Financial Update: Unigraphics Reports Software Revenue Growth. Cisco Will Buy NuSpeed For $450 Million. Immersion To Buy VTi.

August 4, 2000

SHORT TAKES

UNIGRAPHICS REPORTS SOFTWARE REVENUE GROWTH

St. Louis, MO — Unigraphics Solutions Inc., a leading provider of collaborative product development software and services, announces financial results for the second quarter and six months ended June 30, 2000. Software revenue advanced 21% and total revenue rose 15% during the first six months of 2000, compared to the same period in 1999. Asia/Pacific software revenue increased 37% and the Americas grew 26%. The European growth of 10% was slowed by the unfavorable exchange rate of the Euro against the dollar. On a constant currency basis, European software growth was 23%. Net income was $25.4 million or $.69 per share for January through June, as compared to $23.9 million or $.66 per share for the first half of 1999. Net income, including goodwill and other non-operating items, for the first half of 2000 was $22.3 million, an increase of $4 million or 22% over $18.3 million for the same period last year. Earnings per share for the first six months was $.60 compared to $.50 in 1999.

Second quarter revenue, excluding a 40% decline in hardware, grew 19% over the 1999 comparable period. Software revenue increased 13% (17% when adjusted for unfavorable exchange rates) during the quarter. Net income was $13.6 million or $.37 per share for the second quarter as compared to $12.2 million or $.34 per share for the same period in 1999. Net income, including goodwill and other non-operating items, increased by $2.8 million to $11.9 million. Earnings per share was $.32 compared to $.25 for the second quarter of 1999. “We are very pleased with our performance during the first six months of the year,” says Tony Affuso, president and CEO of Unigraphics Solutions. “Our first half 21% software growth, in spite of some European exchange rate difficulties, is very impressive. Our 83% increase in PDM revenues is outstanding. The 38% increase in professional services revenue highlights a growing consultative and mentoring role in the implementation and integration of customer applications.” A major highlight of the quarter was the signing of a three-year, $139 million software and services contract with General Motors Corporation enabling the creation of the world’s largest collaborative engineering network. This unique environment provides GM’s product teams, located around the globe, with simultaneous access to an unprecedented amount of digital vehicle information. Not only does the contract renew GM’s commitment to UGS’ Unigraphics high-end CAD/CAM/CAE software as its corporate standard, but it also includes a major endorsement of iMAN, UGS’ Internet-centric product content management application and the foundation for UGS’ c-Commerce (collaborative-commerce) strategy.

CISCO AGREES TO BUY NUSPEED FOR $450 MILLION

Palo Alto, CA — Cisco Systems Inc., maker of computer networking equipment, said it would acquire NuSpeed Internet Systems, whose technology links storage networks with communications networks, for $450 million in stock. It is the 15th acquisition announced by Cisco this year and the second this week, as the company continues to expand its product portfolio by acquiring technology it has neither the time nor the ability to develop internally. Cisco said it would exchange about $450 million worth of its shares for all outstanding shares and options of Maple Grove, Minn.-based NuSpeed. Cisco said it would take a one-time write-off of 3 cents a share for purchased in-process research and development. Due to the explosive growth of the Internet and the digitization of myriad data, storage area networks, or SANs, have seen torrid growth, benefiting such firms as EMC Corp., Network Appliance Inc., Veritas Software Inc. and others. Cisco said that with NuSpeed’s technology, it can put data and storage networks on one infrastructure.

San Jose, Calif.-based Cisco said the deal would be accounted for as a purchase and was expected to close in the first quarter of fiscal 2001. The boards of both companies have approved the deal, which is subject to various closing conditions. Shares of Cisco closed down 9/16 at 68 in Nasdaq trading on Thursday, against a 52-week high of 82 and a 52-week low of 28-1/16. On Tuesday, Cisco said it agreed to buy Los Gatos, Calif.-based Komodo Technology Inc., a closely held developer of device that allow traditional analog telephones to make calls over the Internet, for $175 million in stock. Cisco has said it plans to buy 20 to 25 companies this year.

IMMERSION TO BUY LEADER IN 3D HAPTIC SIMULATION

San Jose, CA — Immersion Corporation, a pioneering developer of touch-interaction technology, announced that it has entered into definitive agreements to acquire Virtual Technologies, Inc. (VTi), of Palo Alto, CA, for a combination of cash and Immersion common stock currently valued between $8,000,000 and $10,000,000. VTi is a leading developer of state-of-the-art whole-hand sensing, force-feedback and real-time 3D-interaction technologies that allow the user to “reach in” and physically interact with simulated computer content. These technologies are intended for mechanical-CAD evaluation, simulation-based training and 3D e-commerce. The transaction is subject to shareholder approval and other customary closing conditions. Under the terms of the proposed acquisition, VTi will become a wholly owned subsidiary of Immersion and will continue operations in Palo Alto. “Combining our resources with an established vertical-market leader like VTi is an exciting prospect for Immersion,” says Immersion CEO, Dr. Louis Rosenberg. “Merging with them will help us to bring TouchSense technology to new and broader markets.”

