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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 333-123664
(Commission File number)
 
 UGS Corp.
  
 Delaware
    
    75-2728894(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 5800 Granite Parkway, Suite 600
Plano, TX 75024
 (972) 987-3000
 
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act: None
 
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filed þ
 o þ
   Documents incorporated by reference: None




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TABLE OF CONTENTS  PART IITEM 1: BUSINESSITEM 1A: RISK FACTORSITEM 2: PROPERTIESITEM 3: LEGAL PROCEEDINGSITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6: SELECTED FINANCIAL DATAITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A: CONTROLS AND PROCEDURESITEM 9B: OTHER INFORMATIONPART IIIITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF UGS CORPITEM 11: EXECUTIVE COMPENSATIONITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESEmployment Offer letter - John GrahamAgreementAgreementExecutive Bonus PlanSubsidiaries of UGS CorpCertification of President & CEO Pursuant to Act Rules 13a-14(a) and 15d-14(a)Certification of CFO Pursuant to Act Rules 13a-14(a) and 15d-14(a)Certification of President & CEO & CFO Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 PART I
 
 ITEM 1: BUSINESS
 Overview
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Our Industry
  Traditional Product Development Process
   CAx Market
   2




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cPDM Applications Grow Out of CAx
   Our Strengths
 Industry leader:
 Leader in cPDM, PLMs fastest growing segment: ®
 Leading technology platform
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Open technology model:
 Long-established relationships and a large, high-quality and diverse customer base:
 Unique strength in global, enterprise-level deployments:
 High switching costs:
 Business model focused on strong recurring revenue:
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Our Strategy
  Leverage growth opportunities in our large installed customer base
 Sell cPDM to the CAx installed bases of other vendors:
 Maintain and strengthen technological leadership of our products:
 Expand into new vertical markets:
 Expand our PLM sales in small to mid-size businesses (SMB
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Capture growth opportunities in Asia and other developing markets:
 Develop alliances with systems integrators:
 Training tomorrows engineers on our software:
 Our Products
 Key Features and Functionality
  
    
    Comprehensive solution.Our software and services provide an integrated end-to-end
solution that manages all phases of the product lifecycle.
    
    Compatibility.Our product suites are capable of being integrated with our
customers internally-developed solutions, the products of other vendors and prior
versions of our own products.
    
    Scalability.Our software and services support a large numbers of users across
geographies, and therefore allow all contributors to the product development process to
access valuable information with the necessary performance and
reliability.
    
    Ability to support the extended enterprise.Our software and services address the
needs of an entire extended enterprise of suppliers, outsourcing partners and customers
on a global basis, rather than just a vertically integrated
manufacturing organization.
    
    Ability to manage large volumes of data from disparate sources.Our software and
services support
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the ability to aggregate, integrate and distribute large volumes of heterogeneous data
across the extended enterprise and throughout the product lifecycle.
 Suite of Software and Services
  CA(x). ® ® ®
 CAD ® ® ®
 
    
    NX®CADis an integrated set of modules for product engineering, enabling
enterprises to design, validate and document products and processes in a 3D
enterprise-wide environment. This portfolio is targeted to large and medium sized
enterprises that require an integrated suite of applications that address all phases of
the product lifecycle. We can deploy
NX®
CAD on either a Windows or Unix platform.
    
    Solid Edge® is a native Windows application enabling users to design, validate and
document products in a 3D environment. This product, primarily used by product engineers
and designers, is targeted at small and medium sized, design-focused enterprises that
seek value-based solutions with midrange/low-end functionality. Many customers choose
Solid
Edge®
when transitioning from 2D to 3D CAD systems.
 CAE ® ® ® ® ® ® ®
 
    
    NX®CAEallows engineers to graphically and numerically predict the performance of
a product in its intended operating environment. This product is tightly integrated with
our NX® products and enables engineers to quickly create analysis scenarios and evaluate
analysis results visually. NX® CAE provides input into multiple calculation engines, such
as Nastran, Ansys and other industry-leading analysis packages, and displays results
derived from any of these analyses. Examples of common analyses performed include the
determination a products strength, vibration and motion in various operating
environments.
    
    NX Femap® also allows engineers to interactively create finite element models and
graphically and numerically predict the performance of a product in its intended
operating environment. This product is a stand-alone Windows-based application that
supports a wide range of CAD systems, including NX® CAD and Solid Edge®, as well as those
of third-party providers, such as Dassault Systèmes S.A. and Parametric Technology
Corporation. Similar to NX CAE,
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Femap® provides input into multiple calculation engines and displays results derived from
any of these analyses.
    
    NX Nastranis a solver, or calculation engine, that uses finite element analysis,
an advanced mathematical technique, to predict the performance of engineering design.
Nastran, the core of NX Nastran, is the most widely-used advanced system-level analysis
application in many industries, including automotive and transportation, aerospace and
defense and equipment and machinery. Pre and post-processing software, including NX CAE,
Femap and other third-party products, are generally used to prepare NX Nastran input and
results.
 CAM
 
    
    NX CAMallows manufacturing engineers to define and simulate manufacturing
processes in a virtual environment. This product is tightly integrated with our other NX
products and is capable of generating detailed instruction sets for use by machines in
manufacturing complex product parts. For example, the strong milling capabilities of NX
CAM are well-suited for the molding, casting and stamping needs of the automotive
industry, and its multi-axis machining capabilities satisfy the airframe machine
requirements of the aerospace and defense industry. Utilizing NX CAM, a customer can
digitally link manufacturing tooling instructions with activities in the process plan,
related machine shop documentation, cutter location source files and postprocessor files.
Additionally, this product accepts product geometry data from the CAD solutions of
multiple vendors  another example of our growing leadership in the increasingly
important area of open systems.
    
    Tecnomatixis the combination of our former E-factory-branded line and all products
and services of Tecnomatix prior to our acquisition. We have decided to use the
Tecnomatix brand on our entire digital manufacturing product line. Tecnomatix allows
companies to digitally define, simulate and assess their manufacturing operations in
terms of the product, plant, resource, process and quality considerations that determine
their optimal efficiency. This product suites analysis applications validate
manufacturing operations for mechanical accuracy, ergonomic assessment, productivity and
production balance. Its layout applications define the details of a companys plant
layout in order to determine how the location of various pieces of equipment (including
parts, bins and tools) will impact the duration and efficiency of the production process.
The production applications of Tecnomatix simulate actual production and predict
potential failures.
 cPDM ®
  
    
    Teamcenter Enterprise, which provides broad enterprise-wide sharing and control of
all product information throughout all phases of the product lifecycle, allows users to
locate, process and aggregate all product information in a secure, collaborative digital
environment. This module captures and shares the dispersed and multiple types of
information assets of a companys
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extended enterprise, including its product requirements, project data, engineering data,
supplier data, process data and product documents. Teamcenter Enterprise organizes,
stores and manages the multiple bills of material (BOM) views that exist for the product
as it evolves from concept through to manufacture and
in-service.
 
    
    Teamcenter Engineering, which accelerates the development of new products by
streamlining engineering processes for improved time-to-market, enables users to tightly
integrate and seamlessly access design data created from multiple CAD authoring systems.
Teamcenter Engineering provides a rich bill of material (BOM) capability for allowing
companies to organize disparate product data into a visual product structure where users
can dynamically view and edit the relationships of parts to one another within a
particular product or product line and the 3D images of each of the parts in the product
hierarchy. By combining a set of tailored capabilities, this module provides a rich
environment for scalable digital prototype development.
    
    Teamcenter Manufacturing, which enables manufacturing processes and operations to
be planned and optimized in parallel with product development, provides an integrated
environment for creating and managing product, process, plant and resource information.
This module seamlessly integrates with the full engineering capabilities of our
Teamcenter portfolio and facilitates the sharing of design and manufacturing information
early in product development.
  
    
    Teamcenter Projectsynchronizes tasks and work schedules on an enterprise-wide
basis and optimizes resource allocations. This module allows dispersed product
development team members to create, share and manage project information. Teams can
leverage this project information to perform real-time project scheduling, organizational
breakdown and resource management, timecard reporting, management tracking and reporting
functions.
    
    Teamcenter Requirementsensures that a product meets applicable market, customer
and regulatory requirements. This module allocates and tracks these design elements and
establishes quantifiable product targets that are visible to all constituents involved
throughout a products lifecycle. Evolution of design and requirement sets are managed
effectively through the use of this application.
    
    Teamcenter Visualizationdelivers visualization and virtual prototyping
capabilities that allow for the interactive, high-performance evaluation of the product
design. This module also allows users to create, share and manage 3D prototypes in a
collaborative, CAD-neutral environment. By integrating with other Teamcenter modules,
this module allows team members to configure, digitally mock-up, virtually publish and
ergonomically study new product ideas.
    
    Teamcenter Communityprovides an extended enterprise with a secure, Web-enabled
workspace that includes advanced collaboration, conferencing and visualization
capability. This module provides real-time access to calendars and contact lists, instant
messaging and online conferencing capabilities as well as access to product-related
information created under other Teamcenter modules. Teamcenter Community facilitates
instant, synchronous communication to enable ad-hoc, real-time, virtual meetings of
geographically dispersed teams, review issues, analyze new ideas and react to problems at
any stage of the product lifecycle.
    
    Teamcenter Integratorprovides a seamless environment for extended enterprise-wide
access to product information from multiple commercial and legacy systems such as
enterprise resource planning (ERP), customer relationship management (CRM) and
supply-chain management (SCM). This module updates and synchronizes data that resides in
dispersed databases in response to product-related changes.
    
    Teamcenter Sourcing, allows manufacturers to collaborate with suppliers for the
design,
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development and procurement of product components and subsystems. This module provides a
collaborative environment for requesting proposals, managing bid processes and analyzing
supplier spending.
    
    Teamcenter In-Service, provides a thorough set of product knowledge and process
management capabilities that maintenance and service partners along with agencies can use
to digitally transform the procedures that are associated with maintaining products and
systems while deployed or in use. Specifically, Teamcenter In-Service provides a digital
database of product information and associated applications which can be used to
significantly improve the cost, time and resource requirements associated with
maintaining, repairing and overhauling products, systems, platforms and their related
support infrastructure.
    
    UGS Velocity Seriesis a comprehensive family of modular, yet integrated solutions
addressing the product lifecycle management (PLM) needs of the mid-market. Consisting of
a preconfigured family of digital product design, analysis and data management software
offerings, UGS Velocity Series leverages the industrys best practices to provide
significant breakthroughs in ease-of-use and deployment. Mid-sized manufacturers can
leverage the power of UGS Velocity Series to transform their process of innovation while
maintaining a low total cost of ownership; and all UGS Velocity Series products are
completely scalable to the full range of UGS industry leading, enterprise-level PLM
portfolio.
 Product Development
    
    
    Adapting our applications to the most frequently used and productive computing
environments including UNIX and Windows workstations, and graphical user interfaces based
on Motif, Microsoft Windows, Web and 3D graphics technology;
    
    Using tested programming techniques designed to achieve objective programming
milestones to ensure the highest quality content within the
applications; and
    
    Using industry standard software tools in the development process.
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Sales and Marketing
 ® ®
 ®
  Business Alliances
  
    
    Our Partner Program.This program manages the relationships with many of our
software and technology partners. There are more than 300 software and technology
partners in our Partner Program. In order to clearly define the relationship between us
and our alliance partners, each partner is assigned to a specific category with
well-defined benefits and expectations: strategic partner (with a long- lasting and
broad relationship with us that crosses geographies and product lines); foundation
partner (which develop software and service solutions based on our core technologies,
typically, that extend the capability of our base platform, or provide functionality
specific to a niche market that we are not addressing); open partner (adopters of our
PLM Component products to create and consume data that is compatible with our
applications); and partner (providing products and services that are nominally
compatible with UGS offerings and receiving basic compatibility and marketing support
and limited sales engagement opportunities).
    
    The Voyager Program.The Voyager Program is a worldwide consortium of
approximately 180 leading software vendors through which we enter into specific joint
marketing and promotional agreements with software and service suppliers that offer
products that complement Solid Edges mechanical design and
drafting capabilities.
    
    The JT Open Program.The JT Open program is a global initiative that we launched
in November 2003 that promotes open data sharing, enhanced collaboration and expanded
visualization across the extended enterprise and throughout the PLM industry. JT is a
common data format for enabling product visualization and information distribution and
enhancing data sharing between PLM software applications. The JT Open program is based
on the requirement that members participate in formal management review boards and
technical review boards. These
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boards provide a forum for members to exchange ideas about how JT adoption can improve
business processes and help build support for process changes amongst supply chain
participants. Recently, we bolstered the JT Open program by launching the JT2Go
solution, collaborative, no-cost 3D viewing products to enable companies to share
detailed 3D product and manufacturing data globally using the JT
format.
    
    Our Reseller Program.This program is designed to extend our channel to market
by recruiting and managing third-party resellers. Resellers are chosen based on their
skill level, geographic location or industry expertise. The relationships with these
resellers are managed by the sales team to ensure close coordination with our direct
sales force.
    
    Customer Alliances.We also form alliances with groups of major customers in
some industries that meet regularly to develop strategies and plans for increasing the
effectiveness of our PLM solutions in their industry. One example is the UGS-hosted
Automotive Steering Group, a group of major automotive and transportation industry
customers, that meets approximately twice per year to work on these
issues.
 Competition
  
    
    Generalist CAx and collaborative development software vendors that offer
broad-range systems, such as Dassault Systèmes S.A. and Parametric Technology
Corporation;
    
    Software vendors that offer discrete products in the either the CAD, CAE or CAM
market segments, such as ANSYS, Inc. and MSC Software Corporation;
    
    Pure-play collaborative development vendors such as Agile Software Corporation and
MatrixOne Inc.;
    
    ERP software providers, such as SAP AG; and
    
    Software vendors, such as Autodesk, Inc. and SolidWorks Corporation, a subsidiary
of Dassault Systèmes, that primarily sell CAD products through distributors and resellers
to smaller manufacturing businesses.
   Intellectual Property
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® ® ® ® ® ® ® ® ® ® ® ®
 Employees
  
 ITEM 1A: RISK FACTORS
 If the PLM market does not develop as we anticipate, our revenue will be adversely effected.
   The loss or downsizing of key customers would significantly reduce our earnings.
  Our industry is and will likely remain highly competitive.
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If we are unable to deliver new and innovative PLM software products and services, our revenues
will be adversely affected.
  
    
    enhance and expand our existing PLM software products and services; and
    
    deliver new, high-quality PLM software products and services in a cost-effective and
timely manner.
  Substantial, prolonged economic downturns in the markets in which we operate could cause our
customers to reduce their spending on capital investments, which has in the past and could in the
future, negatively affect our results of operations.
  Our international sales constitute a substantial portion of our total sales and could be negatively
affected by disruptions in international markets caused by currency exchange rate fluctuations,
government actions, international political or economic instability, or other similar events.
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
    
    currency exchange rate fluctuations. Many of our non-U.S. revenues and costs are
denominated in non-U.S. currencies. To prepare our combined financial statements we must
translate those revenues and costs into U.S. Dollars. In the past, this has affected and
may in the future affect the value of profits earned on our international sales. Foreign
exchange fluctuations may also distort our results.
    
    imposition of United States and foreign government controls, such as export license
requirements, restrictions on the export of critical technology or other trade
restrictions, difficulties in obtaining and enforcing intellectual property rights or
changes in regulatory practices, tariffs and taxes;
    
    the extra difficulties in staffing and managing international operations, such as
burdens of compliance with a wide variety of laws and regulations, longer accounts
receivable payment cycles and difficulties in receivables collections, and tax
inefficiencies in repatriating cash flow from non-U.S. subsidiaries; and
    
    economic, political or social instability in international markets or an international
crisis, such as Avian Flu or SARS, which in 2003 delayed the sales of our software and
services into the affected countries in Asia. We cannot predict the impact on our revenue
and earnings of similar events that restrict travel and contact with current or potential
customers or disrupt our operations.
 We expect that our quarterly operating results will fluctuate, which may result in fluctuations in
the trading price of our senior subordinated notes.
  Future terrorist attacks could lead to decreased capital expenditures on PLM software and services
and could negatively affect our business.
  We received certain indemnities from EDS that may not adequately protect us from liability against
all consequences or aspects of matters we were indemnified against.
  Our ability to complete or integrate future acquisitions may adversely affect our business or
financial performance.
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Declining unit prices and increased productivity of PLM software products, or changes in the
pricing models for PLM software products, could negatively impact our revenue growth.
   As a result of our strategy of partnering with other companies for product development, marketing,
distribution, and services, our products and business development could be adversely affected if we
experience difficulties with our partners.
  Defects, major design errors or security flaws in our products could harm our reputation and expose
us to potential liability.
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Our facilities and systems are subject to the risk of temporary damage due to system interference,
breakdown or physical harm.
   Our international activities subject us to export requirements, the violation of which could
adversely affect us.
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If we are unable to protect our intellectual property rights, it could negatively affect the value
of our brands and products.
    Claims that our products infringe the intellectual property rights of others could increase our
costs and reduce our sales, which would adversely affect our revenue and operating margins.
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The loss of technology licensed from third-parties on a non-exclusive basis that we integrate in
our software could delay implementation of our products or force us to pay higher license fees.
  If we lose the services of our senior executives or employees who possess specialized market
knowledge and technical skills, it could reduce our ability to compete, to manage our operations
effectively, or to develop new products and services.
    Our level of indebtedness could adversely affect our ability to raise additional capital to fund
our operations, limit our ability to react to changes in the economy or our industry and prevent us
from meeting our obligations under our senior subordinated notes.
  December 31, 2005(In millions)Senior secured credit facility
    
    $
    654.3Senior subordinated notes
    
    $
    550.0Other debt
    
    $
    7.7Total debt
    
    $
    1,212.0Stockholders equity
    
    $
    922.3
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
    
    it may limit our ability to obtain additional financing for working capital, capital
expenditures, product development, debt service requirements, acquisitions and general
corporate or other purposes;
    
    a substantial portion of our cash flows from operations must be dedicated to the payment
of principal and interest on our indebtedness and is not available for other purposes,
including our operations, capital expenditures and future business opportunities;
    
    certain of our borrowings, including borrowings under our senior secured credit
facility, are at variable rates of interest, exposing us to the risk of increased interest
rates;
    
    it may limit our ability to adjust to changing market conditions and place us at a
competitive disadvantage compared to our competitors that have less debt; and
    
    we may be vulnerable in a downturn in general economic conditions or in our business, or
we may be unable to carry out capital spending that is important to our growth.
   
    
    fluctuations in interest rates;
    
    customer actions increasing competition;
    
    global economic situations;
    
    increased operating costs; and
    
    trends in our industry.
   Restrictive covenants may adversely affect us.
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
    
    incur, assume or guarantee additional indebtedness;
    
    issue redeemable stock and preferred stock;
    
    repurchase capital stock;
    
    make other restricted payments including, without limitation, paying dividends, making
loans and investments and redeeming debt that is junior in right of payment to the senior
subordinated notes;
    
    sell certain assets;
    
    create liens on certain assets without securing the senior subordinated notes;
    
    merge, consolidate, sell or otherwise dispose of substantially all of our assets;
    
    enter into agreements that restrict dividends from subsidiaries;
    
    enter into certain transactions with our affiliates; and
    
    change our business.
  Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.
  Our global presence increases the complexity of assessing the adequacy of our provision for income
taxes.
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We may incur losses associated with currency fluctuations and may not be able to effectively hedge
our exposure.
  
