<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 July 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 13,391,082 shares at September 8, 1995.
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
INDEX
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets (Unaudited) - July 31, 1995
and January 31, 1995 . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Income (Unaudited)
Three and Six Months Ended July 31, 1995 and 1994. . . . . . . .4
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended July 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>
JULY 31, JANUARY 31,
1995 1995
--------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,236,000 $6,944,000
Short-term investments 7,038,000 7,075,000
Trade accounts receivable, net 30,774,000 33,822,000
Other current assets 11,359,000 10,557,000
--------------- ---------------
Total current assets 53,407,000 58,398,000
Property and equipment, net 11,649,000 10,272,000
Capitalized software costs, net 28,019,000 26,694,000
Goodwill and other intangibles, net 18,865,000 19,451,000
Other assets 4,361,000 3,936,000
--------------- ---------------
$116,301,000 $118,751,000
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,663,000 $2,679,000
Note payable 2,500,000 0
Accrued liabilities 15,530,000 19,440,000
Merger related costs 3,442,000 5,817,000
Deferred income 12,095,000 12,913,000
Dividends payable 2,142,000 2,141,000
Income taxes payable 888,000 0
--------------- ---------------
Total current liabilities 38,260,000 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 July 31, 1995 or January 31, 1995 - -
Common stock, $0.01 par value,
100,000,000 shares authorized;
13,387,000 and 13,380,000
issued and outstanding at July 31,
1995 and January 31, 1995, respectively 29,431,000 29,366,000
Retained deficit (14,326,000) (16,580,000)
Accumulated translation adjustment (663,000) (411,000)
--------------- ---------------
Total shareholders' equity 14,442,000 12,375,000
--------------- ---------------
$116,301,000 $118,751,000
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes. 3
<PAGE>
THE MACMEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31 SIX MONTHS ENDED JULY 31
----------------------------------- -----------------------------------
1995 1994 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue
Solver $17,883,000 $17,283,000 $36,770,000 $33,667,000
Modeling 11,515,000 1,872,000 20,950,000 4,163,000
Other 2,647,000 1,947,000 4,815,000 2,946,000
--------------- --------------- --------------- ---------------
Total revenue 32,045,000 21,102,000 62,535,000 40,776,000
Operating Expense
Cost of revenue 4,459,000 2,241,000 8,546,000 3,538,000
Goodwill amortization 463,000 0 959,000 0
Research and development 5,782,000 4,825,000 11,455,000 9,770,000
Selling, general and administrative 15,482,000 9,866,000 30,128,000 19,458,000
--------------- --------------- --------------- ---------------
Total operating expense 26,186,000 16,932,000 51,088,000 32,766,000
Operating income 5,859,000 4,170,000 11,447,000 8,010,000
Other income 589,000 156,000 651,000 286,000
Interest expense (1,117,000) 0 (2,236,000) 0
--------------- --------------- --------------- ---------------
Income before income taxes 5,331,000 4,326,000 9,862,000 8,296,000
Provision for income taxes 1,786,000 1,394,000 3,325,000 2,696,000
--------------- --------------- --------------- ---------------
Net income $3,545,000 $2,932,000 $6,537,000 $5,600,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Primary earnings per share $0.26 $0.22 $0.49 $0.42
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fully Diluted earnings per share $0.25 $0.22 $0.47 $0.42
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average number of
common shares outstanding 13,402,000 13,396,000 13,400,000 13,396,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Cash dividends declared $0.16 $0.16 $0.32 $0.32
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See accompanying notes.
