<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): JUNE 18, 1999
--------------------
MSC.SOFTWARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-8722 95-2239450
- ------------------------------- ---------------- -----------------------
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation or Organization) Number) Identification No.)
815 COLORADO BOULEVARD
LOS ANGELES, CALIFORNIA 90041
- --------------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (323) 258-9111
----------------------
THE MACNEAL-SCHWENDLER CORPORATION
-----------------------------------------------------------------
(Former Name)
================================================================================
<PAGE>
MSC.SOFTWARE CORPORATION
AMENDMENT NO. 1
The undersigned hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
with the Commission, event date June 18, 1999 (the "Current Report"), as set
forth herein relating to the acquisition of MARC Analysis Research Corporation
("MARC") by MSC.Software Corporation ("MSC").
The Current Report is hereby amended by deleting Item 7 thereof and
replacing it in its entirety with the following:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements
(1) Audited financial statements of MARC for the fiscal
year ended December 31, 1998 and the independent
auditors' report of PricewaterhouseCoopers LLP with
respect thereto.
(2) Unaudited interim financial statements of MARC for the
three months ended March 31, 1999.
2
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
MARC Analysis Research
Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of MARC Analysis
Research Corporation and its subsidiaries as of December 31, 1998, and the
related consolidated statements of income and comprehensive income, of
stockholders' equity and of cash flows for the year then ended. 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 audit.
We conducted our audit of these financial statements in accordance with
generally accepted auditing standards which 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 audit provides a reasonable basis
for our opinion.
In our report dated April 1999, we expressed an opinion that the 1998 financial
statements did not fairly present financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles because
of departures from such principles. As more fully described in Note 2 to these
financial statements, the Company recognized revenue related to software it
leased ratably over the lease period rather than with the accounting prescribed
by he American Institute of Certified Public Accounting Statement of Position
91-1 ("SOP 91-1"), "Software Revenue Recognition", which was effective for the
Company from 1992 through 1997, and for the Statement of Position 97-2 ("SOP
97-2"), "Software Revenue Recognition", as amended for Statement of Position
98-4 "Deferral of Effective Date of Certain Provisions of SOP 97-2", which was
effective for the company in 1998. The Company has changed its method of
accounting for these items and restated its 1998 financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the 1998 financial statements, as presented herein, is different from that
expressed in our previous report.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MARC Analysis
Research Corporation and its subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
April 2, 1999, except for Note 13, for
which the date is June 18, 1999
4
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,844
Accounts receivable:
Trade, net of allowance for doubtful accounts of $134 4,067
Affiliates 241
Inventory 99
Deferred income taxes 93
Prepaid expenses and other current assets 744
--------
Total current assets 8,088
Property and equipment, less accumulated
depreciation and amortization of $2,140 1,328
Intangible assets, less accumulated amortization of $84 42
Investment in unconsolidated affiliate 106
Deferred income taxes 220
Deposits and other assets 1,030
--------
Total assets $ 10,814
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 435
Current portion of capital lease obligations 166
Accounts payable:
Trade 469
Affiliates 15
Accrued expenses 820
Accrued payroll and related expenses 621
Income taxes payable 426
Deferred revenue 3,073
-------
Total current liabilities 6,025
Capital lease obligations, less current portion 70
-------
Total liabilities 6,095
--------
Commitments (Notes 5 and 7)
Stockholders' equity:
Preferred stock, one-fiftieth of one cent (1/50 cent) par value
Authorized: 5,000,000 shares:
Issued and outstanding: no shares
Common Stock, one-fiftieth of one cent (1/50 cent) par value
Authorized: 50,000,000 shares; -
Issued and outstanding: 20,902,097 shares 418
Additional paid-in capital 1,555
Retained earnings 3,080
Accumulated other comprehensive loss (334)
--------
Total stockholders' equity 4,719
--------
Total liabilities and stockholders' equity $10,814
========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income and Comprehensive Income
For the Year Ended December 31, 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenues:
Software license and leases $ 10,496
Maintenance and installation 6,878
Consulting and other services 1,909
--------
19,283
--------
Costs and operating expenses:
Cost of revenues 8,889
Research and development 4,173
Selling, general and administrative 5,766
--------
Total costs and operating expenses 18,828
--------
Income from operations 455
Interest income 32
Exchange gain 157
--------
Income before provision for income taxes 644
Provision for income taxes (280)
--------
Net income 364
Other comprehensive loss:
Foreign currency translation adjustment (40)
--------
Comprehensive income $ 324
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 1998
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS TOTAL
---------- -------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997,
as previously reported 20,644,405 $ 413 $ 1,529 $ 2,297 $ (294) $ 3,945
Adjustment for effect of change in
accounting principle (Note 2) - - - 419 - 419
---------- ------- --------- --------- -------- ---------
Balances, December 31, 1997, restated 20,644,405 413 1,529 2,716 (294) 4,364
Issuance of common stock on exercise of stock
options for cash 257,692 5 26 - - 31
Net income - - - 364 - 364
Foreign currency translation adjustment - - - - (40) (40)
---------- ------- --------- --------- -------- ---------
Balances, December 31, 1998 20,902,097 $ 418 $ 1,555 $ 3,080 $ (334) $ 4,719
---------- ------- --------- --------- -------- ---------
---------- ------- --------- --------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1998
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 364
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 629
Loss on disposal of property and equipment 18
Amortization of intangible asset 40
Deferred income taxes 243
Provision for doubtful accounts 70
Change in operating assets and liabilities:
Accounts receivable (286)
Inventory 63
Prepaid expenses and other current assets (257)
Accounts payable 208
Accrued expenses (234)
Accrued payroll and related expenses 85
Income taxes payable (303)
Deferred revenue 447
--------
Net cash provided by operating activities 1,087
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (356)
Proceeds from disposal of intangible assets 61
--------
Net cash used in investing activities (295)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (306)
Proceeds from borrowings under line of credit 228
Payments of borrowings under line of credit (76)
Proceeds from issuance of common stock on exercise
of stock options 31
--------
Net cash used in financing activities (123)
--------
Effect of exchange rate changes on cash (168)
--------
Net increase in cash and cash equivalents 501
Beginning balance, cash and cash equivalents 2,343
--------
Ending balance, cash and cash equivalents $ 2,844
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 15
========
Cash paid during the year for taxes, net of taxes refunded $ 639
========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment under capital leases 102
========
Write-off of fully depreciated property and equipment $ 230
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARC Analysis Research Corporation and Subsidiaries (the "Company")
designs, manufactures, markets and distributes engineering software
products to customers in a variety of industries including aerospace,
automotive, education, electronic, manufacturing and government
throughout the United States, Japan, Europe, and China.