 ITEM 2: PROPERTIES
    
 ITEM 3: LEGAL PROCEEDINGS
  
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   
 PART II
 
 ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
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ITEM 6: SELECTED FINANCIAL DATA
  Successor
    
    
    
    
    
    Successor
    
    
    PredecessorPeriod of
    
    
    Period ofMay 27,
    
    
    January 1,Combined
    
    2004
    
    
    2004Year Ended
    
    Through
    
    through
    
    
    throughDecember 31,
    
    December 31,
    
    December 31,
    
    
    May 26,
    
    For the year ended December 31,2005
    
    2004 (6)
    
    2004
    
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in thousands)Statement of
Operations
Data:Revenue:License
    
    $
    358,986
    
    
    $
    314,146
    
    
    $
    213,366
    
    
    
    $
    100,780
    
    
    $
    285,680
    
    
    $
    280,450
    
    
    $
    292,439Maintenance
    
    
    504,189
    
    
    
    400,622
    
    
    
    237,610
    
    
    
    
    163,012
    
    
    
    389,551
    
    
    
    363,905
    
    
    
    254,412Services and
other(1)
    
    
    291,446
    
    
    
    263,214
    
    
    
    169,203
    
    
    
    
    94,011
    
    
    
    221,915
    
    
    
    216,147
    
    
    
    185,773Total revenue
    
    
    1,154,621
    
    
    
    977,982
    
    
    
    620,179
    
    
    
    
    357,803
    
    
    
    897,146
    
    
    
    860,502
    
    
    
    732,624Cost of revenue:Total cost of
revenue
    
    
    442,758
    
    
    
    376,138
    
    
    
    242,999
    
    
    
    
    133,139
    
    
    
    297,504
    
    
    
    283,354
    
    
    
    240,903Gross profit
    
    
    711,863
    
    
    
    601,844
    
    
    
    377,180
    
    
    
    
    224,664
    
    
    
    599,642
    
    
    
    577,148
    
    
    
    491,721Operating expenses:Selling, general
and
administrative
    
    
    420,873
    
    
    
    363,099
    
    
    
    226,282
    
    
    
    
    136,817
    
    
    
    316,426
    
    
    
    319,138
    
    
    
    242,257Research and
development
    
    
    167,484
    
    
    
    135,726
    
    
    
    82,875
    
    
    
    
    52,851
    
    
    
    125,848
    
    
    
    129,046
    
    
    
    119,642In-process
research and
development(2)
    
    
    4,100
    
    
    
    50,819
    
    
    
    50,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,130Restructuring (3)
    
    
    1,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,427
    
    
    
    
    
    
    
    58,034Amortization of
goodwill
and other
intangible
assets
    
    
    34,147
    
    
    
    20,865
    
    
    
    18,365
    
    
    
    
    2,500
    
    
    
    6,679
    
    
    
    6,850
    
    
    
    31,513Total operating
expenses
    
    
    628,378
    
    
    
    570,509
    
    
    
    378,341
    
    
    
    
    192,168
    
    
    
    453,380
    
    
    
    455,034
    
    
    
    537,576Operating income
(loss)
    
    
    83,485
    
    
    
    31,335
    
    
    
    (1,161
    )
    
    
    
    32,496
    
    
    
    146,262
    
    
    
    122,114
    
    
    
    (45,855
    )
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Successor
    
    
    
    
    
    
    Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofMay 27,
    
    
    
    January 1,Combined
    
    
    2004
    
    
    
    2004Year Ended
    
    
    Through
    
    
    through
    
    
    
    throughDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    May 26,
    
    
    For the year ended December 31,2005
    
    
    2004 (6)
    
    
    2004
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Interest expense and
amortization of
deferred
financing fees
    
    
    (97,737
    )
    
    
    (57,335
    )
    
    
    (55,314
    )
    
    
    
    (2,021
    )
    
    
    (4,823
    )
    
    
    (1,521
    )
    
    
    (6,554
    )Other income
(expense),
net
    
    
    (17,671
    )
    
    
    23,156
    
    
    
    21,146
    
    
    
    
    2,010
    
    
    
    5,180
    
    
    
    (963
    )
    
    
    (1,245
    )Income (loss)
before
income taxes
    
    
    (31,923
    )
    
    
    (2,844
    )
    
    
    (35,329
    )
    
    
    
    32,485
    
    
    
    146,619
    
    
    
    119,630
    
    
    
    (53,654
    )Provision (benefit)
for income taxes
    
    
    (9,857
    )
    
    
    15,899
    
    
    
    5,807
    
    
    
    
    10,092
    
    
    
    42,812
    
    
    
    36,846
    
    
    
    12,413Net income (loss)
    
    $
    (22,066
    )
    
    $
    (18,743
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807
    
    
    $
    82,784
    
    
    $
    (66,067
    )
 Successor
    
    
    
    PredecessorAs of December 31,2005
    
    
    2004
    
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    61,532
    
    
    $
    58,400
    
    
    
    $
    40,314
    
    
    $
    29,946
    
    
    $
    35,564Total assets
    
    
    2,631,451
    
    
    
    2,543,012
    
    
    
    
    1,690,673
    
    
    
    1,570,259
    
    
    
    1,581,489Long-term debt
    
    
    1,212,046
    
    
    
    1,049,623
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    
    922,323
    
    
    
    969,602
    
    
    
    
    1,432,737
    
    
    
    1,320,887
    
    
    
    1,233,526
 Successor
    
    
    
    
    
    
    Successor
    
    
    
    
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofMay 27,
    
    
    
    January 1,Combined
    
    
    2004
    
    
    
    2004Year Ended,
    
    
    Year Ended,
    
    
    through
    
    
    
    throughDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    May 26,2005
    
    
    2004 (6)
    
    
    2004
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Statement of Cash
Flows Data:Net cash provided by
(used in):Operating
activities
    
    $
    137,071
    
    
    $
    182,658
    
    
    $
    104,689
    
    
    
    $
    77,969
    
    
    $
    241,417
    
    
    $
    161,693
    
    
    $
    (27,689
    )Investing
activities
    
    
    (263,438
    )
    
    
    (2,130,376
    )
    
    
    (2,101,737
    )
    
    
    
    (28,639
    )
    
    
    (62,105
    )
    
    
    (66,767
    )
    
    
    (33,863
    )Financing
activities
    
    
    133,514
    
    
    
    1,961,618
    
    
    
    2,022,604
    
    
    
    
    (60,986
    )
    
    
    (170,578
    )
    
    
    (103,830
    )
    
    
    76,876Other Data:EBITDA(4)
    
    $
    241,459
    
    
    $
    176,318
    
    
    $
    108,341
    
    
    
    $
    67,977
    
    
    $
    224,197
    
    
    $
    183,604
    
    
    $
    29,705Capital
expenditures 
excluding capitalized
software
    
    
    14,829
    
    
    
    12,936
    
    
    
    8,594
    
    
    
    
    4,342
    
    
    
    6,850
    
    
    
    12,629
    
    
    
    18,633Capitalized software(5)
    
    
    69,775
    
    
    
    60,067
    
    
    
    35,314
    
    
    
    
    24,753
    
    
    
    51,877
    
    
    
    54,288
    
    
    
    9,721Depreciation
    
    
    14,889
    
    
    
    14,265
    
    
    
    7,967
    
    
    
    
    6,298
    
    
    
    19,152
    
    
    
    24,402
    
    
    
    18,691Amortization  including
capitalized and
acquired software
    
    
    160,756
    
    
    
    107,562
    
    
    
    80,389
    
    
    
    
    27,173
    
    
    
    53,603
    
    
    
    38,051
    
    
    
    58,114
 
 (1)
    
    Other revenue consists primarily of revenue received from sales of hardware.(2)
    
    In-process research and development represents research projects where technological
feasibility has not been established as of the date of an acquisition. For 2005, we recorded
charges for the valuation of in-process research and development of $4.1 million for the
acquisition of Tecnomatix. For the period of May 27, 2004 through December 31, 2004, we
recorded charges for the valuation of in-process research and development of $50.2 million in
the acquisition of UGS PLM Solutions Inc. and $0.6 million in the acquisition of D-Cubed, Ltd.
These amounts were immediately expensed following 24




---



##### Table of Contents



the consummation of the acquisitions and
appear in our results as a charge in operating expenses. As part of our acquisitions of SDRC
in August 2001 and of the 14% publicly held minority interest in Unigraphics in September
2001, we estimated the value of acquired in-process research and development at the close of
the transactions. This value was immediately expensed following the consummation of the
transactions and appeared in our 2001 results as a charge of $86.1 million.(3)
    
    In 2005, we acquired Tecnomatix and initiated restructuring activities designed to reduce the
overall cost structure of the continuing organization. Costs expensed for workforce
reductions as a result of the restructuring amounted to $1.8 million. In 2003, we incurred
restructuring costs of $4.4 million for severance charges and facilities consolidation in
Europe related to a rationalization of our resources. In combining the operations of
Unigraphics and SDRC, we incurred restructuring costs of $58.0 million in 2001 for severance,
purchases of employee stock options, and facilities charges.(4)
    
    EBITDA is presented solely as a supplemental disclosure with respect to liquidity because we
believe it provides a key indicator of our ability to pay our debt. Further, we have included
information concerning EBITDA because we use such information as a contributing component in
determining compensation of our management and in our review of the performance of our
business. EBITDA as presented herein is not necessarily comparable to similarly titled
measures. EBITDA represents net income (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is not a recognized term under generally accepted
accounting principles, or GAAP. EBITDA does not represent net income, as that term is defined
under GAAP, and should not be considered as an alternative to net income. Additionally, EBITDA
is not intended to be a measure of free cash flow available for management or discretionary
use as such measures do not consider certain cash requirements such as capital expenditures
(including capitalized software expense), tax payments and debt service requirements. The
following is a reconciliation of our EBITDA to net cash provided by (used in) operating
activities and net income (loss), the GAAP measures we believe to be most directly comparable
to EBITDA:
 Successor
    
    
    
    
    
    Successor
    
    
    PredecessorPeriod of
    
    
    Period ofMay 27,
    
    
    January 1,Combined
    
    2004
    
    
    2004Year Ended
    
    through
    
    through
    
    
    throughDecember 31,
    
    December 31,
    
    December 31,
    
    
    May 26,
    
    For the period ended December 31,2005
    
    2004 (6)
    
    2004
    
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in thousands)Reconciliation of net cash
provided by (used in) operating
activities to net income
(loss):Net cash provided by (used in)
operating activities
    
    $
    137,071
    
    
    $
    182,658
    
    
    $
    104,689
    
    
    
    $
    77,969
    
    
    $
    241,417
    
    
    $
    161,693
    
    
    $
    (27,689
    )(Provision) benefit for
deferred income taxes
    
    
    41,396
    
    
    
    66,013
    
    
    
    18,603
    
    
    
    
    47,410
    
    
    
    10,958
    
    
    
    (18,469
    )
    
    
    3,534Depreciation and
amortization
    
    
    (175,645
    )
    
    
    (121,827
    )
    
    
    (88,356
    )
    
    
    
    (33,471
    )
    
    
    (72,755
    )
    
    
    (62,453
    )
    
    
    (76,805
    )Amortization of deferred
financing fees
    
    
    (5,621
    )
    
    
    (3,000
    )
    
    
    (3,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    In-process research and
development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86,130
    )Stock-based compensation
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intangible asset
writedowns
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,114
    )Other
    
    
    (1,934
    )
    
    
    (1,834
    )
    
    
    443
    
    
    
    
    (2,277
    )
    
    
    (2,628
    )
    
    
    (8,595
    )
    
    
    (4,710
    )Unrealized loss (gain) on
revaluation of foreign
denominated assets and
liabilities
    
    
    (27,307
    )
    
    
    26,300
    
    
    
    28,662
    
    
    
    
    (2,362
    )
    
    
    (851
    )
    
    
    631
    
    
    
    
 25




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##### Table of Contents



Successor
    
    
    
    
    
    Successor
    
    
    PredecessorPeriod of
    
    
    Period ofMay 27,
    
    
    January 1,Combined
    
    2004
    
    
    2004Year Ended
    
    through
    
    through
    
    
    throughDecember 31,
    
    December 31,
    
    December 31,
    
    
    May 26,
    
    For the period ended December 31,2005
    
    2004 (6)
    
    2004
    
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in thousands)Unrealized loss (gain) on
foreign currency revaluation
of derivative instruments
    
    
    18,749
    
    
    
    (15,175
    )
    
    
    (15,175
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in operating assets
and liabilities
    
    
    (4,130
    )
    
    
    (101,059
    )
    
    
    (36,183
    )
    
    
    
    (64,876
    )
    
    
    (72,334
    )
    
    
    9,977
    
    
    
    134,847Net income (loss)
    
    $
    (22,066
    )
    
    $
    (18,743
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807
    
    
    $
    82,784
    
    
    $
    (66,067
    )Reconciliation of net income
(loss) to EBITDA:Net income (loss)
    
    $
    (22,066
    )
    
    $
    (18,743
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807
    
    
    $
    82,784
    
    
    $
    (66,067
    )Interest expense (income)
    
    
    97,737
    
    
    
    57,335
    
    
    
    55,314
    
    
    
    
    2,021
    
    
    
    4,823
    
    
    
    1,521
    
    
    
    6,554Provision (benefit) for income
taxes
    
    
    (9,857
    )
    
    
    15,899
    
    
    
    5,807
    
    
    
    
    10,092
    
    
    
    42,812
    
    
    
    36,846
    
    
    
    12,413Depreciation and
amortization
    
    
    175,645
    
    
    
    121,827
    
    
    
    88,356
    
    
    
    
    33,471
    
    
    
    72,755
    
    
    
    62,453
    
    
    
    76,805EBITDA
    
    $
    241,459
    
    
    $
    176,318
    
    
    $
    108,341
    
    
    
    $
    67,977
    
    
    $
    224,197
    
    
    $
    183,604
    
    
    $
    29,705
 
 (5)
    
    We capitalize costs related to the development of software products at the time that their
technological feasibility is confirmed. Technological feasibility is established once the
product or enhancement meets the function, feature and technical performance requirements
necessary for production and delivery to customers. Historically, technological feasibility
was generally determined under a working model methodology at or near the time of release to
customers. This resulted in the capitalization of a minimal amount of qualifying costs.
However, following the integration of SDRCs operations, on or about October 1, 2001, we
adopted a new operating practice for identifying the point of technological feasibility
enabling us to identify technological feasibility through a detailed program design process.
This operating practice involves a thorough review of the product design and detail program
design for
product specifications and evaluation of any uncertainties in advance of development production
efforts. As a result, technological feasibility is determined at an earlier stage in the
development cycle and more coding and testing occur after technological feasibility is
established.(6)
    
    Our combined results for the year ended December 31, 2004 represent the addition of the
Predecessor period of January 1, 2004 through May 26, 2004 and the Successor period of May 27,
2004 through December 31, 2004. This presentation does not comply with GAAP, but is presented
because we believe it enables the most meaningful comparison of our results. 26




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##### Table of Contents



ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
     Basis of Presentation
 27




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##### Table of Contents



Key Business Metrics
  Revenue
   Cost of Revenue
  Sales and Marketing
  28




---



##### Table of Contents



Research and Development Costs
   Successor
    
    
    
    PredecessorPeriod ofPeriod of
    
    
    
    January 1 2004,Year Ended
    
    
    May 27, 2004
    
    
    
    through
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    May 26,
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    2004
    
    
    2003Research and development costs
    
    $
    167,484
    
    
    $
    82,875
    
    
    
    $
    52,851
    
    
    $
    125,848Capitalized software costs
    
    
    69,775
    
    
    
    35,314
    
    
    
    
    24,753
    
    
    
    51,877Total Research and Development
Costs
    
    $
    237,259
    
    
    $
    118,189
    
    
    
    $
    77,604
    
    
    $
    177,725
 Factors Affecting our Results of Operations
  Impact of the Acquisition of UGS PLM Solutions Inc.
  29




---



##### Table of Contents



Deferred Revenue
  In-Process Research and Development
  Amortization of Acquired Intangible Assets
  Capitalization of Software Development Costs
  Other Acquisitions
 D-Cubed, Ltd.
  Tecnomatix Technologies Ltd.
  30




---



##### Table of Contents



Acquisition Related Interest Expense
  Services Arrangement
  Critical Accounting Policies and Estimates
  Capitalized Software Development Costs
  31




---



##### Table of Contents



Revenue Recognition
   
    
    persuasive evidence of an arrangement exists;
    
    delivery has occurred or services have been rendered;
    
    the fee is fixed or determinable; and
    
    collectibility is probable.
     32




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##### Table of Contents



Business Combinations
    33




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##### Table of Contents



Recoverability of Goodwill, Acquired Intangible Assets and Long-Lived Assets
   Income Taxes
    34




---



##### Table of Contents



Pricing of Historic EDS Services
  Recent Accounting Pronouncements
  Segment Revenue and Operating Income
  Geographic Segment Revenue
  CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2005
    
    
    2004(a)
    
    
    Increase
    
    
    IncreaseAmericas
    
    $
    497,570
    
    
    $
    422,250
    
    
    $
    75,320
    
    
    
    17.8
    %Europe
    
    
    439,546
    
    
    
    374,622
    
    
    
    64,924
    
    
    
    17.3
    %Asia Pacific
    
    
    217,505
    
    
    
    181,110
    
    
    
    36,395
    
    
    
    20.1
    %Total revenue
    
    $
    1,154,621
    
    
    $
    977,982
    
    
    $
    176,639
    
    
    
    18.1
    %
 CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2004(a)
    
    
    2003
    
    
    Increase
    
    
    IncreaseAmericas
    
    $
    422,250
    
    
    $
    403,353
    
    
    $
    18,897
    
    
    
    4.7
    %Europe
    
    
    374,622
    
    
    
    325,238
    
    
    
    49,384
    
    
    
    15.2
    %
 35




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##### Table of Contents



CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2004(a)
    
    
    2003
    
    
    Increase
    
    
    IncreaseAsia Pacific
    
    
    181,110
    
    
    
    168,555
    
    
    
    12,555
    
    
    
    7.5
    %Total revenue
    
    $
    977,982
    
    
    $
    897,146
    
    
    $
    80,836
    
    
    
    9.0
    %
 
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results.        36




---



##### Table of Contents



Geographic Segment Operating Income
  CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2005
    
    
    2004(a)
    
    
    Increase
    
    
    IncreaseAmericas
    
    $
    228,238
    
    
    $
    168,655
    
    
    $
    59,583
    
    
    
    35.3
    %Europe
    
    
    192,946
    
    
    
    163,285
    
    
    
    29,661
    
    
    
    18.2
    %Asia Pacific
    
    
    122,382
    
    
    
    100,447
    
    
    
    21,935
    
    
    
    21.8
    %Total operating income
    
    $
    543,566
    
    
    $
    432,387
    
    
    $
    111,179
    
    
    
    25.7
    %
 CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2004(a)
    
    
    2003
    
    
    Increase
    
    
    IncreaseAmericas
    
    $
    168,655
    
    
    $
    160,908
    
    
    $
    7,747
    
    
    
    4.8
    %Europe
    
    
    163,285
    
    
    
    140,834
    
    
    
    22,451
    
    
    
    15.9
    %Asia Pacific
    
    
    100,447
    
    
    
    99,688
    
    
    
    759
    
    
    
    0.8
    %Total operating income
    
    $
    432,387
    
    
    $
    401,430
    
    
    $
    30,957
    
    
    
    7.7
    %
 
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results.    37




---



##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorPeriod ofCombined
    
    
    May 27, 2004
    
    
    Period ofYear Ended
    
    
    Year Ended
    
    
    through
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    through
    
    
    December 31,2005
    
    
    2004(a)
    
    
    2004
    
    
    May 26, 2004
    
    
    2003Americas:Revenue
    
    $
    497,570
    
    
    $
    422,250
    
    
    $
    260,370
    
    
    $
    161,880
    
    
    $
    403,353Operating income
    
    
    228,238
    
    
    
    168,655
    
    
    
    104,595
    
    
    
    64,060
    
    
    
    160,908Europe:Revenue
    
    
    439,546
    
    
    
    374,622
    
    
    
    243,699
    
    
    
    130,923
    
    
    
    325,238Operating income
    
    
    192,946
    
    
    
    163,285
    
    
    
    112,401
    
    
    
    50,884
    
    
    
    140,834Asia Pac:Revenue
    
    
    217,505
    
    
    
    181,110
    
    
    
    116,110
    
    
    
    65,000
    
    
    
    168,555Operating income
    
    
    122,382
    
    
    
    100,447
    
    
    
    67,235
    
    
    
    33,212
    
    
    
    99,688Total Segments:Revenue
    
    
    1,154,621
    
    
    
    977,982
    
    
    
    620,179
    
    
    
    357,803
    
    
    
    897,146Operating income
    
    $
    543,566
    
    
    $
    432,387
    
    
    $
    284,231
    
    
    $
    148,156
    
    
    $
    401,430
 
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results.  38




---



##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    
    PredecessorPeriod ofCombined
    
    
    May 27, 2004
    
    
    
    Period ofYear Ended
    
    
    Year Ended
    
    
    through
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    through
    
    
    December 31,2005
    
    
    2004(a)
    
    
    2004
    
    
    
    May 26, 2004
    
    
    2003Total operating
income for
reportable
segments
    
    $
    543,566
    
    
    $
    432,387
    
    
    $
    284,231
    
    
    
    $
    148,156
    
    
    $
    401,430Research and
development
    
    
    (167,484
    )
    
    
    (135,726
    )
    
    
    (82,875
    )
    
    
    
    (52,851
    )
    
    
    (125,848
    )In-process research
and development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,427
    )Amortization of
capitalized and
acquired software
and other
intangible assets
    
    
    (157,504
    )
    
    
    (104,629
    )
    
    
    (78,589
    )
    
    
    
    (26,040
    )
    
    
    (50,588
    )Corporate and
unallocated
costs
    
    
    (129,219
    )
    
    
    (109,878
    )
    
    
    (73,109
    )
    
    
    
    (36,769
    )
    
    
    (74,305
    )Operating income
(loss)
    
    $
    83,485
    
    
    $
    31,335
    
    
    $
    (1,161
    )
    
    
    $
    32,496
    
    
    $
    146,262
 
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results. Results of Operations
  Successor
    
    
    
    
    
    
    Successor
    
    
    
    PredecessorPeriod ofCombined
    
    
    May 27, 2004
    
    
    
    Period ofYear Ended
    
    
    Year Ended
    
    
    through
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    through
    
    
    December 31,2005
    
    
    2004(b)
    
    
    2004
    
    
    
