ACADEMIA

Total revenue for the three months ended September 30, 2006 was $58.4 million compared to $75.6 million for the same period in 2005. Software revenue for the third quarter of 2006 totaled $22.7 million compared to $36.8 million for the third quarter of 2005. Software revenue in the 2005 period included $1.5 million of PLM software revenue. In addition, the 2005 period benefited by $7.0 million in net restatement adjustments, which reflect the difference between the restatement adjustments in 2005 and the restatement adjustments in 2006. For the three months ended September 30, 2006, maintenance revenue totaled $28.9 million and services revenue totaled $6.8 million, compared to $28.2 million of maintenance revenue and $10.5 million of services revenue for the same period in 2005. The 2005 period included $1.1 million of PLM services revenue. Total revenue for the nine months ended September 30, 2006 was $193.7 million compared to $210.8 million for the same period last year. Software revenue for the nine months ended September 30, 2006 totaled $83.3 million compared to $97.7 million for the same period in 2005, which included $2.7 million of PLM software. In addition the 2005 period benefited by $5.1 million of net restatement adjustments, which reflect the difference between the restatement adjustments in 2005 and the restatement adjustments in 2006. For the nine months ended September 30, 2006 maintenance revenue totaled $85.7 million and services revenue totaled $24.7 million compared to $80.0 million of maintenance revenue and $33.1 million of services revenue in the 2005 nine month period. The 2005 period included $2.0 million of PLM services revenue. "We believe that the software revenue decreases in the quarter are the result of our transition to selling enterprise platform applications, overall weakness in our Asia Pacific operations, and challenges with revenue recognition as it relates to transitioning our legacy contracts and products," said Bill Weyand, CEO and Chairman of MSC.Software. "Selling enterprise simulation solutions results in larger transaction sizes that typically require a longer decision making process within our customers' organizations. That process has caused a general lengthening of the overall sales cycle from what was approximately three to six months, to about six to 12 months." "The decrease in our services revenue is the result of a managed transition away from low margin simulation services contracts in favor of higher margin consulting engagements. We want our services business to be based on a contemporary practice model that is in alignment with our new enterprise solution strategy," continued Mr. Weyand. "Although it is hard to predict with certainty when larger enterprise software and services transactions will close, we do know that we have not lost any major customers and our pipeline for transactions that exceed $100,000 is bigger than ever." REVENUE BY GEOGRAPHY Total revenue in the Americas for the third quarter of 2006 was $17.1 million, a decrease of 15.8% compared to $20.3 million last year. After adjusting the 2005 period for software and services revenue totaling $2.6 million for the PLM business, total revenue in the Americas decreased by 3.4%. Total revenue in EMEA for the third quarter was $23.1 million, a decrease of 13.4% compared to $26.7 million last year. In the Asia Pacific region, total revenue for the third quarter was $18.2 million, a decrease of 36.5% compared to $28.6 million last year. Total revenue in the Americas for the nine months ended September 30, 2006 was $58.0 million, a decrease of 6.1% compared to $61.8 million last year. After adjusting the 2005 period for software and services revenue totaling $4.8 million for the PLM business, total revenue in the Americas increased by 1.8%. Total revenue in EMEA for the nine months was $74.4 million, a decrease of 5.5% compared to $78.7 million last year. In the Asia Pacific region, total revenue for the third quarter was $61.2 million, a decrease of 12.9% compared to $70.3 million last year. "We believe that conditions in the Americas are improving, and we've gained traction selling our enterprise simulation solutions," said Mr. Weyand. "Further, we believe that although the third quarter was challenging in Europe, our EMEA operations are poised to benefit from enterprise sales in the fourth quarter and in 2007, both within key aerospace accounts and alongside our IBM partnership activity. Our Asia Pacific operations were most heavily impacted by the longer sales cycles and a significant decrease in services activities." OPERATING EXPENSES, OPERATING INCOME and EPS Total operating expenses for the third quarter 2006 were $48.9 million, compared to $44.6 million last year. The 2006 period included $2.7 million of additional stock based compensation recognized pursuant to FAS 123(R) and $2.4 million of consulting expenses related to the Oracle implementation. The 2005 period included expenses totaling $4.5 million related to the special investigation and restatement audit. Excluding such expenses, total operating expenses for the 2006 third quarter were $43.8 million compared to $40.1 million last year. The third quarter 2006 generated an operating loss of $2.3 million, compared to operating income of $13.5 million in the third quarter last year. For the third quarter 2006, the loss from continuing operations totaled $1.8 million or ($0.04) per diluted share, compared to income from continuing operations of $6.1 million or $0.15 per diluted share in the third quarter last year. For the nine months ended September 30, 2006, total operating expenses were $142.5 million compared to $143.4 million for the same period last year. Included in the 2006 period was a $4.4 million gain on the sale of assets of our PLM business. The 2006 period also included $6.0 million of audit and non-recurring professional services and audit fees, $4.3 million of consulting expenses related to the Oracle implementation, $4.3 million of additional stock based compensation related to the implementation of FAS 123(R) and $0.7 million to settle previously disclosed claims. The 2005 period included severance expenses totaling $3.9 million, a provision of $2.6 million for facilities closures, $6.6 million of expenses related to the special investigation and restatement audit and $2.0 million of expense related to termination of product distribution agreement. Excluding these items, operating expenses for the nine months of 2006 totaled $131.6 million compared to $128.3 million last year. Operating income for the nine months of 2006 was $5.6 million compared to $15.9 million for the same period last year. For the nine months of 2006, income from continuing operations totaled $2.1 million or $0.06 per diluted share, compared to $6.0 million or $0.16 per diluted share last year. SHARE REPURCHASE PROGRAM On November 8, 2006, the Board of Directors of MSC authorized a stock repurchase program for up to 1.25 million shares. Share repurchases will be made from time to time in the open market, based on stock availability and price. It is anticipated that the repurchases will be made during the next twelve months, although no assurance can be given as to when they will be made or the total number that will be repurchased. The Company may enter into one or more Rule 10b5-1 trading plans in order to facilitate the repurchase of shares.