<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1997
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- --------------------
COMMON STOCK PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
7-7/8% CONVERTIBLE SUBORDINATED
DEBENTURES DUE AUGUST 18, 2004 NEW YORK 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 24, 1997 the approximate aggregate market value of The
MacNeal-Schwendler Corporation's voting stock held by nonaffiliates was
$126,242,000.
As of April 24, 1997 there were outstanding 13,465,806 shares of Common
Stock of The MacNeal-Schwendler Corporation.
Documents incorporated by reference: The Annual Proxy Statement of The
MacNeal-Schwendler Corporation for the Annual Meeting of Shareholders to be
held on June 11, 1997 is incorporated by reference into Part III.
<PAGE>
FORM 10K
TABLE OF CONTENTS
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 SHAREHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . 14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING. . . . . . . 30
AND FINANCIAL DISCLOSURE
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.... . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
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 use of CAE
analysis helps to reduce product cost and increase reliability. CAE analysis
can be used to break down a design prior to its physical manufacture,
replacing time-consuming and costly manual analyses and physical testing and
permits a substantial increase 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 commercially use 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.
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 NT, Windows 95, and Windows 3.1.
MSC/MVISION - a materials data management system for test, design,
and analysis engineers.
MSC/SuperModel - provides automatic assembly of airframe and launch
vehicle models.
As an extension of its software business, 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 sites. In addition, the Company provides integration services
to install and modify the software to meet customers' specific needs.
The following is a detailed discussion of each of the Company's major CAE
products:
1
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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 the major parts of an aircraft, such as engines, wings,
fuselage and tail. The computer analysis can be applied, creating a 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 be
used on 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, and 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 results
of the analysis into a graphical representation. 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.
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Certain of these application modules have been developed by third
parties and are marketed under joint development or marketing
agreements.
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 with respect to
MSC/PATRAN 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 post-processing environment for MSC/NASTRAN 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 load and
boundary conditions directly to the solid, and 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 post-processing 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 to many popular software applications. In addition, MSC/ARIES
data can be communicated to other applications 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/DYTRAN
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 simulations, vehicle occupant safety studies, and aircraft
crash-worthiness studies.
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 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 to successfully 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.
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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 provides
access to that data across all engineering disciplines. It provides users
with the ability to search, query, compare and manipulate materials data as
well as with direct access to these databanks from within MSC/PATRAN.
MSC/SUPERMODEL
MSC/SuperModel is an analysis process management and advanced aerospace
modeling solution that dramatically reduces the time required for design
simulation. Aerospace structures are designed, analyzed, and manufactured by
multiple companies, with each responsible for a given component, such as a
wing or fuselage. These companies are also responsible for the component's
finite element model, which predicts stress and deflection. MSC/SuperModel
assembles a number of component models (submodels) into a complete model
(supermodel). MSC/SuperModel automates the task of managing the component and
assembly processes, tasks to which aerospace companies previously devoted
significant time and effort.
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 and development. During the years ended January 31, 1997,
1996, and 1995, approximately $31,764,000, $30,752,000, and $30,252,000,
respectively, was expended for software research and development. Of the
amounts expended, $9,025,000 in 1997, $10,447,000 in 1996, and $9,226,000 in
1995 were included in software costs capitalized.
The Company's development activities generally involve adding new
capabilities to its family of CAE programs or converting those programs for
use on new computer platforms. 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, industrial, computer and electronics manufacturers, and
universities. These categories of clients accounted for 39%, 25%, 24%, 9%,
and 3%, respectively, of the Company's revenues for the fiscal year ended
January 31, 1997.
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 pre-paid license basis. An annual pre-paid
license is set at a fixed rate for the period and provides for payment in
advance of use. Under the pre-paid agreement, license revenue is recognized
at the time of sale, while maintenance revenue, representing approximately
15% of the revenue from a pre-paid license, is recognized ratably over the
term of the maintenance period.
In recent years, demand has also increased for paid-up licenses for
engineering software products. A paid-up license provides significant
revenue at the original time of sale of the product, with smaller payments
4
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for maintenance following the time of sale. The growth of paid-up licenses
creates higher earnings volatility since larger amounts of revenue are
recognized at one time instead of over a period of time.
Foreign marketing is generally conducted in the same manner as U.S.
marketing. The basic licensing agreements are substantially the same. Prices
for agreements originating with MSC's German subsidiary are generally stated
in German Marks and certain agreements originating within Japan are stated in
Japanese Yen. The agreements stated in foreign currencies are subject to
currency fluctuations. For the year ended January 31, 1997, foreign sales
accounted for approximately 59% of gross revenues, most of which were
attributable to Europe (30%) and Asia-Pacific (26%). The balance was
attributable to Canada and South America. See Notes 7 and 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 also serves as the Company's
headquarters. The other offices are 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, respond to user support calls and provide integration
services 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 also utilized 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.
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.
CUSTOMERS
No customer of the Company accounts for more than 10% of the Company's
consolidated revenues.
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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
MSC, MSC/, MSC/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/DYTRAN, MSC/SuperModel,
MSC/InCheck, and MSC/SuperForge 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, 1997 have
been reflected in the Company's consolidated financial statements in the
applicable year.
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 including other variants of NASTRAN, 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, 1997, the Company and its subsidiaries employed 627
persons, of whom 203 were involved in technical activities, 320 in sales and
marketing and 104 in administration. Of these employees, 241 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 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.
Ken Blakely 42 Vice President and General Manager-Aerospace
Business Unit for the Company (March
1996-present); Vice President-Marketing (January
1995-March 1996); 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).
Louis A. Greco 49 Chief Financial Officer of the Company (March
1983-present) and Corporate Secretary of the
Company (December 1985-present).
Thomas C. Tecco 47 Vice President of Automotive Business Unit for the
Company (August 1996 to present)
James M. White 38 Vice President of Product 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).
This Form 10-K contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Reference is made in particular to Item 1, "Business," and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Such statements may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "believe," "estimate,"
"anticipate," "continue," or similar terms, variations of such terms or the
negative of such terms. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from those described in the
forward-looking statements. Factors which could cause such results to differ
materially from those described in the forward-looking statements include
delays in developing, completing, or shipping new or enhanced products,
fluctuation in quarterly results, foreign currency translations, and other
risks and uncertainties that are detailed in the Company's Annual Report on
Form 10-K and other reports filed by the Company with the Securities and
Exchange Commission.
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. Management of the Company
believes current properties and facilities to be adequate and suitable for
the Company's current and future needs.