    May 26, 2004
    
    
    2003Revenue:License
    
    $
    358,986
    
    
    $
    314,146
    
    
    $
    213,366
    
    
    
    $
    100,780
    
    
    $
    285,680Maintenance
    
    
    504,189
    
    
    
    400,622
    
    
    
    237,610
    
    
    
    
    163,012
    
    
    
    389,551Services and other(a)
    
    
    291,446
    
    
    
    263,214
    
    
    
    169,203
    
    
    
    
    94,011
    
    
    
    221,915Total revenue
    
    
    1,154,621
    
    
    
    977,982
    
    
    
    620,179
    
    
    
    
    357,803
    
    
    
    897,146Cost of revenue (includes
amortization of
capitalized and acquired
software)
    
    
    442,758
    
    
    
    376,138
    
    
    
    242,999
    
    
    
    
    133,139
    
    
    
    297,504Gross profit
    
    
    711,863
    
    
    
    601,844
    
    
    
    377,180
    
    
    
    
    224,664
    
    
    
    599,642Operating expenses:Selling, general and
administrative
    
    
    420,873
    
    
    
    363,099
    
    
    
    226,282
    
    
    
    
    136,817
    
    
    
    316,426Research and
development
    
    
    167,484
    
    
    
    135,726
    
    
    
    82,875
    
    
    
    
    52,851
    
    
    
    125,848In-process research and
development
    
    
    4,100
    
    
    
    50,819
    
    
    
    50,819
    
    
    
    
    
    
    
    
    Restructuring
    
    
    1,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,427Amortization of other
intangible assets
    
    
    34,147
    
    
    
    20,865
    
    
    
    18,365
    
    
    
    
    2,500
    
    
    
    6,679Total operating
expenses
    
    
    628,378
    
    
    
    570,509
    
    
    
    378,341
    
    
    
    
    192,168
    
    
    
    453,380
 39




---



##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    
    PredecessorPeriod ofCombined
    
    
    May 27, 2004
    
    
    
    Period ofYear Ended
    
    
    Year Ended
    
    
    through
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    through
    
    
    December 31,2005
    
    
    2004(b)
    
    
    2004
    
    
    
    May 26, 2004
    
    
    2003Operating (loss)
income
    
    
    83,485
    
    
    
    31,335
    
    
    
    (1,161
    )
    
    
    
    32,496
    
    
    
    146,262Interest expense and
amortization of deferred
financing fees
    
    
    (97,737
    )
    
    
    (57,335
    )
    
    
    (55,314
    )
    
    
    
    (2,021
    )
    
    
    (4,823
    )Other income (expense),
net
    
    
    (17,671
    )
    
    
    23,156
    
    
    
    21,146
    
    
    
    
    2,010
    
    
    
    5,180(Loss) income before
taxes
    
    
    (31,923
    )
    
    
    (2,844
    )
    
    
    (35,329
    )
    
    
    
    32,485
    
    
    
    146,619(Benefit) provision
for income taxes
    
    
    (9,857
    )
    
    
    15,899
    
    
    
    5,807
    
    
    
    
    10,092
    
    
    
    42,812Net (loss) income
    
    $
    (22,066
    )
    
    $
    (18,743
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807
 Successor
    
    
    
    
    
    Successor
    
    
    PredecessorPeriod ofCombined
    
    May 27, 2004
    
    
    Period ofYear Ended
    
    Year Ended
    
    through
    
    
    January 1, 2004
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    
    through
    
    December 31,2005
    
    2004(b)
    
    2004
    
    
    May 26, 2004
    
    2003Revenue:License
    
    
    31.1
    %
    
    
    32.1
    %
    
    
    34.4
    %
    
    
    
    28.2
    %
    
    
    31.8
    %Maintenance
    
    
    43.7
    %
    
    
    40.9
    %
    
    
    38.2
    %
    
    
    
    45.6
    %
    
    
    43.4
    %Services and other(a)
    
    
    25.2
    %
    
    
    27.0
    %
    
    
    27.4
    %
    
    
    
    26.2
    %
    
    
    24.8
    %Total revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue (includes
amortization of capitalized and
acquired software)
    
    
    38.3
    %
    
    
    38.5
    %
    
    
    39.2
    %
    
    
    
    37.2
    %
    
    
    33.2
    %Gross profit
    
    
    61.7
    %
    
    
    61.5
    %
    
    
    60.8
    %
    
    
    
    62.8
    %
    
    
    66.8
    %Operating expenses:Selling, general and
administrative
    
    
    36.4
    %
    
    
    37.1
    %
    
    
    36.5
    %
    
    
    
    38.2
    %
    
    
    35.3
    %Research and development
    
    
    14.5
    %
    
    
    13.9
    %
    
    
    13.4
    %
    
    
    
    14.8
    %
    
    
    14.0
    %In-process research and
development
    
    
    0.4
    %
    
    
    5.2
    %
    
    
    8.2
    %
    
    
    
    0.0
    %
    
    
    0.0
    %Restructuring
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    0.0
    %
    
    
    0.5
    %Amortization of other
intangible assets
    
    
    3.0
    %
    
    
    2.1
    %
    
    
    3.0
    %
    
    
    
    0.7
    %
    
    
    0.7
    %Total operating expenses
    
    
    54.5
    %
    
    
    58.3
    %
    
    
    61.0
    %
    
    
    
    53.7
    %
    
    
    50.5
    %Operating (loss) income
    
    
    7.2
    %
    
    
    3.2
    %
    
    
    (0.2
    )%
    
    
    
    9.1
    %
    
    
    16.3
    %Interest expense and
amortization of deferred
financing fees
    
    
    (8.5
    )%
    
    
    (5.9
    )%
    
    
    (8.9
    )%
    
    
    
    (0.6
    )%
    
    
    (0.3
    )%Other income (expense), net
    
    
    (1.5
    )%
    
    
    2.4
    %
    
    
    3.4
    %
    
    
    
    0.6
    %
    
    
    (0.3
    )%(Loss) income before taxes
    
    
    (2.8
    )%
    
    
    (0.3
    )%
    
    
    (5.7
    )%
    
    
    
    9.1
    %
    
    
    16.3
    %(Benefit) provision
for income taxes
    
    
    (0.9
    )%
    
    
    1.6
    %
    
    
    0.9
    %
    
    
    
    2.8
    %
    
    
    4.7
    %Net (loss) income
    
    
    (1.9
    )%
    
    
    (1.9
    )%
    
    
    (6.6
    )%
    
    
    
    6.3
    %
    
    
    11.6
    %
 
 (a)
    
    Other revenue consists primarily of hardware sales.(b)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period from January 1, 2004 through May 26, 2004 and the Successor
period from May 27, 2004 through December 31, 2004. This presentation does not comply with
GAAP, but is presented because we believe it enables the most meaningful comparison of our
results. Year Ended December 31, 2005 Compared to the Period of May 27, 2004 through December 31, 2004
(Successor) and the Period of January 1, 2004 through May 26, 2004 (Predecessor) Combined
 40




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##### Table of Contents



Total Revenue
  CombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2005
    
    
    2004(a)
    
    
    Increase
    
    
    IncreaseLicense
    
    $
    358,986
    
    
    $
    314,146
    
    
    $
    44,840
    
    
    
    14.3
    %Maintenance
    
    
    504,189
    
    
    
    400,622
    
    
    
    103,567
    
    
    
    25.9
    %Services and other
    
    
    291,446
    
    
    
    263,214
    
    
    
    28,232
    
    
    
    10.7
    %Total revenue
    
    $
    1,154,621
    
    
    $
    977,982
    
    
    $
    176,639
    
    
    
    18.1
    %
 
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results.  
    
    License.License revenue growth was due, in part, to increased transaction volume and
higher average deal size in the Americas. The increase in license revenue was also
partially due to the inclusion of Tecnomatix, which contributed revenue of $26.3 million.
License revenue accounted for 31.1% of total revenue for 2005 compared to 32.1% for the
2004.
    
    Maintenance.A portion of the increase in maintenance revenue resulted from the
classification of $11.4 million of revenue from one of our largest customers that is now
recognized as maintenance revenue rather than services revenue due to a modification to our
services agreement with this customer. Maintenance revenue also benefited from the addition
of Tecnomatix, which contributed revenue of $26.2 million. The growth is also due to
increased maintenance revenue in our Europe segment that primarily resulted from
maintenance associated with renewals on the existing customer base. In addition, total
maintenance revenue was higher due to the impact from purchase accounting described above.
Maintenance revenue accounted for 43.7% of total revenue for 2005 and 41.0% of total
revenue for 2004.
    
    Services and other.Services revenue grew across all segments with the Europe segment
having the largest growth primarily due to growth in cPDM services projects, which are
generally larger in scope than CAx services projects. Services revenue also benefited from
the addition of Tecnomatix, which contributed revenue of $16.2 million. This growth was
partially offset by the classification of revenue from one of our largest customers as
maintenance revenue rather than services revenue as discussed above. Services and other
revenue accounted for 25.2% of total revenue for 2005 and 26.9% of
total revenue for 2004.
 Gross Profit
  41




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Operating Expenses
 Selling, General and Administrative
  Research and Development
   In-Process Research and Development
   42




---



##### Table of Contents



Restructuring
  Amortization of Other Intangible Assets
  Operating Income
  Interest Expense and Amortization of Deferred Financing Fees
  Provision (Benefit) for Income Taxes
  For the Period of May 27, 2004 through December 31, 2004 (Successor) and for the Period of January
1, 2004 through May 26, 2004 (Predecessor) Combined Compared to the Year Ended December 31, 2003
 Total Revenue
  43




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##### Table of Contents



Year EndedCombinedYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    
    
    
    Percentage2004(a)
    
    
    2003
    
    
    Increase
    
    
    IncreaseLicense
    
    $
    314,146
    
    
    $
    285,680
    
    
    $
    28,466
    
    
    
    10.0
    %Maintenance
    
    
    400,622
    
    
    
    389,551
    
    
    
    11,071
    
    
    
    2.8
    %Services and other
    
    
    263,214
    
    
    
    221,915
    
    
    
    41,299
    
    
    
    18.6
    %Total revenue
    
    $
    977,982
    
    
    $
    897,146
    
    
    $
    80,836
    
    
    
    9.0
    %
 (a)
    
    As described above, our combined results for the year ended December 31, 2004 represent the
addition of the Predecessor period of January 1, 2004 through May 26, 2004 and the Successor
period of May 27, 2004 through December 31, 2004. This presentation does not comply with GAAP,
but is presented because we believe it enables the most meaningful comparison of our results.
  
    
    License.The increase was primarily due to license revenue growth in Europe, which was
due in part to the appreciation of the Euro compared to the U.S. Dollar. License revenue
accounted for 32.1% of total revenue for 2004 compared to 31.8% for 2003.
    
    Maintenance.The increase resulted from the growth in maintenance revenue in Europe
and Asia Pacific. Maintenance revenue has been aided by increased renewal rates. The
increase was largely offset by lower maintenance revenue from the purchase accounting
impact described above. Maintenance revenue accounted for 41.0% of total revenue for 2004
compared to 43.4% of total revenue for 2003.
    
    Services and other. Similar to maintenance revenue, our services revenue tends to
increase in line with license revenue growth. Services and other revenue accounted for
27.0% of total revenue for 2004 compared to 24.8% of total revenue for 2003.
 Gross Profit
  Operating Expenses
 Selling, General and Administrative
  Research and Development
  44




---



##### Table of Contents



In-Process Research and Development
  Restructuring
  Amortization of Other Intangible Assets
  Operating Income
  Interest Expense and Amortization of Deferred Financing Fees
  Provision for Income Taxes
  Liquidity and Capital Resources
 Debt and Commitments
  45




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46




---



##### Table of Contents



Capital Expenditures
  Historical Cash Flow
    Off Balance Sheet Obligations
  Contractual Obligations
  Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Secured term loan(1)
    
    $
    654,300
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    654,300Senior subordinated
notes(1)
    
    
    550,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550,000Interest on long-term
debt(1)
    
    
    601,952
    
    
    
    96,802
    
    
    
    193,603
    
    
    
    193,603
    
    
    
    117,944Note payable(2)
    
    
    7,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,746Purchase obligations(3)
    
    
    4,026
    
    
    
    4,026
    
    
    
    
    
    
    
    
    
    
    
    Capital leases(4)
    
    
    197
    
    
    
    167
    
    
    
    30
    
    
    
    
    
    
    
    Operating leases(4)
    
    
    113,932
    
    
    
    40,500
    
    
    
    44,457
    
    
    
    20,283
    
    
    
    8,692Management fee(5)
    
    
    15,000
    
    
    
    3,000
    
    
    
    6,000
    
    
    
    6,000
    
    
    
    Total cash contractual
obligations
    
    $
    1,947,153
    
    
    $
    144,495
    
    
    $
    244,090
    
    
    $
    219,886
    
    
    $
    1,338,682
 47




---



##### Table of Contents



(1)
    
    Interest on the secured term loan was computed using the respective variable interest rates
in effect as of December 31, 2005.
 (2)
    
    As part of the acquisition of UGS PLM Solutions Inc., EDS agreed to provide one of our
Japanese subsidiaries with cash loans for any cash taxes incurred by that subsidiary in excess
of what income taxes would have normally been incurred had each Japanese subsidiary
constituted a single corporation. The loans will be made until such time that such tax
attributes are expected to be realized by our Japanese subsidiary. Interest on the note
payable will be only payable for any amounts outstanding after December 31, 2009. For purposes
of the contractual obligations presentation, we have only included the repayment of principal.
 (3)
    
    Purchase obligations represent minimum commitments under supply arrangements related to
product and/or services entered into in the normal course of our business. Contracts for which
our commitment is variable based on volumes, with no fixed minimum quantities, and contracts
that can be cancelled without payment penalties have been excluded. The purchase obligations
included above are in addition to accounts payable and accrued liabilities recorded on our
December 31, 2005 consolidated balance sheet.
 (4)
    
    The future minimum lease payments above include minimum future lease payments in use and
those exited, net of estimated sublease income under existing sublease arrangements.
 (5)
    
    In connection with the acquisition of UGS PLM Solutions Inc., we entered into a management
agreement with our parent companies and affiliates of each of our Sponsors in which we pay an
annual aggregate management fee of $3.0 million. For purposes of the contractual obligations
presentation, no payments for the management fee were included for periods greater than five
years.
  Inflation
  Seasonality
  
 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Risk
  48




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##### Table of Contents



Interest

    
    Notional
    
    
    USD ExchangeExpiration
    
    
    
    Rate

    
    Value
    
    
    Rate to  1(In millions)Pay fixed
    
    December 15, 2014
    
    
    9.0
    %
    
    
    46.5
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.025
    %Pay fixed
    
    December 15, 2016
    
    
    9.0
    %
    
    
    43.0
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.08
    %
  Interest Rate Risk
  
 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to consolidated financial statements
 Audited Financial Statements:
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    50Consolidated Statements of Operations for the year ended
December 31, 2005 (Successor) and for the period of May
27, 2004 through December 31, 2004 (Successor), the period
of January 1, 2004 through May 26, 2004 (Predecessor), and
for the year ended December 31, 2003 (Predecessor)
    
    
    51Consolidated Balance Sheets as of December 31, 2005
and 2004 (Successor)
    
    
    52Consolidated Statements of Stockholders Equity for the
year ended December 31, 2005 (Successor) and for the
period of May 27, 2004 through December 31, 2004
(Successor), the period of January 1, 2004 through May 26,
2004 (Predecessor), and for the year ended December 31,
2003 (Predecessor)
    
    
    53Consolidated Statements of Cash Flows for the year ended
December 31, 2005 (Successor) and for the period of May
27, 2004 through December 31, 2004 (Successor), the period
of January 1, 2004 through May 26, 2004 (Predecessor), and
for the years ended December 31, 2003 (Predecessor)
    
    
    55Notes to Consolidated Financial Statements
    
    
    56
 49




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 50




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
 Successor
    
    
    
    PredecessorUGS Corp.
    
    
    
    UGS PLM Solutions Inc.Period of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003(In thousands)Revenue:License
    
    $
    358,986
    
    
    $
    213,366
    
    
    
    $
    100,780
    
    
    $
    285,680Maintenance
    
    
    504,189
    
    
    
    237,610
    
    
    
    
    163,012
    
    
    
    389,551Services and other
    
    
    291,446
    
    
    
    169,203
    
    
    
    
    94,011
    
    
    
    221,915Total revenue
    
    
    1,154,621
    
    
    
    620,179
    
    
    
    
    357,803
    
    
    
    897,146Cost of revenue:License
    
    
    21,213
    
    
    
    13,768
    
    
    
    
    7,163
    
    
    
    15,603Maintenance
    
    
    56,411
    
    
    
    32,842
    
    
    
    
    21,177
    
    
    
    52,210Services and other
    
    
    241,777
    
    
    
    136,165
    
    
    
    
    81,259
    
    
    
    185,782Amortization of capitalized software
and acquired intangible assets
    
    
    123,357
    
    
    
    60,224
    
    
    
    
    23,540
    
    
    
    43,909Total cost of revenue
    
    
    442,758
    
    
    
    242,999
    
    
    
    
    133,139
    
    
    
    297,504Gross profit
    
    
    711,863
    
    
    
    377,180
    
    
    
    
    224,664
    
    
    
    599,642Operating expenses:Selling, general and
administrative
    
    
    420,873
    
    
    
    226,282
    
    
    
    
    136,817
    
    
    
    316,426Research and development
    
    
    167,484
    
    
    
    82,875
    
    
    
    
    52,851
    
    
    
    125,848In-process research and
development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    
    
    
    
    Restructuring
    
    
    1,774
    
    
    
    
    
    
    
    
    
    
    
    
    4,427Amortization of other intangible
assets
    
    
    34,147
    
    
    
    18,365
    
    
    
    
    2,500
    
    
    
    6,679Total operating expenses
    
    
    628,378
    
    
    
    378,341
    
    
    
    
    192,168
    
    
    
    453,380Operating income (loss)
    
    
    83,485
    
    
    
    (1,161
    )
    
    
    
    32,496
    
    
    
    146,262Interest expense and amortization
of deferred financing fees
    
    
    (97,737
    )
    
    
    (55,314
    )
    
    
    
    (2,021
    )
    
    
    (4,823
    )Other (expense) income, net
    
    
    (17,671
    )
    
    
    21,146
    
    
    
    
    2,010
    
    
    
    5,180(Loss) income before taxes
    
    
    (31,923
    )
    
    
    (35,329
    )
    
    
    
    32,485
    
    
    
    146,619(Benefit) provision for income taxes
    
    
    (9,857
    )
    
    
    5,807
    
    
    
    
    10,092
    
    
    
    42,812Net (loss) income
    
    $
    (22,066
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807
  51




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 SuccessorDecember 31,
    
    
    December 31,2005
    
    
    2004(In thousands, exceptshare amounts)ASSETSCurrent assetsCash and cash equivalents
    
    $
    61,532
    
    
    $
    58,400Accounts receivable, net
    
    
    251,763
    
    
    
    233,180Prepaids and other
    
    
    18,622
    
    
    
    23,869Deferred income taxes
    
    
    26,471
    
    
    
    62,890Total current assets
    
    
    358,388
    
    
    
    378,339Property and equipment, net
    
    
    36,645
    
    
    
    33,751Goodwill
    
    
    1,393,472
    
    
    
    1,317,948Capitalized and acquired software, net
    
    
    464,994
    
    
    
    435,816Customer accounts, net
    
    
    203,064
    
    
    
    217,961Other intangible assets, net
    
    
    135,265
    
    
    
    116,501Other assets
    
    
    39,623
    
    
    
    42,696Total assets
    
    $
    2,631,451
    
    
    $
    2,543,012LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    159,976
    
    
    $
    150,290Deferred revenue
    
    
    133,027
    
    
    
    110,027Income taxes payable
    
    
    3,528
    
    
    
    337Current portion of long-term debt
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    296,531
    
    
    
    265,654Other long-term liabilities
    
    
    48,511
    
    
    
    41,011Deferred income taxes
    
    
    152,040
    
    
    
    217,122Long-term debt
    
    
    1,212,046
    
    
    
    1,049,623Stockholders equityCommon stock, $ .01 par value; 3,000 shares authorized;
100 issued and outstanding at December 31, 2005 and 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,005,991
    
    
    
    1,005,479Retained deficit
    
    
    (63,202
    )
    
    
    (41,136
    )Accumulated other comprehensive (loss) income, net of tax
    
    
    (20,466
    )
    
    
    5,259Total stockholders equity
    
    
    922,323
    
    
    
    969,602Total liabilities and stockholders equity
    
    $
    2,631,451
    
    
    $
    2,543,012
  52




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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedOtherComprehensive
    
    
    
    
    
    Additional
    
    
    Comprehensive
    
    
    Retained
    
    
    TotalIncome
    
    
    Common Stock

    
    
    Paid-In
    
    
    Income
    
    
    (Deficit)
    
    
    Stockholders(Loss)
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    (Loss)
    
    
    Earnings
    
    
    Equity(In thousands, except share amounts)UGS PLM Solutions Inc.
(Predecessor)Balance at December 31,
2002
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    $
    1,338,681
    
