SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-27670
ENGINEERING ANIMATION, INC.
[Exact name of registrant as specified in its charter]
Delaware 42-1323712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2321 North Loop Drive
Ames, Iowa 50010
(Address of principal executive offices)
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(515) 296-9908
(Registrant's telephone number, including area code)
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Indicate by check ( X ) 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 ________
As of April 30, 1999, there were 11,845,700 shares of the Registrant's
$0.01 par value common stock outstanding.
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ENGINEERING ANIMATION, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
----------------------------
March 31, December 31,
1999 1998
------------ -------------
Assets (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,154 $ 23,623
Short-term investments 13,349 11,873
Accounts receivable:
Billed 23,804 30,539
Unbilled 9,740 8,969
Deferred income taxes 1,238 1,250
Prepaid expenses and other assets 5,214 4,071
------------ -------------
Total current assets 77,499 80,325
Property and equipment, net 20,746 19,781
Other assets:
Note receivable 1,408 1,408
Software development costs, net 2,591 2,265
Deferred income taxes 511 503
Goodwill and developed technology, net 10,322 10,973
Other 1,408 1,525
------------ -------------
Total assets $114,485 $ 116,780
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,827 $ 3,788
Accrued compensation and other accrued expenses 9,086 10,871
Deferred revenue 3,441 3,596
Bank debt, current portion of long-term debt and lease obligations 3,245 3,327
------------ -------------
Total current liabilities 19,599 21,582
Long-term debt and lease obligations due after one year 1,336 1,480
Other long-term liabilities 173 179
Stockholders' equity 93,377 93,539
------------ -------------
Total liabilities and stockholders' equity $114,485 $ 116,780
============ =============
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
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<TABLE>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<CAPTION>
-------------------------------
Three months ended March 31,
1999 1998
-------------- --------------
<S> <C> <C>
Software revenues $ 19,415 $ 16,581
Interactive revenues 5,385 5,564
-------------- --------------
Net revenues 24,800 22,145
Cost of revenues 9,444 7,053
-------------- --------------
Gross profit 15,356 15,092
Operating expenses:
Sales and marketing 7,121 5,169
General and administrative 2,994 2,855
Research and development 5,341 3,911
Acquisition costs and non-recurring expenses 651 4,524
-------------- --------------
Total operating expenses 16,107 16,459
-------------- --------------
Loss from operations (751) (1,367)
Other income, net 344 519
-------------- --------------
Loss before income taxes (407) (848)
Income tax expense (benefit) 93 (201)
-------------- --------------
Net loss $ (500) $ (647)
============== ==============
Loss per share:
Loss per share-basic and diluted $ (0.04) $ (0.06)
Weighted average shares outstanding 11,792 11,172
============== ==============
See accompanying notes.
</TABLE>
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ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
-------------------------------
Three months ended March 31,
Operating activities 1999 1998
------------- ---------------
<S> <C> <C>
Net loss $ (500) $ (647)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Goodwill and developed technology amortization expense 651 274
Depreciation and other amortization expense 1,435 920
Deferred income taxes (5) (371)
Changes in operating assets and liabilities
Billed accounts receivable 6,599 1,328
Unbilled accounts receivable (788) (2,075)
Prepaid expenses (985) (14)
Accounts payable 51 658
Accrued expenses (1,562) (1,192)
Income taxes (161) (241)
Deferred revenue (155) 40
------------- -------------
Net cash provided by (used in) operating activities 4,580 (1,320)
------------- -------------
Investing activities
Purchases of property and equipment (2,166) (2,379)
Change in other assets (3) 58
Capitalization of software development costs (473) (96)
Maturities of marketable securities 7,000 11,525
Purchases of marketable securities (8,476) (16,996)
-------------- -------------
Net cash used in investing activities (4,118) (7,888)
-------------- -------------
Financing activities
Net change in restricted cash - 72
Net change in short-term borrowing - 950
Proceeds from long-term debt
and capital lease obligations - 155
Payments on long-term debt and capital lease
obligations (226) (224)
Net proceeds from exercise of options and warrants 581 1,052
Net proceeds from issuance of stock - 1,241
------------- --------------
Net cash provided by financing activities 355 3,246
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Net increase (decrease) in cash and cash equivalents 817 (5,962)
------------- --------------
Effect of exchange rates (286) (2)
Cash and cash equivalents at beginning of period 23,623 25,881
------------- --------------
Cash and cash equivalents at end of period $ 24,154 $ 19,917
============== ===============
See accompanying notes.
</TABLE>
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Engineering Animation, Inc.