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, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock had been listed for trading on the American
Stock Exchange and, pursuant to a Registration Statement on Form 8-A, which
became effective June 24, 1996, the Company's common stock was listed on the
New York Stock Exchange under symbol MNS. The following table sets forth
through January 31, 1997, the high and low prices as reported on the
applicable exchanges for the period shown:
SALES PRICES
------------
HIGH LOW
---- ---
Fiscal 1997
Fourth quarter $10.13 $ 7.25
Third quarter 9.13 6.38
Second quarter 14.75 6.25
First quarter 15.00 13.00
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
As of April 11, 1997 there were 284 record holders of the Company's
Common Stock. The Company had paid a quarterly dividend until September of
1996 when the dividend was eliminated. For the fiscal year ended January 31,
1997, the dividend declared aggregated $.22 per share. For the fiscal year
ended January 31, 1996, the dividend declared aggregated $.64 per share. The
price of the Common Stock on April 11, 1997 was $9.50.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1997 1996 1995* 1994 1993
---- ---- ----- ---- ----
In thousands, except per share amounts
<S> <C> <C> <C> <C> <C>
Revenue $133,321 $130,483 $100,686 $79,574 $77,190
Operating income (loss) 19,043 24,739 (27,732) 16,785 16,098
Net income (loss) 9,621 14,407 (30,382) 11,440 9,989
Primary earnings (loss) per share .71 1.06 (2.27) .86 .75
Fully-diluted earnings (loss) per share .70 .99 (2.27) .86 .75
Cash dividends declared per share .22 .64 .64 .64 .48
Total assets 127,822 119,660 118,751 78,504 72,728
Convertible long-term debt 56,574 56,576 56,576 ---- ----
</TABLE>
* Reflects an in-process research and development charge of $35,000,000 and
a restructuring charge of $8,962,000. Revenues in fiscal 1996 and 1995
were positively affected by the acquisition of PDA Engineering.
The selected financial data for the five years ended January 31, 1997,
are not reported upon herein by independent auditors. The selected financial
data should be read in conjunction with Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the
Consolidated Financial Statements of the Company and the related Notes to
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
1997 VS. 1996
The Company reported revenue of $133,321,000 for the year ended January
31, 1997, an increase of 2% from $130,483,000 for the year ended January 31,
1996. A total of 81% of revenue was derived from the licensing of the
Company's software products (MSC/NASTRAN, MSC/PATRAN, MSC/ARIES,
MSC/SuperModel, MSC/MVISION, MSC/NASTRAN for Windows, MSC/DYTRAN, and
MSC/ABAQUS), and 19% was derived from software maintenance and services
revenue.
The 2% increase in total revenue was adversely affected by the strength
of the U.S. dollar compared to other foreign currencies during the period.
The Asia-Pacific region, which accounts for 26% of the Company's total
revenue, actually reported local currency growth of approximately 18%
compared to the prior year. In U.S. dollar terms, the growth in the
Asia-Pacific region was 7%. Europe, which accounts for 30% of the Company's
total revenue, reported revenue improvement in local currency of almost 9%
compared to the prior year or 3% in U.S. dollar terms. Latin America and
Canada, which together account for 3% of the Company's total revenue,
reported revenue growth of 16% in U.S. dollars. In addition to the strength
of the U.S. dollar, real growth was also overshadowed by the sale of the
electromagnetic analysis product line (MSC/EMAS) in July of 1996.
Revenue from international operations was $78,944,000, or 59% of total
revenue compared to $74,800,000, or 57% of total revenue for fiscal 1996.
Operating expenses were $114,278,000 in fiscal 1997 compared to
$105,744,000 in fiscal 1996, an increase of $8,534,000, or 8%. This increase
is attributable to many factors.
Cost of revenue was $20,384,000 in fiscal 1997 compared to $19,856,000 in
fiscal 1996, an increase of $528,000, or 3%. Included in cost of revenue is
the amortization of capitalized software costs of $7,874,000 in fiscal 1997
and $8,739,000 in fiscal 1996. The increase in the cost of revenue expense
is primarily due to higher third-party royalty expenses brought about by
increased revenues from software products that carry a royalty obligation.
Research and development expense before the effects of capitalized
software was $31,764,000 in fiscal 1997, compared to $30,752,000 in fiscal
1996, an increase of $1,012,000 or 3%. In accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," research and development expense is reported net of the
amount capitalized, which was $9,025,000 in fiscal 1997 and $10,447,000 for
fiscal 1996. If capitalized software is included, net research and
development was $22,739,000 in fiscal 1997 compared to $20,305,000 in fiscal
1996, an increase of $2,434,000. A substantial portion of the increase
relates to the amount of research and development capitalized in each period.
The amount of product development capitalized can vary, depending in part on
the number of products and their stage of development.
Selling, general, and administrative expenses were $68,886,000 in fiscal
1997 compared to $63,163,000 in fiscal 1996, an increase of $5,723,000, or
9%. The increase in sales and marketing expense is primarily related to the
expansion of the infrastructure in our international operations. The
increases in general and administrative expense relate to the expansion of
the Company's worldwide information systems network, and, to a lesser extent,
to an increase in the Company's bad debt expense.
Income from operations is significantly affected by the amount of
software capitalized and the amortization thereof. Income from operations,
excluding amortization and capitalization of software costs, was $17,892,000
in fiscal 1997 compared to $23,031,000 in fiscal 1996, a decrease of 22%.
The net effect of the amortization and capitalization of software costs was a
$1,151,000 reduction of operating expenses in fiscal 1997 compared to a
$1,708,000 reduction of operating expenses in fiscal 1996. Thus, the
operating income benefit from the amortization and capitalization of software
costs was $557,000 less in fiscal 1997
9
<PAGE>
than fiscal 1996. Income from operations, including software capitalization
and amortization, was $19,043,000 in fiscal 1997 compared to $24,739,000 in
fiscal 1996, a decrease of 23%.
Debenture interest reflects the accrued interest on the convertible
subordinated debentures issued as part of the acquisition of PDA Engineering.
Interest payments are due on March 15 and September 15 of each year until the
debentures are converted or redeemed.
Other income (expense) was an expense of $333,000 in fiscal 1997 compared
to income of $823,000 in fiscal 1996. The fluctuation is primarily
attributable to the increased loss on exchange rate changes due to the
significant strengthening of the U.S. dollar versus the German mark and
Japanese yen during fiscal 1997. The exchange rate losses were partially
offset by investment income, and gains and losses on sales of assets.
