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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, 2000

                          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.)

                   10824 Hope Street, Cypress, CA 90630-5214
         (Address of principal executive offices, including zip code)

            13736 Riverport Drive, Maryland Heights, MO 63043-4826
  (Former name, former address and former fiscal year, if changed since last
                                    report)

      Registrant's telephone number, including area code: (714) 952-0311

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

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      Title of each class           Name of each exchange on which registered
      -------------------           -----------------------------------------
      <S>                           <C>
      Common Stock, $.01 Par Value           New York Stock Exchange
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       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, 2001, 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
$109,518,287.

   As of March 1, 2001, there were 5,066,007 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 16, 2001 (the "2001 Proxy Statement") are
incorporated by reference in Part III of this Form 10-K. The 2001 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, 2000.

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                          UNIGRAPHICS SOLUTIONS INC.

                  FISCAL YEAR 2000 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

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IMPORTANT RISK FACTORS THAT MAY AFFECT FUTURE RESULTS.....................   2

PART I.

  Item 1.  Business.......................................................   3
  Item 2.  Properties.....................................................   9
  Item 3.  Legal Proceedings..............................................  10

  Item 4.  Submission of Matters to a Vote of Security Holders............  10

  Item 4A. Executive Officers.............................................  11

PART II.

  Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters........................................................  13

  Item 6.  Selected Financial Data........................................  14

  Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations..........................................  14

  Item 7A. Quantitative and Qualitative Disclosures about Market Risk.....  28

  Item 8.  Financial Statements and Supplementary Data....................  28

  Item 9.  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure...........................................  28

PART III.

  Item 10. Directors and Executive Officers of Registrant.................  29

  Item 11. Executive Compensation.........................................  29

  Item 12. Security Ownership of Certain Beneficial Owners and Management.  29

  Item 13. Certain Relationships and Related Transactions.................  29

PART IV.

  Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
           K..............................................................  29

  Signatures..............................................................  34

Financial Statements
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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 and
Engineering Animation, Inc. acquired product net cash flow projections, (2)
the continued strong competition in the mechanical computer-aided design and
collaborative product development markets, (3) the Company's on-going
relationship with its parent, Electronic Data Systems Corporation ("EDS"), (4)
the Company's expectation that it will be able to settle certain shareholder
litigations filed against the recently acquired Engineering Animation, Inc.
entity, (5) the planned future decline in Company hardware revenues, (6) Euro
conversion exposure and related costs, (7) market trends, including worldwide
consolidations in the automotive and aerospace and transportation industries
which are a significant source of the Company's revenue and growth, (8) the
Company's reliance on the rapid emergence of the Internet-based, collaborative
product development market, and (9) projected EDS-Company Management Services
Agreement charges for fiscal year 2001, as well as 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 24.

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                                    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
5,066,007 Class A shares (not including the 4,894,767 unexercised Class A
Common Stock options awarded under the Company's 1998, 1999 and 2000 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 completed two acquisitions in 1999. On July 28, 1999 the Company's
German subsidiary, Unigraphics Solutions GmbH, purchased all of 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.

   On October 23, 2000, UGS Acquisition Corporation (the "Acquisition
Subsidiary"), a wholly-owned subsidiary of UGS, completed a merger with
Engineering Animation, Inc. ("EAI"), with EAI then becoming a wholly-owned
subsidiary of UGS. The merger was effected through a tender offer for all of
the outstanding shares of EAI for $13.75 per share in cash. Effective December
31, 2000, EAI was merged into UGS. The total price paid for the outstanding
EAI shares was $166.2 million, and UGS incurred additional acquisition related
costs of approximately $27.4 million.

   In February 2001, the Company changed its principal place of business and
location of its executive offices from Maryland Heights, Missouri to Cypress,
California. The Company's Maryland Heights facility will continue to be UGS'
Americas sales zone headquarters, plus it will continue to house substantial
general and administrative, product development, training and other functions.
Additionally, as of February 2001, the Company will do business primarily
under the initials "UGS" in order to indicate that the Company has a broad
product and service line beyond its flagship Unigraphics, Parasolid, and Solid
Edge MCAD software products. The Company and its subsidiaries do not plan to
change the official, legal Company names at this time.

Business Overview

   UGS is a leading global provider of Internet-enabled, collaborative product
design, development and process management software and services. Company
software products include mechanical computer-aided design ("CAD") coupled
with tightly integrated computer-aided industrial design ("CAID") solutions,
computer-aided engineering ("CAE"), computer-aided manufacturing ("CAM"),
product data management ("PDM"), open enterprise visualization ("OEV"), open
virtual factory ("OVF"), and collaboration software products and

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related services. In this report, the CAD/CAE/CAM market area is sometimes
referred to as the mechanical computer-aided design or "MCAD" industry. Also,
the OEV and other collaboration software products are sometimes referred to as
"Collaboration Solutions." The Company's products and services currently are
used for product design, development, engineering, manufacturing, and
fulfillment principally in the automotive, aerospace and transportation,
consumer products, equipment and machinery, and electronics industries. The
Company's software products allow customers to reduce design, engineering,
manufacturing and lifecycle management 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 and visualized by the Company's product data management and
visualization software. The Company's PDM and OEV software makes the most
current product data readily accessible to all 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. We call
this broad, undefined and often spontaneous company/supplier/customer
interaction collaborative commerce or "c-Commerce". The digital model produced
by UGS design and development software is a cornerstone of c-Commerce; and
UGS, together with 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, PDM and
visualization software products that are designed to 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 the following 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. 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, and its unique
    knowledge-driven automation functionality captures both product and
    process knowledge in one system. 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.
    For the years ended December 31, 2000, 1999, and 1998, approximately 76%,
    84%, and 88%, respectively, of the Company's total revenue was
    attributable to Unigraphics software and related products and services.

  . 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 by machinery, consumer
    electronics, other consumer product and manufacturing customers.

  . Parasolid(R). Parasolid is a geometric modeling kernel used widely in
    CAD/CAM/CAE software. 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. For the
    year ended December 31, 2000, iMAN software and related services
    contributed approximately 12% to the Company's total revenue.

                                       4
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  . Collaboration Solutions (e-Vis(TM), VisView(R), VisMockUp(R),
    VisConcept(TM), VisPublish3D(TM), Visual Collaboration Toolkit(TM) and
    ProductVision(R)). These Open Enterprise Visualization ("OEV") and other
    Collaboration Solutions software products provide customers with large
    model visual, real-time collaboration, digital prototyping and analysis
    capabilities. The OEV software and component modules are used by
    engineering departments for digital mockup and product simulation; by
    manufacturing departments for assembly sequencing and factory simulation;
    by sales and marketing departments for presentations, training and
    product configuration; and by service departments for interactive
    maintenance manuals and repair training. These products integrate with
    UGS and competitor MCAD systems.

   e-Vis software provides the extended manufacturing enterprise with
   secure, Internet-enabled collaboration capabilities. e-Vis allows project
   teams to view and search the stored and organized project-related 2D and
   3D documents, drawing and models, to participate in on-line design and
   engineering reviews, and to receive up-to-the-minute project status
   information. The Company provides three e-Vis deployment options: use of
   the Company's subscription-based on-line service, provision of e-Vis
   solutions within a specific company's corporate intranet (or private
   exchange), or provision of e-Vis solutions to business-to-business trade
   exchanges and business portals.

  . eFactory(TM) Solutions. Open Virtual Factory ("OVF") software enables
    manufacturers to design, analyze, visualize and simulate factory layouts,
    thereby reducing factory layout development time and manufacturing costs.
    The three major virtual factory software solutions include software
    suites for developing manufacturing process plans, for evaluating factory
    layout alternatives, and for modeling human interaction with the factory
    layout. Additionally, such software facilitates integration and
    management of product data, manufacturing process planning, and
    manufacturing resource planning.

   The Company also sells computer hardware to customers as needed. 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, 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 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.


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Sales and Distribution Methods

   License Agreements. Except for Parasolid software and certain Collaboration
Solutions products, the Company typically charges a fixed license fee per seat
for its 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 for an initial annual period
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 into which Parasolid has been embedded. 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 enterprise collaboration,
the automotive industry, or the aerospace and transportation industry, have
been organized from a cross-section of sales, marketing and technical
personnel in each region. Unigraphics, iMAN, Collaboration Solutions, and
eFactory products 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. The Company also has entered into partnership
arrangements with government sponsored agencies in the Asia-Pacific area 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 other
Company products.

   Collaboration Solutions products and services are marketed through a
variety of sales channels including the UGS direct sales force and
distributors. Also, bundling and distribution agreements exist with certain
hardware and software vendors. Finally, Collaboration Solutions technology is
provided to business-to-business exchanges such as Covisint which provide not
only product design and development collaboration software such as the
Company's Collaboration Solutions, but also provide other business-to-business
software applications such as procurement of indirect goods, customer
relationship management, and fulfillment and logistics products.

   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 a large and growing group of niche
software suppliers that provide specialized software applications to be used
in conjunction with the 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

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Voyager Program agreement provides for joint marketing and promotional
activities. Additionally, the Company maintains specific bundling and
distribution agreements with certain hardware and software companies for
resale of Company products to specific customers or types of customers.

Customers

   The Company's customers come from a wide range of industries, but over one-
third of the Company's 2000 business was from the automotive industry. In
2000, General Motors Corporation ("GM") was the only customer that accounted
for more than ten percent of total Company revenue (approximately $75 million
or 14% of total revenue). In 1996, GM and EDS signed the Unigraphics Corporate
Software License Agreement (the "Initial Site License") in which GM selected
Unigraphics software as GM's vehicle development software platform. Under the
Initial Site License, GM has installed approximately 10,000 seats of
Unigraphics and was entitled to install up to 10,000 iMAN seats. Additionally,
the Initial Site License covered the provision of maintenance and other
services to GM. The Company and GM have negotiated a renewal (the "Renewal")
of the Initial Site License, which expired in June 1999. The Renewal is a
three year agreement commencing on July 1, 1999 and covers on-going
maintenance services, software development services, contract mangement
services, and new iMAN software and services. The Renewal also includes the
provision of specified software bundles to GM dedicated product design
contractors and provides discounts on specified UGS software bundles to other
GM suppliers.

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 and collaborative product development industries are 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 935 people located primarily at seven worldwide research and
development offices. Major enhancements of the Company's core software
products are distributed once or 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.

   During 2000, the Company spent $81.2 million on software research and
development, constituting approximately 15% of its total revenue. In 1999 and
1998, the Company had software research and development expenditures of $71.0
million and $63.6 million, respectively, or approximately 15% of total revenue
in 1999 and 16% of total revenue in 1998.

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 the Company's software is protected
as a trade

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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 and the acquisition of EAI included the transfer of
intellectual property rights to Bravo, e-VIS, OEV, OVF products lines and
other Applicon, dCADE, and EAI 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, EAI, Unigraphics, Solid Edge, Parasolid, iMAN,
ProductVision, in-Key, VisView, VisMockUp, VisFactory, 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.

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, (ii) specialist software
developers whose product lines are focused on CAD, CAM, CAE or PDM products,
(iii) enterprise resource planning ("ERP") software providers, (iv)
collaborative product development solution providers, and (v) 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 MCAD, PDM and
collaborative product commerce 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.