    
    $
    7,518
    
    
    $
    (25,312
    )
    
    $
    1,320,887Capital contributions for
income taxes, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,508
    
    
    
    
    
    
    
    (22,910
    )
    
    
    (6,402
    )Change in minimum pension
liability, net of taxes
of $562
    
    
    (849
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (849
    )
    
    
    
    
    
    
    (849
    )Currency translation
adjustment
    
    
    15,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,294
    
    
    
    
    
    
    
    15,294Net income
    
    
    103,807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,807
    
    
    
    103,807Comprehensive income
    
    $
    118,252Balance at December 31,
2003
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    $
    1,355,189
    
    
    $
    21,963
    
    
    $
    55,585
    
    
    $
    1,432,737Capital contributions for
income taxes, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,836
    
    
    
    
    
    
    
    (2
    )
    
    
    48,834Dividend to EDS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250,000
    )
    
    
    
    
    
    
    
    
    
    
    (250,000
    )Change in minimum pension
liability, net of taxes
of $434
    
    
    (651
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (651
    )
    
    
    
    
    
    
    (651
    )Currency translation
adjustment
    
    
    (3,390
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,390
    )
    
    
    
    
    
    
    (3,390
    )Net income
    
    
    22,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,393
    
    
    
    22,393Comprehensive income
    
    $
    18,352Balance at May 26, 2004
    
    
    
    
    
    
    1,000
    
    
    $
    
    
    
    $
    1,154,025
    
    
    $
    17,922
    
    
    $
    77,976
    
    
    $
    1,249,923UGS Corp. (Successor)Initial investment by
parent companies
    
    $
    
    
    
    
    100
    
    
    $
    
    
    
    $
    1,001,502
    
    
    $
    
    
    
    $
    
    
    
    $
    1,001,502Capital contributed by
parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,275
    
    
    
    
    
    
    
    
    
    
    
    3,275Equity compensation through
retention plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    702Change in fair value of
derivative instruments,
net of taxes of $6,833
    
    
    (7,289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,289
    )
    
    
    
    
    
    
    (7,289
    )Change in minimum pension
liability, net of taxes
of $75
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    
    
    
    
    (139
    )Currency translation
adjustment, net of taxes
of $3,925
    
    
    12,687
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,687
    
    
    
    
    
    
    
    12,687Net loss
    
    
    (41,136
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,136
    )
    
    
    (41,136
    )Comprehensive loss
    
    $
    (35,877
    )Balance at December 31,
2004
    
    
    
    
    
    
    100
    
    
    $
    
    
    
    $
    1,005,479
    
    
    $
    5,259
    
    
    $
    (41,136
    )
    
    $
    969,602Capital contributed by
parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    
    
    
    
    669Equity compensation through
retention plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (702
    )
    
    
    
    
    
    
    
    
    
    
    (702
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    545
 53




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##### Table of Contents



AccumulatedOtherComprehensive
    
    
    
    
    
    Additional
    
    
    Comprehensive
    
    
    Retained
    
    
    TotalIncome
    
    
    Common Stock
    
    
    Paid-In
    
    
    Income
    
    
    (Deficit)
    
    
    Stockholders(Loss)
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    (Loss)
    
    
    Earnings
    
    
    Equity(In thousands, except share amounts)Change in fair value of
derivative instruments,
net of taxes of $480
    
    
    892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    892Change in minimum pension
liability, net of taxes
of $169
    
    
    (314
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    (314
    )Currency translation
adjustment, net of taxes
of $14,163
    
    
    (26,303
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,303
    )
    
    
    
    
    
    
    (26,303
    )Net loss
    
    
    (22,066
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,066
    )
    
    
    (22,066
    )Comprehensive loss
    
    $
    (47,791
    )Balance at December 31,
2005
    
    
    
    
    
    
    100
    
    
    $
    
    
    
    $
    1,005,991
    
    
    $
    (20,466
    )
    
    $
    (63,202
    )
    
    $
    922,323
  54




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
 Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003(In thousands)Cash flows from operating activitiesNet (loss) income
    
    $
    (22,066
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Benefit for deferred income taxes
    
    
    (41,396
    )
    
    
    (18,603
    )
    
    
    
    (47,410
    )
    
    
    (10,958
    )Depreciation and amortization
    
    
    175,645
    
    
    
    88,356
    
    
    
    
    33,471
    
    
    
    72,755Amortization of deferred financing
fees
    
    
    5,621
    
    
    
    3,000
    
    
    
    
    
    
    
    
    In-process research and development
    
    
    4,100
    
    
    
    50,819
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    1,934
    
    
    
    (443
    )
    
    
    
    2,277
    
    
    
    2,628Unrealized loss (gain) on revaluation
of foreign denominated assets and
liabilities
    
    
    27,307
    
    
    
    (28,662
    )
    
    
    
    2,362
    
    
    
    851Unrealized loss (gain) on foreign
currency
revaluation of derivative instruments
    
    
    (18,749
    )
    
    
    15,175
    
    
    
    
    
    
    
    
    Changes in operating assets and
liabilities, net of effect of
acquisitions:Accounts receivable
    
    
    (13,046
    )
    
    
    (6,343
    )
    
    
    
    13,062
    
    
    
    45,644Prepaids and other
    
    
    (219
    )
    
    
    (10,352
    )
    
    
    
    3,357
    
    
    
    5,919Accounts payable and accrued
liabilities
    
    
    (11,820
    )
    
    
    22,686
    
    
    
    
    (8,319
    )
    
    
    3,806Deferred revenue
    
    
    24,212
    
    
    
    20,434
    
    
    
    
    32,479
    
    
    
    2,669Income taxes payable
    
    
    3,385
    
    
    
    5,868
    
    
    
    
    22,520
    
    
    
    14,296Other long-term liabilities
    
    
    1,618
    
    
    
    3,890
    
    
    
    
    1,777
    
    
    
    Total adjustments
    
    
    159,137
    
    
    
    145,825
    
    
    
    
    55,576
    
    
    
    137,610Net cash provided by operating
activities
    
    
    137,071
    
    
    
    104,689
    
    
    
    
    77,969
    
    
    
    241,417Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (218,437
    )
    
    
    (2,057,551
    )
    
    
    
    
    
    
    
    Cash received from prior parent for
acquisition related tax matters
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    
    Payments for purchases of
property and equipment
    
    
    (14,829
    )
    
    
    (8,594
    )
    
    
    
    (4,342
    )
    
    
    (6,850
    )Capitalized software costs
    
    
    (69,775
    )
    
    
    (35,314
    )
    
    
    
    (24,753
    )
    
    
    (51,877
    )Payments for purchase of
long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,114
    )Proceeds from sale of marketable
securities
    
    
    23,194
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (1,762
    )
    
    
    (278
    )
    
    
    
    456
    
    
    
    (1,264
    )Net cash used in investing activities
    
    
    (263,438
    )
    
    
    (2,101,737
    )
    
    
    
    (28,639
    )
    
    
    (62,105
    )Cash flows from financing activitiesPayments under intercompany credit
agreement, net
    
    
    
    
    
    
    
    
    
    
    
    (60,986
    )
    
    
    (170,578
    )Proceeds from revolving credit line
    
    
    175,051
    
    
    
    72,950
    
    
    
    
    
    
    
    
    Payments on revolving credit line
    
    
    (181,051
    )
    
    
    (66,950
    )
    
    
    
    
    
    
    
    Proceeds from notes payable
    
    
    10,297
    
    
    
    1,025
    
    
    
    
    
    
    
    
    Payments on notes payable
    
    
    (2,773
    )
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from bank notes and bonds,
net
    
    
    225,350
    
    
    
    1,013,302
    
    
    
    
    
    
    
    
    Payments on bank notes and bonds
    
    
    (94,029
    )
    
    
    (2,500
    )
    
    
    
    
    
    
    
    Investment by parent companies
    
    
    
    
    
    
    1,001,502
    
    
    
    
    
    
    
    
    Capital contributed by parent
    
    
    669
    
    
    
    3,275
    
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    133,514
    
    
    
    2,022,604
    
    
    
    
    (60,986
    )
    
    
    (170,578
    )Effect of exchange rate on cash and cash
equivalents
    
    
    (4,015
    )
    
    
    4,382
    
    
    
    
    (196
    )
    
    
    1,634Net increase (decrease) in cash and cash
equivalents
    
    
    3,132
    
    
    
    29,938
    
    
    
    
    (11,852
    )
    
    
    10,368Cash and cash equivalents at beginning of
period
    
    
    58,400
    
    
    
    28,462
    
    
    
    
    40,314
    
    
    
    29,946Cash and cash equivalents at end of
period
    
    $
    61,532
    
    
    $
    58,400
    
    
    
    $
    28,462
    
    
    $
    40,314Supplemental cash flow disclosures:Income taxes paid
    
    $
    29,119
    
    
    $
    23,578
    
    
    
    $
    41,539
    
    
    $
    25,991Interest expense paid
    
    $
    92,476
    
    
    $
    41,593
    
    
    
    $
    1,977
    
    
    $
    4,823Non-cash investing and financing
activities:Equipment acquired through capital lease
    
    $
    246
    
    
    $
    
    
    
    
    $
    
    
    
    $
    
  55




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##### Table of Contents



UGS CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1: Business and Summary of Significant Accounting Policies
 Description of Business
  Basis of Presentation
      Principles of Consolidation
  Property and Equipment
  56




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##### Table of Contents



Asset
    
    YearsLeasehold improvements
    
    
    2-7Computer equipment
    
    
    2-10Other equipment and furniture
    
    
    5-20
  Accounts Receivable
  Additions
    
    
    
    
    
    DeductionsBalance at
    
    Additions
    
    Acquisition
    
    
    
    
    
    Balance atBeginning
    
    Charged to
    
    Related
    
    
    
    
    
    Endof Period
    
    Expense
    
    Adjustments
    
    Write-offs
    
    of PeriodSuccessorFor the year ended December 31,
2005
    
    $
    7,452
    
    
    $
    1,706
    
    
    $
    1,793
    
    
    $
    3,039
    
    
    $
    7,912Period of May 27, 2004
through December 31, 2004
    
    
    12,052
    
    
    
    1,134
    
    
    
    (4,678
    )
    
    
    1,056
    
    
    
    7,452PredecessorPeriod of January 1, 2004
through May 26, 2004
    
    
    10,954
    
    
    
    2,001
    
    
    
    
    
    
    
    903
    
    
    
    12,052For the year ended December 31,
2003
    
    $
    13,343
    
    
    $
    1,579
    
    
    $
    
    
    
    $
    3,968
    
    
    $
    10,954
 Goodwill, Software and Other Intangible Assets
   57




---



##### Table of Contents



Revenue Recognition
      58




---



##### Table of Contents



Cost of Revenue
  Lease Obligations
  Advertising Expense
  Currency Translation
  Derivative Financial Instruments
  Income Taxes
  59




---



##### Table of Contents



Cash and Cash Equivalents
  Stock-Based Compensation
    60




---



##### Table of Contents



Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003Net income (loss)As reported
    
    $
    (22,066
    )
    
    $
    (41,136
    )
    
    
    $
    22,393
    
    
    $
    103,807Add: Total stock-based employee
compensation expense included in
reported net loss under APB
Opinion No. 25, net of related tax
effects
    
    
    376
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based employee
compensation expense determined
under fair-value method for all
awards, net of related tax
effects
    
    
    (670
    )
    
    
    (152
    )
    
    
    
    (2,040
    )
    
    
    (7,026
    )Pro forma
    
    $
    (22,360
    )
    
    $
    (41,288
    )
    
    
    $
    20,353
    
    
    $
    96,781
  Successor
    
    
    PredecessorPeriod of
    
    
    Period ofYear Ended
    
    May 27, 2004
    
    
    January 1, 2004
    
    Year EndedDecember 31,
    
    through
    
    
    through
    
    December 31,2005
    
    December 31, 2004
    
    
    May 26, 2004
    
    2003Expected term (in years)
    
    
    5.9
    
    
    
    5.5
    
    
    
    
    3.4
    
    
    
    4.1Divided yields
    
    
    0
    %
    
    
    0
    %
    
    
    
    1.7
    %
    
    
    3.7
    %Expected volatility
    
    
    0
    %
    
    
    0
    %
    
    
    
    39.8
    %
    
    
    46.4
    %Risk-free interest rate
    
    
    4.1
    %
    
    
    3.6
    %
    
    
    
    3.8
    %
    
    
    2.7
    %
 Successor
    
    PredecessorPeriod of
    
    Period ofYear Ended
    
    May 27, 2004
    
    January 1, 2004
    
    Year EndedDecember 31,
    
    through
    
    through
    
    December 31,2005
    
    December 31, 2004
    
    May 26, 2004
    
    2003Weighted-average fair value of
options granted during the
year:Stock Option Plan
    
    $
    2
    
    
    NM
    
    $
    11
    
    
    $
    5Retention Incentive Plan  UGS
Capital Corp. Class L Common
Shares
    
    
    
    
    
    $
    15
    
    
    
    
    
    
    
    Retention Incentive Plan  UGS
Capital Corp. II Preferred
Shares
    
    
    
    
    
    $
    18
    
    
    
    
    
    
    
    
  Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
  61




---



##### Table of Contents



Recent Accounting Pronouncements
  Note 2: Acquisitions
 Tecnomatix Technologies, Ltd. Acquisition
    IntangiblesWeighted-AverageUsefulAmount
    
    
    LifeWorking capital and other
    
    $
    (60,097
    )Fixed assets
    
    
    3,898Intangibles:Software
    
    
    70,500
    
    
    
    5.0Customer accounts
    
    
    10,400
    
    
    
    4.0Maintenance agreements
    
    
    33,400
    
    
    
    10.0Noncompete agreement
    
    
    4,600
    
    
    
    2.0Trademarks/tradenames
    
    
    2,500
    
    
    
    7.0Acquired in-process research and development
    
    
    4,100Goodwill
    
    
    149,136Total purchase price
    
    $
    218,437
  62




---



##### Table of Contents



UGS PLM Solutions Inc. Acquisition
    IntangiblesWeighted-AverageUsefulAmount
    
    
    LifeWorking capital and other
    
    $
    (105,411
    )Fixed assets
    
    
    32,350Intangibles:Software
    
    
    449,414
    
    
    
    5.0Customer accounts
    
    
    230,300
    
    
    
    10.0Maintenance agreements
    
    
    76,400
    
    
    
    10.0Noncompete agreement
    
    
    6,700
    
    
    
    2.0Trademarks/tradenames
    
    
    43,000
    
    
    
    7.0Acquired in-process research and development
    
    
    50,200Goodwill
    
    
    1,255,913Total purchase price
    
    $
    2,038,866
 63




---



##### Table of Contents



Year
    
    Yearended
    
    endedDecember 31, 2004
    
    December 31, 2003Revenue
    
    $
    970,144
    
    
    $
    848,346Net loss
    
    $
    (19,148
    )
    
    $
    (41,915
    )
 D-Cubed, Ltd. Acquisition
  IntangiblesWeighted-AverageUsefulAmount
    
    
    LifeWorking capital and other
    
    $
    299Fixed assets
    
    
    273Intangibles:Software
    
    
    6,733
    
    
    
    5.0Customer accounts
    
    
    1,573
    
    
    
    5.0Maintenance agreements
    
    
    239
    
    
    
    10.0Noncompete agreement
    
    
    160
    
    
    
    4.0Trademarks/tradenames
    
    
    286
    
    
    
    7.0Acquired in-process research and development
    
    
    619Goodwill
    
    
    11,770Total purchase price
    
    $
    21,952
  Note 3: Property and Equipment
  64




---



##### Table of Contents



December 31,
    
    
    December 31,2005
    
    
    2004Leasehold improvements
    
    $
    15,914
    
    
    $
    14,637Computer equipment
    
    
    25,990
    
    
    
    15,573Other equipment and furniture
    
    
    13,982
    
    
    
    11,945Total cost
    
    
    55,886
    
    
    
    42,155Less accumulated depreciation
    
    
    (19,241
    )
    
    
    (8,404
    )Total
    
    $
    36,645
    
    
    $
    33,751
  Note 4: Goodwill
  Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalRecording of goodwill for acquisition of
UGS PLM Solutions Inc. May 27, 2004
    
    $
    489,988
    
    
    $
    389,478
    
    
    $
    376,914
    
    
    $
    1,256,380Recording of goodwill for acquisition of
D-Cubed, Ltd.
    
    
    
    
    
    
    13,220
    
    
    
    
    
    
    
    13,220UGS PLM Solutions Inc. purchase price
allocation adjustments
    
    
    2,127
    
    
    
    1,691
    
    
    
    1,637
    
    
    
    5,455D-Cubed, Ltd. purchase price allocation
adjustments
    
    
    
    
    
    
    (410
    )
    
    
    
    
    
    
    (410
    )Impact of foreign currency translation
    
    
    
    
    
    
    43,303
    
    
    
    
    
    
    
    43,303Goodwill balance as of December 31,
2004
    
    
    492,115
    
    
    
    447,282
    
    
    
    378,551
    
    
    
    1,317,948Recording of goodwill for acquisition of
Tecnomatix
    
    
    46,928
    
    
    
    96,803
    
    
    
    5,405
    
    
    
    149,136UGS PLM Solutions Inc. purchase price
allocation adjustments
    
    
    (2,309
    )
    
    
    (1,836
    )
    
    
    (1,777
    )
    
    
    (5,922
    )D-Cubed, Ltd. purchase price allocation
adjustments
    
    
    
    
    
    
    (1,040
    )
    
    
    
    
    
    
    (1,040
    )Impact of foreign currency translation
    
    
    
    
    
    
    (66,650
    )
    
    
    
    
    
    
    (66,650
    )Goodwill balance as of December 31,
2005
    
    $
    536,734
    
    
    $
    474,559
    
    
    $
    382,179
    
    
    $
    1,393,472
  Note 5: Other Intangible Assets
  December 31, 2005Weighted-
    
    
    GrossAverage Useful
    
    
    Carrying
    
    
    AccumulatedLife
    
    
    Amount
    
    
    Amortization
    
    
    TotalDefinite Useful LivesCapitalized software
    
    
    3.0
    
    
    $
    105,035
    
    
    $
    10,743
    
    
    $
    94,292Acquired software
    
    
    5.0
    
    
    
    529,789
    
    
    
    159,087
    
    
    
    370,702
 65




---



##### Table of Contents



December 31, 2005Weighted-
    
    
    GrossAverage Useful
    
    
    Carrying
    
    
    AccumulatedLife
    
    
    Amount
    
    
    Amortization
    
    
    TotalCustomer accounts
    
    
    10.0
    
    
    
    242,273
    
    
    
    39,209
    
    
    
    203,064Maintenance agreements
    
    
    10.0
    
    
    
    110,039
    
    
    
    14,744
    
    
    
    95,295Noncompete agreements
    
    
    2.0
    
    
    
    11,460
    
    
    
    7,136
    
    
    
    4,324Trademarks/tradenames
    
    
    7.0
    
    
    
    45,787
    
    
    
    10,141
    
    
    
    35,646Total other intangible assets
    
    
    
    
    
    $
    1,044,383
    
    
    $
    241,060
    
    
    $
    803,323
 December 31, 2004Weighted-
    
    
    GrossAverage Useful
    
    
    Carrying
    
    
    AccumulatedLife
    
    
    Amount
    
    
    Amortization
    
    
    TotalDefinite Useful LivesCapitalized software
    
    
    3.0
    
    
    $
    35,314
    
    
    $
    828
    
    
    $
    34,486Acquired software
    
    
    5.0
    
    
    
    456,614
    
    
    
    55,284
    
    
    
    401,330Customer accounts
    
    
    10.0
    
    
    
    231,873
    
    
    
    13,912
    
    
    
    217,961Maintenance agreements
    
    
    10.0
    
    
    
    76,639
    
    
    
    4,574
    
    
    
    72,065Noncompete agreements
    
    
    2.0
    
    
    
    6,860
    
    
    
    2,021
    
    
    
    4,839Trademarks/tradenames
    
    
    7.0
    
    
    
    43,286
    
    
    
    3,689
    
    
    
    39,597Total other intangible assets
    
    
    
    
    
    $
    850,586
    
    
    $
    80,308
    
    
    $
    770,278
  Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003Capitalized software
    
    $
    9,966
    
    
    $
    826
    
    
    
    $
    14,038
    
    
    $
    20,881Acquired software
    
    
    100,482
    
    
    
    53,566
    
    
    
    
    9,595
    
    
    
    23,028Acquired and other
intangible assets
    
    
    50,307
    
    
    
    25,994
    
    
    
    
    3,540
    
    
    
    9,694Total amortization
expense
    
    $
    160,755
    
    
    $
    80,386
    
    
    
    $
    27,173
    
    
    $
    53,603Amortization of certain
acquired software
allocated to
operating expense
    
    $
    3,251
    
    
    $
    1,797
    
    
    
    $
    1,133
    
    
    $
    3,015
  Note 6: Accounts Payable and Accrued Liabilities
  December 31,2005
    
