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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 1-14155
UNIGRAPHICS SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2728894
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
13736 Riverport Drive, Maryland Heights, MO 63043-4826
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (314) 344-5900
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, $.01 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 1, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the closing price on such date as
reported on the New York Stock Exchange Composite Transactions) was
$136,769,634.
As of March 1, 2000, there were 5,043,203 outstanding shares of the
registrant's Class A Common Stock and 31,265,000 shares of registrant's Class
B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 2000 (the "2000 Proxy Statement") are
incorporated by reference in Part III of this Form 10-K. The 2000 Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after registrant's fiscal year end of December 31, 1999.
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UNIGRAPHICS SOLUTIONS INC.
FISCAL YEAR 1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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IMPORTANT RISK FACTORS THAT MAY AFFECT FUTURE RESULTS..................... 2
PART I.
Item 1.Business......................................................... 3
Item 2.Properties....................................................... 8
Item 3.Legal Proceedings................................................ 9
Item 4.Submission of Matters to a Vote of Security Holders.............. 9
Item 4A.Executive Officers.............................................. 9
PART II.
Item 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 11
Item 6.Selected Financial Data.......................................... 11
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operation................................................... 12
Item 7A.Quantitative and Qualitative Disclosures about Market Risk...... 25
Item 8.Financial Statements and Supplementary Data...................... 25
Item 9.Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 25
PART III.
Item 10.Directors and Executive Officers of Registrant.................. 26
Item 11.Executive Compensation.......................................... 26
Item 12.Security Ownership of Certain Beneficial Owners and Management.. 26
Item 13.Certain Relationships and Related Transactions.................. 26
PART IV.
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K. 26
Signatures.............................................................. 29
Financial Statements
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IMPORTANT RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Information periodically provided by the Company and its spokespersons,
including information contained in this Annual Report on Form 10-K, may
contain forward-looking statements such as (1) statements and projections
about the Company's future financial performance, including Solid Edge net
cash flow projections, (2) the continued strong competition in the MCAD
market, (3) the Company's expectation that it will be able to complete
negotiations on a follow-on products and services agreement with its largest
customer, General Motors Corporation, (4) the planned future decline in
Company hardware revenues, (5) Euro conversion exposure and related costs, and
(6) market trends, product developments and other factors noted in this Annual
Report on Form 10-K. These statements are based on estimates and assumptions
of the Company's management at the time such statements are made. Such
forward-looking statements are subject to various risks and uncertainties that
may cause the Company's future results to differ from those disclosed or
projected in a forward-looking statement, as detailed in "Risk Factors That
May Affect Future Results" included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Part II, Item 7 of
this Annual Report on Form 10-K beginning on page 21.
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PART I
ITEM 1. BUSINESS
Development of Business
Unigraphics Solutions Inc. ("UGS" or "Company") was incorporated in
Delaware on October 2, 1997. Pursuant to a reorganization effective as of
January 1, 1998 (the "Reorganization"), UGS became the successor to the
mechanical computer-aided design ("MCAD") businesses of its parent, Electronic
Data Systems Corporation ("EDS"). Prior to January 1, 1998, the MCAD
businesses of EDS were operated within several business units of EDS. Between
January 1, 1998 and June 23, 1998, UGS was a direct, wholly owned subsidiary
of EDS. On June 23, 1998, a public offering (the "Offering") of 5,000,000
shares of Class A Common Stock of UGS was concluded. Currently, there are
5,043,203 Class A shares (not including the 1,907,036 unexercised Class A
Common Stock options awarded under the Company's 1998 and 1999 Incentive
Plans) and 31,265,000 Class B Common shares outstanding. EDS owns 100% of the
outstanding Class B Common Stock of UGS representing approximately 98.4% of
the combined voting power of all classes of voting stock of UGS.
On March 2, 1998, the Company completed the acquisition (the "Solid Edge
Acquisition") of the MCAD business of Intergraph Corporation ("Intergraph")
consisting of the Solid Edge and EMS product lines (the "Solid Edge/EMS
Business") for a purchase price of $105 million (excluding approximately $2
million of acquisition costs). The Solid Edge Acquisition involved the direct
transfer to the Company of the intellectual property rights (through the
ownership of some intellectual property and a perpetual, royalty-free license
for the remaining intellectual property) needed to modify and improve all
acquired or licensed intellectual property and to own any modifications or
improvements that it makes.
UGS also completed two acquisitions in 1999. On July 28, 1999 the Company's
German subsidiary, Unigraphics Solutions GmbH, purchased the shares of the
Berlin-based dCADE Gesellschaft fur Produktionsinformatik mbH ("dCADE"),
including all rights to dCADE's software and business portfolio. dCADE is
operating as a separate unit of Unigraphics Solutions GmbH. Similarly, at the
end of August 1999, the Company purchased most of the worldwide assets of
Applicon, Inc., including Applicon's Bravo(R) software assets and related
business. The combined purchase price for these transactions was $10.4
million.
Business Overview
UGS is a leading global provider of collaborative product design and
development software and services. Company software products include
mechanical computer-aided design ("CAD"), computer-aided engineering ("CAE"),
computer aided manufacturing ("CAM") and product data management ("PDM")
software products and related services. In this report, the CAD/CAE/CAM/PDM
market is sometimes referred to as the mechanical computer-aided design or
"MCAD" industry. The Company's products and services currently are used for
product development, engineering and manufacturing principally in the
automotive and transportation, aerospace, consumer products, equipment and
machinery, and electronics industries. The Company's software products allow
customers to reduce design, engineering and manufacturing costs and to
minimize the time between a product's inception and its introduction to the
market while simultaneously improving product quality. MCAD systems produce
large volumes of data that can be managed by the Company's product data
management software. The Company's PDM software makes the most current product
data readily accessible to all appropriate users throughout a manufacturing
enterprise.
Because the Internet now delivers digital models produced by CAD systems to
the desktop, an increasing number of people can access "virtual products." The
web provides an opportunity to expand the use of, and access to, CAD data by
internal users and external suppliers and customers, thus increasing the value
of CAD data and related information across an extended enterprise. This broad,
undefined and often spontaneous company/supplier/customer interaction is
called Collaborative Commerce ("c-Commerce"). The digital model produced by
UGS design and development software is the cornerstone of c-Commerce; and UGS,
together with
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its c-Commerce partners are providing software applicatons and services which
enable c-Commerce and leverage the capabilities and value of digital product
models.
Products
The Company offers a broad line of design, analysis, manufacturing, and PDM
software products that meet the diverse needs of its customer base which
includes a spectrum of companies from multinational corporations to small
machine shops. The Company's software applications are based upon five core
product lines:
. Unigraphics(R). Unigraphics software is a suite of high-end software
applications for large scale Unix and Windows NT-based design,
manufacture and assembly projects. For the years ended December 31, 1999,
1998 and 1997, approximately half of the Company's software revenues were
attributable to Unigraphics software sales. Unigraphics is available in
four scalable, pre-configured software bundles that can be tailored to
meet a customer's feature, function and price requirements. All four
bundles are built upon certain core modules. In addition, the Company has
created specialized modules to provide specific features. The Company has
designed Unigraphics with an open, object-oriented architecture to allow
users and third parties to create applications that can be integrated
with Unigraphics.
. Solid Edge(R). Solid Edge is a mid-range, easy-to-use Windows MCAD
modeling system for mechanical part and assembly design that incorporates
high-performance computer design functions into an affordable package.
Solid Edge was developed specifically as a native Windows application, is
available on Windows operating systems and is fully integrated into the
Windows environment. Solid Edge software is used in machinery, consumer
electronics, other consumer product producers and other manufacturing
industries.
. Parasolid(R). Parasolid is a geometric modeling kernel used widely in
CAD/CAM/CAE software. The Company has invested over 350 man years in
Parasolid development. Today it is one of the fastest and most robust
kernel modelers in the world. It is available to the entire MCAD
community. It is the kernel modeler that is used in the Unigraphics high-
end system and the Solid Edge mid-range product, and it has become a
catalyst for the growth of the mid-range MCAD market.
. iMAN(R). iMAN is a product data management software application that
organizes, manages, and distributes throughout the manufacturing
enterprise the product and process information used in the design and
development of products. Using iMAN, enterprise functions such as product
design, manufacturing, engineering, planning, scheduling and other
organizations can globally access and manage applicable data such as CAD
files, bills of material, specifications and purchase orders.
. ProductVision(TM). ProductVision consists of visualization software
applications that allow technical as well as non-technical users to view,
mark-up and analyze two-dimensional and three-dimensional product
information. ProductVision enables customers to communicate and
collaborate within the extended enterprise early in the design and
development process.
The Company also sells computer hardware to customers on an as-needed
basis. The Company purchases hardware for resale to customers from a variety
of well-known computer hardware suppliers. In 1996, the Company began de-
emphasizing hardware sales in order to focus on the provision of higher margin
software products and consulting-type services. In 1999 the Company entered
into an alliance arrangement with a hardware distributor under which the
Company will refer certain UGS customers to the distributor for the
acquisition of hardware and related services and under which both parties will
benefit from the sale of hardware and related services.
Services
The Company offers an extensive range of customization, implementation and
integration consulting services, and support services to its customers. Core
services provided include:
. Customization, Implementation and Integration Consulting. The Company's
customization, implementation and integration consulting services help
customers (i) identify, acquire, customize and
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install hardware, software and communications components and (ii) build
and modify interfaces to allow different application components to
function effectively.
. Technical Support. The Company makes available comprehensive technical
support services, including 24-hour a day support for certain users,
operating system support, Web tools and services, and an electronic
bulletin board system, which provides electronic conferencing, electronic
mail, file transfer, call logging, and a symptom/solution database.
. Training. The Company's training services include instructor-led courses,
computer assisted self teaching modules, on-line library access, custom
course development and education, instructor placement, training
assessments and a Master Certificate Program providing a series of
classes that ensure users have mastered the skills needed to use specific
software.
. Data Exchange. Data exchange services focus on facilitating the seamless
flow of data from one MCAD system to the other in enterprises that might
have a variety of MCAD products and systems. To optimize data exchange,
the Company offers platform transfers, standards and premium-based
translator services, media transfers, and rapid prototyping translations.
. Engineering. The Company provides both on-site and remote access
engineering services. Engineering services include modeling and drafting
consulting, data conversion and translation services, numerical control
programming, and customized programming.
Sales and Distribution Methods
License Agreements. The Company typically charges a fixed license fee per
seat for Unigraphics, Solid Edge, iMAN, ProductVision and other software based
upon the number of modules and features within each seat. Typically, the
customer receives a perpetual license for each of these products. The license
fee often includes short-term maintenance and integration services as well as
training services. The Company normally provides maintenance services to its
customers on an annual basis with automatic renewals, subject to certain
termination provisions. The Company usually licenses Parasolid software
directly to value-added resellers ("VARs") or distributors who embed Parasolid
products in their own proprietary software. These customers typically pay an
initial development license fee for the use of Parasolid and royalty payments
related to sales of their own proprietary software products. A small number of
customers license Parasolid solely for use in their own internal operations.
Direct Sales and Distributors. The Company has a worldwide direct sales
force and distributor network. The Company's direct sales force is organized
by geographic zones covering North and South America; Europe, Africa, the
Middle East and South Asia; and Asia-Pacific. Each regional zone operates
autonomously, but industry groups, which focus on the automotive and
transportation and aerospace industries, have been organized from a cross-
section of sales, marketing and technical personnel in each region.
Unigraphics, iMAN, and ProductVision are primarily marketed and sold by the
Company's direct sales force. The sales cycle for such "high-end" products can
take up to a year or longer and could involve extensive competitive processes,
including technical benchmarking and multi-stage business proposals. The
Company currently markets and sells Solid Edge primarily through its VARs and
distributors, with support from Company-generated marketing materials as well
as shared support of industry trade shows and seminars, advertising within
trade publications and journals and direct mail and telemarketing solicitation
programs. Additionally, the Company has entered into innovative distribution
agreements such as the arrangement with Dell Computer under which Dell
hardware customers have the option to order equipment pre-loaded with Solid
Edge software. The customer can either license the software on a trial or
permanent basis. Similarly, the Company has entered into partnership
arrangements with government sponsored agencies such as the Hong Kong
Productivity Council and GINTIC Institute of Manufacturing Technology of
Singapore under which such agencies distribute, or sponsor the distribution
of, specially-configured Solid Edge software or bundles to local companies.
The sales cycle for the Solid Edge product typically is shorter than the sales
cycle for Unigraphics, Parasolid, ProductVision and iMAN products.
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The Company endeavors to ship software products within one to five days of
acceptance of orders, except in the case of large installations to new
customers which often take longer due to preparation and training periods
prior to software shipment. Because most software products are shipped within
a few days of order acceptance, the backlog is not indicative of future sales
or revenues.
Business Partnerships. The Company has established two business partnership
programs, the Alliance Program and the Voyager Program, to facilitate
relationships with various software developers to ensure that the Company's
software products are fully integrated with other software products in the
MCAD market. The Alliance Program is an extensive and growing group of niche
software suppliers that provide specialized software applications to be used
in conjunction with Company's Unigraphics and iMAN software. The Company
typically enters into joint marketing agreements with Alliance Program
software suppliers whereby the Company and the software suppliers undertake
joint marketing and promotional efforts. The Company provides its customers
with both print and online catalogs listing the names of the Alliance Program
members and the software that each member provides. The Voyager Program is a
worldwide consortium of leading software vendors offering products that
complement Solid Edge's mechanical design and drafting capabilities. The
typical Voyager Program agreement provides for joint marketing and promotional
activities.
Customers
The Company's customers come from a wide range of industries. In 1999, no
single customer accounted for more than ten percent of total Company revenues.
General Motors Corporation is the single largest Company customer. In 1996, GM
and EDS signed the Unigraphics Corporate Software License Agreement (the "Site
License") in which GM selected Unigraphics software as GM's only vehicle
development software platform. By recognizing Unigraphics software as its
single MCAD product development system, GM expressed its intent to consolidate
its usage of MCAD software systems. Under the Site License, GM has installed
approximately 10,000 seats of Unigraphics and was entitled to install up to
10,000 iMAN seats. Additionally, the Site License covered the provision of
maintenance and other services to GM. The Site License was due to expire in
mid-1999; however, the agreement was extended on a month-to-month basis
pending renegotiation of a follow-on agreement. The Company and GM currently
are in the final stages of negotiation leading toward agreement on a follow-on
contract covering primarily software maintenance, development, and other
services.
Seasonality
Historically, the Company has experienced uneven sales over the course of a
calendar year with the fourth quarter typically being the strongest quarter.
Also, the last month of each quarter often has the largest sales volume for
that quarter. Future quarterly results could be negatively influenced by order
deferrals resulting from, for example, changes in economic conditions,
declining market demand, and other customer priorities. Please refer to Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," under "Risk Factors That May Affect Future Results--Significant
Quarterly Fluctuations," below for additional information.
Research and Product Development
The MCAD industry is characterized by rapid technological innovation and
change. The Company's competitiveness in the market depends in large part upon
its ability to develop and incorporate into new product offerings the advances
in technology demanded by its customers. The Company develops most of its new
or enhanced product functionality using its internal research and development
staff composed of approximately 500 people located primarily at seven
worldwide research and development offices. Major enhancements of the
Company's core software products are distributed approximately twice each
year. The Company also purchases or licenses certain technology from third
parties and embeds such technology in its products. Finally, the Company works
closely with its Alliance and Voyager partners to facilitate the development
by such partners of products complementary to the Company's products.
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During 1999, the Company spent about $71 million on software research and
development, constituting approximately 15% of its total revenue. In 1998 and
1997, the Company had software research and development expenditures of
approximately $64 million and $48 million, respectively, or approximately 16%
of total revenue in 1998 and 15% of total revenue in 1997.
Intellectual Property
The Company relies on a combination of contracts, copyrights, patents, and
common law rights such as trade secret and unfair competition laws to
establish and protect the proprietary rights to its technology. The Company
distributes its products under software licenses that grant customers licenses
to, rather than ownership of, the Company's products and that contain various
provisions protecting the Company's ownership and confidentiality of the
licensed technology. The source code for Unigraphics, iMAN, ProductVision, and
Parasolid software is protected as a trade secret and as an unpublished
copyright work and, in certain instances, with patents. However, no assurances
can be made that others will not copy or otherwise obtain and use the
Company's products or technology without authorization. In addition, effective
copyright, trade secret and patent protection or enforcement may be
unavailable or limited in certain countries. The Company believes that,
because of rapid technological advances within the industry, factors such as
the technological and creative skills of its personnel are more important to
establishing and maintaining a technology leadership position within the
industry than are the various legal protections of the technology.
The Solid Edge Acquisition involved (i) the direct transfer to the Company
of the intellectual property rights unique to the Solid Edge and EMS products
and (ii) a perpetual, royalty-free license to the Company for certain patents,
patent applications and other intellectual property for the Solid Edge and EMS
products that are also used across other Intergraph business lines and in
other Intergraph products. Similarly, the Company's acquisition of the assets
of Applicon and dCADE included the transfer of intellectual property rights to
Applicon's Bravo(R) products lines and other Applicon and dCADE products. The
Company has the right to modify and improve all acquired or licensed
intellectual property and to own any modifications or improvements that it
makes.
Unigraphics Solutions, Unigraphics, Solid Edge, Parasolid, iMAN, and Bravo
among others, are trademarks that are registered to, and owned by, the
Company. The Company has trademark applications pending in the United States
and many foreign countries for other marks, including ProductVision.
Competition
Markets for the Company's products are highly competitive and are
characterized by rapidly changing technology and evolving standards. The
Company's competitors include (i) generalist MCAD and product development
software companies that offer broad-range systems, such as Autodesk Inc.,
Dassault Systemes, Parametric Technology Corporation, and Structural Dynamics
Research Corporation, (ii) specialist software developers whose product lines
are focused on CAD, CAM, CAE or PDM products, (iii) enterprise resource
planning ("ERP") software providers, and (iv) numerous smaller niche software
developers.
The Company's products compete on the basis of functionality, technical
performance, price, operating system compatibility, integration, customization
capability, marketing and technical support and training. The ability of the
Company to compete successfully depends on factors both within and outside the
Company's control, including, among others, the successful and timely
development of new products, versions and features, product performance and
quality, pricing, customer service and support and both MCAD and PDM industry
and general economic conditions.
The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. Current and potential competitors may establish strategic
alliances or undertake acquisitions to increase the ability of their products
to address the needs of the Company's current and prospective customer base.
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Regulation
Various aspects of the Company's business are subject to United States and
foreign jurisdiction regulation which, depending upon the nature of the
noncompliance, could result in the termination or loss of business or the
imposition of damages, fines or criminal penalties. Such regulations that
might affect Company business include United States Export Control laws and
regulations that prevent the Company from licensing certain technology to
companies or government agencies in certain countries. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Risk Factors That May Affect Future Results--Risks Associated
with International Operations."
Employees
As of March 1, 2000, the Company employed over 2,700 persons who conduct
business in approximately 100 offices worldwide. The Company's future success
will depend, in part, on its ability to attract, retain and motivate highly
qualified technical, engineering, marketing and management personnel. None of
the Company's U.S. employees are represented by a labor union.
Other Information
Financial information about industry and geographic segments is contained
in Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," under "Results of Operations," "Revenues" and in Note
10 of the Notes to Consolidated Financial Statements, "Segment Information" of
this Annual Report on Form 10-K.
ITEM 2. PROPERTIES
As of March 1, 2000, the Company had approximately 34 locations operating
in 24 states and 32 cities in the United States and approximately 65 locations
in 60 cities in 29 countries outside the United States. The Company occupies
approximately 810,000 square feet of space. All space is leased.
In connection with the January 1, 1998 Reorganization, the Company entered
into sublease agreements with EDS covering substantially all of the real
property occupied by the Company. The terms of such sublease agreements
incorporate the financial and other material terms of EDS' lease agreements
for the subject property (other than the sublease for the Company's St. Louis
headquarters for which the rental rate charged to the Company is based on an
estimate of current market rates). Following the initial public offering, the
Company has begun to lease new and existing space in its own name.
The Company's principal operating locations are as follows: The Company's
corporate headquarters is located in St. Louis, Missouri, where it subleases
from EDS approximately 96,000 square feet of office space for general and
administrative, marketing, research and development and consulting services
activities. That sublease will expire in September 2001. The Company subleases
approximately 127,000 square feet of office space in Cypress, California from
EDS until the expiration of EDS' lease in June 2002. The Cypress facility is
the Company's principal technical development and support center, where the
principal activities and functions include research and development, a global
technical access center, consulting services, product manufacturing and
distribution, marketing, demonstration and training, and general
administration. The Company's European headquarters is located in Fleet,
Hampshire, United Kingdom. This facility is being sublet from EDS until
expiration of EDS' master lease in 2001. Activities at the United Kingdom
office include oversight of European operations, marketing and finance. The
Company's Asia Pacific headquarters is located in Hong Kong where 9,500 square
feet is leased through 2002. The headquarters for Germany and Eastern Europe
is in Cologne, Germany, where the Company subleases 26,500 square feet of
office space from EDS until the expiration of EDS' master lease in 2007.
Activities at the Cologne office include research and development, customer
training and general administration. The headquarters for Solid Edge
operations is in Huntsville, Alabama. The Company leases approximately 38,500
square feet under a lease that will expire in 2003. The Company leases 46,000
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square feet office space in Livonia, Michigan for sales, training, customer
service, and General Motors support. The Livonia location also contains a
collaborative engineering facility and an innovation conference center. The
lease will extend to February 2009. Finally, UGS leases about 17,000 square
feet in Troy, Michigan. The Troy facility houses development and General
Motors support personnel, and the lease expires in July of 2003.
Current facilities are adequate for present needs; however, the Company
plans to re-locate certain offices and sales facilities out of EDS space as
leases expire or earlier in order to better establish the Company's
independence in the market. The Company will continue to evaluate the
requirement for additional facilities as growth demands.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in routine litigation incidental
to its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to the financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None submitted
ITEM 4A. EXECUTIVE OFFICERS OF UNIGRAPHICS SOLUTIONS INC.