The effective tax rate for the year was 32.5%, compared to 31.7% in fiscal
1996. This change reflects an increase of $114,000 in income tax expense on a
year to year basis.
Operating results in fiscal 1997 were unfavorably affected by
fluctuations in functional currencies used in the Company's international
operations. The effect of foreign currency translation on net income was an
unfavorable variance of $1,826,000 in fiscal 1997 compared to fiscal 1996.
The fluctuation of the U.S. dollar versus these currencies could continue to
have an unfavorable effect in fiscal 1998 and future years.
1996 VS. 1995
The Company reported revenue of $130,483,000 for the year ended January
31, 1996, an increase of 30% from $100,686,000 for the year ended January 31,
1995. A total of 83% of revenue was derived from the licensing of the
Company's software products (MSC/NASTRAN, MSC/PATRAN, MSC/ARIES, MSC/MVISION,
MSC/NASTRAN for Windows, MSC/DYTRAN, MSC/EMAS, and MSC/ABAQUS), and 17% was
derived from software maintenance and services revenue.
The 30% increase in total revenue was primarily the result of a 23%
increase in software license revenue and a 77% increase in software
maintenance and services revenue. The revenue growth was primarily
attributable to the first full year of operations since the acquisition of
PDA Engineering in August 1994. The debut of MSC/NASTRAN for Windows, a
PC-based version of MSC/NASTRAN, had a positive impact on revenue growth.
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 were $74,800,000, or 57% of total
revenue compared to $49,478,000, or 49% 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.
10
<PAGE>
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, capitalized 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. Excluding one-time
charges, but including the effects of net capitalized software, operating
income in fiscal 1996 was 52% higher than fiscal 1995 and was mainly the
result of revenues that 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 and losses 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% in
fiscal 1995, excluding non-deductible one-time charges. 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.
COMPANY TRENDS
During fiscal 1997, the Company created three industry-oriented business
units in order to increase focus on its customers. The Company believes that
by organizing itself around three core customer groups -- Aerospace,
Automotive, and Growth Industries -- it can provide customers with complete
mechanical computer-aided engineering solutions instead of simply selling
software.
Also during fiscal 1997, the Company acquired Automotive Analytics, Inc.,
which included an analysis tool specifically for automotive engineers, as
well as a group of consultants experienced at applying CAE techniques to
support the automotive engineering design process.
INDUSTRY AND ECONOMIC TRENDS
According to Daratech, Inc., a research group, the overall mechanical
CAD/CAM/CAE software market grew by an estimated 14% in 1996. The market is
expected to continue its growth in 1997. As the market matures, it is
aligning itself into two business groups. One consists of vertically
organized high-end software and integration vendors. The second consists of
vendors offering lower-priced packaged solutions.
OPERATING PATTERN
Approximately 94%, 93%, and 93% of the Company's revenues in fiscal 1997,
1996, and 1995, respectively, consisted of license and maintenance revenue
paid by customers for use of the Company's software products. Historically,
license revenue was mainly generated by the volume of customer use of the
Company's software. However, this has changed in recent years due to the
increased popularity and computing power of workstations and personal
computers, and a migration by the market to annual leases and paid-up
licenses. The Company expects this trend toward annual leases and paid-up
licenses to continue as workstations increase in computing power, and
personal computers become more powerful. The Company is addressing this
shift by providing versions of its software tailored to run on these
platforms, such as MSC/NASTRAN for Windows.
11
<PAGE>
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 of 100 employees from the work force, and
the elimination and consolidation of duplicate facilities and equipment.
An additional restructuring charge of $8,962,000 related to the PDA
acquisition was recorded in operating expenses in the third quarter of fiscal
1995, of which approximately $2,600,000 related to the write-off of
overlapping capitalized software product costs; $2,700,000 to the elimination
of duplicate facilities and equipment; $2,900,000 to a reduction in work
force; and the balance to other costs directly associated with the
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Working capital needed to finance the Company's growth in the past has
been provided by cash on hand and 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 was $28,439,000, $25,977,000, and $5,813,000
in fiscal 1997, 1996, and 1995, respectively. In fiscal 1995, net cash from
operating activities was significantly affected by the PDA acquisition. The
Company's working capital at January 31, 1997, was $33,029,000, compared to
$21,182,000 at January 31, 1996. The Company has an agreement with its
principal bank for a $15,000,000 unsecured line of credit at the prevailing
prime rate. No amounts were outstanding under this line of credit as of April
23, 1997.
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. The debentures mature in August
2004.
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 $31,764,000, $30,752,000, and $30,252,000 in fiscal 1997, 1996, and
1995, respectively, on research and development efforts, of which $9,025,000,
$10,447,000, and $9,226,000 were capitalized in fiscal 1997, 1996, and 1995,
respectively. Product development costs and the capitalization rate may vary
depending, in part, on the number of products and their stage of development.
During the years ended January 31, 1997, 1996, and 1995, the Company
acquired $4,591,000, $7,885,000, and $3,656,000, respectively, of new
property and equipment. Capital expenditures during fiscal 1997 included
significant upgrades in computer equipment in order to keep current with
technological advances and expansion of facilities. 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 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 1997.
The Company sold its Electromagnetics Business Unit (EBU) to Ansoft
Corporation for $5,600,000 in July 1996, which did not result in a material
effect on earnings. The sale of the unit did not materially affect fiscal
1997 net income compared to prior years because of the relatively small size
compared to the Company's overall operations. However, the sale did
significantly improve both the Company's cash position and its cash used in
investing activities, compared to fiscal 1996. Since the sale of the EBU is
a non-recurring event, the Company does not expect to benefit from similar
one-time liquidity improvements in future periods.
During the middle of 1996, the Company eliminated its quarterly dividend
in order to reinvest more of its earnings into its operations. Dividend
payments were made on the Company's common stock in the aggregate amounts of
$5,111,000, $8,571,000, and $8,563,000 in the years ended January 31, 1997,
1996, and 1995, respectively. The Company does not plan to reinstate the
payment of dividends in the foreseeable future.
12
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS 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. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed. The Company adopted SFAS
No. 121 in the first quarter of fiscal 1997. The adoption of SFAS No. 121
had no material effect on the Company's results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of
Stock-Based Compensation to Employees," which became 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 adopted the disclosure requirements of SFAS No.
123 in the first quarter of fiscal 1997, but elected to continue to measure
compensation costs following present accounting rules under APB No. 25.
