MACNEAL SCHWENDLER CORP, 10-K405, 1996-04-29

MACNEAL SCHWENDLER CORP
10-K405, 1996-04-29
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 JANUARY 31, 1996
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, 90041
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (213) 258-9111
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock par value $.01 per share American Stock Exchange
7 7/8% Convertible Subordinated
Debentures due August 18, 2004 American Stock Exchange

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 April 23, 1996 the approximate aggregate market value of The
MacNeal-Schwendler Corporation's voting stock held by nonaffiliates was
$183,281,000.

As of April 23, 1996 there were outstanding 13,451,806 shares of Common
Stock of The MacNeal-Schwendler Corporation.
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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Proxy Statement of The MacNeal-Schwendler Corporation
for the Annual Meeting of Shareholders to be held on June 12, 1996 are
incorporated by reference into Part III.

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FORM 10-K
TABLE OF CONTENTS

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PAGE
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Business................................................................................................... 1

Properties................................................................................................. 7

Legal Proceedings.......................................................................................... 7

Submission of Matters to a Vote of Security Holders........................................................ 7

Market for Registrant's Common Equity and Related Stockholder Matters...................................... 8

Selected Financial Data.................................................................................... 8

Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8

Financial Statements and Supplementary Data................................................................ 14

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure....................... 28

Directors and Executive Officers of the Registrant, Executive Compensation, Security Ownership of Certain
Beneficial Owners and Management, and Certain Relationships and Related Transactions...................... 28

Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................ 28
</TABLE>
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PART I

ITEM 1. BUSINESS.

The MacNeal-Schwendler Corporation ("MSC" or the "Company") was incorporated
in Delaware in 1994 for the purpose of effectuating a reincorporation of The
MacNeal-Schwendler Corporation, a California Corporation (the "Predecessor
Company"), in Delaware. The Predecessor Company was originally incorporated in
California in 1963. Unless the context indicates otherwise, reference to MSC or
the Company include the Predecessor Company. Since its inception, the Company
has been engaged in computer-aided engineering ("CAE"), including the
development and marketing of applications software for use principally by
engineers and designers in industry, research laboratories and universities. The
Company's principal software products are MSC/NASTRAN and MSC/PATRAN. Each such
product has been adapted over the years so that it is compatible with many of
the platforms currently used by engineers.

In the current computer-aided manufacturing environment, designs are
subjected to engineering analysis before manufacturing has begun. MSC/NASTRAN is
a basic CAE analytical tool. MSC/PATRAN is an interactive CAE environment that
facilitates the use of geometric data from popular computer-aided design ("CAD")
systems such as CATIA, Pro/ENGINEER, and EDS/Unigraphics in a variety of
commercial analysis programs including MSC/NASTRAN. The availability of CAE
analysis helps to reduce product cost and increase reliability. Because CAE can
be used to analyze a design prior to its physical manufacture, CAE replaces
time-consuming and costly manual analyses and physical testing and permits
substantial increases in the number of design trade-offs and design cycles. The
Company's CAE tools are used by engineers worldwide in several diverse
CAD/computer-aided manufacturing ("CAM") disciplines, including civil
engineering, automobile design and manufacture, and aerospace.

MSC/NASTRAN, is a descendant of NASTRAN-Registered Trademark-, a computer
program owned by the United States Government and leased to others. Since
NASTRAN was first released in 1970, its contents and MSC/ NASTRAN have rapidly
diverged and the current capabilities and scope of MSC/NASTRAN are substantially
greater than those of NASTRAN. MSC commenced offering its proprietary version as
a commercial product in 1971. Pursuant to a 1982 agreement with the National
Aeronautics and Space Administration, MSC acquired the perpetual rights to use
commercially those elements of NASTRAN which are embodied in MSC/NASTRAN. See
"Intellectual Property Rights" below.

MSC offers the following CAE products in addition to MSC/NASTRAN and
MSC/PATRAN:

MSC/ARIES -- a geometric modeling and automatic meshing tool for use by
design engineers in the early development stages of a mechanical product
or component.

MicroWaveLab -- an electromagnetic analysis sytem for microwave
applications, including antenna and waveguide design.

MSC/EMAS -- a comprehensive electromagnetic analysis system used in the
design of modern electronic devices.

MSC/DYTRAN -- a tool used to solve highly nonlinear, transient dynamic
problems, including those involving high speed impact, and fluid-structure
interaction problems.

MSC/NASTRAN for Windows -- an integrated finite element modeling and
analysis system for Windows 3.1, WindowsNT, and Windows95.

MSC/MVISION -- a materials software system for test, design and analysis
engineers.

In addition, the Company develops educational tools designed to train users
of MSC/NASTRAN, MSC/ PATRAN and its other products. Training seminars are
conducted in local languages on a frequent basis at the MSC Institute of
Technology in Costa Mesa, California, at the Company's Los Angeles headquarters,
at MSC's offices worldwide, and at actual client installations.

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The following is a detailed discussion of each of the Company's major CAE
products:

MSC/NASTRAN

MSC/NASTRAN is based upon the "finite element method" (FEM) of analysis.
With FEM, complex structures are divided into small elements which form a finite
element model. The model is then subjected to computer analysis. MSC/NASTRAN is
used to analyze structures in order to determine, among other things, their
strength, safety and performance characteristics. For example, in the aerospace
industry MSC/ NASTRAN is employed to determine the stress distribution in major
parts of aircraft, such as engines, wings, fuselage and tail. The computer
analysis can be applied, with reduced usage of prototypes and other testing, to
improve the design of aircraft by suggesting the removal of material where
stresses are low and the addition of material where stresses are high. With this
knowledge, aircraft can be made both stronger and lighter. The same principles
can and have been applied to improve the design of jets, rockets, engines,
automobiles, trucks, tires, ships, farm equipment, heavy industrial equipment,
nuclear containment vessels, helicopters, spacecraft and other products and
structures.

Additional types of structural analysis are also provided by MSC/NASTRAN,
including analyses of vibration characteristics, dynamic response, transient
heat transfer, elastic stability and aeroelastic response, including flutter.
The sequence of calculations required for each such analysis is prearranged. The
user need only provide a physical description of the problem and the desired
output.

Because MSC/NASTRAN has been designed in a modular way, new features can be
added and obsolete features replaced without disrupting the other modules of the
system. As a result, major changes in computer hardware have been systematically
accommodated. For example, the program has been adapted to minicomputers and
microcomputers, including Windows based personal computers. The Company believes
that the continued development and maintenance of MSC/NASTRAN, together with the
modular design features of the program, have prevented, and will continue to
prevent, its obsolescence, although no assurance can be given that future
changes in hardware or breakthroughs in software design will not result in the
obsolescence of the program.

MSC/NASTRAN is currently operational on a wide variety of computer operating
system/hardware platform combinations, including those manufactured and
distributed by International Business Machines Corporation ("IBM"), Digital
Equipment Corporation ("DEC"), Hewlett-Packard Corporation ("HP"), Hitachi Data
Systems, Nippon Electric Corporation ("NEC"), Silicon Graphics Inc. ("SGI"),
Fujitsu Ltd., Siemens GmbH, Sun Microsystems Inc. ("SUN"), and Cray Research
Inc.

MSC/PATRAN

MSC/PATRAN provides finite element modeling, analysis data integration,
analysis simulation, and results evaluation capabilities required for analysts
to simulate product performance early in the design-for-manufacture process.
With MSC/PATRAN an engineer is able to visualize the design, interface with
other CAD programs, perform pre-processing to prepare the computer model for
engineering analysis with MSC/ NASTRAN, perform post processing of the results
of the analysis from MSC/NASTRAN to assist in interpretation and visualization
of the results, as well as integration of analysis data with testing software
packages. All of the functions of the software can be integrated, automated and
tailored to the user's specific requirements using a powerful programming
command language.

The MSC/PATRAN system can be described as software that provides three
fundamental functions:

MSC/PATRAN CORE SOFTWARE -- The core of the MSC/PATRAN software enables
the engineer to visualize the design, preprocess the design into a
computer model for engineering analysis, and postprocess the analysis into
a graphical representation of the results. The software interfaces with
many popular CAD programs and many analysis packages such as MSC/NASTRAN.

APPLICATION MODULES -- Through a series of modules that can be added to
the core software, engineers can perform analysis on stress, thermal,
mechanisms and dynamics, fluid flow, solid modeling, and fatigue. Certain
of these application modules have been developed by third parties and are
marketed under joint development or marketing agreements.

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INTERFACES -- MSC/PATRAN uses a series of interfaces that allow it to
interact with programs developed by other companies in the CAD/CAM/CAE
industry. These interfaces either involve direct links into other software
or translate data to and from other software so that it can be processed
within MSC/PATRAN.

Currently, the Company focuses its development activities on hardware
platforms from DEC, HP, SUN, SGI, and IBM.

MSC/ARIES

MSC/ARIES, which is based on solid geometric modeling, is a graphical and
user friendly pre and postprocessing environment for MSC/NASTRAN, MSC/EMAS, and
other major analysis codes.

Comprised of several modules, MSC/ARIES allows engineers to create a solid
model, derive engineering information such as mass and section properties,
manage the material attributes of the solid model, apply loads and boundary
conditions directly to the solid, and to generate either an automatic or mapped
finite element mesh on the solid, resulting in a finite element model. The
MSC/ARIES finite element model can be analyzed by a wide variety of popular
design analysis codes. Analysis postprocessing capabilities of MSC/ARIES allow
engineers to view and query analysis results in numerous ways. Guided by
analysis results, engineers can then use the integrated parametrics module to
modify the solid model to better meet design criteria, all before downstream
development functions such as drafting, physical prototyping, and manufacturing.

MSC/ARIES supports an open systems architecture. The core module of
MSC/ARIES is Solids, a precise solid modeling module based on the ACIS standard
kernel. Because many other CAE/CAD/CAM software suppliers are also basing their
emerging products on the ACIS standard, MSC/ARIES model data can be communicated
with many popular software systems. In addition, MSC/ARIES data can be
communicated to other systems via PDES/STEP, IGES, DXF, and various direct
translators. This allows manufacturing companies to mix and match MSC software
with products from many other vendors to provide superior solutions, not only at
each point in the process, but also overall.

MSC/ARIES runs on workstations, including those manufactured by SGI, HP,
SUN, IBM and DEC, and on PC's based on Intel 386/486 and Pentium processors.

MSC/EMAS

Built around the analytical engine of MSC/NASTRAN, MSC/EMAS allows engineers
to simulate and analyze electromagnetic fields in motors, generators, solenoids,
wave guides, antennas, and microwave circuitry. MSC/EMAS retains all of the
computational power and problem solving efficiencies of MSC/ NASTRAN while
incorporating a novel formulation of the equations that describe electromagnetic
behavior. The entire range of two- and three-dimensional electromagnetic
phenomena can be studied.

Open boundary elements enable MSC/EMAS to simulate radiation to infinite
space, a capability which the Company believes is unmatched by any other
commercial electromagnetic analysis program. It is particularly useful for
applications such as antennas, radar, and microwave circuitry where the
electromagnetic fields are not confined. Other features in MSC/EMAS include a
superelement capability and the ability to accommodate analyses of complex,
anisotropic materials, two and three dimensional electromagnetic analysis of
antenna input impedance, directivity, polarization and radiation patterns. It
enables antenna designers to analyze, without prototyping, complex systems that
are difficult to study.

MSC/DYTRAN

MSC/DYTRAN merges the nonlinear technologies embodied in two of the
Company's prior products, MSC/DYNA and MSC/PISCES. MSC/DYTRAN is designed to
analyze transient, dynamic events characterized by large structural distortions
or the interaction of fluids with structures. Using MSC/ DYTRAN, engineers can
solve many practical problems, including automotive crash simulation, vehicle
occupant safety studies, and aircraft crash worthiness.

MSC/DYTRAN is also suitable for analyzing highly nonlinear and complex
processes such as the ingestion of objects into jet engines, hypervelocity
particle impacts upon spacecraft, the deployment of

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airbags in vehicle crashes, accident containment during the transportation of
hazardous cargo, and ballistic armament penetration. With MSC/DYTRAN, engineers
in a broad range of industries can conduct "what if" studies involving the
dynamic response and interaction of fluids and structures subjected to high
velocity impact. Events characterized by rapid energy releases, such as
explosions, can also be simulated. MSC/ DYTRAN has been used successfully to
simulate phenomena as diverse as ship collisions, the seismic response of
structures to earthquakes, the performance of munitions and armor, the safety
tolerances of nuclear and chemical plant components, and automobile crashes.

An important feature of the software is the arbitrary Lagrangian-Eulerian
("ALE") capability. This approach permits the Eulerian mesh to behave much like
the Lagrangian mesh, allowing the two meshes to be physically coupled in the
interaction surface. This feature is particularly useful in analyzing bird
strike problems. The addition of an elastic orthotopic material and a composite
shell with damage to the constitutive model library is important for modeling
aircraft parts that are typically made from composites. The Eulerian part of
MSC/DYTRAN has been further enhanced by introducing a multi-material
hydrodynamic formulation. This feature is important for the prediction of
explosive effects on chemical plants, aircraft, and ship structures.

MSC/MVISION

MSC/MVISION is a materials software system for visualization, selection and
data integration which helps companies take advantage of state-of-the-art
materials technology throughout the design-to-manufacture process. MSC/MVISION
electronically integrates data across engineering boundaries. It allows users to
build their own, proprietary materials database and provide access to that data
across all engineering disciplines. It provides users the ability to search,
query, compare and manipulate materials data as well as direct access to these
databanks from within MSC/PATRAN.

RESEARCH AND DEVELOPMENT

The Company continually expends significant amounts on the development and
maintenance of its suite of CAE software products, as well as on new product
research. During the years ended January 31, 1996, 1995, and 1994, approximately
$32,845,000, $31,632,000, and $23,414,000, respectively, was expended for
software research and development. Of the amounts expended $10,447,000 in 1996,
$9,226,000 in 1995, and $6,112,000 in 1994 was included in software costs
capitalized.

The Company's development activities generally involve adding new
capabilities to its family of CAE programs or converting these programs for use
on additional computers. Such activities are intended to prevent technological
obsolescence and assure the Company's clients the maximum flexibility in
selecting computer hardware. A decision to undertake development activity to
adapt MSC's software program for a particular computer is based upon the
Company's estimates regarding feasibility, cost and the size of the market for
the program in connection with the particular computer.

Maintenance of MSC software products includes system integration, quality
assurance testing, error correction, and modifications to accommodate changes to
computer system software. Given the maturity of the Company's software, most
maintenance efforts stem from continuing new developments. Maintenance costs are
expensed as incurred.

MARKETING

The Company's products are marketed internationally to aerospace,
automotive, and other industrial concerns, computer and electronics
manufacturers, and universities. These categories of clients accounted for 43%,
24%, 11%, 8%, and 2%, respectively, of the Company's revenues for the fiscal
year ended January 31, 1996.

The Company markets its products through advertising in trade publications,
participation in industry trade shows and exhibits, training seminars conducted
worldwide, its existing client base and its complementary marketing agreements
with computer hardware manufacturers.