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," under "Risk Factors That May Affect Future Results--Risks
Associated with International Operations."

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Employees

   As of March 1, 2001, the Company employed over 3,400 persons who conduct
business in 120 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 Operation-- Revenues" and in Note 10
of the Notes to Consolidated Financial Statements, "Segment Information" of
this Annual Report.

ITEM 2. PROPERTIES

   As of March 1, 2001, the Company had 120 offices in 30 countries, including
the United States. The Company occupies approximately 1,220,000 square feet of
space. All space is leased except for approximately 62,000 square feet in the
Ames, Iowa facility.

   Subsequent to the 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 facility for
which the rental rate charged to the Company is based on an estimate of
current market rates). Subsequent to the Reorganization, the Company has begun
to lease new and existing space in its own name.

   The Company's principal operating locations are as follows: The corporate
headquarters is located in Cypress, California, where it subleases from EDS
approximately 127,000 square feet of office space for general and
administrative, marketing, research and development and consulting services
activities. That sublease will expire in June 2002. The Cypress facility also
is the Company's principal technical development and support center, where
other 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 principal Americas sales center is located in
St. Louis, Missouri where it subleases from EDS approximately 103,000 square
feet in an arrangement that will expire in September 2001. At that time, St.
Louis operations are scheduled to move to a new St. Louis facility under a ten
year lease arrangement. The new St. Louis building facility will contain
122,646 square feet of office space. The Company's European headquarters is
located in Camberley, England. The lease on the Camberley facility expires in
May 2014. 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
November 2002. The headquarters for Germany and Eastern Europe is in Cologne,
Germany, where the Company subleases approximately 27,500 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 December 2003. The Company
leases 46,564 square feet of 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. The Company leases
52,940 square feet in Southfield, Michigan for sales and sales support
functions. The lease expires in March 2008. 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. Finally, the
Company's development center for e-Vis, OEV, and OVF products is located in
Ames, Iowa where the Company occupies 95,775 square feet, of which the Company
owns 62,375 feet and leases 33,400 square feet under a lease that expires in
July 2006.

                                       9
<PAGE>

   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 litigation incidental to its
operations. Two current class action litigation matters, originally filed
against EAI, are not expected to have a material adverse affect on the
Company's financial condition or results of operations.

   The first class action matter, entitled In Re Engineering Animation
Securities Litigation, includes suits filed in the United States District
Court for the Southern District of Iowa against EAI and certain former
executive officers between February and April of 1999. The suits were filed on
behalf of persons who purchased EAI common stock between February 19, 1998 and
April 6, 1999. This litigation matter alleges EAI violated certain provisions
of the Securities Exchange Act of 1934 based upon alleged false or misleading
statements relating to its accounting for in-process research and development
in connection with two acquisitions and relating to EAI's 1999 business
prospects. The suit seeks unspecified damages.

   The second class action matter, entitled William L. Wright, et al. vs.
Engineering Animation, Inc., et al., includes suits filed in the same Iowa
Federal District Court against EAI and certain executive officers in October
1999. The suits were filed on behalf of persons who purchased EAI common stock
between July 29, 1999 and October 1, 1999. This second litigation matter also
alleges violations of certain provisions of the Securities Exchange Act of
1934 as a result of alleged false and misleading statements relating to EAI's
second quarter 1999 financial results and seeks unspecified damages.

   On February 1, 2001, the parties to both of the above class action matters
entered into a Stipulation and Agreement of Settlement which has been filed
with the Court and proposes to settle the litigation by providing for
dismissal of the litigation in exchange for the payment by EAI of $7,500,000.
A preliminary order of the Court has been entered which sets forth the process
of assembling the claims and sets the date of the final hearing for approval
of the settlement. The amount to be paid by EAI under the proposed settlement
will be paid by its insurance carrier under the terms of its directors and
officers insurance policy.

   The Company is involved in other routine administrative actions and pending
litigation incidental to its operations. None of the current administrative
actions or pending litigation, individually or in the aggregate, is believed
to be material to the Company's financial condition or results of operation.

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

   None submitted.

                                      10
<PAGE>

ITEM 4A. EXECUTIVE OFFICERS OF UNIGRAPHICS SOLUTIONS INC.

   The following information sets forth certain information with respect to
the Company's executive officers as of March 30, 2001:

<TABLE>
<CAPTION>
          Name           Age Position
          ----           --- --------
<S>                      <C> <C>
Paul J. Chiapparone.....  61 Chairman of the Board

Anthony J. Affuso.......  54 President and Chief Executive Officer

Douglas E. Barnett......  41 Vice President, Chief Financial Officer and Treasurer

Donald E. Davidson......  60 Vice President, Asia-Pacific

Michael L. Desmond......  56 Vice President, Human Resources

James Duncan............  63 Vice President, Europe

Charles C. Grindstaff...  44 Vice President, Products and Operations

Dennis P. Kruse.........  51 Vice President, Americas

Robert F. Loss, III.....  60 Vice President, Chief Information Officer

Richard W. Schenk, Jr...  57 Vice President, Marketing Communications

J. Randall Walti........  54 Vice President, General Counsel and Secretary
</TABLE>

   Paul J. Chiapparone has been a Company director since October 1999 and
Chairman of the Company's Board of Directors since February 20, 2001. Mr.
Chiapparone has been Executive Vice President--Operations of EDS since
November 2000 and prior to that time had served as Executive Vice President
since June 1996 and a Senior Vice President from April 1986 to June 1996. Mr.
Chiapparone has oversight responsibility for EDS' Information Solutions and
Business Process Management lines of business and CIO and CTO organizations as
well as for EDS' GM client on a global basis. Mr. Chiapparone joined EDS in
1966 and has served in numerous other management capacities.

   Anthony J. Affuso was appointed President and Chief Executive Officer and
director of the Company on July 12, 2000. From January 1998 to July 2000, Mr.
Affuso was the Company's Vice President, and later the Executive Vice
President, Products and Operations. 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., 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, China, Southeast 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.

                                      11
<PAGE>

   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.

   Charles C. Grindstaff was appointed Vice President, Products and Operations
of the Company on July 12, 2000. From June 1998 to June 2000, Mr. Grindstaff
served as Director of the Unigraphics line of business. Mr. Grindstaff has
responsibility of research and development, product marketing and technical
support functions for UGS products. From July 1995 to June 1998, Mr.
Grindstaff directed research and development activities for computer-aided
design, computer-aided engineering and computer-aided manufacturing functions
of the Unigraphics division of EDS.

   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 McDonnell Douglas Systems Intergration ("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, Jr. was appointed Vice President, Marketing
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
global marketing collateral, external web design and corporate public
relations. 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 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.

   The executive officers serve at the discretion of the Board of Directors.

                                      12
<PAGE>

                                    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>
      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

<CAPTION>
                                                                 High     Low
                                                               -------- --------
      <S>                                                      <C>      <C>
      2000 Calendar Quarter
        First Quarter......................................... $31.8750 $22.3750
        Second Quarter........................................ $32.0000 $18.2500
        Third Quarter......................................... $24.2500 $15.1250
        Fourth Quarter........................................ $20.8750 $14.0000
</TABLE>

   The last reported sale price of the Class A Common Stock on the NYSE on
March 23, 2001 was $18.9000. As of March 23, 2001, the approximate number of
beneficial owners of Class A Common Stock was 2,050.

   The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying 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.

                                      13
<PAGE>

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, 2000 are derived
from the financial statements of the Company which were audited by KPMG LLP,
independent certified public accountants. 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,
                            -----------------------------------------------------
                              2000       1999       1998       1997       1996
                            ---------  ---------  ---------  ---------  ---------
                                (in thousands, except per share amounts)
   <S>                      <C>        <C>        <C>        <C>        <C>
   Operating Results:
     Revenues.............. $ 525,856  $ 467,950  $ 403,571  $ 314,593  $ 414,209
     Cost of revenues......  (179,745)  (167,251)  (163,925)  (129,124)  (139,820)
     Selling, general, and
      administrative
      expenses.............  (192,003)  (167,389)  (139,174)  (102,759)   (92,444)
     Research and
      development..........   (81,227)   (70,963)   (63,577)   (47,979)   (47,166)
     In-process research
      and development......   (24,154)    (2,386)   (39,440)       --         --
     Non-recurring
      expenses.............    (1,500)       --         --         --         --
                            ---------  ---------  ---------  ---------  ---------
     Operating income
      (loss)...............    47,227     59,961     (2,545)    34,731    134,779
     Other income
      (expense), net.......    (4,095)     5,272     10,036      5,092        106
     Provision for income
      taxes................   (25,723)   (23,484)    (1,253)   (14,810)   (51,549)
                            ---------  ---------  ---------  ---------  ---------
     Net income............ $  17,409  $  41,749  $   6,238  $  25,013  $  83,336
                            =========  =========  =========  =========  =========
   Per Share Data (1):
     Basic earnings per
      share of common
      stock................ $    0.48  $    1.15  $    0.18  $    0.80  $    2.67
     Diluted earnings per
      share of common
      stock................ $    0.48  $    1.14  $    0.18  $    0.80  $    2.67
   Financial Position (at
    period end):
     Current assets........ $ 187,470  $ 155,575  $ 142,594  $ 122,012  $ 173,237
     Property and
      equipment, net.......    49,291     33,110     26,467     19,821     18,380
     Other assets..........   225,360     85,592     88,592     24,957     39,589
     Total assets..........   462,121    274,277    257,653    166,790    231,206
     Long-term debt........   208,292     39,980     55,130        --         --
     Stockholders'
      equity/net
      investment...........   136,776    123,402     89,180     88,350    132,147
</TABLE>
--------
(1) For purposes of the calculations of basic and diluted earnings per share
    for the years ended December 31, 1996 and 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, product
data management, visualization, and collaborative product development 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 30 countries, including the United States. For the most
part, 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.

                                      14
<PAGE>

   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 Initial Site License for Unigraphics
software and related services. The Initial 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.

   Effective July 1, 1999, the Company and GM entered into a three year
Renewal of the Initial Site License (see Part I, Item 1, "Customers," above).
The agreed contract price, excluding any additional GM product and services
charges and GM supplier purchases, is $139 million. The Renewal also excludes
similar products and services being provided to Delphi Automotive Systems,
which has been spun off from GM. Aproximately $74 million is attributable to
software maintenance, $43 million will be paid for software development, $16
million will be charged for additional iMAN software, and the remainder will
be paid for contract management and other services. The Renewal also includes
penalties for missing service levels, key measurements, and critical
deliverables. Approximately 20% of the $139 million expected revenues are at-
risk because of performance penalties. The inability of the Company to perform
in areas subject to performance penalties and any resulting assessment of
penalties could have a material adverse affect on the Company's results of
operations and financial condition.

   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 up to a maximum annual fee of $2.5 million.
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 with prior notice of
not less than five months, or earlier if the parties mutually agree. The
Company's historical financial statements for the years prior to the effective
date of the Management Services Agreement include an allocation of corporate
general and administrative costs in the amount of approximately 2.1% of total
revenues per year. 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 parties. The Company paid EDS $4.6 million for
such services in 2000 and $6.4 million for such services in each of 1999 and
1998. The Company estimates the charges to be $4.3 million in 2001. 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 unrelated parties for such services.