    
    2004Accounts payable
    
    $
    20,747
    
    
    $
    20,629Accrued compensation
    
    
    58,117
    
    
    
    60,292Accrued restructuring
    
    
    17,102
    
    
    
    11,909Accrued other taxes
    
    
    15,415
    
    
    
    19,247Accrued royalties
    
    
    6,082
    
    
    
    9,511Other accrued expenses
    
    
    42,513
    
    
    
    28,702Total
    
    $
    159,976
    
    
    $
    150,290
 66




---



##### Table of Contents



Note 7: Restructuring Activities
  Employee
    
    
    Stock
    
    
    ExitSeparations
    
    
    Related
    
    
    Costs
    
    
    TotalBalance at December 31, 2003 (Predecessor)
    
    $
    59
    
    
    $
    40
    
    
    $
    17,290
    
    
    $
    17,389Cash payments
    
    
    (59
    )
    
    
    
    
    
    
    (1,280
    )
    
    
    (1,339
    )Balance at May 26, 2004 (Predecessor)
    
    
    
    
    
    
    40
    
    
    
    16,010
    
    
    
    16,050Adjustments for purchase accounting
    
    
    
    
    
    
    
    
    
    
    (2,665
    )
    
    
    (2,665
    )Cash payments
    
    
    
    
    
    
    
    
    
    
    (1,476
    )
    
    
    (1,476
    )Balance at December 31, 2004 (Successor)
    
    
    
    
    
    
    40
    
    
    
    11,869
    
    
    
    11,909Additions for Tecnomatix acquisition
    
    
    8,100
    
    
    
    
    
    
    
    6,310
    
    
    
    14,410Cash payments
    
    
    (4,322
    )
    
    
    
    
    
    
    (4,855
    )
    
    
    (9,177
    )Reduction of accrual
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    (40
    )Balance at December 31, 2005 (Successor)
    
    $
    3,778
    
    
    $
    
    
    
    $
    13,324
    
    
    $
    17,102
    Note 8: Debt
  Note payable, due December 31, 2014 (913.6 million yen)
    
    $
    7,746Senior unsecured subordinated notes, due June 1, 2012,
10.0%
    
    
    550,000Secured term loan, due May 27, 2011, LIBOR plus 2.00%
    
    
    654,300Total long-term debt
    
    
    1,212,046Less current portion
    
    
    Total long-term debt, less current portion
    
    $
    1,212,046
  67




---



##### Table of Contents



Note payable, due December 31, 2014 (115.0 million yen)
    
    $
    1,123Revolving credit facility, due May 27, 2010, LIBOR plus
2.50%
    
    
    6,000Senior unsecured subordinated notes, due June 1, 2012,
10.0%
    
    
    550,000Secured term loan, due May 27, 2011, LIBOR plus 2.25%
    
    
    497,500Total long-term debt
    
    
    1,054,623Less current portion
    
    
    (5,000
    )Total long-term debt, less current portion
    
    $
    1,049,623
 Senior Unsecured Subordinated Notes
  Senior Secured Credit Facility
   68




---



##### Table of Contents



Debt Covenants
  Note Payable
  Aggregate Debt Principal Payments
  2006
    
    $
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    1,212,046Total
    
    $
    1,212,046
 Note 9: Income Taxes
  United StatesFederal
    
    
    State
    
    
    Non-U.S.
    
    
    TotalSuccessorYear ended December 31, 2005Current
    
    $
    243
    
    
    $
    
    
    
    $
    31,296
    
    
    $
    31,539Deferred
    
    
    (17,636
    )
    
    
    (1,084
    )
    
    
    (22,676
    )
    
    
    (41,396
    )Total
    
    $
    (17,393
    )
    
    $
    (1,084
    )
    
    $
    8,620
    
    
    $
    (9,857
    )Period of May 27, 2004 throughDecember 31, 2004Current
    
    $
    
    
    
    $
    20
    
    
    $
    24,390
    
    
    $
    24,410Deferred
    
    
    (7,695
    )
    
    
    
    
    
    
    (10,908
    )
    
    
    (18,603
    )Total
    
    $
    (7,695
    )
    
    $
    20
    
    
    $
    13,482
    
    
    $
    5,807PredecessorPeriod of January 1, 2004 throughMay 26, 2004Current
    
    $
    34,570
    
    
    $
    
    
    
    $
    22,932
    
    
    $
    57,502
 69




---



##### Table of Contents



United StatesFederal
    
    
    State
    
    
    Non-U.S.
    
    
    TotalDeferred
    
    
    (42,945
    )
    
    
    85
    
    
    
    (4,550
    )
    
    
    (47,410
    )Total
    
    $
    (8,375
    )
    
    $
    85
    
    
    $
    18,382
    
    
    $
    10,092Year ended December 31, 2003Current
    
    $
    154
    
    
    $
    127
    
    
    $
    53,489
    
    
    $
    53,770Deferred
    
    
    (15,911
    )
    
    
    (42
    )
    
    
    4,995
    
    
    
    (10,958
    )Total
    
    $
    (15,757
    )
    
    $
    85
    
    
    $
    58,484
    
    
    $
    42,812
  Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003U.S. (loss) income
    
    $
    (32,032
    )
    
    $
    (57,955
    )
    
    
    $
    12,094
    
    
    $
    27,238Non-U.S. income
    
    
    109
    
    
    
    22,626
    
    
    
    
    20,391
    
    
    
    119,381Total
    
    $
    (31,923
    )
    
    $
    (35,329
    )
    
    
    $
    32,485
    
    
    $
    146,619
  Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003Statutory federal income
taxes
    
    $
    (11,173
    )
    
    $
    (12,365
    )
    
    
    $
    11,370
    
    
    $
    51,316State income taxes, net of
federal tax benefit
    
    
    (705
    )
    
    
    13
    
    
    
    
    55
    
    
    
    56Non-U.S. taxes, including
movements in valuation
allowances
    
    
    1,620
    
    
    
    930
    
    
    
    
    643
    
    
    
    (1,324
    )Extraterritorial income
exclusion
    
    
    (514
    )
    
    
    (109
    )
    
    
    
    (1,667
    )
    
    
    (4,000
    )Research and experimentation
credits
    
    
    (683
    )
    
    
    (666
    )
    
    
    
    (634
    )
    
    
    (3,841
    )Acquisition related, primarily
in-process research and
development
    
    
    1,435
    
    
    
    17,787
    
    
    
    
    
    
    
    
    Other
    
    
    163
    
    
    
    217
    
    
    
    
    325
    
    
    
    605Total
    
    $
    (9,857
    )
    
    $
    5,807
    
    
    
    $
    10,092
    
    
    $
    42,812Effective income tax rate
    
    
    30.9
    %
    
    
    (16.4
    )%
    
    
    
    31.1
    %
    
    
    29.2
    %
  70




---



##### Table of Contents



2005
    
    
    2004Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAdjustments necessary to convert accrued
amounts to a tax basis
    
    $
    44,908
    
    
    $
    18,437
    
    
    $
    64,165
    
    
    $
    1,275Property and equipment, net
    
    
    6,187
    
    
    
    
    
    
    
    23,897
    
    
    
    Net operating loss and tax credit carryforwards
    
    
    98,518
    
    
    
    
    
    
    
    30,753
    
    
    
    Purchase accounting intangibles
    
    
    
    
    
    
    255,302
    
    
    
    
    
    
    
    268,971Other
    
    
    2,323
    
    
    
    
    
    
    
    Subtotal
    
    
    151,936
    
    
    
    273,739
    
    
    
    118,815
    
    
    
    270,246Less valuation allowance
    
    
    (3,766
    )
    
    
    
    
    
    
    (2,801
    )
    
    
    Total deferred taxes
    
    $
    148,170
    
    
    $
    273,739
    
    
    $
    116,014
    
    
    $
    270,246
    Note 10: Derivative Financial Instruments
  Cross Currency Interest Rate Swaps
  Interest
    
    
    Notional
    
    
    USD ExchangeExpiration
    
    
    Rate
    
    
    Value
    
    
    Rate to  1(In millions)Pay fixed
    
    December 15, 2014
    
    
    9.0
    %
    
    
    46.5
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.025
    %Pay fixed
    
    December 15, 2016
    
    
    9.0
    %
    
    
    43.0
    
    
    
    1.2238Receive fixed
    
    
    
    
    
    
    9.08
    %
  71




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##### Table of Contents



Foreign Currency Forward Contracts
  Note 11: Pension Benefits
 Pension Benefits of Foreign Subsidiaries During Successor Period
  2005
    
    
    2004Reconciliation of Benefit ObligationBenefit obligation at beginning of period
    
    $
    21,723
    
    
    $
    15,607Service cost
    
    
    3,346
    
    
    
    1,322Interest cost
    
    
    1,014
    
    
    
    431Participant contributions
    
    
    51
    
    
    
    35Actuarial loss (gain)
    
    
    (90
    )
    
    
    2,347Foreign currency exchange rate changes
    
    
    (2,607
    )
    
    
    2,209Benefit payments
    
    
    (1,541
    )
    
    
    (224
    )Acquisitions
    
    
    3,046
    
    
    
    Plan amendments
    
    
    138
    
    
    
    Special termination benefits
    
    
    200
    
    
    
    Other
    
    
    (61
    )
    
    
    (4
    )Benefit obligation at end of year
    
    $
    25,219
    
    
    $
    21,723Reconciliation of Fair Value of Plan AssetsFair value of plan assets at beginning of period
    
    $
    4,572
    
    
    $
    3,979Actual return on plan assets
    
    
    224
    
    
    
    109Foreign currency exchange rate changes
    
    
    (722
    )
    
    
    484Employer contributions
    
    
    2,129
    
    
    
    193Participant contributions
    
    
    51
    
    
    
    35Benefit payments
    
    
    (1,541
    )
    
    
    (224
    )
 72




---



##### Table of Contents



2005
    
    
    2004Acquisitions
    
    
    2,132
    
    
    
    Other
    
    
    (61
    )
    
    
    (4
    )Fair value of plan assets at end of year
    
    $
    6,784
    
    
    $
    4,572Funded StatusFunded status at December 31
    
    $
    (18,435
    )
    
    $
    (17,151
    )Contributions and distributions made by company from
measurement date to fiscal year end
    
    
    56
    
    
    
    Unrecognized prior service cost
    
    
    133
    
    
    
    Unrecognized net actuarial loss
    
    
    2,217
    
    
    
    2,591Net amount recognized on the consolidated balance sheet
(as described below)
    
    $
    (16,029
    )
    
    $
    (14,560
    )
  2005
    
    
    2004Accrued benefit liability
    
    $
    (16,515
    )
    
    $
    (14,779
    )Accumulated other comprehensive income
    
    
    486
    
    
    
    219Net amount recognized
    
    $
    (16,029
    )
    
    $
    (14,560
    )
   2005
    
    2004Projected benefit obligation
    
    $
    24,980
    
    
    $
    21,525Accumulated benefit obligation
    
    
    19,979
    
    
    
    17,095Fair value of plan assets
    
    
    6,674
    
    
    
    4,486
   2005
    
    
    2004Service cost
    
    $
    3,346
    
    
    $
    1,322Interest cost
    
    
    1,014
    
    
    
    431Expected return on plan assets
    
    
    (248
    )
    
    
    (124
    )Amortization of prior service cost
    
    
    7
    
    
    
    Amortization of net loss
    
    
    49
    
    
    
    Special termination benefit recognized
    
    
    200
    
    
    
    Net periodic benefit cost
    
    $
    4,368
    
    
    $
    1,629
  2005
    
    
    2004Discount rate
    
    
    4.34
    %
    
    
    4.28
    %Rate of increase in compensation levels
    
    
    3.56
    %
    
    
    3.47
    %
 73




---



##### Table of Contents



2005
    
    
    2004Discount rate
    
    
    4.26
    %
    
    
    4.97
    %Rate of increase in compensation levels
    
    
    3.47
    %
    
    
    3.38
    %Long-term rate of return on assets
    
    
    4.47
    %
    
    
    5.21
    %
   2005
    
    2004Debt securities
    
    
    95
    
    
    
    96Other
    
    
    5
    
    
    
    4Total
    
    
    100
    %
    
    
    100
    %
   2006
    
    $
    1,2962007
    
    
    1,3302008
    
    
    1,4542009
    
    
    1,4692010
    
    
    1,473Thereafter
    
    
    8,999Total
    
    $
    16,021
 Pension Benefits During Predecessor Periods
    74




---



##### Table of Contents



2003Reconciliation of Benefit ObligationBenefit obligation at beginning of year
    
    $
    5,154Service cost
    
    
    290Interest cost
    
    
    353Plan amendments
    
    
    (5
    )Actuarial loss
    
    
    372Foreign currency exchange rate changes
    
    
    384Benefit payments
    
    
    (157
    )Curtailments
    
    
    Settlements
    
    
    Special termination benefit
    
    
    20Other
    
    
    133Benefit obligation at end of year
    
    $
    6,544Reconciliation of Fair Value of Plan AssetsFair value of plan assets at beginning of year
    
    $
    3,739Actual return on plan assets
    
    
    702Foreign currency exchange rate changes
    
    
    259Employer contributions
    
    
    271Benefit payments
    
    
    (157
    )Settlements
    
    
    (1
    )Other
    
    
    84Fair value of plan assets at end of year
    
    $
    4,897Funded StatusFunded status at December 31
    
    $
    (1,647
    )Unrecognized transition obligation
    
    
    13Unrecognized prior-service cost
    
    
    (240
    )Unrecognized net actuarial loss
    
    
    1,542Adjustments from October 31 to December 31
    
    
    83Net amount recognized on the consolidated balance
sheets (as described below)
    
    $
    (249
    )
  2003Prepaid benefit cost
    
    $
    288Accrued benefit liability
    
    
    (1,121
    )Intangible asset
    
    
    32Accumulated other comprehensive income
    
    
    552Net amount recognized
    
    $
    (249
    )
     75




---



##### Table of Contents



2003Service cost
    
    $
    290Interest cost
    
    
    353Expected return on plan assets
    
    
    (339
    )Amortization of transition obligation
    
    
    1Amortization of prior-service cost
    
    
    (32
    )Amortization of net actuarial loss
    
    
    81Net periodic benefit cost
    
    
    354Curtailment loss (gain)
    
    
    Special termination benefit
    
    
    20Settlement loss
    
    
    Net periodic benefit cost after curtailments and
settlements
    
    $
    374
    2003Discount rate at October 31
    
    
    6.0
    %Rate of increase in compensation levels at October 31
    
    
    3.3
    %
  2003Discount rate at October 31
    
    
    6.4
    %Rate of increase in compensation levels at October 31
    
    
    3.5
    %Long-term rate of return on assets at January 1
    
    
    8.7
    %
   2003Equity securities
    
    
    87
    %Debt securities
    
    
    8Cash and cash equivalents
    
    
    5Total
    
    
    100
    %
  76




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##### Table of Contents



Note 12: Stock-Based Compensation
 Stock Option Plan
  SuccessorWeighted-UGS Capital Corp.
    
    AverageClass A Common
    
    ExerciseFixed Options
    
    Shares
    
    PriceOutstanding at May 27, 2004
    
    
    
    
    
    $
    Granted
    
    
    8,280,000
    
    
    
    1.00Forfeited
    
    
    (15,000
    )
    
    
    1.00Outstanding at December 31, 2004
    
    
    8,265,000
    
    
    
    1.00Granted
    
    
    2,868,000
    
    
    
    4.71Exercised
    
    
    (87,367
    )
    
    
    1.87Forfeited
    
    
    (772,433
    )
    
    
    1.70Outstanding at December 31, 2005
    
    
    10,273,200
    
    
    $
    1.98
  SuccessorOptions Outstanding
    
    Options ExercisableWeighted-Weighted-
    
    Average
    
    
    
    
    
    WeightedAverage
    
    Remaining
    
    
    
    
    
    AverageExercise
    
    Contractual
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Period
    
    Shares
    
    Price8,174,200
    
    $
    1.00
    
    
    
    8.60
    
    
    
    2,224,716
    
    
    $
    1.00776,000
    
    $
    3.80
    
    
    
    9.27
    
    
    
    
    
    
    
    508,000
    
    $
    4.90
    
    
    
    9.39
    
    
    
    
    
    
    
    745,000
    
    $
    7.80
    
    
    
    9.91
    
    
    
    
    
    
    
    70,000
    
    $
    12.50
    
    
    
    9.62
    
    
    
    
    
    
    
    
  77




---



##### Table of Contents



PredecessorPeriod ofJanuary 1, 2004through
    
    Year Ended December 31May 26, 2004
    
    2003Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseFixed Options
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    1,605
    
    
    $
    43
    
    
    
    3,313
    
    
    $
    57Granted
    
    
    1,070
    
    
    
    19
    
    
    
    574
    
    
    
    16Exercised
    
    
    (25
    )
    
    
    16
    
    
    
    
    
    
    
    Forfeited
    
    
    (3
    )
    
    
    20
    
    
    
    (2,282
    )
    
    
    57Outstanding at end of period
    
    
    2,647
    
    
    $
    34
    
    
    
    1,605
    
    
    $
    43Options exercisable at end of period
    
    
    2,647
    
    
    
    
    
    
    
    709
 Retention Incentive Plan
    78




---



##### Table of Contents



SuccessorUGS Capital
    
    
    Weighted-
    
    
    UGS Capital
    
    
    Weighted-Corp. Class L
    
    
    Average
    
    
    Corp. II
    
    
    AverageCommon
    
    
    Exercise
    
    
    Preferred
    
    
    ExerciseFixed Options
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at May 27, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted
    
    
    19,847
    
    
    
    81
    
    
    
    4,466
    
    
    
    100Forfeited
    
    
    (1,858
    )
    
    
    81
    
    
    
    (418
    )
    
    
    100Outstanding at December 31, 2004
    
    
    17,989
    
    
    
    81
    
    
    
    4,048
    
    
    
    100Exercised
    
    
    5,277
    
    
    
    81
    
    
    
    475
    
    
    
    100Outstanding at December 31, 2005
    
    
    12,712
    
    
    $
    81
    
    
    
    3,573
    
    
    $
    100
  SuccessorOptions Outstanding
    
    Options ExercisableWeighted-Weighted-
    
    Average
    
    
    
    
    
    Weighted-Average
    
    Remaining
    
    
    
    
    
    AverageExercise
    
    Contractual
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Period
    
    Shares
    
    PriceUGS Capital Corp. Class L Common
    
    
    12,712
    
    
    $
    81
    
    
    
    8.40
    
    
    
    5,639
    
    
    $
    81UGS Capital Corp. II Preferred
    
    
    3,573
    
    
    $
    100
    
    
    
    8.40
    
    
    
    1,981
    
    
    $
    100
 Stock Purchase Plans
   Note 13: Employee Savings Plans
 Employee Savings Plan During Successor Period
   79




---



##### Table of Contents



Employee Savings Plans During Predecessor Periods
   Note 14: Segment Information
   Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalRevenue:SuccessorYear Ended December 31, 2005License
    
    $
    131,780
    
    
    $
    137,921
    
    
    $
    89,285
    
    
    $
    358,986Maintenance
    
    
    212,664
    
    
    
    189,525
    
    
    
    102,000
    
    
    
    504,189Services and other
    
    
    153,126
    
    
    
    112,100
    
    
    
    26,220
    
    
    
    291,446Total revenue
    
    
    497,570
    
    
    
    439,546
    
    
    
    217,505
    
    
    
    1,154,621Period of May 27, 2004 throughDecember 31, 2004License
    
    
    69,802
    
    
    
    90,560
    
    
    
    53,004
    
    
    
    213,366Maintenance
    
    
    96,812
    
    
    
    90,982
    
    
    
    49,816
    
    
    
    237,610Services and other
    
    
    93,756
    
    
    
    62,157
    
    
    
    13,290
    
    
    
    169,203Total revenue
    
    
    260,370
    
    
    
    243,699
    
    
    
    116,110
    
    
    
    620,179PredecessorPeriod of January 1, 2004 throughMay 26, 2004License
    
    
    36,766
    
    
    
    36,347
    
    
    
    27,667
    
    
    
    100,780Maintenance
    
    
    69,885
    
    
    
    62,765
    
    
    
    30,362
    
    
    
    163,012Services and other
    
    
    55,229
    
    
    
    31,811
    
    
    
    6,971
    
    
    
    94,011Total revenue
    
    
    161,880
    
    
    
    130,923
    
    
    
    65,000
    
    
    
    357,803Year Ended December 31,2003License
    
    
    100,239
    
    
    
    102,007
    
    
    
    83,434
    
    
    
    285,680Maintenance
    
    
    171,344
    
    
    
    146,432
    
    
    
    71,775
    
    
    
    389,551Services and other
    
    
    131,770
    
    
    
    76,799
    
    
    
    13,346
    
    
    
    221,915Total revenue
    
    $
    403,353
    
    
    $
    325,238
    
    
    $
    168,555
    
    
    $
    897,146
 80




---



##### Table of Contents



Americas
    
    Europe
    
    Asia Pacific
    
    TotalOperating income:SuccessorYear Ended December 31, 2005
    
    $
    228,238
    
    
    $
    192,946
    
    
    $
    122,382
    
    
    $
    543,566Period of May 27, 2004 throughDecember 31,
2004
    
    
    104,595
    
    
    
