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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14155
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Unigraphics Solutions Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2728894
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13736 Riverport Drive, Maryland Heights, Missouri 63043
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(Address of principal executive offices)
(Zip Code)
(314) 344-5900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 10, 2000, there were 5,049,541 outstanding shares of the
registrant's Class A Common Stock, $.01 par value per share, and 31,265,000
shares of the registrant's Class B Common Stock, $.01 par value per share.
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I -- Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations.................................................... 3
Consolidated Balance Sheets.............................................................. 4
Consolidated Statements of Cash Flows.................................................... 5
Notes to Consolidated Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risks.............................. 12
Part II -- Other Information
Item 4. Submission of Matters to a Vote of Security Holders...................................... 13
Item 6. Exhibits and Reports on Form 8-K......................................................... 13
Signatures............................................................................................. 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue:
Software $ 53,164 $ 40,588
Services 64,415 52,774
Hardware 3,648 12,444
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Total revenue 121,227 105,806
------------ ------------
Cost of revenue:
Software
Amortization 2,523 6,140
Royalties, distribution and other 7,593 5,029
Services 28,864 20,592
Hardware 2,481 9,798
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Total cost of revenue 41,461 41,559
------------ ------------
Gross profit 79,766 64,247
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Operating expenses:
Selling, general and administrative 44,635 35,261
Research and development 19,359 16,905
------------ ------------
Total operating expenses 63,994 52,166
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Operating income 15,772 12,081
Other income, net 420 2,218
------------ ------------
Income before income taxes 16,192 14,299
Provision for income taxes 5,829 5,147
------------ ------------
Net income $ 10,363 $ 9,152
============ ============
Earnings per share:
Basic $ 0.29 $ 0.25
============ ============
Diluted $ 0.28 $ 0.25
============ ============
Weighted average number of
common shares outstanding:
Basic 36,305,838 36,265,000
============ ============
Diluted 36,712,262 36,340,077
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ---------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 40,476 $ 20,696
Accounts receivable, net of allowance for doubtful accounts of $4,782 and $5,312 121,468 125,698
Prepaid expenses 6,219 7,615
Other current assets 9,607 1,566
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Total current assets 177,770 155,575
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Property and equipment, net 30,672 33,110
---------- ---------
Operating and other assets
Goodwill, software and other intangibles, net 64,351 63,038
Deferred income taxes 16,352 22,554
---------- ---------
Total operating and other assets 80,703 85,592
---------- ---------
Total assets $ 289,145 $ 274,277
========== =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 44,745 $ 59,108
Deferred revenue 15,574 12,886
Income taxes payable 36,884 38,901
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Total current liabilities 97,203 110,895
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Intercompany note 59,112 39,980
Stockholders' equity
Preferred stock, $.01 par value; authorized 20,000,000 shares, none issued -- --
Class A common stock, $.01 par value; 168,735,000 shares authorized; 5,047,991
and 5,034,337 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 50 50
Class B common stock, $.01 par value; 31,265,000 shares authorized; 31,265,000
issued and outstanding at March 31, 2000 and December 31, 1999 313 313
Additional paid-in capital 148,893 148,925
Retained earnings (deficit) (14,650) (25,013)
Accumulated other comprehensive income (loss) (1,776) (873)
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Total stockholders' equity 132,830 123,402
---------- ---------
Total liabilities and stockholders' equity $ 289,145 $ 274,277
========== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
Net Cash Provided By Operating Activities $ 5,608 $ 29,459
-------- --------
Cash flows from investing activities
Proceeds from sale of marketable securities -- 2,099
Payments for purchases of property and equipment (4,383) (5,065)
Payments for purchases of software and other intangibles (865) (867)
-------- --------
Net cash used in investing activities (5,248) (3,833)
-------- --------
Cash flows from financing activities
Borrowings under intercompany credit agreements and notes 19,452 5,536
Payments on intercompany credit agreements and notes -- (23,556)
Other (32) --
-------- --------
Net cash provided by (used in) financing activities 19,420 (18,020)
-------- --------
Effect of exchange rate changes on cash and cash equivalents -- 27
-------- --------
Net increase in cash and cash equivalents 19,780 7,633
Cash and cash equivalents at beginning of period 20,696 20,740