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

                                      15
<PAGE>

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 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 expenses 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.

  .  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.

                                      16
<PAGE>

   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 has not updated,
and does not intend to update or supplement, these projections in the future.

EAI Acquisition

   On October 23, 2000 EAI, pursuant to a merger with the Company's
Acquisition Subsidary, became a wholly-owned subsidiary of the Company. EAI is
a leader in Internet-enabled visual process management, collaboration,
analysis and communication solutions for extended manufacturing enterprises.
EAI's solutions include e-Vis, Open Enterprise Visualization and Open Virtual
Factory products and services.

   As of the effective date of the acquisition, each share of EAI common stock
then outstanding was canceled and converted into the right to receive $13.75
per share, net to the seller in cash. The purchase price for all of the
outstanding EAI common stock was $166.2 million. In addition, the Company paid
$12.2 million to the holders of options to purchase EAI common stock for the
underlying in-the-money value of those options. The Acquisition Subsidiary
obtained all funds needed for the offer and the acquisition through advances
from the Company. The Company obtained the funds for such advances from
borrowings under the Intercompany Credit Agreement dated as of January 1,
1998, as amended on September 1, 2000, between the Company and EDS.

                                      17
<PAGE>

Purchase Price

   The Company used the purchase method of accounting for the acquisition. The
purchase price was determined as follows (in thousands):

<TABLE>
      <S>                                                              <C>
      EAI common stock at $13.75 per share............................ $166,158
      Payout on EAI options in-the-money..............................   12,185
      Acquisition costs...............................................   15,201
                                                                       --------
      Purchase price.................................................. $193,544
                                                                       ========
</TABLE>

Purchase Price Allocation

   The cost of the EAI acquisition was allocated to identifiable assets based
on the fair values of the assets acquired and the liabilities. Costs allocated
to in-process research and development were expensed in the three-month period
ended December 31, 2000. The excess of the purchase price over the fair value
of the assets acquired and in-process research and development was recorded as
goodwill and is being amortized straight-line over periods of three to seven
years. The purchase price was allocated to the fair value of the net assets
acquired, in-process research and development and goodwill as follows (in
thousands):

<TABLE>
      <S>                                                              <C>
      Cash and cash equivalents....................................... $ 15,474
      Accounts receivable.............................................   13,024
      Property and equipment..........................................   17,363
      Deferred income taxes...........................................   18,489
      In-process research and development.............................   24,154
      Businesses held for sale........................................    2,540
      Other assets....................................................    5,818
      Current liabilities.............................................  (27,114)
      Other liabilities...............................................   (1,839)
      Goodwill........................................................  125,635
                                                                       --------
      Purchase price.................................................. $193,544
                                                                       ========
</TABLE>

   As a result of the write-off of in-process research and development costs
and additional amortization expense resulting from the EAI acquisition, net
income in 2000 was significantly less than in 1999.

   In-process research and development relates to the value of nine projects
(primarily with respect to e-Vis and VisView products) under development at
the time of acquisition. The value assigned to in-process research and
development was determined based on management's estimates at the time of the
acquisition of the percentage of completion of the underlying development
efforts, resulting net cash flows and the discounting of such cash flows to
their present value.

   As of the acquisition date, management's estimate of the percentage of
completion for the nine projects ranged from 50% to 80% completed. The
projects, which were originally expected to be completed at various dates
through 2001 at an aggregate cost to complete of $26.2 million, were expected
to be introduced in 2001. At December 31, 2000 the estimated cost to complete
these projects was $18.6 million.

   The income approach was used to arrive at the value of the technology
acquired. Estimated gross margins and operating expense ratios were adjusted
to reflect the Company's cost structure for the periods used in the valuation.
The projected net cash flows for the EAI software were discounted using risk-
adjusted weighted average cost of capital rates ranging from 24% to 33% over a
three-year period. The applications anticipated from the technology under
development were very specific and specialized and had no identifiable
alternative future uses.

                                      18
<PAGE>

   No assurance can be given that the underlying assumptions used to estimate
net cash flows will transpire as projected. 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 judgments. 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 has not updated,
and does not intend to update or supplement, these projections in the future.

Results of Operations

   Revenues. The following tables summarize the Company's revenues for each of
the years ended December 31, 2000, 1999 and 1998 by revenue type and
geographic region.

                                Revenue by Type
                               ($ in thousands)

<TABLE>
<CAPTION>
                                                        2000     1999     1998
                                                      -------- -------- --------
      <S>                                             <C>      <C>      <C>
      Software....................................... $228,547 $198,936 $157,662
      Services.......................................  283,152  234,205  187,120
      Hardware.......................................   14,157   34,809   58,789
                                                      -------- -------- --------
          Total...................................... $525,856 $467,950 $403,571
                                                      ======== ======== ========
</TABLE>

                         Revenue by Geographic Region
                               ($ in thousands)

<TABLE>
<CAPTION>
                                                        2000     1999     1998
                                                      -------- -------- --------
      <S>                                             <C>      <C>      <C>
      Americas:
        United States................................ $267,088 $218,946 $186,274
        Other Americas...............................   16,989   16,256   15,778
      Europe.........................................  181,242  177,379  155,110
      Asia Pacific...................................   60,537   55,369   46,409
                                                      -------- -------- --------
          Total...................................... $525,856 $467,950 $403,571
                                                      ======== ======== ========
</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.

                                      19
<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, 2000, 1999
and 1998. These operating results are not necessarily indicative of results
for any future periods.

<TABLE>
<CAPTION>
                                                                Years ended
                                                                December 31,
                                                               ----------------
                                                               2000  1999  1998
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Revenue:
        Software..............................................  43%   43%   39%
        Services..............................................  54    50    46
        Hardware..............................................   3     7    15
                                                               ---   ---   ---
          Total revenue....................................... 100%  100%  100%
                                                               ===   ===   ===
      Cost of revenue:
        Software:
          Amortization........................................   3%    5%    5%
          Royalties, distribution and other...................   6     4     5
        Services..............................................  23    21    19
        Hardware..............................................   2     6    12
                                                               ---   ---   ---
          Total cost of revenue...............................  34    36    41
                                                               ---   ---   ---
      Gross profit............................................  66%   64%   59%
                                                               ---   ---   ---
      Operating expenses:
        Selling, general and administrative...................  37    36    34
        Research and development..............................  15    15    16
        In-process research and development...................   5   --     10
                                                               ---   ---   ---
          Total operating expenses............................  57    51    60
                                                               ---   ---   ---
      Operating income (loss).................................   9    13    (1)
      Other income expense, net...............................  (1)    1     3
                                                               ---   ---   ---
      Income before income taxes..............................   8    14     2
      Provision for income taxes..............................   5     5   --
                                                               ---   ---   ---
      Net income..............................................   3%    9%    2%
                                                               ===   ===   ===
</TABLE>

   Revenue for the Company was $525.9 million in 2000, an increase of $57.9
million, or 12% over the $468.0 million in 1999. In 1999, the Company's
revenues increased $64.4 million or 16% as compared to 1998 revenue.

   Software revenue increased $29.6 million, or 15%, to $228.5 million for
2000 from $198.9 million in 1999. The increase resulted from strong sales
performance in the Americas. The declining value of the Euro impacted Europe's
growth in 2000. For 1999, software revenues increased $41.2 million to $198.9
million. The revenue growth in 1999 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 $49.0 million, or 21%, to $283.2 million in 2000
from $234.2 million in 1999. In 1999, services revenues increased $47.1
million, or 25%, from $187.1 million in 1998. The increases in both 2000 and
1999 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 the same
periods, consulting services increased in the Americas and Europe zones as a
result of increases in funded development and integration services.

   Hardware revenue decreased $20.6 million, or 59%, to $14.2 million in 2000
from $34.8 million in 1999. Hardware revenue decreased $24.0 million, or 41%,
in 1999 from $58.8 million in 1998. 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.

                                      20
<PAGE>

   The Company derived 49%, 53% and 54% of its revenue from international
operations in 2000, 1999 and 1998, respectively. Excluding the unfavorable
effect of changes in the Euro, the international revenues would have been 53%
in 2000. There was no material impact in prior years.

   Gross Profit. The Company's gross profit was $346.1 million in 2000 as
compared to $300.7 million in 1999, an increase of $45.4 million. The
Company's gross profit in 1999 increased $61.1 million from $239.6 million in
1998. The gross profit margin for 2000 was 66% as compared to 64% in 1999 and
59% in 1998.

   Gross profit on software revenues increased $26.0 million, or 17%, to
$181.9 million in 2000 as compared to $155.9 million in 1999. This increase
resulted primarily from strong revenue growth and lower amortization costs
which offset increased software vendor royalties in 2000. In 1999, software
gross margins increased $39.2 million from 1998. This increase was
attributable to strong revenue growth which more than offset additional
amortization of goodwill and software intangibles arising from the Solid Edge
Acquistion. Gross profit margins were 80%, 78% and 74% in 2000, 1999 and 1998,
respectively.

   Gross profit on service revenues increased $23.5 million, or 17%, to $161.6
million in 2000 from $138.1 million in 1999. This resulted from higher
software maintenance services and professional services. Gross profit on
service revenues increased $24.9 million in 1999 from 1998. The increase in
1999 resulted from higher revenues partially offset by slightly lower margins
for maintenance and professional services. Gross profit margins were 57%, 59%
and 61% in 2000, 1999 and 1998, respectively.

   Gross profit on hardware revenues decreased $3.9 million, or 59%, to $2.7
million in 2000 from $6.6 million in 1999. Gross profit on hardware revenues
decreased $3.1 million, or 32% in 1999 from 1998. The decrease in both 2000
and 1999 resulted from the Company's reduced emphasis on selling hardware
resulting in lower hardware revenue. Gross profit margins were 19%, 19% and
17% in 2000, 1999 and 1998, respectively.

   Selling, General and Administrative Expenses. In 2000, selling, general and
administrative expenses totaled $192.0 million, an increase of $24.6 million
from $167.4 million in 1999. Selling, general and administrative expenses in
1999 increased $28.2 million over 1998. Selling, general and administrative
expenses represented 37%, 36% and 34% of total revenues in 2000, 1999 and
1998, respectively. Selling costs are comprised of 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, and in 1999 and 2000, additional employee costs associated with
acquisitions. The additional costs resulting from acquisitions has increased
the selling, general and administrative expenses as a percent of revenue for
1999 and 2000.

   Research and Development Costs. Research and development costs were $81.2
million, $71.0 million and $63.6 million in 2000, 1999 and 1998, respectively.
Research and development costs as a percentage of total revenue were 15%, 15%
and 16% in 2000, 1999 and 1998, respectively. Increases in research and
development costs have resulted from new initiatives in iMAN and Collaboration
Solutions areas in 2000. 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 $24.2 million, $2.4 million and $39.4 million in 2000,
1999 and 1998, respectively, resulted from the EAI acquisition in 2000, the
Applicon and dCADE acquisitions in 1999, and the Solid Edge Acquisition in
1998.

   Non-recurring expenses. The Company incurred severance expenses of $1.5
million in 2000 related to a reduction in workforce.