Notes To Condensed Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Engineering Animation, Inc. and the Company's subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting of normal recurring accruals which in the
opinion of management are necessary to fairly state the Company's financial
position, results of operations and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements as included in the Company's 1998 Annual Report on Form
10-K as filed with the Securities and Exchange Commission. The results of
operations for the three month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for any subsequent quarter or for
the fiscal year ending December 31, 1999. The December 31, 1998 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
The Company has restated the financial data to give retroactive effect
to the 1998 acquisitions of Variation Systems Analysis, Inc. ("VSA"); Transom
Technologies, Inc. ("Transom"); and DELTA Industrie Informatik GmbH ("DELTA"),
all of which were accounted for as pooling of interests. The financial
statements also include the operations of Sense8 Corporation ("Sense8") since
June 17, 1998, the date of its acquisition by the Company. This transaction was
accounted for as a purchase.
Certain prior year financial information has been reclassified to
conform to the 1999 financial statement presentation.
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<TABLE>
<CAPTION>
2. SEGMENT INFORMATION
(in thousands)
Software Interactive
Three months ended March 31, 1999 Division Division Corporate Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 19,415 $ 5,385 $ - $ 24,800
Segment operating income 1,145 1,111 (3,007) (751)
Software Interactive
Three months ended March 31, 1998 Division Division Corporate Total
- ----------------------------------------------------------------------------------------------------------
Revenues from external customers $ 16,581 $ 5,564 $ - $ 22,145
Segment operating income 4,324 1,304 (6,995) (1,367)
</TABLE>
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ENGINEERING ANIMATION, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
We provide enterprise-wide software solutions for process management,
collaboration, communication and analysis (Software Division). We also offer
interactive multimedia products for the games, consumer, education, business
training and litigation markets (Interactive Division).
Our software solutions improve communication among engineering,
manufacturing, marketing, purchasing, sales and support teams and their
suppliers, allowing them to work on their processes concurrently. Traditionally,
these processes have involved sequential steps by separate internal teams that
use disparate data creation and storage systems. Our solutions allow users to
view, analyze and communicate data across extended enterprises without extensive
training or expensive computer hardware. In addition, our solutions provide
advanced integrated analysis tools for improving the efficiency of product
engineering and manufacturing. Our solutions improve product quality while
reducing errors, cost and time to market.
We develop, produce and sell a variety of interactive multimedia
products for educational book publishers, toy companies, museums, computer game
publishers and medical device manufacturers. We also develop custom computer
animations for trial attorneys, pharmaceutical companies, manufacturers and
producers of entertainment and educational programming. We deliver our
interactive products on CD-ROMs, through the Internet and through other media.
Utilizing our proprietary technology, databases of anatomical and engineering
data and library of animation assets, we can reduce the time and cost required
to produce interactive software products containing extensive 3D animations.
RESULTS OF OPERATIONS
Revenue Recognition
We derive revenues from sales of software products and interactive
products. We recognize revenues from software products when an arrangement to
deliver software does not require significant production, modification or
customization and all four basic criteria in the Statement of Position 97-2
("SOP 97-2") as issued by the American Institute of Certified Public Accountants
(AICPA) have been met. The four basic criteria are: persuasive evidence that an
arrangement exists, delivery has occurred, fee is fixed or determinable and
collectibility is probable. Software revenues include revenues from software
development contracts, professional services, customer support and maintenance.
Revenue from customer support and maintenance are deferred and recognized
ratably over the period these services are provided. We recognize revenues from
software development contracts, professional services and interactive products
based upon labor costs incurred and progress to completion on contracts.
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<TABLE>
<CAPTION>
NET REVENUES
Three months ended March 31,
(in thousands) 1999 Change 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software products $19,415 17 % $16,581
Interactive products 5,385 (3)% 5,564
- ---------------------------------------------------------------------------------------------------------------------
Total $24,800 12 % $22,145
</TABLE>
Revenues increased 12% to $24.8 million for the three months ended
March 31, 1999 from $22.1 million for the three months ended March 31, 1998.
Software products revenue increased 17% to $19.4 million for the three
months ended March 31, 1999 from $16.6 million for the three months ended March
31, 1998. The increase is attributed to growth in sales of software licenses,
services and maintenance. Revenue growth from the sale of software products was
lower than expected because we did not complete several key sales in the first
quarter of 1999.
Interactive products revenue decreased 3% to $5.4 million for the
three months ended March 31, 1999 from $5.6 million for the three months ended
March 31, 1998. This decrease is primarily attributed to key interactive
division personnel working on software division projects during the first
quarter of 1999.