REVENUE POLICY. The Company provides a variety of licensing alternatives
for the use of its software products. MSC's software products have been
primarily offered on an annual lease basis. The standard lease

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agreement is for a minimum of one year and is thereafter cancelable after six
months notice. Under the terms of the annual lease, revenue is recognized
ratably over the term of the agreement. The agreement specifies minimum monthly
payments and additional payments based on usage for larger computers and data
center network clients. It has generally been the Company's experience that
there is a delay between the sign-up of new clients and the realization by the
Company of significant lease revenues from those clients. Usage payments tend to
grow as familiarity with the Company's products develop over time.

In recent years, demand has increased for annual prepaid licensing as well
as paid up licensing of engineering software products. An annual prepaid license
is set at a fixed rate for the period and provides for payment in advance of
use. Under the prepaid agreement, license revenue is recognized at the point of
sale, while maintenance revenue, representing approximately 15% of license
revenue, is recognized ratably over the term of the maintenance period.

A paid up license provides significant revenue at the original point of sale
of the product with smaller payments for maintenance following the point of
sale.

Foreign marketing is generally conducted in the same manner as U.S.
marketing. The basic licensing agreements are substantially the same, and prices
are generally stated in U.S. dollars except for agreements originating with
MSC's German subsidiary in which prices are stated in German marks and certain
agreements originating within Japan which are stated in Japanese Yen. The
agreements stated in foreign currencies are subject to currency fluctuations.
For the year ended January 31, 1996, foreign sales accounted for approximately
57% of gross revenues, most of which were attributable to Europe (30%) and the
Far East (25%). The balance was primarily attributable to Canada, South America
and Australia. See Note 9 of Notes to Consolidated Financial Statements for
additional information with respect to the Company's foreign operations.

SALES/SUPPORT OFFICES. The Company maintains U.S. sales and client support
offices in the Los Angeles, Costa Mesa, San Jose, Sacramento, Denver,
Dallas/Fort Worth, Atlanta, Chicago, Milwaukee, Detroit, Philadelphia, Boston,
New York, Indianapolis, Rochester, Cleveland, St. Louis, Phoenix, and Seattle
areas. The Los Angeles office is also the Company's headquarters. The other
offices are each staffed by sales and/or technical support representatives who
have engineering backgrounds and experience using MSC products. These
representatives market the Company's products, provide training in their use,
and respond to client service calls throughout North America.

The Company's products are marketed, distributed and supported outside of
North America through a network of international subsidiary offices.

The Company's wholly-owned European Headquarters, located in Munich,
Germany, manages wholly-owned subsidiary offices in the United Kingdom, Italy,
Spain, France, Norway, and The Netherlands. Other sales offices are located in
Moscow, Russia and Fribourg, Switzerland. In the Far East, sales and service are
handled through wholly-owned subsidiaries in Taipei, Taiwan; Beijing, People's
Republic of China; and Tokyo, Japan. There is also a branch of the Tokyo office
in Kyoto, Japan.

Representative arrangements are in place in several European and Far East
countries as well as in India, Australia, and Latin America.

ADDITIONAL CLIENT SUPPORT. Client service is an integral aspect of the
Company's marketing program. The Company maintains toll-free numbers and a "hot
line" service for its clients and sponsors annual users' conferences.

User manuals, training and quality assurance are also essential to the
Company's marketing program. The Company's user manuals are comprehensive and
updated on a regular basis. A staff of writers and editors manage the design,
writing, editing and preparation of user manuals as well as of training
materials and promotional literature. A periodic newsletter provides clients
with new information on the Company's products and services.

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Formal training for clients is conducted by the Company, ranging from
three-day introductory courses to intensive courses on specialized subjects for
experienced users. In-house courses are provided for larger user organizations.

The Company also hosts annual users' conferences in the United States,
Europe, the Far East, Australia, and Latin America to gather data on client
needs, new engineering applications, and new trends in computing technology.

BACKLOG

The Company does not maintain backlog statistics for its products because
software is generally available for delivery upon execution of a licensing
agreement or contract.

INTELLECTUAL PROPERTY RIGHTS

The following registered and unregistered trademarks are used in this Annual
Report on Form 10-K: MSC, MCS/ARIES, MSC/DYNA, MSC/PISCES, PATRAN and M/VISION
are registered trademarks of the Company. NASTRAN is a registered trademark of
NASA. MSC/NASTRAN is an enhanced proprietary version of NASTRAN.

MSC/NASTRAN, MSC/NASTRAN for Windows, MSC/EMAS, MSC/DYTRAN and MicroWaveLab
are trademarks of the Company. Registration on certain of these trademarks is
pending. Most of the Company's trademarks have also been registered in foreign
countries. MSC believes that it could successfully defend the use of its
trademarks, whether registered or pending registration, under federal or common
law existing in the State of California.

In addition, the Company maintains federal statutory copyright protection
with respect to its software programs and products and has registered copyrights
on all documentation and manuals related to these programs.

MERGERS AND ACQUISITIONS

On August 18, 1994, the Company acquired all of the outstanding shares of
PDA Engineering, Inc. ("PDA") through the issuance of $56,608,000 of its 7 7/8%
Convertible Subordinated Debentures due 2004, or $6.85 per share, and cash of
$5,313,000 to purchase all outstanding options. The acquisition was treated as a
purchase for accounting purposes and, accordingly, the operating results of PDA
from the date of the acquisition through January 31, 1996 have been reflected in
the Company's consolidated financial statements in the applicable year.

On September 24, 1993, the Company issued 1,441,265 shares of its common
stock in exchange for all outstanding shares of Aries Technology, Inc.
("Aries"). This transaction was accounted for as a pooling-of-interests and,
accordingly, the accompanying financial statements relating to prior periods
have been restated to include the accounts of Aries.

COMPETITION

The Company believes that MSC/NASTRAN is the leading program for engineering
analysis worldwide based upon capability, international acceptance and sales
volume. However, numerous programs which compete with MSC/NASTRAN are also
available and the Company must continue to offer attractive prices and
performance capabilities in order to retain existing clients and further extend
its markets. See "Research and Development" and "Marketing" above. The Company
competes primarily based upon product quality, service and technological
innovation.

EMPLOYEES

At January 31, 1996, the Company and its subsidiaries employed 625 persons,
of whom 182 were involved in technical activities, 340 in sales and marketing
and 103 in administration. Of these employees, 256 hold advanced degrees. The
Company's business is dependent in part upon its ability to attract and retain
highly skilled personnel who are in great demand. The Company's skilled employee
turnover rate has been very low. The Company has no contracts with labor
organizations and believes its relations with its employees are good.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The table below sets forth certain information with regard to executive
officers who are not also directors of the Company. The Company is not aware of
any arrangement or understanding between such persons and any other persons
pursuant to which the executive officers were selected as such. The Company is
not aware of any family relationships between these executive officers and any
other executive officers, although Bruce MacNeal is the son of Richard MacNeal,
the Chairman of the Company's Board of Directors.

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Louis A. Greco 48 Chief Financial Officer of the Company (March 1983-present)
and Corporate Secretary of the Company (December
1985-present).
Dennis A. Nagy 51 Senior Vice President, Worldwide Sales, of the Company
(September 1993-present); Chief Operating Officer of the
Company (March 1993-September 1993); Chief Marketing Officer
of the Company (February 1990-February 1993).
Ken Blakely 41 Vice President of Marketing for the Company (January
1995-present); Department Director of Production and Support
for the Company (March 1993-December 1994); Section Manager
of Technical Product Planning and Support for the Company
(January 1992-February 1993); Department Director of Product
Management and Support for the Company (June 1991-December
1991); MSC/ NASTRAN Program Manager of the Company (October
1989-May 1991).
Bruce E. MacNeal 44 Vice President of Solver Development for the Company (October
1994-present); Department Director of Research and
Development for the Company (March 1993-September 1994);
Branch Manager of MSC/EMAS Development for the Company
(November 1991-February 1993); Engineer/Scientist of the
Company (January 1987-October 1991).
James M. White 37 Vice President of Modeling Development for the Company
(August 1994-present); Vice President of Software Development
for the Company (January 1994-August 1994); Technical Manager
of Software Development for the Company (April 1993-January
1994); Section Manager of Software Development for the
Company (January 1990-April 1993).
</TABLE>

ITEM 2. PROPERTIES.

The Company's offices in Los Angeles, California, and elsewhere are leased
under agreements expiring at various times over the next one to ten years. See
Note 12 of Notes to Consolidated Financial Statements of this report for
additional information regarding the Company's lease obligations. The company's
principal offices are in Los Angeles, California, and include 56,690 square feet
under leases expiring in 2005.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of shareholders during the last quarter
of the Company's fiscal year ended January 31, 1996.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is listed on the American Stock Exchange (AMEX)
under the symbol MNS. The following table sets forth through January 31, 1996,
the high and low sales prices as reported on the AMEX.

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SALES PRICES
--------------------
HIGH LOW
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<S> <C> <C>
Fiscal 1996
Fourth Quarter..................................................... $ 16.00 $ 13.50
Third Quarter...................................................... 19.63 13.13
Second Quarter..................................................... 15.00 12.75
First Quarter...................................................... 15.63 11.25

Fiscal 1995
Fourth Quarter..................................................... $ 11.75 $ 10.00
Third Quarter...................................................... 13.75 10.50
Second Quarter..................................................... 14.75 11.38
First Quarter...................................................... 15.38 11.50
</TABLE>

As of April 23, 1996, there were 337 record holders of the Company's common
stock. The Company has declared and paid dividends in each quarter of the past
two fiscal years. For the fiscal years ended January 31, 1996 and 1995, such
dividends aggregated $.64 per share per year. The price of the Company's common
stock as of April 23, 1996 was $13.625.

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------------------
1996 1995** 1994 1993 1992*
---------- ---------- --------- --------- ---------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C>
Revenue................................................. $ 130,483 $ 100,686 $ 79,574 $ 77,190 $ 67,330
Operating income (loss)................................. 24,739 (27,732) 16,785 16,098 (682)
Net income (loss)....................................... 14,407 (30,382) 11,440 9,989 (1,534)
Primary earnings (loss) per share....................... 1.06 (2.27) .86 .75 (.12)
Fully diluted earnings (loss) per share................. .99 (2.27) .86 .75 (.12)
Dividends per share..................................... .64 .64 .64 .48 .48
Total assets............................................ 119,660 118,751 78,504 72,728 64,662
Long-term debt.......................................... 56,576 56,576 -- -- --
</TABLE>

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*Reflects a restructuring charge of $15,083,000.
**Reflects an in-process research and development charge of $35,000,000 and a
restructuring charge of $8,962,000.

The selected financial data should be read in conjunction with Item 7 and
the Consolidated Financial Statements of the Company and the related Notes to
Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
1996 VS. 1995

The Company reported revenue of $130,483,000 for the year ended January 31,
1996, an increase of 30% from the $100,686,000 for the year ended January 31,
1995. A total of 59% of revenue was derived from the Company's analysis product
lines (MSC/NASTRAN, MSC/NASTRAN FOR WINDOWS, MSC/EMAS, MSC/DYTRAN, and
MSC/ABAQUS) and 35% was derived from the Company's modeling automation product
lines (MSC/PATRAN, MSC/ARIES, and MSC/MVISION). The balance of revenue was from
consulting, training, documentation and contractual agreements.

8
<PAGE>
The increase in total revenue of $29,797,000 was primarily the result of the
first full year of operations since the acquisition of PDA Engineering in
August, 1994. Revenue growth was also positively impacted by the debut of
MSC/NASTRAN FOR WINDOWS, a PC-based version of MSC's flagship product, MSC/
NASTRAN. Revenue from MSC/NASTRAN increased 2% to $64,723,000 compared to
$63,560,000 in fiscal 1995. Revenue from the MSC/PATRAN and MSC/MVISION family
of products represented 30% of total revenue for the year ended January 31,
1996, compared to 17% in fiscal 1995. The substantial increase in the proportion
of MSC/PATRAN and MSC/MVISION revenue is due to the first full year of revenue
since the acquisition of PDA in the third quarter of fiscal 1995. These
increases were partially offset by the decline in MSC/ARIES revenue during the
year. Revenue from MSC/ARIES decreased by $1,868,000, or 26% compared to fiscal
1995. Included in fiscal 1995 was approximately $2,000,000 in revenues
guaranteed under an agreement with a distributor of MSC/ARIES in Japan. The
agreement expired during the fourth quarter of fiscal 1995.

Revenues from international operations and export sales from domestic
operations were $74,800,000, or 57% of total revenue compared to $48,820,000, or
48% of total revenue for fiscal 1995.

Operating expenses were $105,744,000 in fiscal 1996 compared to $128,418,000
in fiscal 1995, a decrease of 18%. Excluding one-time charges totaling
$43,962,000 incurred during the quarter ended October 31, 1994, operating
expenses increased by 25% compared to fiscal 1995. The increase is attributable
primarily to the inclusion of one full year of PDA operating expenses, in
contrast to fiscal 1995, which, due to the timing of the acquisition in MSC's
third quarter, included less than half of PDA's operating expenses. Increases in
operating expenses also include the addition of headcount in sales and marketing
and goodwill amortization, partially offset by reductions in technical areas.
Overall, operating expenses as a percentage of revenue, excluding one-time
charges, decreased to 81% from 84% in fiscal 1995.

Income from operations excluding amortization and capitalization of software
costs and one-time charges increased by $9,001,000, or 64% compared to fiscal
1995. The net effect of capitalized software costs reduced operating expenses by
$1,708,000 for fiscal 1996 compared to $2,200,000 in fiscal 1995. Thus,
capitalizing software costs had a negative effect on operating income in fiscal
1996 as compared to fiscal 1995.

Operating margins, excluding one-time charges, were 19% and 16% for the
years ended January 31, 1996 and 1995, respectively. Operating income, excluding
one-time charges but including the effects of net capitalized software, in
fiscal 1996 was 52% higher than fiscal 1995 and was mainly the result of
revenues which grew more quickly than expenses.

The debenture interest reflects the accrued interest on the Convertible
Subordinated Debentures issued as part of the acquisition of PDA. Interest
payments are due on March 15 and September 15 of each year until the debentures
are converted or redeemed.

Other income includes investment income and gains on sales of assets, and is
net of non-operating expenses and losses on sales of assets.

The effective tax rate for the year was 31.7%, as compared to 33.6%,
excluding non-deductible one-time charges, in fiscal 1995. The decrease reflects
benefit recognized by a larger percentage of revenue generated through the
Company's foreign sales corporation resulting in recognizable credits in the
current period.

Operating results in fiscal 1996 were favorably affected by fluctuations in
functional currencies used in the Company's international operations. The effect
of foreign currency translation on operating results was a favorable variance of
$1,660,000 in fiscal 1996 compared to a favorable effect of $347,000 in fiscal
1995. The fluctuation of the U.S. dollar versus these currencies could have an
unfavorable effect in fiscal 1997 and future years.

