<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-8722
THE MACNEAL-SCHWENDLER CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2239450
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
815 Colorado Boulevard, Los Angeles, California 90041
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (213) 258-9111
------------------------
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
----- -----
The number of shares outstanding of Registrant's Common Stock, par
value $.01 per share, was 13,421,041 shares at December 8, 1995.
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets (Unaudited) -
October 31, 1995 and January 31, 1995......................3
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended October 31, 1995 and 1994......4
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended October 31, 1995 and 1994................5
Notes to Consolidated Financial Statements
(Unaudited)................................................6
Item 2.
Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K......................10
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1995 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,244,000 $6,944,000
Short-term investments 7,003,000 7,075,000
Trade accounts receivable, net 27,688,000 33,822,000
Other current assets 10,817,000 10,557,000
------------ ------------
Total current assets 50,752,000 58,398,000
Property and equipment, net 11,588,000 10,272,000
Capitalized software costs, net 28,654,000 26,694,000
Goodwill and other intangibles, net 18,046,000 19,451,000
Other assets 4,665,000 3,936,000
------------ ------------
$113,705,000 $118,751,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,581,000 $2,679,000
Note payable 2,500,000 0
Accrued liabilities 13,728,000 19,440,000
Merger related costs 2,687,000 5,817,000
Deferred income 11,800,000 12,913,000
Dividends payable 2,145,000 2,141,000
Income taxes payable 1,499,000 0
------------ ------------
Total current liabilities 35,940,000 42,990,000
Deferred income taxes 7,023,000 6,810,000
Convertible Subordinated Debentures 56,576,000 56,576,000
Commitments
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; no shares outstanding
at October 31, 1995 or January 31, 1995 -- --
Common stock, $0.01 par value,
100,000,000 shares authorized;
13,407,000 and 13,380,000 issued and
outstanding at October 31, 1995 and
January 31, 1995, respectively 29,667,000 29,366,000
Retained deficit (12,994,000) (16,580,000)
Accumulated translation adjustment (2,507,000) (411,000)
------------ ------------
Total shareholders' equity 14,166,000 12,375,000
------------ ------------
$113,705,000 $118,751,000
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Solver $17,867,000 $16,776,000 $54,638,000 $50,441,000
Modeling 12,548,000 8,681,000 33,498,000 12,844,000
Other 1,593,000 2,198,000 6,408,000 5,140,000
----------- ----------- ----------- -----------
Total revenue 32,008,000 27,655,000 94,544,000 68,425,000
Operating expenses:
Cost of revenue 4,629,000 3,132,000 13,175,000 6,670,000
Goodwill amortization 447,000 331,000 1,406,000 331,000
Research and development 5,166,000 6,016,000 16,621,000 15,786,000
Selling, general and administrative 15,530,000 15,567,000 45,712,000 34,982,000
In-process research & development -- 35,000,000 -- 35,000,000
Merger related costs -- 8,962,000 -- 8,962,000
----------- ------------ ----------- ------------
Total operating expense 25,772,000 69,008,000 76,914,000 101,731,000
Operating income (loss) 6,236,000 (41,353,000) 17,630,000 (33,306,000)
Other income (expense), net (93,000) 177,000 558,000 463,000
Interest expense (1,114,000) (853,000) (3,350,000) (853,000)
----------- ------------ ----------- ------------
Income (loss) before income taxes 5,029,000 (42,029,000) 14,838,000 (33,696,000)
Provision for income taxes 1,498,000 302,000 4,823,000 2,998,000
----------- ------------ ----------- ------------
Net income (loss) $3,531,000 ($42,331,000) $10,015,000 ($36,694,000)
=========== ============ =========== ============
Primary earnings (loss) per share $0.26 ($3.16) $0.74 ($2.74)
=========== ============ =========== ============
Fully Diluted earnings (loss) per share $0.24 ($3.16) $0.71 ($2.74)
=========== ============ =========== ============
Weighted average number of
common shares outstanding 13,476,000 13,390,000 13,464,000 13,390,000
=========== ============ =========== ============
Cash dividends declared $0.16 $0.16 $0.48 $0.48
=========== ============ =========== ============
</TABLE>
See accompanying notes.