-------- --------
Cash and cash equivalents at end of period $ 40,476 $ 28,373
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
Unigraphics Solutions Inc. ("Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting of only normal recurring
items) which are necessary for a fair presentation have been included. Certain
reclassifications have been made to the December 31, 1999 financial statements
to be consistent with the presentations as of March 31, 2000. The results of
interim periods are not necessarily indicative of results which may be expected
for any other interim period or for the full year. For further information,
refer to the consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Note 2. Earnings Per Share
The Company presents both basic and diluted earnings per share. Basic
earnings per share of common stock is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is calculated in the same manner as basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding, assuming the exercise of all
employee stock options that would have had a dilutive effect on earnings per
share. The following is the calculation for both basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
2000 1999
----- -------
<S> <C> <C>
(in thousands, except per share data)
Net income $10,363 $ 9,152
======= =======
Weighted-average shares outstanding 36,306 36,265
Dilutive effect of employee and director stock options 406 75
------- -------
Diluted shares outstanding 36,712 36,340
======= =======
Earnings per share:
Basic $ 0.29 $ 0.25
======= =======
Diluted $ 0.28 $ 0.25
======= =======
</TABLE>
Note 3. Comprehensive Income
Comprehensive income for the three months ended March 31, 2000 and
1999 was $9.5 million and $5.8 million, respectively. The difference between
comprehensive income and net income for the three months ended March 31, 2000
arose from foreign currency translation adjustments. For the three months ended
March 31, 1999, the difference arose from foreign currency translation
adjustments and unrealized holding gains on certain of the Company's
investments.
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Note 4. Segment Information
Industry Segments
The Company's business involves operations principally in one industry
segment: providing mechanical design automation software and related services to
manufacturers for the design, engineering analysis, testing and manufacturing of
mechanical products.
Geographic Segments
The Company aggregates its operations by geographic location for management
reporting purposes. Reportable segments consist of the Americas, Europe, and
Asia Pacific. The Company uses operating income, exclusive of software
amortization costs and in-process research and development costs, to measure
segment profit or loss. The following is a summary of certain financial
information by reportable geographic segment for the three months ended March
31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31, Three months ended December 31,
March 31, 2000 2000 March 31, 1999 1999
------------------------ --------- ------------------------ ------------
Operating Total Operating Total
Revenues Income (Loss) Assets Revenues Income (Loss) Assets
-------- ------------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Americas $ 69,353 $12,725 $185,361 $ 55,864 $14,438 $164,411
Europe 39,857 5,759 79,584 39,790 4,910 81,463
Asia Pacific 12,017 (189) 24,200 10,152 (1,127) 28,403
-------- ------- -------- -------- ------- --------
Total $121,227 $18,295 $289,145 $105,806 $18,221 $274,277
======== ======= ======== ======== ======= ========
</TABLE>
A reconciliation of operating income for the three months ended March 31,
2000 and 1999 follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
--------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Total operating income for reportable segments $18,295 $18,221
Unallocated software amortization costs (2,523) (6,140)
------- -------
Operating income $15,772 $12,081
======= =======
</TABLE>
There are no intercompany sales between geographic areas. All sales are
from external customers.
Note 5. Depreciation and Amortization
Property and equipment is stated net of accumulated depreciation of $39.2
million and $37.1 million at March 31, 2000 and December 31, 1999, respectively.
Additionally, goodwill, software, and other intangibles are stated net of
accumulated amortization of $28.7 million and $25.3 million at March 31, 2000
and December 31, 1999, respectively. Depreciation and amortization expense for
the three months ended March 31, 2000 and 1999 was $5.9 million and $8.2
million, respectively.
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides scalable, integrated, enterprise-level mechanical
computer-aided design solutions that are used for virtual product development
principally in the automotive and transportation, aerospace, consumer products,
equipment and machinery, and electronics industries. For further information,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
The Company generates revenue primarily from the licensing of mechanical
CAD/CAM/CAE and product data management (collectively "MCAD") software products,
and the provision of software consulting, support services and computer
equipment to users of the Company's products. The Company operates business
units in the United States and in 29 other countries. The Company's software
products are licensed to customers through the Company's direct sales force and
by specific arrangements with certain distributors, value-added resellers and
other marketing representatives.