   Operating Income (Loss). Operating income (loss) was $47.2 million, $60.0
million and ($2.5) million in 2000, 1999 and 1998, respectively, as a result
of factors described above.

                                      21
<PAGE>

   Other Income (Expense), Net. Other income (expense), net was ($4.1)
million, $5.3 million and $10.0 million in 2000, 1999 and 1998, respectively.
Other expense in 2000 was primarily related to the interest on borrowings for
the EAI acquisition. During 1999 and 1998, the Company realized gains upon the
exercise of warrants and subsequent sale of related marketable equity
securities of $7.3 million and $14.5 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 under the Intercompany
Credit Agreements and, in 1998, also interest on the Intercompany Note. See
Note 13 in the Notes to Consolidated Financial Statements.

   Provision for Income Taxes. The provision for income taxes was $25.7
million, $23.5 million and $1.3 million in 2000, 1999 and 1998, respectively.
The Company's effective tax rate was 60%, 36% and 16.7% in 2000, 1999 and
1998, respectively. The difference between the Company's effective tax rate
and the statutory federal income tax rate primarily resulted from the tax
effect of in-process research and development, state and foreign taxes,
partially offset by research and experimentation credits.

   Net Income. Net income was $17.4 million, $41.7 million and $6.2 million in
2000, 1999 and 1998, respectively. Basic earnings per common share was $0.48,
$1.15 and $0.18 in 2000, 1999, and 1998, respectively. Diluted earnings per
common share was $0.48, $1.14 and $0.18 for 2000, 1999 and 1998, respectively.

   Pro Forma Net Income. Pro forma net income, which excludes the amortization
of goodwill and intangible assets, acquisition and nonrecurring charges, was
$53.4 million in 2000, $57.6 million in 1999, and $44.1 million in 1998.

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

Recent Accounting Pronouncements

   The Company is required to adopt certain changes in accounting practices
and disclosure requirements.

   Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, which was issued in June 1998,
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS 133, derivatives are recognized on the balance
sheet at fair value as an asset or liability. Changes in the fair value of
derivatives are reported as a component of other comprehensive income or
recognized as earnings through the income statement depending on the nature of
the instrument. In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS 137--Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133, which defers the effective date of SFAS
133 from fiscal years beginning after June 15, 1999 to fiscal years beginning
after June 15, 2000. Initial application should be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be
designated and documented pursuant to the provisions of SFAS 133, as amended.
Earlier application of all of the provisions is encouraged but is permitted
only as of the beginning of any fiscal quarter that begins after the issuance
date of SFAS 133, as amended. Additionally, SFAS 133, as amended, should not
be applied retroactively to financial statements of prior periods. The Company
does not expect adoption of this statement to have a material effect on its
results of operations or financial position.

   SFAS 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, which was issued in September 2000, provides
accounting and reporting standards for transfers and servicing of finanicial
assets and extinguishments of liabilities. SFAS 140 replaces SFAS 125. It
revises the standards for accounting for security and other transfers of
financial assets and collateral and requires certain disclosures but carries
over most of the provisions of SFAS 125. The statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occuring after March 31, 2001. The Company does not expect adoption of this
statement to have a material adverse effect on its results of operations or
financial position.

   In the fourth quarter of 2000, the FASB announced, in connection with
finalizing the new accounting standards for business combinations, its
tentative conclusion that goodwill arising from business combinations,

                                      22
<PAGE>

including prior business combinations, would no longer be required to be
amortized. Goodwill would instead be reviewed for impairment, and the value
would be written down only in periods in which the value of goodwill is more
than fair value. The final standard on business combinations is expected to be
issued by the FASB in the third quarter of 2001, but the FASB's tentative
conclusion is subject to change, and there can be no assurance when or if a
final standard will be issued.

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 the balance outstanding at December 31, 2000
was $208.3 million. The maximum amount that the Company may borrow at any time
from EDS under the Intercompany Credit Agreements, as amended September 1,
2000, is $250 million. The Intecompany Credit Agreements were amended to
provide financing for the EAI acquisition by the Company. The $250 million
limit will be reduced, up to a maximum of $180 million, dollar-for-dollar by
the amount of any term loan facility (including any term loan facility with
EDS or its affiliates) which the Company may obtain to refinance amounts
outstanding thereunder, the terms of which, in the aggregate, will be no less
favorable to UGS, taking into account both the term of any such facility as
well as the interest rate. 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's net cash provided by operating activities for 2000 decreased
$6.4 million to $34.8 million from $41.2 million in 1999. In 1999, net cash
provided by operating activities decreased $40.9 million from 1998. The
Company's net cash used in investing activities for 2000 increased $175.7
million to $202.4 million from $26.7 million in 1999. This increase resulted
from payments for acquisitions in 2000. Cash flows provided by financing
activities increased $184.2 million to $169.7 million in 2000. This increase
resulted from higher net borrowings in 2000. Additional borrowing capacity
available at December 31, 2000 under the Intercompany Credit Agreements was
$41.7 million. 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.

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, 2001, 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 prior to January 1, 2002. Concurrently, the
Company is in the process of replacing and upgrading

                                      23
<PAGE>

some 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 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 within each individual
country. 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. 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.

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 2000, international
revenue represented 49% of total Company revenue. Excluding the unfavorable
effect of changes in the euro, the international revenues would have been 53%
in 2000. There was no material impact in prior years. 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 2000. 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, (ii) specialist software
developers whose product lines are focused on CAD, CAM, CAE or PDM products,
(iii) enterprise resource planning ("ERP") software providers, (iv)
collaborative product development solution providers, and (v) numerous smaller
niche software developers.

   The Company has experienced and expects to continue to experience strong
competition, particularly in the automotive and aerospace and transportation
industries where worldwide industry OEM consolidation could affect sales to
current customers or restrict growth in these industries. Additionally, 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 also 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

                                      24
<PAGE>

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 Company human
resource investments, 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 directors,
executive officers, and/or senior managers 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,
Company business expenditure levels, potential competitive business
activities, differing business objectives of EDS and the Company, tax,
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.

                                      25
<PAGE>

   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 worldwide 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 Renewal agreement (see
Part I, Item 1, "Customers" above). Because approximately 14% of the Company's
2000 revenue was attributable to the products and services provided to GM, if
the EDS/GM MSA or the Renewal were to be terminated, 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 2000 revenue was derived
from the automotive and the aerospace and transportation industries. Both
industries are relatively mature MCAD markets that have been substantially
penetrated. Also, the automotive and aerospace and transportation industries
are experiencing worldwide industry consolidation and restructuring involving
the major manufacturers and OEMs. Industry consolidation, in the mid-to-long
term, could negatively affect Company sales to current, large customers or
could restrict the Company's future growth in these industries. The Company's
future success will depend on its ability to maintain and increase product
licensing in the automotive and aerospace and transportation industries, as
well as other industries, and there can be no assurance that the Company will
be able to achieve this objective. Finally, both the automotive and aerospace
and transportation 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.

   Rapid Technological Change, Development of New Products, Customer
Acceptance of New Products. The MCAD and collaborative product development
industries are 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.
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,
Parasolid, iMAN, e-Vis, ProductVision, 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 and positioning e-Vis, the OEV products, and the OVF products as
widely accepted and used, CAD-independent products. Competitors of the Company
could develop independent solid modeling kernels and license them to third
parties. With respect to Parasolid, there can be no assurance that it will
remain a 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.

   Similarily, the Company is relying on the rapid emergence of the Internet-
based, collaborative product development market to help support potential
future company growth, and the Company has allocated significant resources to
this emerging market area. The Company's iMAN and Collaboration Solutions
products as well as the OVF product line are positioned to pursue market
potential. However, growth in these areas is highly

                                      26
<PAGE>

dependent on a number of variables including customer preferences, the rate at
which customers adopt and deploy new technologies, the demand for such new
technologies (particularly on an enterprise-wide basis), conditions in the
manufacturing industry, and worldwide and local economic conditions.
Accordingly, there can be no assurances that the market for these new
technologies will grow or that the market will demand or accept the software
products and services the Company offers in this area.

   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 software 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 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 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.
Finally, in October 23, 2000 the Company completed the acquisition of EAI. 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 Products. As is common in high technology industries,
the MCAD and collaborative product development markets are 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 and other Company software
products. This trend is expected to continue. Despite declining unit prices,
the total size of the MCAD and related global markets, as measured by revenue,
has increased over the past several years. There can be no assurance, however,
the MCAD and collaborative product development global markets will continue to
grow.

                                      27
<PAGE>

   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, regional
economic conditions 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 and related industries, 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 2000, approximately 49% of the Company's revenue was derived from
sales outside the United States. Excluding the unfavorable effect of changes
in the euro, the international revenues would have been 53% in 2000. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company has market risks related to changes in foreign exchange rates.
The Company does not enter into agreements for the purpose of hedging against
foreign exchange rate risks. Similarly, 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-23 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, 2000,
      1999, 1998..........................................................   F-2
     Consolidated Balance Sheets: December 31, 2000 and 1999..............   F-3
     Consolidated Statements of Stockholders' Equity/Net Investment and
      Comprehensive Income: December 31, 2000, 1999, 1998.................   F-4
     Consolidated Statements of Cash Flows: Years ended December 31, 2000,
      1999, 1998..........................................................   F-5
     Notes to Consolidated Financial Statements (including Selected
      Quarterly Data).....................................................   F-6
     Schedule II--Valuation and Qualifying Accounts.......................  F-23
</TABLE>

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

   None

                                      28
<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 2004" 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 16, 2001 Annual Stockholders' Meeting (the "2001
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" the "Stock Performance Graph," in the 2001 Proxy
Statement is hereby incorporated by reference. The information under "Report
of Compensation Committee on Executive Compensation," the "Stock Performance
Graph," and the "Report of the Audit Committee" 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 2001 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 2001 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-22
  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 Flows...............................  F-5
      Notes to Consolidated Financial Statements..........................  F-6

     2. Financial Statement Schedules.

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

      Schedule II--Valuation and Qualifying Accounts...................... F-23
</TABLE>

                                      29
<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>
     2.1* Agreement and Plan of Merger by and among the Company, UGS
          Acquisition Inc. and Engineering Animation Inc., dated as of
          September 5, 2000, incorporated herein by reference to Exhibit
          99.(d)(1) to the Company's Schedule TO (filed September 13, 2000)
          (File No. 005-48517).

     3.1  Restated Certificate of Incorporation of the Company, incorporated
          herein by reference to Exhibit 3.1 to Amendment No. 1 to the
          Company's Registration Statement on Form S-1 (filed May 21, 1998)
          (Registration No. 333-48261).

     3.2  Amended and Restated Bylaws of the Company, as amended, incorporated
          herein by reference to Exhibit 3.2 to Amendment No. 1 to the
          Company's Registration Statement on Form S-1 (filed May 21, 1998)
          (Registration No. 333-48261).

    10.1  Registration Rights Agreement between the Company and Electronic Data
          Systems Corporation ("EDS"), dated January 1, 1998, incorporated
          herein by reference to Exhibit 4.1 to Amendment No. 1 to the
          Company's Registration Statement on Form S-1 (filed May 21, 1998)
          (Registration No. 333-48261).