1995 VS. 1994

On August 18, 1994, the Company acquired all of the outstanding shares of
PDA through the issuance of $56,608,000 of its 7 7/8% Convertible Subordinated
Debentures due 2004, or $6.85 per PDA share, and cash of $5,313,000 to purchase
all in-the-money options. As a result of the acquisition, the Company recorded

9
<PAGE>
one-time charges of approximately $43,962,000 during the quarter ended October
31, 1994 to write off in-process research and development, and to expense costs
associated with consolidating the operations of PDA into the Company.

The Company reported revenue of $100,686,000 for the year ended January 31,
1995, an increase of 27% from the $79,574,000 for the year ended January 31,
1994. A total of 69% of revenue was derived from the Company's analysis product
lines (MSC/NASTRAN, MSC/EMAS and MSC/DYTRAN) and 24% was derived from the
Company's modeling automation product lines (MSC/PATRAN and MSC/ARIES). The
balance of revenue was from consulting, training, documentation and contractual
agreements. Revenue excluding the MSC/PATRAN and MSC/MVISION product lines
(which were acquired as part of the PDA acquisition) was $83,573,000,
representing a 5% increase in revenue compared to fiscal 1994.

The increase in total revenue of $21,112,000 was primarily the result of the
acquisition of PDA in August, 1994 which added the MSC/PATRAN and MSC/MVISION
families to the Company's line of products and secondarily the result of
increased growth in MSC/EMAS and MSC/DYTRAN. Revenue from MSC/NASTRAN increased
4% to $63,560,000 compared to $61,380,000 in fiscal 1994. Revenue from the
MSC/PATRAN and MSC/MVISION family of products represented 17% of total revenue
for the year ended January 31, 1995. This represents revenue generated for the
period from the date of acquisition through the end of the fiscal year. Revenue
from MSC/EMAS and MSC/DYTRAN increased by 68% and 11%, respectively compared to
the prior year. A majority of the increase in these products is due to the
increase in paid-up licenses. These increases were partially offset by the
decline in MSC/ARIES revenue during the year. Revenue from MSC/ARIES decreased
by $2,782,000, or 28% compared to fiscal 1994. Included in each of fiscal 1994
and 1995 were approximately $2,000,000 in revenues guaranteed under an agreement
with a distributor of MSC/ARIES in Japan. The agreement expired during the
fourth quarter of fiscal 1995.

During the quarter ended October 31, 1994, the Company began offering the
option of a prepaid annual lease which allows a customer to prepay their annual
lease obligation at the beginning of the lease term. These prepaid annual leases
are non-refundable, allowing the Company to recognize the revenue in a manner
similar to a paid-up license. The prepaid and paid-up licenses have the effect
of accelerating the recognition of revenue to the point of sale and increasing
the volatility of revenue streams.

Revenues from international operations and export sales from domestic
operations were $48,820,000, or 48% of total revenue compared to $38,709,000, or
49% of total revenue for fiscal 1994.

Operating expenses were $128,418,000 compared to $62,789,000 in fiscal 1994,
an increase of 105%. Excluding one-time charges totaling $43,962,000 incurred
during the quarter ended October 31, 1994, operating expenses increased by 35%
compared to fiscal 1994. Included in operating expenses were operating costs of
PDA from the date of acquisition through the end of the fiscal year. These costs
approximated $14,600,000. Excluding these costs, operating expenses increased by
only 11%. Increases in operating costs include the addition of headcount in both
the technical and sales and marketing areas, increased royalty expenses to third
parties, and goodwill amortization. Operating expenses as a percentage of
revenue, excluding one-time charges, increased to 84% from 79% in fiscal 1994.
Part of the percentage increase can be attributed to lower MSC/ARIES revenue
with no corresponding reduction in related operating costs.

Income from operations excluding amortization and capitalization of software
costs and one-time charges increased by $522,000, or 3% compared to fiscal 1994.
The net effect of capitalized software costs reduced operating expenses by
$2,200,000 for fiscal 1995 compared to $1,088,000 for fiscal 1994. Thus,
capitalizing software costs had a positive effect on operating income in fiscal
1995 as compared to fiscal 1994.

Operating margins, excluding one-time charges, were 16% and 21% for the
years ended January 31, 1995 and 1994, respectively. Operating income, excluding
one-time charges but including the effect of net capitalized software, in fiscal
1995 was 10% higher than fiscal 1994 and was mainly the result of increased
revenue.

10
<PAGE>
Other income is net of non-operating expenses and foreign currency
transaction gains and losses, investment income, and gains and losses on sales
of assets. The net increase of $454,000 compared to fiscal 1994 related
primarily to investment income

The effective tax rate for the year, excluding non-deductible one-time
charges was 33.6% compared to 32.5% in fiscal 1994. The increase reflects
increased effective federal and state rates due to higher revenue and an
increased number of states where the Company is required to pay taxes. The rate
was also affected by non-deductible expenses related to the acquisition of PDA.
These increases were partially offset by benefits from net operating loss
carryforwards.

Operating results were favorably affected by fluctuations in functional
currencies used in the Company's international operations. The effect of foreign
currency translation on operating results was a favorable variance of $347,000
in fiscal 1995 compared to an unfavorable effect of $1,471,000 in fiscal 1994.

COMPANY TRENDS

The Company continued to expand its presence in the CAE marketplace during
fiscal 1995 with the acquisition of PDA. PDA's principal product, PATRAN, was
developed as a pre- and post-processor for MSC/NASTRAN and is one of the leading
products for utilizing the capabilities of MSC/NASTRAN. With the PDA
acquisition, MSC now has a strong pre-and post-processor for its analysis
product lines to complement the addition of the MSC/ARIES geometric modeler
obtained as a result of the merger with Aries during fiscal 1994. The
combination of these product lines further enhances the Company's goal of
providing a full range of modeling and analysis products for the mechanical
design automation market.

To provide a positive environment to encourage simultaneous expansion of
both the analysis and modeling areas, the development staff have been organized
into groups with primary development responsibility toward one of these two
areas. The Company has also expanded its use of offshore development for
specific functionality in its software. The advantage to utilizing offshore
development is lower costs. The Company currently has two projects utilizing
offshore development; one in India and another in Taiwan.

The Company has also expanded its involvement with business partners both
domestically and internationally. By developing these partnerships, the Company
can have access to solutions to virtually any mechanical engineering problem.

INDUSTRY AND ECONOMIC TRENDS

According to International Data Corporation, the overall mechanical
CAD/CAE/CAM software market grew by an estimated 10% to $2.45 billion in 1995.
The market is expected to grow another 10% in 1996. As the market matures, it is
aligning itself into two business groups. One consists of vertically organized
high-end software and integration vendors and the second consists of vendors
offering lower priced packaged solutions. The Company expects to participate in
the overall growth of the industry with its products which span both the high
and low-ends of this market.

OPERATING PATTERN

More than 93%, 93% and 98% of the Company's revenues in fiscal 1996, 1995
and 1994, respectively, consisted of rents and royalties paid by clients for use
of the Company's software products. Historically, rents and royalties were
mainly generated by volume of customer usage of the Company's software; however,
this has changed in recent years due to the increased popularity and computing
power of workstations, which are fixed price platforms, and a migration by the
market to paid-up licenses. The Company expects the trend toward fixed monthly
fees and paid-up licenses to continue as workstations continue to increase in
computing power and personal computers also become more powerful. The Company is
addressing the shift by providing versions of its software tailored to run on
these platforms such as MSC/NASTRAN for Windows-Registered Trademark-.

RESTRUCTURING CHARGES

A restructuring charge of $9,800,000 was included as part of the allocation
of the purchase price of PDA during fiscal 1995. This charge related principally
to a reduction in workforce of 100 people and the elimination and consolidation
of duplicate facilities and equipment.

11
<PAGE>
An additional restructuring charge of $8,962,000 related to the PDA
acquisition was recorded in the third quarter of fiscal 1995, of which
approximately $2,600,000 related to the writeoff of overlapping capitalized
software product costs, $2,700,000 to the elimination of duplicate facilities
and equipment, $2,900,000 to a reduction in workforce, and the balance for other
costs directly associated with the acquisition.

LIQUIDITY AND CAPITAL RESOURCES

Historically, working capital needed to finance the Company's growth has
been provided by cash flow from operations. Management believes that cash
generated from operations will continue to provide sufficient capital for
working capital needs in the foreseeable future. Net cash from operating
activities were $25,977,000, $5,813,000, and $22,755,000, in fiscal 1996, 1995,
and 1994, respectively. In fiscal 1995, net cash from operating activities was
significantly affected by the PDA acquisition. The Company's working capital at
January 31, 1996 was $21,182,000, compared to $15,408,000 at January 31, 1995.
The Company has an agreement for a $5,000,000 unsecured line of credit with its
principal bank at the prevailing prime rate. No amounts were outstanding under
this line of credit as of January 31, 1996.

The Company issued convertible subordinated debentures, in connection with
the PDA acquisition, in the aggregate amount of approximately $56,608,000. The
debentures bear interest at 7 7/8% with interest payments due semi-annually in
March and September. Each semi-annual interest payment was approximately
$2,200,000 in fiscal 1996. The amount of interest will decrease if the
debentures are converted into common stock; however, the aggregate amount of the
common stock dividend paid by the Company will increase as these debentures are
converted if the same per share rate is maintained.

The Company provided reserves for consolidating its operations resulting
from the acquisition of PDA (see RESTRUCTURING COSTS above). Included in this
reserve were approximately $10,800,000 of items that relate to cash
expenditures. As of January 31, 1996, approximately $9,400,000 in cash has been
expended in relation to these items. The Company expects to incur additional
cash outflows of approximately $1,400,000 over the next twelve months related to
the restructuring reserve.

Management expects to continue to invest a substantial portion of the
Company's revenues in the research and development of new computer software
products and the enhancement of existing products. The Company expended a total
of $32,845,000, $31,632,000, and $23,414,000 in fiscal 1996, 1995, and 1994,
respectively, on research and development efforts of which $10,447,000,
$9,226,000, and $6,112,000, were capitalized in fiscal 1996, 1995, and 1994,
respectively. Product development costs and the capitalization rate may vary
depending in part on the number of products and the stage of development of the
products in process.

During the years ended January 31, 1996, 1995 and 1994, the Company acquired
$7,885,000, $3,656,000, and $3,581,000, respectively, of new property and
equipment. Capital expenditures during fiscal 1996 included significant upgrades
to computer equipment to keep current with technological advances and expansion
of facilities worldwide. The Company's capital expenditures vary from year to
year as required by business needs. The Company intends to continue to expand
the capabilities of its computer equipment which is used in the development and
support of its proprietary software products. Management expects expenditures
for property and equipment in future years to be consistent with those for
fiscal 1996.

The Company's cash flows have also been sufficient to allow cash dividend
payments on the Company's common stock in the aggregate amounts of $8,571,000,
$8,563,000, and $7,371,000 in the years ended January 31, 1996, 1995 and 1994,
respectively. The Board of Directors intends to continue regular dividends as
permitted by the Company's cash requirements and other factors.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also

12
<PAGE>
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement 121 in the first quarter of fiscal 1997
and, based on current circumstances, does not believe the effect of adoption
will be material.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Awards of Stock-Based Compensation to Employees ("SFAS
No. 123"), which will be effective for the Company's fiscal year ending January
31, 1997. SFAS No. 123 provides alternative accounting treatment to APB No. 25
with respect to stock-based compensation and requires certain additional
disclosures, including disclosures if the Company elects not to adopt the
accounting requirements of SFAS No. 123. The Company will adopt the disclosure
requirements of SFAS No. 123 in the first quarter of fiscal 1997, but will elect
to continue to measure compensation costs following present accounting rules
under APB No. 25. Consequently, the Company will provide pro forma disclosures
of what net income and earnings per share would have been had the fair market
value method of SFAS No. 123 been used for the relevant periods.

INFLATION

Inflation in recent years has not had a significant effect on the Company's
business.

13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1996 AND 1995
ASSETS

<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 7,235,000 $ 6,944,000
Short-term investments......................................................... 3,340,000 7,075,000
Accounts receivable, net....................................................... 36,455,000 33,822,000
Deferred tax charges........................................................... 3,219,000 2,125,000
Income tax refund receivable................................................... 1,243,000 4,145,000
Other current assets........................................................... 5,056,000 4,287,000
-------------- --------------
Total current assets......................................................... 56,548,000 58,398,000
-------------- --------------
Property and equipment, net...................................................... 12,281,000 10,272,000
Capitalized software costs, net.................................................. 29,069,000 26,694,000
Goodwill and other intangible assets, net........................................ 19,090,000 21,510,000
Other assets..................................................................... 2,672,000 1,877,000
-------------- --------------
$ 119,660,000 $ 118,751,000
-------------- --------------
-------------- --------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable............................................................... $ 2,436,000 $ 2,679,000
Accrued liabilities............................................................
Compensation and related expenses............................................ 4,075,000 3,375,000
Contribution to profit sharing plan.......................................... 3,155,000 2,333,000
Other........................................................................ 12,896,000 13,732,000
Restructuring reserve.......................................................... 1,389,000 5,817,000
Deferred income................................................................ 8,663,000 12,913,000
Dividends payable.............................................................. 2,151,000 2,141,000
Income taxes payable........................................................... 601,000 --
-------------- --------------
Total current liabilities.................................................... 35,366,000 42,990,000
Deferred income taxes............................................................ 10,573,000 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 in 1996 and 1995 -- --
Common Stock, $0.01 par value, 100,000,000 shares authorized; 13,448,100 and
13,380,000 issued and outstanding in 1996 and 1995, respectively 30,082,000 29,366,000
Retained earnings.............................................................. (10,754,000) (16,580,000)
Accumulated translation adjustment............................................. (2,183,000) (411,000)
-------------- --------------
Total shareholders' equity................................................... 17,145,000 12,375,000
-------------- --------------
$ 119,660,000 $ 118,751,000
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes.

14
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Analysis Software.............................................. $ 76,408,000 $ 69,451,000 $ 65,400,000
Modeling Software.............................................. 45,011,000 24,304,000 9,973,000
Other.......................................................... 9,064,000 6,931,000 4,201,000
-------------- -------------- -------------
Total revenues............................................... 130,483,000 100,686,000 79,574,000
Operating expenses:
Cost of revenue................................................ 17,763,000 10,653,000 7,819,000
Amortization of goodwill and other intangibles................. 2,420,000 731,000 --
Research and development....................................... 22,398,000 22,406,000 17,302,000
Selling, general and administrative............................ 63,163,000 50,666,000 37,668,000
In process research and development............................ -- 35,000,000 --
Restructuring costs............................................ -- 8,962,000 --
-------------- -------------- -------------
Total operating expenses..................................... 105,744,000 128,418,000 62,789,000
Operating income (loss).......................................... 24,739,000 (27,732,000) 16,785,000
Debenture interest............................................... (4,465,000) (1,967,000) --
Other income, net................................................ 823,000 617,000 163,000
-------------- -------------- -------------
Income (loss) before income taxes................................ 21,097,000 (29,082,000) 16,948,000
Provision for income taxes....................................... 6,690,000 1,300,000 5,508,000
-------------- -------------- -------------
Net income (loss)................................................ $ 14,407,000 $ (30,382,000) $ 11,440,000
-------------- -------------- -------------
-------------- -------------- -------------
Primary earnings (loss) per share................................ $ 1.06 $ (2.27) $ 0.86
-------------- -------------- -------------
-------------- -------------- -------------
Fully diluted earnings (loss) per share.......................... $ 0.99 $ (2.27) $ 0.86
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

See accompanying notes.