Consequently, the Company provided 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. Such disclosures are
provided in Note 11 to the consolidated financial statements.
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, 1997 AND 1996
ASSETS
1997 1996
------------- --------------
Current assets:
Cash and cash equivalents . . . . . . . . $ 24,016,000 $ 7,235,000
Short-term investments. . . . . . . . . . 1,052,000 3,340,000
Accounts receivable, net. . . . . . . . . 36,328,000 36,455,000
Deferred tax charges. . . . . . . . . . . 3,111,000 3,219,000
Income tax refund receivable. . . . . . . ------ 1,243,000
Other current assets. . . . . . . . . . . 5,773,000 5,056,000
------------- -------------
Total current assets. . . . . . . . . 70,280,000 56,548,000
Property and equipment, net . . . . . . . . . 10,242,000 12,281,000
Capitalized software costs, net . . . . . . . 28,173,000 29,069,000
Goodwill and other intangible assets, net . . 16,265,000 19,090,000
Other assets . . . . . . . . . . . . . . . . 2,862,000 2,672,000
------------- -------------
$ 127,822,000 $ 119,660,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 2,248,000 $ 2,436,000
Accrued liabilities. . . . . . . . . . . .
Compensation and related expenses . . . 6,845,000 4,075,000
Contribution to profit sharing plan . . 3,107,000 3,155,000
Other . . . . . . . . . . . . . . . . . 15,233,000 12,896,000
Restructuring reserve. . . . . . . . . . . ------ 1,389,000
Deferred income. . . . . . . . . . . . . . 9,035,000 8,663,000
Dividends payable. . . . . . . . . . . . . ------ 2,151,000
Income taxes payable . . . . . . . . . . . 783,000 601,000
------------- -------------
Total current liabilities . . . . . . 37,251,000 35,366,000
Deferred income taxes . . . . . . . . . . . . 10,465,000 10,573,000
Convertible Subordinated Debentures . . . . . 56,574,000 56,576,000
Commitments
Shareholders' equity:. . . . . . . . . . . . .
Preferred Stock, $0.01 par value,
10,000,000 shares authorized; no
shares outstanding in 1997 and 1996 ------ ------
Common Stock, $0.01 par value, 100,000,000
shares authorized; 13,455,800 and
13,448,100 issued and outstanding in 1997
and 1996, respectively . . . . . . . . . 30,250,000 30,082,000
Retained earnings. . . . . . . . . . . . . (4,093,000) (10,754,000)
Accumulated translation adjustment . . . . (2,625,000) (2,183,000)
------------- -------------
Total shareholders' equity. . . . . . 23,532,000 17,145,000
------------- -------------
$ 127,822,000 $ 119,660,000
------------- -------------
------------- -------------
See accompanying notes.
14
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenues:
Software licenses. . . . . . . . . . . . . $ 107,594,000 $ 108,719,000 $ 88,375,000
Software maintenance and services. . . . . 25,727,000 21,764,000 12,311,000
--------------- -------------- ---------------
Total revenues. . . . . . . . . . . . . 133,321,000 130,483,000 100,686,000
Operating expenses:. . . . . . . . . . . . . .
Cost of revenue. . . . . . . . . . . . . . 20,384,000 19,856,000 12,033,000
Amortization of goodwill and other intangibles 2,269,000 2,420,000 731,000
Research and development . . . . . . . . . 22,739,000 20,305,000 21,026,000
Selling, general, and administrative . . . 68,886,000 63,163,000 50,666,000
In-process research and development. . . . ------ ------ 35,000,000
Restructuring costs. . . . . . . . . . . . ------ ------ 8,962,000
--------------- -------------- ---------------
Total operating expenses. . . . . . . 114,278,000 105,744,000 128,418,000
Operating income (loss). . . . . . . . . . . . 19,043,000 24,739,000 (27,732,000)
Debenture interest . . . . . . . . . . . . . . (4,456,000) (4,465,000) (1,967,000)
Other income (expense), net. . . . . . . . . . (333,000) 823,000 617,000
--------------- -------------- ---------------
Income (loss) before income taxes. . . . . . . 14,254,000 21,097,000 (29,082,000)
Provision for income taxes . . . . . . . . . . 4,633,000 6,690,000 1,300,000
--------------- -------------- ---------------
Net income (loss). . . . . . . . . . . . . . . $ 9,621,000 $ 14,407,000 $(30,382,000)
--------------- -------------- ---------------
--------------- -------------- ---------------
Primary earnings (loss) per share. . . . . . . $ 0.71 $ 1.06 $ (2.27)
--------------- -------------- ---------------
--------------- -------------- ---------------
Fully-diluted earnings (loss) per share. . . . $ 0.70 $ 0.99 $ (2.27)
--------------- -------------- ---------------
--------------- -------------- ---------------
</TABLE>
See accompanying notes.