CONSOLIDATION
The consolidated financial statements include the accounts of MARC
Analysis Research Corporation and its subsidiaries, all of which are
wholly owned. All 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 reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity
of three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents are deposited in various domestic and foreign
banks. With respect to accounts receivable, the Company's customer base
is dispersed across many geographic areas and the Company generally does
not require collateral. The Company monitors customers' payment history
and establishes allowances for bad debt as warranted.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts
payable and other accrued liabilities approximates fair value due to
their short maturities. Based on borrowing rates currently available to
the Company for loans with similar terms, the carrying value of its notes
payable and capital lease obligations approximates fair value.
INVENTORY
Inventory consists of supplies and manuals and is stated at the lower of
cost (first-in, first-out) basis or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of five to seven years. Leasehold improvements are
amortized on a straight line basis over the estimated life of the lease,
or the useful life of the asset, whichever is shorter.
Major additions and improvements are capitalized, while replacements,
maintenance, and repairs that do not improve or extend the life of the
assets are charged to expense. In the period assets are retired or
otherwise disposed of, the costs and related accumulated depreciation and
amortization are removed from the accounts, and any gain or loss on
disposal is included in results of operations.
9
<PAGE>
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Amortization is computed on a straight-line basis over the estimated
benefit period of three years.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires the Company to review for impairment of long-lived assets,
whenever events or changes in circumstances indicate that the carrying
amount of an asset might not be recoverable. When such an event occurs,
the Company estimates the future cash flows expected to result from the
use of the asset and its eventual disposition. If the undiscounted
expected future cash flows is less than the carrying amount of the asset,
an impairment loss is recognized. To date, no impairment loss has been
recognized.
REVENUE RECOGNITION
The Company recognizes revenue from product licenses and from
noncancelable leasing arrangements upon shipment if a signed contract
exists, the fee is fixed and determinable, collection of the resulting
receivables is probable and product returns are reasonably estimable. The
Company recognizes amounts attributed to maintenance over the term of the
maintenance agreement. For revenue relating to consulting and other
services, revenue is recognized as the services are performed. See Note
2, Restatement for Change in Accounting Principle.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations as incurred.
Under Statement of Financial Accounting Standards No. 86 ("SFAS No. 86"),
software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product
is available for general release to customers. To date, such costs have
not been significant.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising
costs were $307 thousand in 1998.
FOREIGN CURRENCY TRANSLATION
The functional currency of each foreign subsidiary is its local currency.
For these operations, assets and liabilities are translated into U.S.
dollars at period-end exchange rates, and income and expense accounts are
translated at average monthly exchange rates. Net exchange gains or
losses resulting from such translations are excluded from net earnings
and accumulated in a separate component of stockholders' equity. Gains
and losses from foreign currency-denominated transactions are included in
the statements of operations.
STOCK-BASED COMPENSATION
The Company accounts for stock based compensation using the intrinsic
value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
10
<PAGE>
INCOME TAXES
The Company does not provide for deferred taxes and U.S. federal and
foreign withholding taxes on the undistributed earnings of its foreign
subsidiaries as such earnings are intended to be permanently reinvested
in those operations. Undistributed earnings of consolidated subsidiaries
aggregated approximately $1,165 thousand at December 31, 1998.
The Company has calculated its provision for income taxes for 1998 in
accordance with the liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income ("SFAS No. 130"). This statement requires companies
to classify items of other comprehensive income by their nature in the
financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. Accordingly, the Company has reported foreign currency
translation adjustments as required under SFAS No. 130.'
CERTAIN RISKS AND UNCERTAINTIES
The success of the Company depends on management's ability to anticipate
or to respond adequately to technological developments in its industry,
changes in customer requirements, or changes in regulatory requirements
and industry standards. Any significant delays in the development of
products or services could have a material, adverse effect on the
Company's business and operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use ("SOP
98-1"). SOP 98-1 is effective for financial statements for years
beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization
of such costs. The Company does not expect the adoption of this standard
to have a material impact on its results of operations, financial
positions or cash flows.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities". SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. As the
Company has historically expensed these costs, the adoption of SOP 98-5
is not expected to have significant impact on its results of operations,
financial positions or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters for fiscal years beginning after June
15, 1999. The Company is evaluating the requirements of SFAS No. 133.
