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22 February 2007

UGS Reports Year-End Revenue of US $1.2 Billion

FOR RELEASE Thursday, February 22, 2007

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

  • Total revenue increased to US$352.7 million, or 8 percent growth over the same period a year earlier.  The company’s fourth quarter revenue included US$128.1 million in license revenue, or a 12 percent increase as compared to the fourth quarter 2005. 
  • EBITDA (defined below) was US$110.6 million, a 19 percent growth over the same period a year earlier. Net income was US$22.7 million, a 76 percent increase over the same period a year earlier.
  • Operating income was US$51.3 million, a 9 percent increase as compared to the fourth quarter 2005.
  • License revenue for all product portfolios grew: Collaborative Product Development Management (cPDM) license revenue increased 22 percent, digital manufacturing license revenue increased 28 percent and UGS Velocity Series™ portfolio license revenue increased 30 percent over the same period a year earlier. CAx license revenue increased 2 percent over the same period a year earlier.
  • In the amounts presented above, the company has not made adjustments for the impact of deferred revenues written off in connection with the acquisition of the company and acquisitions by the company. These write-offs had the effect of reducing fourth quarter 2006 revenues by US$0.1 million and 2005 revenues by US$1.1 million.

Financial highlights from the full year 2006 include:

  • Total revenue increased to US$1.2 billion, a 6 percent growth over the same period a year earlier. The company’s 2006 revenue included US$379.2 million in license revenue, an increase of 6 percent as compared to 2005. 
  • EBITDA (defined below) was US$297.1 million, a 23 percent increase over the same period a year earlier. Net income (loss) was US$(10.3) million as compared to US$(10.0) million from the same period a year earlier.
  • Operating income was US$71.8 million, and represents a 14 percent decrease from the same period a year earlier, and includes the impact of total amortization expenses of US$190.8 million in 2006 compared to $160.8 million in 2005.
  • Within product portfolios, cPDM license revenue increased 11 percent, digital manufacturing license revenue increased 26 percent and UGS Velocity Series portfolio license revenue increased 19 percent over the same period a year earlier.
  • In the amounts presented above, the company has not made adjustments for the impact of deferred revenues written off in connection with the acquisition of the company and acquisitions by the company. These write-offs had the effect of reducing full year 2006 revenues by US$0.8 million and 2005 revenues by US$11.3 million.

“We are pleased with our strong performance in the quarter and that execution of our strategic plan delivered solid earnings and top-line organic revenue growth as planned, with 12 percent license revenue growth in the quarter,” said Tony Affuso, chairman, CEO and president of UGS. “Our vision continues to be supported by customers who are market leaders and invest in UGS PLM to further their global innovation networks. We look forward to more growth in 2007 driven by our world-class product portfolio to be enhanced with major releases of Teamcenter and NX.”

Business Highlights and Announcements

  • IBM and UGS recently announced a new agreement to support the cPDM requirements of small- to medium-sized businesses (SMBs) on a global basis. IBM and UGS will jointly market Teamcenter® Express software and services to SMB customers in six countries: the U.S., Canada, France, Germany, Japan and China. (see separate release
  • BIZERBA GmbH & Co. KG, a technology company for professional weighing and information technology system solutions, selected UGS’ NX®, Teamcenter and Geolus® search software solutions to enhance efficiency in the development and construction of its retail and compact scales. (see separate release)
  • Sichuan Changhong Electric Co., Ltd. (Changhong), a leader in China’s electronics industry, selected UGS’ Teamcenter product data management (PDM) solution for its PLM backbone. <<a href="http://www.ugs.com/about_us/press/press.shtml?id=5345">see separate release)
  • ThyssenKrupp Bilstein Brasil, a ThyssenKrupp Technologies Company, a major automotive supplier, selected UGS’ Velocity Series portfolio of products to address initiatives for enhancing speed to market, decreasing prototype costs and protect its intellectual property.
  • Advanced Integration Technology, L.P. (AIT), a provider of turnkey aerospace factory automation, including the design, fabrication, installation and maintenance of fully integrated plant floor systems, integrated Tecnomatix™ FactoryLink into its standard solution. AIT cited Tecnomatix’s flexibility, scalability and ease of use as key decision making factors for including it as a standard component of its automated assembly solution which helps the aerospace industry increase manufacturing efficiency.