4
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
July 31
1995 1994
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,537,000 $5,600,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,703,000 2,523,000
Amortization of capitalized software 4,179,000 2,562,000
Amortization of goodwill and other intangibles 1,117,000 0
Deferred income taxes 214,000 263,000
Loss (gain) on disposal of property and equipment (10,000) 48,000
Changes in assets and liabilities:
Accounts receivable, net 3,048,000 (6,351,000)
Other current assets (803,000) (589,000)
Accounts payable (1,016,000) (123,000)
Accrued liabilities (1,399,000) (927,000)
Merger related costs (2,375,000) (58,000)
Deferred income (818,000) 212,000
Income taxes payable 888,000 629,000
------------- --------------
Net cash provided by operating activities 12,265,000 3,789,000
Cash flows from investing activities:
Acquisition of property and equipment (4,071,000) (2,347,000)
Purchase of software (432,000) (112,000)
Capitalized software costs (5,072,000) (3,362,000)
Decrease (increase) in short-term investments 37,000 1,007,000
Decrease (increase) in other assets (956,000) (136,000)
------------- --------------
Net cash used in investing activities (10,494,000) (4,950,000)
Cash flows from financing activities:
Proceeds from capital stock issued 65,000 36,000
Proceeds from short term borrowings 2,500,000 0
Interest paid on convertible subordinated debentures (2,511,000) 0
Cash dividends paid (4,281,000) (4,281,000)
Foreign currency translation adjustment (252,000) 242,000
------------- --------------
Net cash used by financing activities (4,479,000) (4,003,000)
------------- --------------
Net decrease in cash and equivalents (2,708,000) (5,164,000)
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 $4,236,000 $4,942,000
------------- --------------
------------- --------------
</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 six months
ended July 31, 1995 and 1994 were $1,094,000 and $1,327,000, respectively.
Additionally, the Company paid interest of $2,511,000 on its Convertible
Subordinated Debentures due 2004 during the six months ended July 31, 1995.
Fully diluted earnings per share was $0.25 and $0.47 for the three and six
months ended July 31, 1995, respectively. Weighted average shares outstanding
used in the calculation of fully diluted earnings per share were 17,136,000 and
17,134,000, 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 six month periods
ended July 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 six months ended July 31, 1994 in order to conform to the July 31,
1995 presentation.
NOTE 2: CAPITALIZED SOFTWARE
The components of net capitalized software costs include:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Software costs capitalized $(2,455,000) $(2,049,000) $(5,072,000) $(3,362,000)
Amortization of capitalized software 2,121,000 1,649,000 4,179,000 2,562,000
---------- ---------- ---------- ----------
Net capitalized software costs $(334,000) $(400,000) $(893,000) $(800,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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:
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
---- ----
<S> <C> <C>
Compensation and related expenses $3,142,000 $3,375,000
Contribution to profit sharing plan 1,301,000 2,333,000
Commissions payable 1,575,000 2,500,000
Retirement benefits 1,479,000 1,338,000
Royalties payable 1,154,000 2,641,000
Debenture interest payable 1,684,000 1,967,000
Other 5,195,000 5,286,000
----------- -----------
$15,530,000 $19,440,000
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED JULY 31, 1995
The Company's revenue for the second quarter ended July 31, 1995 increased
52% to $32,045,000 compared to $21,102,000 in the same period last year. The
growth in revenue 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. Revenue from MSC/PATRAN and MSC/MVISION was $10,297,000, and
MSC/NASTRAN for Windows generated revenue of $798,000. North America revenue of
$14,201,000 accounted for 44% of total first quarter revenue and international
revenue accounted for $17,844,000, or 56% of total revenue.
Cost of revenue increased $2,218,000, or 99%, 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 increased $957,000, or 20%, due to additional development
staff added as a result of the acquisition of PDA. Selling, general and
administrative costs increased $5,616,000 due to increased staff as a result of
the PDA acquisition, especially 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. As a result
of the foregoing, operating expenses for our second fiscal quarter increased 55%
to $26,186,000.
The Company's resulting income from operations for the quarter ended July
31, 1995 was $5,859,000, representing a 41% increase over $4,170,000 during the
second quarter last year.
Nonoperating income and expense increased primarily due to interest expense
incurred during the current quarter related to the debentures issued in
connection with the acquisition of PDA.
Net income was $3,545,000 compared to $2,932,000 in the prior year.