11
<PAGE>
In December 1998, AcSEC release SOP 98-9, "Modification of SOP 97-2,
`Software Revenue Recognition,' with Respect to Certain Transactions".
SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for
multiple element arrangements by means of the "residual method" when (1)
there is vendor-specific objective evidence ("VSOE") of the fair values
of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for
one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97-2 (other than the requirement for VSOE of the fair
value of each delivered element) are satisfied. The provisions of SOP
98-9 that extend the deferral of certain paragraphs of SOP 97-2 became
effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9
will be effective for transactions that are entered into in fiscal years
beginning after March 15, 1999. Retroactive application is prohibited.
The Company is evaluating the requirements of SOP 98-9 and the effects,
if any, on the Company's current revenue recognition policies.
2. RESTATEMENT FOR CHANGE IN ACCOUNTING PRINCIPLE
The Company's opening retained earnings and fiscal 1998 revenues have
been restated to conform to Statement of Position 91-1 ("SOP 91-1"),
"Software Revenue Recognition", which was effective for the Company from
1992 through 1997, and for Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition", as amended by for Statement of Position
98-4 ("SOP 98-4"), "Deferral of the Effective Date of Certain Provisions
of SOP 97-2", which was effective for the Company in 1998.
In the current and prior years, the Company did not unbundle the
maintenance fees from the software leasing revenues and instead
recognized the leasing revenues over the lease period. The effect of
unbundling the maintenance revenues from lease transactions in compliance
with SOP 91-1 and SOP 97-2, as amended by SOP 98-4, was to increase
retained earnings at January 1, 1998 by $419 thousand and decrease income
before tax and net income for the year ended December 31, 1998 by $128
thousand and $72 thousand, respectively, from previously issued financial
statements. For transactions entered into in prior years but that were
incomplete as of January 1, 1998, the revenue recognition criteria for
SOP 91-1 was applied which resulted in the same revenue recognition
procedures as for SOP 97-2, as amended by SOP 98-4.
3. PROPERTY AND EQUIPMENT
Property and equipment comprises the following at December 31, 1998 (in
thousands of dollars):
<TABLE>
<S> <C>
Computers $ 2,203
Office furniture and equipment 710
Software 161
Leasehold improvements 394
-----------
3,468
Less accumulated depreciation and amortization (2,140)
-----------
$ 1,328
===========
</TABLE>
12
<PAGE>
The cost and accumulated amortization of equipment acquired under capital
leases and included in the above property and equipment total comprise
(in thousands of dollars):
<TABLE>
<S> <C>
Computers $ 921
Office furniture and equipment 80
----------
1,001
Less accumulated amortization (782)
----------
$ 219
==========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company has a 50% equity interest in Espri-MARC, S.R.L., an Italian
corporation which includes its $56 thousand investment and $84 thousand
equity in cumulative net earnings of the affiliate as of December 31,
1998. Included in the determination of the carrying value of this
investment as of December 31, 1998, is a provision to reduce the
investment to its estimated net realizable value of approximately $106
thousand. Summarized unaudited financial information of this
unconsolidated affiliate is as follows at December 31, 1998 and for the
year then ended (in thousands of dollars):
<TABLE>
<S> <C>
Sales $ 756
Net income 14
Total assets 737
Total liabilities 457
</TABLE>
5. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital lease arrangements
expiring in various years through 2003. Future minimum payments for
capital lease obligations are as follows at December 31, 1998 (in
thousands of dollars):
<TABLE>
<S> <C>
1999 $ 171
2000 53
2001 15
2002 4
2003 1
----------
244
Less interest (8)
----------
Present value of minimum lease payments 236
Less current portion (166)
----------
$ 70
----------
----------
</TABLE>
13
<PAGE>
6. LINE OF CREDIT
The Company has an unsecured revolving line of credit with a bank in
Japan for 50 million yen. The borrowing period, typically 10 to 14 days,
is established when funds are drawn against the line of credit.
Borrowings under the line of credit bear interest at 4%. There are no
restrictive covenants except that MARC U.S. must supervise and control
MARC Japan as long as the bank continues to make the credit
accommodation. The balance outstanding from borrowings on the line of
credit for the years ended December 31, 1998 was 50 million yen ($435
thousand).
7. COMMITMENTS
The Company leases certain office facilities and equipment under
operating leases that expire in various years through 2003. Future
minimum obligations under the operating leases in effect are as follows
at December 31, 1998 (in thousands of dollars):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999 $ 671
2000 157
2001 30
2002 7
2003 3
---------
$ 868
---------
---------
</TABLE>
Rent expense included in operations amounted to $1,779 thousand in 1998.
8. CAPITAL STOCK
PREFERRED STOCK
During December 1997, the Company was authorized to issue 5,000,000
shares of preferred stock. Each share of preferred stock has a par value
of one-fiftieth of one cent (1/50 cent). The preferred stock may be
issued from time to time in one or more series. As of December 31, 1998
no shares of preferred stock were issued and no series of preferred stock
were designated.