“VTi has been developing advanced human-interface technologies for many years, and has created a wide range of quality products for vertical market applications. We are excited about the pending merger with Immersion since it will help us deploy these innovations across a wider range of markets,” said VTi CEO and founder Dr. James Kramer. “Teaming with Immersion will expand our combined leadership in 3D-interaction and haptic technologies.” VTi will continue to sell its popular CyberGlove line of whole-hand-interaction gloves and 3D-interaction software products, designed to manipulate objects in 3D environments. VTi will also work with Immersion to market these products into a higher volume consumer arena. Visit http://www.virtex.com for more information.

STORAGE TECHNOLOGY REPORTS QUARTERLY PROFIT

New York, N.Y. — Struggling data-storage equipment maker Storage Technology Corp. reported second-quarter earnings of $8.7 million before unusual items, its first operating profit in nine months and much better than Wall Street had expected. The news set StorageTek shares jumping on the New York Stock Exchange. The shares were up 2-1/8, or more than 20 percent, at 12-1/4 in early-afternoon trade. Patrick Martin, StorageTek’s new chief executive, said the company’s first operating profit since the 1999 third quarter – and first net profit since the 1999 first quarter – was due to improved revenues and gross margins and control of operating expenses. Chief Financial Officer Robert Kocol said, “The balance sheet clearly shows that our restructuring plans are succeeding…We are well on our way to achieving the $100 million in restructuring savings we projected for fiscal 2000.” On a per-share basis, operating profits were 9 cents in the second quarter. Analysts’ consensus forecast was 5 cents, according to First Call/Thomson Financial, which tracks analysts’ estimates.

After one-time, pre-tax restructuring charges of $12.4 million, second-quarter net income was $651,000, or 1 cent per share, the company said. For the 1999 second quarter, Louisville, Colo.-based StorageTek reported a net loss of $38.5 million, or 38 cents per share, including litigation expenses of $82.3 million and restructuring costs of $20.2 million. Operating earnings in the 1999 second quarter were $27.2 million, or 27 cents per share. Second-quarter revenues declined to $512.5 million from $654.4 million a year earlier. Martin, a former Xerox Corp. executive, was named president, chief executive and chairman of StorageTek less than three weeks ago, charged with leading the company back into the black after a troubled period that saw 1,200 job losses worldwide.

NORTEL WINS $300 MILLION OPTICAL, DATA SUPPLY DEAL

Ottawa, CANADA — Nortel Networks Corp., the world’s No. 2 network equipment supplier, said on Tuesday it had won a $300 million deal to supply ClearData Communications Inc. with optical and data network equipment. Under the three-year deal, Nortel will become the main supplier and integrator for a nation-wide network being built in the United States by ClearData, a privately-held data communications service provider.

Plans for the optical network include Internet data centers which host Web sites or applications that run Internet commerce, trading and businesses. Nortel will supply optical equipment for metropolitan and long-haul systems, data networking equipment, Internet data center technology, service management software and professional services.

CALDERA BUYS SCO UNIX & PROFESSIONAL SERVICES

San Diego, CA — It’s the beginning of a new era and the end of an old one. Caldera, a leading Linux distributor, bought the Server (Unix) and Professional Services Division of Santa Cruz Operations (SCO), the long-standing leader of Intel Unix. With this single move, Linux and Unix are unified for the first time under one company. The enterprise operating system world will never be the same. The two companies have been close to a deal for weeks. In the end, Caldera gained not only the Unix-on-Intel Server Software Division–which consists of UnixWare and OpenServer along with SCO’s existing reseller partnerships and contracts in SCO’s traditional global markets of small and midsize businesses, retail, telecommunications and government – but also the Professional Services division, as well.