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Name Age Position
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Jeffrey M. Heller.... 60 Chairman of the Board
Richard L. deNey..... 50 Vice Chairman of the Board
John J. Mazzola...... 56 President and Chief Executive Officer
Anthony J. Affuso.... 53 Vice President, Products and Operations
Douglas E. Barnett... 40 Vice President, Chief Financial Officer and Treasurer
Donald E. Davidson... 59 Vice President, Asia-Pacific
Michael L. Desmond... 55 Vice President, Human Resources
James Duncan......... 62 Vice President, Europe
Dennis P. Kruse...... 50 Vice President, Americas
Robert F. Loss, III.. 59 Vice President, Chief Information Officer
Richard W. Schenk.... 56 Vice President, Business Planning and Communications
J. Randall Walti..... 53 Vice President, General Counsel and Secretary
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Jeffrey M. Heller has been a Company director and Chairman of the Company's
Board of Directors since January 1, 1999. He has been President and Chief
Operating Officer of EDS since the split-off of EDS from General Motors
Corporation on June 6, 1996. He has been a director of EDS since 1983. Mr.
Heller was a Senior Vice President of EDS from 1984 until the split-off. He
joined EDS in 1968 and has served in numerous technical and management
capacities. He is also a director of Mutual of Omaha and Trammell Crow
Company.
Richard L. deNey has been a Company director and Vice Chairman of the Board
since October 1999. He has been Senior Vice President of EDS, responsible for
strategic planning and business development, since August 1999. From January
1995 to August 1999, Mr. deNey was Executive Vice President of Corporate
Strategy and Development at Borden, Inc. Prior to that time, Mr. deNey had
served in various management positions at several investment banking firms.
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John J. Mazzola was appointed President and Chief Executive Officer of the
Company on January 1, 1998 and has been a director since June 1998. From 1992
to December 1997, Mr. Mazzola served as the President of the Unigraphics
division of EDS. Prior to 1992, Mr. Mazzola served as President of McDonnell
Douglas Systems Integration ("MDSI"), the predecessor to the Unigraphics
division of EDS. Prior to 1992, Mr. Mazzola held numerous positions within
MDSI, including Vice President of Manufacturing and Engineering, Director of
Marketing, Vice President of Check Card Systems and Vice President of Research
and Development.
Anthony J. Affuso was appointed Vice President, Products and Operations of
the Company on January 1, 1998. From March 1992 to December 1997, Mr. Affuso
served as the Vice President of Software Development and Marketing of the
Unigraphics division of EDS, with responsibility for research and development
for the Company's core products. From September 1989 to March 1992, Mr. Affuso
was in charge of the business unit of EDS which automated GM's worldwide
engineering, computing, communications and information management
infrastructure.
Douglas E. Barnett was appointed Vice President, Chief Financial Officer of
the Company on March 2, 1998. From January 1996 to March 1998, Mr. Barnett
served as Vice President and Corporate Controller of Giddings & Lewis, Inc.
("Giddings & Lewis"), a publicly traded company and the largest supplier of
industrial automation products in North America. From 1991 to 1996, Mr.
Barnett served as Treasurer of Giddings & Lewis.
Donald E. Davidson was appointed Vice President, Asia Pacific of the
Company on January 1, 1998. Mr. Davidson served as Managing Director of the
Asia Pacific Region for the Unigraphics division of EDS from November 1991 to
December 1997 with responsibility for all direct and indirect sales and
support activities covering Japan, Korea, Greater China, South East Asia and
Australia.
Michael L. Desmond was appointed Vice President, Human Resources effective
July 14, 1999. From March 1, 1998 until July 14, 1999, he was the executive in
charge of Company human resource functions. From July 1994 to February 1998,
Mr. Desmond served as Vice President, Human Resources for Global One (formerly
Sprint International). Prior to July 1994, Mr. Desmond served in a variety of
executive human resource positions with several Fortune 500 companies.
James Duncan was appointed Vice President, Europe of the Company on January
1, 1998. Mr. Duncan oversees operations in 32 countries located throughout
Europe, South Asia, the Middle East and Africa. Mr. Duncan served as Managing
Director of the European operations for the Unigraphics division of EDS from
November 1991 to December 1997.
Dennis P. Kruse was appointed Vice President, Americas of the Company on
January 1, 1998. Mr. Kruse served as Vice President--Sales, Americas for the
Unigraphics division of EDS from April 1994 to December 1997 with
responsibility for sales, pre- and post-sales support, training and technical
sales support. From 1987 to 1994, Mr. Kruse served as Director of the Western
Region for the Unigraphics division of EDS and, prior to 1991, he was employed
by MDSI.
Robert F. Loss, III was appointed Vice President, Chief Information Officer
of the Company on January 1, 1998. From March 1992 to December 1997, Mr. Loss
served as the Vice President of Operations of the Unigraphics division of EDS
with responsibility for software documentation and media manufacturing,
product delivery, customer services, product support, educational services and
internal management of information systems. Prior to 1992, Mr. Loss held
numerous positions within MDSI, including Vice President of Development and
Operations, Director of Product Management and Director of Business Management
and Marketing.
Richard W. Schenk was appointed Vice President, Business Planning and
Communications on July 14, 1999. He held a similar executive position for the
Company between January 1998 and July 1999. Mr. Schenk has responsibility for
corporate market positioning, global marketing collateral, external web design
and major
10
<PAGE>
business planning programs. From 1992 through December 1997, Mr. Schenk served
as director of Corporate Marketing Communications of the Unigraphics division
of EDS with responsibility for global marketing collateral development and
distribution.
J. Randall Walti was appointed General Counsel of the Company on April 1,
1998 and was appointed Vice President and Secretary of the Company effective
May 19, 1999. From June 1996 to April 1998, Mr. Walti served as managing
attorney in charge of the EDS Legal staff supporting the EDS-General Motors
split-off team. From July 1993 to May 1996, Mr. Walti served as SSU Director
of the EDS Legal Commercial Contracting Group. From April 1985 through June
1993, Mr. Walti held numerous legal and management positions within EDS Legal.
Prior to that time, Mr. Walti served on the legal staff of Bell Atlantic.
Before joining the Bell Atlantic Legal staff, Mr. Walti served on active duty
in the United States Air Force in a variety of systems acquisition and
intelligence assignments.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Unigraphics Solutions Inc. is listed on the New York
Stock Exchange ("NYSE") under the symbol "UGS" and has been traded since June
23, 1998. The table below shows the range of reported per share sales prices
on the NYSE Composite Tape for the Class A Common Stock for the periods
indicated.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
1998 Calendar Quarter
Second Quarter (commencing June 23, 1998).......... $14.9375 $14.0000
Third Quarter...................................... $13.8750 $ 6.5000
Fourth Quarter..................................... $16.0000 $ 6.7500
</TABLE>
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
1999 Calendar Quarter
First Quarter....................................... $20.3750 $13.3750
Second Quarter...................................... $18.8125 $14.5000
Third Quarter....................................... $36.4375 $18.2500
Fourth Quarter...................................... $30.3750 $19.8750
</TABLE>
The last reported sale price of the Class A Common Stock on the NYSE on
March 24, 2000 was $30.50. As of March 24, 2000, the approximate number of
record holders of Class A Common Stock was 3,400.
The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends will depend on future results of operations, capital
requirements, and financial condition of the Company and such other factors as
the Board of Directors may consider, including any contractual or statutory
restrictions on the Company's ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company with respect to each
of the five years in the five-year period ended December 31, 1999 are derived
from the financial statements of the Company prepared in accordance with
generally accepted accounting principles. The selected historical statement of
operations and balance sheet data for each of the years in the four-year
period ended December 31, 1999 and as of December 31, 1999, 1998, 1997 and
1996, respectively, as set forth in the following table are derived from the
financial statements of the Company, which were audited by KPMG LLP,
independent certified public accountants. The
11
<PAGE>
selected statement of operations and balance sheet data presented below as of
December 31, 1995 are derived from the unaudited financial statements of the
Company which, in the opinion of management of the Company, included all
adjustments necessary for a fair presentation of the results of such unaudited
periods. The historical financial information may not be indicative of the
Company's future performance and does not necessarily reflect what the
financial position and results of operations of the Company would have been
had the Company operated as a separate, stand-alone entity during the periods
covered. The following information should be read in conjunction with, and is
qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto included elsewhere in this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues.............. $ 467,950 $ 403,571 $ 314,593 $ 414,209 $ 267,622
Cost of revenues...... (167,251) (163,925) (129,124) (139,820) (109,065)
Selling, general, and
administrative
expenses............. (167,389) (139,174) (102,759) (92,444) (85,031)
Research and
development.......... (70,963) (63,577) (47,979) (47,166) (43,654)
In-process research
and development...... (2,386) (39,440) -- -- --
Operating income
(loss)............... 59,961 (2,545) 34,731 134,779 29,872
Other income.......... 5,272 10,036 5,092 106 129
Provision for income
taxes................ (23,484) (1,253) (14,810) (51,549) (11,625)
--------- --------- --------- --------- ---------
Net income............ $ 41,749 $ 6,238 $ 25,013 $ 83,336 $ 18,376
========= ========= ========= ========= =========
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Per Share Data (1):
Basic earnings per
share of common stock
..................... $ 1.15 $ 0.18 $ 0.80 $ 2.67 $ 0.59
Diluted earnings per
share of common
stock................ $ 1.14 $ 0.18 $ 0.80 $ 2.67 $ 0.59
Financial Position (at
period end):
Current assets........ $ 155,575 $ 142,594 $ 122,012 $ 173,237 $ 78,324
Property and
equipment, net....... 33,110 26,467 19,821 18,380 14,226
Operating and other
assets............... 85,592 88,592 24,957 39,589 54,357
Total assets.......... 274,277 257,653 166,790 231,206 146,907
Long-term debt........ 35,220 55,130 -- -- --
Stockholders'
equity/net
investment........... 123,402 89,180 88,350 132,147 90,770
</TABLE>
- --------
(1) For purposes of the calculations of basic and diluted earnings per share
for the years ended December 31, 1995-1997, 31,265,000 shares of Class B
Common Stock are outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company generates revenue primarily from the licensing of MCAD software
products, provision of software consulting and support services and the sale
of 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
12
<PAGE>
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.
Effective as of January 1, 1998 in conjunction with the Reorganization, the
Company succeeded to the MCAD business of EDS, which business previously had
been operated within several business units of EDS. The Company's historical
financial statements reflect the results of operations, financial condition
and cash flows of the Company as a component of EDS prior to the
Reorganization and may not be indicative of actual results of operations and
financial position of the Company subsequent to the Reorganization.
In 1996, EDS and 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 three-year arrangement
that consisted of three elements: (1) a perpetual license of the Unigraphics
and iMAN 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 $178.0 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 was recognized over the term of the agreement
based generally on the deployment schedule. The Company recognized Site
License software license revenue of approximately $110.3 million in 1996. The
Site License with respect to the on-going provision of maintenance services
and other items has been extended on a month-to-month basis since mid-1999
pending renegotiation of a follow-on agreement. The Company and GM currently
are in the final stages of negotiation leading toward a follow-on contract
covering primarily software maintenance, development and other services.
Prior to the Site License, GM received software and maintenance services on
a monthly basis pursuant to a term lease agreement which was cancelable upon
notice. In connection with the Reorganization, EDS and the Company entered
into a subcontract with EDS pursuant to which the Company received the revenue
and performed substantially all of EDS' obligations under the Site License
subsequent to the Reorganization. If the EDS/GM Master Service Agreement or
the follow-on agreement to the Site License were to be terminated, the
Company's financial condition and results of operations would be materially
adversely affected.
Effective January 1, 1998, the Company and EDS entered into a Management
Services Agreement, pursuant to which EDS performs various management services
for the Company, including treasury, risk management, tax, and similar
administrative services. Amounts charged to the Company under this agreement
approximate EDS' cost of providing the services plus a fixed fee equal to 0.5%
of the Company's total revenues. 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 Management Services Agreement, 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's historical
financial statements include an allocation of corporate general and
administrative costs in the amount of approximately 2.1% of total revenues per
year. Management believes that this percentage, which is based on an analysis
of the services and estimated costs of such services provided to the Company
by EDS, is reasonable. However, there can be no assurance that such costs will
be indicative of costs to be incurred under the Management Services Agreement
or in transactions with unrelated third parties. The Company paid EDS $6.4
million for such services in 1999 and 1998; and currently is negotiating with
EDS relative to the 2000 services and charges. 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.
13
<PAGE>
Solid Edge Acquisition
On March 2, 1998, the Company completed the acquisition of the mechanical
computer-aided design business of Intergraph Corporation (the "Solid Edge
Acquisition"), consisting of the Solid Edge and EMS software product lines and
related services business. The Solid Edge Acquisition purchase price was
$105.0 million (excluding approximately $2.0 million of acquisition costs).
The Company borrowed $105.0 million from EDS pursuant to an intercompany
credit agreement (the "Intercompany Credit Agreement"). The cost of the Solid
Edge Acquisition was allocated to identifiable assets based on estimated fair
values as discussed below. Costs allocated to identifiable intangible assets
are being amortized on a straight-line basis over the remaining estimated
useful lives of the assets. Costs allocated to in-process research and
development were expensed in the three-month period ended March 31, 1998. The
excess of purchase price over fair value of identifiable assets acquired was
recorded as goodwill and is being amortized on a straight-line basis over its
useful life of seven years. The Company has allocated the purchase price as
follows: $3.4 million to software; $4.0 million to acquired workforce; $39.4
million to in-process research and development costs; and $60.2 million to
goodwill. As a result of the write-off of in-process research and development
costs and additional amortization expense resulting from the Solid Edge
Acquisition, net income in 1998 was significantly less than in prior years.
In-process research and development relates to the modification of Solid
Edge 4.0 to include the Company's Parasolid solid modeling kernel. This
project commenced in July 1997 and was completed in May 1998. Initial sales of
Solid Edge 5.0 occurred shortly thereafter. The value assigned to in-process
research and development was determined based on management's estimates of the
percentage of completion of the underlying development effort, resulting net
cash flows from Solid Edge 5.0 and the discounting of such cash flows back to
their present value.
In projecting net cash flows resulting from Solid Edge 5.0, the Company
estimated revenues, cost of sales, research and development, selling, general
and administrative and income taxes for such software. These estimates were
based on the following assumptions at the time of acquisition:
. The estimated revenues for the Solid Edge product were projected to
increase by a compound annual growth rate over five years of
approximately 46% with annual growth rates ranging from 33% to 75%.
Virtually all projected revenues of the Solid Edge product were ascribed
to Solid Edge 5.0 because the integration of the Parasolid modeling
kernel into Solid Edge 4.0 was believed to be the critical enabling
factor to allow the Solid Edge product to provide the geometric modeling
capabilities and user interfaces necessary to compete with other products
in the product design and consumer products markets. In addition,
management expected sales of Solid Edge 4.0 to cease subsequent to May
1998. Projections of revenue growth were based on management's estimates
of market size and growth, supported by independent market data, and the
nature and expected timing of the development of product enhancements and
new products by the Company and its competitors.
. The estimated cost of sales as a percentage of revenue (11-12%) was
consistent with then-current historical rates for the Solid Edge business
as well as then-current industry standards.
. The estimated selling, general and administrative costs were expected to
increase as a percentage of sales from 37% in 1998 to 45% in 2002. The
selling, general and administrative costs in 1998 were lower as a
percentage of sales, than the projected selling, general and
administrative costs in the later years because of the consolidation of
sales forces. In addition, the Company expected to modify the distributor
channels by discontinuing the relationship with unproductive distributors
and eliminating the associated salespersons. Incremental sales in the
later years were expected to require proportionately greater selling
efforts to meet the Company's revenue growth plans.
. The estimated research and development costs were expected to decrease as
a percentage of sales from 22% in 1998 to 12% in 2002. The research and
development costs in 1998 were higher as a percentage of sales, than the
projected research and development costs in the later years because of
the costs of combining two research and development departments in 1998
and the continuing research and developments efforts of the two groups.
14
<PAGE>
. Royalty income on the Parasolid kernel was expected to be received by the
Company from outside parties. The royalty income associated with Solid
Edge 5.0 was assumed to be 6.0%, the standard royalty rate for the
Parasolid kernel. Because of the declining value of Solid Edge 5.0 over
the future periods, the royalty income associated with Solid Edge 5.0, to
determine the research and development valuation, was reduced accordingly
from 6.0% in 1998 to 3.7% in 2002.
The projected net cash flows for Solid Edge 5.0 were discounted using a 15%
weighted average cost of capital ("WACC"). The 15% rate was based upon an
analysis of the WACC for publicly traded companies within the same industry.
The WACC calculation produces the average required rate of return of an
investment in an operating enterprise. A WACC of 15% was also used to
determine the value of the return on working capital and the return on the
workforce acquired as part of the Company's purchase of Solid Edge. In
determining the appropriate WACC, the Company considered the attribution of a
higher WACC to the in-process technology, due to the risks inherent in the
development process; however, a higher WACC was not used as the Company
believed that these risks had been significantly reduced by the acquisition
date (as evidenced by the completion of the development in early May 1998). In
addition, the impact of the use of a higher WACC (e.g. 16-20%) on the amount
of the purchase price allocated to in-process research and development was not
material.
Revenues of Solid Edge 5.0 subsequent to the completion of development are
lower than those used in projected net cash flows for the purchase price
because of a three-month delay in the integration of Solid Edge distribution
channels into the Company's existing distribution network and because of
weaker than anticipated performance by the distributors. In addition, research
and development expenses associated with Solid Edge 5.0 also have been lower
than those used in the projected net cash flows. As a result of the preceding
factors, actual net cash flows approximate those used in the original
projections. Management believes that the original projections of net cash
flows from Solid Edge 5.0 are reasonable.
No assurance can be given, however, that the underlying assumptions used to
estimate projected net cash flows will transpire as estimated. Operating
results are subject to uncertain market events and risks which are beyond the
Company's control, such as trends in technology, government regulations,
market size and growth, and product introductions or other actions by
competitors. For these reasons, actual results may vary from the projected
results.
These projections, which constitute forward-looking statements, were not
made with a view toward public disclosure and were based on a variety of
estimates and judgements. Actual results may vary materially due to a number
of significant risks, including, without limitation, uncertainties regarding
future business, economic, competitive, regulatory and financial market
conditions, and future business decisions, all of which are difficult to
predict and many of which are beyond the Company's control. No assurance can
be given that such projections will be realized. The Company does not intend
to update or supplement these projections in the future.
15
<PAGE>
Results of Operations
Revenues. The following tables summarize the Company's revenues for each of
the years ended December 31, 1999, 1998 and 1997 by revenue type and
geographic region.
Revenue by Type
($ in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Software....................................... $198,936 $157,662 $115,479
Services....................................... 234,205 187,120 137,794
Hardware....................................... 34,809 58,789 61,320
-------- -------- --------
Total...................................... $467,950 $403,571 $314,593
======== ======== ========
</TABLE>
Revenue by Geographic Region
($ in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Americas:
United States................................ $218,946 $186,274 $142,777
Other Americas............................... 16,256 15,778 15,578
Europe......................................... 177,379 155,110 114,422
Asia Pacific................................... 55,369 46,409 41,816
-------- -------- --------
Total...................................... $467,950 $403,571 $314,593
======== ======== ========
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $218,946 $186,274 $142,777
Total Foreign.................................. 249,004 217,297 171,816
-------- -------- --------
Total...................................... $467,950 $403,571 $314,593
======== ======== ========
</TABLE>
The Company classifies its software and hardware revenue by region based on
the geographic location of the Company's business unit in which the software
license or equipment is sold. Services are classified by the geographic
location in which the activity is performed.
16
<PAGE>
The following table sets forth, as a percentage of total revenue, statement
of operations data of the Company for the years ended December 31, 1999, 1998
and 1997. These operating results are not necessarily indicative of results
for any future periods.
<TABLE>
<CAPTION>
Years ended
December 31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software.............................................. 43% 39% 37%
Services.............................................. 50 46 44
Hardware.............................................. 7 15 19
--- --- ---
Total revenue....................................... 100% 100% 100%
=== === ===
Cost of revenue:
Software:
Amortization........................................ 5% 5% 5%
Royalties, distribution and other................... 4 5 4
Services.............................................. 21 19 18
Hardware.............................................. 6 12 14
--- --- ---
Total cost of revenue............................... 36 41 41
--- --- ---
Gross profit............................................ 64% 59% 59%
=== === ===
<CAPTION>
Years ended
December 31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating expenses:
Selling, general and administrative................... 35% 34% 33%
Research and development.............................. 15 16 15
In-process research and development................... 1 10 --
--- --- ---
Total operating expenses............................ 51 60 48
--- --- ---
Operating income (loss)................................. 13 (1) 11
Other income, net....................................... 1 3 2
--- --- ---
Income before income taxes.............................. 14 2 13
Provision for income taxes.............................. 5 -- 5
--- --- ---
Net income.............................................. 9% 2% 8%
=== === ===
</TABLE>
Revenue for the Company was $468.0 million in 1999, an increase of 16% over
the $403.6 million in 1998. In 1998, the Company's revenues increased $89.0
million or 28% as compared to 1997 revenue.
Software revenue increased $41.2 million, or 26.1%, to $198.9 million for
1999. The increase resulted from strong sales demand in all geographic and
industry areas as well as the addition of the Solid Edge/EMS product line for
the entire year. For 1998, software revenues increased $42.2 million to $157.7
million. The revenue resulted from strong sales demand in all geographic and
industry areas as well as the addition of the Solid Edge/EMS product line.
Services revenue increased $47.1 million, or 25%, to $234.2 million in 1999
from $187.1 million in 1998. In 1998, services revenues increased $49.3
million, or 36%, from $137.8 million in 1997. The increases in both 1999 and
1998 are primarily attributable to increased maintenance revenue due to
continued growth in the Company's installed customer base and to additional
maintenance revenues associated with acquisitions. Additionally in 1999,
consulting services increased in both the Americas and European zones as a
result of increases in funded development and integration services.
17
<PAGE>
Hardware revenue decreased $24.0 million, or 41%, to $34.8 million in 1999
from $58.8 million in 1998. Hardware revenue also decreased $2.5 million, or
4%, in 1998 from $61.3 million in 1997. These decreases reflect the Company's
decision in late 1996 to deemphasize hardware sales in order to focus on
higher margin software sales and consulting services. Hardware revenue is
expected to continue to decline in the future.
The Company derived 53%, 54% and 54% of its revenue from international
operations in 1999, 1998 and 1997, respectively. Results of operations of the
Company were not materially affected by the financial instability in Asia
Pacific markets in late 1997 and continuing through 1998.