<TABLE>
<CAPTION>
COST OF REVENUES
Three months ended March 31,
(in thousands) 1999 Change 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $9,444 34% $7,053
As a percentage
of net revenues 38% 32%
</TABLE>
Our cost of revenues include cost of production, direct labor and
other costs associated with funded development and professional services,
packaging and distribution costs, royalties and amortization of capitalized
software costs. Cost of revenues increased 34% to $9.4 million for the three
months ended March 31, 1999 from $7.1 million for the three months ended March
31, 1998, primarily due to increased head count and other labor costs. The
increase is primarily attributed to increased costs involved with expanded
software product development projects. The cost of revenues as a percentage of
revenues increased to 38% from 32% for the three months ended March 31, 1999 and
1998 primarily due to software products and total revenue being lower than
expected in the first quarter of 1999.
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We capitalize certain software development costs in accordance with the
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." For the quarters
ended March 31, 1999 and 1998, we capitalized software costs of $473,000 and
$96,000. Amortization expenses reported as cost of revenues for the quarters
ended March 31, 1999 and 1998 were $147,000 and $137,000.
Operating Expenses
<TABLE>
<CAPTION>
SALES AND MARKETING
Three months ended March 31,
(in thousands) 1999 Change 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $7,121 38% $5,169
As a percentage
of net revenues 29% 23%
</TABLE>
Sales and marketing expenses include personnel costs related to sales,
marketing and customer service activities, as well as advertising, promotional
materials, mail campaigns, trade shows, depreciation and other costs. Our sales
and marketing expenses increased 38% to $7.1 million for the three months ended
March 31, 1999 from $5.2 million for the three months ended March 31, 1998
primarily due to personnel increases in the sales and marketing group and
related compensation expense. Sales and marketing expenses increased to 29% of
total revenues for the three months ended March 31, 1999 from 23% for the three
months ended March 31, 1998 due primarily to total revenue being lower than
expected in the first quarter of 1999.
<TABLE>
<CAPTION>
GENERAL AND ADMINISTRATIVE
Three months ended March 31,
(in thousands) 1999 Change 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $2,994 5% $2,855
As a percentage
of net revenues 12% 13%
</TABLE>
General and administrative expenses consist primarily of salaries and
facility costs for administrative, systems, legal, executive and accounting
personnel, as well as certain consulting expenses, insurance costs, professional
fees, depreciation expense, bad debt expense and other costs. General and
administrative expenses increased 5% to $3.0 million for the three months ended
March 31, 1999 from $2.9 million for the three months ended March 31, 1998.
Increased salary costs related to general and administrative personnel were
partially offset by cost savings in other types of expenses.
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<TABLE>
<CAPTION>
RESEARCH AND DEVELOPMENT
Three months ended March 31,
(in thousands) 1999 Change 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $5,341 37% $3,911
As a percentage
of net revenues 22% 18%
</TABLE>
Research and development expenses focus on product development and
consist primarily of personnel costs, related facility costs, equipment costs,
depreciation and amortization expenses and outside consulting fees. Research and
development expenses increased 37% to $5.3 million for the three months ended
March 31, 1999 from $3.9 million for the three months ended March 31, 1998 due
to increased staffing and related costs. Research and development expenses
increased to 22% of total revenues for the three months ended March 31, 1999
from 18% for the three months ended March 31, 1998 due primarily to total
revenue being lower than expected in the first quarter of 1999.
<TABLE>
<CAPTION>
ACQUISITION COSTS AND NON-RECURRING EXPENSES
Three months ended March 31,
(in thousands) 1999 Change 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses $651 (86)% $4,524
As a percentage
of net revenues 3% 20%
</TABLE>
In the first quarter of 1998, EAI formed strategic partnerships with
General Electric Corporate Research and Development and Hewlett-Packard Company
to license technology to incorporate into VisProducts(R) software. Both
agreements are accounted for as non-recurring charges to purchased technology
expense in the first quarter of 1998 in the aggregate amount of $4.2 million.
Goodwill and developed technology amortization was $651,000 and
$274,000 in the first quarter of 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had $37.5 million in cash, cash equivalents
and short-term investments. We consider all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are carried at cost, which approximates market value.
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Net cash provided by operating activities was $4.6 million for the
three months ended March 31, 1999. Net cash used by operating activities was
$1.3 million for the three months ended March 31, 1998. Net cash provided by
operating activities during the first quarters of 1999 and 1998 were $5.7
million and $2.4 million excluding cash flows related to acquisition costs and
non-recurring expenses. The increase in net cash provided by operating
activities was due primarily to increased collections on accounts receivable.