In 1996 EDS and General Motors ("GM") signed the Unigraphics Software
Corporate License Agreement (the "EDS/GM Site License" or "Site License") for
Unigraphics software and related services. The Site License was a service
agreement under the umbrella EDS/GM Master Service Agreement pursuant to which
EDS and its subsidiaries (including the Company) provided information technology
products and services to GM. The Site License was a three-year arrangement that
consisted of three elements: (1) a perpetual license of the Unigraphics software
for up to 10,000 seats; (2) maintenance for the installed software; and (3) a
specified upgrade to be delivered by a non-Unigraphics business unit of EDS on a
when-and-if available basis. The contract did not require any significant
modification or customization of the software. The contract price was
approximately $178 million, of which approximately $110.3 million was attributed
to the software license element, approximately $64.3 million was attributable to
maintenance support and approximately $3.7 million was attributed to the
specified upgrade. Revenue related to the specified upgrade was not recorded by
the Company since such upgrade was delivered to the customer by a non-
Unigraphics business unit of EDS. The license fee was payable over three years
in monthly installments of approximately $3.1 million. Maintenance revenue is
recognized over the term of the agreement based generally on the deployment
schedule.
GM and the Company currently are in the process of negotiating a renewal of
the Site License ("Renewal"), which expired in June 1999. In the interim, the
current Site License has been extended on a month-to-month basis at monthly
maintenance fees in effect at the end of June 1999. The Renewal under
negotiation comprehends a three year agreement covering software maintenance
services, software development services, and iMAN(R) software products and
services. Also, because of the spin-off of Delphi Automotive Systems, Inc. from
GM, a separate agreement between Delphi and the Company for on-going maintenance
services and additional software licenses is being negotiated. In the interim,
ongoing software maintenance and other services are being provided by the
Company to Delphi under the month-to-month extension of the Site License. During
the quarter ending March 31, 2000, approximately 15% of the Company's revenues
were attributable to products and services provided to GM (exclusive of Delphi
Automotive Systems) under the Site License and other agreements. The inability
of the parties to timely reach agreement on acceptable financial terms could
have a material adverse affect on the Company's fiscal year 2000 results of
operations and financial condition.
Effective as of January 1, 1998, the Company entered into a Management
Services Agreement ("MSA") with EDS pursuant to which EDS performs various
management services for the Company, including treasury, risk management, tax
and similar administrative services. The agreement provides for the payment of
fees to EDS for such services, either on a fixed price or usage basis, which
fees are generally designed to approximate EDS' cost of providing the services,
as well as a fixed fee equal to .5% of the Company's total revenues. MSA
services to be
8
<PAGE>
provided and associated charges are negotiated annually. The Management Services
Agreement will expire on December 31, 2002 unless terminated earlier by either
party if EDS and the Company are no longer under common control. Except for
certain tax and treasury management services relating to consolidated operations
or corporate policy of EDS, which the Company is required to purchase during the
term of the MSA, the Company or EDS may terminate any service on or after
January 1, 2000 with prior notice of not less than five months, or earlier if
the parties mutually agree. The Company paid EDS $6.4 million for such services
in 1999, and has concluded negotiations with EDS relative to the 2000 services
and charges. For the three month period ended March 31, 2000, EDS has invoiced
the Company approximately $1.2 million for services provided during such period.
There can be no assurances that the charges the Company negotiates will, in the
aggregate, be lower than the aggregate of charges the Company might be able to
negotiate with third party suppliers of such services.
Pursuant to the Intercompany Credit Agreement dated January 1, 1998 between
the Company and EDS and similar credit agreements between EDS Finance, PLC and
certain non-U.S. subsidiaries of the Company (collectively, the "Intercompany
Credit Agreement"), the Company is required to borrow from EDS, and EDS is
required to lend to the Company, amounts required by the Company to fund its
daily cash requirements. Since the closing of the initial public offering of the
Company's Class A Common Stock referred to below, the maximum amount available
to the Company under this facility is $70 million. Effective as of March 6,
1998, the Company issued to EDS as a dividend an Intercompany Note in the
principal amount of $73 million (the "Intercompany Note"). As of March 31, 2000
approximately $59.1 million remains payable under the Intercompany Note. See
"Liquidity and Capital Resources" for further discussion.