    10.2  Intercompany Agreement, effective as of January 1, 1998, between the
          Company and EDS, incorporated herein by reference to Exhibit 10.2 to
          Amendment No. 1 to the Company's Registration Statement on Form S-1
          (filed May 21, 1998) (Registration No. 333-48261).

    10.3  Management Services Agreement, effective as of January 1, 1998,
          between the Company and EDS, incorporated herein by reference to
          Exhibit 10.3 to Amendment No. 1 to the Company's Registration
          Statement on Form S-1 (filed May 21, 1998) (Registration No. 333-
          48261).

    10.4  Intercompany Credit Agreement, effective as of January 1, 1998,
          between the Company and EDS, incorporated herein by reference to
          Exhibit 10.4 to Amendment No. 1 to the Company's Registration
          Statement on Form S-1 (filed May 21, 1998) (Registration No. 333-
          48261).

    10.5  Form of Intercompany Credit Agreement among Electronic Data Systems
          Corporation Finance Plc and each of substantially all of the Non-U.S.
          subsidiaries of the Company, each effective as of January 1, 1998,
          incorporated herein by reference to Exhibit 10.5 to Amendment No. 1
          to the Company's Registration Statement on Form S-1 (filed May 21,
          1998) (Registration No. 333-48261).

    10.6  Intercompany Note of the Company, dated March 6, 1998, in the
          principal amount of $73 million issued to EDS, incorporated herein by
          reference to Exhibit 10.6 to Amendment No. 1 to the Company's
          Registration Statement on Form S-1 (filed May 21, 1998) (Registration
          No. 333-48261).

    10.7  Tax Sharing Agreement, effective as of January 1, 1998, between the
          Company and EDS, incorporated herein by reference to Exhibit 10.7 to
          Amendment No. 1 to the Company's Registration Statement on Form S-1
          (filed May 21, 1998) (Registration No. 333-48261).

    10.8  Memorandum of Understanding, effective as of January 1, 1998, between
          EDS and the Company regarding performance of certain obligations of
          EDS to General Motors Corporation, incorporated herein by reference
          to Exhibit 10.8 to Amendment No. 1 to the Company's Registration
          Statement on Form S-1 (filed May 21, 1998) (Registration No. 333-
          48261).
</TABLE>


                                      30
<PAGE>

<TABLE>
    <C>     <S>
    10.9    Asset Purchase Agreement, dated as of March 2, 1998, among the
            Company, certain subsidiaries of the Company, Intergraph
            Corporation and certain subsidiaries of Intergraph Corporation,
            incorporated herein by reference to Exhibit 10.9 to the Company's
            Registration Statement on Form S-1 (filed March 19, 1998)
            (Registration No. 333-48261).

    10.10** Unigraphics Solutions Inc. 1998 Incentive Plan, incorporated herein
            by reference to Exhibit 10.10 to the Company's Quarterly Report on
            Form 10-Q for the quarter ended June 30, 1998 (File No. 001-14155).

    10.11   Unigraphics Solutions Inc. 1999 Broad-Based Incentive Plan,
            incorporated herein by reference to Exhibit 10.15 to the Company's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1999 (File No. 001-14155).

    10.12** Form of Indemnification Agreement entered into by the Company and
            certain of the directors and executive officers of the Company,
            (George M. Abigail, Anthony J. Affuso, Douglas E. Barnett, Paul J.
            Chiapparone, Michael L. Desmond, J. Davis Hamlin, John J. Mazzola,
            Leo J. Thomas, J. Randall Walti, and William P. Weber),
            incorporated herein by reference to Exhibit 10.11 to the Company's
            Registration Statement on Form S-1 (filed March 19, 1998)
            (Registration No. 333-48261).

    10.13** Personal Services Agreement, effective June 30, 2000, between the
            Company and John J. Mazzola, incorporated herein by reference to
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2000 (File No. 001-14155).

    10.14** Personal Services Agreement, effective July 15, 2000, between the
            Company and Anthony J. Affuso, incorporated herein by reference to
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended September 30, 2000 (File No. 001-14155).

    10.15** Personal Services Agreement, effective July 15, 2000, between the
            Company and Charles C. Grindstaff, incorporated herein by reference
            to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
            the quarter ended September 30, 2000 (File No. 001-14155).

    10.16   EDS Standard Sub-Sublease Agreement, dated as of January 1, 1998,
            between EDS and the Company (Maryland Heights, MO facility),
            incorporated herein by reference to Exhibit 10.18 to Amendment No.
            1 to the Company's Registration Statement on Form S-1 (filed May
            21, 1998) (Registration No. 333-48261).

    10.17   EDS Standard Sub-Sublease Agreement, dated as of January 1, 1998,
            between EDS and the Company (Cypress, CA facility), incorporated
            herein by reference to Exhibit 10.19 to Amendment No. 1 to the
            Company's Registration Statement on Form S-1 (filed May 21, 1998)
            (Registration No. 333-48261).

    10.18   Office Lease for Maryland Heights, Missouri facility, executed as
            of July 7, 2000, between Duke Construction Limited Partnership and
            the Company, incorporated herein by reference to Exhibit 10.2 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 30, 2000 (File No. 001-14155).

    10.19   First Amended Unigraphics Solutions Inc. 401(k) Plan incorporated
            by reference to Exhibit 10.1 to the Company's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1999 (File No. 001-
            14155).

    10.20   Amendment One to the First Amended Unigraphics Solutions Inc.
            401(k) Plan, incorporated by reference to Exhibit 10.17 to the
            Company's Annual Report on Form 10-K405 for the fiscal year ended
            December 31, 1999 (File No. 001-14155).
</TABLE>

                                       31
<PAGE>

<TABLE>

    <C>     <S>
    10.21   Amendment Two to the First Amended Unigraphics Solutions Inc.
            401(k) Plan, incorporated by reference to Exhibit 10.3 to the
            Company's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 2000 (File No. 001-
            14155).

    10.22** Form of Personal Services Agreement, effective January 20, 2000,
            entered into between the Company and certain executive officers of
            the Company (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), incorporated herein by reference
            to Exhibit 10.19 of the Company's Annual Report on Form 10-K405 for
            the fiscal year ended December 31, 1999 (File No. 001-14155).

    10.23** Unigraphics Solutions Inc. 2000 Incentive Plan, incorporated by
            reference to Exhibit A of the Company's Proxy Statement dated April
            4, 2000 (File No. 001-14155).

    10.24** Unigraphics Solutions Inc. Executive Deferral Plan, incorporated by
            reference to Exhibit B of the Company's Proxy Statement dated April
            4, 2000 (File No. 001-14155).

    10.25   Amendment One to the Intercompany Credit Agreement, effective as of
            September 1, 2000, between the Company and EDS.

    21.1    Subsidiaries of the Company.

    23.1    Consent of KPMG LLP.

    24.1    Powers of Attorney for Messrs. Abigail, Chiapparone, Friedlander,
            Hamlin, Heller, Thomas, and Weber signing this Annual Report on
            Form 10-K.
</TABLE>
--------
   *The registrant undertakes to furnish supplementally any omitted Schedules
   to the Securities and Exchange Commission.
  **Management contracts and compensatory plans and arrangements required to
   be filed as exhibits to this Form 10-K pursuant to Item 14(c).

   (B) Current Reports on Form 8-K

   Current Report on Form 8-K, dated October 12, 2000 (filed October 27,
2000), reporting under Item 2, Acquisition or Disposition of Assets,
information related to the acquisition of Engineering Animation, Inc. Current
Report on Form 8-K, dated October 12, 2000 (filed December 26, 2000),
reporting under Item 2, Acquisition or Disposition of Assets, information
related to the acquisition of Engineering Animation, Inc. and under Item 7,
Financial Statements and Exhibits, the following financial statements:

   Engineering Animation, Inc. and subsidiaries--for the fiscal years ended
December 31, 1997, 1998, and 1999:

     Consolidated Statements of Operations
     Consolidated Balance Sheets
     Consolidated Statements of Stockholders' Equity and Other Comprehensive
  Income (Loss)
     Consolidated Statements of Cash Flows
     Notes to Consolidated Financial Statements
     Report of Independent Accountants

   Engineering Animation, Inc. and Subsidiaries--for the three and nine month
periods ended September 30, 2000 and 1999:

     Unaudited Condensed Consolidated Statements of Operations
     Unaudited Condensed Consolidated Balance Sheets
     Unaudited Condensed Consolidated Statements of Cash Flows
     Notes to Unaudited Condensed Consolidated Financial Statements


                                      32
<PAGE>

   Unigraphics Solutions Inc.--for the nine month period ended September 30,
2000 and for the fiscal years ended December 31, 1999:

     Unaudited Pro Forma Condensed Combined Financial Statements
     Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30,
  2000
     Unaudited Pro Forma Condensed Combined Statement of Operations for the
     fiscal year ended December 31, 1999
     Unaudited Pro Forma Condensed Combined Statement of Operations for the
     nine months ended September 30, 2000
     Notes to Unaudited Pro Forma Condensed Combined Financial Statements

                                      33
<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/ Anthony J. Affuso
                                          By: _________________________________
                                                     Anthony J. Affuso
                                               President and Chief Executive
                                                          Officer

   Dated: March 26, 2001

   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 26, 2001
______________________________________  Director
         Paul J. Chiapparone

      /s/ Anthony J. Affuso            President and Chief          March 26, 2001
______________________________________  Executive Officer and
          Anthony J. Affuso             Director (Principal
                                        Executive Officer)

      /s/ Douglas E. Barnett           Vice President, Chief        March 26, 2001
______________________________________  Financial Officer and
          Douglas E. Barnett            Treasurer (Principal
                                        Financial and Accounting
                                        Officer)

              /s/ *                    Director                     March 26, 2001
______________________________________
          George M. Abigail

              /s/ *                    Director                     March 26, 2001
______________________________________
        D. Gilbert Friedlander

              /s/ *                    Director                     March 26, 2001
______________________________________
           J. Davis Hamlin

              /s/ *                    Director                     March 26, 2001
______________________________________
          Jeffrey M. Heller

              /s/ *                    Director                     March 26, 2001
______________________________________
            Leo J. Thomas

              /s/ *                    Director                     March 26, 2001
______________________________________
           William P. Weber
</TABLE>

       /s/ J. Randall Walti
*By: ____________________________
      J. Randall Walti
      Attorney in Fact

March 26, 2001

                                      34
<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, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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
January 30, 2001