15
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,621,000 $ 14,407,000 $ (30,382,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization of property and equipment. . . . . 6,346,000 5,880,000 5,576,000
Amortization of goodwill and other intangibles . . . . . . . . . 2,269,000 2,420,000 731,000
Amortization of capitalized software costs . . . . . . . . . . . 7,874,000 8,739,000 7,026,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . ------ 2,669,000 (5,686,000)
(Gain) loss on disposal of property and equipment. . . . . . . . 93,000 (4,000) 48,000
Write-off of in-process research and development . . . . . . . . ------ ------ 35,000,000
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . (19,000) (2,633,000) (10,590,000)
Other current assets . . . . . . . . . . . . . . . . . . . . . . (584,000) (769,000) 6,179,000
Income tax refund receivable . . . . . . . . . . . . . . . . . . 1,243,000 2,902,000 (4,145,000)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . (246,000) (243,000) (460,000)
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . 1,977,000 686,000 7,914,000
Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . 1,094,000 (4,250,000) 1,216,000
Restructuring reserve. . . . . . . . . . . . . . . . . . . . . . (1,379,000) (4,428,000) (4,303,000)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 150,000 601,000 (2,311,000)
--------------- --------------- ---------------
Net cash provided by operating activities . . . . . . . . . . . . . 28,439,000 25,977,000 5,813,000
Cash flows from investing activities:
Decrease in short-term investments . . . . . . . . . . . . . . . 2,288,000 3,735,000 10,709,000
Proceeds from sale of Electromagnetics Business Unit . . . . . . 5,600,000 ------ ------
Acquisition of property and equipment. . . . . . . . . . . . . . (4,591,000) (7,885,000) (3,656,000)
Purchase of subsidiaries, net of cash acquired . . . . . . . . . (115,000) ------ (2,594,000)
Capitalized software costs . . . . . . . . . . . . . . . . . . . (9,025,000) (10,447,000) (9,226,000)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (428,000) (1,462,000) 4,573,000
--------------- --------------- ---------------
Net cash used in investing activities . . . . . . . . . . . . . . . (6,271,000) (16,059,000) (194,000)
Cash flows from financing activities:
Payments of long-term debt . . . . . . . . . . . . . . . . . . . ------ ------ (19,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . 166,000 716,000 54,000
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . (5,111,000) (8,571,000) (8,563,000)
--------------- --------------- ---------------
Net cash used in financing activities . . . . . . . . . . . . . . . (4,945,000) (7,855,000) (8,528,000)
Translation adjustment. . . . . . . . . . . . . . . . . . . . . . . (442,000) (1,772,000) (253,000)
--------------- --------------- ---------------
Net increase in cash and cash equivalents . . . . . . . . . . . . . 16,781,000 291,000 (3,162,000)
Cash and cash equivalents at beginning of year. . . . . . . . . . . 7,235,000 6,944,000 10,106,000
--------------- --------------- ---------------
Cash and cash equivalents at end of year. . . . . . . . . . . . . . $ 24,016,000 $ 7,235,000 $ 6,944,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental cash flow information:
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . $ 3,208,000 $ 2,857,000 $ 3,568,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Debenture interest paid. . . . . . . . . . . . . . . . . . . . . $ 4,454,000 $ 4,737,000 ------
--------------- --------------- ---------------
--------------- --------------- ---------------
Reconciliation of assets acquired and liabilities assumed:
Fair value of assets acquired. . . . . . . . . . . . . . . . . . $ 309,000 ------ $ 85,249,000
Liabilities assumed. . . . . . . . . . . . . . . . . . . . . . . 194,000 ------ 82,655,000
--------------- --------------- ---------------
$ 115,000 ------ $ 2,594,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes.
16
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<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, 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
Shares issued under Stock Option Plan . . . . . . . 7,700 168,000 168,000
Cash dividends declared - $.22 per share. . . . . (2,960,000) (2,960,000)
Net income . . . . . . . . . . . . . . . . . . . 9,621,000 9,621,000
Translation adjustment . . . . . . . . . . . . . . (442,000) (442,000)
--------------- -------------- --------------- ------------- --------------
Balance at January 31, 1997. . . . . . . . . . . . . . 13,455,800 $ 30,250,000 $ (4,093,000) $(2,625,000) $ 23,532,000
--------------- -------------- --------------- ------------- --------------
--------------- -------------- --------------- ------------- --------------
</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 as earned. Revenue from prepaid and paid-up licenses is
recognized in full upon 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 1996 and
1995 contain certain reclassifications to conform to the 1997 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 SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." 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, 1997, or January 31, 1996.
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 Asia-Pacific.
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 two to five 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.
18
<PAGE>
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill, amounting to
approximately $11,456,000 and $13,607,000 net of accumulated amortization of
$3,732,000 and $2,226,000 as of January 31, 1997 and 1996, respectively,
arising from acquisitions is amortized on the straight-line basis over a
period of 10 years. Other intangibles amounted to approximately $4,809,000
and $5,483,000, net of accumulated amortization as of January 31, 1997 and
1996, respectively, and are amortized on a straight-line basis over five to
10 years. Accumulated amortization of other intangibles as of January 31,
1997 and 1996, amounted to $1,968,000 and $1,206,000, 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. No adjustments have been made in the periods
presented.
MARKETING COMMUNICATIONS EXPENSE. The cost of marketing communications
is expensed as incurred. The Company incurred $1,431,000, $1,229,000, and
$1,035,000 in marketing communications costs during fiscal 1997, 1996, and
1995, 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 are 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
13,570,000 in 1997, 13,582,000 in 1996, and 13,386,000 in 1995. 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 1997 and 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,
are 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 17,347,000 for 1997 and 17,336,000 for 1996.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In March 1995, the FASB
issued SFAS 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. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed. The Company adopted SFAS No. 121 in the first quarter of
fiscal 1997. The adoption of SFAS No. 121 had no material effect on the
Company's results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of
Stock-Based Compensation to Employees," which became 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 adopted the disclosure requirements of
19
<PAGE>
SFAS No. 123 in the first quarter of fiscal 1997, but elected to continue to
measure compensation costs following present accounting rules under APB No.
25. Consequently, the Company has provided 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. Such disclosures
are provided in Note 11 to the consolidated financial statements.
NOTE 2: MERGERS AND ACQUISITIONS
In July 1996, the Company sold its Electromagnetics Business Unit to
Ansoft Corporation for $5,600,000, which did not result in a material effect
on earnings. The sale of the unit did not materially affect fiscal 1997 net
income compared to prior years because of the relatively small size compared
to the Company's overall operations.
On August 18, 1994, the Company acquired all 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 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 work force
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, 1997, 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 10 years.
An additional charge of $8,962,000 related to the acquisition was also
recorded in the third quarter of fiscal 1995, of which approximately
$2,600,000 related to the write-off of overlapping capitalized software
product costs; $2,700,000 to the elimination of duplicate facilities and
equipment; $2,900,000 to a reduction in work force; and the balance for other
costs directly associated with the acquisition.
Included in the above restructuring reserves were approximately
$10,800,000 of items that relate to cash expenditures. As of January 31,
1997, the entire $10,800,000 had been expended in relation to these items.
NOTE 3: ACCOUNTS RECEIVABLE
The components of the Company's allowance for doubtful accounts receivable
consist of the following:
Years Ended January 31,
-------------------------
1997 1996
---- ----
DOLLARS IN THOUSANDS
Beginning balance $2,562 $3,574
Amounts charged to expense 616 152
Writedowns against the reserve 1,372 1,164
----- -----
Ending balance $1,806 $2,562
------ ------
------ ------
20
<PAGE>
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
January 31,
-----------
1997 1996
DOLLARS IN THOUSANDS ---- ----
Computers and other equipment $ 30,026 $ 27,520
Furniture and fixtures 1,862 1,911
Leasehold improvements 1,666 1,729
--------- ---------
33,554 31,160
Less accumulated depreciation and amortization (23,312) (18,879)
--------- ---------
$ 10,242 $ 12,281
--------- ---------
--------- ---------
NOTE 5: CAPITALIZED SOFTWARE COSTS
Amortization of software costs capitalized of $7,874,000 in 1997,
$8,739,000 in 1996, and $7,026,000 in 1995 is included in cost of revenues.