On June 23, 1998, the Company completed the initial public offering of
5,000,000 shares of its Class A Common Stock. The net proceeds of the offering
were used to repay $65.1 million of indebtedness outstanding under the
Intercompany Credit Agreement.
Forward-looking Statements
All statements other than historical statements contained in this Quarterly
Report on Form 10-Q constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Without limitation,
these forward-looking statements include statements regarding expected future
declines in hardware revenues, the Company's Year 2000 exposure, the European
currency decline trend, the sufficiency of liquidity and capital resources over
the next twelve months, concerns regarding potential increased costs and the
impact on business operations due to the transition to the SAP systems, concerns
regarding a timely and financially acceptable agreement on the GM Site License
Renewal, and any other statements of Company's plans, objectives, expectations
or intentions. Any Form 10-K, Annual Report to Shareholders, Form 10-Q or Form
8-K of the Company may include these and other forward-looking statements. In
addition, other written or oral statements which constitute forward-looking
statements have been made or may in the future be made by the Company, including
statements regarding future operating performance, short- and long-term revenue
and earnings growth, the value of new contract signings, and MCAD industry
growth rates and the Company's performance relative thereto.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. These include, but are not limited
to: vigorous competition in the MCAD industry and the impact of such competition
on pricing, revenues and margins; market acceptance of new Company product or
service offerings and costs associated with the development and marketing of
such offerings; the financial performance of current and future customer
contracts; the cost of attracting and retaining highly skilled personnel; the
ability of the Company to successfully integrate its operations into a single,
effective and efficient entity; and the significant quarterly fluctuations in
the Company's operating results caused by, among other factors, the timing of
orders and shipments. Such factors are described in more detail in the Company's
most recent Annual Report on Form 10-K beginning on page 21.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
9
<PAGE>
Results of Operations
Revenues. Revenues were $121.2 million during the three months ended
March 31, 2000, an increase of $15.4 million from $105.8 million for the
corresponding period in 1999.
Software revenues increased $12.6 million, or 31%, to $53.2 million for the
three month period ended March 31, 2000, from $40.6 million for the
corresponding period in 1999. The increase for the three month period resulted
from strong sales performance across all product lines in all geographic areas,
particularly within the Americas and Asia Pacific.
Services revenues increased $11.6 million, or 22%, to $64.4 million for the
three month period ended March 31, 2000, from $52.8 million for the
corresponding period in 1999. The increase resulted from professional services
growth in the Americas and Europe, along with software maintenance growth in all
geographic areas, particularly Europe and Asia Pacific, corresponding with the
higher software sales activity.
As planned, hardware revenues decreased $8.8 million, or 71%, to $3.6
million for the three month period ended March 31, 2000, from $12.4 million for
the corresponding period in 1999. All geographic areas experienced decreases for
the three month period. The Company expects hardware revenues to continue to
decline and to become a smaller portion of its business.
Revenues from international operations represented 46% and 51% of total
revenues for the three months ended March 31, 2000 and 1999, respectively.
Strong United States software growth and flat total revenues in Europe, in part
due to currency fluctuations, contributed to the decrease in the international
share.
Gross Profit. Gross profit was $79.8 million during the three months ended
March 31, 2000, an increase of $15.6 million from $64.2 million for the
corresponding period in 1999. Gross profit margin was 66% and 61% for the three
months ended March 31, 2000 and 1999, respectively.
Gross profit on software revenues increased $13.6 million, or 46%, to $43.0
million for the three month period ended March 31, 2000, from $29.4 million for
the corresponding period in 1999. The increase resulted primarily from strong
revenue growth and lower amortization costs. Royalty costs increased due to a
large ProductVision(TM) order which resulted in a substantial royalty liability
to the vendor.
Gross profit on services revenues increased $3.4 million, or 11%, to $35.6
million for the three month period ended March 31, 2000, from $32.2 million for
the corresponding period in 1999. The increase resulted from higher revenues
from professional services and software maintenance.