                                      F-1
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                Years ended December 31,
                                            ---------------------------------
                                               2000        1999       1998
                                            ----------  ---------- ----------
<S>                                         <C>         <C>        <C>
Revenue:
  Software................................. $  228,547  $  198,936 $  157,662
  Services.................................    283,152     234,205    187,120
  Hardware.................................     14,157      34,809     58,789
                                            ----------  ---------- ----------
      Total revenue........................    525,856     467,950    403,571
                                            ----------  ---------- ----------
Cost of revenue:
  Software.................................
    Amortization...........................     14,691      22,358     21,992
    Royalties, distribution and other......     31,972      20,635     18,980
  Services.................................    121,579      96,067     73,899
  Hardware.................................     11,503      28,191     49,054
                                            ----------  ---------- ----------
      Total cost of revenue................    179,745     167,251    163,925
                                            ----------  ---------- ----------
Gross profit...............................    346,111     300,699    239,646
                                            ----------  ---------- ----------
Operating expenses:
  Selling, general and administrative......    192,003     167,389    139,174
  Research and development.................     81,227      70,963     63,577
  In-process research and development......     24,154       2,386     39,440
  Non-recurring expenses...................      1,500         --         --
                                            ----------  ---------- ----------
      Total operating expenses.............    298,884     240,738    242,191
                                            ----------  ---------- ----------
Operating income (loss)....................     47,227      59,961     (2,545)
Other income (expense), net................     (4,095)      5,272     10,036
                                            ----------  ---------- ----------
Income before income taxes.................     43,132      65,233      7,491
Provision for income taxes.................     25,723      23,484      1,253
                                            ----------  ---------- ----------
Net income................................. $   17,409  $   41,749 $    6,238
                                            ==========  ========== ==========
Earnings per share:
  Basic.................................... $     0.48  $     1.15 $     0.18
                                            ==========  ========== ==========
  Diluted.................................. $     0.48  $     1.14 $     0.18
                                            ==========  ========== ==========
Weighted average number of common shares
 outstanding:
  Basic.................................... 36,314,181  36,276,826 33,971,044
                                            ==========  ========== ==========
  Diluted.................................. 36,594,454  36,490,131 33,971,044
                                            ==========  ========== ==========
</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,
                                                          2000         1999
                                                      ------------ ------------
<S>                                                   <C>          <C>
Assets
Current assets.......................................
  Cash and cash equivalents..........................   $ 22,782     $ 20,696
  Accounts receivable, net of allowance for doubtful
   accounts of $4,544 and $5,312.....................    147,428      125,698
  Prepaid expenses...................................     10,394        7,615
  Other current assets...............................      6,866        1,566
                                                        --------     --------
    Total current assets.............................    187,470      155,575
                                                        --------     --------
Property and equipment, net..........................     49,291       33,110
                                                        --------     --------
Other assets.........................................
  Goodwill, software and other intangibles, net......    183,681       63,038
  Deferred income taxes..............................     41,679       22,554
                                                        --------     --------
    Total other assets...............................    225,360       85,592
                                                        --------     --------
      Total assets...................................   $462,121     $274,277
                                                        ========     ========
Liabilities and Stockholders' Equity
Current liabilities..................................
  Accounts payable and accrued liabilities...........   $ 77,584     $ 59,108
  Deferred revenue...................................     23,203       12,886
  Income taxes payable...............................     16,266       38,901
                                                        --------     --------
    Total current liabilities........................    117,053      110,895
                                                        --------     --------
Intercompany credit agreements.......................    208,292       39,980
                                                        --------     --------
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; 5,054,574 and 5,034,337 shares
   issued and outstanding at December 31, 2000 and
   December 31, 1999, respectively...................         50           50
  Class B common stock, $.01 par value; 31,265,000
   shares authorized; 31,265,000 issued and
   outstanding at December 31, 2000 and December
   31,1999...........................................        313          313
  Additional paid-in capital.........................    148,765      148,925
  Accumulated deficit................................     (7,603)     (25,013)
  Accumulated other comprehensive loss...............     (4,749)        (873)
                                                        --------     --------
    Total stockholders' equity.......................    136,776      123,402
                                                        --------     --------
      Total liabilities and stockholders' equity.....   $462,121     $274,277
                                                        ========     ========
</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
                          Comprehensive   B    Additional                 Other     Stockholder's Stockholders'
                             Income/    Common  Paid-in   Accumulated Comprehensive      Net       Equity/Net
                             (Loss)     Stock   Capital     Deficit   Income/(Loss)  Investment    Investment
                          ------------- ------ ---------- ----------- ------------- ------------- -------------
<S>                       <C>           <C>    <C>        <C>         <C>           <C>           <C>
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
 loss...................      (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
Discounts on employee
 stock purchases, net of
 issuances of 20,237
 shares of Class A
 common stock in stock
 award transactions.....         --       --        (160)       --           --            --           (160)
Foreign currency
 translation............      (3,876)     --         --         --           --            --         (3,876)
                             -------
Other comprehensive
 loss...................      (3,876)     --         --         --        (3,876)          --            --
Net income..............      17,409      --         --      17,409          --            --         17,409
                             -------     ----   --------    -------      -------       -------      --------
Comprehensive income....     $13,532
                             =======     ----   --------    -------      -------       -------      --------
Balance at December 31,
 2000,                                   $363   $148,765    $(7,603)     $(4,749)      $   --       $136,776
                                         ====   ========    =======      =======       =======      ========
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,
                                                ------------------------------
                                                  2000       1999      1998
                                                ---------  --------  ---------
<S>                                             <C>        <C>       <C>
Cash flows from operating activities
  Net income................................... $  17,409  $ 41,749  $   6,238
                                                ---------  --------  ---------
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Deferred income taxes......................    (6,106)   (6,448)   (44,145)
    Depreciation and amortization..............    31,326    33,879     31,554
    Allowance for bad debts....................      (767)    1,767      1,295
    Gain on sale of marketable securities......       --     (7,319)   (14,518)
    In-process research and development........    24,154     2,386     39,440
    Changes in operating assets and
     liabilities, net of effect of acquired
     companies:
      Accounts receivable......................   (13,802)  (22,731)    10,010
      Prepaids and other.......................     1,330    (1,602)    (2,331)
      Accounts payable and accrued liabilities.    (2,435)     (654)    11,191
      Income taxes payable.....................   (23,388)     (198)    39,098
      Deferred revenue.........................     7,064       336      4,196
                                                ---------  --------  ---------
        Net cash provided by operating
         activities............................    34,785    41,165     82,028
                                                ---------  --------  ---------
Cash flows from investing activities...........
  Proceeds from sale of marketable securities..       --      7,319     14,540
  Proceeds from sale of businesses.............     2,540       --         --
  Payments related to acquisitions, net of cash
   acquired....................................  (178,070)   (9,498)  (104,993)
  Payments for purchases of property and
   equipment...................................   (16,800)  (16,758)   (14,539)
  Payments for purchases of software and other
   intangibles.................................   (10,100)   (7,760)    (3,738)
  Payments for purchases of marketable
   securities..................................       --        --         (51)
                                                ---------  --------  ---------
        Net cash used in investing activities..  (202,430)  (26,697)  (108,781)
                                                ---------  --------  ---------
Cash flows from financing activities...........
  Borrowings under intercompany credit
   agreements and notes........................   205,130    34,016    122,905
  Payments on intercompany credit agreements
   and notes...................................   (35,240)  (48,688)  (140,478)
  Proceeds from sale of stock..................       --        249     65,100
  Other common stock activities................      (160)      --         --
                                                ---------  --------  ---------
        Net cash provided by (used in)
         financing activities..................   169,730   (14,423)    47,527
                                                ---------  --------  ---------
Effect of exchange rate changes on cash and
 cash equivalents..............................         1       (89)       (45)
                                                ---------  --------  ---------
Net increase (decrease) in cash and cash
 equivalents...................................     2,086       (44)    20,729
Cash and cash equivalents at beginning of
 period........................................    20,696    20,740         11
                                                ---------  --------  ---------
Cash and cash equivalents at end of period..... $  22,782  $ 20,696  $  20,740
                                                =========  ========  =========
</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 is a provider of Internet-enabled, collaborative product
design, development and process management software and services.

   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 to the Consolidated
Financial Statements 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 consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States of America which
require management to make assumptions and estimates that affect the amounts
reported in these statements. Actual results may differ from these estimates.

   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 1.8 million for 2000 and 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. See Note 9 to the Consolidated Financial Statements.

Marketable Securities

   Unrealized holding gains on marketable securities, 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-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 and $14.5
million for the years ended December 31, 1999 and 1998, respectively. Specific
identification is used to determine cost in computing gain or loss.

                                      F-6
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

   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, software acquired in business
combinations is amortized to cost of software. Software purchased for internal
use is amortized to cost of software or operating expenses, as determined by
the nature of its use. Amortization of software and goodwill included in cost
of software totaled $14.7 million, $22.4 million and $22.0 million during the
years ended December 31, 2000, 1999 and 1998, 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.
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.

   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 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 currencies are not the U.S. dollar are translated at then-current
exchange rates on the balance sheet date. Translation gains (losses) are not
included in determining net income but are reflected as a component of
comprehensive income in stockholders' equity. Cumulative currency translation
adjustments included within accumulated other comprehensive income (loss) in
stockholders' equity were $(4.7) million, $(0.9) million and $1.7 million at
December 31, 2000, 1999

                                      F-7
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and 1998, respectively. Revenue and expense accounts are translated using an
average rate for the period. 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. 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.

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.

Recent Accounting Pronouncements

   Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, which was issued in June 1998,
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS 133, derivatives are recognized on the balance
sheet at fair value as an asset or liability. Changes in the fair value of
derivatives are reported as a component of other comprehensive income or
recognized as earnings through the income statement depending on the nature of
the instrument. In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS 137--Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133, which defers the effective date of SFAS
133 from fiscal years beginning after June 15, 1999 to fiscal years beginning
after June 15, 2000. Initial application should be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be
designated and documented pursuant to the provisions of SFAS 133, as amended.
Earlier application of all of the provisions is encouraged but is permitted
only as of the beginning of any fiscal quarter that begins after the issuance
date of SFAS 133, as amended. Additionally, SFAS 133, as amended, should not
be applied retroactively to financial statements of

                                      F-8
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

prior periods. The Company does not expect adoption of this statement to have
a material effect on its results of operations or financial position.

   SFAS 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, which was issued in September 2000, provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS 140 replaces SFAS 125. It
revises the standards for accounting for security and other transfers of
financial assets and collateral and requires certain disclosures but carries
over most of the provisions of SFAS 125. The statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The Company does not expect adoption of this
statement to have a material adverse effect on its results of operations or
financial position.

NOTE 2: ACQUISITIONS

EAI Acquisition

   On October 23, 2000 Engineering Animation, Inc. ("EAI"), pursuant to a
merger with a Company subsidiary, became a wholly-owned subsidiary of the
Company. Effective as of December 31, 2000, the EAI United States subsidiary
was merged into Unigraphics Solutions Inc., the United States parent company.
Most EAI international subsidiaries have been, or are in the process of being,
merged with local Company operations. The purchase price for all of the
outstanding common stock was $166.2 million. In addition, the Company paid
$12.2 million to the holders of options to purchase EAI common stock for the
underlying in-the-money value of these options. These funds were borrowed by
the Company from EDS under an Intercompany Credit Agreement dated as of
January 1, 1998, as amended on September 1, 2000, between the Company and EDS.
The results of operations of the Company include the results of EAI subsequent
to the acquisition.

   The Company used the purchase method of accounting for the acquisition.
Under this method, tangible and identifiable intangible assets acquired and
liabilities assumed are recorded at their estimated fair values. Costs
allocated to in-process research and development in the amount of $24.2
million were expensed upon acquisition. The excess of the purchase price,
including fees and expenses related to the acquisition, over the fair value of
the assets acquired and in-process research and development was classified as
goodwill on the accompanying consolidated balance sheets. The goodwill of
$125.6 million was assigned to the various intangible assets and is being
amortized over periods of three to seven years.

