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14 August 2006

UGS Reports Second Quarter Revenue of US$296.7 Million; Performance Marks 12th Consecutive Quarter of Revenue Growth for PLM Industry Leader

FOR RELEASE Monday, August 14, 2006

PLANO, Texas – UGS Corp., a leading global provider of product lifecycle management (PLM) software and services, today announced second quarter 2006 results.  Second quarter financial highlights include:

  • Total revenue increased to US$296.7 million, 4 percent growth over the same period a year earlier.
  • Software revenue increased to US$221.2 million (including license and maintenance revenues), or 5 percent growth as compared to the second quarter 2005. 
  • Total revenue and software revenue increased in each geographic region compared to the same period in 2005.
  • cPDM software revenue grew 18 percent over the same period a year earlier.  (cPDM represents Teamcenter software revenue and excludes digital manufacturing software revenue.)
  • EBITDA (defined below) was US$69.3 million, or an 80 percent growth over the same period a year earlier.
  • Operating income increased to US$10.1 million and includes the impact of acquisition-related intangible amortization costs of US$39.1 million.
  • These amounts are not adjusted for the impact of deferred revenues written off in connection with acquisitions.  These write-offs had the effect of reducing second quarter 2006 revenues by US$0.2 million and 2005 revenues by US$3.4 million. 

“We continue our drive to sustain solid growth and improve operating income while we focus on executing our strategic plan to position the company for enhanced growth,” said Tony Affuso, chairman, CEO and president of UGS.  “As we complete the reorganization of our sales force to focus on verticals and mid-market channels, we are currently adding needed sales capacity.  We have seen early progress in our mid-market channel strategy marked by strong double digit software growth in the quarter.  During the second quarter we also continued to receive third-party accolades for our software and service through such prestigious designations as being named a Caterpillar Strategic Supplier, the Honda Engineering Supplier of the Year Award, Ford’s Q1 Certification, GM’s Supplier of the Year Award and Frost & Sullivan’s PLM Company of the Year Award.”

Business Highlights

  • UGS mid-market approach continued to gain steam through UGS Velocity Series™ portfolio wins as well as increased channel expansion.  Second quarter indirect channel revenue increased by 30 percent, and the company signed more than 50 new partners in the first half of the year. (see separate release) 
  • Kaltenbach Maschinenfabrik GmbH & Co. KG, a global supplier of machine tools, has selected Solid Edge® 3D CAD software to develop its range of circular and band saw machines as well as sectional steel processing systems.  Following evaluation of several competing products, Kaltenbach selected Solid Edge for its flexibility, user-friendly design and support.  (see separate release)
  • Radkersburger Metallwarenfabrik, an Austrian-based die manufacturer, has selected NX CAM Express® software for manufacturing its deep drawing dies.  (see separate release)
  • UGS today announced an original equipment manufacturer (OEM) agreement with China’s Jilin University (JLU) to integrate one-step formability analysis technology developed by JLU into NX™ software, UGS’ digital product development solution. The technology, developed by JLU’s Institute of Auto-body and Die Engineering (IADE), helps improve design and manufacturing processes and is expected to be available in NX commercially in the third quarter of 2006. (see separate release)

The company expects to realize revenue from the contracts highlighted above over multiple quarters.

UGS will host its second quarter 2006 earnings call with securities analysts live on the Internet at 10:30 a.m. Central time, Monday, August 14, 2006.  Presentation slides will be posted on www.ugs.com at 8:30 a.m. Central time.  See below for webcast/teleconference access information. 

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About UGS UGS is a leading global provider of product lifecycle management (PLM) software and services with nearly 4 million licensed seats and 46,000 customers worldwide.  Headquartered in Plano, Texas, UGS’ vision is to enable a world where organizations and their partners collaborate through global innovation networks to deliver world-class products and services while leveraging UGS’ open enterprise solutions, fulfilling the mission of enabling them to transform their process of innovation.  Note:  UGS, JT, NX, Solid Edge, Teamcenter, Tecnomatix, Velocity Series and Transforming the process of innovation are trademarks or registered trademarks of UGS Corp. or its subsidiaries in the United States and in other countries.  All other trademarks, registered trademarks or service marks belong to their respective holders.