Gross Profit. The Company's gross profit was $300.7 million in 1999 as
compared to $239.6 million in 1998, an increase of $61.1 million. The
Company's gross profit in 1998 increased $54.1 million from $185.5 million in
1997. The gross profit margin for 1999 was 64% as compared to 59% in 1998 and
1997.
Gross margin on software revenues increased $39.2 million, or 34%, to
$155.9 million in 1999 as compared to $116.7 million in 1998. This increase
resulted primarily from strong revenue growth that more than offset the
additional amortization of goodwill and software intangibles arising from the
Solid Edge Acquisition. In 1998, software gross margins increased $29.2
million from 1997. Gross profit margins were 78%, 74% and 76% in 1999, 1998
and 1997, respectively.
Gross profit on service revenues increased $24.9 million, or 22%, to $138.1
million in 1999 from $113.2 million in 1998. The increase in 1999 resulted
from higher revenues partially offset by slightly lower margins for
maintenance and professional services. Gross profit on service revenues
increased $32.5 million in 1998 from 1997. The increases resulted primarily
from improved margins on professional services. Gross profit margins were 59%,
61% and 59% in 1999, 1998 and 1997, respectively.
Gross profit on hardware revenues decreased $3.1 million, or 32%, to $6.6
million in 1999 from $9.7 million in 1998. Gross profit on hardware revenues
decreased $7.5 million, or 44% in 1998 from 1997. The decrease in 1999
resulted from lower revenues partially offset by higher margins. The decrease
in 1998 resulted from reductions in finders fees paid to the Company by
hardware vendors and a change in the mix of hardware sales to lower margin
computers. Gross profit margins were 19%, 17% and 28% in 1999, 1998 and 1997,
respectively.
Selling, General and Administrative Expenses. In 1999, selling, general and
administrative expenses totaled $167.4 million, an increase of $28.2 million
from $139.2 million in 1998. Selling, general and administrative expenses in
1998 increased $36.4 million over 1997. Selling, general and administrative
expenses represented 36%, 34% and 33% of total revenues in 1999, 1998 and
1997, respectively. Selling costs comprise salesperson salaries, commissions
and benefits, travel, sales office occupancy and other related costs. The
increases in selling, general and administrative costs were principally due to
increases in commissions and bonuses resulting from continued strong sales
growth, increased staffing to support higher revenue growth, costs arising
during 1998 and 1999 from the implementation and operation of the SAP
enterprise resource planning system and, in 1999, additional employee costs
associated with the acquisitions.
Research and Development Costs. Research and development costs were $71.0
million, $63.6 million and $48.0 million in 1999, 1998 and 1997, respectively.
Research and development costs as a percentage of total revenue were 15%, 16%
and 15% in 1999, 1998 and 1997, respectively. Research and development costs
as a percentage of total revenue were lower in 1999 than in 1998 because of
lower cost growth following heavy investment in 1998 on the Solid Edge
acquisition and initiatives related to the Company's iMAN and ProductVision
software products.
In-Process Research and Development Costs. In-process research and
development costs of $2.4 million and $39.4 million in 1999 and 1998,
respectively, resulted from the Applicon and dCADE acquisitions in 1999 and
the Solid Edge acquisition in 1998.
Operating Income (Loss). Operating income (loss) was $60.0 million, ($2.5)
million and $34.7 million in 1999, 1998 and 1997, respectively, as a result of
factors described above.
18
<PAGE>
Other Income, Net. Other income, net was $5.3 million, $10.0 million and
$5.1 million in 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997,
the Company realized gains upon the exercise of warrants and subsequent sale
of related marketable equity securities of $7.3 million, $14.5 million and
$5.1 million, respectively. The warrants were received in exchange for reduced
royalty fees from a private software company which was acquired by a public
company in 1997. These gains were partially offset in 1999 and 1998 by
interest on borrowings on the Intercompany Note and also in 1998 by interest
on borrowings for the Solid Edge acquisition.
Provision for Income Taxes. The provision for income taxes was $23.5
million, $1.3 million and $14.8 million in 1999, 1998 and 1997, respectively.
The Company's effective tax rate was 36.0%, 16.7% and 37.2% in 1999, 1998 and
1997, respectively. The difference between the Company's effective tax rate
and the statutory federal income tax rate primarily resulted from taxes on in-
process research and development, state and foreign taxes, partially offset by
research and experimentation credits.
Net Income. Net income was $41.7 million, $6.2 million and $25.0 million in
1999, 1998 and 1997, respectively. Basic earnings per common share was $1.15
and diluted earnings per common share was $1.14 in 1999. Basic and diluted
earnings per common share were $0.18 and $.80 for 1998 and 1997, respectively.
Inflation. The Company believes that inflation generally had little effect
on its results of operations for the periods presented.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Initially, the statement had been
effective for financial statements for all quarters of fiscal years beginning
after June 15, 1999. SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
was issued in June 1999. This statement postponed the application of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company believes
that adoption of this statement will not have a significant effect on its
consolidated financial statements.
Liquidity and Capital Resources
The Company's central cash management function is performed by EDS under
the Management Services Agreement. The Company has Intercompany Credit
Agreements with EDS under which there was no amount outstanding at December
31, 1999. The maximum amount that the Company may borrow at any time from EDS
under the Intercompany Credit Agreements is $70 million. Amounts outstanding
under the Intercompany Credit Agreements bear interest, payable quarterly at a
rate equal to one-month LIBOR plus 0.5%. "LIBOR" means the Official British
Banker's Association one-month U.S. LIBOR Fixings. The Intercompany Credit
Agreements restrict 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 Agreements. The
Intercompany Credit Agreements terminate on December 31, 2002, unless
terminated earlier at the election of one of the parties upon occurrence of
certain events, and also require that the Company lend to EDS all excess cash
of the Company at a rate of one-month LIBID minus 0.5%. "LIBID" means London
Interbank Bid Rate.
The Company also has outstanding an Intercompany Note in the principal
amount of $35.2 million payable to EDS on March 6, 2001. The Intercompany Note
bears interest, payable semiannually, at a rate equal to the one-month LIBID
minus 0.5%.
The Company's net cash provided by operating activities for 1999 decreased
$36.1 million to $45.9 million from $82.0 million in 1998. In 1998, net cash
provided by operating activities increased $7.7 million over 1997. The
Company's net cash used in investing activities for 1999 decreased $82.1
million to $26.7 million from
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<PAGE>
$108.8 million in 1998. This decrease resulted from lower cash payments for
acquisitions in 1999. Cash flows used in financing activities increased $66.9
million to $19.4 million in 1999. This increase resulted from lower net
borrowings and significantly lower proceeds from sales of stock in 1999. The
Company believes currently available sources of liquidity, including the
Intercompany Credit Agreements and cash generated from operations, will 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.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the "euro" as their common legal currency and established fixed
conversion rates between their existing sovereign currencies and the euro. The
euro now trades on currency exchanges and is available for non-cash
transactions. The existing sovereign currencies will remain legal tender in
the participating countries during the transition period ending on January 1,
2002. Beginning on that date, the participating countries will issue new euro-
denominated currency for use in cash transactions and the existing sovereign
currencies will no longer be legal tender. The Company operates in the
countries which have adopted the euro ("Eurozone") and in most of the other
countries of the European Union that initially are not participating in the
euro conversion.
In the near term, EDS will continue to provide many internal systems
services to the Company (including purchasing, accounting, and billing system
services) in several European countries under the Master Services Agreement
between EDS and the Company. As of January 1, 2000, EDS is providing systems
in certain countries of the Eurozone with the capability to trade with
customers and suppliers in the euro currency. EDS' European systems also will
provide dual reporting in euro currency and will allow migration from the
existing currencies to the euro over the following two-year period.
Concurrently, the Company is in the process of replacing and upgrading many of
the internal systems currently provided by EDS. The new Company systems are
planned to be operational throughout Europe on or before January 1, 2002, the
end of the euro transition period, and will accommodate business in euros.
Assuming timely upgrade of current systems and implementation of relevant
replacement systems, the Company does not expect to incur any material
incremental costs to update current systems or to install new systems having
euro-related functionality. Although the Company currently has no reason to
believe that relevant system improvements will be not be timely implemented, a
failure to timely install internal systems to handle business in euros could
have a material impact on the Company's financial condition or results of
operation.
Within the Eurozone, the Company prices its products on an individual
country basis. Periodically during the transition period, the Company will
establish product prices and quote such prices in both local currencies and
the euro. The list pricing in euros for similar products is usually, but not
always, identical in the different countries; however, any price differentials
are not significant, thereby minimizing any negative competitive impact as a
result of pricing transparency. At this time, the Company does not believe the
conversion will have a material adverse impact on its competitiveness in
Europe. However, the Company will continue to analyze euro-related
developments; and there can be no assurance that the euro-conversion program
will not have a material adverse effect on the Company's financial condition
or results of operations.
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<PAGE>
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 year ended December
31, 1999, international revenue represented 53% of total Company revenue. The
Company's most significant international operations are located in Germany and
the United Kingdom, which were 26% and 13%, respectively, of total
international revenue in 1999. 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
overall operations. See Note 1, "Summary of Significant Accounting Policies--
Currency Translation," in the Notes to Consolidated Financial Statements
(beginning on page F-6) for additional information on currency translation
adjustments.
Risk Factors That May Affect Future Results
Competition. Markets for the Company's products are highly competitive and
characterized by rapidly changing technology and evolving standards. The
Company's competitors include (i) generalist MCAD and product development
software companies that offer broad-range systems, such as Autodesk Inc.,
Dassault Systemes, Parametric Technology Corporation, and Structural Dynamic
Research Corporation, (ii) specialist software developers whose product lines
are focused on CAD, CAM, CAE or PDM products, (iii) enterprise resource
planning ("ERP") software providers, and (iv) numerous smaller niche software
developers.
The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. Current and potential competitors may establish strategic
alliances or undertake acquisitions to increase the ability of their products
to address the needs of the Company's current and prospective customer base.
Relationship with EDS. EDS owns 100% of the Company's outstanding Class B
Common Stock, representing approximately 98.4% of the combined voting power of
all classes of voting stock of the Company. The Class A Common Stock and the
Class B Common Stock currently are the only voting stock of the Company. As
long as EDS continues to beneficially own a majority of the combined voting
power of the Common Stock, it will have the ability to elect all of the
members of the Board of Directors and control the management and affairs of
the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the assumption of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities or the
declaration and payment of any dividends on the Common Stock. In addition, EDS
will be able to determine the outcome of any matter submitted to a vote of the
Company's stockholders for approval and to cause or prevent a change in
control of the Company. Currently, four of the eight directors are executive
officers or directors of EDS and one director is a former executive officer of
EDS.
Certain intercompany agreements and arrangements exist between the Company,
EDS and EDS' other subsidiaries, including the Management Services Agreement.
There can be no assurance that the services provided to the Company by EDS
under these affiliate agreements will continue to be provided, and if not,
whether or on what terms such licenses or services could be replicated. In
addition, while the parties to the affiliate agreements endeavored to
establish terms fair to both EDS and the Company, as a result of EDS' control
of the Company none of such agreements resulted from "arm's-length"
negotiations. There can be no assurance that the Company would not have
received more favorable terms from an unaffiliated party.
Conflicts of interest may arise between the Company and EDS in a number of
areas relating to their past and ongoing relationships, including the nature
and quality of services rendered by EDS and its affiliates to the Company,
potential competitive business activities, differing business objectives of
EDS and the Company, tax,
21
<PAGE>
financial reporting, employee benefit matters, indemnity agreements,
registration rights, sales or distributions by EDS of all or any portion of
its ownership interest in the Company or EDS' ability to control the
management and affairs of the Company. There can be no assurance that EDS and
the Company will be able to resolve any potential conflict or that, if
resolved, the Company would not have received more favorable resolution if it
were dealing with an unaffiliated party. In addition, certain of the affiliate
agreements contain specific procedures for resolving disputes between the
Company and EDS with respect to the subject matter of those agreements. There
can be no assurance that more favorable results to the Company would not be
obtained under different procedures.
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for EDS to continue to
include the Company in its consolidated group for federal income tax purposes,
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for EDS to effect a
tax-free spin-off of the Company or certain other tax-free transactions. Each
member of a consolidated group for federal income tax purposes is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Each member of the EDS controlled group, which
includes EDS, the Company and EDS' other subsidiaries, is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, as well as certain benefit plan taxes. Accordingly,
the Company could be liable under such provisions in the event any such
liability is incurred, and not discharged, by any other member of the EDS
consolidated or controlled group. If the Company were no longer to be included
in EDS' consolidated group for federal tax purposes, there is no assurance
that the Company's tax position would not be less favorable than it is at
present.
In addition, by virtue of its controlling beneficial ownership and the
terms of a tax sharing agreement between the Company and EDS, EDS effectively
controls all of the Company's tax decisions. Under the tax sharing agreement,
EDS has sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company's federal and combined state
returns, to file all such returns on behalf of the Company and to determine
the amount of the Company's liability to (or entitlement to payment from) EDS
under the tax sharing agreement. This arrangement may result in conflicts of
interests between the Company and EDS. For example, under the tax sharing
agreement, EDS may choose to contest, compromise or settle any adjustment or
deficiency proposed by the relevant taxing authority in a manner that may be
beneficial to EDS and detrimental to the Company.
Dependence on Key Customers/Industries. The Company's earnings are highly
dependent on its business with GM. In connection with the split-off of EDS
from GM in June 1996, EDS entered into a Master Services Agreement (the
"EDS/GM MSA") and certain related agreements pursuant to which EDS serves as
GM's principal supplier of information technology on a worldwide basis for an
initial term of 10 years. The EDS/GM MSA serves as the framework for the
negotiation and operation of service agreements between GM and EDS, including
the provision of Company products and services under the Site License (see
Part I, Item 1, "Customers" above). The Site License initial term expired on
June 30, 1999 and has been extended on a month-to-month basis pending the
conclusion of negotiations on a follow-on Site License. Although less than 10%
of the Company's 1999 revenue was attributable to the products and services
provided to GM, if the EDS/GM MSA were to be terminated, or if the Company and
GM do not enter into a successor agreement to the Site License, the Company's
financial condition and results of operations would be materially adversely
affected.
The Company's products are licensed to customers in a variety of industry
sectors, but a significant portion of the Company's 1999 revenue was derived
from the automotive and transportation and the aerospace industries. Both
industries are relatively mature MCAD markets that have been substantially
penetrated. The Company's future success will depend on its ability to
maintain and increase product licensing in the automotive and transportation
and the aerospace industries, as well as other industries, and there can be no
assurance that the Company will be able to achieve this objective.
Additionally, both the automotive and transportation and the aerospace
industries are cyclical, and an economic downturn in one of these industries
would likely have a material adverse effect on the Company's business,
financial condition and results of operations.
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<PAGE>
Rapid Technological Change, New Products. The MCAD industry is
characterized by rapidly changing technology and frequent new product
introductions and product enhancements. Therefore, the Company's success is
highly dependent upon its ability to enhance its existing products and to
introduce new products in a cost-effective and timely manner to meet evolving
customer requirements. The Company has committed and intends to continue to
commit substantial resources to the development of new products. The Company
introduced a number of new product innovations in 1999, including (i) Version
16 of Unigraphics (featuring predictive engineering capabilities with the
introduction of knowledge driven design functions, new analysis and
optimization tools, and hundreds of other enhancements), (ii) Version 7 of
Solid Edge (incorporating enhanced design features for complex plastics, cast
parts and sheet metal assemblies) and, (iii) iMAN Portal (a java-based design
collaboration tool). Because new product development commitments must be made
well in advance of sales, however, new product decisions must anticipate both
future demand and the technology that will be responsive to such demand.
Delays in developing new products with anticipated technological advances or
in commencing releases of new products may have a material adverse effect on
the Company's financial condition and results of operations, as might the
issuance of releases in which material defects or shortcomings emerge. There
can be no assurance that new products will gain market acceptance or will not
be adversely affected by technological changes or new product announcements by
others. In addition, since many software users rely on databases of existing
parts for new product designs, there can be no assurance that potential
customers will switch to the Company's new products.
There can be no assurance that future versions of Unigraphics, Solid Edge,
iMAN or any of the Company's other core products will perform as expected or
that they will achieve market acceptance or contribute significantly to the
Company's revenue. The Company's business strategy includes establishing
Parasolid as the MCAD industry's solid modeling standard. Competitors of the
Company could develop independent solid modeling kernels and license them to
third parties. Although the Company believes that Parasolid is the solid
modeling standard for MCAD software, there can be no assurance that it will
remain the solid modeling standard or that a competitor of the Company will
not develop a solid modeling kernel that will become the standard for the MCAD
industry. If a competitor of the Company were to develop a product that became
the solid modeling standard, it could have a material adverse effect not only
on the future success of Parasolid, but also on the Company's other products
which are based on the Parasolid solid modeling kernel.
Dependence on Key Personnel. The Company's success depends to a significant
extent upon, among other factors, the continued service of its key senior
executives and research and development, technical, sales, support and other
personnel, and on its ability to continue to attract, retain and motivate
qualified personnel. The competition for such employees is intense, and the
loss of the services of any of these key personnel without adequate
replacement or the inability to attract new qualified personnel could have a
material adverse effect on the Company. The Company has signed employment
contracts with each executive officer. The Company does not maintain insurance
with respect to the loss of its key personnel.
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary software technology. The Company relies on a
combination of contracts, copyrights, trade secret laws and patents to
establish and protect its proprietary rights in its technology. Effective
copyright, trade secret and patent protection, however, may be unavailable or
limited in certain countries. Litigation, which could demand financial and
management resources, may be necessary to enforce its copyrights, patents or
other intellectual property rights. There can be no assurance that the steps
taken by the Company will be adequate to deter misappropriation or independent
third party development of its technology.
To date, the Company has not been involved in any litigation regarding
copyrights, trademarks, trade secrets or other intellectual property rights
alleging the possible infringement of such intellectual property rights of
others. Litigation alleging infringement of the intellectual property rights
of others is not uncommon in the MCAD industry, and there can be no assurance
that such litigation will not be commenced in the future against the Company.
If litigation were to be commenced against the Company alleging infringement
of the intellectual
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property rights of others, the Company could incur significant costs with
respect to the defense thereof, irrespective of the validity or the successful
assertion of such claims, which could have a material adverse effect on the
Company's financial condition and results of operations.
Risks Associated with the Integration of Solid Edge/EMS and other
Acquisitions. The Company consummated the Solid Edge Acquisition on March 2,
1998. Prior to the Solid Edge Acquisition, the Solid Edge/EMS Business had not
been operated as a separate subsidiary or division of Intergraph but had been
integrated with Intergraph's other operations. Similarly, effective July, 1999
the Company acquired the German computer-aided manufacturing concern, dCADE,
and in August 1999 the Company acquired most of the worldwide assets of
Applicon, Inc. The Company continues to seek additional opportunities to
acquire, or merge with, related businesses and is presently evaluating, as it
does on a regular basis, potential opportunities. There can be no assurance
that the Company will be able to successfully integrate such businesses into
its operations or that the integration of these businesses will not materially
limit the amount of time that management may devote to running the Company's
day-to-day business or disrupt the Company's ongoing business. Further growth
in the Company's operations from additional businesses may strain the
Company's existing management resources and its financial and management
systems and controls and may require the Company to make additional
expenditures in such areas.
Declining Prices of MCAD and PDM Products. As is common in high technology
industries, the MCAD industry is characterized by selling prices which have
tended to decline for existing products over time due to competition, lower
marginal costs and rapid technological change. In particular, increased
competition from new sources, including the introduction of numerous lower
priced, higher volume 3-D CAD products, the emergence of a mid-range market,
and the increased penetration of niche players into the CAM and CAE markets,
has led to price pressure on MCAD software products which is expected to
continue. Despite declining unit prices, the total size of the MCAD global
market, as measured by revenue, has increased over the past several years.
There can be no assurance, however, the MCAD global market will continue to
grow.
Significant Quarterly Fluctuations. Historically, the Company's quarterly
operating results have varied significantly and are likely to vary
significantly in the future, depending on factors such as the number, timing
and significance of product enhancements or new products by the Company or its
competitors, the ability of the Company to develop, introduce and market new
and enhanced versions of its products, customer order deferrals in
anticipation of new or enhanced Company products, foreign currency exchange
rates, general conditions in the MCAD and computer industries and regional
economies and other events or factors. Also, the timing of orders and
shipments, unexpected delays or actions taken by competitors in reducing
prices or introducing new products could result in significant quarterly
fluctuations in the Company's results of operations. Finally, as is typical in
the MCAD industry, the Company historically has experienced its highest
licensing activity for the year in December.
Risks Associated with International Operations. As a global participant in
the MCAD industry, the Company's business is subject to various risks beyond
its control, such as instability of foreign economies and governments, changes
in laws and policies affecting trade and investment, fluctuations in exchange
rates, inability to enforce intellectual property rights, and the slowdown in
European business activity during the summer months. In 1999, approximately
53% of the Company's revenue was derived from sales outside the United States.
This percentage has remained relatively constant over the last three years.
There can be no assurance that the Company will not experience material
adverse effects on its business and results of operations arising from its
international operations and sales.
Implementation of Enterprise Resource Planning Systems. In mid-1998, the
Company initiated work to convert to new enterprise resource planning systems
for its operations in the United States, Germany, the United Kingdom, and
Canada. The new software systems were scheduled to be substantially
operational in the countries identified above by the end of the first calendar
quarter of 1999. The Company had planned to implement such new systems in its
remaining international operations over the course of 1999 and 2000. However,
because of implementation difficulties, the Company has delayed
implementations in international locations other than
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<PAGE>
Canada, Germany and the United Kingdom. Additionally, as of January 2000,
projected total implementation costs have exceeded estimates by over $7
million. Implementation of the new enterprise systems is expected to increase
the efficiency and competitiveness of the Company, provide more timely and
accurate business and management information, and reduce ongoing expenses,
particularly reliance on EDS for the provision of certain systems and
services. If the new enterprise systems cannot be implemented worldwide or if
the costs to implement the new systems significantly exceed revised estimates,
the Company's 2000 and beyond financial condition and results of operations
would be materially adversely affected.