1987 STOCK OPTION PLAN
The Company's 1987 Stock Option Plan expired during fiscal year 1997.
1993 EMPLOYEE STOCK OPTION PLAN
In May 1993, the Company adopted the 1993 Employee Stock Option Plan (the
"Employee Plan") under which the Company may grant options to purchase
the Company's common stock to directors, officers, and employees. The
Company has reserved 2,500,000 shares of authorized common stock for
issuance under the Employee Plan.
14
<PAGE>
Options granted under the Employee Plan may be either incentive stock
options or nonqualified stock options, at the discretion of the Board of
Directors. The Employee Plan provides that the exercise price of options
granted must be no less than the fair market value of the Company's
common stock at the date of grant for incentive stock options and no less
than 85% of the fair market value for nonqualified stock options. The
Board of Directors also has the authority to set exercise dates (no
longer than ten years from the date of grant), vesting requirements and
other provisions for each grant. Options granted under this plan
generally have terms ranging from five to ten years.
1993 STOCK PLAN
In May 1993, the Company adopted the 1993 Stock Plan (the "Plan") under
which the Company may grant nonqualified stock options, warrants to
purchase common stock, and stock purchase rights to directors, officers,
employees, consultants, advisors, or other independent contractors to the
Company. The Company has reserved 2,600,000 shares of authorized common
stock for issuance under the Plan.
The exercise price for options and for warrants granted under the Plan
are at the discretion of the Board of Directors. The Board of Directors
also has the authority to set exercise dates (no longer than ten years
from the date of grant), vesting requirements and other provisions for
each grant.
For the purchase rights, the purchase price for the shares of common
stock shall be the fair market value of the Company's common stock on
grant date. Purchase rights can be purchased in cash or by an
interest-bearing promissory recourse note, which will be due and payable
not more than five years after purchase with annual interest payments. As
of December 31, 1998, no shares have been issued through purchase rights.
Options granted under this plan generally have terms ranging from five to
ten years.
1997 STOCK OPTION PLAN
In November 1997, the Company adopted the 1997 Stock Option Plan under
which the Company may grant options to purchase the Company's common
stock to directors, officers, and employees. The Company has reserved
2,682,630 shares of authorized common stock for issuance under the
Employee Plan.
Options granted under the Employee Plan may be either incentive stock
options or nonqualified stock options, at the discretion of the Board of
Directors. The Employee Plan provides that the exercise price of options
granted must be no less than the fair market value of the Company's
common stock at the date of grant for incentive stock options, no less
than 85% of the fair market value for nonqualified stock options, and no
less than 110% of the fair market value for Ten Percent Owner Optionees.
Ten Percent Owner Optionees are optionees who at the time of grant own
more than ten percent of the total combined voting power of all classes
of stock. The Board of Directors also has the authority to set exercise
dates (no longer than ten years from the date of grant), vesting
requirements and other provisions for each grant. Options granted under
this plan generally have terms ranging five to ten years.
15
<PAGE>
The following is a summary of stock option activity under these plans:
<TABLE>
<CAPTION>
OUTSTANDING SHARES
-----------------------------------------------------------------------------
SHARES WEIGHTED WEIGHTED
AVAILABLE AGGREGATE AVERAGE AVERAGE
FOR PRICE PER AMOUNT EXERCISE CONTRACTUAL
GRANT SHARES SHARE (IN THOUSANDS) PRICE LIFE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
December 31, 1997 4,566,296 3,425,009 - $ 602 $ 0.18 7.93
Options granted (156,500) 156,500 $ 0.20 31 $ 0.20
Options exercised - (257,692) $ 0.12 -$0.20 (31) $ 0.20
Options canceled 28,433 (28,433) $ 0.20 (6) $ 0.20
Plan shares expired (15,500) - - - -
----------- ----------- -----------
Options outstanding at
December 31, 1998 4,422,729 3,295,384 - $ 596 $ 0.18 8.05
=========== =========== ===========
</TABLE>
The weighted average deemed fair value of options granted in 1998 was
$0.20. At December 31, 1998, options for 2,910,247 shares were
exercisable at a weighted average exercise price of $0.18 per share.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company, however, continues to apply APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for the options granted to
employees.
The fair value of each option grant is estimated on the date of grant
using the minimum value method with following weighted assumptions at
December 31, 1998:
<TABLE>
<S> <C>
Risk-free interst rate 5.54%
Expected average life 5 years
Expected dividend yield -
</TABLE>
The expected average life is based on the assumption that stock options
on average are exercised one year after they are fully vested. The
risk-free interest rate was calculated in accordance with the grant date
and expected life.
The weighted average fair value of options granted in 1998 was $0.15.
Had compensation cost for the Plan been determined based on the
provisions of SFAS No. 123, the pro forma effect on net income for 1998
would not have been material.