The statements in this news release that are not historical statements, including statements regarding our business, results of operations expected financial performance and other statements identified by forward looking terms such as "may," "will," "expect," "plan," "anticipate" or "project," are forward-looking statements. These statements are subject to numerous risks and uncertainties which could cause actual results to differ materially from such statements, including, among others, risks relating to developments in the PLM industry, loss or downsizing of customers, competition, failure to innovate, international operations and exchange rate fluctuations, terrorist activities, acquisitions, changes in pricing models, intellectual property and losses of key employees. UGS has included a discussion of these and other pertinent risk factors in its annual report on  Form 10-K  most recently filed with the SEC.  UGS disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)

 

 

 

 

 

 

 

 

 

Three months

Three months

 

ended

ended

 

June 30, 2006

June 30, 2005

Revenue:

 

 

License

  $        86,017

  $        81,777

Maintenance

          135,142

          128,301

Services and other

            75,500

            74,932

Total revenue

          296,659

          285,010

Cost of revenue:

 

 

License

              2,175

              5,944

Maintenance

            15,695

            14,495

Services and other

            57,167

            66,701

Amortization of capitalized software and acquired intangible assets

            37,713

            31,038

Total cost of revenue

          112,750

          118,178

Gross profit

          183,909

          166,832

Operating expenses:

 

 

Selling, general and administrative

          117,850

          110,410

Research and development

            47,388

            38,659

In-process research and development

                   —

              4,100

Restructuring

                   —

              1,774

Amortization of other intangible assets

              8,547

              8,739

Total operating expenses

          173,785

          163,682

Operating income

            10,124

              3,150

Interest expense and amortization of deferred financing fees

           (26,520)

           (25,216)

Other income (expense), net

              7,703

             (8,583)

Loss before income taxes

             (8,693)

           (30,649)

Benefit for income taxes

             (2,274)

             (8,625)

Net loss

  $         (6,419)

  $       (22,024)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

Six months

Six months

 

ended

ended

 

June 30, 2006

June 30, 2005

Revenue:

 

 

License

  $      165,527

  $      154,896

Maintenance

          260,831

          239,908

Services and other

          144,095

          142,771

Total revenue

          570,453

          537,575

Cost of revenue:

 

 

License

              6,099

            10,400

Maintenance

            30,800

            27,858

Services and other

          113,105

          122,697

Amortization of capitalized software and acquired intangible assets

            74,759

            57,224

Total cost of revenue

          224,673

          218,179

Gross profit

          345,780

          319,396

Operating expenses:

 

 

Selling, general and administrative

          225,661

          205,579

Research and development

            98,613

            74,640

In-process research and development

                   —

              4,100

Restructuring

                (535)

              1,774

Amortization of other intangible assets

            17,366

            16,309

Total operating expenses

          341,105

          302,402

Operating income

              4,675

            16,994

Interest expense and amortization of deferred financing fees

           (52,967)

           (46,379)

Other income (expense), net

              9,937

           (13,407)

Loss before income taxes

           (38,355)

           (42,792)

Benefit for income taxes

           (12,782)

           (12,599)

Net loss

  $       (25,573)

  $       (30,193)

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

 

June 30,

December 31,

Assets:

2006

2005

Current assets

 

 

Cash and cash equivalents

   $       61,472

   $       61,532

Accounts receivable, net

          258,645

          251,763

Prepaids and other

            29,206

            22,389

Deferred income taxes

            17,351

            26,471

Total current assets

          366,674

          362,155

 

 

 

Property and equipment, net

            32,031

            36,645

Goodwill

       1,416,422

       1,393,472

Capitalized and acquired software, net

          434,919

          464,994

Customer accounts, net

          190,095

          203,064

Other intangible assets, net

          124,032

          135,265

Other assets

            36,910

            39,623

Total assets

   $  2,601,083

   $  2,635,218

 

 

 

Liabilities and Stockholder’s Equity:

 

 

Current liabilities

 

 

Accounts payable and accrued liabilities

   $     146,489

   $     159,976

Deferred revenue

          173,827

          133,027

Income taxes payable

              9,245

            11,895

Current portion of long-term debt

              6,500

                   —

Total current liabilities

          336,061

          304,898

 

 

 

Other long-term liabilities

            63,770

            48,511

Deferred income taxes

          107,706

          147,440

Long-term debt

       1,180,970

       1,212,046

 

 

 

Stockholder’s equity

 

 

Common stock, $ .01 par value, 3,000 shares authorized; 100 issued and outstanding at June 30, 2006 and December 31, 2005

                  —

                  —

Additional paid-in capital

       1,011,626

       1,005,991

Retained deficit

           (88,775)

           (63,202)

Accumulated other comprehensive loss, net of tax

           (10,275)

           (20,466)

Total stockholder’s equity

          912,576

          922,323

Total liabilities and stockholder’s equity

   $  2,601,083

   $  2,635,218

 