15
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 14,407,000 $ (30,382,000) $ 11,440,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization of property and equipment........ 5,880,000 5,576,000 5,363,000
Amortization of goodwill and other intangibles................. 2,420,000 731,000 --
Amortization of capitalized software costs..................... 8,739,000 7,026,000 5,024,000
Deferred income taxes.......................................... 2,669,000 (5,686,000) 338,000
(Gain) Loss on disposal of property and equipment.............. (4,000) 48,000 85,000
Write-off of in-process research and development............... -- 35,000,000 --
Changes in assets and liabilities:
Accounts receivable............................................ (2,633,000) (10,590,000) 448,000
Other current assets........................................... (769,000) 6,179,000 (1,000,000)
Income tax refund receivable................................... 2,902,000 (4,145,000) --
Accounts payable............................................... (243,000) (460,000) (469,000)
Accrued liabilities............................................ 686,000 7,914,000 70,000
Deferred income................................................ (4,250,000) 1,216,000 1,827,000
Restructuring costs............................................ (4,428,000) (4,303,000) --
Income taxes payable........................................... 601,000 (2,311,000) (371,000)
------------- ------------- -------------
Net cash provided by operating activities 25,977,000 5,813,000 22,755,000
Cash flows from investing activities:
Decrease (Increase) in short-term investments.................... 3,735,000 10,709,000 (6,151,000)
Acquisition of property and equipment............................ (7,885,000) (3,656,000) (3,581,000)
Purchase of subsidiaries, net of cash acquired................... -- (2,594,000) --
Capitalized software costs....................................... (10,447,000) (9,226,000) (6,112,000)
Other............................................................ (1,462,000) 4,573,000 108,000
------------- ------------- -------------
Net cash used in investing activities (16,059,000) (194,000) (15,736,000)
Cash flows from financing activities:
Payments of long-term debt....................................... -- (19,000) --
Issuance of common stock......................................... 716,000 54,000 706,000
Repurchase of common stock....................................... -- -- (326,000)
Repurchase of warrants outstanding............................... -- -- (126,000)
Cash dividends paid.............................................. (8,571,000) (8,563,000) (7,371,000)
------------- ------------- -------------
Net cash used in financing activities.............................. (7,855,000) (8,528,000) (7,117,000)
Translation adjustment............................................. (1,772,000) (253,000) 444,000
------------- ------------- -------------
Net increase in cash and cash equivalents.......................... 291,000 (3,162,000) 346,000
Cash and cash equivalents at beginning of year..................... 6,944,000 10,106,000 9,760,000
------------- ------------- -------------
Cash and cash equivalents at end of year........................... $ 7,235,000 $ 6,944,000 $ 10,106,000
------------- ------------- -------------
------------- ------------- -------------
Supplemental cash flow information:
Income taxes paid................................................ $ 2,857,000 $ 3,568,000 $ 3,422,000
------------- ------------- -------------
------------- ------------- -------------
Debenture interest paid.......................................... $ 4,737,000 -- --
------------- ------------- -------------
------------- ------------- -------------
Reconciliation of assets acquired and liabilities assumed:
Fair value of assets acquired.................................... -- $ 85,249,000 --
Liabilities assumed.............................................. -- 82,655,000 --
------------- ------------- -------------
-- $ 2,594,000 --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes.

16
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
SHARES OF ACCUMULATED TOTAL
COMMON COMMON RETAINED TRANSLATION SHAREHOLDERS'
STOCK STOCK EARNINGS ADJUSTMENT EQUITY
---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1993................................. 13,299,200 $29,058,000 $ 19,014,000 $ (602,000) $ 47,470,000
Shares issued under Stock Option Plan..................... 76,300 706,000 706,000
Purchase of minority interest in subsidiary and
warrants............................................... (452,000) (452,000)
Cash dividends declared -- $.64 per share............... (8,089,000) (8,089,000)
Net income.............................................. 11,440,000 11,440,000
Translation adjustment.................................... 444,000 444,000
---------- ----------- ------------ ------------ -------------
Balance at January 31, 1994................................. 13,375,500 29,312,000 22,365,000 (158,000) 51,519,000
Shares issued under Stock Option Plan..................... 3,800 44,000 44,000
Cash dividends declared -- $.64 per share............... (8,563,000) (8,563,000)
Shares issued from Conversion of Debentures............... 700 10,000 10,000
Net loss................................................ (30,382,000) (30,382,000)
Translation adjustment.................................... (253,000) (253,000)
---------- ----------- ------------ ------------ -------------
Balance at January 31, 1995................................. 13,380,000 29,366,000 (16,580,000) (411,000) 12,375,000
Shares issued under Stock Option Plan..................... 68,100 716,000 716,000
Cash dividends declared -- $.64 per share............... (8,581,000) (8,581,000)
Net income.............................................. 14,407,000 14,407,000
Translation adjustment.................................... (1,772,000) (1,772,000)
---------- ----------- ------------ ------------ -------------
Balance at January 31, 1996................................. 13,448,100 $30,082,000 $(10,754,000) $(2,183,000) $ 17,145,000
---------- ----------- ------------ ------------ -------------
---------- ----------- ------------ ------------ -------------
</TABLE>

See accompanying notes.

17
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS INFORMATION

BUSINESS. The Company designs, produces and markets proprietary computer
software products for use in computer-aided engineering. The Company's products
are marketed internationally to aerospace, automotive, and other industrial
concerns, computer and electronics manufacturers, and universities.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

REVENUE RECOGNITION. Revenue from leasing computer software products is
recognized monthly as earned. The software leases generally provide for a
monthly minimum rental, with additional amounts due based on usage. Revenue from
prepaid and paid-up licenses is recognized in full at the delivery of the
software with maintenance on such licenses deferred and recognized over the term
of the maintenance agreement, generally one year.

STOCK BASED COMPENSATION. The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.

RECLASSIFICATIONS. The consolidated financial statements for 1995 and 1994
contain certain reclassifications to conform to the 1996 presentation.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. For purposes of the
consolidated statements of cash flows, the Company considers investments in
money market instruments to be cash equivalents. In 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). The adoption of SFAS
No. 115 did not have a significant effect on the Company's financial statements.
Short-term investments (principally municipal debt securities with maturity
dates generally within one year) are classified as "held-to-maturity" based on
the Company's positive intent and ability to hold the securities to maturity.
Unrealized gains and losses were not significant at January 31, 1996 or January
31, 1995.

ACCOUNTS RECEIVABLE. Accounts receivable are reported net of allowances for
doubtful accounts. The Company's revenue is generated from customers in
diversified industries, primarily in North America, Europe and the Far East. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.

PROPERTY AND EQUIPMENT. Depreciation and amortization are computed on the
straight-line method over the estimated useful lives of assets, ranging from 2
to 5 years.

CAPITALIZED SOFTWARE COSTS. Capitalized software costs are comprised of
purchased software and internal software development costs. Software costs
incurred subsequent to the determination of the software product's technological
feasibility are capitalized. Capitalization ceases and amortization of
capitalized costs begins when the software product is available for general
release to clients. Capitalized software amortization expense is included in
cost of revenue. The amortization period for the software costs capitalized is
the economic life of the related products, typically three to four years.

GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill amounting to approximately
$13,607,000 and $15,151,000 net of accumulated amortization of $2,226,000 and
$682,000, as of January 31, 1996 and 1995, respectively, arising from
acquisitions is amortized on the straight-line basis over a period of 10 years.
Other

18
<PAGE>
intangibles amounted to approximately $5,483,000 and $6,359,000, net of
accumulated amortization as of January 31, 1996 and 1995, respectively, and are
amortized on a straight-line basis over 5 to 10 years. Accumulated amortization
of other intangibles as of January 31, 1996 and 1995, amounted to $1,206,000 and
$330,000, respectively. The carrying value of intangibles is evaluated
periodically in relation to the operating performance and future undiscounted
cash flows of the underlying business. Adjustments are made if the sum of
expected future net cash flows is less than book value.

ADVERTISING EXPENSE. The cost of advertising is expensed as incurred. The
Company incurred $1,229,000, $1,035,000, and $796,000, in advertising costs
during fiscal 1996, 1995, and 1994, respectively.

ROYALTIES TO THIRD PARTIES. The Company has several agreements with third
parties requiring the payment of royalties for sales of third party products, or
inclusion of such products as a component of the Company's products.

INCOME TAXES. Provision is made in the Company's financial statements for
current income taxes payable and deferred income taxes arising primarily from
temporary differences in accounting for capitalized software costs,
undistributed earnings of international subsidiaries, depreciation expense,
deferred income and state income taxes.

EFFECT OF FOREIGN CURRENCY. The Company translates the assets and
liabilities of its foreign subsidiaries at the rate of exchange in effect at the
period end. Revenues and expenses are translated using an average of exchange
rates in effect during the period. Translation adjustments are recorded as a
separate component of shareholders' equity in the consolidated balance sheet.

EARNINGS PER SHARE. Primary earnings per share is calculated by dividing
net income by the weighted average number of shares of Common Stock and Common
Stock equivalent shares outstanding during the period which were 13,582,000 in
1996, 13,386,000 in 1995, and 13,368,000 in 1994. Common Stock equivalent shares
include stock options outstanding during the period computed under the treasury
stock method. Common Equivalents are excluded from the calculation in 1995
because their effect is anti-dilutive.

Fully diluted earnings per share for 1996 assumes the convertible
subordinated debentures were converted into Common Stock at the beginning of the
period and the related interest requirements, net of tax, is added to net income
in the calculation. The assumed conversion of the debentures is excluded from
the calculation in 1995 because the effect is anti-dilutive. Shares outstanding
for calculating fully diluted earnings per share were 17,336,000 for 1996.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In March 1995, the FASB
issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of fiscal 1997 and, based
on current circumstances, does not believe the effect of adoption will be
material.

NOTE 2: MERGERS AND ACQUISITIONS

19
<PAGE>
$6.85 per share, and cash of $5,313,000 to purchase all in the money options.
See Note 8 for a description of the debentures. In allocating the purchase price
to the acquired assets and assumed liabilities, the Company has provided
$9,800,000 for costs of restructuring PDA operations, principally related to
workforce reduction and duplicate facilities. The acquisition was treated as a
purchase for accounting purposes and, accordingly, the operating results of PDA
from the date of the acquisition through January 31, 1996 have been reflected in
the Company's consolidated financial statements.

The total purchase price was allocated to the assets and liabilities of PDA
based on their approximate fair market value. The appraisal of the acquired
business included $35,000,000 of purchased in-process research and development,
which was written off at the time of the acquisition and appears as a charge for
the quarter ending October 31, 1994. The remaining purchase price was allocated
to net tangible assets of approximately $18,657,000, $4,500,000 of identified
intangible assets, and $13,600,000 of goodwill. Goodwill and identified
intangibles are being amortized over ten years.

An additional charge of $8,962,000 related to the acquisition was also
recorded in the third quarter, of which approximately $2,600,000 related to the
writeoff of overlapping capitalized software product costs, $2,700,000 to the
elimination of duplicate facilities and equipment, $2,900,000 to a reduction in
workforce, and the balance for other costs directly associated with the
acquisition.

Included in the restructuring reserve were approximately $10,800,000 of
items that relate to cash expenditures. As of January 31, 1996, approximately
$9,400,000 of this amount had been expended in relation to these items. The
Company expects to incur additional cash outflows of approximately $1,400,000
over the next twelve months related to the restructuring reserve, with the
balance of the reserve being paid out over the next several years.

The table below reflects the pro forma effect of the acquisition as if it
had occurred on February 1, 1994 and 1993, respectively. The unaudited pro forma
data presented below is not necessarily indicative of operating results which
would have been achieved had the acquisition been consummated as of February 1,
1994 or 1993 and should not be construed as representative of future operations.

<TABLE>
<CAPTION>
YEARS ENDED JANUARY
31,
----------------------
DOLLARS IN THOUSANDS 1995 1994
---------- ----------
<S> <C> <C>
Revenue............................................................... $ 118,353 $ 121,430
Operating expense..................................................... 153,330 147,326
Net loss.............................................................. $ (39,344) $ (31,947)
</TABLE>

NOTE 3: ACCOUNTS RECEIVABLE

The components of the Company's allowance for doubtful accounts receivable,
consist of the following:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY
31,
--------------------
DOLLARS IN THOUSANDS 1996 1995
--------- ---------
<S> <C> <C>
Beginning balance.......................................................... $ 3,574 $ 864
Additions due to acquisitions.............................................. -- 1,397
Amounts charged to expense................................................. 152 1,710
Writedowns against the reserve............................................. 1,164 397
--------- ---------
Ending balance............................................................. $ 2,562 $ 3,574
--------- ---------
--------- ---------
</TABLE>

20
<PAGE>
NOTE 4: PROPERTY AND EQUIPMENT

Property and equipment, at cost, consists of the following:

<TABLE>
<CAPTION>
JANUARY 31,
----------------------
DOLLARS IN THOUSANDS 1996 1995
---------- ----------
<S> <C> <C>
Computers and other equipment......................................... $ 27,520 $ 21,790
Furniture and fixtures................................................ 1,911 1,813
Leasehold improvements................................................ 1,729 744
---------- ----------
31,160 24,347
Less accumulated depreciation and amortization........................ (18,879) (14,075)
---------- ----------
$ 12,281 $ 10,272
---------- ----------
---------- ----------
</TABLE>

NOTE 5: CAPITALIZED SOFTWARE COSTS

Amortization of software costs capitalized of $8,739,000 in 1996, $7,026,000
in 1995, and $5,024,000 in 1994 is included in cost of revenues. Software costs
capitalized amounted to $10,447,000 in 1996, $9,226,000 in 1995, and $6,112,000
in 1994. In addition, the Company purchased certain software which was
capitalized in fiscal 1996 amounting to approximately $667,000.

<TABLE>
<CAPTION>
JANUARY 31,
----------------------
DOLLARS IN THOUSANDS 1996 1995
---------- ----------
<S> <C> <C>
Capitalized software costs............................................ $ 50,339 $ 39,225
Less accumulated amortization......................................... (21,270) (12,531)
---------- ----------
Capitalized software costs, net....................................... $ 29,069 $ 26,694
---------- ----------
---------- ----------
</TABLE>

NOTE 6: OTHER ACCRUED LIABILITIES

The components of the Company's other accrued liabilities, consist of the
following:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
DOLLARS IN THOUSANDS 1996 1995
--------- ---------
<S> <C> <C>
Debenture interest payable.............................................. $ 1,685 $ 1,967
Royalties payable....................................................... 791 2,641
Commissions payable..................................................... 3,369 2,500
Consumption taxes payable............................................... 1,700 971
Post retirement benefits................................................ 1,060 1,338
Bonuses payable......................................................... 200 600
Other................................................................... 4,091 3,715
--------- ---------
Total................................................................. $ 12,896 $ 13,732
--------- ---------
--------- ---------
</TABLE>

NOTE 7: TAXES BASED ON INCOME

The Company utilizes the asset and liability method of accounting for income
taxes.