This Professional Services division provides consulting, support and installation/integration support to both direct customers and SCO’s partners. This division, under Jim Wilt, current president of the SCO Professional Services division, will operate as a separate business unit of Caldera. As for joining together time-tested Unix and low-cost, open-source Linux, Caldera states that it offer the industry’s first comprehensive Open Internet Platform (OIP) combining Linux and Unix server solutions and services globally. Specifically, that will include Caldera’s Linux line and SCO’s OpenServer and UnixWare lines. The combined OIP product line will be unveiled at SCO’s premier partner show, Forum2000, on Aug. 23 and made available through SCO and Caldera’s existing 15,000 worldwide partners. The fine print Caldera Systems is forming a new holding company, Caldera Inc., to acquire the two divisions. This deal includes those division’s employees, products and channel resources. In the deal, SCO will receive 28 percent of Caldera Inc. This is estimated to be an aggregate of approximately 17.54 million shares of Caldera stock (including approximately 2 million SCO options shares reserved for SCO employees joining Caldera), and $7 million in cash. Simultaneously, Ray Noorda’s venture capital firm, The Canopy Group, Caldera Systems’ major stockholder, has agreed to loan $18 million to SCO. Presuming that Caldera, Inc.’s stock is valued at $5.00 a share–the average price of Caldera Systems and SCO stock before the market opens on Aug. 2 – the deal is worth approximately $84 million in stock for a total, not counting the loan, of $91 million.

MERCURY COMPUTER SYSTEMS REPORTS RECORD YEAR

Chelmsford, MASS. — Mercury Computer Systems, Inc. reported results for the fourth quarter and fiscal year ended June 30, 2000. Posting its 38th consecutive quarter of profitability, revenues for the fourth quarter rose 19% to $35.3 million from $29.7 million in the fourth quarter of 1999, and represented a 9% increase over the immediately preceding third quarter fiscal 2000 revenue of $32.4 million. Net income for the quarter increased 4% to $4.7 million, or $0.20 per share (diluted), from $4.5 million, or $0.21 per share (diluted), the same quarter last year when net income was extraordinarily high. Order flow for the fourth quarter was a very strong. Fiscal 2000 was an outstanding performance year for the company with revenues increasing 32% from $106.6 million to $140.9 million. For the year, operating income grew 80% from the prior year, representing 24% of total revenues. The company’s net income for fiscal 2000 rose 85% to $24.9 million from $13.5 million for the previous year, representing 18% of total revenues. Earnings per share increased 77% from $0.62 (diluted) per share in fiscal 1999 to $1.10 (diluted) per share this year. The company generated approximately $33 million in cash from operations during the fiscal year. In addition to the strong financial performance, the company began production shipments of its newest generation RACE++ product line, systems based on the Motorola PowerPC “G4” microprocessor, and a new version of its real-time operating environment, MC/OS. And, it made significant investments in new technology and markets that will support its continued growth in the future.

“Fiscal year 2000 was another exceptional year – a record year – for Mercury,” said Jay Bertelli, president and CEO of Mercury Computer Systems. “Mercury’s strong year-to-year performance resulted from substantial growth in each of its core businesses. The company started the fiscal year with a record backlog of $52.9 million and experienced a very strong bookings year, ending the year with an even larger backlog of $57.0 million. The company’s growth and success is a direct result of the significant investments made over the last couple of years in developing its technology, products and markets. As planned, the company made significant investments in fiscal 2000 to position the company for future growth and it still managed to show growth in earnings.” During the fourth quarter the company recorded 16 new program wins within the worldwide defense electronics sector. The initial contract value from the latest design wins totaled in excess of $5.5 million. The five-year potential revenue from these programs is estimated to be in excess of $46.5 million if they were all to go to full deployment. Most notable among the fourth quarter program awards was a $6.8 million contract with Northrop Grumman for the advanced agile beam fire control radar and the forward-looking infrared targeting system (IFTS) on the F-16 fighter aircraft. With over 4,000 F-16s in use by air forces around the world, this collaboration represents potentially tens of millions of dollars in new revenue over the next five to seven years.

LINUXCARE COMPLETES THIRD FUNDING ROUND

San Francisco, CA — Linuxcare, Inc., a recognized leader in providing comprehensive professional services and solutions for Linux and open-source technologies, has raised $30 million in its third funding round, led by Lehman Brothers Venture Capital. Linuxcare’s Series C round will fuel development and expansion of its four-pronged services, support, education and certification business model. With this funding round, Linuxcare’s corporate partners Dell Ventures, the strategic investment arm of Dell Computer Corp., Motorola, Inc. and Sun Microsystems, Inc. all increased their existing investments. ITOCHU International, Inc. ( http://www.itochu.com ), the North American subsidiary of ITOCHU Corp. – a diversified trading company with offices in over 80 countries and currently the tenth largest company in the world – has signed on as one of Linuxcare’s newest corporate investors.

“The Global 2000 companies are rapidly moving toward the use of Linux and open-source products in their mission-critical environments,” said Tom Banahan, managing director, Lehman Brothers Venture Capital. “Linuxcare continues to demonstrate the growth, innovation and technical expertise required to meet the evolving needs of open-source technology customers. Lehman Brothers is excited to partner with the Linuxcare team.” Since its second round of equity financing, announced Dec. 14, 1999, Linuxcare has been steadily expanding its service offerings. The third-round financing will be used for working capital and continued expansion of the company’s solution offerings.

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