Software costs capitalized amounted to $9,025,000 in 1997, $10,447,000 in
1996, $9,226,000 in 1995. In addition, the Company wrote off capitalized
software costs of $4,897,000 and accumulated amortization of $2,700,000 in
connection with the sale of the Electromagnetics Business Unit. The Company
also purchased certain software that was capitalized in fiscal 1997 amounting
to $150,000.
January 31,
-----------
1997 1996
DOLLARS IN THOUSANDS ---- ----
Capitalized software costs $54,617 $50,339
Less accumulated amortization (26,444) (21,270)
--------- ---------
Capitalized software costs, net $28,173 $29,069
--------- ---------
--------- ---------
NOTE 6: OTHER ACCRUED LIABILITIES
The components of the Company's other accrued liabilities are the
following:
January 31,
-----------
1997 1996
DOLLARS IN THOUSANDS ---- ----
Debenture interest payable $ 1,687 $ 1,685
Royalties payable 911 791
Commissions payable 3,958 3,369
Consumption taxes payable 3,552 1,700
Post-retirement benefits 1,167 1,060
Bonuses payable 224 200
Other 3,734 4,091
------- -------
Total $15,233 $12,896
------- -------
------- -------
21
<PAGE>
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:
YEARS ENDED JANUARY 31,
1997 1996 1995
DOLLARS IN THOUSANDS ---- ---- ----
Current:
Federal $560 $464 $(5,698)
State 404 675 49
Foreign 3,669 2,882 2,656
----- ----- -----
4,633 4,021 (2,993)
Deferred --- 2,669 4,293
--- ----- -----
$4,633 $6,690 $1,300
------ ------ ------
------ ------ ------
The foreign tax provisions for fiscal 1997, 1996, and 1995 include
withholding taxes of $1,780,000, $1,811,000, and $1,651,000, 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 $2,025,000 in 1997,
$1,841,000 in 1996, and $398,000 in 1995.
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, 1997 and 1996, are as follows:
January 31,
-----------
1997 1996
DOLLARS IN THOUSANDS ---- ----
Deferred tax liabilities
Tax in excess of book depreciation $36 $213
Capitalized software 12,274 12,779
Intangible assets 1,391 1,576
Organization costs 591 ---
Prepaid expenses 126 189
------ ------
Total deferred tax liabilities 14,418 14,757
Deferred tax assets
State taxes 622 1,192
Accrued liabilities 306 739
Net operating losses 5,664 6,811
Deferred revenue 910 253
Undistributed earnings of
foreign subsidiaries 2,055 1,434
Business credits 1,918 1,659
Sale of business unit 540 ---
Restructuring charge --- 372
Benefits and compensation 883 842
Other (34) 5
------ ------
Total deferred tax assets 12,864 13,307
Valuation allowance (5,800) (5,904)
------ ------
Net deferred tax assets 7,064 7,403
------ ------
Net deferred tax liabilities $7,354 $7,354
------ ------
------ ------
22
<PAGE>
The balance sheet presentation of the net deferred tax liabilities is as
follows:
January 31,
-----------
1997 1996
DOLLARS IN THOUSANDS ---- ----
Net long-term deferred tax liability $10,465 $10,573
Current deferred charges (3,111) (3,219)
------ ------
Net deferred tax liabilities $7,354 $7,354
------- ------
------- ------
At January 31, 1997, the Company had net operating loss carryforwards and
net operating loss carrybacks for federal income tax purposes of
approximately $14,115,000 and $2,068,000, respectively. The federal net
operating loss carryforwards expire at various dates through the year 2010.
An acquisition by the Company in 1993 constituted an ownership change for
federal income tax purposes and, as a result, the amount of net operating
loss carryforward that may be utilized in any given year may be limited. For
financial reporting purposes, a valuation allowance of $5,800,000 at January
31, 1997, $5,904,000 at January 31, 1996, and $4,402,000 at January 31, 1995,
has been recognized to offset the deferred tax assets relating to recent
acquisitions.
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, 1997, 1996, and 1995.
YEARS ENDED JANUARY 31,
1997 1996 1995
DOLLARS IN THOUSANDS ---- ---- ----
Tax expense at statutory rate $4,989 $7,384 $(10,179)
Increase (decrease) related to:
State income taxes, net of
federal benefits 504 926 281
Amortization of goodwill 527 580 177
Income of Foreign Sales Corporation (1,201) (1,632) (655)
Excludable portion of investment
income (24) (91) (150)
Excludable research and development
writeoff --- --- 12,250
Benefit from net operating loss (104) (5) (445)
Other, net (58) (472) 21
----- ----- -----
$4,633 $6,690 $1,300
------ ------ ------
------ ------ ------
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 that 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, 1997, the fair market value of the debentures
outstanding, based on their quoted trading price, was approximately
$55,443,000.
23
<PAGE>
NOTE 9: INTERNATIONAL OPERATIONS
The following tables summarize consolidated financial information of the
Company's operations by geographic location:
YEARS ENDED JANUARY 31,
DOLLARS IN THOUSANDS 1997 1996 1995
----------------------------------
Revenues:
The Americas $57,443 $58,324 $52,561
Europe 40,635 39,361 23,225
Asia-Pacific 35,243 32,798 24,900
-----------------------------------
Consolidated $133,321 $130,483 $100,686
------------------------------------
------------------------------------
Financial data included in the consolidated financial statements of the
Company's European and Asia-Pacific subsidiaries are based on years ending
December 31.
January 31,
DOLLARS IN THOUSANDS 1997 1996 1995
------------------------------------
Identifiable assets:
The Americas $95,335 $94,795 $94,608
Europe 21,151 17,686 18,024
Asia-Pacific 11,336 7,179 6,119
------------------------------------
Consolidated $127,822 $119,660 $118,751
------------------------------------
------------------------------------
The net assets of the Company's foreign subsidiaries totaled $3,508,000,
$3,749,000, and $3,662,000 in 1997, 1996 and 1995, respectively, including
intercompany items. The net income 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 $2,960,000 in 1997, $3,019,000 in 1996, and $2,206,000 in 1995.
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 $148,000 in 1997, $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 $1,554,000 and $1,636,000 at
January 31, 1997 and 1996, respectively. The Company is recognizing past
service cost over 20 years. Total expense for the years ended January 31,
1997, 1996, and 1995, was $306,000, $196,000, and $156,000, respectively.