EBITDA represents net income (loss) before interest expense, income taxes, depreciation and amortization.  Adjusted EBITDA is defined as EBITDA further adjusted to give effect to certain items, such as adjustments for purchase accounting, all of which are required in calculating covenant compliance under our senior secured credit facility.  Adjusted EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense as described below.  EBITDA and Adjusted EBITDA are not  recognized terms under generally accepted accounting principles, or GAAP.  EBITDA and Adjusted EBITDA do not represent net income, as that term is defined under GAAP, and should not be considered as an alternative to net income as an indicator of our operating performance.  Additionally, EBITDA and Adjusted EBITDA are not intended to be measures 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. UGS Corp. considers EBITDA and Adjusted EBITDA to be key indicators of our ability to pay our debt.  We have included information concerning EBITDA and Adjusted EBITDA because we use such information in determining compensation of our management and in our review of the performance of our business.  EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures.  The following is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the GAAP measure we believe to be most directly comparable to EBITDA and Adjusted EBITDA (in thousands).

 

 

 

Three months

 

Three months

 

ended

 

ended

 

June 30,

 

June 30,

 

2006

 

2005

Reconciliation of net loss to EBITDA:

 

 

Net loss

   $      (6,419)

 

   $    (22,024)

Interest expense

           26,520

 

           25,216

Benefit for income taxes

           (2,274)

 

           (8,625)

Depreciation and amortization

          51,441

 

          43,869

EBITDA

   $     69,268

 

   $     38,436

 

 

 

 

Reconciliation of EBITDA to Adjusted EBITDA:

 

 

EBITDA

   $     69,268

 

   $     38,436

Impact of revenue reduction resulting from purchase accounting (a)

                158

 

             3,438

Impact of in-process research

    and development (b)

                 —

 

             4,100

Restructuring (c)

                 —

 

            1,774

Other items (d)

             1,893

 

             2,226

Currency translation impact (e)

           (7,057)

 

             3,027

Initial Sarbanes-Oxley certification (f)

                 —

 

                400

Tecnomatix cost savings (g)

                 —

 

             4,650

Compensatory payments to managers (h)

            3,819

 

                 —

Adjusted EBITDA

   $     68,081

 

   $     58,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months

 

Six months

 

ended

 

ended

 

June 30,

 

June 30,

 

2006

 

2005

Reconciliation of net loss to EBITDA:

 

 

Net loss

   $    (25,573)

 

   $    (30,193)

Interest expense

           52,967

 

           46,379

Benefit for income taxes

         (12,782)

 

         (12,599)

Depreciation and amortization

        102,726

 

          81,403

EBITDA

   $   117,338

 

   $     84,990

 

 

 

 

Reconciliation of EBITDA to Adjusted EBITDA:

 

 

EBITDA

   $   117,338

 

   $     84,990

Impact of revenue reduction resulting from purchase accounting (a)

                347

 

             8,076

Impact of in-process research

    and development (b)

                 —

 

             4,100

Restructuring (c)

              (535)

 

            1,774

Other items (d)

             5,838

 

             4,263

Currency translation impact (e)

         (10,524)

 

             6,109

Initial Sarbanes-Oxley certification (f)

                 —

 

                875

Tecnomatix cost savings (g)

                 —

 

             4,650

Compensatory payments to managers (h)

            3,819

 

                 —

Adjusted EBITDA

   $   116,283

 

   $   114,837

 

 

 

 

 

(a) Removes the impact of recording the deferred revenue balance at its fair value in connection with the acquisition of UGS PLM Solutions Inc. and Tecnomatix Technologies, Ltd. (Tecnomatix), which had the effect of reducing revenue in periods subsequent to those acquisitions.

(b) Removes the impact of the write-off of acquired in-process research and development that resulted from the acquisition of Tecnomatix.

(c) Removes the impact of the restructuring.

(d) Represents the impact of management, consulting and advisory fees and related expenses paid to our parent companies and affiliates of each of our sponsors, severance related expenses, and expenses associated with our retention incentive plan for certain members of management.

(e) Represents the net effect of unrealized gains and losses from revaluing the non-U.S. dollar denominated intercompany debt that resulted from the acquisition of UGS PLM Solutions Inc. and from related hedging obligations used to offset foreign exchange currency balance sheet exposures.

(f) Includes one time costs associated with our initial Sarbanes-Oxley compliance.

(g) We acquired Tecnomatix on April 1, 2005. Accordingly, the operating results of Tecnomatix were included in our results of operations from the date of acquisition. This figure represents additional cost savings we anticipate achieving related to the Tecnomatix acquisition.

(h) Represents compensatory payments to certain managers of UGS Corp. from the capital contribution received from the parent companies.  The contribution was made with proceeds from UGS Capital Corp. II’s issuance of floating rate senior PIK notes.