4
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31
-----------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $10,015,000 ($36,694,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Charge for purchased research and development -- 35,000,000
Depreciation and amortization 4,222,000 5,442,000
Amortization of capitalized software 6,546,000 4,772,000
Amortization of goodwill and other intangibles 1,476,000 331,000
Amortization of organization costs 234,000 0
Deferred income taxes 213,000 (6,381,000)
Loss (gain) on disposal of property and equipment (20,000) 48,000
Increase (decrease) from changes in:
Accounts receivable, net 6,134,000 (3,973,000)
Other current assets (260,000) 4,564,000
Accounts payable (1,098,000) (1,210,000)
Accrued liabilities (5,712,000) (4,887,000)
Merger related costs (3,130,000) 11,247,000
Deferred income (1,113,000) (931,000)
Income taxes payable 1,499,000 650,000
----------- ------------
Net cash provided by operating activities 19,006,000 7,978,000
Cash flows from investing activities:
Acquisition of property and equipment (5,586,000) (1,902,000)
Purchase of PDA Engineering, net of cash acquired -- (2,152,000)
Purchase of software (667,000) 0
Capitalized software costs (7,839,000) (6,372,000)
Decrease (increase) in short-term investments 72,000 7,355,000
Decrease (increase) in other assets (964,000) 648,000
----------- ------------
Net cash used in investing activities (14,984,000) (2,423,000)
Cash flows from financing activities:
Payments of long-term debt 0 (9,000)
Proceeds from capital stock issued 301,000 36,000
Proceeds from short term borrowings 2,500,000 0
Cash dividends paid (6,427,000) (6,422,000)
Foreign currency translation adjustment (2,096,000) 194,000
----------- ------------
Net cash used by financing activities (5,722,000) (6,201,000)
----------- ------------
Net decrease in cash and equivalents (1,700,000) (646,000)
Cash and cash equivalents at the beginning of the period 6,944,000 10,106,000
----------- ------------
Cash and cash equivalents at the end of the period $5,244,000 $9,460,000
=========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial information is condensed from
that which would appear in the annual financial statements and should be read
in conjunction with the January 31, 1995 consolidated financial statements
included in The MacNeal-Schwendler Corporation's Annual Report on Form 10-K
for the year ended January 31, 1995.
Supplemental cash flow information for taxes paid during the nine months
ended October 31, 1995 and 1994 were $1,143,000 and $1,741,000, respectively.
Additionally, the Company paid interest of $4,737,000 on its Convertible
Subordinated Debentures due 2004 during the nine months ended October 31,
1995.
Fully diluted earnings per share were $0.24 and $0.71 for the three and
nine months ended October 31, 1995, respectively. Fully diluted earnings per
share is calculated by dividing earnings before debenture interest by the
weighted average number of shares of Common Stock outstanding during the
period, adjusted for the pro forma effects of stock option exercises and
debenture conversions. Weighted average shares outstanding used in the
calculation of fully diluted earnings per share were 17,210,000 and
17,198,000, respectively.
All interim financial data is unaudited but, in the opinion of
management, reflects all adjustments necessary for a fair presentation
thereof. However, it should be understood that accounting measurements at
interim dates may be less precise than at year end. Operating results for the
three and nine month periods ended October 31, 1995 are not necessarily
indicative of the results that may be expected for the year ended January 31,
1996.
Certain reclassifications have been made to the financial information
for the three and nine months ended October 31, 1994 in order to conform to
the October 31, 1995 presentation.
NOTE 2: CAPITALIZED SOFTWARE
The components of net capitalized software costs include:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
------------------------------ -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Software costs capitalized $(2,767,000) $(3,010,000) $(7,839,000) $(6,372,000)
Amortization of capitalized software 2,367,000 2,210,000 6,546,000 4,772,000
----------- ----------- ----------- -----------
Net capitalized software costs $(400,000) $(800,000) $(1,293,000) $(1,600,000)
=========== =========== =========== ===========
</TABLE>
Amortization of capitalized software is included in Cost of Revenue.