Net cash used in investing activities was $4.1 million for the three
months ended March 31, 1999 primarily due to purchasing $2.2 million of property
and equipment and increasing our short-term investments by $1.5 million. For the
three months ended March 31, 1998, we used cash of $7.9 million in investing
activities primarily due to increasing our short-term investment portfolio by
$5.5 million and purchasing $2.4 million of property and equipment.
Net cash provided by financing activities was $0.4 million and $3.2
million for the three months ended March 31, 1999 and 1998. For the first
quarter of 1999, the main financing source was proceeds from stock option
exercises. For the first quarter of 1998 the main financing sources were
proceeds from stock option exercises, issuance of stock and net increases in
short-term borrowings. We have two lines of credit totaling $4.5 million of
which $3.0 million was utilized as of March 31, 1999.
We plan to invest in sales, marketing and research and development
infrastructure. This will include investments in existing and advanced areas of
technology that could include using cash to acquire technology and to fund
ventures and other strategic opportunities. Additions to property and equipment
we intend to continue, including new or expanding facilities and computer
systems for research and development, sales and marketing, support and
administrative staff.
We have not paid any cash dividends and do not currently anticipate
paying cash dividends in the future. There can be no assurance that we will ever
pay a cash dividend.
We believe our current cash and short-term investment balances will be
sufficient to meet anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. There can be no assurance that
additional capital beyond the amounts currently forecasted by us will not be
required or that any such required additional capital will be available on
reasonable terms, if at all, at such time as we may require it.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This report and statements we make or our representatives make contain
forward-looking statements that involve risks and uncertainties. We develop
forward-looking statements by combining currently available information with our
beliefs and assumptions. These statements often contain words like believe,
expect, anticipate, intend, contemplate, seek, plan, estimate or similar
expressions. Forward-looking statements do not guarantee future performance.
Recognize these statements for what they are and do not rely upon them as facts.
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Forward-looking statements involve risks, uncertainties and
assumptions, including, but not limited to, those discussed in this report. We
will not update the forward-looking statements, even if they become incorrect or
misleading. We make these statements under the protection afforded them by
Section 21E of the Securities Exchange Act of 1934, as amended. Because we
cannot predict all of the risks and uncertainties that may affect us, or control
the ones we do predict, these risks and uncertainties can cause our results to
differ materially from the results we express in our forward-looking statements.
Variability of Operating Results
We historically have experienced fluctuations in our quarterly revenues
and operating results and we expect to experience fluctuations in the future.
Since our quarterly and annual revenues and operating results vary, we believe
that period-to-period comparisons of results are not necessarily meaningful. You
should not rely on period-to-period comparisons as indicators of our future
performance.
In addition to general economic conditions, the following factors
affect our revenues:
* difficulties in forecasting the volume and timing of customer orders;
* the timing of our introduction of new products relative to our
competitors' introduction of similar products;
* our arrangements with publishers and distributors to market our
products;
* customer budgets; and
* our ability to competitively price our products and services.
Year 2000 Readiness
We are evaluating the effect of Year 2000 issues on our current
products and mission critical facilities and databases, hardware and software
systems. We have implemented a plan that coordinates our Year 2000 efforts
company-wide. Under the direction of the Vice President of Administration, a
task force oversees the evaluation of our products, facilities and operations.
The task force is comprised of high level managers. In general, the plan calls
for creating an inventory of products and mission critical facilities and
systems; analyzing our state of knowledge regarding their Year 2000 readiness;
gathering additional information through contacts or testing, where needed;
assessing whether a risk exists and what to do about it; and developing and
implementing remedies, where needed. We have developed an Internet web site for
communicating our Year 2000 readiness disclosure information.
Products: We have inventoried our current products, which are defined
as products currently being sold and products no longer being sold but which we
continue to support under software maintenance agreements. We have identified
the inventoried products we believe to be Year 2000 ready. We consider a product
Year 2000 ready if it is capable of correctly processing, providing and
receiving date data within and between the 20th and 21st centuries, during 1999,
2000 and leap year calculations. This assumes that our product is used in
accordance with its associated documentation and all other hardware and software
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products used with our software properly exchange accurate date data with it. As
we test our software, we coincidentally test third party software included in
our products. We have evaluated and tested most of our products for Year 2000
readiness and anticipate completing our product evaluation and testing by August
1999. We estimate the total cost of testing our products at less than $10,000.
Additionally, some of our customers have tested our products. Collectively, we
have identified only a few Year 2000 issues associated with our products and
have offered our customers a patch or an upgrade.