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

    Other Events

    Because of the income tax impact of currency fluctuations on intercompany debt in one of the company’s foreign subsidiaries, the company is restating its earnings for 2004 and 2005 by increasing its deferred income tax expense in 2004 by a currently estimated amount of US$12.0 million and correspondingly increasing its deferred income tax benefit in 2005 by a currently estimated amount of US$12.0 million. There is no impact on the company’s cash flows from operations.

    UGS will host its year-end and fourth quarter 2006 earnings call with securities analysts live on the Internet at 11:30 a.m. Central time, Thursday, Feb. 22, 2007. Presentation slides will be posted on www.ugs.com prior to the call. 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 4.3 million licensed seats and 47,000 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, Geolus, NX, 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, 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

    (in thousands)

     

     

     

     

     

     

     

     

     

    Three months

     

    ended

     

    December 31, 2006

    December 31, 2005

    Revenue:

     

     

    License

      $      128,129

      $      114,248

    Maintenance

              142,754

              134,575

    Services and other

               81,866

               77,974

    Total revenue

             352,749

             326,797

    Cost of revenue:

     

     

    License

                  5,682

                  6,052

    Maintenance

                16,763

                14,094

    Services and other

                62,459

                60,629

    Amortization of capitalized software and acquired intangible assets

               40,149

               34,074

    Total cost of revenue

             125,053

             114,849

    Gross profit

             227,696

             211,948

    Operating expenses:

     

     

    Selling, general and administrative

              121,944

              107,491

    Research and development

                46,483

                48,494

    Amortization of other intangible assets

                 7,996

                 8,820

    Total operating expenses

             176,423

             164,805

    Operating income

                51,273

               47,143

    Interest expense and amortization of deferred financing fees

               (27,364)

               (26,161)

    Other income (expense), net

                 6,289

                (3,345)

    Income before income taxes

                30,198

               17,637

    Provision for income taxes

                 7,530

                 4,744

    Net income

     $        22,668

     $        12,893

     

       
     


     

     

    UGS Corp.

    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

    (in thousands)

     

     

     

     

     

     

     

     

     

    Year

     

    Ended

     

    December 31, 2006

    December 31, 2005

    Revenue:

     

     

    License

    $     379,183

      $      358,986

    Maintenance

            541,127

              504,189

    Services and other

           298,437

             291,446

    Total revenue

        1,218,747

          1,154,621

    Cost of revenue:

                        

     

    License

              15,895

                21,213

    Maintenance

              63,373

                56,411

    Services and other

            232,669

              241,777

              Amortization of capitalized software and acquired intangible assets

           154,005

             123,357

    Total cost of revenue

           465,942

             442,758

    Gross profit

           752,805

             711,863

    Operating expenses:

                        

     

    Selling, general and administrative

    459,632

              420,873

    Research and development

            188,512

              167,484

    In-process research and development

    4,100

    Restructuring

                 (535)

                  1,774

               Amortization of other intangible assets

             33,353

               34,147

    Total operating expenses

           680,962

             628,378

    Operating income

              71,843

               83,485

    Interest expense and amortization of deferred financing fees

    (107,907)

    (97,737)

    Other income (expense), net

             17,313

              (17,671)

    Loss before income taxes

            (18,751)

              (31,923)

    Benefit for income taxes

             (8,413)

              (21,899)

    Net loss

    $     (10,338)

     $       (10,024)

       
     


     

     

    UGS Corp.

    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

    (in thousands)

      

     

    December 31,

    December 31,

     

    2006

    2005

                                          ASSETS

     

     

    Current assets

     

     

      Cash and cash equivalents

    $          61,509

    $          61,532

      Accounts receivable, net

    283,163

              251,763

      Prepaids and other

    40,740

                22,389

      Deferred income taxes

                11,229

                26,471

         Total current assets

              396,641

              362,155

    Property and equipment, net

    32,301

                36,645

    Goodwill

    1,452,674

           1,388,802

    Capitalized and acquired software, net

    394,130

              464,994

    Customer accounts, net

    177,117

              203,064

    Other intangible assets, net

    114,115

              135,265

    Other assets

                34,488

                39,623

         Total assets

    $     2,601,466

    $     2,630,548

    LIABILITIES AND STOCKHOLDER’S EQUITY

     

     

    Current liabilities

     

     

      Accounts payable and accrued liabilities

    $        169,674

    $        159,534

      Deferred revenue

    154,221

              133,027

      Income taxes payable

    6,373

                11,895

      Current portion of long-term debt

                  2,000

                      

         Total current liabilities

              332,268

              304,456

    Other long-term liabilities

    71,932

                48,953

    Deferred income taxes

    96,093

              130,728

    Long-term debt

    1,155,220

           1,212,046

     

     

     

         Total stockholder’s equity

              945,953

              934,365

           Total liabilities and stockholder’s equity

    $     2,601,466

    $     2,630,548



                   


     

     

    UGS Corp.