16
<PAGE>
9. INCOME TAXES
At December 31, 1998, the provision for income taxes comprises (in
thousands of dollars):
<TABLE>
<S> <C>
Currently payable
Federal $ 16
State 9
Foreign 343
-----------
368
Deferred income taxes (88)
-----------
Total $ 280
===========
</TABLE>
The reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% to the reported amount is as follows:
<TABLE>
<S> <C>
Income taxes at statutory rate $ 219
Foreign tax credits, net (331)
Foreign witholding tax 207
Foreign taxes at rates highter than the U.S. statutory rate 122
Increase in valuation allowance 48
Other 15
----------
$ 280
==========
</TABLE>
At December 31, 1998, the Company had foreign operating loss carry
forwards of approximately $194 thousand available to offset future
taxable income in a foreign jurisdiction and $136 thousand in minimum tax
credits. The Company had research and development tax credits and foreign
tax credits in the amounts of $302 thousand and $47 thousand,
respectively. The research and development tax credits will expire in the
years from 2003 and 2013 and the foreign tax credits will expire in the
years from 2001 to 2003.
17
<PAGE>
The components of the net deferred tax asset are as follows at December
31, 1998 (in thousands of dollars):
<TABLE>
<S> <C>
Deferred tax asset:
Allowance for doubtful accounts $ 32
Depreciation and amortization 40
Accrued compensation and other liabilities 235
Net operating loss carryforwards 97
Foreign tax and research and development
credit carryforwards 486
Other 109
----------
999
Deferred tax liability:
Deferred revenue (268)
----------
731
Valuation allowance (418)
----------
Net deferred tax assets $ 313
==========
</TABLE>
The Company has not provided a valuation allowance on certain deferred
tax assets that represent amounts expected to be realized from future
operations. The valuation allowance for deferred tax assets increased by
$48 thousand in 1998.
At December 31, 1998, deferred tax assets included in the balance sheet
are (in thousands of dollars):
<TABLE>
<S> <C>
Current $ 93
Noncurrent 220
-----------
Net deferred tax assets $ 313
-----------
-----------
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company received royalties from Espri-MARC, an unconsolidated
affiliate, of $303 thousand in 1998.
During 1993, the Company entered into a management consulting agreement
with Irinea AB and Pan Cosmos, of which a member of the Company's Board
of Directors is the managing director. Consulting expenses related to
this agreement were approximately $334 thousand in 1998.
11. 401(k) SAVINGS PLAN
The Company provides a 401(k) Savings Plan for all eligible employees.
Participants may make voluntary contributions to the plan up to 20% of
their compensation. The Company's contribution under the plan is
discretionary. No contributions were made by the Company in 1998.
18
<PAGE>
12. SEGMENT INFORMATION
The Company currently has only one segment because there is only one
measurement of pofitability for its operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1998
(IN THOUSANDS
OF DOLLARS)
<S> <C>
Revenues:
United States $ 3,950
Europe 6,460
Far East 8,873
------------
$ 19,283
============
DECEMBER 31
1998
(IN THOUSANDS
OF DOLLARS)
Property and equipment, net:
United States $ 532
Europe 334
Far East 462
------------
$ 1,328
------------
------------
</TABLE>
13. SUBSEQUENT EVENT
The Company was sold to MSC.Software Corporation (formerly The
MacNeal-Schwendler Corporation) on June 18, 1999 for $30,500 thousand in
cash, stock and notes receivable.
19
<PAGE>
MARC ANALYSIS RESEARCH
CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 1999
20
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
1999
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,476
Accounts receivable:
Trade, net of allowance for doubtful accounts of $154 3,587
Affiliates 204
Inventory 112
Deferred income taxes 129
Prepaid expenses and other assets 871
--------
Total current assets 8,378
Property and equipment, at cost, less accumulated
depreciation and amortization 1,025
Intangible asset, at cost, less accumulated amortization of $95 31
Investment in unconsolidated affiliate 106
Deferred income taxes 198
Deposits and other assets 1,029
--------
Total assets $ 10,768
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 12
Current portion of capital lease obligations 162
Accounts payable:
Trade 445
Affiliates 7
Accrued expenses 777
Accrued payroll and related expenses 635
Income taxes payable 478
Deferred revenue 3,389
--------
Total current liabilities 5,905
Capital lease obligations, less current portion 14
--------
Total liabilities 5,919
--------
Commitments
Stockholders' equity:
Preferred stock, one-fiftieth of one cent (1/50(cent)) par value
Authorized: 5,000,000 shares
Issued and outstanding: no shares -
Common stock, one-fiftieth of one cent (1/50(cent)) par value
Authorized: 50,000,000 shares
Issued and outstanding: 20,902,097 shares 418
Additional paid-in capital 1,558
Retained earnings 3,259
Accumulated other comprehensive loss (386)
--------
Total stockholders' equity 4,849
--------
Total liabilities and stockholders' equity $ 10,768
========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
21
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Revenues:
Software license and leases $ 2,514
Maintenance and installation 1,976
Consulting and other services 476
--------
4,966
--------
Costs and operating expenses:
Cost of revenues 2,244
Research and development 1,025
Selling, general and administrative 1,237
--------
Total costs and operating expenses 4,506
--------
Income from operations 460
Interest income 5
Exchange loss (177)
--------
Income before provision for income taxes 288
Provision for income taxes (109)
--------
Net income 179
Other comprehensive income (loss):
Foreign currency translation adjustment (52)
--------
Comprehensive income $ 127
========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
22
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Cash flows from operating activities:
Net income $ 179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 178
Amortization of intangible asset 8
Deferred income taxes 74
Provision for doubtful accounts 18
Change in operating assets and liabilities:
Accounts receivable (31)
Inventory (13)
Prepaid expenses and other assets 4
Accounts payable 609
Accrued expenses (2)
Accrued payroll end related expenses (1)
Income taxes payable (51)
Deferred revenue 382
--------
Net cash provided by operating activities 1,354
--------
Cash flows from investing activities:
Purchase of property and equipment (453)
Purchase of intangible assets 1
--------
Net cash used in investing activities (452)
--------
Cash flows from financing activities:
Payments on capital lease obligations (441)
Payments of borrowings under line of credit (70)
Proceeds from exercise of common stock 2
--------
Net cash used in financing activities (509)
--------
Effect of exchange rate changes on cash 239
--------
Net increase in cash and cash equivalents 632
Beginning balance, cash and cash equivalents 2,844
--------
Ending balance, cash and cash equivalents $ 3,476
========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 6
========
Cash paid during the year for taxes, net of taxes refunded $ 129
========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
23
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARC Analysis Research Corporation and Subsidiaries (the "Company")
designs, manufactures, markets and distributes engineering software
products to customers in a variety of industries including aerospace,
automotive, education, electronic, manufacturing and government
throughout the United States, Japan, Europe, and China.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use
("SOP 98-1"). SOP 98-1 is effective for financial statements for years
beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of
this standard to have a material impact on its results of operations,
financial positions or cash flows.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as
incurred. As the Company has historically expensed these costs, the
adoption of SOP 98-5 is not expected to have significant impact on its
results of operations, financial positions or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters for fiscal years
beginning after June 15, 1999. The Company is evaluating the
requirements of SFAS No. 133.