Facilities: We lease offices in over 23 locations throughout the world.
We have identified our mission critical facilities and have prepared an
inventory of their mission critical information technology ("IT") and non-IT
systems. We consider an office to be mission critical if it supports
approximately 15 or more employees or if it supports a critical function or
contract. Generally, we consider a location's telecommunications, utilities,
HVAC and security systems as mission critical. We have gathered Year 2000
information on most of these systems from suppliers. For some of these
suppliers, we depend upon their web site disclosures; for others, we have
written to them or spoken with them directly. We will continue to gather and
review information through 1999 and will assess on an on-going basis whether
contingency planning is needed. The costs associated with these activities to
date are nominal.
Systems: Our business utilizes Unix, database and personal computer
(PC) software/hardware systems. Management of these systems is centralized in
our corporate headquarters. We have evaluated these systems and determined that
most will require software upgrades (patches) to address Year 2000 issues.
Generally, systems manufacturers have made patches available for free over the
Internet. We install these patches as they are made available by the
manufacturers. Where patches are not available, we have implemented alternative
actions such as internal testing, or phase-out or replacement of equipment.
We have either patched or phased out due to obsolescence approximately
90% of our Unix systems. Of the remaining systems, the majority will be
addressed by July 1999. Two of these systems are scheduled for patching in late
1999 due to the inability to take them off line earlier. We estimate the total
cost to install the Unix system patches at less than $10,000.
Our centralized databases include the accounting, human resources and
payroll systems. Although we have done some database testing, we are primarily
relying on the assurances of the suppliers of these systems for Year 2000
readiness. We will continue to conduct testing of these systems through the
first half of 1999.
We use approximately 1,000 PCs company-wide, with nearly every employee
dependent upon a PC for the performance of his or her daily work. Most, if not
all of these PCs will need to be patched. We project completing the installation
of these patches by August 1999. We estimate the total cost for the PC upgrading
at less than $25,000.
Contingency Plans: Our products are based on software that is
relatively new. This, plus the relatively few Year 2000 issues that have been
identified to date through internal and external testing of our products, leads
us to believe that the most reasonably likely worst case scenario for us does
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not involve our products. Instead, a worst case scenario is more likely to arise
from the failure of externally supplied services, such as utilities or
telecommunications, over which we have no control. We will continue to evaluate
the need to develop contingency plans for these types of Year 2000 issues.
We can not ensure that we will identify and assess all Year 2000 issues
that may affect us. We also can not ensure that we will adequately address the
Year 2000 issues that we do identify. Any of these failures or oversights could
materially adversely affect our business operations or financial statements.
For a more complete discussion of other risk factors affecting the
Company, see the Company's 1998 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rates
Our revenue originating outside the U.S. in the first quarter of 1999
and 1998 was 23% and 16% of total revenues. International sales are made mostly
from our foreign sales subsidiaries in the local countries. Certain
international sales are denominated in U.S. dollars. Our subsidiaries incur most
of their expenses in the local currency.
Our international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors.
Interest Rates
We invest our cash in a variety of financial instruments, including
bank time deposits and fixed rate obligations of governmental entities and
agencies. These investments are denominated in U.S. dollars. Cash balances in
foreign currencies overseas are operating balances and are invested in
short-term time deposits of the local operating bank.
Investments in fixed rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell
securities that have seen a decline in market value due to changes in interest
rates. Our investment securities are held for purposes other than trading.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings
Six class action lawsuits have been filed in the United States District
Court for the Southern District of Iowa. The actions are purported class actions
of all persons who purchased our common stock between February 19, 1998 and
April 6, 1999. The named defendants include the Company and certain of its
executive officers. The complaints allege various violations of federal
securities laws and seek unspecified damages. A motion for the appointment of
lead counsel and the consolidation of five of these purported class action
lawsuits is pending. It is anticipated that the sixth action will be
consolidated with the other five actions. We believe that the allegations are
totally without merit and intend to oppose the actions vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K.
Form 8-K filed January 6, 1999, as amended by Form 8-K/A filed February
17, 1999, relating to our acquisition of DELTA including Item 2, Item 7 and Item
9. Financial statements filed included: (i) Unaudited Pro Forma Consolidated
Condensed Combined Financial Statement of the Company and DELTA; and (ii)
Audited DELTA Financial Statements.
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SIGNATURES
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 thereunto duly authorized.
Date: May 12, 1999 ENGINEERING ANIMATION, INC.