Gross profit on hardware revenues decreased $1.4 million, or 56%, to $1.2
million for the three month period ended March 31, 2000, from $2.6 million for
the corresponding period in 1999. This is a continuation of the trends of lower
finder's fees and lower overall volume resulting from reduced emphasis on
selling hardware.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $44.6 million during the three months ended
March 31, 2000, an increase of $9.3 million from $35.3 million for the
corresponding period in 1999. Selling, general and administrative expenses
represented 37% and 33% of total revenues for the three months ended March 31,
2000 and 1999. Selling expenses comprise salesperson salaries, commissions and
benefits, travel, sales office occupancy and other related expenses. The higher
selling expenses resulted from increases in commissions and bonuses because of
continued strong sales growth over 1999 and increased staffing to support higher
revenue growth. Higher general and administrative expenses were due to increased
costs associated with the Company's transition to a new Enterprise Resource
Planning ("ERP") system. The selling, general and administrative expenses as a
percentage of revenue for the three months ended March 31, 2000 are consistent
with 1999 full-year results.
10
<PAGE>
Research and Development Costs. Research and development costs were $19.4
million for the three months ended March 31, 2000 an increase of $2.5 million
from $16.9 million for the corresponding period in 1999. Research and
development costs as a percentage of total revenues were 16% for the three
months ended March 31, 2000 and 1999. The increase in research and development
costs resulted principally from the support of initiatives related to the
Company's iMAN and Collaborative Product Commerce ("CPC") initiatives.
Operating Income. Operating income was $15.8 million and $12.1 million for
the three months ended March 31, 2000 and 1999, respectively.
Other Income, Net. Other income, net was $0.4 million and $2.2 million for
the three months ended March 31, 2000 and 1999, respectively. The decrease for
the three months ended March 31, 2000 in other income, net resulted from
differences in the amounts of gain realized from the sale of marketable equity
securities. These securities were obtained through the exercise of warrants in
the quarter ended March 31, 1998. The warrants were received in exchange for
reduced royalty fees from a private software company that was acquired by a
public company in 1997.
Provision for Income Taxes. The provision for income taxes was $5.8
million and $5.1 million for the three months ended March 31, 2000 and 1999,
respectively. The Company's effective tax rate was 36.0% for both periods.
Net Income. Net income for the three months ended March 31, 2000, was
$10.4 million compared to $9.2 million for the corresponding period in 1999.
Basic earnings per share of common stock were $0.29 and $0.25 for the three
months ended March 31, 2000 and 1999, respectively. Diluted earnings per share
of common stock were $0.28 and $0.25 for the three months ended March 31, 2000
and 1999, respectively.
Recent Accounting Pronouncements. Statement of Financial Accounting
Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging
Activities, which was issued in June 1998, establishes accounting and reporting
standards for derivative instruments and hedging activities. Under SFAS 133,
derivatives are recognized on the balance sheet at fair value as an asset or
liability. Changes in the fair value of derivatives are reported as a component
of other comprehensive income or recognized as earnings through the income
statement depending on the nature of the instrument. In June 1999, the FASB
issued SFAS 137 - Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133, which defers the effective date of SFAS 133 from fiscal years
beginning after June 15, 1999 to fiscal years beginning after June 15, 2000.
Initial application should be as of the beginning of an entity's fiscal quarter;
on that date, hedging relationships must be designated and documented pursuant
to the provisions of SFAS 133, as amended. Earlier application of all of the
provisions is encouraged but is permitted only as of the beginning of any fiscal
quarter that begins after the issuance date of SFAS 133, as amended.
Additionally, SFAS 133, as amended, should not be applied retroactively to
financial statements of prior periods. The Company is currently evaluating the
requirements of SFAS 133, as amended, to determine its potential impact on the
consolidated financial statements.