24
<PAGE>
MARC ANALYSIS RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In December 1998, AcSEC release SOP 98-9, "Modification of SOP 97-2,
`Software Revenue Recognition,' with Respect to Certain Transactions".
SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue
for multiple element arrangements by means of the "residual method"
when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for
by means of long-term contract accounting, (2) VSOE of fair value does
not exist for one or more of the delivered elements, and (3) all
revenue recognition criteria of SOP 97-2 (other than the requirement
for VSOE of the fair value of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These
paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Early adoption of SOP 98-9 is allowed, however retroactive application
is prohibited. Accordingly, the Company adopted the provisions of SOP
98-9 effective January 1, 1999 and revenue on non-cancelable and
prepaid lease agreements is recognized monthly over the term of the
agreement, beginning on January 1, 1999, since the VSOE of fair value
required under SOP 97-2 needed to allocate the contract fee to the
undelivered PCS element of the arrangements is not available.
3. SUBSEQUENT EVENT
The Company was sold to MSC.Software Corporation (formerly The
MacNeal-Schwendler Corporation) on June 18, 1999 for $30,500 thousand
in cash, stock and notes receivable.
25
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
(1) Pro forma combined balance sheet of MSC and MARC as of
March 31, 1999, as if the acquisition had occurred on
the balance sheet date.
(2) Pro forma combined statement of operations for MSC and
MARC for the year ended December 31, 1998, as if the
acquisition had occurred on the first day of the period
presented.
(3) Pro forma combined statement of operations for MSC and
MARC for the three months ended March 31, 1999, as if
the acquisition had occurred on the first day of the
period presented.
26
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
presented for illustrative purposes only and do not purport to be indicative of
the consolidated financial position or results of operations for future periods
or the results that actually would have been realized had MSC.Software
Corporation (the "Company") and MARC Analysis Research Corporation ("MARC") been
a consolidated company during the specified periods.
The unaudited pro forma consolidated financial statements, including
the notes thereto, are qualified in their entirety by reference to, and should
be read in conjunction with the historical consolidated financial statements and
the notes thereto of the Company which were previously reported in the Company's
Transition Report on Form 10-K for the year ended December 31, 1998 and the
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June
30, 1999, which are hereby incorporated by reference, and the consolidated
financial statements and the notes thereto of MARC for the year ended December
31, 1998 and for the three months ended March 31, 1999 (unaudited), included
elsewhere in this Current Report on Form 8-K.
The Unaudited Pro Forma Consolidated Statements of Operations of the
Company for the three months ended March 31, 1999 and the year ended December
31, 1998 and the Unaudited Pro Forma Consolidated Balance Sheet of the Company
as of March 31, 1999, which are set forth below, give effect to the acquisition
of MARC based upon the assumptions set forth below and in the Notes to Unaudited
Pro Forma Consolidated Financial Statements. The unaudited pro forma financial
information assumes that the acquisition of MARC was completed on January 1,
1998 for the Unaudited Pro Forma Consolidated Statements of Operations and March
31, 1999 for the Unaudited Pro Forma Consolidated Balance Sheet.
The Company believes that the accompanying unaudited pro forma
financial information contains all adjustments necessary to fairly present the
results of operations of the Company for the three months ended March 31, 1999
and the year ended December 31, 1998, as if the acquisition of MARC was
completed on January 1, 1998, and the financial position of the Company as of
March 31, 1999, as if the acquisition of MARC had occurred on that date.