    112,401
    
    
    
    67,235
    
    
    
    284,231PredecessorPeriod of January 1, 2004 throughMay 26, 2004
    
    
    64,060
    
    
    
    50,884
    
    
    
    33,212
    
    
    
    148,156Year Ended December 31, 2003
    
    $
    160,908
    
    
    $
    140,834
    
    
    $
    99,688
    
    
    $
    401,430
 Americas
    
    Europe
    
    Asia Pacific
    
    TotalAccounts receivable:As of December 31, 2005
    
    $
    86,726
    
    
    $
    114,228
    
    
    $
    50,809
    
    
    $
    251,763As of December 31, 2004
    
    $
    79,371
    
    
    $
    108,356
    
    
    $
    45,453
    
    
    $
    233,180
  Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003Total operating income
for reportable segments
    
    $
    543,566
    
    
    $
    284,231
    
    
    
    $
    148,156
    
    
    $
    401,430Research and development
    
    
    (167,484
    )
    
    
    (82,875
    )
    
    
    
    (52,851
    )
    
    
    (125,848
    )In-process research and
development
    
    
    (4,100
    )
    
    
    (50,819
    )
    
    
    
    
    
    
    
    Restructuring
    
    
    (1,774
    )
    
    
    
    
    
    
    
    
    
    
    
    (4,427
    )Amortization of capitalized
and acquired software and
other intangible assets
    
    
    (157,504
    )
    
    
    (78,589
    )
    
    
    
    (26,040
    )
    
    
    (50,588
    )Corporate and unallocated costs
    
    
    (129,219
    )
    
    
    (73,109
    )
    
    
    
    (36,769
    )
    
    
    (74,305
    )Operating income (loss)
    
    $
    83,485
    
    
    $
    (1,161
    )
    
    
    $
    32,496
    
    
    $
    146,262
  Successor
    
    
    
    PredecessorPeriod of
    
    
    
    Period ofYear Ended
    
    
    May 27, 2004
    
    
    
    January 1, 2004
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2005
    
    
    December 31, 2004
    
    
    
    May 26, 2004
    
    
    2003Total revenue:United States
    
    $
    466,672
    
    
    $
    244,835
    
    
    
    $
    152,253
    
    
    $
    376,474Germany
    
    
    154,412
    
    
    
    71,443
    
    
    
    
    42,309
    
    
    
    102,560Japan
    
    
    114,857
    
    
    
    60,630
    
    
    
    
    38,828
    
    
    
    101,233All Other
    
    
    418,680
    
    
    
    243,271
    
    
    
    
    124,413
    
    
    
    316,879Total
    
    $
    1,154,621
    
    
    $
    620,179
    
    
    
    $
    357,803
    
    
    $
    897,146
  81




---



##### Table of Contents



December 31,
    
    
    December 31,2005
    
    
    2004Net property, plant and equipment:United States
    
    $
    23,647
    
    
    $
    22,798Germany
    
    
    1,163
    
    
    
    768Japan
    
    
    1,096
    
    
    
    774All Other
    
    
    10,739
    
    
    
    9,411Total
    
    $
    36,645
    
    
    $
    33,751
 Note 15: Commitments and Contingencies
 Legal Proceedings
  Leasing Arrangements
  Capital
    
    
    Operating
    
    
    SubleaseLeases
    
    
    Leases
    
    
    Income2006
    
    $
    167
    
    
    $
    42,376
    
    
    $
    1,8762007
    
    
    30
    
    
    
    28,431
    
    
    
    1,4522008
    
    
    
    
    
    
    18,342
    
    
    
    8642009
    
    
    
    
    
    
    12,703
    
    
    
    7562010
    
    
    
    
    
    
    8,982
    
    
    
    647Thereafter
    
    
    
    
    
    
    8,930
    
    
    
    238Total
    
    $
    197
    
    
    $
    119,764
    
    
    $
    5,833
  Guarantees
  82




---



##### Table of Contents



Other
    Note 16: Concentrations of Credit Risk
  Note 17: Fair Value of Financial Instruments
  December 31, 2005
    
    
    December 31, 2004Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueLiabilities:Derivative financial instruments
    
    $
    6,270
    
    
    $
    6,270
    
    
    $
    26,390
    
    
    $
    26,390Long-term debt  variable rate
    
    
    654,300
    
    
    
    654,300
    
    
    
    504,623
    
    
    
    504,623Long-term debt  fixed rate
    
    $
    550,000
    
    
    $
    599,950
    
    
    $
    550,000
    
    
    $
    625,625
  Note 18: Related Party Transactions
 Management Agreement
  83




---



##### Table of Contents



Cumulative Preferred Stock of UGS Capital Corp II
  Note 19: Transactions With Prior Parent
 Credit Agreements
  Management Services Agreement
  Other Agreements
  Dividend
  Note 20: Financial Statements of Guarantors
  84




---



##### Table of Contents



85




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Year Ended December 31, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:License
    
    $
    110,760
    
    
    $
    3,230
    
    
    $
    244,996
    
    
    $
    
    
    
    $
    358,986Maintenance
    
    
    190,600
    
    
    
    369
    
    
    
    313,220
    
    
    
    
    
    
    
    504,189Services and other
    
    
    143,396
    
    
    
    208,083
    
    
    
    147,784
    
    
    
    (207,817
    ) (a)
    
    
    291,446Total revenue
    
    
    444,756
    
    
    
    211,682
    
    
    
    706,000
    
    
    
    (207,817
    )
    
    
    1,154,621Cost of revenue:License
    
    
    8,300
    
    
    
    1,003
    
    
    
    11,910
    
    
    
    
    
    
    
    21,213Maintenance
    
    
    19,723
    
    
    
    149
    
    
    
    36,539
    
    
    
    
    
    
    
    56,411Services and other
    
    
    109,257
    
    
    
    26
    
    
    
    340,311
    
    
    
    (207,817
    ) (a)
    
    
    241,777Amortization of capitalized software and
acquired intangible assets
    
    
    48,850
    
    
    
    56,040
    
    
    
    18,467
    
    
    
    
    
    
    
    123,357Total cost of revenue
    
    
    186,130
    
    
    
    57,218
    
    
    
    407,227
    
    
    
    (207,817
    )
    
    
    442,758Gross profit
    
    
    258,626
    
    
    
    154,464
    
    
    
    298,773
    
    
    
    
    
    
    
    711,863Operating expenses:Selling,
general and administrative
    
    
    197,071
    
    
    
    2,959
    
    
    
    220,843
    
    
    
    
    
    
    
    420,873Research and development
    
    
    167,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167,484In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    
    
    
    
    4,100Restructuring
    
    
    
    
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    1,774Amortization of other intangibles assets
    
    
    10,490
    
    
    
    
    
    
    
    23,657
    
    
    
    
    
    
    
    34,147Total operating expenses
    
    
    375,045
    
    
    
    2,959
    
    
    
    250,374
    
    
    
    
    
    
    
    628,378Operating (loss) income
    
    
    (116,419
    )
    
    
    151,505
    
    
    
    48,399
    
    
    
    
    
    
    
    83,485Interest expense and amortization of
deferred financing fees
    
    
    (97,609
    )
    
    
    54,768
    
    
    
    (54,896
    )
    
    
    
    
    
    
    (97,737
    )Other (expense) income, net
    
    
    (4,571
    )
    
    
    (14,961
    )
    
    
    1,861
    
    
    
    
    
    
    
    (17,671
    )(Loss) income before income taxes
    
    
    (218,599
    )
    
    
    191,312
    
    
    
    (4,636
    )
    
    
    
    
    
    
    (31,923
    )(Benefit) provision for income taxes
    
    
    (75,194
    )
    
    
    66,959
    
    
    
    (1,622
    )
    
    
    
    
    
    
    (9,857
    )Net (loss) income
    
    $
    (143,405
    )
    
    $
    124,353
    
    
    $
    (3,014
    )
    
    $
    
    
    
    $
    (22,066
    )
 
  86




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Period of May 27, 2004 through December 31, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:License
    
    $
    63,801
    
    
    $
    2,009
    
    
    $
    147,556
    
    
    $
    
    
    
    $
    213,366Maintenance
    
    
    88,900
    
    
    
    561
    
    
    
    148,149
    
    
    
    
    
    
    
    237,610Services and other
    
    
    92,105
    
    
    
    133,306
    
    
    
    76,778
    
    
    
    (132,986
    ) (a)
    
    
    169,203Total revenue
    
    
    244,806
    
    
    
    135,876
    
    
    
    372,483
    
    
    
    (132,986
    )
    
    
    620,179Cost of revenue:License
    
    
    3,635
    
    
    
    161
    
    
    
    9,972
    
    
    
    
    
    
    
    13,768Maintenance
    
    
    13,115
    
    
    
    65
    
    
    
    19,662
    
    
    
    
    
    
    
    32,842Services and other
    
    
    72,130
    
    
    
    60
    
    
    
    196,961
    
    
    
    (132,986
    ) (a)
    
    
    136,165Amortization of capitalized software and
acquired intangible assets
    
    
    23,737
    
    
    
    33,468
    
    
    
    3,019
    
    
    
    
    
    
    
    60,224Total cost of revenue
    
    
    112,617
    
    
    
    33,754
    
    
    
    229,614
    
    
    
    (132,986
    )
    
    
    242,999Gross profit
    
    
    132,189
    
    
    
    102,122
    
    
    
    142,869
    
    
    
    
    
    
    
    377,180Operating expenses:Selling,
general and administrative
    
    
    122,171
    
    
    
    4,166
    
    
    
    99,945
    
    
    
    
    
    
    
    226,282Research and development
    
    
    60,696
    
    
    
    22,179
    
    
    
    
    
    
    
    
    
    
    
    82,875In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    
    
    
    
    50,819Amortization of other intangibles assets
    
    
    6,594
    
    
    
    
    
    
    
    11,771
    
    
    
    
    
    
    
    18,365Total operating expenses
    
    
    239,661
    
    
    
    26,345
    
    
    
    112,335
    
    
    
    
    
    
    
    378,341Operating (loss) income
    
    
    (107,472
    )
    
    
    75,777
    
    
    
    30,534
    
    
    
    
    
    
    
    (1,161
    )Interest (expense) income and amortization of deferred financing fees
    
    
    (49,121
    )
    
    
    28,802
    
    
    
    (34,995
    )
    
    
    
    
    
    
    (55,314
    )Other income (expense), net
    
    
    12,377
    
    
    
    10,871
    
    
    
    (2,102
    )
    
    
    
    
    
    
    21,146(Loss) income before income taxes
    
    
    (144,216
    )
    
    
    115,450
    
    
    
    (6,563
    )
    
    
    
    
    
    
    (35,329
    )(Benefit) provision for income taxes
    
    
    (32,304
    )
    
    
    40,408
    
    
    
    (2,297
    )
    
    
    
    
    
    
    5,807Net (loss) income
    
    $
    (111,912
    )
    
    $
    75,042
    
    
    $
    (4,266
    )
    
    $
    
    
    
    $
    (41,136
    )
 
 (a)
    
    Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 87




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Period of January 1, 2004 through May 26, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:License
    
    $
    33,411
    
    
    $
    1,609
    
    
    $
    65,760
    
    
    $
    
    
    
    $
    100,780Maintenance
    
    
    63,974
    
    
    
    204
    
    
    
    98,834
    
    
    
    
    
    
    
    163,012Services and other
    
    
    53,866
    
    
    
    73,969
    
    
    
    40,095
    
    
    
    (73,919
    ) (a)
    
    
    94,011Total revenue
    
    
    151,251
    
    
    
    75,782
    
    
    
    204,689
    
    
    
    (73,919
    )
    
    
    357,803Cost of revenue:License
    
    
    3,937
    
    
    
    275
    
    
    
    2,951
    
    
    
    
    
    
    
    7,163Maintenance
    
    
    7,709
    
    
    
    51
    
    
    
    13,417
    
    
    
    
    
    
    
    21,177Services and other
    
    
    43,487
    
    
    
    (1
    )
    
    
    111,692
    
    
    
    (73,919
    ) (a)
    
    
    81,259Amortization of capitalized software and
acquired intangible assets
    
    
    23,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,540Total cost of revenue
    
    
    78,673
    
    
    
    325
    
    
    
    128,060
    
    
    
    (73,919
    )
    
    
    133,139Gross profit
    
    
    72,578
    
    
    
    75,457
    
    
    
    76,629
    
    
    
    
    
    
    
    224,664Operating expenses:Selling,
general and administrative
    
    
    78,282
    
    
    
    439
    
    
    
    58,096
    
    
    
    
    
    
    
    136,817Research and development
    
    
    48,685
    
    
    
    3,084
    
    
    
    1,082
    
    
    
    
    
    
    
    52,851Amortization of other intangibles assets
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Total operating expenses
    
    
    129,467
    
    
    
    3,523
    
    
    
    59,178
    
    
    
    
    
    
    
    192,168Operating (loss) income
    
    
    (56,889
    )
    
    
    71,934
    
    
    
    17,451
    
    
    
    
    
    
    
    32,496Interest (expense) income, net
    
    
    (2,070
    )
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    (2,021
    )Other (expense) income, net
    
    
    395
    
    
    
    2,042
    
    
    
    (427
    )
    
    
    
    
    
    
    2,010(Loss) income before income taxes
    
    
    (58,564
    )
    
    
    73,976
    
    
    
    17,073
    
    
    
    
    
    
    
    32,485(Benefit) provision for income taxes
    
    
    (21,775
    )
    
    
    25,891
    
    
    
    5,976
    
    
    
    
    
    
    
    10,092Net (loss) income
    
    $
    (36,789
    )
    
    $
    48,085
    
    
    $
    11,097
    
    
    $
    
    
    
    $
    22,393
 
 (a)
    
    Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 88




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED CONSOLIDATING
SCHEDULE OF OPERATIONS
(in thousands)
 Year Ended December 31, 2003Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenue:License
    
    $
    89,961
    
    
    $
    3,663
    
    
    $
    192,056
    
    
    $
    
    
    
    $
    285,680Maintenance
    
    
    159,393
    
    
    
    752
    
    
    
    229,406
    
    
    
    
    
    
    
    389,551Services and other
    
    
    126,862
    
    
    
    137,824
    
    
    
    94,847
    
    
    
    (137,618
    ) (a)
    
    
    221,915Total revenue
    
    
    376,216
    
    
    
    142,239
    
    
    
    516,309
    
    
    
    (137,618
    )
    
    
    897,146Cost of revenue:License
    
    
    4,774
    
    
    
    1,002
    
    
    
    9,827
    
    
    
    
    
    
    
    15,603Maintenance
    
    
    20,137
    
    
    
    85
    
    
    
    31,988
    
    
    
    
    
    
    
    52,210Services and other
    
    
    104,071
    
    
    
    18
    
    
    
    219,311
    
    
    
    (137,618
    ) (a)
    
    
    185,782Amortization of capitalized software and
acquired intangible assets
    
    
    43,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,909Total cost of revenue
    
    
    172,891
    
    
    
    1,105
    
    
    
    261,126
    
    
    
    (137,618
    )
    
    
    297,504Gross profit
    
    
    203,325
    
    
    
    141,134
    
    
    
    255,183
    
    
    
    
    
    
    
    599,642Operating expenses:Selling,
general and administrative
    
    
    238,613
    
    
    
    6,746
    
    
    
    71,067
    
    
    
    
    
    
    
    316,426Research and development
    
    
    95,648
    
    
    
    30,200
    
    
    
    
    
    
    
    
    
    
    
    125,848Restructuring
    
    
    
    
    
    
    
    
    
    
    4,427
    
    
    
    
    
    
    
    4,427Amortization of other intangibles assets
    
    
    6,679
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,679Total operating expenses
    
    
    340,940
    
    
    
    36,946
    
    
    
    75,494
    
    
    
    
    
    
    
    453,380Operating (loss) income
    
    
    (137,615
    )
    
    
    104,188
    
    
    
    179,689
    
    
    
    
    
    
    
    146,262Interest (expense) income, net
    
    
    (4,994
    )
    
    
    (6
    )
    
    
    177
    
    
    
    
    
    
    
    (4,823
    )Other income (expense), net
    
    
    (751
    )
    
    
    4,302
    
    
    
    1,629
    
    
    
    
    
    
    
    5,180(Loss) income before income taxes
    
    
    (143,360
    )
    
    
    108,484
    
    
    
    181,495
    
    
    
    
    
    
    
    146,619(Benefit) provision for income taxes
    
    
    (58,680
    )
    
    
    37,969
    
    
    
    63,523
    
    
    
    
    
    
    
    42,812Net (loss) income
    
    $
    (84,680
    )
    
    $
    70,515
    
    
    $
    117,972
    
    
    $
    
    
    
    $
    103,807
 
 (a)
    
    Elimination represents statutory royalty revenue to guarantor subsidiaries and statutory
royalty expense to non-guarantor subsidiaries. 89




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING BALANCE SHEET
(in thousands)
 December 31, 2005Non-Parent
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Current assetsCash and cash equivalents
    
    $
    (4,266
    )
    
    $
    962
    
    
    $
    64,836
    
    
    $
    
    
    
    $
    61,532Accounts receivable, net
    
    
    73,305
    
    
    
    1,654
    
    
    
    176,804
    
    
    
    
    
    
    
    251,763Prepaids and other
    
    
    10,111
    
    
    
    
    
    
    
    8,511
    
    
    
    
    
    
    
    18,622Deferred income taxes
    
    
    26,471
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,471Total current assets
    
    
    105,621
    
    
    
    2,616
    
    
    
    250,151
    
    
    
    
    
    
    
    358,388Property and equipment, net
    
    
    22,721
    
    
    
    
    
    
    
    13,924
    
    
    
    
    
    
    
    36,645Goodwill
    
    
    324,151
    
    
    
    542,785
    
    
    
    526,536
    
    
    
    
    
    
    
    1,393,472Capitalized and acquired software, net
    
    
    206,926
    
    
    
    190,691
    
    
    
    67,377
    
    
    
    
    
    
    
    464,994Customer accounts, net
    
    
    76,801
    
    
    
    
    
    
    
    126,263
    
    
    
    
    
    
    
    203,064Other intangible assets, net
    
    
    46,327
    
    
    
    
    
    
    
    88,938
    
    
    
    
    
    
    
    135,265Intercompany balances
    
    
    
    
    
    
    614,587
    
    
    
    
    
    
    
    (614,587
    ) (b)
    
    
    Other assets
    
    
    812,857
    
    
    
    
    
    
    
    15,019
    
    
    
    (788,253
    ) (a)
    
    
    39,623Total assets
    
    $
    1,595,404
    
    
    $
    1,350,679
    
    
    $
    1,088,208
    
    
    $
    (1,402,840
    )
    
    $
    2,631,451Liabilities and Stockholders Equity:Current liabilitiesAccounts payable and accrued liabilities
    
    $
    56,304
    
    
    $
    1,566
    
    
    $
    102,106
    
    
    $
    
    
    
    $
    159,976Deferred revenue
    
    
    59,210
    
    
    
    699
    
    
    
    73,118
    
    
    
    
    
    
    
    133,027Income taxes payable
    
    
    
    
    
    
    
    
    
    
    3,528
    
    
    
    
    
    
    
    3,528Intercompany balances
    
    
    248,246
    
    
    
    
    
    
    
    366,341
    
    
    
    (614,587
    ) (b)
    
    
    Total current liabilities
    
    
    363,760
    
    
    
    2,265
    
    
    
    545,093
    
    
    
    (614,587
    )
    
    
    296,531Other long-term liabilities
    
    
    
    
    
    
    6,270
    
    
    
    42,241
    
    
    
    
    
    
    
    48,511Deferred income taxes
    
    
    9,689
    
    
    
    66,743
    
    
    
    75,608
    
    
    
    
    
    
    
    152,040Long-term debt
    
    
    1,204,300
    
    
    
    
    
    
    
    7,746
    
    
    
    
    
    
    
    1,212,046Total stockholders equity
    
    
    17,655
    
    
    
    1,275,401
    
    
    
    417,520
    
    
    
    (788,253
    ) (a)
    
    
    922,322Total liabilities and
stockholders equity
    
    $
    1,595,404
    
    
    $
    1,350,679
    
    
    $
    1,088,208
    
    
    $
    (1,402,840
    )
    
    $
    2,631,451
 
 (a)
    
     Elimination of investment in guarantor subsidiary.(b)
    
     Elimination of intercompany balances. 90




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING BALANCE SHEET
(in thousands)
 December 31, 2004Non-Parent
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Current assets:Cash and cash equivalents
    
    $
    (1,951
    )
    
    $
    251
    
    
    $
    60,100
    
    
    $
    
    
    
    $
    58,400Accounts receivable, net
    
    
    74,211
    
    
    
    1,980
    
    
    
    156,989
    
    
    
    
    
    
    
    233,180Prepaids and other
    
    
    14,458
    
    
    