   The purchase price was allocated on a preliminary basis to the fair value
of the net assets acquired, in-process research and development and goodwill
as follows (in thousands):

<TABLE>
      <S>                                                              <C>
      Cash and cash equivalents....................................... $ 15,474
      Accounts receivable.............................................   13,024
      Property and equipment..........................................   17,363
      Deferred income tax asset.......................................   18,489
      In-process research and development.............................   24,154
      Businesses held for sale........................................    2,540
      Other assets....................................................    5,818
      Current liabilities.............................................  (27,114)
      Other liabilities...............................................   (1,839)
      Goodwill........................................................  125,635
                                                                       --------
      Purchase price.................................................. $193,544
                                                                       ========
</TABLE>

                                      F-9
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In-process research and development relates to the value of technology
under development at the time of acquisition. The value assigned to in-process
research and development was determined based on management's estimates at the
time of the acquisition of the percentage of completion of the underlying
development effort, resulting net cash flows and the discounting of such cash
flows to their present value.

   The following pro forma results of operations for the periods ending
December 31, 2000 and 1999 were prepared as though the acquisition occurred on
January 1, 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                               2000     1999
                                                             -------- --------
<S>                                                          <C>      <C>
Total revenue............................................... $566,267 $533,392
Operating income (loss) from continuing operations..........   30,350  (11,683)
Net income (loss) from continuing operations................    1,394  (23,686)
Income (loss) from continuing operations per share:
  Basic..................................................... $   0.04 $  (0.65)
  Diluted...................................................     0.04    (0.65)
Weighted average number of common shares outstanding:
  Basic.....................................................   36,314   36,277
  Diluted...................................................   36,594   36,277
</TABLE>

   All transactions between the Company and EAI and amortization of historical
goodwill recorded in the statement of operations of EAI are eliminated. The
transaction had no effect on the Company's weighted-average number of common
shares outstanding or 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.

   The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combining the
operations.

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 at the
time of the acquisition 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.

                                     F-10
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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 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, 2000 and 1999 is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                               2000      1999
                                                             --------  --------
      <S>                                                    <C>       <C>
      Buildings and facilities.............................. $ 23,289  $ 10,253
      Computer equipment....................................   57,061    50,929
      Other equipment and furniture.........................   16,663     9,059
                                                             --------  --------
        Total cost..........................................   97,013    70,241
      Less accumulated depreciation.........................  (47,722)  (37,131)
                                                             --------  --------
        Total............................................... $ 49,291  $ 33,110
                                                             ========  ========
</TABLE>

NOTE 4: GOODWILL, SOFTWARE AND OTHER INTANGIBLES

   Goodwill, software and other intangibles at December 31, 2000 and 1999 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                               2000      1999
                                                             --------  --------
      <S>                                                    <C>       <C>
      Software.............................................. $ 24,346  $ 13,472
      Goodwill..............................................  193,235    63,769
      Other intangibles.....................................    7,991    11,130
                                                             --------  --------
        Total cost..........................................  225,572    88,371
      Less accumulated amortization.........................  (41,891)  (25,333)
                                                             --------  --------
        Total............................................... $183,681  $ 63,038
                                                             ========  ========
</TABLE>

NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   Accounts payable and accrued liabilities at December 31, 2000 and 1999 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  2000    1999
                                                                 ------- -------
      <S>                                                        <C>     <C>
      Accounts payable.......................................... $ 7,778 $ 6,350
      Accrued compensation......................................  23,251  13,526
      Accrued expenses..........................................  46,555  39,232
                                                                 ------- -------
                                                                 $77,584 $59,108
                                                                 ======= =======
</TABLE>


                                     F-11
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 2000
        Current......................... $ 18,550  $ 8,999  $ 1,194  $ 28,743
        Deferred........................   (2,081)    (351)    (588)   (3,020)
                                         --------  -------  -------  --------
          Total......................... $ 16,469  $ 8,648  $   606  $ 25,723
                                         ========  =======  =======  ========
<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
                                         ========  =======  =======  ========
<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>

   Income before income taxes for the years ended December 31, 2000, 1999 and
1998 included the following components (in thousands):

<TABLE>
<CAPTION>
                                                           2000    1999    1998
                                                          ------- ------- ------
      <S>                                                 <C>     <C>     <C>
      U.S. income........................................ $23,906 $54,287 $1,517
      Non-U.S. income....................................  19,226  10,946  5,974
                                                          ------- ------- ------
          Total.......................................... $43,132 $65,233 $7,491
                                                          ======= ======= ======
</TABLE>

   A reconciliation of income tax expense for the years ended December 31,
2000, 1999 and 1998 using the statutory federal income tax rate of 35.0
percent to the actual income tax expense follows (in thousands):

<TABLE>
<CAPTION>
                                                      2000     1999     1998
                                                     -------  -------  -------
      <S>                                            <C>      <C>      <C>
      Statutory federal income taxes................ $15,096  $22,832  $ 2,622
      State income taxes, net of federal tax
       benefit......................................     727   (1,645)    (504)
      Non-U.S. taxes, net of credit.................     267    1,148      376
      Research and experimentation credits..........  (2,628)  (2,109)  (2,360)
      Acquisition related...........................   9,913      --       --
      Other.........................................   2,348    3,258    1,119
                                                     -------  -------  -------
        Total....................................... $25,723  $23,484  $ 1,253
                                                     =======  =======  =======
      Effective income tax rate.....................    59.6%    36.0%    16.7%
                                                     =======  =======  =======
</TABLE>


                                     F-12
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   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, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                2000                 1999
                                         -------------------- --------------------
                                         Assets   Liabilities Assets   Liabilities
                                         -------  ----------- -------  -----------
      <S>                                <C>      <C>         <C>      <C>
      Adjustments necessary to convert
       accrued amounts to a tax basis..  $11,497    $6,607    $14,544    $14,187
      Accumulated
       depreciation/amortization.......   19,647       --      17,935        --
      Allowance for doubtful accounts..      771       --         310        --
      Net operating loss and tax credit
       carryforwards...................   17,854       --         --         --
      Other............................    6,217       --       6,389        --
                                         -------    ------    -------    -------
        Subtotal.......................   55,986     6,607     39,178     14,187
        Less valuation allowance.......   (2,039)      --      (1,771)       --
                                         -------    ------    -------    -------
          Total........................  $53,947    $6,607    $37,407    $14,187
                                         =======    ======    =======    =======
</TABLE>

   The net change in the total valuation allowance for the year ended December
31, 2000 was an increase of $0.3 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.
Other current assets include deferred tax assets of $5.7 million and $0.7
million at December 31, 2000 and 1999, respectively.

NOTE 7: STOCK PLANS

   Stock Based Incentive Plans. The Company has incentive plans (1998
Incentive Plan, 1999 Broad-Based Incentive Plan and 2000 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 and 2000 Incentive Plans are in the form of grants of
stock options. Currently all awards to employees 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 5,050,000 shares of
Class A common stock, of which 300,000 shares are available for director
awards and the remainder are available for employee awards. As of December 31,
2000, the Company had granted to employees and non-employee directors stock
options to acquire 3,517,399 shares of common stock. There were 3,457,669,
1,908,489 and 715,000 shares outstanding at a weighted-average exercise price
of $19.50, $18.01 and $14.00 per share at December 31, 2000, 1999 and 1998,
respectively.

                                     F-13
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   There was no compensation cost charged against income in connection with
the stock based incentive plans for the years ended December 31, 2000, 1999
and 1998. The Company applies the intrinsic method in accounting for its
stock-based compensation plans. Pro forma net income and earnings per share
disclosures 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
                                                         ----------------------
                                                          2000    1999    1998
                                                         ------- ------- ------
      <S>                                                <C>     <C>     <C>
      Net income
        As reported..................................... $17,409 $41,749 $6,238
        Pro forma.......................................  13,490  40,172  5,792
      Earnings per share of common stock:
        Basic...........................................
          As reported................................... $  0.48 $  1.15 $ 0.18
          Pro forma.....................................    0.37    1.11   0.17
        Diluted.........................................
          As reported................................... $  0.48 $  1.14 $ 0.18
          Pro forma.....................................    0.37    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 the fair value
method 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 Black-Scholes option pricing model, with the following
weighted-average assumptions for 2000, 1999 and 1998, respectively; expected
volatility of 48.5%, 45.7% and 50.0%; risk-free interest rates of 6.4%, 5.7%
and 5.5%; and expected lives of 5.4 years, 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, 2000, 1999 and 1998 is presented below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                      2000               1999               1998
                                ------------------ ------------------ -----------------
                                         Weighted-          Weighted-         Weighted-
                                          Average            Average           Average
                                         Exercise           Exercise          Exercise
                                Shares     Price   Shares     Price   Shares    Price
                                -------  --------- -------  --------- ------  ---------
      <S>                       <C>      <C>       <C>      <C>       <C>     <C>
      Fixed Options
      Outstanding at beginning
       of year................  1,908.5    $ 18      715.0    $ 14      --      $--
      Granted.................  1,619.1      21    1,236.4      20    719.0       14
      Exercised...............    (20.2)     16      (34.3)     14      --       --
      Forfeited...............    (49.7)     21       (8.6)     16     (4.0)      14
                                -------            -------            -----
      Outstanding at end of
       year...................  3,457.7      20    1,908.5      18    715.0       14
                                =======            =======            =====
      Options exercisable at
       end of year............    765.7              204.0            204.0
                                =======            =======            =====
      Weight-average fair
       value of options
       granted during the
       year...................  $    11            $    10            $   7
                                =======            =======            =====
</TABLE>

                                     F-14
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of the Company's fixed stock options outstanding at December 31,
2000 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
                                ----------- ------------ --------- ----------- ---------
      <S>                       <C>         <C>          <C>       <C>         <C>
      Range of Exercise Prices
      $12-15..................    1,062.6       7.6         $14       558.9       $14
       15-18..................      367.5       9.1          17        41.0        16
       18-21..................      246.3       9.8          19         --        --
       21-24..................    1,108.4       9.1          23         1.3        23
       24-27..................      670.3       8.8          24       164.5        24
       27-30..................        2.7       9.2          30         --        --
                                  -------       ---         ---       -----       ---
      $12-30..................    3,457.7       8.6         $20       765.7       $16
                                  =======                             =====
</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. For the year ended December 31, 2000, employees
purchased 126,586 shares at an average price of $17.93. For the year ended
December 31, 1999, employees purchased 61,370 shares at an average price of
$19.32. A total of 500,000 Class A common shares have been authorized for
purchase under the ESPP.

NOTE 8: EMPLOYEE SAVINGS PLAN

   Effective April 1, 1999, the Company established the Unigraphics Solutions
Inc. 401(k) Plan (the "401(k) Plan") which is offered to eligible employees
and 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 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 five years. Effective March 15, 2000 the Company
established the Executive Deferral Plan (the "Deferral Plan"), a defined
contribution plan established for members of senior management. The Deferral
Plan allows participants to contribute a percentage of their compensation to a
savings plan and defer income taxes until the time of distribution. The
Deferral Plan is a nonqualified plan for U.S. federal income tax purposes, and
as such, the assets of the Deferral Plan are part of the Company's general
assets. The Company makes matching contributions in the form of Company stock
units on amounts deferred by Deferral Plan participants that are invested in
Company stock units. During the years ended December 31, 2000 and 1999, the
Company's contributions were $5.7 million and $3.7 million, respectively.
Included in the foregoing amounts are supplemental payments totaling $4.3
million and $2.8 million for 2000 and 1999, respectively, 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.