24
<PAGE>
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>
WEIGHTED
AVERAGE NUMBER
OPTION PRICE EXERCISE OF OPTIONS
OPTIONS PER SHARE PRICE EXERCISABLE
---------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 31, 1995 258,700 $8.00- $16.13 $13.35 258,700
Granted 0
Exercised (43,600) 8.00-14.25 12.05
Canceled (15,800) 11.00-13.38 13.31
--------
Outstanding at January 31, 1996 199,300 8.00-16.13 13.64 199,300
Granted 0
Exercised 0
Canceled (55,500) 8.00-16.13 12.70
--------
Outstanding at January 31, 1997 143,800 $13.38-$14.71 $14.00 143,800
-------- -------
-------- -------
</TABLE>
1991 PLAN
The MacNeal-Schwendler 1991 Stock Option Plan consists of two parts: a
"Key Employee Program" that allows discretionary awards of non-transferable
incentive stock options and non-qualified stock options to officers and other
key employees; and a "Non-Employee Director Program" that provides for
automatic annual grants of non-transferable, non-qualified stock options to
non-employee directors.
The "Key Employee Program" section of the 1991 Plan provides for the
granting of both incentive stock options and non-qualified 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 non-qualified 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 non-discretionary grants of non-qualified stock options
for the purchase of 3,000 shares of the Company's common stock.
Options under the 1991 Plan are exercisable up to 10 years from the date of
grant, subject to vesting provisions outlined at the grant date.
A summary of stock option activity is as follows:
25
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER
OPTION PRICE EXERCISE OF OPTIONS
OPTIONS PER SHARE PRICE EXERCISABLE
---------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 31, 1994 468,700 $8.00-$16.13 $14.15 36,700
Granted 806,000 10.38-14.25 11.58
Exercised 0
Canceled (284,700) 11.00-16.13 14.27
---------
Outstanding at January 31, 1995 990,000 8.00-15.38 12.03 344,500
Granted 785,500 12.50-19.38 15.15
Exercised (24,500) 11.00-14.25 11.66
Canceled (45,000) 11.00-15.38 12.37
---------
Outstanding at January 31, 1996 1,706,000 8.00-19.38 13.46 941,000
Granted 672,000 6.50-15.38 8.82
Exercised (7,700) 8.00-11.00 10.20
Canceled (120,000) 8.00-19.38 14.17
---------
Outstanding at January 31, 1997 2,250,300 $6.50-$15.88 $12.03 1,584,500
--------- ------
--------- ------
</TABLE>
At January 31, 1997 and 1996, the per share weighted-average exercise
prices of the stock options exercisable under the 1991 Plan were $13.40 and
$12.09, respectively. At January 31, 1997 and 1996, the per share
weighted-average exercise prices of the stock options exercisable under the
1983 Plan were $14.00 and $13.64, respectively. Options for the purchase of
699,500 and 1,251,000 shares were available for future grant as of January
31, 1997 and 1996, respectively. At January 31, 1997, the weighted-average
remaining contractual life for stock options granted under the 1991 Plan and
1983 Plan was 6.2 years and 1.4 years, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In September 1996, the Company's Board of Directors adopted The
MacNeal-Schwendler Corporation 1996 Employee Stock Purchase Plan. This Plan
will be presented to the shareholders for approval at the 1997 annual meeting
of common shareholders. Under the Plan, a maximum of 750,000 shares of the
Company's common stock will be made available for purchase by eligible
employees electing to participate in the Plan. Such eligible employees will
be entitled semi-annually to purchase common stock, by means of limited
payroll deductions at a 10% discount from the fair market value of the common
stock as of specific dates. The Plan is intended to provide an additional
incentive to participating eligible employees, through ownership of common
stock, to advance the best interests of the Company. At January 31, 1997, a
total of 173 eligible employees elected to participate in the Plan with total
payroll deductions at that date of $216,000. The first exercise period to
purchase common shares under the plan is July 31, 1997.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized in the results of operations for the stock option grants.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in fiscal 1997 and
fiscal 1996 consistent with the provisions of SFAS No. 123, the Company's net
income and primary earnings per share would have been reduced to the pro
forma amounts as follows:
26
<PAGE>
Fiscal year ended January 31,
-----------------------------
DOLLARS IN THOUSANDS 1997 1996
---- ----
Net income - as reported $9,621 $14,407
Net income - pro forma 7,803 14,070
Primary earnings per share - as reported .71 1.06
Primary earnings per share - pro forma .58 1.04
Fully-diluted earnings per share - as reported .70 .99
Fully-diluted earnings per share - pro forma $ --- $.98
Note: Fully-diluted earnings per share is presented only when it is
dilutive compared to primary earnings per share.
The per share weighted-average fair value of stock options granted during
the fiscal years ended January 31, 1997 and 1996 was $4.71 and $3.88,
respectively. The pro forma effect on the Company's net income and primary
earnings per share for fiscal 1997 and fiscal 1996 is not representative of
the pro forma effect in future years. The pro forma effect does not take into
consideration compensation expense related to grants made prior to fiscal
1996, or additional grants in future years that are anticipated. The fair
value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made in fiscal 1997: dividend yield of 0%;
expected volatility of 42.0%; risk-free interest rate of 7.5%. The following
weighted-average assumptions were used for grants made in fiscal 1996:
dividend yield of 4.5%; expected volatility of 28.0%; risk-free interest rate
of 7.5%.
NOTE 12: COMMITMENTS
The Company leases facilities and equipment under various lease agreements
that range from one to 10 years, which require the following minimum annual
rental commitments:
DOLLARS IN THOUSANDS YEARS ENDED
OPERATING LEASES JANUARY 31,
-----------
1998 $ 5,146
1999 4,008
2000 3,478
2001 2,925
2002 2,438
Thereafter 3,864
-----
$21,859
-------
-------
The combined annual rental cost for facilities and various equipment under
operating leases approximated $5,340,000 in fiscal 1997, $5,310,000 in fiscal
1996, and $4,658,000 in fiscal 1995. In most cases, management expects that in
the normal course of business, leases will be renewed or replaced by others.
During fiscal 1997, the Company entered into an agreement with its
principal bank for a $15,000,000 unsecured line of credit at the prevailing
prime rate. Borrowings under the line are subject to certain restrictive
covenants. This line of credit agreement expires August 31, 1998. The
Company anticipates that it will renew the line of credit agreement before
its expiration date. The line was unused at January 31, 1997.