    220
    
    
    
    9,191
    
    
    
    
    
    
    
    23,869Deferred income taxes
    
    
    60,978
    
    
    
    
    
    
    
    1,912
    
    
    
    
    
    
    
    62,890Total current assets
    
    
    147,696
    
    
    
    2,451
    
    
    
    228,192
    
    
    
    
    
    
    
    378,339Property and equipment, net
    
    
    21,884
    
    
    
    
    
    
    
    11,867
    
    
    
    
    
    
    
    33,751Goodwill
    
    
    325,681
    
    
    
    542,785
    
    
    
    449,482
    
    
    
    
    
    
    
    1,317,948Capitalized and acquired software, net
    
    
    182,737
    
    
    
    246,732
    
    
    
    6,347
    
    
    
    
    
    
    
    435,816Customer accounts, net
    
    
    85,941
    
    
    
    
    
    
    
    132,020
    
    
    
    
    
    
    
    217,961Other intangible assets, net
    
    
    54,073
    
    
    
    
    
    
    
    62,428
    
    
    
    
    
    
    
    116,501Intercompany balances
    
    
    70,646
    
    
    
    205,734
    
    
    
    
    
    
    
    (276,380
    ) (b)
    
    
    Other assets
    
    
    592,688
    
    
    
    
    
    
    
    5,874
    
    
    
    (555,866
    ) (a)
    
    
    42,696Total assets
    
    $
    1,481,346
    
    
    $
    997,702
    
    
    $
    896,210
    
    
    $
    (832,246
    )
    
    $
    2,543,012Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued
liabilities
    
    $
    67,243
    
    
    $
    325
    
    
    $
    82,722
    
    
    $
    
    
    
    
    150,290Deferred revenue
    
    
    49,376
    
    
    
    1,242
    
    
    
    59,409
    
    
    
    
    
    
    
    110,027Income taxes payable
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    337Current portion of long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Intercompany balances
    
    
    
    
    
    
    
    
    
    
    276,380
    
    
    
    (276,380
    ) (b)
    
    
    Total current liabilities
    
    
    121,619
    
    
    
    1,567
    
    
    
    418,848
    
    
    
    (276,380
    )
    
    
    265,654Other long-term liabilities
    
    
    
    
    
    
    26,390
    
    
    
    14,621
    
    
    
    
    
    
    
    41,011Deferred income taxes
    
    
    63,736
    
    
    
    86,357
    
    
    
    67,029
    
    
    
    
    
    
    
    217,122Long-term debt
    
    
    1,048,500
    
    
    
    
    
    
    
    1,123
    
    
    
    
    
    
    
    1,049,623Total stockholders equity
    
    
    247,491
    
    
    
    883,388
    
    
    
    394,589
    
    
    
    (555,866
    ) (a)
    
    
    969,602Total liabilities and
stockholders equity
    
    $
    1,481,346
    
    
    $
    997,702
    
    
    $
    896,210
    
    
    $
    (832,246
    )
    
    $
    2,543,012
 
 (a)
    
     Elimination of investment in guarantor subsidiary.(b)
    
     Elimination of intercompany balances. 91




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
 CONSOLIDATING SCHEDULE OF CASH FLOWS
 (in thousands)
 Year Ended December 31, 2005Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (143,405
    )
    
    $
    124,353
    
    
    $
    (3,014
    )
    
    $
    (22,066
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Benefit for deferred income taxes
    
    
    (7,039
    )
    
    
    (19,614
    )
    
    
    (14,743
    )
    
    
    (41,396
    )Depreciation and amortization
    
    
    70,656
    
    
    
    56,041
    
    
    
    48,948
    
    
    
    175,645Amortization of deferred financing fees
    
    
    5,621
    
    
    
    
    
    
    
    
    
    
    
    5,621In-process research and development
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    4,100Stock-based compensation
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    545Unrealized loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    27,307
    
    
    
    27,307Unrealized gain on foreign currency revaluation of
derivative instruments
    
    
    
    
    
    
    (18,749
    )
    
    
    
    
    
    
    (18,749
    )Other
    
    
    45
    
    
    
    (159
    )
    
    
    2,048
    
    
    
    1,934Changes in operating assets and liabilities, net of effect
of acquisitions:Accounts receivable
    
    
    1,262
    
    
    
    485
    
    
    
    (14,793
    )
    
    
    (13,046
    )Prepaids and other
    
    
    (1,976
    )
    
    
    220
    
    
    
    1,537
    
    
    
    (219
    )Accounts payable and accrued liabilities
    
    
    (10,034
    )
    
    
    1,241
    
    
    
    (3,027
    )
    
    
    (11,820
    )Deferred revenue
    
    
    6,765
    
    
    
    (543
    )
    
    
    17,990
    
    
    
    24,212Income taxes payable
    
    
    
    
    
    
    
    
    
    
    3,385
    
    
    
    3,385Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    1,618
    
    
    
    1,618Total adjustments
    
    
    65,845
    
    
    
    18,922
    
    
    
    74,370
    
    
    
    159,137Net cash (used in) provided by operating activities
    
    
    (77,560
    )
    
    
    143,275
    
    
    
    71,356
    
    
    
    137,071Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (218,437
    )
    
    
    (218,437
    )Cash received from prior parent for acquisition
related tax matters
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    18,171Payments for purchases of property and equipment
    
    
    (9,245
    )
    
    
    
    
    
    
    (5,584
    )
    
    
    (14,829
    )Capitalized software costs
    
    
    (67,318
    )
    
    
    
    
    
    
    (2,457
    )
    
    
    (69,775
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    23,194
    
    
    
    23,194Other
    
    
    (3,060
    )
    
    
    280
    
    
    
    1,018
    
    
    
    (1,762
    )Net cash (used in) provided by investing activities
    
    
    (61,452
    )
    
    
    280
    
    
    
    (202,266
    )
    
    
    (263,438
    )Cash flows from financing activitiesIntercompany borrowings (payments)
    
    
    (12,473
    )
    
    
    (142,844
    )
    
    
    155,317
    
    
    
    Proceeds from revolver credit line
    
    
    175,051
    
    
    
    
    
    
    
    
    
    
    
    175,051Payments on revolver credit line
    
    
    (181,051
    )
    
    
    
    
    
    
    
    
    
    
    (181,051
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    10,297
    
    
    
    10,297Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (2,773
    )
    
    
    (2,773
    )Proceeds from bank notes and bonds, net
    
    
    225,201
    
    
    
    
    
    
    
    149
    
    
    
    225,350Payments on bank notes and bonds
    
    
    (70,700
    )
    
    
    
    
    
    
    (23,329
    )
    
    
    (94,029
    )Capital contributed by parent
    
    
    669
    
    
    
    
    
    
    
    
    
    
    
    669Net cash provided by (used in) financing activities
    
    
    136,697
    
    
    
    (142,844
    )
    
    
    139,661
    
    
    
    133,514Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (4,015
    )
    
    
    (4,015
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2,315
    )
    
    
    711
    
    
    
    4,736
    
    
    
    3,132Cash and cash equivalents at beginning of period
    
    
    (1,951
    )
    
    
    251
    
    
    
    60,100
    
    
    
    58,400Cash and cash equivalents at end of period
    
    $
    (4,266
    )
    
    $
    962
    
    
    $
    64,836
    
    
    $
    61,532
 92




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 Period of May 27, 2004 through December 31, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (111,912
    )
    
    $
    75,042
    
    
    $
    (4,266
    )
    
    $
    (41,136
    )Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Benefit for deferred income taxes
    
    
    (1,713
    )
    
    
    (11,713
    )
    
    
    (5,177
    )
    
    
    (18,603
    )Depreciation and amortization
    
    
    36,879
    
    
    
    33,468
    
    
    
    18,009
    
    
    
    88,356Amortization of deferred financing fees
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000In-process research and development
    
    
    50,200
    
    
    
    
    
    
    
    619
    
    
    
    50,819Unrealized gain on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    (28,662
    )
    
    
    (28,662
    )Unrealized loss on foreign currency revaluation of
derivative instruments
    
    
    
    
    
    
    15,175
    
    
    
    
    
    
    
    15,175Other
    
    
    855
    
    
    
    (471
    )
    
    
    (827
    )
    
    
    (443
    )Changes in operating assets and liabilities, net of effect
of acquisitions:Accounts receivable
    
    
    (6,926
    )
    
    
    (146
    )
    
    
    729
    
    
    
    (6,343
    )Prepaids and other
    
    
    (6,833
    )
    
    
    10
    
    
    
    (3,529
    )
    
    
    (10,352
    )Accounts payable and accrued liabilities
    
    
    19,148
    
    
    
    4,171
    
    
    
    (633
    )
    
    
    22,686Deferred revenue
    
    
    12,582
    
    
    
    160
    
    
    
    7,692
    
    
    
    20,434Income taxes payable
    
    
    
    
    
    
    
    
    
    
    5,868
    
    
    
    5,868Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    3,890
    
    
    
    3,890Total adjustments
    
    
    107,192
    
    
    
    40,654
    
    
    
    (2,021
    )
    
    
    145,825Net cash (used in) provided by operating activities
    
    
    (4,720
    )
    
    
    115,696
    
    
    
    (6,287
    )
    
    
    104,689Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    (2,041,215
    )
    
    
    
    
    
    
    (16,336
    )
    
    
    (2,057,551
    )Payments for purchases of property and equipment
    
    
    (5,678
    )
    
    
    
    
    
    
    (2,916
    )
    
    
    (8,594
    )Capitalized software costs
    
    
    (35,314
    )
    
    
    
    
    
    
    
    
    
    
    (35,314
    )Other
    
    
    (1,280
    )
    
    
    
    
    
    
    1,002
    
    
    
    (278
    )Net cash used in investing activities
    
    
    (2,083,487
    )
    
    
    
    
    
    
    (18,250
    )
    
    
    (2,101,737
    )Cash flows from financing activitiesBorrowings (payments) on intercompany
credit agreement, net
    
    
    63,936
    
    
    
    (115,445
    )
    
    
    51,509
    
    
    
    Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    1,025
    
    
    
    1,025Proceeds from revolver credit line
    
    
    72,950
    
    
    
    
    
    
    
    
    
    
    
    72,950Payments on revolver credit line
    
    
    (66,950
    )
    
    
    
    
    
    
    
    
    
    
    (66,950
    )Proceeds from bank notes and bonds, net
    
    
    1,013,302
    
    
    
    
    
    
    
    
    
    
    
    1,013,302Payments on bank notes and bonds
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Investment by parent companies
    
    
    1,001,502
    
    
    
    
    
    
    
    
    
    
    
    1,001,502Capital contributed by parent
    
    
    3,275
    
    
    
    
    
    
    
    
    
    
    
    3,275Net cash provided by (used in) financing activities
    
    
    2,085,515
    
    
    
    (115,445
    )
    
    
    52,534
    
    
    
    2,022,604Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    4,382
    
    
    
    4,382Net increase (decrease) in cash and cash equivalents
    
    
    (2,692
    )
    
    
    251
    
    
    
    32,379
    
    
    
    29,938Cash and cash equivalents at beginning of period
    
    
    741
    
    
    
    
    
    
    
    27,721
    
    
    
    28,462Cash and cash equivalents at end of period
    
    $
    (1,951
    )
    
    $
    251
    
    
    $
    60,100
    
    
    $
    58,400
 93




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 Period of January 1, 2004 through May 26, 2004Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (36,789
    )
    
    $
    48,085
    
    
    $
    11,097
    
    
    $
    22,393Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Benefit for deferred income taxes
    
    
    (47,410
    )
    
    
    
    
    
    
    
    
    
    
    (47,410
    )Depreciation and amortization
    
    
    30,921
    
    
    
    
    
    
    
    2,550
    
    
    
    33,471Unrealized loss on revaluation of foreign
denominated assets and liabilities
    
    
    
    
    
    
    
    
    
    
    2,362
    
    
    
    2,362Other
    
    
    376
    
    
    
    570
    
    
    
    1,331
    
    
    
    2,277Changes in operating assets and liabilities, net of effect
of acquisitions:Accounts receivable
    
    
    21,080
    
    
    
    1,162
    
    
    
    (9,180
    )
    
    
    13,062Prepaids and other
    
    
    (2,635
    )
    
    
    37
    
    
    
    5,955
    
    
    
    3,357Accounts payable and accrued liabilities
    
    
    (12,260
    )
    
    
    (425
    )
    
    
    4,366
    
    
    
    (8,319
    )Deferred revenue
    
    
    6,864
    
    
    
    (712
    )
    
    
    26,327
    
    
    
    32,479Income taxes payable
    
    
    
    
    
    
    
    
    
    
    22,520
    
    
    
    22,520Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    1,777Total adjustments
    
    
    (3,064
    )
    
    
    632
    
    
    
    58,008
    
    
    
    55,576Net cash (used in) provided by operating activities
    
    
    (39,853
    )
    
    
    48,717
    
    
    
    69,105
    
    
    
    77,969Cash flows from investing activitiesPayments for purchases of property and equipment
    
    
    (2,997
    )
    
    
    
    
    
    
    (1,345
    )
    
    
    (4,342
    )Capitalized software costs
    
    
    (24,753
    )
    
    
    
    
    
    
    
    
    
    
    (24,753
    )Other
    
    
    (922
    )
    
    
    
    
    
    
    1,378
    
    
    
    456Net cash (used in) provided by investing activities
    
    
    (28,672
    )
    
    
    
    
    
    
    33
    
    
    
    (28,639
    )Cash flows from financing activitiesBorrowings (payments) under intercompany credit
agreement, net
    
    
    74,764
    
    
    
    (49,371
    )
    
    
    (86,379
    )
    
    
    (60,986
    )Net cash provided by (used in) financing activities
    
    
    74,764
    
    
    
    (49,371
    )
    
    
    (86,379
    )
    
    
    (60,986
    )Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    (196
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,239
    
    
    
    (654
    )
    
    
    (17,437
    )
    
    
    (11,852
    )Cash and cash equivalents at beginning of period
    
    
    (5,498
    )
    
    
    654
    
    
    
    45,158
    
    
    
    40,314Cash and cash equivalents at end of period
    
    $
    741
    
    
    $
    
    
    
    $
    27,721
    
    
    $
    28,462
 94




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##### Table of Contents



SUPPLEMENTAL UNAUDITED CONDENSED
CONSOLIDATING SCHEDULE OF CASH FLOWS
(in thousands)
 Year Ended December 31, 2003Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activitiesNet (loss) income
    
    $
    (84,680
    )
    
    $
    70,515
    
    
    $
    117,972
    
    
    $
    103,807Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:Benefit for deferred income taxes
    
    
    (10,958
    )
    
    
    
    
    
    
    
    
    
    
    (10,958
    )Depreciation and amortization
    
    
    66,387
    
    
    
    
    
    
    
    6,368
    
    
    
    72,755Other
    
    
    1,419
    
    
    
    (366
    )
    
    
    1,575
    
    
    
    2,628Unrealized (gain) loss on revaluation of
foreign denominated assets & liabilities
    
    
    (9
    )
    
    
    (54
    )
    
    
    914
    
    
    
    851Changes in operating assets and liabilities, net of effect
of acquisitions:Accounts receivable
    
    
    23,654
    
    
    
    2,559
    
    
    
    19,431
    
    
    
    45,644Prepaids and other
    
    
    2,585
    
    
    
    55
    
    
    
    3,279
    
    
    
    5,919Accounts payable and accrued liabilities
    
    
    (8,843
    )
    
    
    10,127
    
    
    
    2,522
    
    
    
    3,806Deferred revenue
    
    
    10,246
    
    
    
    1,224
    
    
    
    (8,801
    )
    
    
    2,669Income taxes payable
    
    
    
    
    
    
    
    
    
    
    14,296
    
    
    
    14,296Total adjustments
    
    
    84,480
    
    
    
    13,545
    
    
    
    39,585
    
    
    
    137,610Net cash (used in) provided by operating activities
    
    
    (200
    )
    
    
    84,060
    
    
    
    157,557
    
    
    
    241,417Cash flows from investing activitiesPayments for purchases of property and equipment
    
    
    (5,124
    )
    
    
    
    
    
    
    (1,726
    )
    
    
    (6,850
    )Capitalized software costs
    
    
    (51,877
    )
    
    
    
    
    
    
    
    
    
    
    (51,877
    )Payments for purchases of long term investments
    
    
    
    
    
    
    
    
    
    
    (2,114
    )
    
    
    (2,114
    )Other
    
    
    (1,266
    )
    
    
    2
    
    
    
    
    
    
    
    (1,264
    )Net cash (used in) provided by investing activities
    
    
    (58,267
    )
    
    
    2
    
    
    
    (3,840
    )
    
    
    (62,105
    )Cash flows from financing activitiesBorrowings (payments) under intercompany credit agreement, net
    
    
    54,709
    
    
    
    (83,614
    )
    
    
    (141,673
    )
    
    
    (170,578
    )Net cash provided by (used in) financing activities
    
    
    54,709
    
    
    
    (83,614
    )
    
    
    (141,673
    )
    
    
    (170,578
    )Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,634
    
    
    
    1,634Net increase (decrease) in cash and cash equivalents
    
    
    (3,758
    )
    
    
    448
    
    
    
    13,678
    
    
    
    10,368Cash and cash equivalents at beginning of period
    
    
    (1,740
    )
    
    
    206
    
    
    
    31,480
    
    
    
    29,946Cash and cash equivalents at end of period
    
    $
    (5,498
    )
    
    $
    654
    
    
    $
    45,158
    
    
    $
    40,314
 95




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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A: CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
   Changes
in Internal Control over Financial Reporting
  96




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Report
of Independent Registered Public Accounting Firm
 
        97




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##### Table of Contents



98




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ITEM 9B: OTHER INFORMATION
  
 PART III
 ITEM
10: DIRECTORS AND EXECUTIVE OFFICERS OF UGS CORP




Executive Officers and Directors




Name
    
    Age
    
    PositionAnthony J. Affuso
    
    
    59
    
    
    Chairman, Chief Executive Officer and PresidentDouglas E. Barnett
    
    
    46
    
    
    Senior Vice President and Chief Financial OfficerJohn K. Graham
    
    
    45
    
    
    Executive Vice President  Global Sales and ServicesCharles C. Grindstaff
    
    
    49
    
    
    Executive Vice President  ProductsThomas M. Lemberg
    
    
    59
    
    
    Senior Vice President, General Counsel and SecretaryDavid J. Shirk
    
    
    39
    
    
    Executive Vice President  Global MarketingGregory F. Back
    
    
    39
    
    
    DirectorAndrew B. Balson
    
    
    39
    
    
    DirectorL. Dale Crandall
    
    
    64
    
    
    DirectorPatrick T. Hackett
    
    
    44
    
    
    DirectorPaul David Miller
    
    
    64
    
    
    DirectorGregory K. Mondre
    
    
    31
    
    
    DirectorMark E. Nunnelly
    
    
    47
    
    
    DirectorDavid Peterschmidt
    
    
    58
    
    
    DirectorDavid J. Roux
    
    
    49
    
    
    Director




Anthony J. Affuso, Chairman, Chief Executive Officer and President


Gregory F. Back


Andrew B. Balson


99



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##### Table of Contents



Douglas E. Barnett, Senior Vice President and Chief Financial Officer
 L. Dale Crandall
 John K. Graham, Executive Vice President  Global Sales and Services
 Charles C. Grindstaff, Executive Vice President Products
 Patrick T. Hackett
 Thomas M. Lemberg, Senior Vice President, General Counsel and Secretary
 Paul David Miller, Admiral, United States Navy (Retired)
 100




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##### Table of Contents



Gregory K. Mondre
 Mark E. Nunnelly
 David Peterschmidt
 David J. Roux
 David J. Shirk, Executive Vice President Global Marketing
 Corporate Governance
  Board Committees
   101




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##### Table of Contents



Code of Ethics
  
 ITEM 11: EXECUTIVE COMPENSATION
  Annual Compensation(1)AwardsSecuritiesUnderlyingFiscal
    
    
    
    
    
    
    
    
    
    Restricted
    
    Options/SARs
    
    All OtherYear
    
    Salary($)
    
    Bonus($)
    
    Stock Awards
    
    (#)(2)
    
    Compensation($)(3)Anthony J. Affuso
Chairman, Chief
Executive Officer and
    
    
    2005
    
    
    
    500,000
    
    
    
    876,249
    
    
    
    
    
    
    
    
    
    
    
    9,056President
    
    
    2004
    
    
    
    500,000
    
    
    
    1,250,000
    
    
    
    76,000
    
    
    
    1,410,344
    
    
    
    2,010Douglas E. Barnett
Senior Vice President and
    
    
    2005
    
    
    
    345,000
    
    
    
    163,500
    
    
    
    
    
    
    
    
    
    
    
    5,600Chief Financial Officer(4)
    
    
    2004
    
    
    
    206,667
    
    
    
    570,000
    
    
    
    
    
    
    
    425,000
    
    
    
    34,031John Graham
Executive Vice President,
Global Sales and Services (5)
    
    
    2005
    
    
    
    308,749
    
    
    
    126,000
    
    
    
    
    
    
    
    550,000
    
    
    
    7,400Charles C. Grindstaff
Executive Vice
    
    
    2005
    
    
    
    400,000
    
    
    
    483,814
    
    
    
    
    
    
    
    
    
    
    
    14,761President, Products
    
    
    2004
    
    
    
    338,583
    
    
    
    813,873
    
    
    
    22,000
    
    
    
    702,994
    
    
    
    2,050David J. Shirk
Executive Vice President,
Global Marketing (6)
    
    
    2005
    
    
    
    298,276
    
    
    
    173,000
    
    
    
    
    
    
    
    260,000
    
    
    
    52,040
 
 (1)
    
    None of the named executive officers received personal benefits or other annual compensation
in 102




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##### Table of Contents



excess of the lesser of $50,000 or 10% of the combined salary and bonus in each respective
year. Personal benefits which may have been received by Messrs. Affuso and Grindstaff prior to
the acquisition of UGS PLM Solutions Inc. in 2004 have not been included.(2)
    
    Options grants include options for Class A-4 common stock, Class L common stock and preferred
stock. See Option Grantsbelow.(3)
    
    We provide the named executive officers with certain group insurance and other non-cash
benefits generally available to all salaried employees, which are not included in this column
pursuant to SEC rules. The amounts shown in this column include the following:
 
    
    For Mr. Affuso: matching contributions under the UGS 401(k) plan of $9,056 for 2005 and
by EDS under the EDS 401(k) plan of $2,011 for 2004.
    