   Employees of EAI, subsequent to the acquisition, were covered by the
existing EAI 401(k) Plan (the "EAI Plan"). The EAI Plan covered the majority
of U.S. based employees who met the minimum age requirement.

                                     F-15
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company made matching contributions of 50% of the amount contributed by
the employee up to a maximum of 4% of the employee's earnings. The Company's
contribution subsequent to the acquisition was $0.2 million.

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, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                ---------- ---------- ----------
      <S>                                       <C>        <C>        <C>
      Basic and Diluted Earnings Per Share:
      Shares outstanding--beginning of period.  36,299,337 36,265,000 31,265,000
      Weighted average number of common shares
       issued.................................      14,844     11,826  2,706,044
                                                ---------- ---------- ----------
      Weighted average number of common shares
       outstanding--end of period.............  36,314,181 36,276,826 33,971,044
      Dilutive effect of employee stock
       options................................     280,273    213,305        --
                                                ---------- ---------- ----------
      Dilutive shares outstanding.............  36,594,454 36,490,131 33,971,044
                                                ========== ========== ==========
      Net income (in thousands)...............  $   17,409 $   41,749 $    6,238
                                                ========== ========== ==========
      Basic earnings per common share.........  $     0.48 $     1.15 $     0.18
                                                ========== ========== ==========
      Diluted earnings per common share.......  $     0.48 $     1.14 $     0.18
                                                ========== ========== ==========
</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 Internet-enabled, collaborative product design,
development and process management software and services to manufacturers.

Geographic Segments

   The Company uses operating income, exclusive of software amortization costs
included in cost of revenue, in-process research and development costs, and
non-recurring expenses 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, 2000, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                    2000                        1999                        1998
                         --------------------------- --------------------------- ---------------------------
                                  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................ $284,077  $48,124  $352,449 $235,202  $48,923  $164,411 $202,052  $31,257  $162,647
Europe..................  181,242   33,593    81,255  177,379   29,479    81,463  155,110   20,259    74,449
Asia Pacific............   60,537    5,855    28,417   55,369    6,303    28,403   46,409    7,371    20,557
                         --------  -------  -------- --------  -------  -------- --------  -------  --------
 Total.................. $525,856  $87,572  $462,121 $467,950  $84,705  $274,277 $403,571  $58,887  $257,653
                         ========  =======  ======== ========  =======  ======== ========  =======  ========
</TABLE>

   Operations in Germany were 13%, 14% and 12% of the Company's total revenue
in 2000, 1999 and 1998, respectively.

                                     F-16
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   A reconciliation of operating income (loss) for the years ended December
31, 2000, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                    2000      1999      1998
                                                  --------  --------  --------
      <S>                                         <C>       <C>       <C>
      Total operating income for reportable
       segments.................................. $ 87,572  $ 84,705  $ 58,887
      Unallocated software amortization costs....  (14,691)  (22,358)  (21,992)
      Unallocated in-process research and
       development costs.........................  (24,154)   (2,386)  (39,440)
      Unallocated non-recurring expenses.........   (1,500)      --        --
                                                  --------  --------  --------
      Operating income (loss).................... $ 47,227  $ 59,961  $ (2,545)
                                                  ========  ========  ========
</TABLE>

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

   Depreciation and amortization

<TABLE>
<CAPTION>
                                                           2000    1999    1998
                                                          ------- ------- ------
      <S>                                                 <C>     <C>     <C>
      Americas........................................... $10,905 $ 6,546 $4,561
      Europe.............................................   4,767   3,163  3,650
      Asia Pacific.......................................     963   1,812  1,351
                                                          ------- ------- ------
      Total.............................................. $16,635 $11,521 $9,562
                                                          ======= ======= ======
</TABLE>

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

NOTE 11: COMMITMENTS AND CONTINGENCIES

   The Company currently is a party to two shareholder actions which were
originally filed against EAI. These two actions, because of pending
settlements, are not expected to have a material adverse effect on the
Company's financial condition or results of operations. A preliminary order of
the Court has been entered which provides for a process of assembling the
claims and sets the date of the final hearing for approval of the settlement.
The proposed settlement amount is covered by existing insurance. The Company
is a party to other ordinary and routine litigation incidental to its business
and management believes that any resulting liability will not materially
affect the financial position or results of operations of the Company.

   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>
      2001.............................................................. $18,449
      2002..............................................................  14,643
      2003..............................................................  10,488
      2004..............................................................   8,038
      2005..............................................................   6,963
      Thereafter........................................................  22,370
</TABLE>

   Total rentals under cancelable and non-cancelable leases, principally
facilities, computer equipment, software, and other leased assets included in
costs and charged to expense were $26.7 million and $24.2 million for the
years ended December 31, 2000 and 1999, respectively.


                                     F-17
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 12: RELATED PARTY TRANSACTIONS

   The Company and EDS (or EDS subsidiary or EDS Finance plc, as the case may
be) are parties to 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 Intercompany Credit Agreements, as amended on September 1, 2000, is
$250 million.

   The following presents information about the Company's Intercompany Credit
Agreements activity for the years ended December 31, 2000 and 1999,
respectively (in thousands):

<TABLE>
<CAPTION>
                                                               2000     1999
                                                             --------  -------
      <S>                                                    <C>       <C>
      Beginning balance of intercompany credit agreements... $ 39,980  $55,130
      Borrowings
        Payments for purchases of property and equipment....   16,800   16,758
        Payments for purchases of software and other
         intangibles........................................   10,100    7,760
        Applicon acquisition, net of cash acquired..........      --     6,498
        dCADE acquisition, net of cash acquired.............      --     3,000
        EAI acquisition, net of cash acquired...............  178,070      --
        Other...............................................      160      --
                                                             --------  -------
          Total borrowings..................................  205,130   34,016
                                                             --------  -------
      Payments..............................................
        Cash provided from operations, net of cash retained
         by Company.........................................   32,699   41,209
        Proceeds from sale of marketable securities.........      --     7,319
        Proceeds from sale of businesses....................    2,540      --
        Other...............................................        1      160
                                                             --------  -------
          Total payments....................................   35,240   48,688
                                                             --------  -------
      Other.................................................   (1,578)    (478)
                                                             --------  -------
      Balance of intercompany credit agreements............. $208,292  $39,980
                                                             ========  =======
</TABLE>

   EDS provides services to the Company for management, accounting, human
resources, information systems, legal, taxes and other corporate activities
under the Management Service Agreement described in Note 13. Such corporate
expenses amounting to $4.6 million, $6.4 million and $6.4 million have been
allocated to the Company during the years ended December 31, 2000, 1999 and
1998, respectively, and are reflected in the accompanying consolidated
statements of operations as selling, general and administrative expenses.

   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 none of the employees of the Company were covered by the Plans.

   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 and 1998, the Company
recognized expense of $1.2 million and $3.6 million, respectively, for such
pension coverage.

                                     F-18
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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 Agreements 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 has been repaid. 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.

   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 restated articles of incorporation 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, up to a maximum fixed fee of $2.5 million annually. 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 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

                                     F-19
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

   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. At the time of the Reorganization, the
maximum amount that the Company could borrow at any time from EDS under the
Intercompany Credit Agreements (together with the other non-U.S. credit
agreements referred to below) was $70.0 million. On September 1, 2000, the
Intecompany Credit Agreements were amended to increase the maximum amount the
Company may borrow to $250 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 received all revenues and
performed EDS' obligations under the EDS/GM Site License Agreement and agreed
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. The EDS/GM Site
License portion of the GM subcontract expired on July 1, 1999.

   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.


                                     F-20
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 14: CONCENTRATIONS OF CREDIT RISK

   During the years ended December 31, 2000, 1999, and 1998, the portion of
Company revenues attributable to GM was 14%, 10%, and 9%, respectively. No
single customer accounted for more than 10% of the Company's revenues in 1998.
Accounts receivable from GM, including amounts unbilled, accounted for 2% and
5% of total accounts receivable in 2000 and 1999, 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 $4.5 million and
$5.3 million as of December 31, 2000 and 1999, respectively.

NOTE 15: SUPPLEMENTARY FINANCIAL INFORMATION

   The following summarizes supplemental financial information for the years
ended December 31, 2000, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                       2000     1999     1998
                                                      -------  -------  -------
      <S>                                             <C>      <C>      <C>
      Depreciation of property and equipment......... $12,761  $ 9,800  $ 8,285
      Amortization...................................  18,565   24,079   23,269
                                                      -------  -------  -------
          Total depreciation and amortization........ $31,326  $33,879  $31,554
                                                      =======  =======  =======
      Interest and other income...................... $ 1,623  $ 8,153  $14,518
      Interest expense...............................  (5,718)  (2,881)  (4,482)
                                                      -------  -------  -------
          Total other income......................... $(4,095) $ 5,272  $10,036
                                                      =======  =======  =======
      Cash paid for:
        Income taxes, net of refunds................. $51,378  $31,314  $ 2,137
        Interest..................................... $ 5,718  $ 2,881  $ 4,482
</TABLE>

NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<TABLE>
<CAPTION>
                                        Year ended December 31, 2000
                                ------------------------------------------------
                                 First     Second    Third     Fourth
                                Quarter   Quarter   Quarter   Quarter     Year
                                --------  --------  --------  --------  --------
      <S>                       <C>       <C>       <C>       <C>       <C>
      Total revenue...........  $121,227  $128,020  $121,760  $154,849  $525,856
      Gross profit............    79,766    85,135    79,192   102,018   346,111
      Selling, general and
       administrative.........   (44,635)  (47,735)  (42,622)  (57,011) (192,003)
      Research and
       development............   (19,359)  (18,738)  (18,792)  (24,338)  (81,227)
      In-process research and
       development............       --        --        --    (24,154)  (24,154)
      Non-recurring expenses..       --        --        --     (1,500)   (1,500)
      Income before income
       taxes..................    16,192    18,609    16,906    (8,575)   43,132
      Net income..............    10,363    11,910    10,820   (15,684)   17,409
      Basic earnings per share
       of common stock........      0.29      0.33      0.30     (0.43)     0.48
      Diluted earnings per
       share of common stock..      0.28      0.32      0.30     (0.43)     0.48
</TABLE>

                                     F-21
<PAGE>

                  UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<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>

                                      F-22
<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  Write-offs  of year
                        ---------- ---------- ---------- ---------- ----------
<S>                     <C>        <C>        <C>        <C>        <C>
For the year ended
 December 31, 2000
  Allowance for
   doubtful accounts...   $5,312     2,639       --        3,407      $4,544
                          ------     -----       ---       -----      ------
    Total valuation and
     qualifying
     accounts..........   $5,312     2,639       --        3,407      $4,544
                          ======     =====       ===       =====      ======
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
                          ======     =====       ===       =====      ======
</TABLE>

                                      F-23