6
<PAGE>
NOTE 3: ACCRUED LIABILITIES
The components of accrued liabilities are as follows:
OCTOBER 31, JANUARY 31,
1995 1995
----------- -----------
Compensation and related expenses $4,417,000 $3,375,000
Contribution to profit sharing plan 1,996,000 2,333,000
Commissions payable 1,883,000 2,500,000
Retirement benefits 1,590,000 1,338,000
Royalties payable 1,098,000 2,641,000
Debenture interest payable 571,000 1,967,000
Other 2,173,000 5,286,000
----------- -----------
$13,728,000 $19,440,000
=========== ===========
7
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED OCTOBER 31, 1995
The Company's revenues for the third quarter ended October 31, 1995
increased 16% to $32,008,000 compared to $27,655,000 in the same period last
year. The growth in revenue is a combination of two major factors: the growth
of modeling software revenues, principally MSC/PATRAN, and the introduction
of the Company's new PC based solver, MSC/NASTRAN for Windows. Revenues from
MSC/PATRAN were $10,942,000, while MSC/NASTRAN for Windows generated
revenues of $1,271,000. Quarterly revenue comparisons are slightly skewed by
the acquisition of PDA Engineering during the third quarter of the prior
year. North America revenues of $13,767,000 accounted for 43% of total third
quarter revenues, and international revenues accounted for $18,241,000, or
57% of total revenues.
Cost of revenue increased $1,497,000, or 48%, as a result of increased
amortization of capitalized software costs, increased royalty expenses
associated with several products including MSC/PATRAN, MSC/MVISION, and
MSC/NASTRAN for Windows, and increased shipping and material costs with the
assimilation of PDA and its products into the Company. Research and
development costs decreased $850,000, or 14%, due primarily to the
restructuring of the MSC/ARIES development group, which occurred this
quarter, and normal attrition. Selling, general and administrative costs were
comparable to the prior period. Total expenses for our third fiscal quarter
compare favorably to the prior year period as a result of various one-time
charges associated with the acquisition of PDA Engineering, including an
in-process research and development charge of $35,000,000, and merger related
charges of $8,962,000. Excluding the effects from one-time charges in the
prior year period, operating expenses increased 13% to $25,772,000.
The Company's resulting income from operations for the quarter ended
October 31, 1995 was $6,236,000, representing a 30% increase over income from
continuing operations of $4,785,000 during the third quarter last year.
Nonoperating income and expense increased primarily due to interest
expenses incurred during the current quarter related to the debentures issued
in connection with the acquisition of PDA Engineering during the third
quarter of the prior year.
Net income was $3,531,000 compared to a net loss of $42,331,000 in the
prior year. Earnings per share for the three months ended October 31, 1995
were $0.26 compared to a net loss per share of $3.16 for the three months
ended October 31, 1994. Excluding one-time charges, net income was $3,531,000
compared to $2,774,000 in the prior year, and earnings per share were $0.26
and $0.21, respectively.
NINE MONTHS ENDED OCTOBER 31, 1995
Combined revenues for the nine months ended October 31, 1995 were
$94,544,000, a 38% increase compared with $68,425,000 in the same period last
year. The growth in revenues is a combination of two major factors: the
addition of MSC/PATRAN and MSC/MVISION as a result of the acquisition of PDA
Engineering, and the introduction of the Company's new PC based solver,
MSC/NASTRAN for Windows. Revenues from MSC/PATRAN and MSC/MVISION were
$29,520,000, while MSC/NASTRAN for Windows generated revenues of $2,673,000.
With the additions of MSC/PATRAN and MSC/MVISION, the Company's modeling
software sales nearly tripled during the current period. North America
revenues of $41,065,000 accounted for 43% of total revenues, and
international revenues accounted for $53,479,000, or 57% of total revenues
through October 31, 1995.