    For Mr. Barnett: matching contributions under the UGS 401(k) plan of $5,600 and $4,433
for 2005 and 2004, respectively; and reimbursement of relocation expenses of $29,598 for
2004.
    
    For Mr. Graham: matching contributions under the UGS 401(k) plan of $7,400.
    
    For Mr. Grindstaff: matching contributions under the UGS 401(k) plan of $5,600 for 2005
and by EDS under the EDS 401(k) plan of $2,050 for 2004; and reimbursement of relocation
expenses of $9,161 for 2005.
    
    For Mr. Shirk: matching contributions under the UGS 401(k) plan of $6,530; and
reimbursement of relocation expenses of $45,511.
 (4)
    
    Mr. Barnett joined us in May 2004.(5)
    
    Mr. Graham joined us in January 2005.(6)
    
    Mr. Shirk joined us in January 2005.
 Employment Agreements
   103




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Change in Control Policy
  Option/SAR Grants
  Individual Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    Potential RealizableNumber of
    
    Percent of Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value at AssumedSecurities
    
    Options/SARs
    
    
    
    
    
    Market
    
    
    
    
    
    Annual Rates of
    
    Grant DateUnderlying
    
    Granted to
    
    Exercise of
    
    Price on
    
    
    
    
    
    Stock Price for
    
    PresentOptions/SARs
    
    Employees in
    
    Base Price
    
    Grant date
    
    
    
    
    
    Option Term
    
    ValueName
    
    Granted (#)
    
    Fiscal Year (%)
    
    ($/Sh)
    
    ($/Sh)
    
    Expiration Date
    
    5%($)
    
    10%($)
    
    0%($)John Graham
    
    
    250,000
    (1)
    
    
    8.7
    
    
    
    1.00
    
    
    
    3.80
    
    
    
    1/13/2015
    
    
    
    1,297,450
    
    
    
    2,214,055
    
    
    
    700,000John Graham
    
    
    350,000
    (1)
    
    
    10.5
    
    
    
    7.80
    
    
    
    7.80
    
    
    
    11/28/2015
    
    
    
    1,471,613
    
    
    
    3,729,357
    
    
    
    David Shirk
    
    
    260,000
    (1)
    
    
    9.0
    
    
    
    1.00
    
    
    
    3.80
    
    
    
    1/14/2015
    
    
    
    1,349,348
    
    
    
    2,302,618
    
    
    
    728,000
 
 (1)
    
    Option grant is for shares of Class A-4 common stock pursuant to the 2004 Management
Incentive Plan. See 2004 Management Incentive Planbelow. The Stock Option Agreement provides
for a five year (60 month) vesting schedule with 20% of the shares vesting on the one year
anniversary of the grant date and an additional 1.67% of the shares vesting after the last day
of each month during the four year period following the one year anniversary of the grant of
the Option. The Options have a ten year term. Upon termination of employment, all unvested
options are forfeited. Upon certain events following a change in control, the options will
fully vest and the optionee has 90 days to exercise the options. See Change in Control Policy.  104




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Value ofUnexercisedShares
    
    
    
    
    
    Number of Securities
    
    In-the-MoneyAcquired on
    
    Value
    
    Underlying Unexercised
    
    Options at FiscalUnderlying Class
    
    Exercise
    
    Realized
    
    Options at Fiscal Year-End
    
    Year-EndName
    
    of Equity
    
    (#)(1)
    
    ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableAnthony J. Affuso
    
    Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    396,667
    
    
    
    1,003,333
    
    
    $
    2,697,336
    
    
    $
    6,822,664Anthony J. Affuso
    
    Class L Common Stock
    
    
    5,278
    
    
    
    427,499
    
    
    
    
    
    
    
    3,167
    
    
    
    
    
    
    
    Anthony J. Affuso
    
    Preferred Stock
    
    
    475
    
    
    
    47,500
    
    
    
    713
    
    
    
    713
    
    
    
    
    
    
    
    Douglas E. Barnett
    
    Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    120,417
    
    
    
    304,583
    
    
    
    818,836
    
    
    
    304,583Charles C.
Grindstaff
    
    Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    198,333
    
    
    
    501,667
    
    
    
    1,348,664
    
    
    
    3,411,336Charles C.
Grindstaff
    
    Class L Common Stock
    
    
    
    
    
    
    
    
    
    
    1,528
    
    
    
    917
    
    
    
    
    
    
    
    Charles C.
Grindstaff
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    206
    
    
    
    
    
    
    
    John Graham
    
    Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550,000
    
    
    
    
    
    
    
    3,740,000David J. Shirk
    
    Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,000
    
    
    
    
    
    
    
    1,768,000
 
 (1)
    
    Does not include exercises, if any, of shares of the common stock of EDS. Employee Plans
 Executive Bonus Plan
  Retention Bonuses
  105




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2004 Management Incentive Plan
  Director Compensation
  106




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Compensation Committee Interlocks and Insider Participation
  
 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
     107




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Shares of
    
    Percent of
    
    Shares of
    
    Percent ofClass A
    
    Class A
    
    Class L
    
    Class LName and Address
    
    Common Stock
    
    Common Stock
    
    Common Stock
    
    Common StockBain Capital Partners VI, L.P.
and Related Funds(1)
    
    
    27,520,000
    
    
    
    32.6
    %
    
    
    3,057,778
    
    
    
    33.2
    %Silver Lake Partners, L.P. and
Related Funds(2)
    
    
    27,520,000
    
    
    
    32.6
    %
    
    
    3,057,778
    
    
    
    33.2
    %Warburg Pincus Private Equity
VIII, L.P. and Related
Funds(3)
    
    
    27,520,000
    
    
    
    32.6
    %
    
    
    3,057,778
    
    
    
    33.2
    %Anthony J. Affuso(4)
    
    
    628,381
    
    
    
    *
    
    
    
    12,595
    
    
    
    *The Anthony James Affuso and
Lorraine Perkins Affuso
Revocable Trust(5)
    
    
    12,000
    
    
    
    *
    
    
    
    1,333
    
    
    
    *Douglas E. Barnett (6)
    
    
    161,667
    
    
    
    *
    
    
    
    2,222
    
    
    
    *Charles C. Grindstaff(7)
    
    
    257,381
    
    
    
    *
    
    
    
    1,675
    
    
    
    *John K. Graham (8)
    
    
    58,333
    
    
    
    *
    
    
    
    
    
    
    
    *David J. Shirk (9)
    
    
    60,667
    
    
    
    *
    
    
    
    
    
    
    
    *Gregory F. Back(10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Andrew B. Balson(11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    L Dale Crandall
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Patrick T. Hackett(10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paul David Miller
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gregory K. Mondre(12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark E. Nunnelly(11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David Peter Schmidt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David J. Roux(12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All directors and executive
officers as a group
    
    
    1,267,096
    
    
    
    1.5
    %
    
    
    19,159
    
    
    
    *
 
 *
    
    indicates less than 1% of common stock(1)
    
    Represents shares owned by the following group of investment funds affiliated with Bain
Capital: (i) 21,372,116 shares of Class A common stock and 2,355,682 shares of Class L common
stock owned by Bain Capital Integral Investors, LLC, whose administrative member is Bain
Capital Fund VII, L.P., whose General Partner is Bain Capital Partners VI, L.P., whose General
Partner is Bain Capital Investors, LLC, (ii) 6,000,000 shares of Class A common stock and
666,667 shares of Class L common stock owned by Bain Capital VII Coinvestment Fund, LLC, whose
sole member is Bain Capital VII Coinvestment Fund, L.P., whose sole General Partner is Bain
Capital Partners VII, L.P., whose sole General Partner is Bain Capital Investors, LLC, and
(iii) 147,884 shares of Class A common stock and 35,429 shares of Class L common stock owned
by BCIP TCV, LLC, whose managing partner is Bain Capital Investors, LLC. The address is c/o
Bain Capital, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199.(2)
    
    Represents shares owned by the following group of investment funds affiliated with Silver
Lake Partners, L.P.: (i) 26,078,366 shares of Class A common stock and 2,897,596 shares of
Class L common stock owned by Silver Lake Partners, L.P., the General Partner of which is
Silver Lake Technology Associates, L.L.C., (ii) 733,819 shares of Class A common stock and
81,535 shares of Class L common stock owned by Silver Lake Investors, L.P., the General
Partner of which is Silver Lake Technology Associates, L.L.C., (iii) 157,414 shares of Class A
common stock and 17,490 shares of Class L common stock owned by Silver Lake Technology
Investors, L.L.C., the Manager of which is Silver Lake Technology Management, L.L.C., and (iv)
550,400 shares of Class A common stock and 61,156 shares of Class L common stock owned by
Integral Capital Partners VI, L.P. The address is c/o Silver Lake Partners, 2725 Sand Hill
Road, Suite 150, Menlo Park, California 94025.(3)
    
    Represents shares owned by the following group of investment funds affiliated with Warburg
Pincus & Co.: (i) 13,334,831 shares of Class A common stock and 1,481,648 shares of Class L common
stock owned by Warburg Pincus Private Equity VIII, L.P., (ii) 226,757 shares of Class A
common stock and 25,195 shares of Class L common stock owned by Warburg Pincus Netherlands
Private Equity VIII I, C.V., (iii) 159,760 shares of Class A common stock and 17,751 shares
of Class L common stock owned by Warburg Pincus Netherlands Private Equity VIII II, C.V.,
(iv) 38,652 shares of Class A common stock and 4,295 shares of Class L common stock owned by
Warburg 108




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##### Table of Contents



Pincus Germany Private Equity VIII, K.G., (v) 13,189,235 shares of Class A common
stock and 1,465,471 shares of Class L common stock owned by Warburg Pincus International
Partners, L.P., (vi) 330,240 shares of Class A common stock and 36,693 shares of Class L
common stock owned by Warburg Pincus Netherlands International Partners I, C.V., (vii)
220,160 shares of Class A common stock and 24,462 shares of Class L common stock owned by
Warburg Pincus Netherlands International Partners II, C.V., and (viii) 20,365 shares of Class
A common stock and 2,263 shares of Class L common stock owned by Warburg Pincus Germany
International Partners, K.G. The above mentioned investment funds are managed by Warburg
Pincus LLC. The address is c/o Warburg Pincus, 466 Lexington Avenue, New York, New York
10017.(4)
    
    Includes 466,667 shares of Class A-4 common stock issuable pursuant to options exercisable
within 60 days.(5)
    
    These shares are jointly and beneficially owned by Anthony J. Affuso and Lorraine P. Affuso.(6)
    
    Includes 141,667 shares of Class A-4 common stock issuable pursuant to options exercisable
within 60 days.(7)
    
    Includes 233,333 shares of Class A-4 common stock issuable pursuant to options exercisable
within 60 days and 1,528 shares of Class L common stock issuable pursuant to options
exercisable within 60 days.(8)
    
    Includes 58,333 shares of Class A-4 common stock issuable pursuant to options exercisable
within 60 days.(9)
    
    Includes 60,667 shares of Class A-4 common stock issuable pursuant to options exercisable
within 60 days.(10)
    
    Messrs. Back and Hackett are general partners of Warburg Pincus & Co. and managing directors
and members of Warburg Pincus LLC. Messrs. Back and Hackett disclaim beneficial ownership of
all shares owned by the Warburg Pincus entities. Messrs. Back and Hackett have an address c/o
Warburg Pincus, 466 Lexington Avenue, New York, New York 10017.(11)
    
    Mr. Balson and Mr. Nunnelly are Managing Directors and members of Bain Capital Partners, LLC.
(BCI). BCI serves as the Managing Member of each of Bain Capital Integral Investors, LLC and
BCIP TCV, LLC. BCI also serves as the General Partner of Bain Capital Partners VII, L.P., the
General Partner of Bain Capital VII Coinvestment Fund, L.P., the sole member of Bain Capital
VII Coinvestment Fund, LLC. Messrs. Balson and Nunnelly disclaim beneficial ownership of any
shares held by the Bain entities except to the extent of their respective pecuniary interest
therein. Messrs. Balson and Nunnelly have an address c/o Bain Capital, LLC, 111 Huntington
Avenue, Boston, Massachusetts 02199.(12)
    
    Messrs. Roux and Mondre are Managing Directors of Silver Lake Partners. They disclaim any
beneficial ownership of any shares beneficially owned by the Silver Lake except to the extent
of any pecuniary interest therein . The address for Messrs. Mondre and Roux is: c/o Silver
Lake Partners, 2725 Sand Hill Road, Suite 150, Menlo Park, California 94025. 
 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Stockholders and Investor Agreements
  109




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Management Agreement
  
 ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditor
 110




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111




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PART IV
 
 ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    ExhibitNumber
    
    Description2.1
    
    Stock Purchase Agreement among BSW Holdings, Inc.,
Electronic Data Systems Corporation and UGS PLM Solutions
Inc. dated as of March 12, 2004 (1)2.2
    
    Agreement of Merger among Tecnomatix Technologies Ltd., UGS
Corp. and Treasure Acquisition Sub. Ltd. dated January 3,
2005 (2)3.1
    
    Certificate of Incorporation of UGS Corp.(1)3.2
    
    By-laws of UGS Corp.(1)4.1
    
    Indenture, dated as of May 27, 2004, by and among UGS Corp.,
the Guarantors named therein and U.S. Bank National
Association, as Trustee, with respect to the 10% Senior
Subordinated Notes due 2012.(1)4.2
    
    Supplemental Indenture, dated as of March 17, 2005, by and
among UGS Corp., the Guarantors named therein and U.S. Bank
National Association, as Trustee, with respect to the 10%
Senior Subordinated Notes due 2012.(1)4.3
    
    Registration Rights Agreement, dated as of May 27, 2004, by
and among UGS Corp., UGS PLM Solutions International Inc.,
UGS PLM Solutions Asia/Pacific Incorporated, UGS Japanese
Holdings, Inc., and UGS European Holdings, Inc. and
Citigroup Global Markets Inc., J.P. Morgan Securities Inc.
and Morgan Stanley & Co. Incorporated.(1)4.4
    
    Form of 10% Senior Subordinated Notes due 2012 (contained in
Exhibit 4.1).(1)10.1
    
    Amended and Restated Credit Agreement, dated as of February
28, 2005, by and among UGS Corp., JPMorgan Chase Bank, the
Other Lenders Party thereto, Citicorp North America, Inc.,
as syndication agent and Morgan Stanley Senior Funding, Inc.
and Wells Fargo Foothill, LLC, as co-documentation agents,
and J.P. Morgan Securities Inc. and Citigroup Global Markets
Inc. as joint lead arrangers and joint bookrunners.(1)10.2
    
    Security Agreement, dated as of May 27, 2004, between UGS
Corp., the Grantors named therein and JPMorgan Chase Bank,
as administrative agent.(1)10.3
    
    Security Agreement Supplement, dated as of March 17, 2004,
by UGS Israeli Holdings, Inc.(1)10.4
    
    Holdings Guaranty, dated as of May 27, 2004, from UGS
Holdings, Inc. as Guarantor in favor of the secured parties
referred to in the Credit Agreement referred to therein.(1)10.5
    
    Management Agreement, dated as of May 24, 2004, by and among
UGS Corp., UGS Capital Corp., UGS Capital Corp. II, UGS
Holdings, Inc., Bain Capital Partners, LLC, Silver Lake
Technology Management, L.L.C., and Warburg Pincus LLC.(1)10.6*
    
    Employment Agreement between UGS Corp. and Anthony J. Affuso
dated March 1, 2004.(1)
 112




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##### Table of Contents



ExhibitNumber
    
    Description10.7*
    
    Employment Agreement between UGS and Charles C. Grindstaff
dated July 15, 2000, Supplemental Bonus Agreement dated
September, 2003, and Retention Bonus Agreement dated
February 16, 2004.(1)10.8*
    
    Employment Offer Letter between UGS Corp. and John Graham
dated December 2, 200410.9*
    
    Employment Agreement between UGS Corp. and David J. Shirk
dated December 18, 2004.(1)10.10*
    
    Employment Offer Letter between UGS Corp. and Douglas E.
Barnett dated April 26, 2004.(1)10.11*
    
    Employment Offer Letter between UGS Corp. and Thomas M.
Lemburg dated May 7, 2004.(1)10.12*
    
    Rollover Agreement among Anthony J. Affuso, UGS Corp., UGS
Capital Corp. and UGS Capital Corp. II, dated May 18, 2004,
together with Class A Common Stock, Class L Common Stock and
Preferred Stock Restricted Stock Awards pursuant thereto.(1)10.12A*
    
    Agreement among UGS Capital Corp., UGS Capital Corp. II, UGS Corp. and
Anthony J. Affuso, dated July 8, 2005.10.13*
    
    Rollover Agreement among Charles C. Grindstaff, UGS Corp.,
UGS Capital Corp. and UGS Capital Corp. II, dated May 18,
2004, together with Class A Common Stock, Class L Common
Stock and Preferred Stock Restricted Stock Awards pursuant
thereto.(1)10.13A*
    
    Agreement among UGS Capital Corp., UGS Capital Corp. II, UGS Corp. and
Charles C. Grindstaff, dated July 8, 2005.10.14
    
    Amended and Restated Investor Agreement, dated as of May 24,
2004, by and among UGS Capital Corp., UGS Capital Corp. II,
UGS Holdings, Inc., UGS Corp. and the Investors named
therein.(1)10.15
    
    Stockholders Agreement, dated as of May 24, 2004, by and
among UGS Capital Corp., UGS Capital Corp. II, UGS Holdings,
Inc., UGS Corp. and Certain Stockholders of UGS Capital
Corp. and UGS Capital Corp. II named therein.(1)10.16
    
    Participation and Registration Rights Agreement, dated as of
May 24, 2004, by and among UGS Capital Corp., UGS Capital
Corp. II, UGS Holdings, Inc., UGS Corp. and Certain
Stockholders of UGS Capital Corp. and UGS Capital Corp. II
named therein.(1)10.17*
    
    2004 Management Incentive Plan of UGS Capital Corp. and UGS
Capital Corp II.(1)10.18*
    
    Form of Stock Option Agreement of UGS Capital Corp. and UGS
Capital Corp. II.(1)10.19*
    
    Change of Control Policy of UGS Corp.(1)10.20*
    
    Indemnification Policy of UGS Corp.(1)10.21*
    
    Outside Director Compensation Package(3)10.22*
    
    Executive Bonus Plan21
    
    Subsidiaries of UGS Corp.31.1
    
    Certification of President and Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a)31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a)32.1
    
    Certification of President and Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350
 
 *   Indicates a management contract or compensatory plan or arrangement.(1) Incorporated by reference to Registration Statement on Form S-4 (file no. 333-123664)
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SIGNATURES
  UGS CORP./s/ Anthony J. AffusoAnthony J. AffusoChairman, Chief Executive Officer and President  Signature
    
    Title/s/ Anthony J. Affuso

Anthony J. Affuso
    
    Chairman, Chief Executive Officer and PresidentPrincipal Executive Officer/s/ Douglas E. Barnett

Douglas E. Barnett
    
    Chief Financial OfficerPrincipal Financial and Accounting Officer/s/ Gregory F. Back

Gregory F. Back
    
    Director/s/ Andrew B. Balson

Andrew B. Balson
    
    Director/s/ L. Dale Crandall

L. Dale Crandall
    
    Director/s/ Patrick T. Hackett

Patrick T. Hackett
    
    Director/s/ Paul David Miller

Paul David Miller
    
    Director/s/ Greg Mondre

Greg Mondre
    
    Director/s/ Mark E. Nunnelly

Mark E. Nunnelly
    
    Director/s/ David Peterschmidt

David Peterschmidt
    
    Director/s/ David J. Roux

David J. Roux
    
    Director
 115