headquarters for Germany and Eastern Europe
is in Cologne, Germany, where the Company subleases 26,500 square feet of
office space from EDS until the expiration of EDS' master lease in 2007.
Activities at the Cologne office include research and development, customer
training and general administration. The headquarters for Solid Edge
operations is in Huntsville, Alabama. The Company leases approximately 38,500
square feet under a lease that will expire in 2003. The Company leases 46,000

                                       8
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square feet office space in Livonia, Michigan for sales, training, customer
service, and General Motors support. The Livonia location also contains a
collaborative engineering facility and an innovation conference center. The
lease will extend to February 2009. Finally, UGS leases about 17,000 square
feet in Troy, Michigan. The Troy facility houses development and General
Motors support personnel, and the lease expires in July of 2003.

   Current facilities are adequate for present needs; however, the Company
plans to re-locate certain offices and sales facilities out of EDS space as
leases expire or earlier in order to better establish the Company's
independence in the market. The Company will continue to evaluate the
requirement for additional facilities as growth demands.

ITEM 3. LEGAL PROCEEDINGS

   From time to time the Company is involved in routine litigation incidental
to its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to the financial
condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   None submitted

ITEM 4A. EXECUTIVE OFFICERS OF UNIGRAPHICS SOLUTIONS INC.

<TABLE>
<CAPTION>
Name                  Age Position
----                  --- --------
<S>                   <C> <C>
Jeffrey M. Heller....  60 Chairman of the Board

Richard L. deNey.....  50 Vice Chairman of the Board

John J. Mazzola......  56 President and Chief Executive Officer

Anthony J. Affuso....  53 Vice President, Products and Operations

Douglas E. Barnett...  40 Vice President, Chief Financial Officer and Treasurer

Donald E. Davidson...  59 Vice President, Asia-Pacific

Michael L. Desmond...  55 Vice President, Human Resources

James Duncan.........  62 Vice President, Europe

Dennis P. Kruse......  50 Vice President, Americas

Robert F. Loss, III..  59 Vice President, Chief Information Officer

Richard W. Schenk....  56 Vice President, Business Planning and Communications

J. Randall Walti.....  53 Vice President, General Counsel and Secretary
</TABLE>

   Jeffrey M. Heller has been a Company director and Chairman of the Company's
Board of Directors since January 1, 1999. He has been President and Chief
Operating Officer of EDS since the split-off of EDS from General Motors
Corporation on June 6, 1996. He has been a director of EDS since 1983. Mr.
Heller was a Senior Vice President of EDS from 1984 until the split-off. He
joined EDS in 1968 and has served in numerous technical and management
capacities. He is also a director of Mutual of Omaha and Trammell Crow
Company.

   Richard L. deNey has been a Company director and Vice Chairman of the Board
since October 1999. He has been Senior Vice President of EDS, responsible for
strategic planning and business development, since August 1999. From January
1995 to August 1999, Mr. deNey was Executive Vice President of Corporate
Strategy and Development at Borden, Inc. Prior to that time, Mr. deNey had
served in various management positions at several investment banking firms.

                                       9
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   John J. Mazzola was appointed President and Chief Executive Officer of the
Company on January 1, 1998 and has been a director since June 1998. From 1992
to December 1997, Mr. Mazzola served as the President of the Unigraphics
division of EDS. Prior to 1992, Mr. Mazzola served as President of McDonnell
Douglas Systems Integration ("MDSI"), the predecessor to the Unigraphics
division of EDS. Prior to 1992, Mr. Mazzola held numerous positions within
MDSI, including Vice President of Manufacturing and Engineering, Director of
Marketing, Vice President of Check Card Systems and Vice President of Research
and Development.

   Anthony J. Affuso was appointed Vice President, Products and Operations of
the Company on January 1, 1998. From March 1992 to December 1997, Mr. Affuso
served as the Vice President of Software Development and Marketing of the
Unigraphics division of EDS, with responsibility for research and development
for the Company's core products. From September 1989 to March 1992, Mr. Affuso
was in charge of the business unit of EDS which automated GM's worldwide
engineering, computing, communications and information management
infrastructure.

   Douglas E. Barnett was appointed Vice President, Chief Financial Officer of
the Company on March 2, 1998. From January 1996 to March 1998, Mr. Barnett
served as Vice President and Corporate Controller of Giddings & Lewis, Inc.
("Giddings & Lewis"), a publicly traded company and the largest supplier of
industrial automation products in North America. From 1991 to 1996, Mr.
Barnett served as Treasurer of Giddings & Lewis.

   Donald E. Davidson was appointed Vice President, Asia Pacific of the
Company on January 1, 1998. Mr. Davidson served as Managing Director of the
Asia Pacific Region for the Unigraphics division of EDS from November 1991 to
December 1997 with responsibility for all direct and indirect sales and
support activities covering Japan, Korea, Greater China, South East Asia and
Australia.

   Michael L. Desmond was appointed Vice President, Human Resources effective
July 14, 1999. From March 1, 1998 until July 14, 1999, he was the executive in
charge of Company human resource functions. From July 1994 to February 1998,
Mr. Desmond served as Vice President, Human Resources for Global One (formerly
Sprint International). Prior to July 1994, Mr. Desmond served in a variety of
executive human resource positions with several Fortune 500 companies.

   James Duncan was appointed Vice President, Europe of the Company on January
1, 1998. Mr. Duncan oversees operations in 32 countries located throughout
Europe, South Asia, the Middle East and Africa. Mr. Duncan served as Managing
Director of the European operations for the Unigraphics division of EDS from
November 1991 to December 1997.

   Dennis P. Kruse was appointed Vice President, Americas of the Company on
January 1, 1998. Mr. Kruse served as Vice President--Sales, Americas for the
Unigraphics division of EDS from April 1994 to December 1997 with
responsibility for sales, pre- and post-sales support, training and technical
sales support. From 1987 to 1994, Mr. Kruse served as Director of the Western
Region for the Unigraphics division of EDS and, prior to 1991, he was employed
by MDSI.

   Robert F. Loss, III was appointed Vice President, Chief Information Officer
of the Company on January 1, 1998. From March 1992 to December 1997, Mr. Loss
served as the Vice President of Operations of the Unigraphics division of EDS
with responsibility for software documentation and media manufacturing,
product delivery, customer services, product support, educational services and
internal management of information systems. Prior to 1992, Mr. Loss held
numerous positions within MDSI, including Vice President of Development and
Operations, Director of Product Management and Director of Business Management
and Marketing.

   Richard W. Schenk was appointed Vice President, Business Planning and
Communications on July 14, 1999. He held a similar executive position for the
Company between January 1998 and July 1999. Mr. Schenk has responsibility for
corporate market positioning, global marketing collateral, external web design
and major

                                      10
<PAGE>

business planning programs. From 1992 through December 1997, Mr. Schenk served
as director of Corporate Marketing Communications of the Unigraphics division
of EDS with responsibility for global marketing collateral development and
distribution.

   J. Randall Walti was appointed General Counsel of the Company on April 1,
1998 and was appointed Vice President and Secretary of the Company effective
May 19, 1999. From June 1996 to April 1998, Mr. Walti served as managing
attorney in charge of the EDS Legal staff supporting the EDS-General Motors
split-off team. From July 1993 to May 1996, Mr. Walti served as SSU Director
of the EDS Legal Commercial Contracting Group. From April 1985 through June
1993, Mr. Walti held numerous legal and management positions within EDS Legal.
Prior to that time, Mr. Walti served on the legal staff of Bell Atlantic.
Before joining the Bell Atlantic Legal staff, Mr. Walti served on active duty
in the United States Air Force in a variety of systems acquisition and
intelligence assignments.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Common Stock of Unigraphics Solutions Inc. is listed on the New York
Stock Exchange ("NYSE") under the symbol "UGS" and has been traded since June
23, 1998. The table below shows the range of reported per share sales prices
on the NYSE Composite Tape for the Class A Common Stock for the periods
indicated.

<TABLE>
<CAPTION>
                                                                High     Low
                                                              -------- --------
      <S>                                                     <C>      <C>
      1998 Calendar Quarter
          Second Quarter (commencing June 23, 1998).......... $14.9375 $14.0000
          Third Quarter...................................... $13.8750 $ 6.5000
          Fourth Quarter..................................... $16.0000 $ 6.7500
</TABLE>

<TABLE>
<CAPTION>
                                                                 High     Low
                                                               -------- --------
      <S>                                                      <C>      <C>
      1999 Calendar Quarter
          First Quarter....................................... $20.3750 $13.3750
          Second Quarter...................................... $18.8125 $14.5000
          Third Quarter....................................... $36.4375 $18.2500
          Fourth Quarter...................................... $30.3750 $19.8750
</TABLE>

   The last reported sale price of the Class A Common Stock on the NYSE on
March 24, 2000 was $30.50. As of March 24, 2000, the approximate number of
record holders of Class A Common Stock was 3,400.

   The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends will depend on future results of operations, capital
requirements, and financial condition of the Company and such other factors as
the Board of Directors may consider, including any contractual or statutory
restrictions on the Company's ability to pay dividends.

ITEM 6. SELECTED FINANCIAL DATA

   The following selected financial data of the Company with respect to each
of the five years in the five-year period ended December 31, 1999 are derived
from the financial statements of the Company prepared in accordance with
generally accepted accounting principles. The selected historical statement of
operations and balance sheet data for each of the years in the four-year
period ended December 31, 1999 and as of December 31, 1999, 1998, 1997 and
1996, respectively, as set forth in the following table are derived from the
financial statements of the Company, which were audited by KPMG LLP,
independent certified public accountants. The

                                      11
<PAGE>

selected statement of operations and balance sheet data presented below as of
December 31, 1995 are derived from the unaudited financial statements of the
Company which, in the opinion of management of the Company, included all
adjustments necessary for a fair presentation of the results of such unaudited
periods. The historical financial information may not be indicative of the
Company's future performance and does not necessarily reflect what the
financial position and results of operations of the Company would have been
had the Company operated as a separate, stand-alone entity during the periods
covered. The following information should be read in conjunction with, and is
qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto included elsewhere in this Annual Report
on Form 10-K.

<TABLE>
<CAPTION>
                                         Years ended December 31,
                             -----------------------------------------------------
                               1999       1998       1997       1996       1995
                             ---------  ---------  ---------  ---------  ---------
                                 (in thousands, except per share amounts)
   <S>                       <C>        <C>        <C>        <C>        <C>
   Operating Results:
     Revenues..............  $ 467,950  $ 403,571  $ 314,593  $ 414,209  $ 267,622
     Cost of revenues......   (167,251)  (163,925)  (129,124)  (139,820)  (109,065)
     Selling, general, and
      administrative
      expenses.............   (167,389)  (139,174)  (102,759)   (92,444)   (85,031)
     Research and
      development..........    (70,963)   (63,577)   (47,979)   (47,166)   (43,654)
     In-process research
      and development......     (2,386)   (39,440)       --         --         --
     Operating income
      (loss)...............     59,961     (2,545)    34,731    134,779     29,872
     Other income..........      5,272     10,036      5,092        106        129
     Provision for income
      taxes................    (23,484)    (1,253)   (14,810)   (51,549)   (11,625)
                             ---------  ---------  ---------  ---------  ---------
     Net income............  $  41,749  $   6,238  $  25,013  $  83,336  $  18,376
                             =========  =========  =========  =========  =========

<CAPTION>
                                         Years ended December 31,
                             -----------------------------------------------------
                               1999       1998       1997       1996       1995
                             ---------  ---------  ---------  ---------  ---------
                                 (in thousands, except per share amounts)
   <S>                       <C>        <C>        <C>        <C>        <C>
   Per Share Data (1):
     Basic earnings per
      share of common stock
      .....................  $    1.15  $    0.18  $    0.80  $    2.67  $    0.59
     Diluted earnings per
      share of common
      stock................  $    1.14  $    0.18  $    0.80  $    2.67  $    0.59
   Financial Position (at
    period end):
     Current assets........  $ 155,575  $ 142,594  $ 122,012  $ 173,237  $  78,324
     Property and
      equipment, net.......     33,110     26,467     19,821     18,380     14,226
     Operating and other
      assets...............     85,592     88,592     24,957     39,589     54,357
     Total assets..........    274,277    257,653    166,790    231,206    146,907
     Long-term debt........     35,220     55,130        --         --         --
     Stockholders'
      equity/net
      investment...........    123,402     89,180     88,350    132,147     90,770
</TABLE>
--------
(1) For purposes of the calculations of basic and diluted earnings per share
    for the years ended December 31, 1995-1997, 31,265,000 shares of Class B
    Common Stock are outstanding.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS

Overview

   The Company generates revenue primarily from the licensing of MCAD software
products, provision of software consulting and support services and the sale
of computer equipment to users of the Company's products. The Company operates
business units in the United States and in 29 other countries. The Company's
software

                                      12
<PAGE>

products are licensed to customers through the Company's direct sales force
and by specific arrangements with certain distributors, value-added resellers
and other marketing representatives.

   Effective as of January 1, 1998 in conjunction with the Reorganization, the
Company succeeded to the MCAD business of EDS, which business previously had
been operated within several business units of EDS. The Company's historical
financial statements reflect the results of operations, financial condition
and cash flows of the Company as a component of EDS prior to the
Reorganization and may not be indicative of actual results of operations and
financial position of the Company subsequent to the Reorganization.

   In 1996, EDS and GM signed the Unigraphics Software Corporate License
Agreement (the "EDS/GM Site License" or "Site License") for Unigraphics
software and related services. The Site License was a three-year arrangement
that consisted of three elements: (1) a perpetual license of the Unigraphics
and iMAN software for up to 10,000 seats; (2) maintenance for the installed
software; and (3) a specified upgrade to be delivered by a non-Unigraphics
business unit of EDS on a when-and-if available basis. The contract did not
require any significant modification or customization of the software. The
contract price was approximately $178.0 million, of which approximately $110.3
million was attributed to the software license element, approximately $64.3
million was attributable to maintenance support and approximately $3.7 million
was attributed to the specified upgrade. Revenue related to the specified
upgrade was not recorded by the Company since such upgrade was delivered to
the customer by a non-Unigraphics business unit of EDS. The license fee was
payable over three years in monthly installments of approximately $3.1
million. Maintenance revenue was recognized over the term of the agreement
based generally on the deployment schedule. The Company recognized Site
License software license revenue of approximately $110.3 million in 1996. The
Site License with respect to the on-going provision of maintenance services
and other items has been extended on a month-to-month basis since mid-1999
pending renegotiation of a follow-on agreement. The Company and GM currently
are in the final stages of negotiation leading toward a follow-on contract
covering primarily software maintenance, development and other services.

   Prior to the Site License, GM received software and maintenance services on
a monthly basis pursuant to a term lease agreement which was cancelable upon
notice. In connection with the Reorganization, EDS and the Company entered
into a subcontract with EDS pursuant to which the Company received the revenue
and performed substantially all of EDS' obligations under the Site License
subsequent to the Reorganization. If the EDS/GM Master Service Agreement or
the follow-on agreement to the Site License were to be terminated, the
Company's financial condition and results of operations would be materially
adversely affected.