27
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
MARC
ANALYSIS PRO FORMA
MSC.SOFTWARE RESEARCH PRO FORMA MSC.SOFTWARE
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 20,434,000 $ 3,476,000 $ (20,300,000) (1) $ 3,610,000
Securities Available for Sale 15,449,000 - - 15,449,000
Trade Accounts Receivable, Net 34,114,000 3,791,000 - 37,905,000
Deferred Tax Charges 8,206,000 129,000 - 8,335,000
Other Current Assets 8,267,000 983,000 - 9,250,000
------------- ------------- ------------- -------------
Total Current Assets 86,470,000 8,379,000 (20,300,000) 74,549,000
Property and Equipment, Net 8,148,000 1,025,000 - 9,173,000
Capitalized Software Costs, Net 21,193,000 31,000 - 21,224,000
Goodwill and Other Intangibles, Net 22,896,000 - 43,542,000 (2) 62,371,000
(4,067,000) (3)
Other Assets 3,725,000 1,333,000 - 5,058,000
------------- ------------- ------------- -------------
Total Assets $ 142,432,000 $ 10,768,000 $ 19,175,000 $ 172,375,000
============= ============= ============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 1,768,000 $ 452,000 $ - $ 2,220,000
Line of Credit 10,800,000 12,000 - 10,812,000
Accrued and Other Liabilities 18,844,000 2,066,000 570,000 (2) 21,480,000
Restructuring Reserve 5,647,000 - 2,360,000 (2) 8,007,000
Deferred Revenue 33,149,000 3,389,000 - 36,538,000
------------- ------------- ------------- -------------
Total Current Liabilities 70,208,000 5,919,000 2,930,000 79,057,000
Deferred Income Taxes 5,173,000 - 8,719,000 (4) 13,892,000
Convertible Subordinated Debentures 56,574,000 - 1,700,000 (5) 58,274,000
Subordinated Notes Payable - - 11,704,000 (6) 11,704,000
Commitments and Contingencies - - - -
Total Shareholders' Equity 10,477,000 4,849,000 (4,067,000) (3) 9,448,000
3,038,000 (7)
(4,849,000) (8)
------------- ------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 142,432,000 $ 10,768,000 $ 19,175,000 $ 172,375,000
============= ============= ============= =============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
28
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(1) Adjustment is the amount of cash paid for the purchase of MARC.
(2) Adjustment to reflect the additional goodwill and other intangible
assets from the MARC acquisition. The total purchase price, including
acquisition costs, was allocated to the assets and liabilities of
MARC, based upon their approximate fair market value, as follows:
$4,849,000 to net tangible assets, $29,710,000 to identified
intangible assets (including $15,274,000 of developed technology,
$6,322,000 to customer list, $4,067,000 of purchased in-process
research and development, $2,390,000 for tradename recognition, and
$1,657,000 of assembled work force), and $11,472,000 to goodwill.
Costs incurred related to the acquisition were $570,000. An additional
adjustment of $2,360,000 to goodwill was provided for additional
acquisition costs relating to the integration of MARC, in accordance
with Emerging Issues Task Force ("EITF") No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination".
Goodwill and identified intangibles are being amortized over three to
fifteen years.
(3) Adjustment for $4,067,000 of purchased in-process research and
development, which was written off as the acquired technology had not
yet reached technological feasibility and had no future alternative
uses because it has no continuing impact.
(4) Adjustment for $8,719,000 of deferred tax liability related to
the difference between the basis of the identifiable intangible assets
for financial reporting purposes and for federal and state income
tax purposes. Identifiable intangible assets are not deductible for
federal and state income tax purposes and have no tax basis.
(5) Adjustment is the $2,000,000 principal amount of convertible
subordinated debentures issued for the purchase of MARC, less a
$300,000 discount recorded to reflect the instruments at their
estimated fair value.
(6) Adjustment is the $14,300,000 principal amount of subordinated notes
payable issued for the purchase of MARC, less a $2,596,000 discount
recorded to reflect the instruments at their estimated fair value.
(7) Adjustment is the common stock warrants issued for the purchase of MARC
(1,400,000 warrants to purchase common stock at $10.00 per share),
valued at $3,038,000 using the Black-Scholes valuation method.
(8) Adjustment is for the elimination of MARC's stockholders' equity.
29
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARC
ANALYSIS PRO FORMA
MSC.SOFTWARE RESEARCH PRO FORMA MSC.SOFTWARE
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUE $ 125,397,000 $ 19,283,000 $ - $ 144,680,000
------------- ------------- ------------ -------------
EXPENSE:
Operating Expenses 127,073,000 18,828,000 3,343,000 (1) 149,244,000
Write-Off of Acquired In-Process
Technology 6,000,000 - - 6,000,000
Restructuring and Other
Impairment Charges 2,365,000 - - 2,365,000
------------- ------------- ------------ -------------
Total Expenses 135,438,000 18,828,000 3,343,000 157,609,000
------------- ------------- ------------ -------------
OPERATING INCOME (LOSS) (10,041,000) 455,000 (3,343,000) (12,929,000)
Other Expense (Income), Net 3,134,000 (189,000) 1,666,000 (2) 4,611,000
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE TAXES (13,175,000) 644,000 (5,009,000) (17,540,000)
Tax Provision (Benefit) (196,000) 280,000 (1,421,000)(3) (1,337,000)
------------- ------------- ------------ -------------
NET INCOME (LOSS) $ (12,979,000) $ 364,000 $ (3,588,000) $(16,203,000)
============= ============= ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ (0.95) $ (1.19)
============= ============
DILUTED EARNINGS (LOSS) PER SHARE $ (0.95) $ (1.19)
============= ============
BASIC WEIGHTED-AVERAGE
SHARES OUTSTANDING 13,655,000 13,655,000
============= ============
DILUTED WEIGHTED-AVERAGE
SHARES OUTSTANDING 13,655,000 13,655,000
============= ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations.