------------- (Registrant)
By: /s/ Jerome M. Behar
--------------------
Jerome M. Behar
Vice President of Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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INDEX TO EXHIBITS
Exhibit Description
3.2 By-laws as amended and restated on March 15, 1999
27 Financial Data Schedule
18
AMENDED AND RESTATED
BY-LAWS
OF
ENGINEERING ANIMATION, INC.
(A Delaware Corporation)
ARTICLE I.
Offices
Section 1. The registered office of the corporation shall be in
Wilmington, New Castle County, Delaware.
Section 2. The corporation shall have its principal office at 2321
North Loop Drive, Ames, Iowa, and it may also have offices at such other places
as the board of directors may from time to time determine.
ARTICLE II.
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date as the board of
directors shall fix each year. At an annual meeting of stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting, or any supplement thereto, given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the corporation
not less than one hundred and twenty (120) days prior nor more than one hundred
and fifty (150) days prior to the anniversary date of the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting. A stockholder's notice to the secretary of the corporation shall set
forth as to each matter the stockholder proposes to being before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the corporation's
stockholder records, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Irrespective of anything in these by-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1. The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1, and if it is so determined, shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
19
<PAGE>
Section 2. Special Meetings. Special meetings of the stockholders
may be called only by the chairman, the president or the board of directors
pursuant to a resolution approved by a majority of the entire board of directors
Section 3. Stockholder Action; How Taken. Any action required or
permitted to be taken by the stockholders of the corporation may be effected by
a written consent of the stockholders, provided that upon a Public Offering, any
such action must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders. A
"Public Offering" means a public offering of common stock of the corporation
pursuant to an effective registration statement under the Securities Act of
1933, as amended.
Section 4. Place of Meeting. The board of directors may designate any
place, either within or without Delaware, as the place of meeting for any annual
or special meeting. In the absence of any such designation, the place of meeting
shall be the principal office of the corporation designated in Section 2 of
Article I of these by-laws.
Section 5. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, or in the case
of a merger or consolidation, not less than twenty nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the chairman or the president, or the secretary, or the officer or
persons calling the meeting, to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mails in a sealed envelope addressed to the
stockholder at his address as it appears on the records of the corporation with
postage thereon prepaid.
Section 6. Record Date. For the purpose of determining (a) stockholders
entitled to notice of or to vote at any meeting of stockholders, or (b)
stockholders entitled to receive payment of any dividend, or (c) stockholders
for any other purpose, the board of directors may fix in advance a date as the
record date for any such determination of stockholders, such date in any case to
be not more than sixty days and not less than ten days, or in the case of a
merger or consolidation not less than twenty days, prior to the date on which
the particular action requiring such determination of stockholders is to be
taken.
Section 7. Quorum. The holders of not less than one-third of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute, by the certificate of incorporation or by these by-laws.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the chairman of the meeting shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
20
<PAGE>
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the certificate of
incorporation or of these by-laws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 8. Qualification of Voters. The board of directors may fix a
day and hour not more than sixty nor less than ten days prior to the day of
holding any meeting of stockholders as the time as of which the stockholders
entitled to notice of and to vote at such a meeting shall be determined. Only
those persons who were holders of record of voting stock at such time shall be
entitled to notice of and to vote at such meeting.
Section 9. Procedure. The order of business and all other matters of
procedure at every meeting of stockholders shall be determined by the chairman
of the meeting. The board of directors shall appoint two or more inspectors of
election to serve at every meeting of stockholders at which directors are to be
elected.
ARTICLE III.
Directors
Section 1. Number, Election and Terms. Except as otherwise fixed
pursuant to the provisions of Article Fourth of the certificate of incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the common stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of directors
shall be a minimum of three and fixed from time to time by the board of
directors. The directors, other than those who may be elected by the holders of
any class or series of stock having a preference over the common stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, as near equal in number as
possible, as determined by the board of directors, one class to hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 1996, another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1997 and another class to hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 1998, with the members of each class to hold office until their
successors are elected and qualified. At each annual meeting of stockholders,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
The term the "entire board" as used in these by-laws means the total
number of directors which the corporation would have if there were no vacancies.
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<PAGE>
Subject to the rights of holders of any class or series of stock having
a preference over the common stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the corporation not later than (a) with respect to
an election to be held at an annual meeting of stockholders, one hundred twenty
(120) days nor earlier than one hundred fifty (150) days prior to the
anniversary date of the immediately preceding annual meeting, and (b) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons, naming such person
or persons, pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (e)
the consent of each nominee to serve as a director of the corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
Section 2. Newly Created Directorships and Vacancies. Except as
otherwise fixed pursuant to the provisions of Article Fourth of the certificate
of incorporation relating to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the board of directors shall shorten the term of any incumbent director.