   Effective January 1, 1998, the Company and EDS entered into a Management
Services Agreement, pursuant to which EDS performs various management services
for the Company, including treasury, risk management, tax, and similar
administrative services. Amounts charged to the Company under this agreement
approximate EDS' cost of providing the services plus a fixed fee equal to 0.5%
of the Company's total revenues. The Management Services Agreement will expire
on December 31, 2002 unless terminated earlier by either party if EDS and the
Company are no longer under common control. Except for certain tax and
treasury management services relating to consolidated operations or corporate
policy of EDS, which the Company is required to purchase during the term of
the Management Services Agreement, the Company or EDS may terminate any
service on or after January 1, 2000 with prior notice of not less than five
months, or earlier if the parties mutually agree. The Company's historical
financial statements include an allocation of corporate general and
administrative costs in the amount of approximately 2.1% of total revenues per
year. Management believes that this percentage, which is based on an analysis
of the services and estimated costs of such services provided to the Company
by EDS, is reasonable. However, there can be no assurance that such costs will
be indicative of costs to be incurred under the Management Services Agreement
or in transactions with unrelated third parties. The Company paid EDS $6.4
million for such services in 1999 and 1998; and currently is negotiating with
EDS relative to the 2000 services and charges. There can be no assurances that
the charges the Company negotiates will, in the aggregate, be lower than the
aggregate of charges the Company might be able to negotiate with third party
suppliers of such services.

                                      13
<PAGE>

Solid Edge Acquisition

   On March 2, 1998, the Company completed the acquisition of the mechanical
computer-aided design business of Intergraph Corporation (the "Solid Edge
Acquisition"), consisting of the Solid Edge and EMS software product lines and
related services business. The Solid Edge Acquisition purchase price was
$105.0 million (excluding approximately $2.0 million of acquisition costs).
The Company borrowed $105.0 million from EDS pursuant to an intercompany
credit agreement (the "Intercompany Credit Agreement"). The cost of the Solid
Edge Acquisition was allocated to identifiable assets based on estimated fair
values as discussed below. Costs allocated to identifiable intangible assets
are being amortized on a straight-line basis over the remaining estimated
useful lives of the assets. Costs allocated to in-process research and
development were expensed in the three-month period ended March 31, 1998. The
excess of purchase price over fair value of identifiable assets acquired was
recorded as goodwill and is being amortized on a straight-line basis over its
useful life of seven years. The Company has allocated the purchase price as
follows: $3.4 million to software; $4.0 million to acquired workforce; $39.4
million to in-process research and development costs; and $60.2 million to
goodwill. As a result of the write-off of in-process research and development
costs and additional amortization expense resulting from the Solid Edge
Acquisition, net income in 1998 was significantly less than in prior years.

   In-process research and development relates to the modification of Solid
Edge 4.0 to include the Company's Parasolid solid modeling kernel. This
project commenced in July 1997 and was completed in May 1998. Initial sales of
Solid Edge 5.0 occurred shortly thereafter. The value assigned to in-process
research and development was determined based on management's estimates of the
percentage of completion of the underlying development effort, resulting net
cash flows from Solid Edge 5.0 and the discounting of such cash flows back to
their present value.

   In projecting net cash flows resulting from Solid Edge 5.0, the Company
estimated revenues, cost of sales, research and development, selling, general
and administrative and income taxes for such software. These estimates were
based on the following assumptions at the time of acquisition:

  . The estimated revenues for the Solid Edge product were projected to
    increase by a compound annual growth rate over five years of
    approximately 46% with annual growth rates ranging from 33% to 75%.
    Virtually all projected revenues of the Solid Edge product were ascribed
    to Solid Edge 5.0 because the integration of the Parasolid modeling
    kernel into Solid Edge 4.0 was believed to be the critical enabling
    factor to allow the Solid Edge product to provide the geometric modeling
    capabilities and user interfaces necessary to compete with other products
    in the product design and consumer products markets. In addition,
    management expected sales of Solid Edge 4.0 to cease subsequent to May
    1998. Projections of revenue growth were based on management's estimates
    of market size and growth, supported by independent market data, and the
    nature and expected timing of the development of product enhancements and
    new products by the Company and its competitors.

  . The estimated cost of sales as a percentage of revenue (11-12%) was
    consistent with then-current historical rates for the Solid Edge business
    as well as then-current industry standards.

  . The estimated selling, general and administrative costs were expected to
    increase as a percentage of sales from 37% in 1998 to 45% in 2002. The
    selling, general and administrative costs in 1998 were lower as a
    percentage of sales, than the projected selling, general and
    administrative costs in the later years because of the consolidation of
    sales forces. In addition, the Company expected to modify the distributor
    channels by discontinuing the relationship with unproductive distributors
    and eliminating the associated salespersons. Incremental sales in the
    later years were expected to require proportionately greater selling
    efforts to meet the Company's revenue growth plans.

  . The estimated research and development costs were expected to decrease as
    a percentage of sales from 22% in 1998 to 12% in 2002. The research and
    development costs in 1998 were higher as a percentage of sales, than the
    projected research and development costs in the later years because of
    the costs of combining two research and development departments in 1998
    and the continuing research and developments efforts of the two groups.

                                      14
<PAGE>

  . Royalty income on the Parasolid kernel was expected to be received by the
    Company from outside parties. The royalty income associated with Solid
    Edge 5.0 was assumed to be 6.0%, the standard royalty rate for the
    Parasolid kernel. Because of the declining value of Solid Edge 5.0 over
    the future periods, the royalty income associated with Solid Edge 5.0, to
    determine the research and development valuation, was reduced accordingly
    from 6.0% in 1998 to 3.7% in 2002.

   The projected net cash flows for Solid Edge 5.0 were discounted using a 15%
weighted average cost of capital ("WACC"). The 15% rate was based upon an
analysis of the WACC for publicly traded companies within the same industry.
The WACC calculation produces the average required rate of return of an
investment in an operating enterprise. A WACC of 15% was also used to
determine the value of the return on working capital and the return on the
workforce acquired as part of the Company's purchase of Solid Edge. In
determining the appropriate WACC, the Company considered the attribution of a
higher WACC to the in-process technology, due to the risks inherent in the
development process; however, a higher WACC was not used as the Company
believed that these risks had been significantly reduced by the acquisition
date (as evidenced by the completion of the development in early May 1998). In
addition, the impact of the use of a higher WACC (e.g. 16-20%) on the amount
of the purchase price allocated to in-process research and development was not
material.

   Revenues of Solid Edge 5.0 subsequent to the completion of development are
lower than those used in projected net cash flows for the purchase price
because of a three-month delay in the integration of Solid Edge distribution
channels into the Company's existing distribution network and because of
weaker than anticipated performance by the distributors. In addition, research
and development expenses associated with Solid Edge 5.0 also have been lower
than those used in the projected net cash flows. As a result of the preceding
factors, actual net cash flows approximate those used in the original
projections. Management believes that the original projections of net cash
flows from Solid Edge 5.0 are reasonable.

   No assurance can be given, however, that the underlying assumptions used to
estimate projected net cash flows will transpire as estimated. Operating
results are subject to uncertain market events and risks which are beyond the
Company's control, such as trends in technology, government regulations,
market size and growth, and product introductions or other actions by
competitors. For these reasons, actual results may vary from the projected
results.

   These projections, which constitute forward-looking statements, were not
made with a view toward public disclosure and were based on a variety of
estimates and judgements. Actual results may vary materially due to a number
of significant risks, including, without limitation, uncertainties regarding
future business, economic, competitive, regulatory and financial market
conditions, and future business decisions, all of which are difficult to
predict and many of which are beyond the Company's control. No assurance can
be given that such projections will be realized. The Company does not intend
to update or supplement these projections in the future.

                                      15
<PAGE>

Results of Operations

   Revenues. The following tables summarize the Company's revenues for each of
the years ended December 31, 1999, 1998 and 1997 by revenue type and
geographic region.

                                Revenue by Type
                               ($ in thousands)

<TABLE>
<CAPTION>
                                                        1999     1998     1997
                                                      -------- -------- --------
      <S>                                             <C>      <C>      <C>
      Software....................................... $198,936 $157,662 $115,479
      Services.......................................  234,205  187,120  137,794
      Hardware.......................................   34,809   58,789   61,320
                                                      -------- -------- --------
          Total...................................... $467,950 $403,571 $314,593
                                                      ======== ======== ========
</TABLE>

                         Revenue by Geographic Region
                               ($ in thousands)

<TABLE>
<CAPTION>
                                                        1999     1998     1997
                                                      -------- -------- --------
      <S>                                             <C>      <C>      <C>
      Americas:
        United States................................ $218,946 $186,274 $142,777
        Other Americas...............................   16,256   15,778   15,578
      Europe.........................................  177,379  155,110  114,422
      Asia Pacific...................................   55,369   46,409   41,816
                                                      -------- -------- --------
          Total...................................... $467,950 $403,571 $314,593
                                                      ======== ======== ========

<CAPTION>
                                                        1999     1998     1997
                                                      -------- -------- --------
      <S>                                             <C>      <C>      <C>
      United States.................................. $218,946 $186,274 $142,777
      Total Foreign..................................  249,004  217,297  171,816
                                                      -------- -------- --------
          Total...................................... $467,950 $403,571 $314,593
                                                      ======== ======== ========
</TABLE>

   The Company classifies its software and hardware revenue by region based on
the geographic location of the Company's business unit in which the software
license or equipment is sold. Services are classified by the geographic
location in which the activity is performed.

                                      16
<PAGE>

   The following table sets forth, as a percentage of total revenue, statement
of operations data of the Company for the years ended December 31, 1999, 1998
and 1997. These operating results are not necessarily indicative of results
for any future periods.

<TABLE>
<CAPTION>
                                                                Years ended
                                                                December 31,
                                                               ----------------
                                                               1999  1998  1997
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Revenue:
        Software..............................................  43%   39%   37%
        Services..............................................  50    46    44
        Hardware..............................................   7    15    19
                                                               ---   ---   ---
          Total revenue....................................... 100%  100%  100%
                                                               ===   ===   ===
      Cost of revenue:
        Software:
          Amortization........................................   5%    5%    5%
          Royalties, distribution and other...................   4     5     4
        Services..............................................  21    19    18
        Hardware..............................................   6    12    14
                                                               ---   ---   ---
          Total cost of revenue...............................  36    41    41
                                                               ---   ---   ---
      Gross profit............................................  64%   59%   59%
                                                               ===   ===   ===

<CAPTION>
                                                                Years ended
                                                                December 31,
                                                               ----------------
                                                               1999  1998  1997
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Operating expenses:
        Selling, general and administrative...................  35%   34%   33%
        Research and development..............................  15    16    15
        In-process research and development...................   1    10   --
                                                               ---   ---   ---
          Total operating expenses............................  51    60    48
                                                               ---   ---   ---
      Operating income (loss).................................  13    (1)   11
      Other income, net.......................................   1     3     2
                                                               ---   ---   ---
      Income before income taxes..............................  14     2    13
      Provision for income taxes..............................   5   --      5
                                                               ---   ---   ---
      Net income..............................................   9%    2%    8%
                                                               ===   ===   ===
</TABLE>

   Revenue for the Company was $468.0 million in 1999, an increase of 16% over
the $403.6 million in 1998. In 1998, the Company's revenues increased $89.0
million or 28% as compared to 1997 revenue.

   Software revenue increased $41.2 million, or 26.1%, to $198.9 million for
1999. The increase resulted from strong sales demand in all geographic and
industry areas as well as the addition of the Solid Edge/EMS product line for
the entire year. For 1998, software revenues increased $42.2 million to $157.7
million. The revenue resulted from strong sales demand in all geographic and
industry areas as well as the addition of the Solid Edge/EMS product line.

   Services revenue increased $47.1 million, or 25%, to $234.2 million in 1999
from $187.1 million in 1998. In 1998, services revenues increased $49.3
million, or 36%, from $137.8 million in 1997. The increases in both 1999 and
1998 are primarily attributable to increased maintenance revenue due to
continued growth in the Company's installed customer base and to additional
maintenance revenues associated with acquisitions. Additionally in 1999,
consulting services increased in both the Americas and European zones as a
result of increases in funded development and integration services.

                                      17
<PAGE>

   Hardware revenue decreased $24.0 million, or 41%, to $34.8 million in 1999
from $58.8 million in 1998. Hardware revenue also decreased $2.5 million, or
4%, in 1998 from $61.3 million in 1997. These decreases reflect the Company's
decision in late 1996 to deemphasize hardware sales in order to focus on
higher margin software sales and consulting services. Hardware revenue is
expected to continue to decline in the future.

   The Company derived 53%, 54% and 54% of its revenue from international
operations in 1999, 1998 and 1997, respectively. Results of operations of the
Company were not materially affected by the financial instability in Asia
Pacific markets in late 1997 and continuing through 1998.

   Gross Profit. The Company's gross profit was $300.7 million in 1999 as
compared to $239.6 million in 1998, an increase of $61.1 million. The
Company's gross profit in 1998 increased $54.1 million from $185.5 million in
1997. The gross profit margin for 1999 was 64% as compared to 59% in 1998 and
1997.

   Gross margin on software revenues increased $39.2 million, or 34%, to
$155.9 million in 1999 as compared to $116.7 million in 1998. This increase
resulted primarily from strong revenue growth that more than offset the
additional amortization of goodwill and software intangibles arising from the
Solid Edge Acquisition. In 1998, software gross margins increased $29.2
million from 1997. Gross profit margins were 78%, 74% and 76% in 1999, 1998
and 1997, respectively.

   Gross profit on service revenues increased $24.9 million, or 22%, to $138.1
million in 1999 from $113.2 million in 1998. The increase in 1999 resulted
from higher revenues partially offset by slightly lower margins for
maintenance and professional services. Gross profit on service revenues
increased $32.5 million in 1998 from 1997. The increases resulted primarily
from improved margins on professional services. Gross profit margins were 59%,
61% and 59% in 1999, 1998 and 1997, respectively.

   Gross profit on hardware revenues decreased $3.1 million, or 32%, to $6.6
million in 1999 from $9.7 million in 1998. Gross profit on hardware revenues
decreased $7.5 million, or 44% in 1998 from 1997. The decrease in 1999
resulted from lower revenues partially offset by higher margins. The decrease
in 1998 resulted from reductions in finders fees paid to the Company by
hardware vendors and a change in the mix of hardware sales to lower margin
computers. Gross profit margins were 19%, 17% and 28% in 1999, 1998 and 1997,
respectively.

   Selling, General and Administrative Expenses. In 1999, selling, general and
administrative expenses totaled $167.4 million, an increase of $28.2 million
from $139.2 million in 1998. Selling, general and administrative expenses in
1998 increased $36.4 million over 1997. Selling, general and administrative
expenses represented 36%, 34% and 33% of total revenues in 1999, 1998 and
1997, respectively. Selling costs comprise salesperson salaries, commissions
and benefits, travel, sales office occupancy and other related costs. The
increases in selling, general and administrative costs were principally due to
increases in commissions and bonuses resulting from continued strong sales
growth, increased staffing to support higher revenue growth, costs arising
during 1998 and 1999 from the implementation and operation of the SAP
enterprise resource planning system and, in 1999, additional employee costs
associated with the acquisitions.

   Research and Development Costs. Research and development costs were $71.0
million, $63.6 million and $48.0 million in 1999, 1998 and 1997, respectively.
Research and development costs as a percentage of total revenue were 15%, 16%
and 15% in 1999, 1998 and 1997, respectively. Research and development costs
as a percentage of total revenue were lower in 1999 than in 1998 because of
lower cost growth following heavy investment in 1998 on the Solid Edge
acquisition and initiatives related to the Company's iMAN and ProductVision
software products.

   In-Process Research and Development Costs. In-process research and
development costs of $2.4 million and $39.4 million in 1999 and 1998,
respectively, resulted from the Applicon and dCADE acquisitions in 1999 and
the Solid Edge acquisition in 1998.