The provision for taxes based on income consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------
DOLLARS IN THOUSANDS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 464 $ (5,698) $ 2,771
State....................................................... 675 49 1,012
Foreign..................................................... 2,882 2,656 1,387
--------- --------- ---------
4,021 (2,993) 5,170
Deferred...................................................... 2,669 4,293 338
--------- --------- ---------
$ 6,690 $ 1,300 $ 5,508
--------- --------- ---------
--------- --------- ---------
</TABLE>

21
<PAGE>
The foreign tax provision for fiscal 1996, 1995, and 1994 includes
withholding taxes of $1,811,000, $1,651,000, and $1,387,000, respectively,
assessed to the Company by foreign authorities on foreign revenues remitted to
the U.S. The Company's foreign operations realized combined net income including
intercompany charges and before taxes of $1,841,000 in 1996, $398,000 in 1995,
and $739,000 in 1994.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of January 31, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
DOLLARS IN THOUSANDS 1995 1994
--------- ---------
<S> <C> <C>
Deferred tax liabilities
Tax in excess of book depreciation.................................... $ 213 $ 266
Capitalized software.................................................. 12,779 12,201
Intangible assets..................................................... 1,576 1,787
Prepaid expenses...................................................... 189 212
--------- ---------
Total deferred tax liabilities...................................... 14,757 14,466
Deferred tax assets
State taxes........................................................... 1,192 746
Accrued liabilities................................................... 739 946
Net operating losses.................................................. 6,811 6,756
Deferred revenue...................................................... 253 634
Undistributed earnings of foreign subsidiaries........................ 1,434 1,007
Business credits...................................................... 1,659 363
Restructuring charge.................................................. 372 2,987
Benefits and compensation............................................. 842 741
Other................................................................. 5 3
--------- ---------
Total deferred tax assets........................................... 13,307 14,183
Valuation allowance................................................... (5,904) (4,402)
--------- ---------
Net deferred tax assets............................................. 7,403 9,781
--------- ---------
Net deferred tax liabilities............................................ $ 7,354 $ 4,685
--------- ---------
--------- ---------
</TABLE>

The balance sheet presentation of the net deferred tax liabilities is as
follows:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
DOLLARS IN THOUSANDS 1996 1995
--------- ---------
<S> <C> <C>
Net long-term deferred tax liability..................................... $ 10,573 $ 6,810
Current deferred charges................................................. (3,219) (2,125)
--------- ---------
Net deferred tax liabilities............................................. $ 7,354 $ 4,685
--------- ---------
--------- ---------
</TABLE>

At January 31, 1996, the Company had net operating loss carryforwards and
net operating loss carrybacks for federal income tax purposes of approximately
$17,391,000 and $2,068,000 respectively. The federal net operating loss
carryforwards expire at various dates through the year 2010. The Company's
merger with Aries constituted an ownership change for federal income tax
purposes and as a result, the amount of net operating loss carryforward which
may by utilized in any given year may be limited. For financial reporting
purposes, a valuation allowance of $5,904,000 at January 31, 1996, $4,402,000 at
January 31, 1995 and $4,785,000 at January 31, 1994 has been recognized to
offset the deferred tax assets relating to recent acquisitions.

22
<PAGE>
The following table reconciles the provision for taxes based on income
before taxes to the statutory federal income tax rate of 35% for the years ended
January 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------
DOLLARS IN THOUSANDS 1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate................................. $ 7,384 $ (10,179) $ 5,830
Increase (decrease) related to:
State income taxes, net of federal benefits................. 926 281 742
Excludable portion of acquisition expenses.................. -- -- 352
Amortization of goodwill.................................... 580 177 --
Income of Foreign Sales Corporation......................... (1,632) (655) (527)
Excludable portion of investment income..................... (91) (150) (163)
Excludable research and development writeoff................ -- 12,250 --
Benefit from net operating loss............................. (5) (445) (206)
Statutory rate changes...................................... -- -- (323)
Other, net.................................................. (472) 21 (197)
--------- ---------- ---------
$ 6,690 $ 1,300 $ 5,508
--------- ---------- ---------
--------- ---------- ---------
</TABLE>

NOTE 8: CONVERTIBLE SUBORDINATED DEBENTURES

The Company issued $56,608,000 of convertible subordinated debentures in
connection with the acquisition of PDA. The debentures bear interest at 7 7/8%
with interest payments due semi-annually on March 15th and September 15th. They
have a conversion feature which permits the holder to convert the debentures
into shares of the Company's Common Stock at a conversion price of $15.15 per
share. The debentures mature August 18, 2004, but are redeemable at the
Company's option at any time after August 18, 1997 upon payment of a premium. At
January 31, 1996 the fair market value of the debentures outstanding based on
their quoted trading price was approximately $61,102,000.

NOTE 9: INTERNATIONAL OPERATIONS

The following tables summarize consolidated financial information of the
Company's operations by geographic location:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------
DOLLARS IN THOUSANDS 1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Domestic................................................. $ 55,683 $ 51,866 $ 40,865
Export sales............................................. 20,378 17,085 15,879
Far East................................................. 15,061 8,855 4,905
Europe................................................... 39,361 22,880 17,925
---------- ---------- ---------
Consolidated............................................. $ 130,483 $ 100,686 $ 79,574
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

Financial data included in the consolidated financial statements of the
Company's European and Far East subsidiaries is based on years ending December
31.

<TABLE>
<CAPTION>
JANUARY 31,
---------------------------------
DOLLARS IN THOUSANDS 1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Identifiable assets:
United States............................................ $ 94,795 $ 94,608 $ 68,281
Europe................................................... 17,686 18,024 6,357
Far East................................................. 7,179 6,119 3,866
---------- ---------- ---------
Consolidated............................................. $ 119,660 $ 118,751 $ 78,504
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

23
<PAGE>
The net assets of the Company's foreign subsidiaries totaled $3,749,000,
$3,662,000, and $6,694,000 in 1996, 1995 and 1994, respectively, including
intercompany items. The net income (loss) of the Company's foreign subsidiaries
is reported in Note 7.

NOTE 10: EMPLOYEE BENEFITS

The Company contributes an amount, integrated with Social Security, to a
defined contribution plan, covering substantially all North American full-time
employees who have completed a specified term of service with the Company.
Contributions charged to expense in connection with this plan were approximately
$3,019,000 in 1996, $2,206,000 in 1995, and $1,479,000 in 1994. The plan has a
401(k) feature to permit voluntary employee contributions which does not affect
the Company's expenses.

The Company adopted a non-qualified supplemental retirement plan during the
year ended January 31, 1995. The Company contributes an amount, integrated with
Social Security and the Company's defined contribution plan, covering certain
key employees who have completed a specified term of service with the Company.
Contributions charged to expense in connection with this plan were approximately
$135,000 in 1996, and $116,000 in 1995.

The Company also has a post retirement health care plan for employees
completing minimum age and years of service requirements. The plan provides for
a benefit offsetting premiums for health care coverage. The amount of the
benefit is based on a combination of the age of the participant and the number
of years of service at retirement. The gross accumulated post-retirement
obligation was approximately $1,636,000 and $933,000 at January 31, 1996 and
1995, respectively. The Company is recognizing past service cost over 20 years.
Total expense for the years ended January 31, 1996, 1995 and 1994 was $196,000,
$156,000 and $138,000, respectively.

NOTE 11: STOCK OPTION PLANS
1983 PLAN

The 1983 MacNeal-Schwendler Incentive Stock Option Plan for Key Employees
provided for the granting of options for the purchase of up to 900,000
authorized but unissued shares of the Company's Common Stock, at option prices
of not less than the fair market value of the common shares at the date of
grant. The options become fully exercisable one year from the date of grant and
expire five years after the date of grant. The 1983 Plan expired during fiscal
1995, therefore no additional shares are available for grant.

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER
OPTION PRICE OF OPTIONS
OPTIONS PER SHARE EXERCISABLE
--------- --------------- -----------
<S> <C> <C> <C>
Outstanding at January 31, 1994...................... 300,200 $8.00-$16.13 141,200
Granted.............................................. 0
Exercised............................................ (3,800) 8.00- 11.25
Canceled............................................. (37,700) 11.00- 14.25
--------- -----------
Outstanding at January 31, 1995...................... 258,700 8.00- 16.13 258,700
Granted.............................................. 0
Exercised............................................ (43,600) 8.00- 14.25
Canceled............................................. (15,800) 11.00- 15.38
--------- -----------
Outstanding at January 31, 1996...................... 199,300 $8.00-$16.13 199,300
--------- -----------
--------- -----------
</TABLE>

1991 PLAN

The MacNeal-Schwendler 1991 Stock Option Plan consists of two parts -- a
"Key Employee Program" which allows discretionary awards of nontransferable
incentive stock options and nonqualified stock options to officers and other key
employees, and a "Non-Employee Director Program" which provides for automatic
annual grants of nontransferable, nonqualified stock options to non-employee
directors.

24
<PAGE>
The "Key Employee Program" section of the 1991 Plan provides for the
granting of both incentive stock options and nonqualified options for the
purchase of up to 2,500,000 authorized but unissued shares of the Company's
common stock at the fair market value of such shares on the date the option is
granted, or for nonqualified options at such price as the Compensation Committee
may determine.

The "Non-Employee Director Program" section of the 1991 Plan provides for
automatic grants to members of the Board of Directors who are not officers or
employees of the Company or its subsidiaries. A maximum of 500,000 shares of
Company authorized but unissued common stock may be issued upon the exercise of
options under the "Non-Employee Director Program." All eligible directors will
receive annual nondiscretionary grants of nonqualified stock options for the
purchase of 2,000 shares of the Company's common stock.

Options under the 1991 Plan are exercisable up to ten years from the date of
grant, subject to vesting provisions outlined at the grant date.

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER
OPTION PRICE OF OPTIONS
OPTIONS PER SHARE EXERCISABLE
---------- --------------- -----------
<S> <C> <C> <C>
Outstanding at January 31, 1993.............................. 36,700 $ 8.00-$16.13 19,200
Granted...................................................... 437,000 12.63- 14.25
Exercised.................................................... 0
Canceled..................................................... (5,000) 14.25
---------- -----------
Outstanding at January 31, 1994.............................. 468,700 8.00- 16.13 31,700
Granted...................................................... 806,000 10.38- 14.25
Exercised.................................................... 0
Canceled..................................................... (284,700) 11.00- 16.13
---------- -----------
Outstanding at January 31, 1995.............................. 990,000 8.00- 16.13 344,500
Granted...................................................... 785,500 8.00- 14.25
Exercised.................................................... (24,500) 8.00- 14.25
Canceled..................................................... (45,000) 11.00- 15.38
---------- -----------
Outstanding at January 31, 1996.............................. 1,706,000 $ 11.00-$16.13 941,000
---------- -----------
---------- -----------
</TABLE>

Options for the purchase of 1,251,500 and 192,000 shares were available for
future grant as of January 31, 1996 and 1995, respectively.

NOTE 12: COMMITMENTS

The Company leases facilities and equipment under various lease agreements
which range from one to ten years, which require the following minimum annual
rental commitments:

<TABLE>
<CAPTION>
YEARS ENDED
DOLLARS IN THOUSANDS JANUARY 31,
-----------
<S> <C>
Operating Leases
1997................................................................. $ 6,665
1998................................................................. 4,033
1999................................................................. 2,578
2000................................................................. 2,061
2001................................................................. 1,610
Thereafter........................................................... 4,568
-----------
$ 21,515
-----------
-----------
</TABLE>

The combined annual rental cost for facilities and various equipment under
operating leases approximated $5,310,000 in fiscal 1996, $4,658,000 in fiscal
1995, and $3,938,000 in fiscal 1994. In most cases management expects that in
the normal course of business, leases will be renewed or replaced by others.

25
<PAGE>
In February, 1995, the Company entered into an agreement for a $5,000,000
unsecured line of credit with its principal bank at the prevailing prime rate.
Borrowings under the line are subject to certain restrictive covenants. This
line was unused at January 31, 1996.

NOTE 13: SHAREHOLDERS' EQUITY

In September 1988, the Company distributed to common shareholders one right
for each outstanding share of Common Stock. Each right entitles the holder to
purchase one-half share of Common Stock at an exercise price of $50 subject to
adjustment. Initially, the rights will be attached to all Common Stock
certificates and no separate right certificate will be distributed.

The rights, which do not have any shareholder rights, including voting or
dividend rights, will expire on September 19, 1998 unless earlier redeemed by
the Company prior to expiration at a price of $.01 per right. The rights
automatically transfer with a transfer of Common Stock until the time at which
they become exercisable, which occurs on the happening of certain specified
events. If the rights become exercisable, they entitle the holders thereof to
purchase stock or other property of the Company at a reduced price, subject to
certain other provisions of the plan. At January 31, 1996, approximately
6,724,000 shares of Common Stock were reserved for issuance in connection with
these rights.

The debentures issued by the Company have a feature which allows the holder
to convert the debentures to Common Stock of the Company at a conversion price
of $15.15 per share. At January 31, 1996, approximately 3,734,000 shares were
reserved for issuance upon conversion of debentures.

NOTE 14: QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is selected quarterly financial data for the years ended
January 31, 1996 and 1995. (See Note 2 for additional information regarding
one-time charges associated with the acquisition of PDA).

<TABLE>
<CAPTION>
1996
----------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS 1ST 2ND 3RD 4TH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................................................................ $ 30,635 $ 32,045 $ 32,008 $ 35,795
Operating expenses, net......................................................... 25,063 26,264 25,850 28,567
---------- ---------- ---------- ----------
Operating income................................................................ 5,572 5,781 6,158 7,228
Other expense, net.............................................................. (979) (450) (1,129) (1,084)
---------- ---------- ---------- ----------
Income before income taxes...................................................... 4,593 5,331 5,029 6,144
Provision for income taxes...................................................... 1,539 1,786 1,498 1,867
---------- ---------- ---------- ----------
Net income...................................................................... $ 3,054 $ 3,545 $ 3,531 $ 4,277
Primary earnings per share...................................................... $ 0.23 $ 0.26 $ 0.26 $ 0.31
Fully diluted earnings per share................................................ $ 0.22 $ 0.25 $ 0.24 $ 0.28
Weighted average shares outstanding............................................. 13,394,000 13,402,000 13,476,000 13,665,000
</TABLE>

<TABLE>
<CAPTION>
1995
----------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS 1ST 2ND 3RD 4TH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................................................................ $ 19,755 $ 21,102 $ 27,655 $ 32,174
Operating expenses, net......................................................... 15,878 16,932 69,008 26,600
---------- ---------- ---------- ----------
Operating income (loss)......................................................... 3,877 4,170 (41,353) 5,574
Other income(expense), net...................................................... 130 156 (676) (960)
---------- ---------- ---------- ----------
Income (loss) before income taxes............................................... 4,007 4,326 (42,029) 4,614
Provision for income taxes...................................................... 1,302 1,394 302 (1,698)
---------- ---------- ---------- ----------
Net income (loss)............................................................... $ 2,705 $ 2,932 $ (42,331) $ 6,312
Primary earnings (loss) per share............................................... $ 0.20 $ 0.22 $ (3.16) $ 0.47
Weighted average shares outstanding............................................. 13,395,000 13,396,000 13,390,000 13,387,000
</TABLE>

26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE MACNEAL-SCHWENDLER CORPORATION

We have audited the accompanying consolidated balance sheets of The
MacNeal-Schwendler Corporation as of January 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended January 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The
MacNeal-Schwendler Corporation at January 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Los Angeles, California
March 6, 1996

27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held June 12, 1996, filed with the Securities and Exchange Commission
pursuant to Regulation 14A, where it appears under the captions, "Nominees for
Directors" and "Continuing Directors." The information set forth under Item 1 of
this Form 10-K under the caption "Executive Officers of the Registrant" is also
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held June 12, 1996, filed with the Securities and Exchange Commission
pursuant to Regulation 14A, where it appears under the caption, "Security
Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

ITEM 14(a)1. FINANCIAL STATEMENTS.