Section 3. Removal. Subject to the rights of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors under specified circumstances, any director may
be removed from office, for cause, only by the affirmative vote of the holders
of 80% of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors, voting together as a
single class.
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<PAGE>
Section 4. Regular Meetings. Regular meetings of the board of
directors shall be held at such times and place as the board of directors may
from time to time determine.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman or the president or by an
officer of the corporation upon the request of a majority of the entire board.
The person or persons authorized to call special meetings of the board of
directors may fix any place, either within or without Delaware, as the place for
holding any special meeting of the board of directors called by them.
Section 6. Notice. Notice of regular meetings of the board of directors
need not be given. Notice of every special meeting of the board of directors
shall be given to each director at his usual place of business, or at such other
address as shall have been furnished by him for the purpose. Such notice shall
be given at least twenty-four hours before the meeting by telephone or by being
personally delivered, mailed or telegraphed. Such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting.
Section 7. Quorum. A majority of the entire Board shall constitute a
quorum for the transaction of business at any meeting of the board of directors,
provided, that if less than a majority of the entire board is present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time until a quorum is obtained without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors unless the act of a greater number is
required by the certificate of incorporation or the by-laws of the corporation.
Section 8. Compensation. Directors who are also full time employees of
the corporation shall not receive any compensation for their services as
directors but they may be reimbursed for reasonable expenses of attendance. By
resolution of the board of directors, all other directors may receive either an
annual fee or a fee for each meeting attended, or both, and expenses of
attendance, if any, at each regular or special meeting of the board of directors
or of a committee of the board of directors; provided, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 9. Committees. The board of directors may, by resolution passed
by a majority of the entire board, designate one or more committees, each
committee to consist of two or more of the directors of the corporation, which,
to the extent provided in the resolution, shall have and may exercise the powers
of the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
23
<PAGE>
Section 10. Director Emeritus. The Board of Directors may by resolution
appoint any former director who has retired from the Board of Directors as a
Director Emeritus. Directors Emeritus may, but are not required to, attend all
meetings (regular and special) of the Board of Directors and will receive notice
of such meetings; however, they shall not have the right to vote and they shall
be excluded from the number of directors for quorum and other purposes.
Directors Emeritus shall be appointed for one year terms and may be reappointed
for up to two additional one year terms.
ARTICLE IV.
Officers
Section 1. Number. The officers of the corporation shall be a chairman,
a vice-chairman (if elected by the board of directors), a president, an
executive vice president (if elected by the board of directors), one or more
vice presidents (the number thereof to be determined by the board of directors),
a treasurer, a secretary and such other officers as may be elected in accordance
with the provisions of this Article.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Chairman. The chairman (if elected by the board of
directors) shall preside at all meetings of the stockholders and the board of
directors. If so appointed by the board of directors he shall be the chief
executive officer of the corporation and shall have those duties and
responsibilities described in Section 8 of this Article. He shall perform such
other duties as may be prescribed by the board of directors.
Section 6. Vice-Chairman. The vice-chairman (if elected by the board of
directors) shall, in the absence of the chairman, preside at all meetings of the
stockholders and the board of directors. If so appointed by the board of
directors he shall be either the chief executive officer or the chief operating
officer, or both, and shall have those duties and responsibilities described in
Sections 8 and 9 of this Article, as the case may be. He shall perform such
other duties as may be prescribed by the board of directors and by the chief
executive officer if he does not have that position.
24
<PAGE>
Section 7. President. The president shall be either the chief executive
officer or the chief operating officer, or both, as determined by the board of
directors, and shall have the duties and responsibilities described in Sections
8 and 9 of this Article, as the case may be. In the absence of the chairman and
vice-chairman he shall preside at all meetings of the stockholders and board of
directors. He shall perform such other duties as may be prescribed by the board
of directors and chief executive officer if he does not have that position.