   Operating Income (Loss). Operating income (loss) was $60.0 million, ($2.5)
million and $34.7 million in 1999, 1998 and 1997, respectively, as a result of
factors described above.

                                      18
<PAGE>

   Other Income, Net. Other income, net was $5.3 million, $10.0 million and
$5.1 million in 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997,
the Company realized gains upon the exercise of warrants and subsequent sale
of related marketable equity securities of $7.3 million, $14.5 million and
$5.1 million, respectively. The warrants were received in exchange for reduced
royalty fees from a private software company which was acquired by a public
company in 1997. These gains were partially offset in 1999 and 1998 by
interest on borrowings on the Intercompany Note and also in 1998 by interest
on borrowings for the Solid Edge acquisition.

   Provision for Income Taxes. The provision for income taxes was $23.5
million, $1.3 million and $14.8 million in 1999, 1998 and 1997, respectively.
The Company's effective tax rate was 36.0%, 16.7% and 37.2% in 1999, 1998 and
1997, respectively. The difference between the Company's effective tax rate
and the statutory federal income tax rate primarily resulted from taxes on in-
process research and development, state and foreign taxes, partially offset by
research and experimentation credits.

   Net Income. Net income was $41.7 million, $6.2 million and $25.0 million in
1999, 1998 and 1997, respectively. Basic earnings per common share was $1.15
and diluted earnings per common share was $1.14 in 1999. Basic and diluted
earnings per common share were $0.18 and $.80 for 1998 and 1997, respectively.

   Inflation. The Company believes that inflation generally had little effect
on its results of operations for the periods presented.

Recent Accounting Pronouncements

   Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Initially, the statement had been
effective for financial statements for all quarters of fiscal years beginning
after June 15, 1999. SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
was issued in June 1999. This statement postponed the application of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company believes
that adoption of this statement will not have a significant effect on its
consolidated financial statements.

Liquidity and Capital Resources

   The Company's central cash management function is performed by EDS under
the Management Services Agreement. The Company has Intercompany Credit
Agreements with EDS under which there was no amount outstanding at December
31, 1999. The maximum amount that the Company may borrow at any time from EDS
under the Intercompany Credit Agreements is $70 million. Amounts outstanding
under the Intercompany Credit Agreements bear interest, payable quarterly at a
rate equal to one-month LIBOR plus 0.5%. "LIBOR" means the Official British
Banker's Association one-month U.S. LIBOR Fixings. The Intercompany Credit
Agreements restrict the Company from obtaining financing from any party other
than EDS without written consent from EDS, unless EDS fails to provide funding
available to the Company under the Intercompany Credit Agreements. The
Intercompany Credit Agreements terminate on December 31, 2002, unless
terminated earlier at the election of one of the parties upon occurrence of
certain events, and also require that the Company lend to EDS all excess cash
of the Company at a rate of one-month LIBID minus 0.5%. "LIBID" means London
Interbank Bid Rate.

   The Company also has outstanding an Intercompany Note in the principal
amount of $35.2 million payable to EDS on March 6, 2001. The Intercompany Note
bears interest, payable semiannually, at a rate equal to the one-month LIBID
minus 0.5%.

   The Company's net cash provided by operating activities for 1999 decreased
$36.1 million to $45.9 million from $82.0 million in 1998. In 1998, net cash
provided by operating activities increased $7.7 million over 1997. The
Company's net cash used in investing activities for 1999 decreased $82.1
million to $26.7 million from

                                      19
<PAGE>

$108.8 million in 1998. This decrease resulted from lower cash payments for
acquisitions in 1999. Cash flows used in financing activities increased $66.9
million to $19.4 million in 1999. This increase resulted from lower net
borrowings and significantly lower proceeds from sales of stock in 1999. The
Company believes currently available sources of liquidity, including the
Intercompany Credit Agreements and cash generated from operations, will be
sufficient for its operations for at least the next twelve months.

Year 2000

   The Year 2000 ("Y2K") problem refers to concerns that many existing
computer programs may fail to accurately process date information beyond the
year 1999 because such programs do not properly recognize and/or process years
that begin with "20" instead of the familiar "19." The Company's operations
around the world are fully functioning, and UGS has not experienced
significant disruptions or problems associated with the Year 2000 problem.
Similarly, the Company's customer support and maintenance operations report
that UGS customers have not experienced significant Year 2000 problems
associated with UGS products or services. Of note, the Company provided
special, around-the-clock support for all customers during the five days from
December 30, 1999 through January 3, 2000. During this period, no Y2K problems
were recorded.

Euro Conversion

   On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the "euro" as their common legal currency and established fixed
conversion rates between their existing sovereign currencies and the euro. The
euro now trades on currency exchanges and is available for non-cash
transactions. The existing sovereign currencies will remain legal tender in
the participating countries during the transition period ending on January 1,
2002. Beginning on that date, the participating countries will issue new euro-
denominated currency for use in cash transactions and the existing sovereign
currencies will no longer be legal tender. The Company operates in the
countries which have adopted the euro ("Eurozone") and in most of the other
countries of the European Union that initially are not participating in the
euro conversion.

   In the near term, EDS will continue to provide many internal systems
services to the Company (including purchasing, accounting, and billing system
services) in several European countries under the Master Services Agreement
between EDS and the Company. As of January 1, 2000, EDS is providing systems
in certain countries of the Eurozone with the capability to trade with
customers and suppliers in the euro currency. EDS' European systems also will
provide dual reporting in euro currency and will allow migration from the
existing currencies to the euro over the following two-year period.
Concurrently, the Company is in the process of replacing and upgrading many of
the internal systems currently provided by EDS. The new Company systems are
planned to be operational throughout Europe on or before January 1, 2002, the
end of the euro transition period, and will accommodate business in euros.
Assuming timely upgrade of current systems and implementation of relevant
replacement systems, the Company does not expect to incur any material
incremental costs to update current systems or to install new systems having
euro-related functionality. Although the Company currently has no reason to
believe that relevant system improvements will be not be timely implemented, a
failure to timely install internal systems to handle business in euros could
have a material impact on the Company's financial condition or results of
operation.

   Within the Eurozone, the Company prices its products on an individual
country basis. Periodically during the transition period, the Company will
establish product prices and quote such prices in both local currencies and
the euro. The list pricing in euros for similar products is usually, but not
always, identical in the different countries; however, any price differentials
are not significant, thereby minimizing any negative competitive impact as a
result of pricing transparency. At this time, the Company does not believe the
conversion will have a material adverse impact on its competitiveness in
Europe. However, the Company will continue to analyze euro-related
developments; and there can be no assurance that the euro-conversion program
will not have a material adverse effect on the Company's financial condition
or results of operations.

                                      20
<PAGE>

Impact of Changes in Exchange Rates

   The Company's results of operations can be affected by changes in exchange
rates. Revenue received and expenses paid in currencies other than the U.S.
dollar are translated into U.S. dollars for financial reporting purposes based
on the average exchange rate for the period. During the year ended December
31, 1999, international revenue represented 53% of total Company revenue. The
Company's most significant international operations are located in Germany and
the United Kingdom, which were 26% and 13%, respectively, of total
international revenue in 1999. Foreign revenue and costs are generally
received and paid in the local currency. Historically, foreign currency
transaction gains (losses) have not had a material effect on the Company's
overall operations. See Note 1, "Summary of Significant Accounting Policies--
Currency Translation," in the Notes to Consolidated Financial Statements
(beginning on page F-6) for additional information on currency translation
adjustments.

Risk Factors That May Affect Future Results

   Competition. Markets for the Company's products are highly competitive and
characterized by rapidly changing technology and evolving standards. The
Company's competitors include (i) generalist MCAD and product development
software companies that offer broad-range systems, such as Autodesk Inc.,
Dassault Systemes, Parametric Technology Corporation, and Structural Dynamic
Research Corporation, (ii) specialist software developers whose product lines
are focused on CAD, CAM, CAE or PDM products, (iii) enterprise resource
planning ("ERP") software providers, and (iv) numerous smaller niche software
developers.

   The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. Current and potential competitors may establish strategic
alliances or undertake acquisitions to increase the ability of their products
to address the needs of the Company's current and prospective customer base.

   Relationship with EDS. EDS owns 100% of the Company's outstanding Class B
Common Stock, representing approximately 98.4% of the combined voting power of
all classes of voting stock of the Company. The Class A Common Stock and the
Class B Common Stock currently are the only voting stock of the Company. As
long as EDS continues to beneficially own a majority of the combined voting
power of the Common Stock, it will have the ability to elect all of the
members of the Board of Directors and control the management and affairs of
the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the assumption of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities or the
declaration and payment of any dividends on the Common Stock. In addition, EDS
will be able to determine the outcome of any matter submitted to a vote of the
Company's stockholders for approval and to cause or prevent a change in
control of the Company. Currently, four of the eight directors are executive
officers or directors of EDS and one director is a former executive officer of
EDS.

   Certain intercompany agreements and arrangements exist between the Company,
EDS and EDS' other subsidiaries, including the Management Services Agreement.
There can be no assurance that the services provided to the Company by EDS
under these affiliate agreements will continue to be provided, and if not,
whether or on what terms such licenses or services could be replicated. In
addition, while the parties to the affiliate agreements endeavored to
establish terms fair to both EDS and the Company, as a result of EDS' control
of the Company none of such agreements resulted from "arm's-length"
negotiations. There can be no assurance that the Company would not have
received more favorable terms from an unaffiliated party.

   Conflicts of interest may arise between the Company and EDS in a number of
areas relating to their past and ongoing relationships, including the nature
and quality of services rendered by EDS and its affiliates to the Company,
potential competitive business activities, differing business objectives of
EDS and the Company, tax,

                                      21
<PAGE>

financial reporting, employee benefit matters, indemnity agreements,
registration rights, sales or distributions by EDS of all or any portion of
its ownership interest in the Company or EDS' ability to control the
management and affairs of the Company. There can be no assurance that EDS and
the Company will be able to resolve any potential conflict or that, if
resolved, the Company would not have received more favorable resolution if it
were dealing with an unaffiliated party. In addition, certain of the affiliate
agreements contain specific procedures for resolving disputes between the
Company and EDS with respect to the subject matter of those agreements. There
can be no assurance that more favorable results to the Company would not be
obtained under different procedures.

   Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for EDS to continue to
include the Company in its consolidated group for federal income tax purposes,
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for EDS to effect a
tax-free spin-off of the Company or certain other tax-free transactions. Each
member of a consolidated group for federal income tax purposes is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Each member of the EDS controlled group, which
includes EDS, the Company and EDS' other subsidiaries, is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, as well as certain benefit plan taxes. Accordingly,
the Company could be liable under such provisions in the event any such
liability is incurred, and not discharged, by any other member of the EDS
consolidated or controlled group. If the Company were no longer to be included
in EDS' consolidated group for federal tax purposes, there is no assurance
that the Company's tax position would not be less favorable than it is at
present.

   In addition, by virtue of its controlling beneficial ownership and the
terms of a tax sharing agreement between the Company and EDS, EDS effectively
controls all of the Company's tax decisions. Under the tax sharing agreement,
EDS has sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company's federal and combined state
returns, to file all such returns on behalf of the Company and to determine
the amount of the Company's liability to (or entitlement to payment from) EDS
under the tax sharing agreement. This arrangement may result in conflicts of
interests between the Company and EDS. For example, under the tax sharing
agreement, EDS may choose to contest, compromise or settle any adjustment or
deficiency proposed by the relevant taxing authority in a manner that may be
beneficial to EDS and detrimental to the Company.

   Dependence on Key Customers/Industries. The Company's earnings are highly
dependent on its business with GM. In connection with the split-off of EDS
from GM in June 1996, EDS entered into a Master Services Agreement (the
"EDS/GM MSA") and certain related agreements pursuant to which EDS serves as
GM's principal supplier of information technology on a worldwide basis for an
initial term of 10 years. The EDS/GM MSA serves as the framework for the
negotiation and operation of service agreements between GM and EDS, including
the provision of Company products and services under the Site License (see
Part I, Item 1, "Customers" above). The Site License initial term expired on
June 30, 1999 and has been extended on a month-to-month basis pending the
conclusion of negotiations on a follow-on Site License. Although less than 10%
of the Company's 1999 revenue was attributable to the products and services
provided to GM, if the EDS/GM MSA were to be terminated, or if the Company and
GM do not enter into a successor agreement to the Site License, the Company's
financial condition and results of operations would be materially adversely
affected.

   The Company's products are licensed to customers in a variety of industry
sectors, but a significant portion of the Company's 1999 revenue was derived
from the automotive and transportation and the aerospace industries. Both
industries are relatively mature MCAD markets that have been substantially
penetrated. The Company's future success will depend on its ability to
maintain and increase product licensing in the automotive and transportation
and the aerospace industries, as well as other industries, and there can be no
assurance that the Company will be able to achieve this objective.
Additionally, both the automotive and transportation and the aerospace
industries are cyclical, and an economic downturn in one of these industries
would likely have a material adverse effect on the Company's business,
financial condition and results of operations.

                                      22
<PAGE>

   Rapid Technological Change, New Products. The MCAD industry is
characterized by rapidly changing technology and frequent new product
introductions and product enhancements. Therefore, the Company's success is
highly dependent upon its ability to enhance its existing products and to
introduce new products in a cost-effective and timely manner to meet evolving
customer requirements. The Company has committed and intends to continue to
commit substantial resources to the development of new products. The Company
introduced a number of new product innovations in 1999, including (i) Version
16 of Unigraphics (featuring predictive engineering capabilities with the
introduction of knowledge driven design functions, new analysis and
optimization tools, and hundreds of other enhancements), (ii) Version 7 of
Solid Edge (incorporating enhanced design features for complex plastics, cast
parts and sheet metal assemblies) and, (iii) iMAN Portal (a java-based design
collaboration tool). Because new product development commitments must be made
well in advance of sales, however, new product decisions must anticipate both
future demand and the technology that will be responsive to such demand.
Delays in developing new products with anticipated technological advances or
in commencing releases of new products may have a material adverse effect on
the Company's financial condition and results of operations, as might the
issuance of releases in which material defects or shortcomings emerge. There
can be no assurance that new products will gain market acceptance or will not
be adversely affected by technological changes or new product announcements by
others. In addition, since many software users rely on databases of existing
parts for new product designs, there can be no assurance that potential
customers will switch to the Company's new products.

   There can be no assurance that future versions of Unigraphics, Solid Edge,
iMAN or any of the Company's other core products will perform as expected or
that they will achieve market acceptance or contribute significantly to the
Company's revenue. The Company's business strategy includes establishing
Parasolid as the MCAD industry's solid modeling standard. Competitors of the
Company could develop independent solid modeling kernels and license them to
third parties. Although the Company believes that Parasolid is the solid
modeling standard for MCAD software, there can be no assurance that it will
remain the solid modeling standard or that a competitor of the Company will
not develop a solid modeling kernel that will become the standard for the MCAD
industry. If a competitor of the Company were to develop a product that became
the solid modeling standard, it could have a material adverse effect not only
on the future success of Parasolid, but also on the Company's other products
which are based on the Parasolid solid modeling kernel.

   Dependence on Key Personnel. The Company's success depends to a significant
extent upon, among other factors, the continued service of its key senior
executives and research and development, technical, sales, support and other
personnel, and on its ability to continue to attract, retain and motivate
qualified personnel. The competition for such employees is intense, and the
loss of the services of any of these key personnel without adequate
replacement or the inability to attract new qualified personnel could have a
material adverse effect on the Company. The Company has signed employment
contracts with each executive officer. The Company does not maintain insurance
with respect to the loss of its key personnel.

   Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary software technology. The Company relies on a
combination of contracts, copyrights, trade secret laws and patents to
establish and protect its proprietary rights in its technology. Effective
copyright, trade secret and patent protection, however, may be unavailable or
limited in certain countries. Litigation, which could demand financial and
management resources, may be necessary to enforce its copyrights, patents or
other intellectual property rights. There can be no assurance that the steps
taken by the Company will be adequate to deter misappropriation or independent
third party development of its technology.

   To date, the Company has not been involved in any litigation regarding
copyrights, trademarks, trade secrets or other intellectual property rights
alleging the possible infringement of such intellectual property rights of
others. Litigation alleging infringement of the intellectual property rights
of others is not uncommon in the MCAD industry, and there can be no assurance
that such litigation will not be commenced in the future against the Company.
If litigation were to be commenced against the Company alleging infringement
of the intellectual

                                      23
<PAGE>

property rights of others, the Company could incur significant costs with
respect to the defense thereof, irrespective of the validity or the successful
assertion of such claims, which could have a material adverse effect on the
Company's financial condition and results of operations.

   Risks Associated with the Integration of Solid Edge/EMS and other
Acquisitions. The Company consummated the Solid Edge Acquisition on March 2,
1998. Prior to the Solid Edge Acquisition, the Solid Edge/EMS Business had not
been operated as a separate subsidiary or division of Intergraph but had been
integrated with Intergraph's other operations. Similarly, effective July, 1999
the Company acquired the German computer-aided manufacturing concern, dCADE,
and in August 1999 the Company acquired most of the worldwide assets of
Applicon, Inc. The Company continues to seek additional opportunities to
acquire, or merge with, related businesses and is presently evaluating, as it
does on a regular basis, potential opportunities. There can be no assurance
that the Company will be able to successfully integrate such businesses into
its operations or that the integration of these businesses will not materially
limit the amount of time that management may devote to running the Company's
day-to-day business or disrupt the Company's ongoing business. Further growth
in the Company's operations from additional businesses may strain the
Company's existing management resources and its financial and management
systems and controls and may require the Company to make additional
expenditures in such areas.

   Declining Prices of MCAD and PDM Products. As is common in high technology
industries, the MCAD industry is characterized by selling prices which have
tended to decline for existing products over time due to competition, lower
marginal costs and rapid technological change. In particular, increased
competition from new sources, including the introduction of numerous lower
priced, higher volume 3-D CAD products, the emergence of a mid-range market,
and the increased penetration of niche players into the CAM and CAE markets,
has led to price pressure on MCAD software products which is expected to
continue. Despite declining unit prices, the total size of the MCAD global
market, as measured by revenue, has increased over the past several years.
There can be no assurance, however, the MCAD global market will continue to
grow.

   Significant Quarterly Fluctuations. Historically, the Company's quarterly
operating results have varied significantly and are likely to vary
significantly in the future, depending on factors such as the number, timing
and significance of product enhancements or new products by the Company or its
competitors, the ability of the Company to develop, introduce and market new
and enhanced versions of its products, customer order deferrals in
anticipation of new or enhanced Company products, foreign currency exchange
rates, general conditions in the MCAD and computer industries and regional
economies and other events or factors. Also, the timing of orders and
shipments, unexpected delays or actions taken by competitors in reducing
prices or introducing new products could result in significant quarterly
fluctuations in the Company's results of operations. Finally, as is typical in
the MCAD industry, the Company historically has experienced its highest
licensing activity for the year in December.

   Risks Associated with International Operations. As a global participant in
the MCAD industry, the Company's business is subject to various risks beyond
its control, such as instability of foreign economies and governments, changes
in laws and policies affecting trade and investment, fluctuations in exchange
rates, inability to enforce intellectual property rights, and the slowdown in
European business activity during the summer months. In 1999, approximately
53% of the Company's revenue was derived from sales outside the United States.
This percentage has remained relatively constant over the last three years.
There can be no assurance that the Company will not experience material
adverse effects on its business and results of operations arising from its
international operations and sales.

   Implementation of Enterprise Resource Planning Systems. In mid-1998, the
Company initiated work to convert to new enterprise resource planning systems
for its operations in the United States, Germany, the United Kingdom, and
Canada. The new software systems were scheduled to be substantially
operational in the countries identified above by the end of the first calendar
quarter of 1999. The Company had planned to implement such new systems in its
remaining international operations over the course of 1999 and 2000. However,
because of implementation difficulties, the Company has delayed
implementations in international locations other than

                                      24
<PAGE>

Canada, Germany and the United Kingdom. Additionally, as of January 2000,
projected total implementation costs have exceeded estimates by over $7
million. Implementation of the new enterprise systems is expected to increase
the efficiency and competitiveness of the Company, provide more timely and
accurate business and management information, and reduce ongoing expenses,
particularly reliance on EDS for the provision of certain systems and
services. If the new enterprise systems cannot be implemented worldwide or if
the costs to implement the new systems significantly exceed revised estimates,
the Company's 2000 and beyond financial condition and results of operations
would be materially adversely affected.

   Limited History as a Stand-Alone Company. The Company succeeded to the MCAD
business of EDS effective as of January 1, 1998 (or later with respect to
certain operations outside the United States). Prior to such time, the
operations of the Company had been operated within several business units of
EDS, and not as a separate legal division or subsidiary. After the
Reorganization, the Company integrated its various operations into a single
operating unit. Although management has extensive experience managing the
Company as a part of EDS, there is only a limited operating history of the
Company as a stand-alone entity for a prospective investor to evaluate. There
can be no assurance that the Company will be able to successfully integrate
its operations into a single entity or that such integration will be achieved
in an efficient and effective manner. Since June 23, 1998, the Company has
been operated as a stand-alone subsidiary of EDS. EDS has no obligation to
provide assistance to the Company or any of its subsidiaries except for
certain financial, tax and other services provided pursuant to the Management
Services Agreement between EDS and the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company has market risks primarily relating to changes in the value of
marketable securities and changes in foreign exchange rates. The Company has
entered into various agreements for the purpose of hedging against these
risks. The hedging agreements are in the form of puts and calls which
establish the lowest and highest prices that the Company may sell the
securities. These agreements expire at various dates through 2000. The Company
does not enter into financial instrument transactions for trading purposes.
Information about the Company's risk related to changes in foreign exchange
rates is contained in Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under "Euro Conversion" and
"Impact of Changes in Exchange Rates."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The following consolidated financial statements and supplementary data are
included on pages F-1 through F-24 to this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
      <S>                                                                  <C>
      Independent Auditors' Report........................................  F-1
      Consolidated Statements of Operations: Years ended December 31,
       1999, 1998, 1997...................................................  F-2
      Consolidated Balance Sheets: December 31, 1999 and 1998.............  F-3
      Consolidated Statements of Stockholders' Equity/Net Investment and
       Comprehensive Income: December 31, 1999, 1998, 1997................  F-4
      Consolidated Statements of Cash Flows: Years ended December 31,
       1999, 1998, 1997...................................................  F-5
      Notes to Consolidated Financial Statements (including Selected
       Quarterly Data)....................................................  F-6
      Schedule II--Valuation and Qualifying Accounts...................... F-24
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE

   None

                                      25
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

   Information regarding nominees and directors appearing under "Nominees for
Directors for Three Year Term Expiring in 2003" and "Members of the Board
Continuing in Office" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Notice of Annual Meeting of the Stockholders and
Proxy Statement for the May 19, 2000 Annual Stockholders' Meeting (the "2000
Proxy Statement") is hereby incorporated by reference. Information regarding
executive officers is set forth in Part I, Item 4A., of this report.

ITEM 11. EXECUTIVE COMPENSATION

   Information appearing under "Director Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Executive Compensation,"
excluding, the information appearing under "Report of Compensation Committee
on Executive Compensation" and the "Stock Performance Graph," in the 2000
Proxy Statement is hereby incorporated by reference. The information under
"Report of Compensation Committee on Executive Compensation" and the "Stock
Performance Graph" shall not be deemed to be incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information regarding beneficial ownership of shares by nominees and
continuing directors and by all directors and executive officers as a group
appearing under "Ownership of Common Stock" in the 2000 Proxy Statement is
hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information appearing under "Relationship With EDS And Certain
Transactions" in the 2000 Proxy Statement is hereby incorporated by reference.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (A) Documents filed as part of this report:

     1. The following consolidated financial statements of Unigraphics
  Solutions Inc. and its subsidiaries are contained on pages F-1 through F-23
  of this Annual Report on Form 10-K. Following is an index of financial
  statements.

<TABLE>
<CAPTION>
      Index                                                                Page
      -----                                                                ----
      <S>                                                                  <C>
      Independent Auditors' Report........................................ F-1
      Consolidated Statements of Operations............................... F-2
      Consolidated Balance Sheets......................................... F-3
      Consolidated Statements of Stockholders' Equity/Net Investment and
       Comprehensive Income............................................... F-4
      Consolidated Statements of Cash Flow................................ F-5
      Notes to Consolidated Financial Statements.......................... F-6
</TABLE>

     2. Financial Statement Schedules

        The following financial statement schedule of Unigraphics Solutions
  Inc. is included herewith.

<TABLE>
      <S>                                                                   <C>
      Schedule II--Valuation and Qualifying Accounts....................... F-24
</TABLE>

                                      26
<PAGE>

   All other financial statement schedules under the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.

     3. Exhibits.

<TABLE>
     <C>       <S>                                                          <C>
      3.1      Restated Certificate of Incorporation of Unigraphics
               Solutions Inc., incorporated herein by reference to
               Exhibit 3.1 to Amendment No. 1 to the Registration
               Statement on Form S-1 of the Company (File No. 333-48261).
      3.2      Amended and Restated Bylaws of Unigraphics Solutions Inc.,
               as amended, incorporated herein by reference to Exhibit
               3.2 to Amendment No. 1 to the Registration Statement on
               Form S-1 of the Company (File No. 333-48261).
     10.1      Registration Rights Agreement between Unigraphics
               Solutions Inc. and Electronic Data Systems Corporation
               ("EDS"), incorporated herein by reference to Exhibit 4.1
               to Amendment No. 1 to the Registration Statement on Form
               S-1 of the Company (File No. 333-48261).
     10.2      Intercompany Agreement, effective as of January 1, 1998,
               between Unigraphics Solutions Inc. and Electronic Data
               Systems Corporation, incorporated herein by reference to
               Exhibit 10.2 to Amendment No. 1 to the Registration
               Statement on Form S-1 of the Company (File No. 333-48261).
     10.3      Management Services Agreement, effective as of January 1,
               1998, between Unigraphics Solutions Inc. and Electronic
               Data Systems Corporation, incorporated herein by reference
               to Exhibit 10.3 to Amendment No. 1 to the Registration
               Statement on Form S-1 of the Company (File No. 333-48261).
     10.4      Credit Agreement, effective as of January 1, 1998, between
               Unigraphics Solutions Inc. and Electronic Data Systems
               Corporation, incorporated herein by reference to Exhibit
               10.4 to Amendment No. 1 to the Registration Statement on
               Form S-1 of the Company (File No. 333-48261).
     10.5      Form of Credit Agreement entered into between Electronic
               Data Systems Corporation Finance Plc and each of
               substantially all of the Non-U.S. subsidiaries of
               Unigraphics Solutions Inc., each effective as of January
               1, 1998, incorporated herein by reference to Exhibit 10.5
               to Amendment No. 1 to the Registration Statement on Form
               S-1 of the Company (File No. 333-48261).
     10.6      Intercompany Note of Unigraphics Solutions Inc., dated
               March 6, 1998, in the principal amount of $73 million
               issued to Electronic Data Systems Corporation,
               incorporated herein by reference to Exhibit 10.6 to
               Amendment No. 1 to the Registration Statement on Form S-1
               of the Company (File No. 333-48261).
     10.7      Tax Sharing Agreement, effective as of January 1, 1998,
               between Unigraphics Solutions Inc. and Electronic Data
               Systems Corporation, incorporated herein by reference to
               Exhibit 10.7 to Amendment No. 1 to the Registration
               Statement on Form S-1 of the Company (File No. 333-48261).
     10.8      Memorandum of Understanding, effective as of January 1,
               1998, between Electronic Data Systems Corporation and
               Unigraphics Solutions Inc. regarding performance of
               certain obligations of Electronic Data Systems Corporation
               to General Motors Corporation, incorporated herein by
               reference to Exhibit 10.8 to Amendment No. 1 to the
               Registration Statement on Form S-1 of the Company (File
               No. 333-48261).
</TABLE>

                                      27
<PAGE>

<TABLE>
     <C>       <S>                                                          <C>
     10.9      Asset Purchase Agreement, dated as of March 2, 1998, among
               Unigraphics Solutions Inc., certain subsidiaries of
               Unigraphics Solutions Inc., Intergraph Corporation and
               certain subsidiaries of Intergraph Corporation,
               incorporated herein by reference to Exhibit 10.9 to the
               Registration Statement on Form S-1 of the Company (File
               No. 333-48261).
     10.10*    Unigraphics Solutions Inc. 1998 Incentive Plan,
               incorporated herein by reference to Exhibit 10.10 to the
               Quarterly Report on Form 10-Q for the quarter ended June
               30, 1998 of the Company (File No. 333-57485).
     10.11*    Form of Indemnification Agreement entered into by
               Unigraphics Solutions Inc. and certain of the directors
               and executive officers of Unigraphics Solutions Inc.,
               (John A. Adams, Douglas E. Barnett, Michael L. Desmond, J.
               Davis Hamlin, John J. Mazzola, Gary B. Moore, Leo J.
               Thomas, J. Randall Walti, William P. Weber) incorporated
               herein by reference to Exhibit 10.11 to the Registration
               Statement on Form S-1 of the Company (File No. 333-48261).
     10.12*    Personal Services Agreement, dated as of March 1, 1998,
               between Unigraphics Solutions Inc. and John J. Mazzola,
               incorporated herein by reference to Exhibit 10.12 to
               Amendment No. 1 to the Registration Statement on Form S-1
               of the Company (File No. 333-48261).
     10.13     Electronic Data Systems Corporation Standard Sub-Sublease
               Agreement dated as of January 1, 1998 between EDS and
               Unigraphics Solutions Inc. (Maryland Heights, MO
               facility), incorporated herein by reference to Exhibit
               10.18 to Amendment No. 1 to the Registration Statement on
               Form S-1 of the Company (File No. 333-48261).
     10.14     Electronic Data Systems Corporation Standard Sub-Sublease
               Agreement dated as of January 1, 1998 between EDS and
               Unigraphics Solutions Inc. (Cypress, CA facility),
               incorporated herein by reference to Exhibit 10.19 to
               Amendment No. 1 to the Registration Statement on Form S-1
               of the Company (File No. 333-48261).
     10.15     Unigraphics Solutions Inc. 1999 Broad-Based Incentive Plan
               (File No. 333-90641).
     10.16     First Amended Unigraphics Solutions 401(k) Plan
               incorporated by reference to Exhibit 10.1 to the Quarterly
               Report on Form 10-Q for quarter ended September 30,1999 of
               the Company (File No. 333-75975).
     10.17     Amendment One to the First Amended Unigraphics Solutions
               Inc. 401(k) Plan.
     10.18*    Form of Personal Services Agreement, effective January 20,
               2000, entered into between Unigraphics Solutions Inc. and
               certain executive officers of Unigraphics Solutions Inc.
               (Anthony J. Affuso, Douglas E. Barnett, Donald E.
               Davidson, Michael L. Desmond, James Duncan, Dennis P.
               Kruse, Robert F. Loss III, Richard W. Schenk and J.
               Randall Walti).
     21.1      Subsidiaries of the Company.
     23.1      Consent of KPMG LLP.
     24.1      Powers of Attorney for Messrs. Adams, Chiapparone, deNey,
               Hamlin, Heller, Thomas, and Weber signing this Annual
               Report on Form 10-K.
     27.1      Financial Data Schedule for the year ended December 31,
               1999, submitted to the Securities and Exchange Commission
               in electronic format.
</TABLE>
--------
*Management contracts and compensatory plans and arrangements required to be
   filed as exhibits to this Form 10-K pursuant to Item 14(c).