Liquidity and Capital Resources
The Company's central cash management function is performed by EDS. The
Company has an Intercompany Credit Agreement with EDS under which there was no
amount outstanding at March 31, 2000. The maximum amount that the Company may
borrow at any time from EDS under the Intercompany Credit Agreement (including
certain other credit agreements between EDS Finance PLC, a wholly-owned
subsidiary of EDS, and certain non-U.S. subsidiaries of the Company) is $70
million. Amounts outstanding under the Intercompany Credit Agreement bear
interest, payable quarterly at a rate equal to one-month LIBOR plus 0.5%. The
Intercompany Credit Agreement restricts the Company from obtaining financing
from any party other than EDS without written consent from EDS, unless EDS fails
to provide funding available to the Company under the Intercompany Credit
Agreement. The Intercompany Credit Agreement terminates on December 31, 2002,
unless terminated earlier at the election of one of the parties upon occurrence
of certain events, and requires that the Company lend to EDS all excess cash of
the Company at a rate of one-month LIBID minus 0.5%.
11
<PAGE>
The Company also has outstanding an Intercompany Note in the principal
amount of approximately $59.1 million payable to EDS on March 6, 2001. The
Intercompany Note bears interest, payable semiannually, at a rate equal to one-
month LIBID minus 0.5%.
The Company's net cash provided by operations for the three months ended
March 31, 2000 decreased $23.9 million to $5.6 million. This resulted primarily
from decreases in current liabilities attributable to the timing of payments of
certain liabilities, including taxes. The Company's net cash used in investing
activities for the three months ended March 31, 2000 increased $1.4 million to
$5.2 million from $3.8 million in the same prior year period. The increase
resulted primarily because there were no proceeds from the sale of marketable
securities during the three months ending March 31, 2000. Cash flows provided by
financing activities increased $37.4 million to $19.4 million for the three
months ended March 31, 2000. This reflects a net increase in cash borrowings
from EDS. The Company believes currently available sources of liquidity,
including the Intercompany Credit Agreement and cash generated from operations,
should be sufficient for its operations for at least the next twelve months.
Year 2000
The Year 2000 ("Y2K") problem refers to concerns that many existing computer
programs may fail to accurately process date information beyond the year 1999
because such programs do not properly recognize and/or process years that begin
with "20" instead of the familiar "19." The Company's operations around the
world are fully functioning, and UGS has not experienced significant disruptions
or problems associated with the Year 2000 problem. Similarly, the Company's
customer support and maintenance operations report that UGS customers have not
experienced significant Year 2000 problems associated with UGS products or
services. Of note, the Company provided special, around-the-clock support for
all customers during the five days from December 30, 1999 through January 3,
2000. During this period, no Y2K problems were recorded.
Impact of Changes in Exchange Rates
The Company's results of operations can be affected by changes in exchange
rates. Revenue received and expenses paid in currencies other than the U.S.
dollar are translated into U.S. dollars for financial reporting purposes based
on the average exchange rate for the period. During the three months ended March
31, 2000, international revenue represented 46% of total Company revenue. The
Company's most significant international operations are located in Germany and
the United Kingdom, which comprised 27% and 11%, respectively, of total
international revenue for the three months ended March 31, 2000. Foreign revenue
and costs are generally received and paid in the local currency. Historically,
foreign currency transaction gains (losses) have not had a material effect on
the Company's operations. However, the continual decline in European currencies
could have a negative effect on revenues and operating performance for calendar
year 2000.
Inflation
Historically, inflation has not had a material effect on the Company's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into financial instrument transactions for trading
purposes. Additional information about the Company's risk related to changes in
foreign exchange rates is contained in Item 2., "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under "Impact of
Changes in Exchange Rates."
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ ---------------------------------------------------------
3.1 Restated Certificate of Incorporation of Unigraphics
Solutions Inc., incorporated herein by reference to Exhibit
3.1 to Amendment No. 1 to the Registration Statement on Form
S-1 of the Company (File No. 333-48261).
3.2 Amended and Restated Bylaws of Unigraphics Solutions Inc., as
amended, incorporated herein by reference to Exhibit 3.2 to
Amendment No. 1 to the Registration Statement on Form S-1 of
the Company (File No. 333-48261).
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
None.
13
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized and in his capacity as Chief Financial
Officer.
UNIGRAPHICS SOLUTIONS INC.
----------------------------------
(Registrant)
By
----------------------------------------
Douglas E. Barnett, Vice President,
Date: May 10, 2000 Chief Financial Officer and Treasurer
14
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<PERIOD-END> MAR-31-2000 MAR-31-1999
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