Earnings per share for the three months ended July 31, 1995 were $0.26 compared
to $0.22 for the three months ended July 31, 1994.
SIX MONTHS ENDED JULY 31, 1995
Combined revenue for the six months ended July 31, 1995 was $62,535,000, a
53% increase compared with $40,776,000 in the same period last year. The growth
in revenue is a combination of three major factors: the addition of MSC/PATRAN
and MSC/MVISION as a result of the acquisition of PDA Engineering, growth in
MSC/NASTRAN, and the introduction of the Company's new PC based solver,
MSC/NASTRAN for Windows. Revenue from MSC/PATRAN and MSC/MVISION was
$18,071,000, MSC/NASTRAN revenue increased $959,000 compared to the same period
in the prior year, and MSC/NASTRAN for Windows generated revenue of $1,397,000.
With the additions of MSC/PATRAN and MSC/MVISION, the Company's modeling
software sales grew by more than five-fold during the current period. North
America revenue of $27,298,000 accounted for 44% of total revenue and
international revenue accounted for $35,237,000, or 56% of total revenue
through July 31, 1995.
Cost of revenue increased $5,008,000, or 142%, as a result of increased
amortization of capitalized software costs, increased royalty expenses
associated with several products including MSC/PATRAN, 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 $1,685,000, or 17%, due to additional development
staff added as a result of the acquisition of PDA. Selling, general and
administrative costs increased $10,670,000 due to increased staff as a result of
the PDA acquisition, especially in North America and Europe, increased meeting,
travel and relocation costs associated with organizing the combined sales force
following the
8
<PAGE>
PDA acquisition, and increased commission expenses incurred related to third
party agent sales of PDA products internationally. As a result of the
foregoing, operating expenses for our six months ended July 31, 1995 increased
56% to $51,088,000.
Income from operations for the six months ended July 31, 1995 was
$11,447,000, representing a 43% increase over $8,010,000 during the same period
in the prior period.
Nonoperating income and expense increased primarily due to interest expense
incurred during the current quarter related to the debentures issued in
connection with the acquisition of PDA.
The Company's net income was $6,537,000 compared to $5,600,000 in the prior
year. Earnings per share for the six months ended July 31, 1995 were $0.49
compared to $0.42 for the six months ended July 31, 1994.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital base was $15.1 million as of July 31, 1995.
Cash flows from operations were $12.3 million during the first two quarters of
fiscal 1996, $8.5 million higher than in the same period in the prior year
primarily due to non-cash expenses representing a larger portion of total
expenses, principally amortization of capitalized software, goodwill, and other
intangibles. Cash used by investing activities increased by $5.5 million
primarily due to increased investment in capital equipment and capitalization of
software costs. Cash flows from financing activities decreased by $0.5 million
due to the payment of interest on the convertible subordinated debentures, and
an unfavorable fluctuation in foreign currency translation, offset by proceeds
from borrowings against the Company's bank line of credit. 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.
An interest payment of $2,227,000 is payable on September 15, 1995 to
bondholders of record on September 1, 1995.
A dividend payment of $0.16 per share is payable on September 6, 1995 to
shareholders of record on August 18, 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: September 13, 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
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 4,236
<SECURITIES> 7,038
<RECEIVABLES> 33,394
<ALLOWANCES> (2,620)
<INVENTORY> 0
<CURRENT-ASSETS> 53,407
<PP&E> 28,168
<DEPRECIATION> (16,519)
<TOTAL-ASSETS> 116,301
<CURRENT-LIABILITIES> 38,260
<BONDS> 56,576
<COMMON> 29,431
0
0
<OTHER-SE> (14,989)
<TOTAL-LIABILITY-AND-EQUITY> 116,301
<SALES> 62,535
<TOTAL-REVENUES> 62,535
<CGS> 8,546
<TOTAL-COSTS> 51,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 2,236
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<INCOME-TAX> 3,325
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<EPS-PRIMARY> 0.49
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</TABLE>