The following consolidated financial statements of The MacNeal-Schwendler
Corporation and subsidiaries as included in its annual report are included in
Item 8.

Consolidated Statements of Operations for each of the three years
in the period ended January 31, 1996
Consolidated Balance Sheets -- January 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity for each of the
three years
in the period ended January 31, 1996
Consolidated Statements of Cash Flows for each of the three years
in the period ended
January 31, 1996
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors

ITEM 14(a)2. FINANCIAL STATEMENT SCHEDULES.

All information required in this item is included in the consolidated
financial statements and notes thereto, is not present, or is not present in
amounts sufficient to require submission of the schedule.

28
<PAGE>
ITEM 14(a)3. EXHIBITS.

The following exhibits are incorporated by reference into this Report:

<TABLE>
<CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
2.1 Restated Agreement and Plan of Merger dated as of August 11, 1994 by and among The
MacNeal-Schwendler Corporation, MSC Sub, Inc. and PDA Engineering, Inc. (filed as part of The
MacNeal-Schwendler Corporation's Registration Statement on Form S-3 (No. 33-83174), and
incorporated herein by reference).
3.1 Amended Articles of Incorporation of The MacNeal-Schwendler Corporation (filed as Exhibit 3.1 to
The MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed for the fiscal year ended
January 31, 1992, and incorporated herein by reference).
3.2 Restated Bylaws of The MacNeal-Schwendler Corporation.
4.1 Rights Agreement dated September 19, 1988 between The MacNeal-Schwendler Corporation and Bank of
America, NT&SA, as Rights Agent (filed as Exhibit 4.1 to a Current Report on Form 8-K filed
October 4, 1988 and incorporated herein by reference).
4.2 Indenture, dated as of August 18, 1994, between The MacNeal-Schwendler Corporation and Chemical
Trust Company of California, as trustee (filed as part of The MacNeal-Schwendler Corporation's
Registration Statement on Form S-3 (No. 33-83174), and incorporated herein by reference).
4.3 First Supplemental Indenture dated September 22, 1994 between The MacNeal-Schwendler Corporation
and Chemical Trust Company of California, as trustee (filed as Exhibit 4.2 of The
MacNeal-Schwendler Corporation's Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 1994, and incorporated herein by reference).
4.4 Second Supplemental Indenture dated December 14, 1994 between The MacNeal-Schwendler Corporation
and Chemical Trust Company of California, as trustee (filed as Exhibit 4.3 of The
MacNeal-Schwendler Corporation's Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 1994, and incorporated herein by reference).
10.1 Form of Agreement for use of MSC/NASTRAN as modified to September 1991 (filed as Exhibit 10.1 to
The MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed for the fiscal year ended
January 31, 1992, and incorporated herein by reference).
10.2 Agreement dated October 22, 1982 between The MacNeal-Schwendler Corporation and NASA (filed as
Exhibit 10.2 to The MacNeal-Schwendler Corporation's Registration Statement on Form S-1, File
No. 2-82719, and incorporated herein by reference).
10.3 Agreement of Lease dated July 31, 1980 between The MacNeal-Schwendler Corporation and Frank De
Pietro (filed as Exhibit 10.3 to The MacNeal-Schwendler Corporation's Registration Statement on
Form S-1, File No. 2-82719, and incorporated herein by reference).
10.4* 1983 Incentive Stock Option Plan for Key Employees, as amended to January 31, 1989 (filed as
Exhibit 10.4 to The MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed for the
year ended January 31, 1989, and incorporated herein by reference).
10.5 Form of Indemnification Agreement between The MacNeal-Schwendler Corporation and directors,
officers and agents thereof (filed as Exhibit 10.5 to The MacNeal-Schwendler Corporation's
Annual Report on Form 10-K filed for the year ended January 31, 1989, and incorporated herein by
reference).
10.6(a) Form of Severance Agreement between The MacNeal-Schwendler Corporation and executive officers
thereof (filed as Exhibit 10.6(a) to The MacNeal-Schwendler Corporation's Annual Report on Form
10-K filed for the year ended January 31, 1989, and incorporated herein by reference).
</TABLE>

29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
10.6(b) Form of Severance Agreement between The MacNeal-Schwendler Corporation and key employees (filed
as Exhibit 10.6(b) to The MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed for
the year ended January 31, 1989, and incorporated herein by reference).
10.7* Amendment 1991-1 to 1983 Incentive Stock Option Plan for Key Employees (filed as Annex A to The
MacNeal-Schwendler Corporation's Annual Proxy Statement for the Annual Meeting of Shareholders
held on June 12, 1991, and incorporated herein by reference).
10.8* Amendment 1992-1 to 1983 Incentive Stock Option Plan for Key Employees (filed as part of the
Annual Proxy Statement for The MacNeal-Schwendler Corporation's Annual Meeting of Shareholders
held on June 10, 1992, and incorporated herein by reference).
10.9* 1991 Stock Option Plan (filed as Annex A to The MacNeal-Schwendler Corporation's Annual Proxy
Statement for the Annual Meeting of Shareholders held on June 10, 1992, and incorporated herein
by reference).
21 Material Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
</TABLE>

- ------------------------
* Denotes compensatory plan.

ITEM 14(b). REPORTS ON FORM 8-K.

None.

30
<PAGE>
SIGNATURES

Pursuant to 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, thereunto duly authorized.

THE MACNEAL-SCHWENDLER CORPORATION

By /s/ RICHARD H. MACNEAL
-------------------------------------
Dr. Richard H. MacNeal
CHAIRMAN OF THE BOARD

Dated: April 25, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

SIGNATURES TITLE DATE
- ----------------------------------- ------------------------- --------------

/s/ RICHARD H. MACNEAL
- ----------------------------------- Chairman of the Board April 25, 1996
Richard H. MacNeal

/s/ THOMAS C. CURRY President, Chief
- ----------------------------------- Executive Officer and April 25, 1996
Thomas C. Curry Director

Chief Financial Officer
/s/ LOUIS A. GRECO (Principal
- ----------------------------------- Financial and Accounting April 25, 1996
Louis A. Greco Officer)

/s/ PAUL B. MACCREADY
- ----------------------------------- Director April 25, 1996
Paul B. MacCready

/s/ GEORGE N. RIORDAN
- ----------------------------------- Director April 25, 1996
George N. Riordan

/s/ BERNARD J. BANNAN
- ----------------------------------- Director April 25, 1996
Bernard J. Bannan

/s/ HAROLD HARRIGIAN
- ----------------------------------- Director April 25, 1996
Harold Harrigian

/s/ DALE D. MYERS
- ----------------------------------- Director April 25, 1996
Dale D. Myers

31
<PAGE>

SIGNATURES TITLE DATE
- ----------------------------------- ------------------------- --------------

/s/ FRANK J. PERNA
- ----------------------------------- Director April 25, 1996
Frank J. Perna

/s/ ARTHUR S. REIDEL
- ----------------------------------- Director April 25, 1996
Arthur S. Reidel

/s/ RUSSELL F. HENKE
- ----------------------------------- Director April 25, 1996
Russell F. Henke

<PAGE>

Exhibit 3.2

RESTATED BYLAWS

THE MACNEAL-SCHWENDLER CORPORATION

(a Delaware corporation)

<PAGE>
I N D E X

Page
----

ARTICLE I. OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1. Registered Office.. . . . . . . . . . . . . . . . . . . 1
Section 2. Principal Executive Office. . . . . . . . . . . . . . . 1
Section 3. Other Offices.. . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II. STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1. Place of Meetings.. . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings.. . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 4. Notice of Annual or Special Meeting.. . . . . . . . . . 2
Section 5. Notice of Business. . . . . . . . . . . . . . . . . . . 2
Section 6. Notice of Board Candidate.. . . . . . . . . . . . . . . 3
Section 7. Quorum and Adjournment. . . . . . . . . . . . . . . . . 3
Section 8. Voting. . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Record Date.. . . . . . . . . . . . . . . . . . . . . . 4
Section 10. Proxies. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 11. Inspectors of Election.. . . . . . . . . . . . . . . . 5
Section 12. Stockholder Lists. . . . . . . . . . . . . . . . . . . 5

ARTICLE III. DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 1. Powers. . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2. Number of Directors.. . . . . . . . . . . . . . . . . . 6
Section 3. Election and Term of Office.. . . . . . . . . . . . . . 6
Section 4. Board Reclassification. . . . . . . . . . . . . . . . . 6
Section 5. Vacancies.. . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Place of Meeting. . . . . . . . . . . . . . . . . . . . 9
Section 7. Regular Meetings. . . . . . . . . . . . . . . . . . . . 9
Section 8. Special Meetings. . . . . . . . . . . . . . . . . . . . 9
Section 9. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Participation in Meeting by Conference Telephone.. . . 9
Section 11. Waiver of Notice.. . . . . . . . . . . . . . . . . . . 10
Section 12. Adjournment. . . . . . . . . . . . . . . . . . . . . . 10
Section 13. Fees and Compensation. . . . . . . . . . . . . . . . . 10
Section 14. Action Without Meeting.. . . . . . . . . . . . . . . . 10
Section 15. Committees.. . . . . . . . . . . . . . . . . . . . . . 10
Section 16. Rights of Inspection.. . . . . . . . . . . . . . . . . 11
Section 17. Advisory Directors.. . . . . . . . . . . . . . . . . . 11

i
<PAGE>

ARTICLE IV. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 1. Officers. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. Election. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. Appointment of Officers.. . . . . . . . . . . . . . . . 12
Section 4. Removal and Resignation.. . . . . . . . . . . . . . . . 12
Section 5. Vacancies.. . . . . . . . . . . . . . . . . . . . . . . 12
Section 6. Chairman of the Board.. . . . . . . . . . . . . . . . . 12
Section 7. Chief Executive Officer.. . . . . . . . . . . . . . . . 13
Section 8. President.. . . . . . . . . . . . . . . . . . . . . . . 13
Section 9. Vice Presidents.. . . . . . . . . . . . . . . . . . . . 13
Section 10. Corporate Secretary. . . . . . . . . . . . . . . . . . 13
Section 11. Assistant Secretaries. . . . . . . . . . . . . . . . . 14
Section 12. Chief Financial Officer. . . . . . . . . . . . . . . . 14
Section 13. Assistant Financial Officers.. . . . . . . . . . . . . 14

ARTICLE V. STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Section 1. Form of Stock Certificate.. . . . . . . . . . . . . . . 14
Section 2. Transfers of Stock. . . . . . . . . . . . . . . . . . . 15
Section 3. Lost, Stolen or Destroyed Certificates. . . . . . . . . 15
Section 4. Registered Stockholders.. . . . . . . . . . . . . . . . 15

ARTICLE VI. OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 15

Section 1. Endorsement of Documents; Contracts.. . . . . . . . . . 15
Section 2. Representation of Shares of Other Corporations. . . . . 16
Section 3. Seal. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4. Fiscal Year.. . . . . . . . . . . . . . . . . . . . . . 16
Section 5. Dividends.. . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 16

Section 1. Right to Indemnification. . . . . . . . . . . . . . . . 16
Section 2. Right of Claimant to Bring Suit.. . . . . . . . . . . . 17
Section 3. Non-Exclusivity of Rights.. . . . . . . . . . . . . . . 18
Section 4. Insurance.. . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Expenses as a Witness.. . . . . . . . . . . . . . . . . 18
Section 6. Indemnity Agreements. . . . . . . . . . . . . . . . . . 18
Section 7. Effect of Amendment.. . . . . . . . . . . . . . . . . . 18

ARTICLE VIII. EMERGENCY PROVISIONS. . . . . . . . . . . . . . . . . . . 18

Section 1. General.. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Unavailable Directors.. . . . . . . . . . . . . . . . . 19

ii
<PAGE>

Section 3. Authorized Number of Directors. . . . . . . . . . . . . 19
Section 4. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5. Creation of Emergency Committee.. . . . . . . . . . . . 19
Section 6. Constitution of Emergency Committee.. . . . . . . . . . 19

iii

<PAGE>

RESTATED BYLAWS

THE MACNEAL-SCHWENDLER CORPORATION

(A DELAWARE CORPORATION)

ARTICLE I. OFFICES.

SECTION 1. REGISTERED OFFICE. The registered office of The MacNeal-
Schwendler Corporation (the "Corporation") in the State of Delaware shall be at
Incorporating Services, Ltd., 15 East North Street, Dover, County of Kent and
the name of the registered agent at that address shall be Incorporating
Services, Ltd.

SECTION 2. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the Corporation shall be fixed and located at 815 Colorado Boulevard,
City of Los Angeles, County of Los Angeles, State of California. The Board of
Directors of the Corporation (the "Board") is granted full power and authority
to change said principal executive office from one location to another within or
without the State of California. Any such change shall be noted in the Bylaws
of the Corporation opposite this Section 2 or this Section 2 may be amended to
state the new location.

SECTION 3. OTHER OFFICES. Branch or subordinate offices may be
established at any time by the Board at any place or places.

ARTICLE II. STOCKHOLDERS.

SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
either at the principal executive office of the Corporation or at any other
place within or without the State of Delaware which may be designated by the
Board.

SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders
shall be held on such date and at such time as may be fixed by the Board. At
such meetings, directors shall be elected and any other proper business may be
transacted.

SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders
may be called at any time by a majority of the entire Board, the Chairman of the
Board or the President. Special meetings may not be called by any other person
or persons. Upon request in writing to the Chairman of the Board, the
President, any Vice President or the Corporate Secretary by any person (other
than the Board) entitled to call a special meeting of stockholders, the officer

<PAGE>

forthwith shall cause notice to be given to the stockholders entitled to vote
that a meeting will be held at a time requested by the person or persons calling
the meeting, not less than thirty-five (35) nor more than sixty (60) days after
the receipt of the request. If the notice is not given within twenty (20) days
after receipt of the request, the persons entitled to call the meeting may give
the notice.

SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Except as otherwise
required by law, written notice of each annual or special meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote thereat.
Such notice shall state the place, date and hour of the meeting and, in the case
of a special meeting, shall also state the purpose or purposes for which the
meeting is called. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.