Limited History as a Stand-Alone Company. The Company succeeded to the MCAD
business of EDS effective as of January 1, 1998 (or later with respect to
certain operations outside the United States). Prior to such time, the
operations of the Company had been operated within several business units of
EDS, and not as a separate legal division or subsidiary. After the
Reorganization, the Company integrated its various operations into a single
operating unit. Although management has extensive experience managing the
Company as a part of EDS, there is only a limited operating history of the
Company as a stand-alone entity for a prospective investor to evaluate. There
can be no assurance that the Company will be able to successfully integrate
its operations into a single entity or that such integration will be achieved
in an efficient and effective manner. Since June 23, 1998, the Company has
been operated as a stand-alone subsidiary of EDS. EDS has no obligation to
provide assistance to the Company or any of its subsidiaries except for
certain financial, tax and other services provided pursuant to the Management
Services Agreement between EDS and the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has market risks primarily relating to changes in the value of
marketable securities and changes in foreign exchange rates. The Company has
entered into various agreements for the purpose of hedging against these
risks. The hedging agreements are in the form of puts and calls which
establish the lowest and highest prices that the Company may sell the
securities. These agreements expire at various dates through 2000. The Company
does not enter into financial instrument transactions for trading purposes.
Information about the Company's risk related to changes in foreign exchange
rates is contained in Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under "Euro Conversion" and
"Impact of Changes in Exchange Rates."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data are
included on pages F-1 through F-24 to this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................ F-1
Consolidated Statements of Operations: Years ended December 31,
1999, 1998, 1997................................................... F-2
Consolidated Balance Sheets: December 31, 1999 and 1998............. F-3
Consolidated Statements of Stockholders' Equity/Net Investment and
Comprehensive Income: December 31, 1999, 1998, 1997................ F-4
Consolidated Statements of Cash Flows: Years ended December 31,
1999, 1998, 1997................................................... F-5
Notes to Consolidated Financial Statements (including Selected
Quarterly Data).................................................... F-6
Schedule II--Valuation and Qualifying Accounts...................... F-24
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information regarding nominees and directors appearing under "Nominees for
Directors for Three Year Term Expiring in 2003" and "Members of the Board
Continuing in Office" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Notice of Annual Meeting of the Stockholders and
Proxy Statement for the May 19, 2000 Annual Stockholders' Meeting (the "2000
Proxy Statement") is hereby incorporated by reference. Information regarding
executive officers is set forth in Part I, Item 4A., of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under "Director Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Executive Compensation,"
excluding, the information appearing under "Report of Compensation Committee
on Executive Compensation" and the "Stock Performance Graph," in the 2000
Proxy Statement is hereby incorporated by reference. The information under
"Report of Compensation Committee on Executive Compensation" and the "Stock
Performance Graph" shall not be deemed to be incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of shares by nominees and
continuing directors and by all directors and executive officers as a group
appearing under "Ownership of Common Stock" in the 2000 Proxy Statement is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under "Relationship With EDS And Certain
Transactions" in the 2000 Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as part of this report:
1. The following consolidated financial statements of Unigraphics
Solutions Inc. and its subsidiaries are contained on pages F-1 through F-23
of this Annual Report on Form 10-K. Following is an index of financial
statements.
<TABLE>
<CAPTION>
Index Page
----- ----
<S> <C>
Independent Auditors' Report........................................ F-1
Consolidated Statements of Operations............................... F-2
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Stockholders' Equity/Net Investment and
Comprehensive Income............................................... F-4
Consolidated Statements of Cash Flow................................ F-5
Notes to Consolidated Financial Statements.......................... F-6
</TABLE>
2. Financial Statement Schedules
The following financial statement schedule of Unigraphics Solutions
Inc. is included herewith.
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts....................... F-24
</TABLE>
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All other financial statement schedules under the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
3. Exhibits.
<TABLE>
<C> <S> <C>
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).
10.1 Registration Rights Agreement between Unigraphics
Solutions Inc. and Electronic Data Systems Corporation
("EDS"), incorporated herein by reference to Exhibit 4.1
to Amendment No. 1 to the Registration Statement on Form
S-1 of the Company (File No. 333-48261).
10.2 Intercompany Agreement, effective as of January 1, 1998,
between Unigraphics Solutions Inc. and Electronic Data
Systems Corporation, incorporated herein by reference to
Exhibit 10.2 to Amendment No. 1 to the Registration
Statement on Form S-1 of the Company (File No. 333-48261).
10.3 Management Services Agreement, effective as of January 1,
1998, between Unigraphics Solutions Inc. and Electronic
Data Systems Corporation, incorporated herein by reference
to Exhibit 10.3 to Amendment No. 1 to the Registration
Statement on Form S-1 of the Company (File No. 333-48261).
10.4 Credit Agreement, effective as of January 1, 1998, between
Unigraphics Solutions Inc. and Electronic Data Systems
Corporation, incorporated herein by reference to Exhibit
10.4 to Amendment No. 1 to the Registration Statement on
Form S-1 of the Company (File No. 333-48261).
10.5 Form of Credit Agreement entered into between Electronic
Data Systems Corporation Finance Plc and each of
substantially all of the Non-U.S. subsidiaries of
Unigraphics Solutions Inc., each effective as of January
1, 1998, incorporated herein by reference to Exhibit 10.5
to Amendment No. 1 to the Registration Statement on Form
S-1 of the Company (File No. 333-48261).
10.6 Intercompany Note of Unigraphics Solutions Inc., dated
March 6, 1998, in the principal amount of $73 million
issued to Electronic Data Systems Corporation,
incorporated herein by reference to Exhibit 10.6 to
Amendment No. 1 to the Registration Statement on Form S-1
of the Company (File No. 333-48261).
10.7 Tax Sharing Agreement, effective as of January 1, 1998,
between Unigraphics Solutions Inc. and Electronic Data
Systems Corporation, incorporated herein by reference to
Exhibit 10.7 to Amendment No. 1 to the Registration
Statement on Form S-1 of the Company (File No. 333-48261).
10.8 Memorandum of Understanding, effective as of January 1,
1998, between Electronic Data Systems Corporation and
Unigraphics Solutions Inc. regarding performance of
certain obligations of Electronic Data Systems Corporation
to General Motors Corporation, incorporated herein by
reference to Exhibit 10.8 to Amendment No. 1 to the
Registration Statement on Form S-1 of the Company (File
No. 333-48261).
</TABLE>
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<TABLE>
<C> <S> <C>
10.9 Asset Purchase Agreement, dated as of March 2, 1998, among
Unigraphics Solutions Inc., certain subsidiaries of
Unigraphics Solutions Inc., Intergraph Corporation and
certain subsidiaries of Intergraph Corporation,
incorporated herein by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 of the Company (File
No. 333-48261).
10.10* Unigraphics Solutions Inc. 1998 Incentive Plan,
incorporated herein by reference to Exhibit 10.10 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 of the Company (File No. 333-57485).
10.11* Form of Indemnification Agreement entered into by
Unigraphics Solutions Inc. and certain of the directors
and executive officers of Unigraphics Solutions Inc.,
(John A. Adams, Douglas E. Barnett, Michael L. Desmond, J.
Davis Hamlin, John J. Mazzola, Gary B. Moore, Leo J.
Thomas, J. Randall Walti, William P. Weber) incorporated
herein by reference to Exhibit 10.11 to the Registration
Statement on Form S-1 of the Company (File No. 333-48261).
10.12* Personal Services Agreement, dated as of March 1, 1998,
between Unigraphics Solutions Inc. and John J. Mazzola,
incorporated herein by reference to Exhibit 10.12 to
Amendment No. 1 to the Registration Statement on Form S-1
of the Company (File No. 333-48261).
10.13 Electronic Data Systems Corporation Standard Sub-Sublease
Agreement dated as of January 1, 1998 between EDS and
Unigraphics Solutions Inc. (Maryland Heights, MO
facility), incorporated herein by reference to Exhibit
10.18 to Amendment No. 1 to the Registration Statement on
Form S-1 of the Company (File No. 333-48261).
10.14 Electronic Data Systems Corporation Standard Sub-Sublease
Agreement dated as of January 1, 1998 between EDS and
Unigraphics Solutions Inc. (Cypress, CA facility),
incorporated herein by reference to Exhibit 10.19 to
Amendment No. 1 to the Registration Statement on Form S-1
of the Company (File No. 333-48261).
10.15 Unigraphics Solutions Inc. 1999 Broad-Based Incentive Plan
(File No. 333-90641).
10.16 First Amended Unigraphics Solutions 401(k) Plan
incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for quarter ended September 30,1999 of
the Company (File No. 333-75975).
10.17 Amendment One to the First Amended Unigraphics Solutions
Inc. 401(k) Plan.
10.18* Form of Personal Services Agreement, effective January 20,
2000, entered into between Unigraphics Solutions Inc. and
certain executive officers of Unigraphics Solutions Inc.
(Anthony J. Affuso, Douglas E. Barnett, Donald E.
Davidson, Michael L. Desmond, James Duncan, Dennis P.
Kruse, Robert F. Loss III, Richard W. Schenk and J.
Randall Walti).
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
24.1 Powers of Attorney for Messrs. Adams, Chiapparone, deNey,
Hamlin, Heller, Thomas, and Weber signing this Annual
Report on Form 10-K.
27.1 Financial Data Schedule for the year ended December 31,
1999, submitted to the Securities and Exchange Commission
in electronic format.
</TABLE>
- --------
*Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c).
(B) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
28
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned.
Unigraphics Solutions inc.
/s/ John J. Mazzola
By: _________________________________
John J. Mazzola
President and Chief Executive
Officer
Dated: March 29, 2000
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ * Chairman of the Board and March 29, 2000
______________________________________ Director
Jeffrey M. Heller
/s/ * Vice Chairman of the Board March 29, 2000
______________________________________ and Director
Richard L. deNey
/s/ John J. Mazzola President and Chief March 29, 2000
______________________________________ Executive Officer and
John J. Mazzola Director (Principal
Executive Officer)
/s/ Douglas E. Barnett Vice President, Chief March 29, 2000
______________________________________ Financial Officer and
Douglas E. Barnett Treasurer (Principal
Financial and Accounting
Officer)
/s/ J. Randall Walti Vice President, General March 29, 2000
______________________________________ Counsel and Secretary
J. Randall Walti
/s/ * Director March 29, 2000
______________________________________
John A. Adams
/s/ * Director March 29, 2000
______________________________________
Paul J. Chiapparone
/s/ * Director March 29, 2000
______________________________________
J. Davis Hamlin
/s/ * Director March 29, 2000
______________________________________
Leo J. Thomas
/s/ * Director March 29, 2000
______________________________________
</TABLE> William P. Weber
/s/ J. Randall Walti
*By______________________________
J. Randall Walti
Attorney in Fact
March 29, 2000
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Unigraphics Solutions Inc.
We have audited the accompanying consolidated balance sheets of Unigraphics
Solutions Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity/net
investment and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 1999. In connection with our audits of
the consolidated financial statements, we also have audited the accompanying
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unigraphics
Solutions Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
St. Louis, Missouri
February 7, 2000
F-1
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Software.................................. $ 198,936 $ 157,662 $ 115,479
Services.................................. 234,205 187,120 137,794
Hardware.................................. 34,809 58,789 61,320
---------- ---------- ----------
Total revenue......................... 467,950 403,571 314,593
---------- ---------- ----------
Cost of revenue:
Software:
Amortization............................ 22,358 21,992 14,754
Royalties, distribution and other....... 20,635 18,980 13,199
Services.................................. 96,067 73,899 57,059
Hardware.................................. 28,191 49,054 44,112
---------- ---------- ----------
Total cost of revenue................. 167,251 163,925 129,124
---------- ---------- ----------
Gross profit................................ 300,699 239,646 185,469
---------- ---------- ----------
Operating expenses:
Selling, general and administrative....... 167,389 139,174 102,759
Research and development.................. 70,963 63,577 47,979
In-process research and development....... 2,386 39,440 --
---------- ---------- ----------
Total operating expenses.............. 240,738 242,191 150,738
---------- ---------- ----------
Operating income (loss)..................... 59,961 (2,545) 34,731
Other income, net........................... 5,272 10,036 5,092
---------- ---------- ----------
Income before income taxes.................. 65,233 7,491 39,823
Provision for income taxes.................. 23,484 1,253 14,810
---------- ---------- ----------
Net income.................................. $ 41,749 $ 6,238 $ 25,013
========== ========== ==========
Earnings per share:
Basic..................................... $ 1.15 $ 0.18 $ 0.80
========== ========== ==========
Diluted................................... $ 1.14 $ 0.18 $ 0.80
========== ========== ==========
Weighted average number of common shares
outstanding:
Basic..................................... 36,276,826 33,971,044 31,265,000
========== ========== ==========
Diluted................................... 36,490,131 33,971,044 31,265,000
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents.......................... $ 20,696 $ 20,740
Marketable securities.............................. -- 8,092
Accounts receivable, net of allowance for doubtful
accounts of $5,312 and $5,870..................... 125,698 107,379
Prepaids and other................................. 9,181 6,383
--------- ---------
Total current assets............................. 155,575 142,594
--------- ---------
Property and equipment, net.......................... 33,110 26,467
--------- ---------
Operating and other assets
Goodwill, software and other intangibles, net...... 63,038 72,443
Deferred income taxes.............................. 22,554 16,149
--------- ---------
Total operating and other assets................. 85,592 88,592
--------- ---------
Total assets..................................... $ 274,277 $ 257,653
========= =========
Liabilites and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities........... $ 63,868 $ 59,452
Deferred revenue................................... 12,886 12,022
Income taxes payable............................... 38,901 39,098
Deferred income taxes.............................. -- 2,771
--------- ---------
Total current liabilities........................ 115,655 113,343
--------- ---------
Intercompany note.................................... 35,220 55,130
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; 5,034,337 and 5,000,000 shares
issued and outstanding at December 31, 1999 and
December 31, 1998, respectively................... 50 50
Class B common stock, $.01 par value; 31,265,000
shares authorized; 31,265,000 issued and
outstanding at December 31, 1999 and
December 31, 1998................................. 313 313
Additional paid-in capital......................... 148,925 148,676
Retained earnings (deficit)........................ (25,013) (66,762)
Accumulated other comprehensive income (loss)...... (873) 6,903
--------- ---------
Total stockholders' equity....................... 123,402 89,180
--------- ---------
Total liabilities and stockholders' equity....... $ 274,277 $ 257,653
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / NET INVESTMENT AND
COMPREHENSIVE INCOME
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Class
A/
Class Accumulated Total
B Additional Retained Other Stockholders' Stockholders'
Comprehensive Common Paid-in Earnings Comprehensive Net Equity/Net
Income/(Loss) Stock Capital (Deficit) Income Investment Investment
------------- ------ ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $ -- $ -- $ -- $ -- $ 1,060 $ 131,087 $ 132,147
Net advances to
affiliates............. -- -- -- -- -- (70,160) (70,160)
Foreign currency
translation............ (395) -- -- -- -- -- (395)
Unrealized gain on
marketable securities
(net of tax expense of
$940).................. 1,745 -- -- -- -- -- 1,745
--------
Other comprehensive
income................. 1,350 -- -- -- 1,350 -- --
Net income.............. 25,013 -- -- -- -- 25,013 25,013
-------- ----- --------- --------- ------- --------- ---------
Comprehensive income.... $ 26,363
========
Balance at December 31,
1997................... $ -- -- -- -- 2,410 85,940 88,350
Reorganization and
recapitalization....... -- 313 85,627 -- -- (85,940) --
Dividend to parent...... -- -- -- (73,000) -- -- (73,000)
Issuance of 5,000,000
shares of Class A
common stock........... -- 50 63,049 -- -- -- 63,099
Foreign currency
translation............ 992 -- -- -- -- -- 992
Unrealized gain on
marketable securities
(net of tax expense of
$1,885 and realized
gain).................. 3,501 -- -- -- -- -- 3,501
--------
Other comprehensive
income................. 4,493 -- -- -- 4,493 -- --
Net income.............. 6,238 -- -- 6,238 -- -- 6,238
-------- ----- --------- --------- ------- --------- ---------
Comprehensive income.... $ 10,731
========
Balance at December 31,
1998................... $ -- 363 148,676 (66,762) 6,903 -- 89,180
Issuance of 34,337
shares of Class A
common stock in stock
award transactions, net
of discounts on
employee stock
purchases.............. -- -- 249 -- -- -- 249
Foreign currency
translation............ (2,530) -- -- -- -- -- (2,530)
Realized gain on
marketable securities
(net of tax benefit of
$2,825)................ (5,246) -- -- -- -- -- (5,246)
--------
Other comprehensive
income................. (7,776) -- -- -- (7,776) -- --
Net income.............. 41,749 -- -- 41,749 -- -- 41,749
-------- ----- --------- --------- ------- --------- ---------
Comprehensive income.... $ 33,973
========
Balance at December 31,
1999................... $ 363 $ 148,925 $ (25,013) $ (873) $ -- $ 123,402
===== ========= ========= ======= ========= =========
Reclassification
adjustment for gains
included in net income
in 1998 (net of tax
benefit of $940)....... $ (1,745)
========
Reclassification
adjustment for gains
included in net income
in 1999 (net of tax
benefit of $2,825)..... $ (5,246)
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................... $ 41,749 $ 6,238 $ 25,013
-------- --------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes....................... (6,448) (44,145) (18,174)
Depreciation and amortization............... 33,879 31,554 22,134
Allowance for bad debts..................... 1,767 1,295 2,425
Gain on sale of marketable securities....... (7,319) (14,518) (5,097)
In-process research and development......... 2,386 39,440 --
Other....................................... -- 90 --
Changes in operating assets and liabilities,
net of effect of acquired companies:
Accounts receivable....................... (22,731) 10,010 51,126
Prepaids and other........................ (1,602) (2,421) (1,783)
Accounts payable and accrued liabilities.. 4,106 11,191 (1,630)
Income taxes payable...................... (198) 39,098 --
Deferred revenue.......................... 336 4,196 254
-------- --------- --------
Total adjustments....................... 4,176 75,790 49,255
-------- --------- --------
Net cash provided by operating
activities............................. 45,925 82,028 74,268
-------- --------- --------
Cash flows from investing activities
Proceeds from sale of marketable securities... 7,319 14,540 5,126
Payments related to acquisitions, net of cash
acquired..................................... (9,498) (104,993) --
Payments for purchases of property and
equipment.................................... (16,758) (14,539) (9,073)
Payments for purchases of software and other
intangibles.................................. (7,760) (3,738) (122)
Payments for purchases of marketable
securities................................... -- (51) (29)
-------- --------- --------
Net cash used in investing activities... (26,697) (108,781) (4,098)
-------- --------- --------
Cash flows from financing activities
Borrowings under intercompany credit
agreements and notes......................... 34,016 122,905 --
Payments on intercompany credit agreements and
notes........................................ (53,448) (140,478) --
Proceeds from sale of stock................... 249 65,100 --
Net advances to affiliates.................... -- -- (70,160)
-------- --------- --------
Net cash provided by (used in) financing
activities............................. (19,183) 47,527 (70,160)
-------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents.................................... (89) (45) --
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (44) 20,729 10
Cash and cash equivalents at beginning of
period......................................... 20,740 11 1
-------- --------- --------
Cash and cash equivalents at end of period...... $ 20,696 $ 20,740 $ 11
======== ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company develops, markets and supports mechanical computer-aided design
("CAD"), computer-aided manufacturing ("CAM"), computer-aided engineering
("CAE") and product data management ("PDM") software.
Unigraphics Solutions Inc., a subsidiary of Electronic Data Systems
Corporation ("EDS"), was incorporated under the laws of the state of Delaware
on October 2, 1997. Unigraphics Solutions Inc. is the successor to the
Unigraphics business of EDS (the "Division") which operated within several
business units of EDS through December 31, 1997. All references to the
"Company" in the notes to the consolidated financial statements refer to
Unigraphics Solutions Inc. and its predecessor businesses and divisions.
On January 1, 1998, EDS reorganized the business of the Division (the
"Reorganization"). As part of the Reorganization, the businesses of the
Division were combined under the Company. See Note 13 regarding transactions
related to the implementation of the Reorganization.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Basis of Presentation
The accompanying financial statements have been prepared using the EDS
historical basis in the assets and liabilities of the Company. The financial
statements for the periods prior to the Reorganization reflect the results of
operations, financial condition and cash flows of the Company as a component
of EDS. Management believes the statements of operations for the periods prior
to the Reorganization include a reasonable allocation of administrative costs,
which are described in Note 12, incurred by EDS on behalf of the Company.
Financial reporting for periods prior to January 1, 1998 accumulate the
equity accounts of the Company into a single disclosure caption entitled
stockholder's net investment.
Earnings Per Share
Basic earnings per share of common stock is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share reflects the incremental increase in common shares
outstanding assuming the exercise of all employee stock options that would
have had a dilutive effect on earnings per share. Options to purchase shares
of Class A common stock of 0.7 million for 1999 and 1998 were outstanding but
were not dilutive because the price of the options was greater than the
average market price of the common stock for the periods reported.
Marketable Securities
Marketable securities consisted of corporate equity securities classified
as available-for-sale. Management determines the appropriate classification of
all securities at the time of purchase and reevaluates such designation as of
each balance sheet date. The Company's available-for-sale securities are
recorded at fair value. Unrealized holding gains, net of the related tax
effect, were $5.2 million at December 31, 1998. Unrealized holding gains are
excluded from net income and included in comprehensive income and within
accumulated other comprehensive income in stockholders' equity until realized.
A decline in the fair value of any available-
F-6
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for-sale security below cost that is deemed other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the security.
Proceeds and realized gains from sales of marketable securities totaled $7.3
million, $14.5 million and $5.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. Specific identification is used to determine cost
in computing gain or loss.
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Initially, the statement had been
effective for financial statements for all quarters of fiscal years beginning
after June 15, 1999. SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
was issued in June 1999. This statement postponed the application of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company believes
that adoption of this statement will not have a significant effect on its
consolidated financial statements.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. The ranges of estimated
useful lives are as follows:
<TABLE>
<CAPTION>
Asset Years
----- -----
<S> <C>
Facilities.......................................................... 5--7
Computer equipment.................................................. 5
Other equipment and furniture....................................... 5--7
</TABLE>
Goodwill, Software, and Other Intangibles
The Company capitalizes software development costs in compliance with SFAS
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management
with respect to certain external forces including, but not limited to,
anticipated future gross product revenue, estimated economic life and changes
in software and hardware technology. Amortization of capitalized software
development costs begins when the products are available for release to
customers and generally is computed using the straight-line method over 3
years or, if less, the remaining estimated economic life of the product.