Section 8. Chief Executive Officer. The chief executive officer of the
corporation shall be either the chairman, the vice-chairman or the president as
determined by the board of directors. The chief executive officer shall provide
overall direction and administration of the business of the corporation, he
shall interpret and apply the policies of the board of directors, establish
basic policies within which the various corporate activities are carried out,
guide and develop long range planning and evaluate activities in terms of
objectives. He may sign (with the secretary or any other proper officer of the
corporation thereunto authorized by the board of directors, if such additional
signature is necessary under the terms of the instrument document being executed
or under applicable law, stock certificates of the corporation, any deeds,
mortgages, bonds, contracts, or other instruments except in cases where the
signing and execution thereof shall be required by law to be otherwise signed or
executed, and he may execute proxies on behalf of the corporation with respect
to the voting of any shares of stock owned by the corporation. He shall have the
power to (1) designate management committees of employees deemed essential in
the operations of the corporation, its divisions or subsidiaries, and appoint
members thereof, subject to the approval of the board of directors; (2) appoint
certain employees of the corporation as vice presidents of one or several
divisions or operations of the corporation, subject to the approval of the board
of directors, provided however, that any vice president so appointed shall not
be an officer of the corporation for any other purpose; and (3) appoint such
other agents and employees as in his judgment may be necessary or proper for the
transaction of the business of the corporation and in general shall perform all
duties incident to the office of chief executive.
Section 9. Chief Operating Officer. The chief operating officer (if
elected by the board of directors) shall be either the vice-chairman or the
president as determined by the board of directors. The chief operating officer
shall in general be in charge of all operations of the corporation and shall
direct and administer the activities of the corporation in accordance with the
policies, goals and objectives established by the chief executive officer and
the board of directors. In the absence of the chief executive officer, the chief
operating officer shall assume his duties and responsibilities.
Section 10. Executive Vice President. The executive vice president (if
elected by the board of directors) shall report to either the chief executive
officer or the chief operating officer as determined in the corporate
organization plan established by the board of directors. He shall direct and
coordinate such major activities as shall be delegated to him by his superior
officer in accordance with policies established and instructions issued by his
superior officer, the chief executive officer, or the board of directors.
25
<PAGE>
Section 11. Vice President. The board of directors may elect one or
several vice presidents. Each vice president shall report to either the chief
executive officer, the chief operating officer or the executive vice president
as determined in the corporate organization plan established by the board of
directors. Each vice president shall perform such duties as may be delegated to
him by his superior officers and in accordance with the policies established and
instructions issued by his superior officer, the chief executive officer or the
board of directors. The board of directors may designate any vice president as a
senior vice president and a senior vice president shall be senior to all other
vice presidents and junior to the executive vice president. In the event there
is more than one senior vice president, then seniority shall be determined by
and be the same as the annual order in which their names are presented to and
acted on by the board of directors.
Section 12. The Treasurer. The treasurer shall (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected by the
corporation; (b) in general perform all the duties incident to the office of
treasurer and such other duties as from time to time may be assigned to him by
the chief executive officer, chief operating officer or by the board of
directors. If required by the board of directors, the treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the board of directors shall determine.
Section 13. The Assistant Treasurer. The assistant treasurer shall, in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
Section 14. The Secretary. The secretary shall: (a) keep the minutes of
the stockholders' and the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporate is affixed to all stock certificates prior to the issue thereof
and to all documents, the execution of which on behalf of the corporation under
its seal is duly authorized in accordance with the provisions of these by-laws
or as required by law; (d) be custodian of the corporate records and of the seal
of the corporation and see that the seal of the corporation is affixed to all
stock certificates prior to the issue thereof and to all documents, the
execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these by-laws; (e) keep a
register of the post office address of each stockholder which shall be furnished
to the secretary by such stockholder; (f) sign with the chairman, president, or
a vice president, stock certificates of the corporation, the issue of which
shall have been authorized by resolution of the board of directors; (g) have
general charge of the stock transfer books of the corporation; (h) in general
perform all duties incident to the office of secretary and such other duties as
from time to time may be assigned to him by the chief executive officer, chief
operating officer or by the board of directors.
Section 15. The Assistant Secretary. The assistant secretary shall in
the absence or disability of the secretary, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
26
<PAGE>
ARTICLE V.
Fiscal Year
The fiscal year of the corporation shall begin on the first day of
January in each year and end on the thirty-first day of December in each year.
ARTICLE VI.
Seal
The board of directors shall provide a corporate seal which shall be in
the form of a circle and shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Delaware".
ARTICLE VII.
Waiver of Notice
Whenever any notice whatsoever is required to be given under the
provisions of these by-laws or under the provisions of the certificate of
incorporation or under the provisions of the laws of the state of Delaware,
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE VIII.
Amendments
Subject to the provisions of the certificate of incorporation, these
by-laws may be altered, amended or repealed at any regular meeting of the
stockholders, or at any special meeting of stockholders duly called for that
purpose, by a majority vote of the shares represented and entitled to vote at
such meeting; provided that in the notice of such special meeting notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
certificate of incorporation and these by-laws, the board of directors may by a
majority vote of those present at any meeting at which a quorum is present amend
these by-laws, or enact such other by-laws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the corporation.
27
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