Notice of a stockholders' meeting shall be given either personally or
by mail or by other means of written communication, addressed to the stockholder
at the address of such stockholder appearing on the books of the Corporation or
given by the stockholder to the Corporation for the purpose of notice. Notice
by mail shall be deemed to have been given at the time a written notice is
deposited in the United States mail, postage prepaid. Any other written notice
shall be deemed to have been given at the time it is personally delivered to the
recipient or is delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means, to the
recipient.

SECTION 5. NOTICE OF BUSINESS. At any meeting of stockholders, only
such business shall be conducted as shall have been brought before the meeting
(a) by or at the direction of the Board, (b) in accordance with Rule 14a-8 under
the Securities Exchange Act of 1934, or (c) by a stockholder of record entitled
to vote at such meeting who complies with the notice procedures set forth in
this Section 5. For business to be properly brought before a meeting by such a
stockholder, the stockholder shall have given timely notice thereof in writing
to the Corporate Secretary. To be timely, such notice shall be delivered to or
mailed and received at the principal executive office of the Corporation not
less than thirty (30) days nor more than ninety (90) days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than forty (40) days' notice of
the date of the meeting is given by the Corporation, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or otherwise given. Such stockholder's notice to the Corporate Secretary
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting, and in the event that such business includes a proposal to amend either
the Certificate of Incorporation (the "Certificate of Incorporation") or the
Bylaws (the "Bylaws") of the Corporation, the language of the proposed
amendment, (b) the name and address of the stockholder proposing such business,
(c) the class and number of shares of stock of the Corporation which are owned
by such stockholder and (d) any material personal interest of such stockholder
in such business. If notice has not been given pursuant to this Section 5, the
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that the

2
<PAGE>

proposed business was not properly brought before the meeting, and such
business may not be transacted at the meeting. The foregoing provisions of
this Section 5 do not relieve any stockholder of any obligation to comply
with all applicable requirements of the Securities Exchange Act of 1934 and
rules and regulations thereunder.

SECTION 6. NOTICE OF BOARD CANDIDATE. At any meeting of
stockholders, a person may be a candidate for election to the Board only if such
person is nominated (a) by or at the direction of the Board, (b) by any
nominating committee or person appointed by the Board or (c) by a stockholder of
record entitled to vote at such meeting who complies with the notice procedures
set forth in this Section 6. To properly nominate a candidate, a stockholder
shall give timely notice of such nomination in writing to the Corporate
Secretary. To be timely, such notice shall be delivered to or mailed and
received at the principal executive office of the Corporation not less than
thirty (30) days nor more than ninety (90) days prior to the meeting; PROVIDED,
HOWEVER, that in the event that less than forty (40) days' notice of the date of
the meeting is given by the Corporation, notice of such nomination to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
otherwise given. Such stockholder's notice to the Corporate Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate (i) the
name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of stock of the Corporation which are owned by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a solicitation of proxies for election of directors pursuant to Rule 14a
under the Securities Exchange Act of 1934; and (b) as to the stockholder giving
the notice (i) the name and address of such stockholder and (ii) the class and
number of shares of stock of the Corporation owned by such stockholder. The
Corporation may require such other information to be furnished respecting any
proposed nominee as may be reasonably necessary to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person
shall be eligible for election by the stockholders as a director at any meeting
unless nominated in accordance with this Section 6.

SECTION 7. QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders except as otherwise provided by applicable law or by the
Certificate of Incorporation; PROVIDED, HOWEVER, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the

3
<PAGE>

meeting. The Chairman of the meeting may determine that a quorum is present
based upon any reasonable evidence of the presence in person or by proxy of
stockholders holding a majority of the outstanding votes, including without
limitation, evidence from any record of stockholders who have signed a
register indicating their presence at the meeting.

SECTION 8. VOTING. In all matters, when a quorum is present at any
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of applicable law or of the Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Such vote may be by voice vote or by written
ballot; PROVIDED, HOWEVER, that the Board may, in its discretion, require a
written ballot for any vote.

Unless otherwise provided in or pursuant to the Certificate of
Incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.

SECTION 9. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the stockholders entitled to notice of any meeting or
to vote at such meeting, entitled to vote by written consent on matters approved
by the Board or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful actions. The record date so fixed shall be not more than sixty
(60) days nor less than ten (10) days prior to the date of the meeting, not
prior to nor more than ten (10) days after the date of the resolution fixing the
record date for votes by written consent and not more than sixty (60) days prior
to any other action.

SECTION 10. PROXIES. Every person entitled to vote shares has the
right to do so either in person or by one or more persons authorized by a proxy,
in any form which constitutes a valid means of authorization under the Delaware
General Corporation Law, which proxy shall be filed with the Corporate
Secretary. Any proxy duly authorized shall continue in full force and effect
until revoked by the person authorizing it prior to the vote pursuant thereto by
a writing delivered to the Corporation stating that the proxy is revoked, by the
authorization of a subsequent proxy or by attendance at the meeting; PROVIDED,
HOWEVER, that no proxy shall be valid after expiration of three (3) years from
the date of its execution unless otherwise provided in the proxy.

SECTION 11. INSPECTORS OF ELECTION. The Board shall appoint one or
more inspectors of election for any meeting of stockholders. The inspectors
shall, in accordance with the provisions of the Delaware General Corporation
Law, (i) ascertain the number of shares outstanding and the voting power of
each, (ii) determine the shares represented at a meeting and the validity of
proxies and ballots, (iii) count all votes and ballots, (iv) determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors,and (v) certify their determination
by the number of shares represented at the meeting, and their count of all votes
and ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors. The
date and

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time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto,
shall be accepted by the inspectors after the closing of the polls unless the
Court of Chancery of the State of Delaware upon application by a stockholder
shall determine otherwise.

SECTION 12. STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or at the place of the meting, and the list shall also be
available at the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.

ARTICLE III. DIRECTORS.

SECTION 1. POWERS. Subject to the limitations of the Certificate of
Incorporation or the Bylaws or the Delaware General Corporation Law relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board. The Board may
delegate the management of the day-to-day operation of the business of the
Corporation to management or other persons provided that the business and
affairs of the Corporation shall be managed and all corporate powers shall be
exercised under the ultimate direction of the Board. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the Board shall have the following powers in addition to the other
powers enumerated in the Bylaws:

(a) To select and remove all the officers, agents and employees of
the Corporation, to prescribe the powers and duties for them as may not be
inconsistent with law, with the Certificate of Incorporation or the Bylaws
and to fix their compensation.

(b) To conduct, manage and control the affairs and business of the
Corporation and to make such rules and regulations therefor not
inconsistent with law or with the Certificate of Incorporation or the
Bylaws, as they may deem best.

(c) To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and such
certificates from time to time as in their judgment they may deem best.

(d) To authorize the issuance of shares of stock of the Corporation
from time to time, upon such terms and for such consideration as may be
lawful.

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(e) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and
securities therefor.

SECTION 2. NUMBER OF DIRECTORS. The authorized number of directors
of the Corporation shall not be less than five (5) nor more than fifteen (15)
until changed by amendment of the Certificate of Incorporation. The exact number
of directors shall be ten (10) until changed by an amendment hereof duly adopted
by the Board amending this Section 2.

SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected in accordance with the Certificate of Incorporation.

SECTION 4. BOARD RECLASSIFICATION. At such time as there is any
change in the number of directors of the Corporation, the determination of the
selection of directors in each class shall be determined in accordance with the
provisions of this Section 4, unless otherwise agreed to by a two-thirds
majority of the existing directors.

(a) INCREASE IN NUMBER OF CLASSES. At such time (the "Board
Reclassification Time") as the number of classes of directors of the
Corporation increases from two classes to three classes pursuant to the
Certificate of Incorporation, the directors of Class III shall be those
directors of Class A or Class B whose term, immediately prior to the Board
Reclassification Time, was to expire at the second annual meeting of
stockholders, the directors of Class II shall be those directors of Class A
or Class B whose term, immediately prior to the Board Reclassification
Time, was to expire at the next annual meeting of stockholders, and the
directors of Class I shall be those directors appointed or elected, as the
case may be, at the Board Reclassification Time. To the extent that the
division of the directors of the Corporation into three classes as nearly
equal in number as possible requires a reduction of the number of directors
in Class II or Class III, such reduction shall be accomplished by
reclassifying, pursuant to the criteria set forth in clause (d) of this
Section 4, one director at a time, first such directors of Class III to
directors of Class II and then such directors of Class II to directors of
Class I, as shall be required until the class being transferred from shall
contain the maximum number of directors possible while being at the same
time as nearly equal in number as possible, PROVIDED, HOWEVER, that no
director shall be reclassified from Class III to Class I. To the extent
that the division of such directors into three classes as nearly equal in
number as possible requires an increase of the number of directors in Class
II or Class III, such increase shall be accomplished by reclassifying,
pursuant to the criteria set forth in clause (e) of this Section 4, one
director at a time, first such directors of Class II to directors of Class
III and then such directors of Class I to directors of Class II, as shall
be required until the class being transferred to shall contain the maximum
number of directors possible while being at the same time as nearly equal
in number as possible, PROVIDED, HOWEVER, that no director shall be
reclassified from Class I to Class III.

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(b) INCREASE IN NUMBER OF DIRECTORS. At such time as there is an
increase in the number of directors of the Corporation, other than an
increase covered under clause (a) of this Section 4, such increase shall be
accomplished by adding directors, one director at a time, as follows:

i) to such class of directors as may add a director
consistent with the requirement that each class of directors be as
nearly equal in number as possible;

ii) to the extent that two or more classes of directors are
eligible to add such director under the immediately preceding clause,
to the class of directors among such classes, the terms of the
directors of which is to expire sooner than the terms of the
directors of any other such class.

(c) DECREASE IN NUMBER OF DIRECTORS. To the extent that the
division of the directors of the Corporation into classes as nearly equal
in number as possible requires a reduction of the number of directors any
class, such reduction shall be accomplished by reclassifying, pursuant to
the criteria set forth in clause (d) of this Section 4, one director at a
time, such directors of the class, the terms of the directors of which is
to expire later than the term of the directors of any other class, to the
class of directors, the directors of which whose term is to expire one year
earlier than the term of the directors being reclassified, as shall be
required until the class being transferred from shall contain the maximum
number of directors possible while being at the same time as nearly equal
in number as possible, PROVIDED, HOWEVER, that no director shall be
reclassified from Class III to Class I.

(d) REDUCTION OF NUMBER OF DIRECTORS IN CLASS. Whenever
reclassification of directors is required under this clause (d) to
accomplish a reduction in the number of directors in a class, the directors
shall be reclassified, one director at a time, as follows:

i) such director within a class as has been a director of
the Corporation for the fewest number of continuous days
immediately preceding such reclassification shall be the next
director to be reclassified;

ii) to the extent that two or more directors would be the
next director to be reclassified under the immediately preceding
clause, such director as has been a director of the Corporation
for the fewest number of days, whether or not such days have been
continuous, shall be the next director to be reclassified; and

iii) to the extent that two or more directors would be the
next director to be reclassified under the immediately preceding
clause, such director as is the youngest in age shall be the next
director to be reclassified.

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INCREASE IN NUMBER OF DIRECTORS IN CLASS. Whenever
reclassification of directors is required under this clause (e) to
accomplish an increase in the number of directors in a class, the directors
shall be reclassified, one director at a time, as follows:

i) such director within a class as has been a director of
the Corporation for the greatest number of continuous days
immediately preceding such reclassification shall be the next
director to be reclassified;

ii) to the extent that two or more directors would be the
next director to be reclassified under the immediately preceding
clause, such director as has been a director of the Corporation
for the greatest number of days, whether or not such days have
been continuous, shall be the next director to be reclassified;
and

iii) to the extent that two or more directors would be the
next director to be reclassified under the immediately preceding
clause, such director as is the oldest in age shall be the next
director to be reclassified.

SECTION 5. VACANCIES. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Corporate
Secretary or the Board, unless the notice specifies a later time for the
effectiveness of such resignation. Vacancies in the Board shall be filled in
accordance with the Certificate of Incorporation.

SECTION 6. PLACE OF MEETING. Regular or special meetings of the
Board shall be held at any place designated from time to time by the Board. In
the absence of such designation, regular meetings shall be held at the principal
executive office of the Corporation.

SECTION 7. REGULAR MEETINGS. Regular meetings of the Board shall be
held without call at such dates, times and places as the Board may establish
from time to time. Call and notice of all regular meetings of the Board are
hereby dispensed with.

SECTION 8. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, the Corporate Secretary or by any two (2) directors.

Special meetings of the Board shall be held upon four (4) days'
written notice or forty-eight (48) hours' notice given personally or by
telephone, telegraph, telex, telecopier or other similar means of
communication. Any such notice shall be addressed or delivered to each
director at such director's address as it is shown upon the records of the
Corporation or as may have been given to the Corporation by the director for
purposes of notice or, if such address is not shown on such records or is not
readily ascertainable, at the place in which the meetings of the directors
are regularly held.

Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed

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to have been given at the time it is personally delivered to the recipient or
is delivered to a common carrier for transmission or actually transmitted by
the person giving the notice by electronic means, to the recipient. Oral
notice shall be deemed to have been given at the time it is communicated, in
person or by telephone or wireless, to the recipient or to a person at the
office of the recipient who the person giving the notice has reason to
believe will promptly communicate it to the recipient.

SECTION 9. QUORUM. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided that
such majority shall constitute at least one-third of the whole Board. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
Board, unless a greater number be required by law or by Certificate of
Incorporation. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action is
approved by at least a majority of the required quorum for such meeting.

SECTION 10. PARTICIPATION IN MEETING BY CONFERENCE TELEPHONE.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another.

SECTION 11. WAIVER OF NOTICE. The transactions of any meeting of the
Board, however called and noticed, and wherever held, are as valid as though a
meeting had been duly held after regular call and notice if a quorum be present
and if, either before or after the meeting, each of the directors not present
signs a written waiver of notice, a consent to holding such meeting or an
approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.

SECTION 12. ADJOURNMENT. A majority of the directors present,
whether or not a quorum is present, may adjourn any directors' meeting to
another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place be fixed at
the meeting adjourned. If the meeting is adjourned for more than twenty-four
(24) hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to the directors who were not present
at the time of the adjournment.

SECTION 13. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.

SECTION 14. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the Board or committee thereof may be taken without a meeting if
all members of the Board or committee shall individually or collectively consent
in writing to such action. Such

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consent or consents shall have the same effect as a unanimous vote of the
Board or committee and shall be filed with the minutes of the proceedings of
the Board or committee.

SECTION 15. COMMITTEES. The Board may appoint one (1) or more
committees, each consisting of one (1) or more directors, and delegate to such
committees any of the authority of the Board except with respect to:

(i) the approval of any action for which the Delaware General
Corporation Law also requires stockholders' approval or approval of the
outstanding shares, including but not limited to amending the Certificate
of Incorporation (except as otherwise permitted by the Delaware General
Corporation Law with respect to shares of stock) and adopting an agreement
of merger or consolidation under Section 251 or 252 of the Delaware General
Corporation Law;

(ii) The recommending to the Corporation's stockholders of the sale,
lease or exchange of all or substantially all of the Corporation's property
and assets or a dissolution of the Corporation or a revocation of a
dissolution;

(iii) The filling of vacancies on the Board or on any committee;

(iv) The fixing of compensation of the directors for serving on the
Board or on any committee;

(v) The amendment or repeal of Bylaws or the adoption of new Bylaws;

(vi) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable; or

(vii) The appointment of other committees of the Board or the
members thereof.