Software purchased by the Company, including amounts allocated to software
when the Company was acquired by EDS, and utilized in designing software and
in operations is capitalized and amortized using the straight-line method over
five to eight years. Goodwill represents the excess of the purchase price of
acquired businesses over the net assets acquired and is amortized using the
straight-line method over seven years.
In the accompanying statements of operations, amortization is included in
cost of software for capitalized software development costs and software
acquired in business combinations. Software purchased for internal use is
amortized to cost of software or operating expenses, as determined by the
nature of its use. See Note 14 regarding early adoption of Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Amortization of software and goodwill included in
cost of software totaled $22.4 million, $22.0 million and $14.8 million during
the years ended December 31, 1999, 1998 and 1997, respectively.
Revenue Recognition
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.
F-7
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue generated from software licenses is recognized under fixed and
determinable fee arrangements once delivery has occurred and collectibility of
the underlying receivables is probable. Revenues recognized but not yet billed
to customers totaled $0.4 million and $18.9 million, at December 31, 1999 and
1998, respectively. All the unbilled revenue amounts recorded at December 31,
1999 are expected to be collected in 2000.
Revenue from maintenance contracts is recognized ratably over the term of
the agreement and generally is billed monthly. Deferred revenue is recorded
when prepaid amounts are received for maintenance. Revenue from consulting,
customer training and other services is recognized as the service is
performed.
Cost of Revenue
The cost of software licenses primarily consists of the cost of
distributing the software products, amortization of capitalized software
development costs, amortization of the cost of software acquired in business
combinations and royalty fees paid to vendors under licensing agreements.
Costs of services primarily consists of staff and related costs associated
with the generation and support of software maintenance and services revenue.
Currency Translation
Assets and liabilities of non-U.S. subsidiaries or divisions whose
functional currency is not the U.S. dollar are translated at current exchange
rates. Revenue and expense accounts are translated using an average rate for
the period. Translation gains (losses) are not included in determining net
income but are reflected as a component of comprehensive income in
stockholders' equity/net investment. Cumulative currency translation
adjustments included within accumulated other comprehensive income in
stockholders' equity/net investment were $(0.9) million, $1.7 million, and
$0.7 million at December 31, 1999, 1998 and 1997, respectively. Foreign
currency transaction gains (losses) were not material in the periods reported.
Income Taxes
The operations of the Company are included in EDS' consolidated income tax
returns. Current and deferred taxes have been allocated to the Company as if
taxes were computed on a stand-alone basis.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Prior to 1998, tax benefits of operating
losses and tax credit carryforwards generated by the Company in foreign
jurisdictions and utilized by EDS to offset non-Company taxable income in such
jurisdictions were recognized by the Company as a reduction in stockholder's
net investment. See Note 13 regarding the tax sharing agreement between the
Company and EDS which was effective January 1, 1998.
Statements of Cash Flows
The Company uses the indirect method to present cash flows from operating
activities and considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, trade accounts receivable, other current assets, trade
accounts payable, and accrued liabilities approximate fair value because of
the short maturity of these instruments.
F-8
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The carrying amount and fair value of the Company's available-for-sale
marketable securities was $8.1 million at December 31, 1998. The estimated
fair value of the securities is based upon quoted market prices.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
Stock-Based Compensation
The Company records stock-based compensation over the vesting period for
the difference between the quoted market price of an award at the date of
grant and the purchase or exercise price of the share.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.
NOTE 2: ACQUISITIONS
Solid Edge Acquisition
On March 2, 1998, the Company acquired the Solid Edge/EMS mechanical
CAD/CAM business of Intergraph Corporation (the "Solid Edge Acquisition") for
$105.0 million excluding approximately $2.0 million of acquisition costs, in a
transaction accounted for as a purchase. The results of operations of the
Company include the results of Solid Edge subsequent to the acquisition. The
Company borrowed $105.0 million from EDS pursuant to a credit agreement
established in connection with the Reorganization (the "Intercompany Credit
Agreement"). The cost of the Solid Edge Acquisition was allocated to
identifiable assets based on estimated fair values. Costs allocated to in-
process research and development in the amount of $39.4 million were expensed
upon acquisition. The remaining purchase price of $67.6 million was assigned
to the various intangible assets and is being amortized over periods of two to
seven years.
In-process research and development relates to the modification of Solid
Edge 4.0 to include the Company's Parasolid solid modeling kernel. This
project commenced in July 1997 and was completed in May 1998. Initial sales of
Solid Edge 5.0 occurred shortly thereafter. The value assigned to in-process
research and development was determined based on management's estimates of the
percentage of completion of the underlying development effort, resulting net
cash flows from Solid Edge 5.0 and the discounting of such cash flows back to
their present value.
Other Acquisitions
During 1999 the Company completed two acquisitions. On July 28, 1999, the
Company's subsidiary in Germany, Unigraphics Solutions GmbH, purchased the
shares of the Berlin-based dCADE Gesellschaft fur
F-9
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Produktionsinformatik mbH ("dCADE"), including all rights to dCADE's software
and business portfolio. dCADE is operated as a separate unit of Unigraphics
Solutions GmbH. In August 1999, the Company purchased most of the worldwide
assets of Applicon, Inc. ("Applicon"), including Applicon's Bravo(R) software
assets and related business. The combined purchase price for these
transactions was $10.4 million. The value assigned to in-process research and
development associated with the two acquisitions was $2.4 million.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Buildings and facilities.............................. $ 10,253 $ 7,062
Computer equipment.................................... 50,929 46,406
Other equipment and furniture......................... 9,059 6,027
-------- --------
Total cost.......................................... 70,241 59,495
Less accumulated depreciation......................... (37,131) (33,028)
-------- --------
Total............................................... $ 33,110 $ 26,467
======== ========
</TABLE>
NOTE 4: GOODWILL, SOFTWARE, AND OTHER INTANGIBLES
Goodwill, software, and other intangibles at December 31, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Software............................................. $ 13,472 $ 131,195
Goodwill............................................. 63,769 60,153
Other intangibles.................................... 11,130 8,845
-------- ---------
Total cost......................................... 88,371 200,193
Less accumulated amortization........................ (25,333) (127,750)
-------- ---------
Total.............................................. $ 63,038 $ 72,443
======== =========
</TABLE>
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accounts payable.......................................... $ 6,350 $ 6,245
Accrued compensation...................................... 13,526 12,198
Accrued expenses.......................................... 43,992 41,009
------- -------
Total................................................... $63,868 $59,452
======= =======
</TABLE>
NOTE 6: INCOME TAXES
Income taxes related to the Company are allocated as if they were
calculated on a separate return basis. The provision for income tax expense is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
U.S. Non-
Federal U.S. State Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Current........................... $25,064 $ 8,411 $(2,359) $31,116
Deferred.......................... (6,361) (1,099) (172) (7,632)
------- ------- ------- -------
Total........................... $18,703 $ 7,312 $(2,531) $23,484
======= ======= ======= =======
</TABLE>
F-10
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
U.S. Non-
Federal U.S. State Total
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Current......................... $ 33,098 $ 6,518 $ 5,749 $ 45,365
Deferred........................ (36,578) (1,010) (6,524) (44,112)
-------- ------- ------- --------
Total......................... $ (3,480) $ 5,508 $ (775) $ 1,253
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
U.S. Non-
Federal U.S. State Total
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Current......................... $ 27,692 $ 3,317 $ 3,894 $ 34,903
Deferred........................ (15,625) (1,920) (2,548) (20,093)
-------- ------- ------- --------
Total......................... $ 12,067 $ 1,397 $ 1,346 $ 14,810
======== ======= ======= ========
</TABLE>
Income before income taxes for the years ended December 31, 1999, 1998, and
1997 included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C> <C>
U.S. income.................................... $54,287 $1,517 $38,297
Non-U.S. income................................ 10,946 5,974 1,526
------- ------ -------
Total...................................... $65,233 $7,491 $39,823
======= ====== ======= ===
</TABLE>
A reconciliation of income tax expense for the years ended December 31,
1999, 1998, and 1997 using the statutory federal income tax rate of 35.0
percent to the actual income tax expense follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Statutory federal income tax.................... $22,832 $2,622 $13,938
State income tax, net of federal tax benefit.... (1,645) (504) 875
Non-US taxes, net of credit..................... 1,148 376 863
Research and experimentation credits............ (2,109) (2,360) (1,001)
Other........................................... 3,258 1,119 135
------- ------ -------
Total....................................... $23,484 $1,253 $14,810
------- ------ -------
Effective income tax rate....................... 36.0% 16.7% 37.2%
======= ====== =======
</TABLE>
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, for the
years ended December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
Assets Liabilities Assets Liabilities
-------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Adjustments necessary to convert
accrued amounts to a tax basis. $ 14,544 $ 14,187 $ 5,966 $ 6,283
Accumulated
depreciation/amortization...... 17,935 -- 11,862 --
Allowance for doubtful accounts. 310 -- 338 --
Other........................... 6,389 -- 5,167 2,793
-------- -------- ------- -------
Subtotal...................... 39,178 14,187 23,333 9,076
Less valuation allowance...... (1,771) -- (879) --
-------- -------- ------- -------
Total....................... $ 37,407 $ 14,187 $22,454 $ 9,076
======== ======== ======= =======
</TABLE>
F-11
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net change in the total valuation allowance for the year ended December
31, 1999 was an increase of $0.9 million. Certain of the Company's foreign
subsidiaries have net operating loss carryforwards that expire over periods
through 2006 and others are unlimited. A majority of the carryforwards with
definite expiration periods are included in the valuation allowance. In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Tax benefits of operating losses and tax
credit carryforwards generated by the Company in foreign jurisdictions are
utilized by EDS to offset non-Company taxable income in such jurisdictions.
Prior to 1998 these benefits were recognized by the Company as a reduction in
Stockholder's Net Investment.
NOTE 7: STOCK PLANS
Stock Based Incentive Plans. The Company has incentive plans (the 1998
Incentive Plan and the 1999 Broad-Based Incentive Plan) under which awards may
be made to key employees and, except for the 1999 Broad-Based Incentive Plan,
non-employee Directors. Awards to employees under these plans may be made in
the form of grants of stock options, stock appreciation rights, restricted or
non-restricted stock or units denominated in stock, cash awards, performance
awards or any combination of the foregoing. Awards to non-employee Directors
under the 1998 Incentive Plan are in the form of grants of stock options.
Currently all awards are in the form of grants of stock options. The option
exercise price is the fair market value at the date of grant. These options
vest over three or four years and expire, generally, ten years from the date
of grant. The plans cover up to 2,050,000 shares of Class A common stock, of
which 100,000 shares will be available for director awards and the remainder
will be available for employee awards. As of December 31, 1999, the Company
had granted to employees and non-employee directors stock options to acquire
1,942,226 shares of common stock. There were 1,907,889 and 715,000 shares
outstanding at a weighted-average exercise price of $18.01 and $14.00 per
share at December 31, 1999 and 1998, respectively.
There was no compensation cost charged against income in connection with
the stock based incentive plans for the years ended December 31, 1999 and
1998. The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock-based compensation plans. Pro forma net
income and earnings per share disclosures, as required by SFAS No. 123,
Accounting for Stock-Based Compensation, are computed as if the Company
recorded compensation expense based on the fair value of the stock-based
awards and are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended
December, 31
----------------
1999 1998
-------- -------
<S> <C> <C>
Net income
As reported........................................... $ 41,749 $ 6,238
Pro forma............................................. 40,172 5,792
Earnings per share of common stock:
Basic
As reported......................................... $ 1.15 $ 0.18
Pro forma........................................... $ 1.11 $ 0.17
Diluted
As reported......................................... $ 1.14 $ 0.18
Pro forma........................................... $ 1.10 $ 0.17
</TABLE>
The pro forma disclosures include the amortization of the fair value of
options granted and vested in 1998. The pro forma effect of applying SFAS No.
123 is not necessarily indicative of the effect on pro forma disclosures in
future years. The fair value of the options granted has been estimated at the
date of grant using the
F-12
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Black-Scholes option pricing model, with the following weighted-average
assumptions for 1999 and 1998, respectively; expected volatility of 45.7% and
50.0%; risk-free interest rates of 5.7% and 5.5%; and expected lives of 5.4
years and 5.0 years.
A summary of the Company's stock options issued under the Incentive Plans
during the years ended December 31, 1999 and 1998, is presented below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------ ---------
<S> <C> <C> <C> <C>
Fixed Options:
Outstanding at beginning of year..... 715.0 $14 -- --
Granted.............................. 1,235.8 $20 719.0 $14
Exercised............................ (34.3) $14 -- --
Forfeited............................ (8.6) $16 (4.0) $14
------- -----
Outstanding at end of year........... 1,907.9 $18 715.0 $14
------- -----
Options exercisable at end of year... 204.0 204.0
======= =====
Weighted-average fair value of op-
tions granted during the year....... $ 10 $ 7
======= =====
</TABLE>
A summary of the Company's fixed stock options outstanding at December 31,
1999 is presented below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Vested
---------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life (Years) Price Outstanding Price
Range of Exercise Prices ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12--15................. 1,088.9 8.6 $14 204.0 $14
15--17................. 131.0 9.3 $16 -- --
22--25................. 688.0 9.8 $24 -- --
------- -----
$12--25................. 1,907.9 9.0 $18 204.0 $14
======= =====
</TABLE>
Employee Stock Purchase Plan. The Unigraphics Solutions Inc. Employee Stock
Purchase Plan (the "ESPP") is offered to eligible employees. Under the ESPP,
shares of Class A common stock may be purchased at 85% of the lower of the
fair market value of the common stock on the date of grant or the fair market
value of the common stock at the time the option is exercised. Each employee's
purchases in any year are limited to the lesser of 15% of base pay at the date
of the offering or commencement of eligibility, or $25,000 of fair market
value of Class A common stock. During 1999 employees purchased 61,370 shares
at an average price of $19.32. A total of 150,000 Class A common shares have
been authorized for purchase under the ESPP.
NOTE 8: EMPLOYEE SAVINGS PLAN
The Unigraphics Solutions Inc. 401(k) Plan (the "401(k) Plan") is offered
to eligible employees. The 401(k) Plan, which was offered to employees
effective April 1, 1999, is intended to qualify under Section 401(k) of the
Internal Revenue Code. Participating employees may defer up to 20% of their
pre-tax compensation as contributions to the 401(k) Plan, subject to statutory
limitations. The Company makes matching contributions of
F-13
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
25% of the amount contributed by the employee up to a maximum of 6% of the
employee's earnings. The Company's contributions vest over 5 years. During the
year ended December 31, 1999, the Company's contribution was $3.7 million.
This included a supplemental payment totaling $2.8 million to align benefits
with those which had been provided under the EDS pension plans for employees
who were no longer covered by those plans as of April 1999.
NOTE 9: EARNINGS PER SHARE
A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share and the calculated amounts of earnings per
share follows for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic and Diluted Earnings Per Share:
Shares outstanding--beginning of period. 36,265,000 31,265,000 31,265,000
Weighted average number of common shares
issued................................. 11,826 2,706,044 --
---------- ---------- ----------
Weighted average number of common shares
outstanding--end of period............. 36,276,826 33,971,044 31,265,000
Dilutive effect of employee stock
options................................ 213,305 -- --
---------- ---------- ----------
Diluted shares outstanding.............. 36,490,131 33,971,044 31,265,000
========== ========== ==========
Net income (in thousands)............... $ 41,749 $ 6,238 $ 25,013
========== ========== ==========
Basic earnings per common share......... $ 1.15 $ 0.18 $ 0.80
========== ========== ==========
Diluted earnings per common share....... $ 1.14 $ 0.18 $ 0.80
========== ========== ==========
</TABLE>
NOTE 10: SEGMENT INFORMATION
Industry 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's business involves operations in principally 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 uses operating income, exclusive of software amortization costs
included in cost of revenue 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 years ended
December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Operating Total Operating Total Operating Total
Revenue Income Assets Revenue Income Assets Revenue Income Assets
-------- --------- -------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Americas................ $235,202 $48,923 $164,411 $202,052 $31,257 $162,647 $158,355 $32,241 $117,261
Europe.................. 177,379 29,479 81,463 155,110 20,259 74,449 114,422 14,093 34,258
Asia Pacific............ 55,369 6,303 28,403 46,409 7,371 20,557 41,816 3,151 15,271
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total.................. $467,950 $84,705 $274,277 $403,571 $58,887 $257,653 $314,593 $49,485 $166,790
======== ======= ======== ======== ======= ======== ======== ======= ========
</TABLE>
F-14
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operations in Germany were 14%, 12% and 10% of the Company's total revenue
in 1999, 1998 and 1997, respectively.
A reconciliation of operating income/(loss) for the years ended December
31, 1999, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total operating income for reportable
segments.................................. $ 84,705 $ 58,887 $ 49,485
Unallocated software amortization costs.... (22,358) (21,992) (14,754)
Unallocated in-process research and
development costs......................... (2,386) (39,440) --
-------- -------- --------
Operating income/(loss).................... $ 59,961 $ (2,545) $ 34,731
======== ======== ========
</TABLE>
The following is a summary of depreciation and amortization included in the
calculation of segment operating income/(loss) above (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Americas............................................ $ 6,546 $4,561 $4,602
Europe.............................................. 3,163 3,650 1,777
Asia Pacific........................................ 1,812 1,351 1,001
------- ------ ------
Total............................................. $11,521 $9,562 $7,380
======= ====== ======
</TABLE>
There are no intercompany sales between geographic areas. All sales are
from external customers.
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company is not a party to any litigation other than ordinary, routine
litigation incidental to its business. In the opinion of management, the
ultimate liability, if any, resulting from such litigation will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
Commitments for rental payments for each of the next five years ending
December 31 and thereafter under non-cancelable operating leases for
facilities, computer equipment, software, and other leased assets are as
follows (in thousands):
<TABLE>
<S> <C>
2000............................................................. $16,403
2001............................................................. 12,589
2002............................................................. 7,171
2003............................................................. 5,304
2004............................................................. 3,468
Thereafter....................................................... 12,391
</TABLE>
Total rentals under cancelable and non-cancelable leases, principally
facilities, computer equipment, software, and other leased assets included in
costs and charged to expenses were $24.2 million for the year ended December
31, 1999.
F-15
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12: RELATED PARTY TRANSACTIONS
The following presents information about the Company's intercompany debt
activity for the years ended December 31, 1999 and 1998, respectively (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Beginning balance of intercompany note................ $55,130 $ --
Borrowings
Solid Edge acquisition.............................. -- 104,993
Payments for purchases of property and equipment.... 16,758 14,539
Payments for purchases of software and other
intangibles........................................ 7,760 3,738
Applicon acquisition, net of cash acquired.......... 6,498 --
dCADE acquisition................................... 3,000 --
Other............................................... -- (365)
------- --------
Total borrowings.................................. 34,016 122,905
------- --------
Payments
Proceeds from initial public offering............... -- 65,100
Cash provided from operations net of cash retained
by the Company..................................... 45,969 61,288
Proceeds from sale of marketable securities......... 7,319 14,540
Other............................................... 160 (450)
------- --------
Total payments.................................... 53,448 140,478
------- --------
Dividend note and other............................... (478) 72,703
------- --------
Balance of intercompany note.......................... $35,220 $ 55,130
======= ========
</TABLE>
Prior to January 1, 1998 the Company utilized central cash management
systems of EDS to finance its operations. Cash requirements were satisfied
either by intercompany transactions between EDS and the Company or by cash
from operations. Such intercompany transactions are included in the
Stockholders' Equity/Net Investment account in the balance sheets and as net
cash advances to affiliates in the statements of cash flows. Those
intercompany transactions between EDS and the Company did not bear interest
and, therefore, no interest charge is reflected in the accompanying statement
of operations for the year ended December 31, 1997. An analysis of the
intercompany activity included in the Stockholders' Equity/Net Investment
account for the year ended December 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Purchases of inventory from EDS............................... $ 44,112
Allocation of corporate services and employee benefits........ 9,298
Other net payments/transfers to EDS relating to normal cash
management activity.......................................... (123,570)
---------
Net advances to affiliates.................................... $ (70,160)
=========
</TABLE>
EDS provides services to the Company for management, accounting, human
resources, information systems, legal, taxes and other corporate activities.
Such corporate expenses amounting to $6.4 million, $6.4 million and $6.6
million have been allocated to the Company during the years ended December 31,
1999, 1998 and 1997, respectively, and are reflected in the accompanying
consolidated statements of operations as selling, general and administrative
expenses. Costs for 1997 were allocated to the Company by multiplying Company
revenues by a standard overhead rate. The standard overhead rate was developed
through analysis of actual services and related
F-16
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
estimated costs provided to the Company on a historical basis. However, the
costs of these transactions may differ from those that would result from
transactions with unrelated parties. Beginning with January 1, 1998, the
Company and EDS began operating under a Management Services Agreement, as
described in Note 13.
EDS has several qualified and non-qualified pension plans (the "Plans")
covering substantially all its employees. The majority of the Plans are non-
contributory. In general, employees become fully vested upon attaining five
years of service, and benefits are based on years of service and earnings. The
actuarial cost method currently used is the projected unit credit cost method.
EDS' U.S. funding policy is to contribute amounts that fall within the range
of deductible contributions for federal income tax purposes. Beginning in
April 1999 most of the employees of the Company were no longer covered by the
Plans.
The following tables provide a reconciliation of the changes in the Plans'
benefit obligations and fair value of assets over the two year period ending
December 31, 1999, and a statement of the funded status as of December 31 of
both years (in millions):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1................................ $2,569 $2,511
Service cost........................................... 256 187
Interest cost.......................................... 183 163
Plan amendments........................................ 30 (440)
Actuarial loss......................................... 62 169
Foreign currency exchange rate changes................. (64) 17
Benefit payments....................................... (83) (56)
Curtailments and special termination benefits.......... 172 --
Settlements............................................ 18 --
Other.................................................. 57 18
------ ------
Obligation at December 31.............................. $3,200 $2,569
====== ======
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1................. $2,563 $2,377
Actual return on plan assets........................... 588 75
Foreign currency exchange rate changes................. (34) 4
Employer contributions................................. 141 145
Benefit payments....................................... (83) (56)
Other.................................................. 49 18
------ ------
Fair value of plan assets at December 31............... $3,224 $2,563
====== ======
Funded status
Funded status at December 31........................... $ 24 $ (6)
Unrecognized transition obligation..................... 17 18
Unrecognized prior-service cost........................ (329) (413)
Unrecognized loss...................................... 153 439
------ ------
Net amount recognized.................................. $ (135) $ 38
====== ======
</TABLE>
F-17
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table provides the amounts recognized in EDS' statement of
financial position as of December 31, 1999, and 1998 (in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Prepaid benefit cost....................................... $ 134 $ 226
Accrued benefit liability.................................. (305) (214)
Intangible asset........................................... 25 26
Accumulated other comprehensive income and deferred income
taxes..................................................... 11 --
----- -----
Net amount recognized...................................... $(135) $ 38
===== =====
</TABLE>
EDS has certain pension plans, primarily international plans, with
accumulated benefit obligations in excess of plan assets. The accumulated
benefit obligations for these plans were $204.5 million and $178.5 million at
December 31, 1999 and 1998, respectively. Total plan assets for these plans
were $19.3 million and $16.0 million at December 31, 1999 and 1998,
respectively.