    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (in thousands)

     

     

     

     

     

     

    Year Ended

    December 31,

    2006

     

    Year Ended

    December 31,

    2005

    Cash flows from operating activities

     

     

    Net loss

       $          (10,338)

       $          (10,024)

      Adjustments to reconcile net income (loss) to net cash provided by

                               

                               

      operating activities:

                               

                               

        Benefit for deferred income taxes

                    (21,111)

                    (53,438)

        Depreciation and amortization

                   207,925

                   175,645

        Amortization of deferred financing fees     

                       5,530

                       5,621

        In-process research and development

                           

                       4,100

        Stock-based compensation

                          689

                          545

        Unrealized loss (gain) on revaluation  of foreign denominated assets and liabilities     

                    (36,027)

                     27,307

        Unrealized loss (gain) on foreign currency revaluation of derivative instruments     

                     12,017

                    (18,749)

        Other

                       3,544

                       1,934

        Changes in operating assets and liabilities, net of effect of acquisitions:

                               

                               

           Accounts receivable

                    (22,894)

                    (13,046)

           Prepaids and other

                    (17,210)

                         (948)

           Accounts payable and accrued liabilities          

                     10,695

                    (12,262)

           Deferred revenue

                     11,969

                     24,212

           Income taxes payable

                    (13,828)

                       4,114

           Other long-term liabilities

                      5,034

                      2,060

              Total adjustments

               146,333

                  147,095

      Net cash provided by operating activities   

                  135,995

                  137,071

    Cash flows from investing activities

     

     

      Acquisitions, net of cash acquired

                  (218,437)

      Acquired software

    (4,000)

                           

      Cash received from prior parent for acquisition related tax matters   

                     18,171

      Payments for purchases of  property and equipment    

    (13,500)

                    (14,829)

      Capitalized software costs

    (65,623)

                    (69,775)

      Proceeds from sale of marketable securities

                     23,194

      Other

               (4,598)

                    (1,762)

      Net cash used in investing activities

             (87,721)

                (263,438)

    Cash flows from financing activities

     

     

      Proceeds from revolving credit line

    171,300

                   175,051

      Payments on revolving credit line

    (169,300)

                  (181,051)

      Proceeds from notes payable

    6,850

                     10,297

      Payments on notes payable

    (345)

                      (2,773)

      Proceeds from bank notes and bonds

                   225,350

      Payments on bank notes and bonds

    (62,300)

                    (94,029)

      Capital contributed by parent (stock options exercised)   

    667

                          669

      Capital contributed by parent (compensatory payment)                  

    3,819

                       

      Capital contributed by parent (other)

                    830

                                         

      Net cash (used in) provided by financing activities

            (48,479)

                  133,514

    Effect of exchange rate on cash and cash equivalents            

                  182

                    (4,015)

    Net increase (decrease) in cash and cash equivalents            

    (23)

                       3,132

    Cash and cash equivalents at beginning of period

               61,532

                    58,400

    Cash and cash equivalents at end of period

    $         61,509

      $            61,532



     

     


     

     

    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).

      
     

    Three months

    ended

     

    December 31,

     

    December 31,

     

    2006

     

    2005

    Reconciliation of net income to EBITDA:

     

     

    Net income

       $     22,668

     

       $     12,893

    Interest expense

               27,364

     

               26,161

    Provision for income taxes

                 7,530

     

                 4,744

    Depreciation and amortization

             53,039

     

             48,853

    EBITDA

      $   110,601

     

      $     92,651

     

     

     

     



     
     

    Year

    ended

     

    December 31,

     

    December 31,

     

    2006

     

    2005

    Reconciliation of net loss to EBITDA:

     

     

    Net loss

       $    (10,338)

     

       $    (10,024)

    Interest expense

             107,907

     

               97,737

    Benefit for income taxes

               (8,413)

     

             (21,899)

    Depreciation and amortization

           207,925

     

           175,645

    EBITDA

      $   297,081

     

      $   241,459

     

     

     

     



     

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