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 certificates will be
distributed.
27
<PAGE>
The rights, which do not have any shareholder rights, such as voting or
dividend rights, will expire on September 19, 1998, unless redeemed earlier
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 they
become exercisable, which happens when certain specified events occur. 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, 1997, approximately 6,728,000
shares of common stock were reserved for issuance in connection with these
rights.
The debentures issued by the Company have a feature that 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, 1997, 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997
----
DOLLARS IN THOUSANDS, 1ST 2ND 3RD 4TH
EXCEPT SHARE AND PER SHARE AMOUNTS --------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 32,192 $ 32,759 $ 31,590 $ 36,780
Operating expenses, net 28,349 28,658 26,929 30,342
--------------------------------------------------------
Operating income 3,843 4,101 4,661 6,438
Other expense, net (1,359) (1,360) (1,188) (882)
--------------------------------------------------------
Income before income taxes 2,484 2,741 3,473 5,556
Provision for income taxes 807 891 1,129 1,806
--------------------------------------------------------
Net income $ 1,677 $ 1,850 $ 2,344 $ 3,750
Primary earnings per share $ 0.12 $ 0.14 $ 0.17 $ 0.28
Fully-diluted earnings per share --- --- --- $ 0.25
Weighted average shares outstanding 13,615,000 13,477,000 13,480,000 13,500,000
<CAPTION>
1996
----
DOLLARS IN THOUSANDS, 1ST 2ND 3RD 4TH
EXCEPT SHARE AND PER SHARE AMOUNTS ---------------------------------------------------------
<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>
Note: Fully-diluted earnings per share is presented only when it is dilutive
compared to primary earnings per share.
28
<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, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended January 31, 1997.
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
LOS ANGELES, CALIFORNIA
MARCH 14, 1997
29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Pursuant to General Instruction G(3) to Form 10-K, the information
required by this Part is incorporated by reference to such information
contained in the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held June 11, 1997, filed with the Securities and
Exchange Commission pursuant to Regulation 14A. In addition, 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.
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 Balance Sheets - January 31, 1997 and 1996
Consolidated Statements of Operations for each
of the three years in the period ended January 31, 1997
Consolidated Statements of Cash Flows for each of the three years in the
period ended January 31, 1997
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended January 31, 1997
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
ITEM 14(a)2. FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule of The MacNeal-Schwendler
Corporation and subsidiaries is included in this Item 14:
Schedule II-Valuation and qualifying accounts
All other schedules have been omitted because the information either has
been shown in the consolidated financial statements or notes thereto, or is
not applicable or required under the instructions.
SCHEDULE II
THE MACNEAL-SCHWENDLER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged Additions Deductions Ending
beginning of to expense due to balance
period acquisitions
Accounts Receivable:
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1995 $864 1,710 1,397 397 $3,574
Year ended January 31, 1996 $3,574 152 -- 1,164 $2,562
Year ended January 31, 1997 $2,562 616 -- 1,372 $1,806
</TABLE>
30
<PAGE>
ITEM 14(a)3. EXHIBITS.
The following exhibits are included in this Report:
EXHIBIT
- -------
NUMBER
- ------
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 (filed as
Exhibit 3.2 to The MacNeal-Schwendler Corporation's Annual Report on
Form 10-K filed for the fiscal year ended January 31, 1996, and
incorporated herein by reference).
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).
31
<PAGE>
EXHIBIT
- -------
NUMBER
- ------
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).
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 (filed as Exhibit 21 to The
MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed
for the fiscal year ended January 31, 1996, and incorporated herein
by reference).
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
- -----------------------------
* Denotes compensatory plan.
ITEM 14(b). REPORTS ON FORM 8-K.
None.
32
<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/ Thomas C. Curry
-------------------------
Thomas C. Curry
President, Chief Executive
Officer and Director
Dated: April 25, 1997
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/ GEORGE N. RIORDAN Chairman of the Board April 25, 1997
- -----------------------------
George N. Riordan
/s/ THOMAS C. CURRY President, Chief Executive April 25, 1997
- ----------------------------- Officer and Director
Thomas C. Curry
/s/ LOUIS A. GRECO Chief Financial Officer April 25, 1997
- ----------------------------- (Principal Financial
Louis A. Greco and Accounting Officer)
/s/ PAUL B. MACCREADY Director April 25, 1997
- -----------------------------
Paul B. MacCready
/s/ RICHARD H. MACNEAL Director April 25, 1997
- -----------------------------
Richard H. MacNeal
/s/ BERNARD J. BANNAN Director April 25, 1997
- -----------------------------
Bernard J. Bannan
/s/ HAROLD HARRIGIAN Director April 25, 1997
- -----------------------------
Harold Harrigian
/s/ DALE D. MYERS Director April 25, 1997
- -----------------------------
Dale D. Myers
/s/ FRANK PERNA Director April 25, 1997
- -----------------------------
Frank Perna
/s/ ARTHUR S. REIDEL Director April 25, 1997
- -----------------------------
Arthur S. Reidel
33
<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, 33-65239, and 333-12189) pertaining to the
1983 Incentive Stock Option Plan for Key Employees, the 1991 Stock Option
Plan of The MacNeal-Schwendler Corporation, and The MacNeal-Schwendler
Corporation 1996 Employee Stock Purchase Plan and in the related Prospectuses
of our report dated March 14, 1997, 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, 1997.
Our audit also included the financial statement schedule of The
MacNeal-Schwendler Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, the financial statement
schedule referred to above, when considered in relation the basic financial
statements taken as a whole, presents fairly in all materials respects the
information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 24,016
<SECURITIES> 1,052
<RECEIVABLES> 38,134
<ALLOWANCES> 1,806
<INVENTORY> 0
<CURRENT-ASSETS> 70,280
<PP&E> 33,554
<DEPRECIATION> 23,312
<TOTAL-ASSETS> 127,822
<CURRENT-LIABILITIES> 37,251
<BONDS> 56,574
0
0
<COMMON> 30,250
<OTHER-SE> (6,718)
<TOTAL-LIABILITY-AND-EQUITY> 127,822
<SALES> 0
<TOTAL-REVENUES> 133,321
<CGS> 20,384
<TOTAL-COSTS> 114,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 616
<INTEREST-EXPENSE> 4,456
<INCOME-PRETAX> 14,254
<INCOME-TAX> 4,633
<INCOME-CONTINUING> 9,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,621
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
</TABLE>