The following table provides the components of net periodic pension cost
(in millions):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost............................... $ 256 $ 187 $ 136
Interest cost.............................. 183 163 160
Expected return on plan assets............. (252) (246) (182)
Amortization of transition obligation...... 1 1 1
Amortization of prior-service cost......... (33) (27) 1
Amortization of net loss................... 16 -- 8
-------- -------- --------
Net periodic benefit cost.................. 171 78 124
Curtailment gain........................... (29) -- --
Settlement loss............................ 18 -- --
-------- -------- --------
Net periodic benefit cost after
curtailments and settlements.............. $ 160 $ 78 $ 124
======== ======== ========
</TABLE>
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains or losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.
At December 31, 1999 and 1998, the Plans' assets consisted primarily of
equity and fixed income securities and U.S. government obligations.
The weighted-average assumptions used in the measurement of EDS' benefit
obligation are shown in the following table for the years ended December 31,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................... 7.0% 6.8% 7.3%
Rate of increase in compensation levels................. 5.2% 5.2% 5.5%
Long-term rate of return on assets...................... 9.9% 9.9% 10.1%
</TABLE>
In addition to the plans described above, the EDS 401(k) Plan provides a
long-term savings program for participants. The EDS 401(k) Plan allows
eligible employees to contribute a percentage of their compensation to a
savings program and to defer income taxes until the time of distribution. EDS
amended the EDS 401(k) Plan,
F-18
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
effective July 1, 1998, to provide for employer-matching contributions in the
form of EDS stock. During the years ended December 31, 1999 and 1998,
employer-matching contributions totaled $33.9 million and $14.3 million,
respectively.
Costs related to these plans are allocated to the Company through an
intercompany transaction based on the ratio of total payroll dollars of the
Company to total payroll dollars of EDS for the employee groups of the
respective plans and are included in selling, general and administrative
expenses. During the years ended December 31, 1999, 1998 and 1997, the Company
recognized expense of $1.2 million, $3.6 million and $2.7 million,
respectively, for such pension coverage.
Eligible employees of the Company participate in EDS' PerformanceShare Plan
which permits the granting of stock-based awards in the form of stock options
for up to 20.0 million shares of EDS common stock. In 1997, EDS granted to
employees stock options to acquire 14.1 million shares of EDS common stock, of
which 0.2 million were issued to Company employees. The options vest after ten
years of service, subject to accelerated vesting based on the appreciation in
quoted market price of the EDS common stock. The exercise price of $37.375
equals the quoted market price of EDS stock on the date of grant. EDS applies
APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its stock-based compensation plans. Therefore, no compensation costs
related to this grant are reflected in the historical financial statements of
the Company. If compensation cost for the EDS PerformanceShare Plan had been
determined in accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income for the years ended
December 31, 1999 and 1998 would not have been materially different from
historical amounts.
The EDS Incentive Plan (the "Incentive Plan") covers up to 60.0 million
shares of EDS common stock, in addition to 17.0 million unvested shares that
were outstanding at the date of the split-off of EDS from General Motors
Corporation ("GM"). The Incentive Plan permits the granting of stock-based
awards in the form of restricted shares, restricted stock units, stock
options, or stock appreciation rights to eligible employees, officers, and
non-employee directors. During the year ended December 31, 1997, 5.2 million
restricted stock units were granted of which 29,500 were granted to Company
employees. A restricted stock unit is the right to receive shares. Units
granted generally are scheduled to vest over a period of five to ten years.
The weighted average fair value of the restricted stock units granted was
$42.92. The quoted market price as of the date of grant is charged to
operations over the vesting period. The total number of unvested units was
12.5 million and 16.1 million at December 31, 1999 and 1998, respectively. The
unvested units attributable to Company employees was 49,370 and 26,550 at
December 31, 1999 and 1998, respectively.
NOTE 13: REORGANIZATION AND AFFILIATE AGREEMENTS
The following transactions were consummated in connection with the
Reorganization:
Intercompany Indebtedness. In addition to the $105.0 million borrowed under
the Intercompany Credit Agreement in connection with the Solid Edge
Acquisition, effective March 6, 1998, the Company issued to EDS as a dividend
an Intercompany Note in the principal amount of $73.0 million. The
Intercompany Note is payable on March 6, 2001 and bears interest, payable
semiannually, at a rate equal to the London Interbank Bid Rate ("LIBID") minus
0.5%. A portion of the amounts advanced to the Company under the Intercompany
Credit Agreement in respect of the Solid Edge Acquisition was repaid to EDS.
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.
Capital Stock. At March 31, 1998, the Company had authorized 1,000 shares
of common stock, all of which were issued and outstanding. On May 22, 1998,
the Company filed a restated articles of incorporation
F-19
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with the state of Delaware which authorized the issuance of 168,735,000 shares
of Class A common stock, 31,265,000 shares of Class B common stock and
20,000,000 shares of preferred stock. As a result, 1,000 shares of common
stock, representing all outstanding shares of common stock of the Company,
were converted into 31,265,000 shares of Class B common stock on May 21, 1998.
The holders of Class A common stock and Class B common stock of the Company
generally have identical voting rights except that holders of Class A common
stock are entitled to one vote per share while holders of Class B common stock
are entitled to ten votes per share on all matters to be voted on by
stockholders. Holders of Class A common stock and Class B common stock share
in an equal amount per share in any dividend declared by the Board of
Directors, subject to any preferential rights of any outstanding preferred
stock of the Company.
Neither class of common stock is subject to redemption or has preemptive
rights to purchase additional shares of common stock. Preferred stock of the
Company can be issued in series with varying preferences and conversion
features as determined by the Board of Directors.
Cash and Cash Equivalents. Effective with the Reorganization, the Company
began maintaining separate cash and investment accounts from EDS. Transactions
with EDS no longer result in immediate charges and credits to the Company's
cash and cash equivalents, but are settled through intercompany billings. EDS
manages the Company's cash management system under the Management Services
Agreement discussed below.
Management Services Agreement. The Company and EDS are parties to the
Management Services Agreement, effective as of January 1, 1998 (the
"Management Services Agreement") pursuant to which EDS performs various
management services for the Company including treasury, risk management, tax,
and similar administrative services, that EDS has historically provided to the
Company. Amounts charged to the Company under this agreement approximate EDS'
cost of providing the services plus a fixed fee equal to 0.5% of the Company's
total revenues. 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
services the Company is required to purchase during the term of the Management
Services Agreement, the Company or EDS may terminate any service on or after
January 1, 2000 with prior notice of not less than five months.
Tax Sharing Agreement. The Company and EDS have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which provides for the allocation of
tax liabilities during the tax periods the Company is part of consolidated
federal, state and local income tax returns filed by EDS. In addition, the Tax
Sharing Agreement sets out certain benefits and obligations of the Company and
EDS for tax matters relating to periods before the Reorganization and for
certain benefits and obligations that would affect the Company or EDS in the
future if the Company ceased to be a member of EDS' consolidated group for
federal income tax purposes. The Tax Sharing Agreement generally requires the
Company to pay EDS the amount of federal, state and local income taxes that
the Company would have been required to pay had the Company and its
subsidiaries filed their own tax return or returns and not been included in
the EDS consolidated group. The Company is jointly and severally liable for
the federal income tax of EDS and the other companies included in the
consolidated return for all periods in which the Company is included in the
EDS consolidated group. EDS has agreed, however, to indemnify the Company for
any liability for taxes reported or required to be reported on a consolidated
return.
Except for certain items specified in the Tax Sharing Agreement, EDS
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes, attributable to periods before the Reorganization.
F-20
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit Agreements. In order to allow EDS to manage efficiently the cash and
cash needs of its subsidiaries, the Company and EDS (or EDS subsidiary or EDS
Finance plc, as the case may be) are parties to the Intercompany Credit
Agreements, pursuant to which the Company is required to borrow from EDS, and
EDS is required to lend to the Company, any amount required by the Company to
fund its daily cash requirements. The maximum amount that the Company may
borrow at any time from EDS under the Intercompany Credit Agreements (together
with the other non-U.S. credit agreements referred to below) is $70.0 million.
Also, under the Intercompany Credit Agreements, the Company is required to
lend to EDS all excess cash of the Company. The interest rate to be charged to
the Company is the sum of the one-month LIBOR plus 0.5%. The interest rate to
be charged to EDS is the one-month LIBID minus 0.5%. On any business day that
the Company has excess cash available, it must use that cash to repay any
outstanding loans it has under the Intercompany Credit Agreements or make an
advance to EDS if no loans are outstanding. The Intercompany Credit Agreements
will terminate on December 31, 2002, unless earlier terminated at the election
of one of the parties upon the occurrence of certain events, including the
termination of the Management Services Agreement or the cessation of EDS'
beneficial ownership of 50% or more of the capital stock of the Company.
GM Subcontract. In connection with the Reorganization, EDS and the Company
entered into a Memorandum of Understanding, effective January 1, 1998 (the "GM
Subcontract"), pursuant to which the Company receives all revenues and
performs EDS' obligations under the EDS/GM Site License Agreement and agrees
to cooperate with EDS in providing additional products and services to GM
under the EDS/GM Master Service Agreement. The GM Subcontract further provides
that the Company may provide directly to GM products and services that are
outside of the scope of the EDS/GM Master Service Agreement.
Other Agreements. In addition to the agreements set forth above, the
Company and EDS are parties to a Registration Rights Agreement. The Company
and EDS are also parties to various subleases pursuant to which the Company
subleases from EDS the real property occupied by the Company prior to the
Reorganization. The terms of these sublease agreements incorporate the
financial and other material terms of EDS' lease agreements for the subject
properties. The Company also has, or expects to enter into, other agreements
with EDS or other EDS affiliates, pursuant to which the Company does not
expect to receive or pay material amounts.
Pension Benefits. The Company and EDS entered into an agreement which
permits the employees of the Company to continue to participate in the benefit
plans and programs sponsored by EDS until the Company establishes separate
plans and programs for employees. The Company established its separate plans
and programs for employees effective April 1, 1999.
NOTE 14: EARLY ADOPTION OF STATEMENT OF POSITION (SOP) 98-1
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, was issued. This
SOP requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The provisions of SOP 98-1 are effective for financial
statements issued for fiscal years beginning after December 15, 1998, although
early adoption is allowed. During the third quarter of 1998, the Company
adopted the provisions of this SOP effective January 1, 1998. The impact on
previously reported 1998 quarterly financial statements is immaterial. There
were no costs associated with the development or purchase of internal-use
software in prior years. The capitalized costs were $11.1 million and $3.4
million at December 31, 1999 and 1998, respectively. All other related costs
of implementing the Company's computer systems are expensed as incurred.
F-21
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15: CONCENTRATIONS OF CREDIT RISK
Effective July 1, 1996, the Company's parent, EDS, entered into a corporate
software license agreement the (Site License) with GM which provided for the
delivery of various software products as well as the provision of maintenance
services for an initial term of three years. The Company has agreed to perform
EDS' obligation to provide products and services under such agreement pursuant
to a Memorandum of Understanding executed in connection with the
Reorganization.
During the years ended December 31, 1999, 1998 and 1997, the portion of
Company revenues attributable to GM was 8%, 9%, and 6%, respectively. No
single customer accounted for more than 10% of the Company's revenues in 1999,
1998 or 1997. Accounts receivable from GM, including amounts unbilled,
accounted for 5% and 17% of total accounts receivable in 1999 and 1998,
respectively.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers constituting the Company's
customer base and their dispersion across different industries and geographic
areas. Accounts receivable are shown net of allowances of $5.3 million and
$5.9 million as of December 31, 1999 and 1998, respectively.
NOTE 16: SUPPLEMENTARY FINANCIAL INFORMATION
The following summarizes supplemental financial information for the years
ended December 31, 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Depreciation of property and equipment......... $ 9,800 $ 8,285 $ 7,380
Amortization................................... 24,079 23,269 14,754
------- ------- -------
Total depreciation and amortization........ $33,879 $31,554 $22,134
======= ======= =======
Interest and other income...................... $ 8,153 $14,518 $ 5,092
Interest expense............................... (2,881) (4,482) --
------- ------- -------
Total other income......................... $ 5,272 $10,036 $ 5,092
======= ======= =======
Cash paid for:
Income taxes, net of refunds................. $31,314 $ 2,137 --
Interest..................................... $ 2,881 $ 4,482 --
</TABLE>
F-22
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
Amounts in the following tables are in thousands, except per share amounts.
<TABLE>
<CAPTION>
Year ended December 31, 1999
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenue........... $105,806 $110,350 $115,677 $136,117 $467,950
Gross profit............ 64,247 71,487 73,218 91,747 300,699
Selling, general and
administrative......... (35,261) (41,801) (43,268) (47,059) (167,389)
Research and
development............ (16,905) (16,743) (16,726) (20,589) (70,963)
In-process research and
development............ -- -- (2,386) -- (2,386)
Income before income
taxes.................. 14,299 14,223 11,496 25,215 65,233
Net income.............. 9,152 9,105 7,355 16,137 41,749
Basic earnings per share
of common stock........ 0.25 0.25 0.21 0.44 1.15
Diluted earnings per
share of common stock.. 0.25 0.25 0.20 0.44 1.14
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenue........... $ 86,528 $101,901 $97,132 $118,010 $403,571
Gross profit............ 50,023 57,820 59,779 72,024 239,646
Selling, general and
administrative......... (27,229) (34,885) (36,564) (40,496) (139,174)
Research and
development............ (14,288) (15,563) (16,747) (16,979) (63,577)
In-process research and
development............ (39,440) -- -- -- 39,440
Income (loss) before
income taxes........... (21,241) 5,379 7,350 16,003 7,491
Net income (loss)....... (12,152) 3,443 4,705 10,242 6,238
Basic and diluted
earnings per share of
common stock........... (0.39) 0.11 0.13 0.28 0.18
</TABLE>
F-23
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at charged to charged to Balance at
beginning costs and other end
of year expenses accounts Deductions of year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1999
Allowance for
doubtful accounts... $ 5,870 1,767 -- 2,325 $ 5,312
------- ----- --- ----- -------
Total valuation and
qualifying
accounts.......... $ 5,870 1,767 -- 2,325 $ 5,312
======= ===== === ===== =======
For the year ended
December 31, 1998
Allowance for
doubtful accounts... $ 4,721 1,295 -- 146 $ 5,870
------- ----- --- ----- -------
Total valuation and
qualifying
accounts.......... $ 4,721 1,295 -- 146 $ 5,870
======= ===== === ===== =======
For the year ended
December 31, 1997
Allowance for
doubtful accounts... $ 4,907 2,425 -- 2,611 $ 4,721
------- ----- --- ----- -------
Total valuation and
qualifying
accounts.......... $ 4,907 2,425 -- 2,611 $ 4,721
======= ===== === ===== =======
</TABLE>
F-24
<PAGE>
EXHIBIT 10.15
UNIGRAPHICS SOLUTIONS INC.
1999 BROAD-BASED INCENTIVE PLAN
1. Plan. This Unigraphics Solutions Inc. 1999 Broad-Based Incentive Plan (the
"Plan") has been adopted by Unigraphics Solutions Inc., a Delaware
corporation (the "Company"), to be effective as of the Effective Date
stated below for the purpose stated in paragraph 2 below.
2. Objectives. This Plan is designed to attract and retain Employees (as
hereinafter defined), to encourage the sense of proprietorship of the
Employees, and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries.
These objectives are to be accomplished by making Awards (as hereinafter
defined) under this Plan and thereby providing Participants (as hereinafter
defined) with a proprietary interest in the growth and performance of the
Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Authorized Officer" means the Chairman of the Board (or any other senior
officer to whom the Chairman of the Board shall delegate authority to
execute any Award Agreement).
"Award" means the grant of any Option, SAR, Stock Award, Cash Award or
Performance Award, whether granted singly, in combination or in tandem, to
a Participant pursuant to such applicable terms, conditions and limitations
as the Committee may establish in order to fulfill the objectives of the
Plan.
"Award Agreement" means a written agreement between the Company and a
Participant setting forth the terms, conditions and limitations applicable
to an Award.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the
Plan. If at any time no Committee shall be in existence, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
"Common Stock" means the Class A Common Stock, par value $0.01 per share,
of the Company.
"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period, an amount equal
to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Effective Date" means October 21, 1999.
"Employee" means an individual classified by the Company as an employee of
the Company or any of its Subsidiaries or any corporation which directly or
indirectly owns shares representing more than 50% of the combined voting
power of the shares of all classes or series of capital stock of the
Company which have the right to vote generally on matters submitted to a
vote of the stockholders of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means (i) if shares of
Common Stock are listed on a national securities exchange, the mean between
the highest and lowest sales price per share of Common Stock on the
consolidated transaction reporting system for the principal national
securities exchange on which shares of Common Stock are listed on that
date, or, if there shall have been no such sale so reported on that date,
on
Page 1 of 7
<PAGE>
the last preceding date on which such a sale was so reported, (ii) if
shares of Common Stock are not so listed but are quoted on The Nasdaq
National Market, the mean between the highest and lowest sales price per
share of Common Stock reported by The Nasdaq National Market on that date,
or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported or (iii) if shares
of Common Stock are not so listed or quoted but are traded in the
over-the-counter market, the mean between the closing bid and asked price
on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as
reported by The Nasdaq Stock Market, or, if not reported by The Nasdaq
Stock Market, by the National Quotation Bureau Incorporated.
"Incentive Stock Option" means an Option that is intended to comply with
the requirements set forth in Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is not an Incentive Stock
Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an Employee to whom an Award has been made under this
Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant that is subject to the attainment of one or more Performance
Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or subject to
forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no
longer restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock, equal to
the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is
exercised over a specified strike price (in each case, as determined by the
Committee).
"Stock Award" means an award in the form of shares of Common Stock or units
denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and
(ii) in the case of a partnership or other business entity not organized as
a corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. Eligibility. All Employees of the Company and its Subsidiaries are eligible
to participate in the Plan.
5. Common Stock Available for Awards. Subject to the provisions of paragraph
14 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 750,000 shares of
Common Stock. The number of shares of Common Stock that are the subject of
Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner
such that all or some of the shares covered by an Award are not issued to a
Participant or are exchanged for Awards that do not involve Common Stock,
shall again immediately become available for Awards hereunder. The
Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem
appropriate. The Board and the appropriate officers of the Company shall
from
Page 2 of 7
<PAGE>
time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
6. Administration.
(a) This Plan shall be administered by the Committee. To the extent
required in order for Awards to Participants who are subject to Section 16
of the Exchange Act to be exempt from Section 16 by virtue of the
provisions of Rule 16b-3, the Committee shall consist of at least two
members of the Board who meet the requirements of the definition of
"Non-Employee Director" set forth in Rule 16b-3(b)(3)(i) promulgated under
the Exchange Act.
(b) Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. The Committee
shall also have full and exclusive power to interpret this Plan and to
adopt such rules, regulations and guidelines for carrying out this Plan as
it may deem necessary or proper, all of which powers shall be exercised in
the best interests of the Company and in keeping with the objectives of
this Plan. The Committee may, in its discretion and to the extent allowed
by law, provide for the extension of the exercisability of an Award,
accelerate the vesting or exercisability of an Award, eliminate or make
less restrictive any restrictions contained in an Award, waive any
restriction or other provision of this Plan or an Award or otherwise amend
or modify an Award in any manner that is either (i) not adverse to the
Participant to whom such Award was granted or (ii) consented to by such
Participant. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Award in the manner and
to the extent the Committee deems necessary or desirable to further the
purposes of the Plan. Any decision of the Committee in the interpretation
and administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned. The functions of the Committee specified in the Plan shall be
exercised by the Board, if and to the extent that no Committee exists which
has the authority to so administer the Plan or to the extent that the
Committee is not comprised solely of Non-Employee Directors for purposes of
Rule 16b-3 promulgated under the Exchange Act.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
(d) In the event the Company grants an Award that is contrary to law, the
Company may either revoke the grant of the Award or modify the grant of the
Award to bring the grant into compliance with the applicable laws.
7. Delegation of Authority. The Committee may delegate to the Chairman of the
Board and to other senior officers of the Company its duties under this
Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to,
Participants who are subject to Section 16 of the Exchange Act.
8. Awards. The Committee shall determine the type or types of Employee Awards
to be made under this Plan and shall designate from time to time the
Employees who are to be the recipients of such Awards. Each Award may be
embodied in an Award Agreement, which shall contain such terms, conditions
and limitations as shall be determined by the Committee in its sole
discretion and shall be signed by the Participant to whom the Award is made
and by an Authorized Officer for and on behalf of the Company. Awards may
consist of those listed in this paragraph 8(a) hereof and may be granted
singly, in combination or in tandem. Awards may also be made in combination
or in tandem with, in replacement of, or as alternatives to, grants or
rights under this Plan or any other employee plan of the Company or any of
its Subsidiaries, including the plan of any acquired entity; provided that
no Option may be issued in exchange for the cancellation of an Option with
a lower exercise price. An Award may provide for the grant or issuance of
additional, replacement or alternative Awards upon the occurrence of
specified events, including the exercise of the original Award granted to a
Participant. All or part of an Award may be subject to conditions
established by the Committee,
Page 3 of 7
<PAGE>
which may include, but are not limited to, continuous service with the
Company and its Subsidiaries, achievement of specific business objectives,
increases in specified indices, or attainment of specified growth rates and
other comparable measurements of performance. Upon the termination of
employment by a Participant, any unexercised, deferred, unvested or unpaid
Awards shall be treated as set forth in the applicable Award Agreement.