30
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
MARC
ANALYSIS PRO FORMA
MSC.SOFTWARE RESEARCH PRO FORMA MSC.SOFTWARE
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ 30,653,000 $ 4,966,000 $ - $ 35,619,000
------------- ------------- ------------- -------------
EXPENSES:
Operating Expenses 31,095,000 4,506,000 836,000 (1) 36,437,000
Restructuring Charges 5,897,000 - - 5,897,000
------------- ------------- ------------- -------------
Total Expenses 36,992,000 4,506,000 836,000 42,334,000
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (6,339,000) 460,000 (836,000) (6,715,000)
Other Expense (Income), Net 1,514,000 172,000 416,000 (2) 2,102,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES (7,853,000) 288,000 (1,252,000) (8,817,000)
Tax Provision (Benefit) (2,434,000) 109,000 (355,000) (3) (2,680,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (5,419,000) $ 179,000 $ (897,000) $ (6,137,000)
============= ============ ============= =============
BASIC EARNINGS (LOSS) PER SHARE $ (0.39) $ (0.45)
============= =============
DILUTED EARNINGS (LOSS) PER SHARE $ (0.39) $ (0.45)
============= =============
BASIC WEIGHTED-AVERAGE
SHARES OUTSTANDING 13,770,000 13,770,000
============= =============
DILUTED WEIGHTED-AVERAGE
SHARES OUTSTANDING 13,770,000 13,770,000
============= =============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations.
31
<PAGE>
MSC.SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND YEAR ENDED DECEMBER 31, 1998
(1) Adjustment to reflect the additional amortization of goodwill and other
intangible assets from the MARC acquisition. The acquisition of the net
assets of MARC resulted in approximately $39,475,000 of goodwill and
other intangible assets, which are being amortized over their estimated
useful lives.
(2) Adjustment to reflect the additional interest expense for the
$14,300,000 principal amount of 8% subordinated notes payable and
$2,000,000 principal amount of 7-7/8% convertible subordinated
debentures that were issued for the MARC acquisition. Adjustment also
includes the related amortization of discounts on the subordinated
notes payable and convertible subordinated debentures.
(3) Adjustment is the net tax effect of the pro forma adjustments.
Income taxes were provided at a rate of 31% excluding goodwill
amortization.
Note: The Pro Forma Consolidated Statements of Operations do not include any
adjustment to reflect the efficiencies and cost reductions expected to
be obtained in connection with the integration of the MARC operations
with those of the Company. The costs of facility closures and employee
reductions have been included as part of the cost of the acquisition in
accordance with EITF No. 95-3. The integration of operations is
expected to be completed within four months after the acquisition date,
after which certain efficiencies and cost savings are expected to be
realized.
32
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of
May 26, 1999 by and among The MacNeal-Schwendler
Corporation, MSC Holdings Co. II, MARC Analysis Research
Corporation, Dendron Technology B.V., Fronos Technology B.V.
and Nearchos Irinarchos (filed as part of the initial filing
of this Current Report on Form 8-K, event date June 18,
1999)
2.2 Stock Purchase Agreement dated as of May 26, 1999 among The
MacNeal-Schwendler Corporation, Dendron Technology B.V. and
Fronos Technology B.V. (filed as part of the initial filing
of this Current Report on Form 8-K, event date June 18,
1999)
4.1 The MacNeal-Schwendler Corporation Indenture dated as of
June 17, 1999 with Chase Manhattan Bank & Trust Company N.A.
as Trustee (filed as part of the initial filing of this
Current Report on Form 8-K, event date June 18, 1999)
4.2 The MacNeal-Schwendler Corporation Warrant Agreement dated
as of June 18, 1999 with The MacNeal-Schwendler Corporation
acting in the capacity of Warrant Agent (filed as part of
the initial filing of this Current Report on Form 8-K, event
date June 18, 1999)
10.3 Registration Rights Agreement dated June 18, 1999 among The
MacNeal-Schwendler Corporation, Dendron Technology B.V. and
Fronos Technology B.V. (filed as part of the initial filing
of this Current Report on Form 8-K, event date June 18,
1999)
23 Consent of PricewaterhouseCoopers LLP, Independent Auditors
99.1 Press release issued June 23, 1999 (filed as part of the
initial filing of this Current Report on Form 8-K, event
date June 18, 1999)
99.2 Press release issued June 24, 1999 (filed as part of the
initial filing of this Current Report on Form 8-K, event
date June 18, 1999)
</TABLE>
33
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MSC.SOFTWARE CORPORATION
By: /s/ Louis A. Greco
----------------------------------------
Date: September 1, 1999 Louis A. Greco - Chief Financial Officer
-----------------
34
<PAGE>
EXHIBIT 23
CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-93416, 33-51744, 33-65239, 333-12189, 333-62187 and
333-84219) of MSC.Software Corporation and in the related prospectuses of our
report dated April 12, 1999, except for Note 13, for which the date is June
18, 1999, with respect to the consolidated financial statements of MARC
Analysis Research Corporation included in the Form 8-K of MSC.Software
Corporation dated July 1, 1999, as amended.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
September 1, 1999
35