Any such committee must be appointed by resolution adopted by a
majority of the whole Board and may be designated an Executive Committee or by
such other name as the Board shall specify. The Board shall have the power to
prescribe the manner in which the proceedings of any such committee shall be
conducted. In the absence of any such prescription such committee shall have
the power to prescribe the manner in which its proceedings shall be conducted.
Unless the Board or such committee shall otherwise provide, the regular and
special meetings and other actions of any such committee shall be governed by
the provisions of this Article III applicable to meetings and actions of the
Board. Minutes shall be kept of each meeting of each committee.

SECTION 16. RIGHTS OF INSPECTION. Every director shall have the
absolute right at any reasonable time to inspect and copy all the books, records
and documents of every kind and to inspect physical properties of the
Corporation and also of its subsidiary corporations, domestic

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or foreign. Such inspection by a director may be made in person or by agent
or attorney and includes the right to copy and obtain extracts.

SECTION 17. ADVISORY DIRECTORS. The Board may appoint such
additional advisory directors (by whatever name designated) to advise the Board
on such matters and in such fashion as the Board may from time to time request.
Such advisory directors shall be entitled to notice of, and to attend, regular
and special meetings of the Board, but shall not be entitled to vote at such
meetings and may be appointed or removed at the pleasure of the Board. Such
advisory directors shall not be deemed to be regular members of the Board or
employees of the Corporation for any purpose whatsoever.

ARTICLE IV. OFFICERS.

SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chief Executive Officer, a President, a Corporate Secretary, and a Chief
Financial Officer. The Corporation may also have, at the discretion of the
Board, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Financial Officers, and such other officers as may be elected or
appointed in accordance with the provisions of Section 3 of this Article IV.
Any number of offices may be held by the same person.

SECTION 2. ELECTION. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 of
this Article IV, shall be chosen annually by, and shall serve at the pleasure
of, the Board, and shall hold their respective offices until their resignation,
removal, or other disqualification from service, or until their respective
successors shall be elected.

SECTION 3. APPOINTMENT OF OFFICERS.

(a) CORPORATE OFFICERS. The Chief Executive Officer may appoint such
corporate officers as the Chief Executive Officer deems expedient. Each of
these officers shall hold his or her title for such period, and shall have
such authority and perform such duties as the Board or the Chief Executive
Officer may determine.

(b) DIVISIONAL OFFICERS. The Chief Executive Officer may appoint
such divisional officers as the Chief Executive Officer deems expedient.
Each of these officers shall hold his or her title for such period, and
shall have such authority and perform such duties as the Board or the Chief
Executive Officer or the President of the respective division may
determine.

SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, with
or without cause, by the Board at any time and, except in the case of an officer
chosen by the Board, by any officer upon whom such power of removal may be
conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the officer.

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Any officer may resign at any time by giving written notice to the
Corporation, but without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.

SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for regular election or appointment to such
office.

SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
present, shall preside at all meetings of the stockholders and at all meetings
of the Board. The Chairman of the Board shall have the general powers usually
vested in the office of chairman of the board and such other powers and duties
as may be prescribed by the Board.

SECTION 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the general manager and chief executive officer of the Corporation and
has, subject to the control of the Board, general supervision, direction and
control of the business and officers of the Corporation. The Chief Executive
Officer shall have the general powers and duties of management usually vested in
the offices of general manager and chief executive officer of a corporation and
such other powers and duties as may be prescribed by the Board.

SECTION 8. PRESIDENT. The President shall be the Chief Operating
Officer of the Corporation and shall have, subject to the control of the Board
and Chief Executive Officer, general supervision, direction, and control of the
operations of the Corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and at all meetings
of the Board. The President shall have the general powers and duties of
management usually vested in the offices of president and chief operating
officer of a corporation and such other powers and duties as may be prescribed
by the Board.

SECTION 9. VICE PRESIDENTS. In the absence or disability of the
President, the Vice President or Vice Presidents, if any, in order of their rank
as fixed by the Board or, if not ranked, the Vice President designed by the
Board, shall perform all duties of the President and, when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the President.
The Vice President or Vice Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board.

SECTION 10. CORPORATE SECRETARY. The Corporate Secretary shall keep
or cause to be kept, at the principal executive office and such other place as
the Board may order, a book of minutes of all meetings of stockholders, the
Board and its committees, with the time and place of holding, whether regular or
special, and if special, how authorized, the notice thereof given, the names of
those present at Board and committee meetings, and the number of shares present
or represented at stockholders meetings, and the proceedings thereof. The
Corporate Secretary

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shall keep, or cause to be kept, a copy of the Bylaws at the principal
executive office or business office.

The Corporate Secretary shall keep, or cause to be kept, at the
principal executive office a share register, or a duplicate share register,
showing the name of the stockholders and their addresses, the number and classes
of shares held by each, the number and date of certificates issued for the same,
and the number and date of cancellation of every certificate surrendered for
cancellation.

The Corporate Secretary shall give, or cause to be given, notice of
all meetings of the stockholders and of the Board and of any committees thereof
required by the Bylaws or by law to be given, shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.

SECTION 11. ASSISTANT SECRETARIES. The Assistant Secretary or
Assistant Secretaries, if any, shall, in the absence or disability of the
Corporate Secretary, or at his or her request, perform his or her duties and
exercise his or her powers and authority, and shall perform such other duties
and have such other powers as the Board may from time to time prescribe.

SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the Corporation,
and shall send or cause to be sent to the stockholders of the Corporation such
financial statements and reports as are by law or the Bylaws required to be sent
to them. The books of account shall at all times be open to inspection by any
director.

The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board. The Chief Financial Officer
shall disburse the funds of the Corporation as may be ordered by the Board,
shall render to the Chairman of the Board, the Chief Executive Officer, the
President or any of the directors, whenever they request it, an account of all
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such powers and duties usually vested in the offices
of chief financial officer and chief accounting officer and such other powers
and duties as may be prescribed by the Board.

SECTION 13. ASSISTANT FINANCIAL OFFICERS. The Assistant Financial
Officer or Assistant Financial Officers, if any, shall, in the absence or
disability of the Chief Financial Officer, or at his or her request, perform his
or her duties and exercise his or her powers and authority, and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.

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ARTICLE V. STOCK.

SECTION 1. FORM OF STOCK CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by the Chairman of the Board, the President or a Vice
President, and by the Chief Financial Officer or an Assistant Financial Officer
or the Corporate Secretary or an Assistant Secretary certifying the number of
shares owned in the Corporation. Any or all of the signatures on the
certificate may be a facsimile signature. If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of the issuance.

If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preference and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock. Except as otherwise provided
in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

SECTION 2. TRANSFERS OF STOCK. Upon surrender of a certificate for
shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.

SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board may
direct a new certificate or certificates be issued in place of any certificate
theretofore issued alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of the fact by the person claiming the certificate to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board may, in its discretion and as a condition precedent to the issuance,
require the owner of such certificate or certificates, or such person's legal
representative, to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the lost, stolen or destroyed certificate.

SECTION 4. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock of the
Corporation as the holder in fact thereof and shall not be bound to recognize
any equitable or other claim to or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as expressly provided by applicable law.

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ARTICLE VI. OTHER PROVISIONS.

SECTION 1. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
Corporation and any other person, when signed by the Chief Executive Officer,
the President or any Vice President and the Corporate Secretary, any Assistant
Secretary, the Chief Financial Officer or any Assistant Financial Officers of
the Corporation shall be valid and binding on the Corporation in the absence of
actual knowledge on the part of the other person that the signing officers had
no authority to execute the same. Any such instruments may be signed by any
other person or persons and in such manner as from time to time shall be
determined by the Board, and, unless so authorized by the Board, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or amount.

SECTION 2. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, Corporate Secretary or any other officer or officers authorized by
the Board or the Chairman of the Board are each authorized to vote, represent
and exercise on behalf of the Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of the
Corporation. The authority herein granted may be exercised either by any such
officer or by any other person authorized so to do by proxy or power of attorney
duly executed by said officer.

SECTION 3. SEAL. It shall not be necessary to the validity of any
instrument executed by any authorized officer or officers of the Corporation
that the execution of such instrument be evidenced by the corporate seal, and
all documents, instruments, contracts and writings of all kinds signed on behalf
of the Corporation by any authorized officer or officers shall be as effectual
and binding on the Corporation with the corporate seal, as if the execution of
the same had been evidenced by affixing the corporate seal thereto. The Board
may give general authority to any officer to affix the seal of the Corporation
and to attest the affixing by signature.

SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board.

SECTION 5. DIVIDENDS. Dividends on the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board at any regular or special meeting, pursuant to
law, and may be paid in cash, in property or in shares of capital stock.

Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sums as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other

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purpose as the directors shall determine to be in the best interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.

ARTICLE VII. INDEMNIFICATION.

SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of Delaware as the same
exist or may hereafter be amended (but in the case of such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said laws permitted the Corporation to provide prior
to such amendment) against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that except as provided in Section 2 of this Article VII, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was initiated or authorized by one or more
members of the Board. The right to indemnification conferred in this Section 1
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; PROVIDED, HOWEVER, that if the Delaware General
Corporation Law so requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director of officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 1 or otherwise. The Corporation may, by action of the Board,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.

SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section
1 of this Article VII is not paid in full by the Corporation within thirty (30)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the

16
<PAGE>

Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has failed to meet a standard of conduct which makes it
permissible under Delaware law for the Corporation to indemnify the claimant
for the amount claimed. Neither the failure of the Corporation (including
the Board, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is permissible in the circumstances because he or she has met
such standard of conduct, nor an actual determination by the Corporation
(including the Board, independent legal counsel or its stockholders) that the
claimant has not met such standard of conduct, shall be a defense to the
action or create a presumption that the claimant has failed to meet such
standard of conduct.

SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VII shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.

SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.

SECTION 5. EXPENSES AS A WITNESS. To the extent that any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.

SECTION 6. INDEMNITY AGREEMENTS. The Corporation may enter into
indemnity agreements with the persons who are members of the Board from time to
time, and with such officers, employees and agents as the Board may designate,
such indemnity agreements to provide in substance that the Corporation will
indemnify such persons to the full extent contemplated by this Article VII.

SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VII by the stockholders and the
directors of the Corporation shall not adversely affect any right or protection
of a director or other of the Corporation existing at the time of the amendment,
repeal or modification.

ARTICLE VIII. EMERGENCY PROVISIONS.

17
<PAGE>

SECTION 1. GENERAL. The provisions of this Article VIII shall be
operative only during a national emergency declared by the President of the
United States or the person performing the President's functions, or in the
event of a nuclear, atomic or other attack on the United States or a disaster
making it impossible or impracticable for the Corporation to conduct its
business without recourse to the provisions of this Article VIII. Said
provisions in such event shall override all other Bylaws in conflict with any
provisions of this Article VIII, and shall remain operative so long as it
remains impossible or impracticable to continue the business of the Corporation
otherwise, but thereafter shall be inoperative; PROVIDED, HOWEVER, that all
actions taken in good faith pursuant to such provisions shall thereafter remain
in full force and effect unless and until revoked by action taken pursuant to
the provisions of the Bylaws other than those contained in this Article VIII.

SECTION 2. UNAVAILABLE DIRECTORS. All directors of the Corporation
who are not available to perform their duties as directors by reason of physical
or mental incapacity or for any other reason or who are unwilling to perform
their duties or whose whereabouts are unknown shall automatically cease to be
directors, with like effect as if such persons had resigned as directors, so
long as such unavailability continues.

SECTION 3. AUTHORIZED NUMBER OF DIRECTORS. The authorized number of
directors shall be the number of directors remaining after eliminating those who
have ceased to be directors pursuant to Section 2 of this Article VIII, or the
minimum number required by law, whichever number is greater.

SECTION 4. QUORUM. The number of directors necessary to constitute a
quorum shall be one-third (1/3) of the authorized number of directors as
specified in the foregoing Section 3, or such other minimum number as, pursuant
to the law or lawful decree then in force, it is possible for the bylaws of a
corporation to specify.

SECTION 5. CREATION OF EMERGENCY COMMITTEE. In the event the number
of directors remaining after eliminating those who have ceased to be directors
pursuant to Section 2 of this Article VIII is less than the minimum number of
authorized directors required by law, then until the appointment of additional
directors to make up such required minimum, all the powers and authorities which
the Board could by law delegate, including all powers and authorities which the
Board could delegate to a committee, shall be delegated to an emergency
committee, and the emergency committee shall thereafter manage the affairs of
the Corporation pursuant to such powers and authorities as may by law or lawful
decrees be conferred on any person or body of persons during a period of
emergency.

SECTION 6. CONSTITUTION OF EMERGENCY COMMITTEE. The emergency
committee shall consist of all the directors remaining after eliminating those
who have ceased to be directors pursuant to Section 2 of this Article VIII,
provided that such remaining directors are not less than three (3) in number.
In the event such remaining directors are less than three (3) in number, the
emergency committee shall consist of three (3) persons, who shall be the
remaining director or directors and either one (1) or two (2) officers or
employees of the Corporation, as

18
<PAGE>

the remaining director or directors may in writing designate. If there is no
remaining director, the emergency committee shall consist of the three (3)
most senior officers of the Corporation who are available to serve, and if
and to the extent that officers are not available, the most senior employees
of the Corporation. Seniority shall be determined in accordance with any
designation of seniority in the minutes of the proceedings of the Board, and
in the absence of such designation, shall be determined by rate of
remuneration. In event that there are no remaining directors and no officers
or employees of the Corporation available, the emergency committee shall
consist of three (3) persons designated in writing by the stockholder owning
the largest number of shares of record as of the date of the last record
date.

<PAGE>

Exhibit 21

MATERIAL SUBSIDIARIES OF THE REGISTRANT

State or Country of Percentage of
Subsidiary Incorporation Ownership
- ---------- ------------------- -------------

Aries Technology, Inc. Delaware 100%

PDA Engineering California 100%

MSC Japan, Ltd. Japan 100%

MSC Italia Italy 100%

MSC, Ltd. Hong Kong 100%

MacNeal-Schwendler France France 100%

MSC BV The Netherlands 100%

MSC Ltd. U.K. 100%

MSC GmbH Germany 100%

MSC Iberica, S.A. Spain 100%

MSC Foreign Sales Corp. California 100%

<PAGE>

Exhibit 23

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-93416, 33-51744 and 33-65239) pertaining to the 1983 Incentive
Stock Option Plan for Key Employees and the 1991 Stock Option Plan of The
MacNeal-Schwendler Corporation and in the related Prospectuses of our report
dated March 6, 1996, with respect to the consolidated financial statements of
The MacNeal-Schwendler Corporation included in the Annual Report (Form 10-K) for
the year ended January 31, 1996.

ERNST & YOUNG LLP

Los Angeles, California
April 24, 1996

<PAGE>
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