(a) Stock Option. An Award may be in the form of an Option. Any Option
awarded pursuant to this Plan shall be a Nonqualified Stock Option. The
price at which shares of Common Stock may be purchased upon the exercise of
a Nonqualified Stock Option shall be not less than, but may exceed, the
Fair Market Value of the Common Stock on the date of grant. Subject to the
foregoing provisions, the terms, conditions and limitations applicable to
any Options awarded pursuant to this Plan, including the term of any
Options and the date or dates upon which they become exercisable, shall be
determined by the Committee. The Company shall not issue any Incentive
Stock Options under the Plan.
(b) Stock Appreciation Right. An Award may be in the form of an SAR. The
terms, conditions and limitations applicable to any SARs awarded pursuant
to this Plan, including the term of any SARs and the date or dates upon
which they become exercisable, shall be determined by the Committee.
(c) Stock Award. An Award may be in the form of a Stock Award. The terms,
conditions and limitations applicable to any Stock
Awards granted pursuant to this Plan shall be determined by the Committee.
(d) Cash Award. An Award may be in the form of a Cash Award. The terms,
conditions and limitations applicable to any Cash Awards granted pursuant
to this Plan shall be determined by the Committee.
(e) Performance Award. Without limiting the type or number of Awards that
may be made under the other provisions of this Plan, an Award may be in the
form of a Performance Award. A Performance Award shall be paid, vested or
otherwise deliverable solely on account of the attainment of one or more
pre-established, objective Performance Goals established by the Committee
prior to the earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and (y) the elapse
of 25% of the period of service (as scheduled in good faith at the time the
goal is established), and in any event while the outcome is substantially
uncertain. A Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the goal is met.
Such a Performance Goal may be based on one or more business criteria that
apply to the individual, one or more business units of the Company, or the
Company as a whole, and may include one or more of the following: increased
revenue, net income, stock price, market share, earnings per share, return
on equity, return on assets or decrease in costs. Unless otherwise stated,
such a Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include, for
example, maintaining the status quo or limiting economic losses (measured,
in each case, by reference to specific business criteria). Prior to the
payment of any compensation based on the achievement of Performance Goals,
the Committee must certify in writing that applicable Performance Goals and
any of the material terms thereof were, in fact, satisfied. Subject to the
foregoing provisions, the terms, conditions and limitations applicable to
any Performance Awards made pursuant to this Plan shall be determined by
the Committee.
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<PAGE>
9. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or Common
Stock, or a combination thereof, and may include such restrictions as the
Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions. If payment of an Award
is made in the form of Restricted Stock, the Award Agreement relating to
such shares shall specify whether they are to be issued at the beginning or
end of the Restriction Period. In the event that shares of Restricted Stock
are to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that describe
the terms and conditions of the restrictions applicable thereto. In the
event that shares of Restricted Stock are to be issued at the end of the
Restricted Period, the right to receive such shares shall be evidenced by
book entry registration or in such other manner as the Committee may
determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Awards may be deferred, either in the form of installments or a future
lump-sum payment. The Committee may permit selected Participants to elect
to defer payment of some or all types of Awards in accordance with
procedures established by the Committee. Any deferred payment of an Award,
whether elected by the Participant or specified by the Award Agreement or
by the Committee, may be forfeited if and to the extent that the Award
Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents may
be extended to and made part of any Award consisting of shares of Common
Stock or units denominated in shares of Common Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of
interest on deferred cash payments and Dividend Equivalents for Awards
consisting of shares of Common Stock or units denominated in shares of
Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type.
10. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase such shares
by means of tendering Common Stock or surrendering another Award, including
Restricted Stock, valued at Fair Market Value on the date of exercise, or
any combination thereof. The Committee shall determine acceptable methods
for Participants to tender Common Stock or another Award; provided that any
Common Stock that is or was the subject of an Award may be so tendered only
if it has been held by the Participant for six months. The Committee may
provide for procedures to permit the exercise or purchase of such Awards by
use of the proceeds to be received from the sale of Common Stock issuable
pursuant to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of
Restricted Stock used as consideration therefor, shall be subject to the
same restrictions as the Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee. The Company
reserves the right to postpone the delivery of Common Stock issuable upon
exercise of an Award to the extent necessary to comply with any applicable
listing requirements of any securities exchange or Nasdaq or any applicable
federal, state, local, or foreign law.
11. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, an appropriate
amount of cash or number of shares of Common Stock or a combination thereof
for payment of taxes required by law or to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Committee may also permit withholding to be
satisfied by the transfer to the Company of shares of Common Stock
theretofore owned by the holder of the Award with respect to which
withholding is required. If shares of Common Stock are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value
when the tax withholding is required to be made. The Committee may provide
for loans, on either a short term or demand basis, from the Company to a
Participant who is an Employee to permit the payment of taxes required by
law.
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<PAGE>
12. Amendment, Modification, Suspension or Termination. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose
permitted by law, except that no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant.
13. Assignability. Unless otherwise determined by the Committee and provided
in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c)
under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder. The
Committee may prescribe and include in applicable Award Agreements other
restrictions on transfer. Any attempted assignment of an Award or any
other benefit under this Plan in violation of this paragraph 13 shall be
null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of
Common Stock reserved under this Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or
units denominated in Common Stock, (iii) the exercise or other price in
respect of such Awards, and (iv) the appropriate Fair Market Value and
other price determinations for such Awards shall each be proportionately
adjusted by the Board to reflect such transaction. In the event of any
other recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or
entity, the adoption by the Company of any plan of exchange affecting the
Common Stock or any distribution to holders of Common Stock of securities
or property (other than normal cash dividends or dividends payable in
Common Stock), the Board shall make appropriate adjustments to (i) the
number of shares of Common Stock covered by Awards in the form of Common
Stock or units denominated in Common Stock, (ii) the exercise or other
price in respect of such Awards, and (iii) the appropriate Fair Market
Value and other price determinations for such Awards to give effect to
such transaction shall each be proportionately adjusted by the Board to
reflect such transaction; provided that such adjustments shall only be
such as are necessary to maintain the proportionate interest of the
holders of the Awards and preserve, without exceeding, the value of such
Awards. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Board
shall be authorized to issue or assume Awards by means of a substitution
of new Awards, as appropriate, for previously issued Awards or an
assumption of previously issued Awards as part of such adjustment.
15. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the
Company that this Plan comply with Rule 16b-3 with respect to persons
subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies
in the construction of this Plan be interpreted to give effect to such
intention, and that if any provision of this Plan is found not to be in
compliance with Rule 16b-3, such provision shall be null and void to the
extent required to permit this Plan to comply with Rule 16b-3.
Certificates evidencing shares of Common Stock delivered under this Plan
(to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or
transaction reporting system upon which the Common Stock is then listed
or to which it is admitted for quotation and any applicable federal or
state securities law. The Committee may cause a legend or legends to be
placed upon such certificates (if any) to make appropriate reference to
such restrictions.
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<PAGE>
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or
rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash,
Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall this Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be
deemed to be a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to an Award of cash, Common Stock or rights
thereto under this Plan shall be based solely upon any contractual
obligations that may be created by this Plan and any Award Agreement, and
no such liability or obligation of the Company shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board nor the Committee shall be required to
give any security or bond for the performance of any obligation that may be
created by this Plan.
17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall
be governed by and construed in accordance with the laws of the State of
Delaware.
Page 7 of 7
<PAGE>
EXHIBIT 10.17
AMENDMENT ONE TO THE FIRST AMENDED
UNIGRAPHICS SOLUTIONS INC. 401(K) PLAN
WHEREAS, Unigraphics Solutions Inc. ("Company") previously adopted the
Unigraphics Solutions Inc. 401(k) Plan ("Plan"); and
WHEREAS, the Company reserved the right to amend the Plan in Section
16.1 thereof; and
WHEREAS, effective as of December 31, 1999, the Company desires to
amend the Plan to provide for an additional contribution to the Plan by the
Company;
NOW, THEREFORE, effective December 31, 1999, the Plan is amended as
follows:
Section 4.5 is deleted in its entirety and replaced with the
following:
4.5 Additional Employer Contributions.
---------------------------------
The Employer shall make a contribution to the Plan for the Plan Year
ended December 31, 1999, on behalf of each Employee described in Section 4.5.1.
in an amount determined and allocated in accordance with Section 4.5.2. Such
contributions shall be paid to the Trustee not later than the time prescribed by
law for filing the Employer's federal income tax return for the taxable year
with or within which such Plan Year ends, including any extensions thereof.
4.5.1 Eligibility.
-----------
Each Employee who satisfies the following requirements shall
receive the contribution described in this Section 4.5:
(a) A participant in the EDS Retirement Plan on March 31, 1999;
and
(b) (i) Employed by the Employer on December 31, 1999, (ii)
retired (as defined below) during the Plan Year ended on December 31,
1999, (iii) died during such Plan Year or (iv) became disabled within
the meaning of Section 8.2 during such Plan Year.
For purposes of this Section 4.5, an individual shall be
considered to have retired if he or she terminated employment during the
Plan Year on or after (i) attaining age 55 and (ii) completing at least ten
(10) continuous years of service with the Employer or its predecessors
(Electronic Data Systems Corporation ("EDS") or McDonnell-Douglas
Corporation("MDC")) immediately prior to termination of employment with the
Employer.
4.5.2. Contribution.
------------
With respect to an Employee described in Section 4.5.1, the
Employer shall contribute an amount equal to the sum of such Employee's
Base Credit, Excess Credit, Transition Credit, and Mid-Career Credit, as
applicable. Such contribution shall be contributed to such Employee's
Matching Contribution Account; provided that, a Matching Contribution
Account shall be established for an Employee who has not previously been
credited with matching contributions under the Plan.
(1) Base Credit. The Base Credit of an Employee age 49 or under
-----------
as of December 31, 1999, shall be an amount equal to:
(a) a percentage calculated by adding the sum of his or her
age plus Years of Service (including for this purpose service with MDC
which was counted for benefit purposes under the EDS Retirement Plan)
as of such date and dividing such sum by twenty (20), but in no event
less than one and a half percent (1.5% or .015), multiplied by
Page 1 of 2
<PAGE>
(b) the Employee's Compensation for the Plan Year.
The Base Credit of an Employee age 50 or older as of December 31, 1999,
shall be an amount equal to:
(a) a percentage calculated by adding the sum of his or her age
plus Years of Service (including for this purpose service with MDC
which was counted for benefit purposes under the EDS Retirement Plan)
as of such date and dividing such sum by fourteen (14), multiplied by
(b) the Employee's Compensation for the Plan Year.
(2) Excess Credit. An Employee's Excess Credit, if any, shall be an
-------------
amount equal to:
(a) the lesser of (i) such Employee's Base Credit or (ii) five
percent (5%), multiplied by
(b) the Employee's Compensation for the Plan Year in excess of
the amount obtained by multiplying the Social Security Wage Base by a
fraction, the numerator of which is the number of full months in the
Plan Year and the denominator of which is 12.
Social Security Wage Base shall mean the maximum annual wage base upon
which Old-Age, Survivors, and Disability Insurance taxes are based
during the Plan Year.
(3) Conversion Credit. If an Employee was employed with EDS or the
-----------------
Company on July 1, 1998, had attained at least age 44 as of such date and
was fully vested under the EDS Retirement Plan as of such date, such
Employee's Conversion Credit shall be an amount equal to:
(a) the sum of the Employee's Base Credit plus his or her Excess
Credit, if any, multiplied by
(b) the applicable percentage determined under the following
chart based on such Employee's age as of July 1, 1998:
Age Applicable %
--- ------------
44 10
45 20
46 to 56 50
57 and over 70
(4) Mid-Career Credit. If an Employee's age as of his or her Date of
-----------------
Employment, as defined in the EDS Retirement Plan, was greater than
thirty-five (35), such Employee shall receive a Mid-Career Credit equal to:
(a) a percentage calculated by subtracting thirty-five (35) from
his or her age as of his or her Date of Employment, and dividing this
number by fourteen (14), and multiplied by
(b) the Employee's Compensation for the Plan Year.
Page 2 of 2
<PAGE>
EXHIBIT 10.18
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHICS SOLUTIONS INC. ("UGS" or "Company") and _____________ ("Executive"),
to be effective January 20, 2000 ("Effective Date").
RECITALS
--------
WHEREAS, UGS desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGS pursuant to such terms and conditions and for
such consideration; and
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGS, of Executive's having access to confidential business and
technological information, and Executive's being eligible to receive certain
benefits at UGS. This Agreement is entered into, and is reasonably necessary, to
protect confidential information and customer relationships to which Executive
may have access, and to protect the goodwill and other business interests of
UGS; and
WHEREAS, The Compensation Committee of the UGS Board of Directors has
determined that it is in the best interests of the Company and its shareholders
to assure that, in the event of a Change of Control (as defined in Section 3.5
hereof), UGS will have the continued services of the Executive and the Executive
will be provided with the compensation and benefits provided herein; and
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGS.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGS and Executive agree as follows:
Section 1. Employment Duties and Previous Agreements
-----------------------------------------
1.1 UGS agrees to employ Executive, and Executive agrees to be employed by
UGS, beginning as of the Effective Date and continuing throughout the Term as
specified in Section 3.1. Executive shall be employed in the position of [enter
current job title] or such other leadership position as shall be determined by
the Board of Directors. Executive shall faithfully and diligently render such
services and perform such related duties and responsibilities as are customarily
performed by a person holding such corporate title and as otherwise may from
time to time be reasonably assigned to Executive. Executive shall comply with
provisions of this Agreement and shall at all times be subject to such UGS
policies and procedures, including, but not limited to, the UGS Code of Conduct,
as UGS may from time to time maintain, modify, terminate and/or establish.
1.2 This Agreement supercedes and replaces any personal services agreement
or employment agreement in place between UGS and the Executive as of the
Effective Date.
Section 2. Compensation and Benefits
-------------------------
2.1 Base Salary. For the Term of this Agreement, UGS shall pay Executive a
-----------
base salary of not less than [enter current base salary] per year (as may be
-------------------------
increased or decreased from time-to-time by UGS' Compensation Committee of the
Board of Directors or any successor body or person (the "Committee")). Such base
salary shall be paid semi-monthly and shall be subject to all applicable
withholdings and deductions.
2.2 Performance Bonuses. Executive shall be eligible to receive annual
-------------------
bonuses, pursuant to the following:
Page 1 of 9
<PAGE>
2.2.1 Executive shall be eligible for a performance bonus, if any, as
determined by the Committee. Any bonus amount awarded will be paid as soon
as practicable following the end of the Company's fiscal year. Any such
bonus will be based upon Executive's performance, as well as the actual
financial performance of UGS in relation to the approved business plan and
other factors specified by the Committee.
2.2.2 Executive shall be eligible to participate in any other UGS
executive bonus plan implemented during the Term and generally applicable
to other similarly situated executives.
2.2.3 All bonus payments specified in this Section 2.2 are contingent
upon Executive's not having been discharged for Cause (as such term is
defined in Section 3.2.3) by UGS or Executive's not having voluntarily
terminated his employment under Section 3.2.1 prior to each particular
payment having been made.
2.3 Annual and Long Term Incentives. Executive shall be eligible to receive
--------------------------------
annual and long-term incentive compensation under the Company's incentive plans
on the same basis as other similarly situated Executives.
2.4 EDS Incentive Awards. For so long as Executive is an employee of UGS,
---------------------
Executive shall continue to vest in any and all grants awarded through the
Effective Date to Executive under (i) the 1996 Incentive Plan of the Electronic
Data Systems Corporation or any predecessor plan and (ii) the EDS Performance
Share program. Notwithstanding anything to the contrary herein, upon the
Effective Date of this Agreement Executive shall not be eligible for any
additional awards under any EDS incentive plan.
Section 3. Term and Termination
--------------------
3.1 Term. The initial term of this Agreement shall commence on the
----
Effective Date and shall end two (2) years from the Effective Date, and shall
thereafter be automatically renewed for successive one (1) year terms (the
initial term and any subsequent renewal term are referred to as the "Term" in
this Agreement) unless either party gives written notification to the other
party at least sixty (60) days in advance of the expiration of the Term that
further renewal shall not be effected. Such notice to Executive must be
delivered to Executive's address then on record with UGS. Notice to UGS must be
delivered to the Chief Executive Officer at the designated headquarters of UGS.
3.1.1 Termination Date. Executive's termination of employment shall be
-----------------
effective on, as applicable, the date coincident with the occurrence of a
terminating event as described in this Article 3, the date specified in the
written notice provided under Sections 3.1, 3.2.1 or 3.2.2, or such other
date as determined by the Board of Directors or the Committee. The
effective date of Executive's termination of employment shall be the
"Termination Date."
3.2 Termination. Executive's employment under this Agreement may not be
------------
terminated by either party except as follows:
3.2.1 Executive's Voluntary Termination. Executive may terminate his
----------------------------------
employment with UGS at any time for any reason whatsoever by giving 60
days' written notice to UGS. Upon Executive giving the requisite notice of
his intent to terminate his employment, the Company, at its sole
discretion, shall have the option of immediately accepting Executive's
resignation. Upon accepting Executive's resignation, the Company shall have
no further obligation to provide Executive with any benefits and/or
payments, except those required by law.
3.2.2 UGS Termination With Notice. Excluding for "Cause" terminations
----------------------------
(the procedure for which is described below), UGS may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive. In lieu of providing Executive with 60 days' written
notice, the Company shall have the sole discretion to immediately terminate
Executive's employment, provided Executive receives 60 days of full base
salary, in addition to any bonus or long term incentive compensation he
would have received during the 60 days following his termination.
Page 2 of 9
<PAGE>
3.2.3 Termination for Cause. UGS may terminate Executive's employment
----------------------
at any time for Cause, with or without notice. For purposes of this
Section, the term "Cause" shall mean (a) gross or habitual neglect of
duties or misconduct in the performance of the duties and services required
of Executive pursuant to this Agreement; (b) conduct of Executive which is
materially detrimental to UGS' reputation or business operations or its
ability to secure or renew future contracts; (c) Executive's conviction of
a felony or of a misdemeanor involving moral turpitude; (d) Executive's
breach of a material provision of this Agreement which remains uncorrected
for 30 days following written notice to the Executive by UGS of such
breach; (e) continued failure or refusal of Executive to faithfully,
diligently and competently perform the usual and customary duties of his
employment; or (f) failure or refusal of Executive to materially comply
with the policies, standards and regulations of UGS as from time to time
may be made known to Executive.
3.2.4 Executive's Termination for Good Reason. Executive may terminate
----------------------------------------
his employment with UGS at any time for Good Reason. The term "Good Reason"
shall mean:
(a) a material breach of a material provision of this Agreement
by the Company which breach remains uncorrected for 30 days following
written notice to UGS by Executive of such breach (such written notice
must detail the action or conduct allegedly constituting Good Reason).
If Executive fails to give such requisite notice, or if UGS timely
corrects such alleged breach, the action or conduct shall not
constitute Good Reason;
(b) a reduction by UGS in Executive's base salary as in effect on
the Effective Date by more than twenty five percent (25%);
(c) Executive's ineligibility to participate in bonus and/or
compensation programs (excluding those described in Paragraph 2.4) in
which other similarly situated Executives are eligible to participate;
(d) failure by the Company to provide Executive with benefits
(e.g., life insurance, medical, dental, accident, and disability) that
are available to other similarly situated executives;
(e) if a Change of Control occurs, the Company's requiring
Executive to be based at any office or location more than thirty five
(35) miles from the location at which he was based prior to the Change
of Control, except for travel reasonably required in the performance
of the Executive's responsibilities; or
(f) any failure by UGS to obtain the assumption of this Agreement
by any successor or assign of UGS.
3.2.5 Termination Upon Death or Incapacity. Executive's employment
-------------------------------------
will also terminate immediately upon Executive's death or Disability. For
purposes of this Agreement, "Disability" shall mean the inability of the
Executive to perform his duties on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to Executive or Executive's
legal representative (such agreement as to acceptability is not to be
withheld unreasonably).
3.3 Effects of Termination. The effects of termination of the employment
-----------------------
relationship shall be as follows:
3.3.1 Termination of Benefits. In the event of Executive's voluntary
------------------------
termination of employment pursuant to Section 3.2.1 or the termination of
Executive's employment by UGS for Cause pursuant to Section 3.2.3, UGS
shall have no further obligation to provide Executive with any benefits
and/or payments, except as required by law or the terms of a controlling
benefit or stock plan or policy and the payment of any salary, bonus, or
other compensation or benefits accrued to the Termination Date.
3.3.2 Death and Disability Benefits. In the event of the termination
------------------------------
of the employment relationship by reason of death or Disability pursuant to
Section 3.2.5, UGS shall pay Executive his salary to the date of his death
or decision regarding Disability; and the right of Executive or Executive's
heirs to
Page 3 of 9
<PAGE>
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policies.
3.3.3 Other Termination Benefit Entitlements. Except as otherwise
---------------------------------------
provided in Section 3.4 with respect to Executive's termination in the
event of a Change of Control, if UGS terminates the employment of Executive
with notice as set forth in Sections 3.1 or 3.2.2, or Executive terminates
the employment relationship for Good Reason under Section 3.2.4, Executive
will be entitled to the following benefits:
(a) Full base salary and any bonus or long term incentive
compensation to which Executive is entitled through the Termination
Date.
(b) A severance payment, less all applicable deductions, equal to
(i) one times the Executive's annual base salary in effect as of the
Termination Date plus (ii) an amount equal to the Executive's bonus
target in effect for the fiscal year in which the Termination Date
falls, or if a bonus target has not yet been established, an amount
equal to 1.25 times the Executive's bonus target for the previous
fiscal year.
(c) Notwithstanding any provision to the contrary in any
applicable award agreement(s), continued vesting of any unvested UGS
stock options, other UGS stock awards, and EDS Incentive Plan awards
granted as of the Termination Date in accordance with the vesting
schedules set forth in the applicable award agreement(s) between the
Executive and UGS and/or EDS. This Agreement shall be deemed to amend
any employee award agreement to the extent required to comply with
this Section 3.3.3(c).
(d) A cash payment to pay for twelve (12) months of (i)
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
continuation health coverage for the Executive and his family, (ii)
premiums for basic employee life insurance coverage ($50,000), and
(iii) premiums for long term disability insurance providing income
replacement of $7,000 per month.