   (B) Reports on Form 8-K.

     No reports on Form 8-K were filed during the quarter ended December 31,
  1999.

                                      28
<PAGE>

                                  SIGNATURES

   In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned.

                                          Unigraphics Solutions inc.

                                                  /s/ John J. Mazzola
                                          By: _________________________________
                                                      John J. Mazzola
                                               President and Chief Executive
                                                          Officer

   Dated: March 29, 2000

   In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
              /s/ *                    Chairman of the Board and    March 29, 2000
______________________________________  Director
          Jeffrey M. Heller

              /s/ *                    Vice Chairman of the Board   March 29, 2000
______________________________________  and Director
           Richard L. deNey

       /s/ John J. Mazzola             President and Chief          March 29, 2000
______________________________________  Executive Officer and
           John J. Mazzola              Director (Principal
                                        Executive Officer)

      /s/ Douglas E. Barnett           Vice President, Chief        March 29, 2000
______________________________________  Financial Officer and
          Douglas E. Barnett            Treasurer (Principal
                                        Financial and Accounting
                                        Officer)

       /s/ J. Randall Walti            Vice President, General      March 29, 2000
______________________________________  Counsel and Secretary
           J. Randall Walti

              /s/ *                    Director                     March 29, 2000
______________________________________
            John A. Adams

              /s/ *                    Director                     March 29, 2000
______________________________________
         Paul J. Chiapparone

              /s/ *                    Director                     March 29, 2000
______________________________________
           J. Davis Hamlin

              /s/ *                    Director                     March 29, 2000
______________________________________
            Leo J. Thomas

              /s/ *                    Director                     March 29, 2000
______________________________________
</TABLE>   William P. Weber

       /s/ J. Randall Walti
*By______________________________
      J. Randall Walti
      Attorney in Fact

March 29, 2000

                                      29
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Unigraphics Solutions Inc.

   We have audited the accompanying consolidated balance sheets of Unigraphics
Solutions Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity/net
investment and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 1999. In connection with our audits of
the consolidated financial statements, we also have audited the accompanying
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unigraphics
Solutions Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                                          KPMG LLP

St. Louis, Missouri
February 7, 2000


                                      F-1
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

               (in thousands, except per share and share amounts)

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                             ---------------------------------
                                                1999       1998        1997
                                             ---------- ----------  ----------
<S>                                          <C>        <C>         <C>
Revenue:
  Software.................................. $  198,936 $  157,662  $  115,479
  Services..................................    234,205    187,120     137,794
  Hardware..................................     34,809     58,789      61,320
                                             ---------- ----------  ----------
      Total revenue.........................    467,950    403,571     314,593
                                             ---------- ----------  ----------
Cost of revenue:
  Software:
    Amortization............................     22,358     21,992      14,754
    Royalties, distribution and other.......     20,635     18,980      13,199
  Services..................................     96,067     73,899      57,059
  Hardware..................................     28,191     49,054      44,112
                                             ---------- ----------  ----------
      Total cost of revenue.................    167,251    163,925     129,124
                                             ---------- ----------  ----------
Gross profit................................    300,699    239,646     185,469
                                             ---------- ----------  ----------
Operating expenses:
  Selling, general and administrative.......    167,389    139,174     102,759
  Research and development..................     70,963     63,577      47,979
  In-process research and development.......      2,386     39,440         --
                                             ---------- ----------  ----------
      Total operating expenses..............    240,738    242,191     150,738
                                             ---------- ----------  ----------
Operating income (loss).....................     59,961     (2,545)     34,731
Other income, net...........................      5,272     10,036       5,092
                                             ---------- ----------  ----------
Income before income taxes..................     65,233      7,491      39,823
Provision for income taxes..................     23,484      1,253      14,810
                                             ---------- ----------  ----------
Net income.................................. $   41,749 $    6,238  $   25,013
                                             ========== ==========  ==========
Earnings per share:
  Basic..................................... $     1.15 $     0.18  $     0.80
                                             ========== ==========  ==========
  Diluted................................... $     1.14 $     0.18  $     0.80
                                             ========== ==========  ==========
Weighted average number of common shares
 outstanding:
  Basic..................................... 36,276,826 33,971,044  31,265,000
                                             ========== ==========  ==========
  Diluted................................... 36,490,131 33,971,044  31,265,000
                                             ========== ==========  ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

               (in thousands, except per share and share amounts)

<TABLE>
<CAPTION>
                                                      December 31, December 31,
                                                          1999         1998
                                                      ------------ ------------
<S>                                                   <C>          <C>
Assets
Current Assets
  Cash and cash equivalents..........................  $  20,696    $  20,740
  Marketable securities..............................        --         8,092
  Accounts receivable, net of allowance for doubtful
   accounts of $5,312 and $5,870.....................    125,698      107,379
  Prepaids and other.................................      9,181        6,383
                                                       ---------    ---------
    Total current assets.............................    155,575      142,594
                                                       ---------    ---------
Property and equipment, net..........................     33,110       26,467
                                                       ---------    ---------
Operating and other assets
  Goodwill, software and other intangibles, net......     63,038       72,443
  Deferred income taxes..............................     22,554       16,149
                                                       ---------    ---------
    Total operating and other assets.................     85,592       88,592
                                                       ---------    ---------
    Total assets.....................................  $ 274,277    $ 257,653
                                                       =========    =========
Liabilites and Stockholders' Equity
Current liabilities
  Accounts payable and accrued liabilities...........  $  63,868    $  59,452
  Deferred revenue...................................     12,886       12,022
  Income taxes payable...............................     38,901       39,098
  Deferred income taxes..............................        --         2,771
                                                       ---------    ---------
    Total current liabilities........................    115,655      113,343
                                                       ---------    ---------
Intercompany note....................................     35,220       55,130
Stockholders' equity
  Preferred stock, $.01 par value; authorized
   20,000,000 shares, none issued....................        --           --
  Class A common stock, $.01 par value; 168,735,000
   shares authorized; 5,034,337 and 5,000,000 shares
   issued and outstanding at December 31, 1999 and
   December 31, 1998, respectively...................         50           50
  Class B common stock, $.01 par value; 31,265,000
   shares authorized; 31,265,000 issued and
   outstanding at December 31, 1999 and
   December 31, 1998.................................        313          313
  Additional paid-in capital.........................    148,925      148,676
  Retained earnings (deficit)........................    (25,013)     (66,762)
  Accumulated other comprehensive income (loss)......       (873)       6,903
                                                       ---------    ---------
    Total stockholders' equity.......................    123,402       89,180
                                                       ---------    ---------
    Total liabilities and stockholders' equity.......  $ 274,277    $ 257,653
                                                       =========    =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / NET INVESTMENT AND
                              COMPREHENSIVE INCOME

                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                       Class
                                         A/
                                       Class                         Accumulated                    Total
                                         B    Additional Retained       Other     Stockholders' Stockholders'
                         Comprehensive Common  Paid-in   Earnings   Comprehensive      Net       Equity/Net
                         Income/(Loss) Stock   Capital   (Deficit)     Income      Investment    Investment
                         ------------- ------ ---------- ---------  ------------- ------------- -------------
<S>                      <C>           <C>    <C>        <C>        <C>           <C>           <C>
Balance at December 31,
 1996...................   $    --     $ --   $     --   $     --      $ 1,060      $ 131,087     $ 132,147
Net advances to
 affiliates.............        --       --         --         --          --         (70,160)      (70,160)
Foreign currency
 translation............       (395)     --         --         --          --             --           (395)
Unrealized gain on
 marketable securities
 (net of tax expense of
 $940)..................      1,745      --         --         --          --             --          1,745
                           --------
Other comprehensive
 income.................      1,350      --         --         --        1,350            --            --
Net income..............     25,013      --         --         --          --          25,013        25,013
                           --------    -----  ---------  ---------     -------      ---------     ---------
Comprehensive income....   $ 26,363
                           ========
Balance at December 31,
 1997...................   $    --       --         --         --        2,410         85,940        88,350
Reorganization and
 recapitalization.......        --       313     85,627        --          --         (85,940)          --
Dividend to parent......        --       --         --     (73,000)        --             --        (73,000)
Issuance of 5,000,000
 shares of Class A
 common stock...........        --        50     63,049        --          --             --         63,099
Foreign currency
 translation............        992      --         --         --          --             --            992
Unrealized gain on
 marketable securities
 (net of tax expense of
 $1,885 and realized
 gain)..................      3,501      --         --         --          --             --          3,501
                           --------
Other comprehensive
 income.................      4,493      --         --         --        4,493            --            --
Net income..............      6,238      --         --       6,238         --             --          6,238
                           --------    -----  ---------  ---------     -------      ---------     ---------
Comprehensive income....   $ 10,731
                           ========
Balance at December 31,
 1998...................   $    --       363    148,676    (66,762)      6,903            --         89,180
Issuance of 34,337
 shares of Class A
 common stock in stock
 award transactions, net
 of discounts on
 employee stock
 purchases..............        --       --         249        --          --             --            249
Foreign currency
 translation............     (2,530)     --         --         --          --             --         (2,530)
Realized gain on
 marketable securities
 (net of tax benefit of
 $2,825)................     (5,246)     --         --         --          --             --         (5,246)
                           --------
Other comprehensive
 income.................     (7,776)     --         --         --       (7,776)           --            --
Net income..............     41,749      --         --      41,749         --             --         41,749
                           --------    -----  ---------  ---------     -------      ---------     ---------
Comprehensive income....   $ 33,973
                           ========
Balance at December 31,
 1999...................               $ 363  $ 148,925  $ (25,013)    $  (873)     $     --      $ 123,402
                                       =====  =========  =========     =======      =========     =========
Reclassification
 adjustment for gains
 included in net income
 in 1998 (net of tax
 benefit of $940).......   $ (1,745)
                           ========
Reclassification
 adjustment for gains
 included in net income
 in 1999 (net of tax
 benefit of $2,825).....   $ (5,246)
                           ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                                  -----------------------------
                                                    1999      1998       1997
                                                  --------  ---------  --------
<S>                                               <C>       <C>        <C>
Cash flows from operating activities
  Net income....................................  $ 41,749  $   6,238  $ 25,013
                                                  --------  ---------  --------
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Deferred income taxes.......................    (6,448)   (44,145)  (18,174)
    Depreciation and amortization...............    33,879     31,554    22,134
    Allowance for bad debts.....................     1,767      1,295     2,425
    Gain on sale of marketable securities.......    (7,319)   (14,518)   (5,097)
    In-process research and development.........     2,386     39,440       --
    Other.......................................       --          90       --
    Changes in operating assets and liabilities,
     net of effect of acquired companies:
      Accounts receivable.......................   (22,731)    10,010    51,126
      Prepaids and other........................    (1,602)    (2,421)   (1,783)
      Accounts payable and accrued liabilities..     4,106     11,191    (1,630)
      Income taxes payable......................      (198)    39,098       --
      Deferred revenue..........................       336      4,196       254
                                                  --------  ---------  --------
        Total adjustments.......................     4,176     75,790    49,255
                                                  --------  ---------  --------
        Net cash provided by operating
         activities.............................    45,925     82,028    74,268
                                                  --------  ---------  --------
Cash flows from investing activities
  Proceeds from sale of marketable securities...     7,319     14,540     5,126
  Payments related to acquisitions, net of cash
   acquired.....................................    (9,498)  (104,993)      --
  Payments for purchases of property and
   equipment....................................   (16,758)   (14,539)   (9,073)
  Payments for purchases of software and other
   intangibles..................................    (7,760)    (3,738)     (122)
  Payments for purchases of marketable
   securities...................................       --         (51)      (29)
                                                  --------  ---------  --------
        Net cash used in investing activities...   (26,697)  (108,781)   (4,098)
                                                  --------  ---------  --------
Cash flows from financing activities
  Borrowings under intercompany credit
   agreements and notes.........................    34,016    122,905       --
  Payments on intercompany credit agreements and
   notes........................................   (53,448)  (140,478)      --
  Proceeds from sale of stock...................       249     65,100       --
  Net advances to affiliates....................       --         --    (70,160)
                                                  --------  ---------  --------
        Net cash provided by (used in) financing
         activities.............................   (19,183)    47,527   (70,160)
                                                  --------  ---------  --------
Effect of exchange rate changes on cash and cash
 equivalents....................................       (89)       (45)      --
                                                  --------  ---------  --------
Net increase (decrease) in cash and cash
 equivalents....................................       (44)    20,729        10
Cash and cash equivalents at beginning of
 period.........................................    20,740         11         1
                                                  --------  ---------  --------
Cash and cash equivalents at end of period......  $ 20,696  $  20,740  $     11
                                                  ========  =========  ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

   The Company develops, markets and supports mechanical computer-aided design
("CAD"), computer-aided manufacturing ("CAM"), computer-aided engineering
("CAE") and product data management ("PDM") software.

   Unigraphics Solutions Inc., a subsidiary of Electronic Data Systems
Corporation ("EDS"), was incorporated under the laws of the state of Delaware
on October 2, 1997. Unigraphics Solutions Inc. is the successor to the
Unigraphics business of EDS (the "Division") which operated within several
business units of EDS through December 31, 1997. All references to the
"Company" in the notes to the consolidated financial statements refer to
Unigraphics Solutions Inc. and its predecessor businesses and divisions.

   On January 1, 1998, EDS reorganized the business of the Division (the
"Reorganization"). As part of the Reorganization, the businesses of the
Division were combined under the Company. See Note 13 regarding transactions
related to the implementation of the Reorganization.

Principles of Consolidation

   The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Basis of Presentation

   The accompanying financial statements have been prepared using the EDS
historical basis in the assets and liabilities of the Company. The financial
statements for the periods prior to the Reorganization reflect the results of
operations, financial condition and cash flows of the Company as a component
of EDS. Management believes the statements of operations for the periods prior
to the Reorganization include a reasonable allocation of administrative costs,
which are described in Note 12, incurred by EDS on behalf of the Company.

   Financial reporting for periods prior to January 1, 1998 accumulate the
equity accounts of the Company into a single disclosure caption entitled
stockholder's net investment.

Earnings Per Share

   Basic earnings per share of common stock is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share reflects the incremental increase in common shares
outstanding assuming the exercise of all employee stock options that would
have had a dilutive effect on earnings per share. Options to purchase shares
of Class A common stock of 0.7 million for 1999 and 1998 were outstanding but
were not dilutive because the price of the options was greater than the
average market price of the common stock for the periods reported.

Marketable Securities

   Marketable securities consisted of corporate equity securities classified
as available-for-sale. Management determines the appropriate classification of
all securities at the time of purchase and reevaluates such designation as of
each balance sheet date. The Company's available-for-sale securities are
recorded at fair value. Unrealized holding gains, net of the related tax
effect, were $5.2 million at December 31, 1998. Unrealized holding gains are
excluded from net income and included in comprehensive income and within
accumulated other comprehensive income in stockholders' equity until realized.
A decline in the fair value of any available-

                                      F-6
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

for-sale security below cost that is deemed other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the security.
Proceeds and realized gains from sales of marketable securities totaled $7.3
million, $14.5 million and $5.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. Specific identification is used to determine cost
in computing gain or loss.

   Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Initially, the statement had been
effective for financial statements for all quarters of fiscal years beginning
after June 15, 1999. SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
was issued in June 1999. This statement postponed the application of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company believes
that adoption of this statement will not have a significant effect on its
consolidated financial statements.

Property and Equipment

   Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. The ranges of estimated
useful lives are as follows:

<TABLE>
<CAPTION>
      Asset                                                                Years
      -----                                                                -----
      <S>                                                                  <C>
      Facilities.......................................................... 5--7
      Computer equipment..................................................    5
      Other equipment and furniture....................................... 5--7
</TABLE>

Goodwill, Software, and Other Intangibles

   The Company capitalizes software development costs in compliance with SFAS
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management
with respect to certain external forces including, but not limited to,
anticipated future gross product revenue, estimated economic life and changes
in software and hardware technology. Amortization of capitalized software
development costs begins when the products are available for release to
customers and generally is computed using the straight-line method over 3
years or, if less, the remaining estimated economic life of the product.
Software purchased by the Company, including amounts allocated to software
when the Company was acquired by EDS, and utilized in designing software and
in operations is capitalized and amortized using the straight-line method over
five to eight years. Goodwill represents the excess of the purchase price of
acquired businesses over the net assets acquired and is amortized using the
straight-line method over seven years.

   In the accompanying statements of operations, amortization is included in
cost of software for capitalized software development costs and software
acquired in business combinations. Software purchased for internal use is
amortized to cost of software or operating expenses, as determined by the
nature of its use. See Note 14 regarding early adoption of Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Amortization of software and goodwill included in
cost of software totaled $22.4 million, $22.0 million and $14.8 million during
the years ended December 31, 1999, 1998 and 1997, respectively.

Revenue Recognition

   The Company's software products are licensed to customers through the
Company's direct sales force and by specific arrangements with certain
distributors, value-added resellers and other marketing representatives.

                                      F-7
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue generated from software licenses is recognized under fixed and
determinable fee arrangements once delivery has occurred and collectibility of
the underlying receivables is probable. Revenues recognized but not yet billed
to customers totaled $0.4 million and $18.9 million, at December 31, 1999 and
1998, respectively. All the unbilled revenue amounts recorded at December 31,
1999 are expected to be collected in 2000.

   Revenue from maintenance contracts is recognized ratably over the term of
the agreement and generally is billed monthly. Deferred revenue is recorded
when prepaid amounts are received for maintenance. Revenue from consulting,
customer training and other services is recognized as the service is
performed.

Cost of Revenue

   The cost of software licenses primarily consists of the cost of
distributing the software products, amortization of capitalized software
development costs, amortization of the cost of software acquired in business
combinations and royalty fees paid to vendors under licensing agreements.
Costs of services primarily consists of staff and related costs associated
with the generation and support of software maintenance and services revenue.

Currency Translation

   Assets and liabilities of non-U.S. subsidiaries or divisions whose
functional currency is not the U.S. dollar are translated at current exchange
rates. Revenue and expense accounts are translated using an average rate for
the period. Translation gains (losses) are not included in determining net
income but are reflected as a component of comprehensive income in
stockholders' equity/net investment. Cumulative currency translation
adjustments included within accumulated other comprehensive income in
stockholders' equity/net investment were $(0.9) million, $1.7 million, and
$0.7 million at December 31, 1999, 1998 and 1997, respectively. Foreign
currency transaction gains (losses) were not material in the periods reported.

Income Taxes

   The operations of the Company are included in EDS' consolidated income tax
returns. Current and deferred taxes have been allocated to the Company as if
taxes were computed on a stand-alone basis.

   Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Prior to 1998, tax benefits of operating
losses and tax credit carryforwards generated by the Company in foreign
jurisdictions and utilized by EDS to offset non-Company taxable income in such
jurisdictions were recognized by the Company as a reduction in stockholder's
net investment. See Note 13 regarding the tax sharing agreement between the
Company and EDS which was effective January 1, 1998.

Statements of Cash Flows

   The Company uses the indirect method to present cash flows from operating
activities and considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.

Financial Instruments

   The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, trade accounts receivable, other current assets, trade
accounts payable, and accrued liabilities approximate fair value because of
the short maturity of these instruments.

                                      F-8
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The carrying amount and fair value of the Company's available-for-sale
marketable securities was $8.1 million at December 31, 1998. The estimated
fair value of the securities is based upon quoted market prices.

Use of Estimates

   The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.

Stock-Based Compensation

   The Company records stock-based compensation over the vesting period for
the difference between the quoted market price of an award at the date of
grant and the purchase or exercise price of the share.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

   The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.

NOTE 2: ACQUISITIONS

Solid Edge Acquisition

   On March 2, 1998, the Company acquired the Solid Edge/EMS mechanical
CAD/CAM business of Intergraph Corporation (the "Solid Edge Acquisition") for
$105.0 million excluding approximately $2.0 million of acquisition costs, in a
transaction accounted for as a purchase. The results of operations of the
Company include the results of Solid Edge subsequent to the acquisition. The
Company borrowed $105.0 million from EDS pursuant to a credit agreement
established in connection with the Reorganization (the "Intercompany Credit
Agreement"). The cost of the Solid Edge Acquisition was allocated to
identifiable assets based on estimated fair values. Costs allocated to in-
process research and development in the amount of $39.4 million were expensed
upon acquisition. The remaining purchase price of $67.6 million was assigned
to the various intangible assets and is being amortized over periods of two to
seven years.

   In-process research and development relates to the modification of Solid
Edge 4.0 to include the Company's Parasolid solid modeling kernel. This
project commenced in July 1997 and was completed in May 1998. Initial sales of
Solid Edge 5.0 occurred shortly thereafter. The value assigned to in-process
research and development was determined based on management's estimates of the
percentage of completion of the underlying development effort, resulting net
cash flows from Solid Edge 5.0 and the discounting of such cash flows back to
their present value.

Other Acquisitions

   During 1999 the Company completed two acquisitions. On July 28, 1999, the
Company's subsidiary in Germany, Unigraphics Solutions GmbH, purchased the
shares of the Berlin-based dCADE Gesellschaft fur

                                      F-9
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Produktionsinformatik mbH ("dCADE"), including all rights to dCADE's software
and business portfolio. dCADE is operated as a separate unit of Unigraphics
Solutions GmbH. In August 1999, the Company purchased most of the worldwide
assets of Applicon, Inc. ("Applicon"), including Applicon's Bravo(R) software
assets and related business. The combined purchase price for these
transactions was $10.4 million. The value assigned to in-process research and
development associated with the two acquisitions was $2.4 million.

NOTE 3: PROPERTY AND EQUIPMENT

   Property and equipment at December 31, 1999 and 1998 is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                               1999      1998
                                                             --------  --------
      <S>                                                    <C>       <C>
      Buildings and facilities.............................. $ 10,253  $  7,062
      Computer equipment....................................   50,929    46,406
      Other equipment and furniture.........................    9,059     6,027
                                                             --------  --------
        Total cost..........................................   70,241    59,495
      Less accumulated depreciation.........................  (37,131)  (33,028)
                                                             --------  --------
        Total............................................... $ 33,110  $ 26,467
                                                             ========  ========
</TABLE>

NOTE 4: GOODWILL, SOFTWARE, AND OTHER INTANGIBLES

   Goodwill, software, and other intangibles at December 31, 1999 and 1998 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  ---------
      <S>                                                   <C>       <C>
      Software............................................. $ 13,472  $ 131,195
      Goodwill.............................................   63,769     60,153
      Other intangibles....................................   11,130      8,845
                                                            --------  ---------
        Total cost.........................................   88,371    200,193
      Less accumulated amortization........................  (25,333)  (127,750)
                                                            --------  ---------
        Total.............................................. $ 63,038  $  72,443
                                                            ========  =========
</TABLE>

NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   Accounts payable and accrued liabilities at December 31, 1999 and 1998 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  1999    1998
                                                                 ------- -------
      <S>                                                        <C>     <C>
      Accounts payable.......................................... $ 6,350 $ 6,245
      Accrued compensation......................................  13,526  12,198
      Accrued expenses..........................................  43,992  41,009
                                                                 ------- -------
        Total................................................... $63,868 $59,452
                                                                 ======= =======
</TABLE>

NOTE 6: INCOME TAXES

   Income taxes related to the Company are allocated as if they were
calculated on a separate return basis. The provision for income tax expense is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                            U.S.     Non-
                                           Federal   U.S.     State    Total
                                           -------  -------  -------  -------
      <S>                                  <C>      <C>      <C>      <C>
      Year ended December 31, 1999
        Current........................... $25,064  $ 8,411  $(2,359) $31,116
        Deferred..........................  (6,361)  (1,099)    (172)  (7,632)
                                           -------  -------  -------  -------
          Total........................... $18,703  $ 7,312  $(2,531) $23,484
                                           =======  =======  =======  =======
</TABLE>


                                     F-10
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                           U.S.     Non-
                                         Federal    U.S.     State    Total
                                         --------  -------  -------  --------
      <S>                                <C>       <C>      <C>      <C>
      Year ended December 31, 1998
        Current......................... $ 33,098  $ 6,518  $ 5,749  $ 45,365
        Deferred........................  (36,578)  (1,010)  (6,524)  (44,112)
                                         --------  -------  -------  --------
          Total......................... $ (3,480) $ 5,508  $  (775) $  1,253
                                         ========  =======  =======  ========
</TABLE>

<TABLE>
<CAPTION>
                                           U.S.     Non-
                                         Federal    U.S.     State    Total
                                         --------  -------  -------  --------
      <S>                                <C>       <C>      <C>      <C>
      Year ended December 31, 1997
        Current......................... $ 27,692  $ 3,317  $ 3,894  $ 34,903
        Deferred........................  (15,625)  (1,920)  (2,548)  (20,093)
                                         --------  -------  -------  --------
          Total......................... $ 12,067  $ 1,397  $ 1,346  $ 14,810
                                         ========  =======  =======  ========
</TABLE>

   Income before income taxes for the years ended December 31, 1999, 1998, and
1997 included the following components (in thousands):

<TABLE>
<CAPTION>
                                                       1999    1998   1997
                                                      ------- ------ -------
      <S>                                             <C>     <C>    <C>     <C>
      U.S. income.................................... $54,287 $1,517 $38,297
      Non-U.S. income................................  10,946  5,974   1,526
                                                      ------- ------ -------
          Total...................................... $65,233 $7,491 $39,823
                                                      ======= ====== ======= ===
</TABLE>

   A reconciliation of income tax expense for the years ended December 31,
1999, 1998, and 1997 using the statutory federal income tax rate of 35.0
percent to the actual income tax expense follows (in thousands):

<TABLE>
<CAPTION>
                                                        1999     1998    1997
                                                       -------  ------  -------
      <S>                                              <C>      <C>     <C>
      Statutory federal income tax.................... $22,832  $2,622  $13,938
      State income tax, net of federal tax benefit....  (1,645)   (504)     875
      Non-US taxes, net of credit.....................   1,148     376      863
      Research and experimentation credits............  (2,109) (2,360)  (1,001)
      Other...........................................   3,258   1,119      135
                                                       -------  ------  -------
          Total....................................... $23,484  $1,253  $14,810
                                                       -------  ------  -------
      Effective income tax rate.......................    36.0%   16.7%    37.2%
                                                       =======  ======  =======
</TABLE>

   The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, for the
years ended December 31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                1999                 1998
                                        --------------------- --------------------
                                         Assets   Liabilities Assets   Liabilities
                                        --------  ----------- -------  -----------
      <S>                               <C>       <C>         <C>      <C>
      Adjustments necessary to convert
       accrued amounts to a tax basis.  $ 14,544   $ 14,187   $ 5,966    $ 6,283
      Accumulated
       depreciation/amortization......    17,935        --     11,862        --
      Allowance for doubtful accounts.       310        --        338        --
      Other...........................     6,389        --      5,167      2,793
                                        --------   --------   -------    -------
        Subtotal......................    39,178     14,187    23,333      9,076
        Less valuation allowance......    (1,771)       --       (879)       --
                                        --------   --------   -------    -------
          Total.......................  $ 37,407   $ 14,187   $22,454    $ 9,076
                                        ========   ========   =======    =======
</TABLE>

                                     F-11
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The net change in the total valuation allowance for the year ended December
31, 1999 was an increase of $0.9 million. Certain of the Company's foreign
subsidiaries have net operating loss carryforwards that expire over periods
through 2006 and others are unlimited. A majority of the carryforwards with
definite expiration periods are included in the valuation allowance. In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Tax benefits of operating losses and tax
credit carryforwards generated by the Company in foreign jurisdictions are
utilized by EDS to offset non-Company taxable income in such jurisdictions.
Prior to 1998 these benefits were recognized by the Company as a reduction in
Stockholder's Net Investment.

NOTE 7: STOCK PLANS

   Stock Based Incentive Plans. The Company has incentive plans (the 1998
Incentive Plan and the 1999 Broad-Based Incentive Plan) under which awards may
be made to key employees and, except for the 1999 Broad-Based Incentive Plan,
non-employee Directors. Awards to employees under these plans may be made in
the form of grants of stock options, stock appreciation rights, restricted or
non-restricted stock or units denominated in stock, cash awards, performance
awards or any combination of the foregoing. Awards to non-employee Directors
under the 1998 Incentive Plan are in the form of grants of stock options.
Currently all awards are in the form of grants of stock options. The option
exercise price is the fair market value at the date of grant. These options
vest over three or four years and expire, generally, ten years from the date
of grant. The plans cover up to 2,050,000 shares of Class A common stock, of
which 100,000 shares will be available for director awards and the remainder
will be available for employee awards. As of December 31, 1999, the Company
had granted to employees and non-employee directors stock options to acquire
1,942,226 shares of common stock. There were 1,907,889 and 715,000 shares
outstanding at a weighted-average exercise price of $18.01 and $14.00 per
share at December 31, 1999 and 1998, respectively.

   There was no compensation cost charged against income in connection with
the stock based incentive plans for the years ended December 31, 1999 and
1998. The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock-based compensation plans. Pro forma net
income and earnings per share disclosures, as required by SFAS No. 123,
Accounting for Stock-Based Compensation, are computed as if the Company
recorded compensation expense based on the fair value of the stock-based
awards and are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                 Years ended
                                                                 December, 31
                                                               ----------------
                                                                 1999    1998
                                                               -------- -------
      <S>                                                      <C>      <C>
      Net income
        As reported........................................... $ 41,749 $ 6,238
        Pro forma.............................................   40,172   5,792
      Earnings per share of common stock:
        Basic
          As reported......................................... $   1.15 $  0.18
          Pro forma........................................... $   1.11 $  0.17
        Diluted
          As reported......................................... $   1.14 $  0.18
          Pro forma........................................... $   1.10 $  0.17
</TABLE>

   The pro forma disclosures include the amortization of the fair value of
options granted and vested in 1998. The pro forma effect of applying SFAS No.
123 is not necessarily indicative of the effect on pro forma disclosures in
future years. The fair value of the options granted has been estimated at the
date of grant using the

                                     F-12
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Black-Scholes option pricing model, with the following weighted-average
assumptions for 1999 and 1998, respectively; expected volatility of 45.7% and
50.0%; risk-free interest rates of 5.7% and 5.5%; and expected lives of 5.4
years and 5.0 years.

