UGS Reports Third Quarter Results; PLM Industry Leader Marks Solid Progress on Strategic Plan

PLANO, Texas – UGS Corp., a leading global provider of product lifecycle management (PLM) software and services, today announced third quarter 2006 results. 

Third quarter financial highlights include:

• EBITDA (defined below) was US$69.1 million, or an 8.3 percent growth over the same period a year earlier.  Net income (loss) for the third quarter was US$(7.4) million.
  
• Operating income was US$15.9 million and includes the impact of acquisition-related intangible amortization costs of US$38.5 million.  Operating income in the same period a year earlier was US$19.3 million and included acquisition-related amortization costs of US$39.2 million.
  
• Total revenue increased to US$295.5 million, 1.8 percent growth over the same period a year earlier. 
  
• Software revenue increased to US$223.1 million (including license and maintenance revenues), or 1.6 percent growth as compared to the third quarter 2005. 
  
• Revenue amounts are not adjusted for the impact of deferred revenues written off in connection with acquisitions.  These write-offs had the effect of reducing third quarter 2006 revenues by US$0.3 million and 2005 revenues by US$2.2 million. 

Year-to-date highlights include:

• EBITDA (defined below) was US$186.5 million, or a 25.3 percent growth over the same period a year earlier.  Net income (loss) for the first nine months of the year was US$(33.0) million.    
  
• Operating income was US$20.6 million and includes the impact of acquisition-related intangible amortization costs of US$116.8 million.  Operating income in the same period a year earlier was US$36.3 million and included acquisition-related amortization costs of US$111.6 million.
  
• Total revenue increased to US$866.0 million, 4.6 percent growth over the same period a year earlier. 
  
• Software revenue increased to US$649.4 million (including license and maintenance revenues), or 5.7 percent growth as compared to the same period a year earlier. 
  
• Revenue amounts are not adjusted for the impact of deferred revenues written off in connection with acquisitions.  These write-offs had the effect of reducing year-to-date 2006 revenues by US$0.7 million and 2005 revenues for the same nine month period by US$10.2 million. 

Other financial highlights:

• Net cash from operating activities was US$111.6 million for the first nine months of the year.
  
• Long term debt as of Sept. 30, 2006, was US$1,155.3 million compared to a balance of US$1,212.0 million as of Dec. 31, 2005.  This includes a debt pay-down of US$62.3 million.

“We’ve continued to be successful at working our strategic plan while still focusing on expanding our EBITDA and cash flow, and retooling our sales engine.  Our continued product excellence and focus on customer success earned us contracts or additional business in the quarter with such companies as Boeing, DaimlerChrysler, Unilever, Visteon, Bosch Siemens, Northrop Grumman Ship Systems, Bayer Healthcare and the Jet Propulsion Lab,” said Tony Affuso, chairman, CEO and president of UGS.  “These contracts reflect the confidence we are receiving across the board from the market, as highlighted most notably by our ranking in the leaders quadrant of the new Gartner Magic Quadrant. 

“As always, we continue to focus on customer success, and as a result our retention rate is higher than ever and our maintenance revenue continues to grow solidly.”

Business Highlights

• UGS signed a new reseller agreement with Microsoft that extends the strategic alliance the two companies announced earlier this year.  Under the new agreement, UGS becomes the first PLM company authorized to sell SQL Server 2005, Microsoft’s flagship database software, directly to companies looking for a comprehensive PLM solution fully supported on the Microsoft® platform.
  
• PRTM, internationally recognized as the leading management consulting firm to technology-driven companies, joined the UGS Partner Program as a UGS Consulting and Systems Integration Alliance Partner.
  
• In the mid-market and channel space, UGS recorded a 35 percent increase in its indirect channel license revenue year-over-year and met its year-end channel capacity goal to increase the channel by 50 percent.
  
• Ford Motor Company expanded its global deployment of Teamcenter to include Tecnomatix as the global manufacturing data management and manufacturing process planning system to support process driven product design.  This solution will enable the reduction of overall vehicle development cycle time by promoting concurrent engineering and globally distributing relevant data.
  
• An example of UGS’ success in I-deas to NX migration was captured in a third quarter win with Larsen & Toubro Limited, India’s largest technology-driven engineering and construction company.  Through the migration, Larsen & Toubro consolidated multiple CAD systems and expanded into PLM.
  
• Wanfeng Auto Holding Group, a leader in China’s auto industry and the largest aluminum alloy wheel producer in Asia, selected UGS’ Teamcenter® Express software for its first collaborative product data management (cPDM) system.

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

UGS will host its third quarter 2006 earnings call with securities analysts live on the Internet at 10:30 a.m. Central time, Monday, Nov. 13, 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,Femap, 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.  Microsoft is a trademark or registered mark of Microsoft Corporation 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, expected cost savings related to acquisitions, 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, substantial, prolonged economic downturns, financial distress in the automotive industry, international operations and exchange rate fluctuations, terrorist activities, acquisitions, changes in pricing models, intellectual property, loss of key employees and complexity of income tax assessments. UGS has included a discussion of these and other pertinent risk factors in its quarterly report on Form 10-Q for the period ended June 30, 2006 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.

UGS Corp.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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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 as an indicator of our operating performance.  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. We consider EBITDA to be a key indicator of our ability to pay our debt.  We have included information concerning EBITDA because we use such information in determining compensation of our management and in our review of the performance of our business.  EBITDA as presented herein are not necessarily comparable to similarly titled measures.  The following is a reconciliation of EBITDA to net loss, the GAAP measure we believe to be most directly comparable to EBITDA (in thousands).