(e) Reimbursement not to exceed $75,000 of the costs of existing
home sale (including payment of any real estate sales commission up to
six percent of the home sale price) and packing and shipping expenses
in accordance with Company's then-existing household goods shipping
policies for employees if within twelve (12) months of termination
under this Section 3.3.3, Executive relocates to a new work location
which is more than 35 miles from his primary work location on the
Termination Date.
(f) Reimbursement not to exceed $25,000 for outplacement services
provided by an outplacement service acceptable to UGS within twelve
(12) months of termination under this Section 3.3.3.
3.4 Termination as a Result of a Change of Control. UGS recognizes that the
-----------------------------------------------
continuing possibility of a Change of Control of UGS is unsettling to Executives
of the Company. Therefore, the arrangements set forth below are being made to
help assure a continuing dedication by Executive to his duties to the Company,
notwithstanding the occurrence or potential occurrence of a Change in Control.
In particular, UGS believes it important, should the Company receive proposals
or inquiries from third parties with respect to its future, to enable Executive,
without being influenced by uncertainties of his own situation, to assess and
advise the Company whether such proposals would be in the best interests of the
Company and its shareholders and to take such other action regarding such
proposals as the Company might determine to be appropriate. Accordingly, if
between effective date (the "Change of Control Date") of a Change of Control (as
defined below) and 24 months following the Change of Control Date, UGS gives
notice under Section 3.1 that this Agreement will not be extended for reasons
other than Cause, gives notice of termination under Section 3.2.2, or if
Executive terminates for Good Reason, UGS shall provide the Executive with the
benefits as set forth below in this Section 3.4. Notwithstanding any other
provision of this Agreement, if a Change in Control occurs and if the
Executive's employment with the Company or any of its subsidiaries is terminated
by the Company less than six months prior to the date on which the Change in
Control occurs, and if it is demonstrated by the Executive that such termination
of employment by the Company (i) was at the request of a third party which has
taken steps reasonably calculated to result in or effect the Change in Control
or (ii) otherwise arose in connection with or in anticipation of the Change in
Control, then for all purposes of this
Page 4 of 9
<PAGE>
Agreement, such termination of employment shall be deemed to have occurred
within two years following such Change in Control provided that the obligations
contained in Section 3.1 to deliver a notice of termination shall not apply.
Benefits to which Executive shall be entitled are:
3.4.1 Full base salary and any bonus or long term incentive
compensation to which the Executive is entitled through the Termination
Date.
3.4.2 A severance payment, less all applicable deductions, equal to
(i) two times the Executive's annual base salary in effect as of the
Termination Date plus (ii) an amount equal to two times the Executive's
bonus target in effect for the fiscal year in which the Termination Date
falls, or if a bonus target has not yet been established, an amount equal
to two times the Executive's bonus target for the previous fiscal year.
3.4.3 Notwithstanding any provision to the contrary in any applicable
award agreement(s), continued vesting of any unvested UGS stock options,
other UGS stock awards, and EDS Incentive Plan awards granted as of the
Termination Date in accordance with the vesting schedules set forth in the
applicable award agreement(s) between the Executive and UGS and/or EDS.
This Agreement shall be deemed to amend any employee award agreement to the
extent required to comply with this Section 3.4.3.
3.4.4 A cash payment to pay for twelve (12) months of (i) Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") continuation health
coverage for the Executive and his family, (ii) premiums for basic employee
life insurance coverage ($50,000), and (iii) premiums for long term
disability insurance providing income replacement of $7,000 per month.
3.4.5 Reimbursement not to exceed $75,000 of the costs of existing
home sale (including payment of any real estate sales commission up to six
percent of the home sale price) and packing and shipping expenses in
accordance with Company's then-existing household goods shipping policies
for employees if within twelve (12) months of termination under this
Section 3.4, Executive relocates to a new work location which is more than
35 miles from his primary work location on the Termination Date.
3.4.6 Reimbursement not to exceed $25,000 for outplacement services
provided by an outplacement service acceptable to UGS within twelve (12)
months of termination under this Section 3.4.
3.5 Change of Control Conditions Precedent and Definition. No
------------------------------------------------------
compensation shall be payable under Section 3.4 unless and until (a) there shall
have been a Change of Control in UGS while the Executive is still an employee of
UGS or was an employee within six (6) months of the Change of Control Date if
the second to the last sentence of Section 3.4 applies and (b) the Executive's
employment by the Company thereafter shall have been terminated in accordance
with Sections 3.1, 3.2.2 or 3.2.4. Under this Agreement, "Change of Control" of
UGS means a change in control of the Company occurring after the Effective Date
of this Agreement of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar
item on any similar schedule or form) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement; provided however, that, without limiting the
generality of the foregoing, a Change in Control shall be deemed to have
occurred (irrespective of the applicability of the initial clause of this
definition) if at any time after the Effective Date (a) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, but excluding (i)
any employee benefit plan of the Company or of any subsidiary of the Company,
and (ii) any entity organized, appointed or established by the Company pursuant
to the terms of any such plan) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the whole board in office immediately prior to such
person attaining such percentage interest; (b) the Company is a party to a
merger, consolidation, share exchange, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the board in office
immediately prior to such transaction or event constitute less than a majority
of the whole board thereafter; or (c) during any period of two consecutive
years, individuals who at the beginning of such period constituted members of
the board (including for this purpose any new member whose election or
nomination for election by the Company's stockholders was approved by at least
two-thirds of the members of the whole board then still in office who were
members of the board at the beginning of such period) cease for any reason to
constitute a majority of the whole board. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have occurred solely as a result of
Electronic Data Systems Corporation (or a
Page 5 of 9
<PAGE>
successor corporation) remaining or becoming the beneficial owner of 50% or more
of the combined voting power of the Company's then outstanding securities.
3.6 Excess Parachute Payment Limit. Notwithstanding anything contained in
-------------------------------
this Agreement to the contrary, in the event that any payment (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
or replaced (the "Code")), or distribution to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise in connection with, or arising out of,
his or her employment with the Company (a "Payment" or "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, interest and penalties collectively referred to as the "Excise
Tax"), then the amount of Payments under this Agreement, when added to all other
Payments to which Executive is entitled, shall be reduced to one dollar ($1.00)
less than three hundred percent (300%) of Executive's Base Amount (as
hereinafter defined) in accordance with Section 280G of the Code. For purposes
of this Section, Executive's "Base Amount" is his average annual taxable
compensation received from the Company for the five (5) calendar years (or such
lesser number which comprises the entire number of years of his employment with
the Company) preceding the calendar year in which a change in the ownership or
effective control of the Company or a change in the ownership of a substantial
portion of the Company's assets occurs (within the meaning of Section 280G(b)(2)
of the Code) occurs.
3.6.1 Excess Parachute Payment Dispute Resolution. UGS shall notify
--------------------------------------------
the Executive in writing within ten (10) days after a notice of termination
is given by the Company or the Executive, of the amounts of payments to be
made by UGS under this Agreement, together with any other payments made or
to be made by the Company to the Executive, that constitute "parachute
payments" (as such terms are defined in Section 280G of the Internal
Revenue Code) and the excess payments and of the amount of the reduction,
if any, required by Section 3.6. Within thirty (30) days after the notice
of termination is given, the Executive shall notify the Company in writing
whether or not he agrees with the Company's calculation of the amount of
parachute payments and excess parachute payments, and the amount of any
reduction. If the executive does not agree with UGS' calculations, the
Executive shall inform the Company of the amounts he believes to be the
correct amounts. If UGS and the Executive cannot agree within forty five
(45) days after the notice of termination is given on the amount of
parachute payments and excess parachute payments, and on the amount of any
reduction, the calculation of such amounts (and reduction) shall be made by
independent tax counsel selected by the Company's independent auditors.
Such determination shall be completed within fifteen (15) days after it is
submitted to such independent counsel and shall be conclusive and binding
on the parties.
3.7 Net Payments. Any amounts required to be paid by UGS to Executive under
-------------
this Section 3 shall be paid net of applicable federal, state and local tax
withholding
3.8 Payment Date. Any amounts required to be paid by UGS to Executive under
-------------
this Section 3 shall be paid in cash in a lump sum on the tenth (10th) day after
the Termination Date. If it is later determined, under the procedure set forth
in Section 3.6.1, that the amount of any reduction is less than that initially
determined by UGS, the Company shall pay the difference to the Executive in cash
within five (5) days after the amount of an reduction is finally determined. If
it is later determined, under the procedures set forth in Section 3.6.1, that
the amount of any reduction is more than that initially determined by UGS, the
Executive shall repay the difference to the Company within five (5) days after
the amount of any reduction is finally determined.
Section 4. Executive's Non-Competition and Non-Solicitation Obligations
------------------------------------------------------------
4.1 Executive's Services for Exclusive Benefit of UGS. While employed by
--------------------------------------------------
UGS, Executive shall devote Executive's full business time and best efforts to
the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of the President and Chief Executive Officer of UGS.
4.2 Surviving Covenants. If Executive's employment at UGS is terminated by
--------------------
either UGS or Executive for any reason except Executive's death, all covenants
set forth in this Section 4 shall survive such termination. While employed by
UGS and for a period of twelve (12) months thereafter, Executive shall not
directly or indirectly, individually or as an employee, contractor, consultant,
partner, officer, director or stockholder (other
Page 6 of 9
<PAGE>
than as a holder of less than five percent of the equity of a publicly traded
company) or in any other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for a
-----------------------------------
Competitor as defined in Section 4.6 below of UGS (i) which are in the
industry(ies) in which Executive performed services for UGS in the most
recent five years of Executive's UGS employment and which are the same or
substantially similar to the duties performed by Executive at UGS; or (ii)
which involve the use of any Confidential Information or Innovations (as
defined in Section 5.8, below) which Executive has received, obtained or
acquired during, or as a consequence of, Executive's employment with UGS.
4.3 Impermissible Conduct Without Proper Approval. During the time of
----------------------------------------------
Executive's employment with UGS and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGS officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGS Employees. Hire, attempt to hire, or assist any
--------------------------
other person or entity in hiring or attempting to hire any current employee
of UGS or any person who was a UGS employee during the prior six-month
period; or
4.3.2 Competition. Solicit, divert, or take away, in competition with
------------
UGS, the business or patronage of any current UGS customer or any
prospective customer with which Executive has had business contact during
his employment at UGS. This restriction shall not apply to any person or
entity who is no longer a customer or prospective customer at the time of
any such solicitation by Executive.
4.4 Automatic Extension of Restrictive Period. Executive agrees that if he
------------------------------------------
acts in violation of Section 4.2 or Section 4.3 of this Agreement, the number of
days that such violation exists will be added to any period of limitations on
the specific activities.
4.5 Executive's Acknowledgment of Reasonableness of Limitations. Executive
------------------------------------------------------------
acknowledges that the limitations set forth in Section 4 of this Agreement, are
reasonable and necessary to protect the valid business interests and goodwill of
UGS. Executive further acknowledges that UGS is engaged in the business of
providing computer-aided design, engineering, and manufacturing products and
services as well as associated product data management products and services to
customers located throughout the United States and the world, and that UGS
actively solicits business and services customers throughout this territory.
4.6 Competitor Defined. As used in this Section 4, the term "Competitor"
-------------------
means an individual, business or any other entity or enterprise engaged in, or
having publicly announced its intent to engage in business that is substantially
similar to UGS' business, or the business of UGS' subsidiaries, partners, or
joint ventures.
Section 5. UGS' Proprietary Rights and Confidential Information
----------------------------------------------------
5.1 Prohibited Use of Confidential Information or Innovations After
---------------------------------------------------------------
Termination. If Executive's employment at UGS is terminated by either UGS or
- ------------
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGS officer, except as may be necessary to perform Executive's
duties for the benefit of UGS during Executive's employment with UGS. The
restrictions set forth in this Section 5.1 will last throughout Executive's
employment with UGS and for a period of 5 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGS Property. Upon termination of Executive's employment,
-----------------------
Executive will promptly return to UGS any and all UGS property in his possession
and/or control, including, but not limited to, UGS hardware, software,
documents, information and materials of any nature pertaining to Executive's
work with UGS, or relating to the business of UGS. Furthermore, Executive will
not take any software, documents or materials or copies thereof containing
Confidential Information or Innovations.
Page 7 of 9
<PAGE>
5.3 Disclosure of Innovations. Executive will promptly disclose to UGS, or
--------------------------
its designees, in writing, all Innovations that Executive, alone or jointly with
others, creates or first reduces to practice during the period of Executive's
employment with UGS.
5.4 UGS' Ownership of Proprietary Rights. Executive hereby assigns and
-------------------------------------
agrees to assign to UGS, its successors and assigns, Executive's entire right,
title and interest in and to: (a) any worldwide patents, patent applications,
copyrights, trade secrets and other intellectual property rights in any
Innovations; and (b) any Moral Rights that Executive may have in or with respect
to any Innovations. Executive also waives and agrees never to assert any Moral
Rights Executive may have in or with respect to any Innovations, even after
termination of Executive's employment with UGS.
5.5 Protection of Proprietary Rights. Executive shall do all lawful things
---------------------------------
to assist UGS in obtaining and enforcing patents, copyrights, trade secret
rights, and other legal protections of UGS' Innovations in any country.
Executive will execute any documents that UGS may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this Section will continue
beyond the termination of Executive's employment with UGS.
5.6 Use of Executive's Likeness. Executive authorizes UGS to use, reuse,
----------------------------
and to reasonably grant others the right to use and reuse, without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice, and biographical information, and any reproduction or simulation thereof,
in any media now known or hereafter developed, for valid business purposes of
UGS.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
---------------------------------------------------
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGS. Executive further acknowledges that UGS is in an industry in which both the
creation and use of information and innovation is critical to business success,
and that the protection of that information/innovation is a valid interest of
UGS. Executive further acknowledges that signing this Agreement is required for
his having access to UGS' confidential business and technological information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
------------
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGS, its parent,
subsidiaries or affiliates or relating to UGS' business, technology, customers,
vendors, or any other party with whom UGS agrees to hold information of such
party in confidence, which is not generally available to the public. Also, as
used in this Section 5, "Innovations" means all developments, improvements,
designs, original works of authorship, formulas, processes, software programs,
databases and trade secrets that relate to any services, product, systems or
other business(es) of UGS, whether or not patentable, copyrightable or
protectable as trade secrets, that Executive, alone or jointly with others,
creates or first reduces to practice during the period of Executive's employment
with UGS. Furthermore, "Moral Rights" means any right to claim authorship of a
work of authorship, to object to or prevent the modification of any such work of
authorship, or to withdraw from circulation or control the publication or
distribution of any such work of authorship. For purposes of all provisions in
this Section 5, "UGS" mean UGS, its parent, subsidiaries or affiliates.
Section 6. Miscellaneous
-------------
6.1 Exclusion of Property of Others. Executive will not bring to UGS or use
--------------------------------
in the performance of his duties any documents or materials of a former employer
that are not generally available to the public or that have not been legally
transferred to UGS.
6.2 Agreement to Testing for Controlled Substances. Executive understands
-----------------------------------------------
and agrees that, from time to time, Executive may be tested to detect the
presence or absence of any illegal drugs or controlled substances and that the
results of any such tests shall be released to UGS.
6.3 Successors and Assigns. This Agreement shall be binding upon and inure
-----------------------
to the benefit of any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of UGS
by any means whether direct or indirect, by purchase, merger, consolidation, or
otherwise, in the same manner and to the same extent that UGS would be obligated
under this Agreement if no succession had taken place. Executive's rights and
obligations under this Agreement are personal and such rights, benefits, and
obligations
Page 8 of 9
<PAGE>
of Executive shall not be voluntarily or involuntarily assigned, alienated, or
transferred by Executive, whether by operation of law or otherwise, without the
prior, written consent of an officer of UGS.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation from
-------------------------------------
employment, UGS is authorized to deduct from Executive's final wages or other
monies due Executive any debts or amounts owed to UGS by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any provision
---------------------------------------
contained in this Agreement is too broad to permit enforcement of such provision
to its full extent, then such provision shall be enforced to the maximum extent
permitted by law, and the parties hereby consent that such provision may be
reformed or modified accordingly, and enforced as reformed or modified, in any
proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
----------------------------------
that UGS would be irreparably damaged and that money damages cannot fully
compensate UGS in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGS shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted in
-------------
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
6.8 Jurisdiction. Any action or proceeding arising out of or relating to
-------------
this Agreement may be commenced in any court of competent jurisdiction in St.
Louis County, Missouri, and shall be governed by and interpreted under the laws
of Missouri.
6.9 Modification or Amendment. This Agreement may not be modified or
--------------------------
amended except by a written instrument executed by Executive and an authorized
officer of UGS.
IN WITNESS WHEREOF, Unigraphics Solutions Inc., Electronic Data Systems
Corporation, and Executive have executed this Personal Service Agreement to be
effective as of the Effective Date.
Agreed to this 20th day of January, 2000 by and among:
EXECUTIVE
By:
---------------------------
[insert name of Executive]
Agreed to By UNIGRAPHICS SOLUTIONS INC.
Electronic Data Systems Corporation
For Purposes of Sections 2.4, 3.3.3(c),
and 3.4.3 only
By: By:
------------------------------ ----------------------------
Richard L. deNey John J. Mazzola, President and
Vice Chairman of the Board Chief Executive Officer
Page 9 of 9
<PAGE>
EXHIBIT 21.1
LISTING OF SUBSIDIARIES
Unigraphics Solutions AG, a Switzerland corporation
Unigraphics Solutions Asia/Pacific Incorporated, a Delaware corporation
Unigraphics Solutions (Australia) Pty. Ltd., an Australia corporation
Unigraphics Solutions (Austria) Handelsgesellschaft m.b.H., an Austria
corporation
Unigraphics Solutions B.V., a Netherlands corporation
Unigraphics Solutions Canada Ltd., a Canada corporation
Unigraphics Solutions Danmark A/S, a Denmark corporation
Unigraphics Solutions de Mexico, S.A. de C.V., a Mexico corporation
Unigraphics Solutions do Brasil Ltda., a Brazil corporation
Unigraphics Solutions Espana, S.A., a Spain corporation
Unigraphics Solutions France S.A.S., a France corporation
Unigraphics Solutions GmbH, a Germany corporation
Unigraphics Solutions (HK) Limited, a Hong Kong corporation
Unigraphics Solutions International Inc., a Delaware corporation
Unigraphics Solutions Japan, Ltd., a Japan corporation
Unigraphics Solutions Korea Ltd., a Korea corporation
Unigraphics Solutions Limited, an England corporation
Unigraphics Solutions (Malaysia) Sdn. Bhd., a Malaysia corporation
Unigraphics Solutions Norge AS, a Norway corporation
Unigraphics Solutions N.V., a Belgium corporation
Unigraphics Solutions Pte. Limited, a Singapore corporation
Unigraphics Solutions S.p.A., an Italy corporation
Unigraphics Solutions Sp.z.o.o., a Poland corporation
Unigraphics Solutions s.r.o., a Czech Republic corporation
Unigraphics Solutions Sverige AB, a Sweden corporation
Unigraphics Solutions (Thailand) Co., Ltd., a Thailand corporation
Unigraphics Solutions Inc. does business under various assumed/fictitious names,
as follows: EDS Unigraphics Solutions Inc.--in California; EDS Unigraphics
Solutions--in Vermont.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Unigraphics Solutions Inc.
We consent to incorporation by reference in the registration statements on
Form S-8 (Nos. 333-57485, 333-75975, 333-75979, 333-90641, 333-33384, 333-33386)
of Unigraphics Solutions Inc. of our report dated February 7, 2000, relating to
the consolidated balance sheets of Unigraphics Solutions Inc. and Subsidiaries
as of December 31, 1999, and 1998, and the related consolidated statements of
operations, stockholders' equity/net investment and comprehensive income, and
cash flows for each of the years in the three-year period ended December 31,
1999, and the related schedule, which report appears in the December 31, 1999,
Annual Report on Form 10-K of Unigraphics Solutions Inc.
KPMG LLP
St. Louis, Missouri
March 30, 2000
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ John A. Adams
-------------------------------
John A. Adams
Director
Page 1 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ Paul J. Chiapparone
---------------------------------
Paul J. Chiapparone
Director
Page 2 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ Richard L. deNey
---------------------------------
Richard L. deNey
Vice Chairman of the Board and
Director
Page 3 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ J. Davis Hamlin
---------------------------------
J. Davis Hamlin
Director
Page 4 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ Jeffrey M. Heller
---------------------------------
Jeffrey M. Heller
Chairman of the Board and Director
Page 5 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ Leo J. Thomas
------------------------------
Leo J. Thomas
Director
Page 6 of 7
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Unigraphics Solutions Inc., a Delaware
corporation ("UGS"), hereby constitute and appoint John J. Mazzola, Douglas E.
Barnett, and J. Randall Walti, and each of them, my true and lawful
attorneys-in-fact and agents, with full power to them and each of them to sign
for me, and in my name and the capacity indicated below, UGS' Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and any and all
amendments thereto, with power to file said Form 10-K and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
thereof.
Dated: March 1, 2000 By: /s/ William P. Weber
---------------------------------
William P. Weber
Director
Page 7 of 7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 20,696 20,740
<SECURITIES> 0 8,092
<RECEIVABLES> 131,010 113,249
<ALLOWANCES> 5,312 5,870
<INVENTORY> 0 0
<CURRENT-ASSETS> 155,575 142,594
<PP&E> 70,241 59,495
<DEPRECIATION> 37,131 33,028
<TOTAL-ASSETS> 273,610 257,653
<CURRENT-LIABILITIES> 114,988 113,343
<BONDS> 35,220 55,130
0 0
0 0
<COMMON> 363 363
<OTHER-SE> 123,039 88,817
<TOTAL-LIABILITY-AND-EQUITY> 274,277 257,653
<SALES> 233,745 216,451
<TOTAL-REVENUES> 467,950 403,571
<CGS> 71,184 90,026
<TOTAL-COSTS> 167,251 163,925
<OTHER-EXPENSES> 240,738 242,191
<LOSS-PROVISION> 1,767 2,384
<INTEREST-EXPENSE> 1,803 4,482
<INCOME-PRETAX> 65,233 7,491
<INCOME-TAX> 23,484 1,253
<INCOME-CONTINUING> 41,749 6,238
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 41,749 6,238
<EPS-BASIC> 1.15 0.18
<EPS-DILUTED> 1.14 0.18
</TABLE>