   A summary of the Company's stock options issued under the Incentive Plans
during the years ended December 31, 1999 and 1998, is presented below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                  1999               1998
                                            ------------------ -----------------
                                                     Weighted-         Weighted-
                                                      Average           Average
                                                     Exercise          Exercise
                                            Shares     Price   Shares    Price
                                            -------  --------- ------  ---------
      <S>                                   <C>      <C>       <C>     <C>
      Fixed Options:
      Outstanding at beginning of year.....   715.0     $14      --       --
      Granted.............................. 1,235.8     $20    719.0      $14
      Exercised............................   (34.3)    $14      --       --
      Forfeited............................    (8.6)    $16     (4.0)     $14
                                            -------            -----
      Outstanding at end of year........... 1,907.9     $18    715.0      $14
                                            -------            -----
      Options exercisable at end of year...   204.0            204.0
                                            =======            =====
      Weighted-average fair value of op-
       tions granted during the year....... $    10            $   7
                                            =======            =====
</TABLE>

   A summary of the Company's fixed stock options outstanding at December 31,
1999 is presented below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                        Options Outstanding            Options Vested
                                 ---------------------------------- ---------------------
                                              Weighted-
                                               Average    Weighted-             Weighted-
                                              Remaining    Average               Average
                                   Number    Contractual  Exercise    Number    Exercise
                                 Outstanding Life (Years)   Price   Outstanding   Price
      Range of Exercise Prices   ----------- ------------ --------- ----------- ---------
      <S>                        <C>         <C>          <C>       <C>         <C>
      $12--15.................     1,088.9       8.6         $14       204.0       $14
       15--17.................       131.0       9.3         $16         --        --
       22--25.................       688.0       9.8         $24         --        --
                                   -------                             -----
      $12--25.................     1,907.9       9.0         $18       204.0       $14
                                   =======                             =====
</TABLE>

   Employee Stock Purchase Plan. The Unigraphics Solutions Inc. Employee Stock
Purchase Plan (the "ESPP") is offered to eligible employees. Under the ESPP,
shares of Class A common stock may be purchased at 85% of the lower of the
fair market value of the common stock on the date of grant or the fair market
value of the common stock at the time the option is exercised. Each employee's
purchases in any year are limited to the lesser of 15% of base pay at the date
of the offering or commencement of eligibility, or $25,000 of fair market
value of Class A common stock. During 1999 employees purchased 61,370 shares
at an average price of $19.32. A total of 150,000 Class A common shares have
been authorized for purchase under the ESPP.

NOTE 8: EMPLOYEE SAVINGS PLAN

   The Unigraphics Solutions Inc. 401(k) Plan (the "401(k) Plan") is offered
to eligible employees. The 401(k) Plan, which was offered to employees
effective April 1, 1999, is intended to qualify under Section 401(k) of the
Internal Revenue Code. Participating employees may defer up to 20% of their
pre-tax compensation as contributions to the 401(k) Plan, subject to statutory
limitations. The Company makes matching contributions of

                                     F-13
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

25% of the amount contributed by the employee up to a maximum of 6% of the
employee's earnings. The Company's contributions vest over 5 years. During the
year ended December 31, 1999, the Company's contribution was $3.7 million.
This included a supplemental payment totaling $2.8 million to align benefits
with those which had been provided under the EDS pension plans for employees
who were no longer covered by those plans as of April 1999.

NOTE 9: EARNINGS PER SHARE

   A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share and the calculated amounts of earnings per
share follows for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                   1999       1998       1997
                                                ---------- ---------- ----------
      <S>                                       <C>        <C>        <C>
      Basic and Diluted Earnings Per Share:
      Shares outstanding--beginning of period.  36,265,000 31,265,000 31,265,000
      Weighted average number of common shares
       issued.................................      11,826  2,706,044        --
                                                ---------- ---------- ----------
      Weighted average number of common shares
       outstanding--end of period.............  36,276,826 33,971,044 31,265,000
      Dilutive effect of employee stock
       options................................     213,305        --         --
                                                ---------- ---------- ----------
      Diluted shares outstanding..............  36,490,131 33,971,044 31,265,000
                                                ========== ========== ==========
      Net income (in thousands)...............  $   41,749 $    6,238 $   25,013
                                                ========== ========== ==========
      Basic earnings per common share.........  $     1.15 $     0.18 $     0.80
                                                ========== ========== ==========
      Diluted earnings per common share.......  $     1.14 $     0.18 $     0.80
                                                ========== ========== ==========
</TABLE>

NOTE 10: SEGMENT INFORMATION

Industry Segments

   The Company aggregates its operations by geographic location for management
reporting purposes. Reportable segments consist of the Americas, Europe, and
Asia Pacific. The Company's business involves operations in principally one
industry segment: providing mechanical design automation software and related
services to manufacturers for the design, engineering analysis, testing and
manufacturing of mechanical products.

Geographic Segments

   The Company uses operating income, exclusive of software amortization costs
included in cost of revenue and in-process research and development costs, to
measure segment profit or loss. The following is a summary of certain
financial information by reportable geographic segment for the years ended
December 31, 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                                     1999                        1998                        1997
                          --------------------------- --------------------------- ---------------------------
                                   Operating  Total            Operating  Total            Operating  Total
                          Revenue   Income    Assets  Revenue   Income    Assets  Revenue   Income    Assets
                          -------- --------- -------- -------- --------- -------- -------- --------- --------
<S>                       <C>      <C>       <C>      <C>      <C>       <C>      <C>      <C>       <C>
Americas................  $235,202  $48,923  $164,411 $202,052  $31,257  $162,647 $158,355  $32,241  $117,261
Europe..................   177,379   29,479    81,463  155,110   20,259    74,449  114,422   14,093    34,258
Asia Pacific............    55,369    6,303    28,403   46,409    7,371    20,557   41,816    3,151    15,271
                          --------  -------  -------- --------  -------  -------- --------  -------  --------
 Total..................  $467,950  $84,705  $274,277 $403,571  $58,887  $257,653 $314,593  $49,485  $166,790
                          ========  =======  ======== ========  =======  ======== ========  =======  ========
</TABLE>


                                     F-14
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Operations in Germany were 14%, 12% and 10% of the Company's total revenue
in 1999, 1998 and 1997, respectively.

   A reconciliation of operating income/(loss) for the years ended December
31, 1999, 1998 and 1997 follows (in thousands):

<TABLE>
<CAPTION>
                                                    1999      1998      1997
                                                  --------  --------  --------
      <S>                                         <C>       <C>       <C>
      Total operating income for reportable
       segments.................................. $ 84,705  $ 58,887  $ 49,485
      Unallocated software amortization costs....  (22,358)  (21,992)  (14,754)
      Unallocated in-process research and
       development costs.........................   (2,386)  (39,440)      --
                                                  --------  --------  --------
      Operating income/(loss).................... $ 59,961  $ (2,545) $ 34,731
                                                  ========  ========  ========
</TABLE>

   The following is a summary of depreciation and amortization included in the
calculation of segment operating income/(loss) above (in thousands):

<TABLE>
<CAPTION>
                                                            1999    1998   1997
                                                           ------- ------ ------
      <S>                                                  <C>     <C>    <C>
      Americas............................................ $ 6,546 $4,561 $4,602
      Europe..............................................   3,163  3,650  1,777
      Asia Pacific........................................   1,812  1,351  1,001
                                                           ------- ------ ------
        Total............................................. $11,521 $9,562 $7,380
                                                           ======= ====== ======
</TABLE>

   There are no intercompany sales between geographic areas. All sales are
from external customers.

NOTE 11: COMMITMENTS AND CONTINGENCIES

   The Company is not a party to any litigation other than ordinary, routine
litigation incidental to its business. In the opinion of management, the
ultimate liability, if any, resulting from such litigation will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.

   Commitments for rental payments for each of the next five years ending
December 31 and thereafter under non-cancelable operating leases for
facilities, computer equipment, software, and other leased assets are as
follows (in thousands):

<TABLE>
       <S>                                                               <C>
       2000............................................................. $16,403
       2001.............................................................  12,589
       2002.............................................................   7,171
       2003.............................................................   5,304
       2004.............................................................   3,468
       Thereafter.......................................................  12,391
</TABLE>

   Total rentals under cancelable and non-cancelable leases, principally
facilities, computer equipment, software, and other leased assets included in
costs and charged to expenses were $24.2 million for the year ended December
31, 1999.


                                     F-15
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 12: RELATED PARTY TRANSACTIONS

   The following presents information about the Company's intercompany debt
activity for the years ended December 31, 1999 and 1998, respectively (in
thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                             -------  --------
      <S>                                                    <C>      <C>
      Beginning balance of intercompany note................ $55,130  $    --
      Borrowings
        Solid Edge acquisition..............................     --    104,993
        Payments for purchases of property and equipment....  16,758    14,539
        Payments for purchases of software and other
         intangibles........................................   7,760     3,738
        Applicon acquisition, net of cash acquired..........   6,498       --
        dCADE acquisition...................................   3,000       --
        Other...............................................     --       (365)
                                                             -------  --------
          Total borrowings..................................  34,016   122,905
                                                             -------  --------
      Payments
        Proceeds from initial public offering...............     --     65,100
        Cash provided from operations net of cash retained
         by the Company.....................................  45,969    61,288
        Proceeds from sale of marketable securities.........   7,319    14,540
        Other...............................................     160      (450)
                                                             -------  --------
          Total payments....................................  53,448   140,478
                                                             -------  --------
      Dividend note and other...............................    (478)   72,703
                                                             -------  --------
      Balance of intercompany note.......................... $35,220  $ 55,130
                                                             =======  ========
</TABLE>

   Prior to January 1, 1998 the Company utilized central cash management
systems of EDS to finance its operations. Cash requirements were satisfied
either by intercompany transactions between EDS and the Company or by cash
from operations. Such intercompany transactions are included in the
Stockholders' Equity/Net Investment account in the balance sheets and as net
cash advances to affiliates in the statements of cash flows. Those
intercompany transactions between EDS and the Company did not bear interest
and, therefore, no interest charge is reflected in the accompanying statement
of operations for the year ended December 31, 1997. An analysis of the
intercompany activity included in the Stockholders' Equity/Net Investment
account for the year ended December 31, 1997 follows (in thousands):

<TABLE>
<CAPTION>
                                                                       1997
                                                                     ---------
      <S>                                                            <C>
      Purchases of inventory from EDS............................... $  44,112
      Allocation of corporate services and employee benefits........     9,298
      Other net payments/transfers to EDS relating to normal cash
       management activity..........................................  (123,570)
                                                                     ---------
      Net advances to affiliates.................................... $ (70,160)
                                                                     =========
</TABLE>

   EDS provides services to the Company for management, accounting, human
resources, information systems, legal, taxes and other corporate activities.
Such corporate expenses amounting to $6.4 million, $6.4 million and $6.6
million have been allocated to the Company during the years ended December 31,
1999, 1998 and 1997, respectively, and are reflected in the accompanying
consolidated statements of operations as selling, general and administrative
expenses. Costs for 1997 were allocated to the Company by multiplying Company
revenues by a standard overhead rate. The standard overhead rate was developed
through analysis of actual services and related

                                     F-16
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

estimated costs provided to the Company on a historical basis. However, the
costs of these transactions may differ from those that would result from
transactions with unrelated parties. Beginning with January 1, 1998, the
Company and EDS began operating under a Management Services Agreement, as
described in Note 13.

   EDS has several qualified and non-qualified pension plans (the "Plans")
covering substantially all its employees. The majority of the Plans are non-
contributory. In general, employees become fully vested upon attaining five
years of service, and benefits are based on years of service and earnings. The
actuarial cost method currently used is the projected unit credit cost method.
EDS' U.S. funding policy is to contribute amounts that fall within the range
of deductible contributions for federal income tax purposes. Beginning in
April 1999 most of the employees of the Company were no longer covered by the
Plans.

   The following tables provide a reconciliation of the changes in the Plans'
benefit obligations and fair value of assets over the two year period ending
December 31, 1999, and a statement of the funded status as of December 31 of
both years (in millions):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------  ------
      <S>                                                       <C>     <C>
      Reconciliation of benefit obligation
        Obligation at January 1................................ $2,569  $2,511
        Service cost...........................................    256     187
        Interest cost..........................................    183     163
        Plan amendments........................................     30    (440)
        Actuarial loss.........................................     62     169
        Foreign currency exchange rate changes.................    (64)     17
        Benefit payments.......................................    (83)    (56)
        Curtailments and special termination benefits..........    172     --
        Settlements............................................     18     --
        Other..................................................     57      18
                                                                ------  ------
        Obligation at December 31.............................. $3,200  $2,569
                                                                ======  ======
      Reconciliation of fair value of plan assets
        Fair value of plan assets at January 1................. $2,563  $2,377
        Actual return on plan assets...........................    588      75
        Foreign currency exchange rate changes.................    (34)      4
        Employer contributions.................................    141     145
        Benefit payments.......................................    (83)    (56)
        Other..................................................     49      18
                                                                ------  ------
        Fair value of plan assets at December 31............... $3,224  $2,563
                                                                ======  ======
      Funded status
        Funded status at December 31........................... $   24  $   (6)
        Unrecognized transition obligation.....................     17      18
        Unrecognized prior-service cost........................   (329)   (413)
        Unrecognized loss......................................    153     439
                                                                ------  ------
        Net amount recognized.................................. $ (135) $   38
                                                                ======  ======
</TABLE>

                                     F-17
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table provides the amounts recognized in EDS' statement of
financial position as of December 31, 1999, and 1998 (in millions):

<TABLE>
<CAPTION>
                                                                  1999   1998
                                                                  -----  -----
      <S>                                                         <C>    <C>
      Prepaid benefit cost....................................... $ 134  $ 226
      Accrued benefit liability..................................  (305)  (214)
      Intangible asset...........................................    25     26
      Accumulated other comprehensive income and deferred income
       taxes.....................................................    11    --
                                                                  -----  -----
      Net amount recognized...................................... $(135) $  38
                                                                  =====  =====
</TABLE>

   EDS has certain pension plans, primarily international plans, with
accumulated benefit obligations in excess of plan assets. The accumulated
benefit obligations for these plans were $204.5 million and $178.5 million at
December 31, 1999 and 1998, respectively. Total plan assets for these plans
were $19.3 million and $16.0 million at December 31, 1999 and 1998,
respectively.

   The following table provides the components of net periodic pension cost
(in millions):

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
      <S>                                         <C>       <C>       <C>
      Service cost............................... $    256  $    187  $    136
      Interest cost..............................      183       163       160
      Expected return on plan assets.............     (252)     (246)     (182)
      Amortization of transition obligation......        1         1         1
      Amortization of prior-service cost.........      (33)      (27)        1
      Amortization of net loss...................       16       --          8
                                                  --------  --------  --------
      Net periodic benefit cost..................      171        78       124
      Curtailment gain...........................      (29)      --        --
      Settlement loss............................       18       --        --
                                                  --------  --------  --------
      Net periodic benefit cost after
       curtailments and settlements.............. $    160  $     78  $    124
                                                  ========  ========  ========
</TABLE>

   The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains or losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.

   At December 31, 1999 and 1998, the Plans' assets consisted primarily of
equity and fixed income securities and U.S. government obligations.