Cost of revenue increased $6,505,000, or 98%, as a result of increased
amortization of capitalized software costs, increased royalty expenses
associated with several products including MSC/PATRAN,
8
<PAGE>
MSC/MVISION, MSC/NASTRAN for Windows and MSC/ABAQUS, and increased shipping
and material costs with the assimilation of PDA and its products into the
Company. Research and development costs increased $835,000, or 5%, due to
additional development staff added as a result of the acquisition of PDA.
Selling, general and administrative costs increased $12,906,000 due to
increased staff as a result of the PDA acquisition, primarily in North
America and Europe, increased meeting, travel and relocation costs associated
with organizing the combined sales force following the PDA acquisition, and
increased commission expenses incurred related to third party agent sales of
PDA products internationally. Operating expenses in the prior year were
negatively affected by one-time charges associated with the acquisition of
PDA Engineering, including a charge to in-process research and development of
$35,000,000, and merger related charges of $8,962,000. Excluding the effects
from one-time charges in the prior year, total operating expenses for the
nine months ended October 31, 1995 increased 38% to $76,914,000.
The Company's resulting income from operations for the nine months ended
October 31, 1995 was $17,630,000, representing a 37% increase over income
from continuing operations of $12,832,000 during the same period last year.
Nonoperating income and expense increased primarily due to interest
expenses incurred during the current quarter related to the debentures issued
in connection with the acquisition of PDA.
The Company's net income was $10,015,000 compared to a net loss of
$36,694,000 in the prior year. Earnings per share for the nine months ended
October 31, 1995 were $0.74 compared to a net loss per share of $2.74 for the
nine months ended October 31, 1994. Excluding one-time charges, net income
was $10,015,000 compared to $8,411,000 in the prior year, and earnings per
share were $0.74 and $0.63, respectively.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital base was $14.8 million as of October 31,
1995. Cash flows from operations were $19.0 million during the first three
quarters of fiscal 1996, $11.0 million higher than in the same period in the
prior year, primarily due to increases in non-cash expenses, principally
amortization of capitalized software, goodwill, and other intangibles, and
the reduction of outstanding trade receivables. Cash used in investing
activities increased by $12.6 million primarily due to increased investment
in capital equipment, increased capitalization of software costs, and the
liquidation of marketable securities in the prior year period as a result of
the acquisition and absorption of PDA Engineering. Cash used by financing
activities decreased by $0.5 million due to proceeds from borrowings against
the Company's bank line of credit, offset by a negative fluctuation in
foreign currency translation. The Company believes that its working capital
and internally generated funds and borrowings under its line of credit are
sufficient to meet its working capital and capital expenditure requirements
over the next twelve months.
A dividend payment of $0.16 per share is payable on December 6, 1995 to
shareholders of record on November 17, 1995.
9
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MACNEAL-SCHWENDLER CORPORATION
----------------------------------
(Registrant)
Date: December 14, 1995
-----------------
/s/ Louis A. Greco
---------------------------------------
Louis A. Greco, Chief Financial Officer
(Mr. Greco is the Principal Financial
and Accounting Officer and has been
duly authorized to sign on behalf of the
registrant.)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 4,236
<SECURITIES> 7,038
<RECEIVABLES> 30,094
<ALLOWANCES> (2,406)
<INVENTORY> 0
<CURRENT-ASSETS> 50,752
<PP&E> 29,360
<DEPRECIATION> (17,772)
<TOTAL-ASSETS> 113,705
<CURRENT-LIABILITIES> 35,940
<BONDS> 56,576
<COMMON> 29,667
0
0
<OTHER-SE> (15,501)
<TOTAL-LIABILITY-AND-EQUITY> 113,705
<SALES> 94,544
<TOTAL-REVENUES> 94,544
<CGS> 13,175
<TOTAL-COSTS> 76,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 3,350
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<INCOME-TAX> 4,823
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<NET-INCOME> 10,015
<EPS-PRIMARY> .74
<EPS-DILUTED> .71
</TABLE>
