MSC.Software Announces a Summary of the Results of the Audit Committee's Independent Review

MSC.Software Announces a Summary of the Results of the Audit
Committee's Independent Review 


SANTA ANA, Calif., Feb. 16  /PRNewswire-FirstCall/ -- MSC.Software Corp.
(NYSE:MNS), today announced that the previously disclosed independent review
directed by its Audit Committee is now complete and the report to the Audit
Committee from its legal counsel has been presented to the Board of Directors
of MSC.Software.  Key conclusions from the report are summarized below.

The independent review found evidence that information was withheld from, and
inaccurate or misleading information was provided to, the Company's independent
public auditors in connection with the accounting treatment of stock options of
a departing employee of a foreign subsidiary and revenue recognition with
respect to software contracts in Korea.

The independent review found instances where backdated documents were obtained
or sought, either to accelerate revenue or to provide audit documentation to
the Company's independent auditors.  Although the independent review did not
review all transactions, the independent review did not observe any significant
pattern or practice of intentional backdating of documents by Company employees
or any evidence of a systematic attempt by the Company's management to alter or
manage revenues.

The independent review raised concerns regarding the timing of the recognition
of revenues, the completeness of the documentation required to recognize
revenue, the implementation of appropriate cut-off procedures at the end of
accounting periods and other failures to comply with generally accepted
accounting principles.  These concerns, as well as revenue recognition in
general, will be addressed as part of the Company's previously announced
restatement of the Company's financial statements for all periods subsequent to
December 31, 2000.  The Company believes that the timing and allocation of
revenue between deferred revenue and recognized revenue will change.  What
impact the Company's review of revenue recognition will have on its reported
revenues for various periods cannot yet be determined.

The Company also intends to make certain non-revenue adjustments as part of the
restatement process.  These proposed adjustments relate to the following items:

  *  an increase in selling, general and administrative expense and
     additional paid-in capital in 2002 relating to a compensation charge as
     a result of the modification of stock options of two departing
     employees;

  *  revenue recognized in the fourth quarter of 2002 that should have been
     deferred as a result of MSC.Software's settlement with the FTC in
     November of 2002;

  *  an increase to retained earnings as of January 1, 2001 resulting from
     the reversal of a valuation reserve for capitalized software;

  *  decreases in the income tax provisions in 2001, 2002 and 2003 related
     to the tax effects of the adjustments described above and the
     accounting for a deferred tax liability in connection with an
     acquisition;

  *  recognizing an accrual for certain foreign defined benefit plans in the
     applicable years rather than in 2003;

  *  a decrease in goodwill in 2001 and a decrease in related impairment
     charges in 2002, in each case relating to the acquisition of Advanced
     Enterprise Solutions, Inc.;

  *  an adjustment to loss on disposal of discontinued operations relating
     to the revised estimate of cash flows for the Southfield office lease
     in the fourth quarter of 2003;

  *  reclassification of goodwill amounts related to the acquisition of
     MSC-Australia; this acquisition took place in 2000 and the adjustments
     will impact 2001 and 2002;

  *  write-off of the Korean unearned/unbilled income account from the 2001
     balance sheet; and

  *  an adjustment to the accounting for a key man life insurance policy to
     record the cash surrender value in 2001 and related adjustments in
     2002.



The exact impact of these proposed adjustments will be determined as part of
the Company's restatement process.

The independent review raised additional questions regarding the accounting
treatment for the Company's acquisition of Advanced Enterprise Solutions, Inc.
in July 2001.  This issue is being reviewed by the Company and any changes
required to that accounting will be part of the Company's restatement process.

Finally, the independent review observed certain internal control weaknesses
that contributed to the revenue and non-revenue concerns identified during the
independent review.  The internal control weaknesses observed were (1) weak
oversight in the overall control environment; (2) an organizational structure
that compromised the regional finance function's independence in evaluating
judgments and estimates to achieve accurate financial reporting; (3) ambiguous
and inconsistent internal accounting policies and procedure; (4) inadequate
monitoring and Oracle system controls in the revenue data entry process; (5)
insufficient documentation of assumptions and judgments to support historical
accounting; and (6) insufficient skills and/or training to ensure that the
Company's internal accounting policies and procedures would generate financial
reporting in accordance with GAAP.

The restatement, once completed, will be subject to audit by the Company's
independent auditors.  When the restatement is complete and it has been
audited, the Company will make the filings necessary to become current under
the requirements of the Securities and Exchange Commission.  No assurance can
be given as to the time required to complete the restatement or that additional
accounting issues will not arise during this process.

The Company's new Chief Executive Officer, William Weyand, noted that "the
Company appreciates the manner in which the Audit Committee handled this
matter.  There have been a number of recent and significant changes in Company
personnel and the new management team is committed to upgrading the Company's
financial controls and reporting processes to ensure compliance with accounting
standards."  As part of this effort, the Company has revised its organizational
structure, created an internal audit function, strengthened document control
and data entry processes, instituted training worldwide and implemented and
will continue to implement other changes to its internal controls and
procedures to rectify deficiencies observed by the Audit Committee review and
otherwise to comply with the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002.  The Company cooperated fully with the independent review and is
working diligently to complete the restatement of its financial statements as
soon as possible.

About MSC.Software Corporation

MSC.Software (NYSE:MNS) is the leading global provider of virtual product
development (VPD) products including simulation software and services that help
companies make money, save time and reduce costs associated with designing and
testing manufactured products.  MSC.Software works with thousands of companies
in hundreds of industries to develop better products faster by utilizing
information technology, software and services. MSC.Software employs more than
1300 people in 22 countries.  For additional information about MSC.Software's
products and services, please visit http://www.mscsoftware.com/. 

DATASOURCE: MSC.Software Corporation



CONTACT:  Investor, Joanne Keates, Vice President, Investor Relations,

[phone], , or Media, Todd Evans,

Corporate Communications, [phone], , both of

MSC.Software Corporation



Web site:  http://www.mscsoftware.com/ 

Copyright