   The weighted-average assumptions used in the measurement of EDS' benefit
obligation are shown in the following table for the years ended December 31,
1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                               1999  1998  1997
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Discount rate........................................... 7.0%  6.8%   7.3%
      Rate of increase in compensation levels................. 5.2%  5.2%   5.5%
      Long-term rate of return on assets...................... 9.9%  9.9%  10.1%
</TABLE>

   In addition to the plans described above, the EDS 401(k) Plan provides a
long-term savings program for participants. The EDS 401(k) Plan allows
eligible employees to contribute a percentage of their compensation to a
savings program and to defer income taxes until the time of distribution. EDS
amended the EDS 401(k) Plan,

                                     F-18
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

effective July 1, 1998, to provide for employer-matching contributions in the
form of EDS stock. During the years ended December 31, 1999 and 1998,
employer-matching contributions totaled $33.9 million and $14.3 million,
respectively.

   Costs related to these plans are allocated to the Company through an
intercompany transaction based on the ratio of total payroll dollars of the
Company to total payroll dollars of EDS for the employee groups of the
respective plans and are included in selling, general and administrative
expenses. During the years ended December 31, 1999, 1998 and 1997, the Company
recognized expense of $1.2 million, $3.6 million and $2.7 million,
respectively, for such pension coverage.

   Eligible employees of the Company participate in EDS' PerformanceShare Plan
which permits the granting of stock-based awards in the form of stock options
for up to 20.0 million shares of EDS common stock. In 1997, EDS granted to
employees stock options to acquire 14.1 million shares of EDS common stock, of
which 0.2 million were issued to Company employees. The options vest after ten
years of service, subject to accelerated vesting based on the appreciation in
quoted market price of the EDS common stock. The exercise price of $37.375
equals the quoted market price of EDS stock on the date of grant. EDS applies
APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its stock-based compensation plans. Therefore, no compensation costs
related to this grant are reflected in the historical financial statements of
the Company. If compensation cost for the EDS PerformanceShare Plan had been
determined in accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income for the years ended
December 31, 1999 and 1998 would not have been materially different from
historical amounts.

     The EDS Incentive Plan (the "Incentive Plan") covers up to 60.0 million
shares of EDS common stock, in addition to 17.0 million unvested shares that
were outstanding at the date of the split-off of EDS from General Motors
Corporation ("GM"). The Incentive Plan permits the granting of stock-based
awards in the form of restricted shares, restricted stock units, stock
options, or stock appreciation rights to eligible employees, officers, and
non-employee directors. During the year ended December 31, 1997, 5.2 million
restricted stock units were granted of which 29,500 were granted to Company
employees. A restricted stock unit is the right to receive shares. Units
granted generally are scheduled to vest over a period of five to ten years.
The weighted average fair value of the restricted stock units granted was
$42.92. The quoted market price as of the date of grant is charged to
operations over the vesting period. The total number of unvested units was
12.5 million and 16.1 million at December 31, 1999 and 1998, respectively. The
unvested units attributable to Company employees was 49,370 and 26,550 at
December 31, 1999 and 1998, respectively.

NOTE 13: REORGANIZATION AND AFFILIATE AGREEMENTS

   The following transactions were consummated in connection with the
Reorganization:

   Intercompany Indebtedness. In addition to the $105.0 million borrowed under
the Intercompany Credit Agreement in connection with the Solid Edge
Acquisition, effective March 6, 1998, the Company issued to EDS as a dividend
an Intercompany Note in the principal amount of $73.0 million. The
Intercompany Note is payable on March 6, 2001 and bears interest, payable
semiannually, at a rate equal to the London Interbank Bid Rate ("LIBID") minus
0.5%. A portion of the amounts advanced to the Company under the Intercompany
Credit Agreement in respect of the Solid Edge Acquisition was repaid to EDS.
The Intercompany Credit Agreement restricts the Company from obtaining
financing from any party other than EDS without written consent from EDS,
unless EDS fails to provide funding available to the Company under the
Intercompany Credit Agreement.

     Capital Stock. At March 31, 1998, the Company had authorized 1,000 shares
of common stock, all of which were issued and outstanding. On May 22, 1998,
the Company filed a restated articles of incorporation

                                     F-19
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with the state of Delaware which authorized the issuance of 168,735,000 shares
of Class A common stock, 31,265,000 shares of Class B common stock and
20,000,000 shares of preferred stock. As a result, 1,000 shares of common
stock, representing all outstanding shares of common stock of the Company,
were converted into 31,265,000 shares of Class B common stock on May 21, 1998.
The holders of Class A common stock and Class B common stock of the Company
generally have identical voting rights except that holders of Class A common
stock are entitled to one vote per share while holders of Class B common stock
are entitled to ten votes per share on all matters to be voted on by
stockholders. Holders of Class A common stock and Class B common stock share
in an equal amount per share in any dividend declared by the Board of
Directors, subject to any preferential rights of any outstanding preferred
stock of the Company.

   Neither class of common stock is subject to redemption or has preemptive
rights to purchase additional shares of common stock. Preferred stock of the
Company can be issued in series with varying preferences and conversion
features as determined by the Board of Directors.

   Cash and Cash Equivalents. Effective with the Reorganization, the Company
began maintaining separate cash and investment accounts from EDS. Transactions
with EDS no longer result in immediate charges and credits to the Company's
cash and cash equivalents, but are settled through intercompany billings. EDS
manages the Company's cash management system under the Management Services
Agreement discussed below.

   Management Services Agreement. The Company and EDS are parties to the
Management Services Agreement, effective as of January 1, 1998 (the
"Management Services Agreement") pursuant to which EDS performs various
management services for the Company including treasury, risk management, tax,
and similar administrative services, that EDS has historically provided to the
Company. Amounts charged to the Company under this agreement approximate EDS'
cost of providing the services plus a fixed fee equal to 0.5% of the Company's
total revenues. The Management Services Agreement will expire on December 31,
2002 unless terminated earlier by either party if EDS and the Company are no
longer under common control. Except for certain tax and treasury management
services relating to consolidated operations or corporate policy of EDS, which
services the Company is required to purchase during the term of the Management
Services Agreement, the Company or EDS may terminate any service on or after
January 1, 2000 with prior notice of not less than five months.

   Tax Sharing Agreement. The Company and EDS have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which provides for the allocation of
tax liabilities during the tax periods the Company is part of consolidated
federal, state and local income tax returns filed by EDS. In addition, the Tax
Sharing Agreement sets out certain benefits and obligations of the Company and
EDS for tax matters relating to periods before the Reorganization and for
certain benefits and obligations that would affect the Company or EDS in the
future if the Company ceased to be a member of EDS' consolidated group for
federal income tax purposes. The Tax Sharing Agreement generally requires the
Company to pay EDS the amount of federal, state and local income taxes that
the Company would have been required to pay had the Company and its
subsidiaries filed their own tax return or returns and not been included in
the EDS consolidated group. The Company is jointly and severally liable for
the federal income tax of EDS and the other companies included in the
consolidated return for all periods in which the Company is included in the
EDS consolidated group. EDS has agreed, however, to indemnify the Company for
any liability for taxes reported or required to be reported on a consolidated
return.

   Except for certain items specified in the Tax Sharing Agreement, EDS
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes, attributable to periods before the Reorganization.


                                     F-20
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Credit Agreements. In order to allow EDS to manage efficiently the cash and
cash needs of its subsidiaries, the Company and EDS (or EDS subsidiary or EDS
Finance plc, as the case may be) are parties to the Intercompany Credit
Agreements, pursuant to which the Company is required to borrow from EDS, and
EDS is required to lend to the Company, any amount required by the Company to
fund its daily cash requirements. The maximum amount that the Company may
borrow at any time from EDS under the Intercompany Credit Agreements (together
with the other non-U.S. credit agreements referred to below) is $70.0 million.
Also, under the Intercompany Credit Agreements, the Company is required to
lend to EDS all excess cash of the Company. The interest rate to be charged to
the Company is the sum of the one-month LIBOR plus 0.5%. The interest rate to
be charged to EDS is the one-month LIBID minus 0.5%. On any business day that
the Company has excess cash available, it must use that cash to repay any
outstanding loans it has under the Intercompany Credit Agreements or make an
advance to EDS if no loans are outstanding. The Intercompany Credit Agreements
will terminate on December 31, 2002, unless earlier terminated at the election
of one of the parties upon the occurrence of certain events, including the
termination of the Management Services Agreement or the cessation of EDS'
beneficial ownership of 50% or more of the capital stock of the Company.

   GM Subcontract. In connection with the Reorganization, EDS and the Company
entered into a Memorandum of Understanding, effective January 1, 1998 (the "GM
Subcontract"), pursuant to which the Company receives all revenues and
performs EDS' obligations under the EDS/GM Site License Agreement and agrees
to cooperate with EDS in providing additional products and services to GM
under the EDS/GM Master Service Agreement. The GM Subcontract further provides
that the Company may provide directly to GM products and services that are
outside of the scope of the EDS/GM Master Service Agreement.

   Other Agreements. In addition to the agreements set forth above, the
Company and EDS are parties to a Registration Rights Agreement. The Company
and EDS are also parties to various subleases pursuant to which the Company
subleases from EDS the real property occupied by the Company prior to the
Reorganization. The terms of these sublease agreements incorporate the
financial and other material terms of EDS' lease agreements for the subject
properties. The Company also has, or expects to enter into, other agreements
with EDS or other EDS affiliates, pursuant to which the Company does not
expect to receive or pay material amounts.

   Pension Benefits. The Company and EDS entered into an agreement which
permits the employees of the Company to continue to participate in the benefit
plans and programs sponsored by EDS until the Company establishes separate
plans and programs for employees. The Company established its separate plans
and programs for employees effective April 1, 1999.

NOTE 14: EARLY ADOPTION OF STATEMENT OF POSITION (SOP) 98-1

   In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, was issued. This
SOP requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The provisions of SOP 98-1 are effective for financial
statements issued for fiscal years beginning after December 15, 1998, although
early adoption is allowed. During the third quarter of 1998, the Company
adopted the provisions of this SOP effective January 1, 1998. The impact on
previously reported 1998 quarterly financial statements is immaterial. There
were no costs associated with the development or purchase of internal-use
software in prior years. The capitalized costs were $11.1 million and $3.4
million at December 31, 1999 and 1998, respectively. All other related costs
of implementing the Company's computer systems are expensed as incurred.


                                     F-21
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 15: CONCENTRATIONS OF CREDIT RISK

   Effective July 1, 1996, the Company's parent, EDS, entered into a corporate
software license agreement the (Site License) with GM which provided for the
delivery of various software products as well as the provision of maintenance
services for an initial term of three years. The Company has agreed to perform
EDS' obligation to provide products and services under such agreement pursuant
to a Memorandum of Understanding executed in connection with the
Reorganization.

   During the years ended December 31, 1999, 1998 and 1997, the portion of
Company revenues attributable to GM was 8%, 9%, and 6%, respectively. No
single customer accounted for more than 10% of the Company's revenues in 1999,
1998 or 1997. Accounts receivable from GM, including amounts unbilled,
accounted for 5% and 17% of total accounts receivable in 1999 and 1998,
respectively.

   Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers constituting the Company's
customer base and their dispersion across different industries and geographic
areas. Accounts receivable are shown net of allowances of $5.3 million and
$5.9 million as of December 31, 1999 and 1998, respectively.

NOTE 16: SUPPLEMENTARY FINANCIAL INFORMATION

   The following summarizes supplemental financial information for the years
ended December 31, 1999, 1998, and 1997 (in thousands):

<TABLE>
<CAPTION>
                                                       1999     1998     1997
                                                      -------  -------  -------
      <S>                                             <C>      <C>      <C>
      Depreciation of property and equipment......... $ 9,800  $ 8,285  $ 7,380
      Amortization...................................  24,079   23,269   14,754
                                                      -------  -------  -------
          Total depreciation and amortization........ $33,879  $31,554  $22,134
                                                      =======  =======  =======
      Interest and other income...................... $ 8,153  $14,518  $ 5,092
      Interest expense...............................  (2,881)  (4,482)     --
                                                      -------  -------  -------
          Total other income......................... $ 5,272  $10,036  $ 5,092
                                                      =======  =======  =======
      Cash paid for:
        Income taxes, net of refunds................. $31,314  $ 2,137      --
        Interest..................................... $ 2,881  $ 4,482      --
</TABLE>

                                     F-22
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)

   Amounts in the following tables are in thousands, except per share amounts.

<TABLE>
<CAPTION>
                                        Year ended December 31, 1999
                                ------------------------------------------------
                                 First     Second    Third     Fourth
                                Quarter   Quarter   Quarter   Quarter     Year
                                --------  --------  --------  --------  --------
      <S>                       <C>       <C>       <C>       <C>       <C>
      Total revenue...........  $105,806  $110,350  $115,677  $136,117  $467,950
      Gross profit............    64,247    71,487    73,218    91,747   300,699
      Selling, general and
       administrative.........   (35,261)  (41,801)  (43,268)  (47,059) (167,389)
      Research and
       development............   (16,905)  (16,743)  (16,726)  (20,589)  (70,963)
      In-process research and
       development............       --        --     (2,386)      --     (2,386)
      Income before income
       taxes..................    14,299    14,223    11,496    25,215    65,233
      Net income..............     9,152     9,105     7,355    16,137    41,749
      Basic earnings per share
       of common stock........      0.25      0.25      0.21      0.44      1.15
      Diluted earnings per
       share of common stock..      0.25      0.25      0.20      0.44      1.14
</TABLE>

<TABLE>
<CAPTION>
                                      Year ended December 31, 1998
                               -----------------------------------------------
                                First     Second    Third    Fourth
                               Quarter   Quarter   Quarter  Quarter     Year
                               --------  --------  -------  --------  --------
      <S>                      <C>       <C>       <C>      <C>       <C>
      Total revenue........... $ 86,528  $101,901  $97,132  $118,010  $403,571
      Gross profit............   50,023    57,820   59,779    72,024   239,646
      Selling, general and
       administrative.........  (27,229)  (34,885) (36,564)  (40,496) (139,174)
      Research and
       development............  (14,288)  (15,563) (16,747)  (16,979)  (63,577)
      In-process research and
       development............  (39,440)      --       --        --     39,440
      Income (loss) before
       income taxes...........  (21,241)    5,379    7,350    16,003     7,491
      Net income (loss).......  (12,152)    3,443    4,705    10,242     6,238
      Basic and diluted
       earnings per share of
       common stock...........    (0.39)     0.11     0.13      0.28      0.18
</TABLE>

                                      F-23
<PAGE>

                           UNIGRAPHICS SOLUTIONS INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)

<TABLE>
<CAPTION>
                                   Additions  Additions
                        Balance at charged to charged to            Balance at
                        beginning  costs and    other                  end
                         of year    expenses   accounts  Deductions  of year
                        ---------- ---------- ---------- ---------- ----------
<S>                     <C>        <C>        <C>        <C>        <C>
For the year ended
 December 31, 1999
  Allowance for
   doubtful accounts...  $ 5,870     1,767       --        2,325     $ 5,312
                         -------     -----       ---       -----     -------
    Total valuation and
     qualifying
     accounts..........  $ 5,870     1,767       --        2,325     $ 5,312
                         =======     =====       ===       =====     =======
For the year ended
 December 31, 1998
  Allowance for
   doubtful accounts...  $ 4,721     1,295       --          146     $ 5,870
                         -------     -----       ---       -----     -------
    Total valuation and
     qualifying
     accounts..........  $ 4,721     1,295       --          146     $ 5,870
                         =======     =====       ===       =====     =======
For the year ended
 December 31, 1997
  Allowance for
   doubtful accounts...  $ 4,907     2,425       --        2,611     $ 4,721
                         -------     -----       ---       -----     -------
    Total valuation and
     qualifying
     accounts..........  $ 4,907     2,425       --        2,611     $ 4,721
                         =======     =====       ===       =====     =======
</TABLE>

                                      F-24