UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-16230
STRUCTURAL DYNAMICS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0733928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Eastman Drive, Milford, Ohio 45150
(Address of principal executive offices)
(Zip Code)
(513) 576-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 1995 there were 30,288,736 shares of the
Registrant's Common Stock without par value issued and
outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
(in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Revenue:
Software licenses $29,908 $26,541 $ 81,784 $ 74,299
Software maintenance
and services 20,786 15,959 59,499 47,705
Total revenue 50,694 42,500 141,283 122,004
Cost of revenue 17,369 14,013 45,315 36,447
Gross profit 33,325 28,487 95,968 85,557
Operating expenses:
Selling and
marketing 21,342 19,732 60,860 60,577
Research and
development 4,018 5,460 12,822 16,086
General and
administrative 2,761 1,820 8,660 7,078
Total operating
expenses 28,121 27,012 82,342 83,741
Operating income 5,204 1,475 13,626 1,816
Equity in earnings
(losses) of
affiliates 2,144 (1,070) (858) (3,500)
Other income 112 608 1,366 1,537
Income (loss)
before income taxes
and cumulative effect
of accounting change 7,460 1,013 14,134 (147)
Income tax expense 1,664 1,005 5,016 2,567
Income (loss) before
cumulative effect
of accounting change 5,796 8 9,118 (2,714)
Cumulative effect of
accounting change -- -- -- (3,896)
Net income (loss) $ 5,796 $ 8 $ 9,118 $(6,610)
Earnings (loss) per
share:
Primary:
Before cumulative
effect of
accounting change $ .18 $ -- $ .30 $ (.09)
Cumulative effect
of accounting change -- -- -- (.13)
Net income (loss) $ .18 $ -- $ .30 $ (.22)
Fully diluted:
Before cumulative
effect of
accounting change $ .18 $ -- $ .29 $ (.09)
Cumulative effect of
accounting change -- -- -- (.13)
Net income (loss) $ .18 $ -- $ .29 $ (.22)
Common and common
equivalent shares:
Primary 31,466 29,339 29,988 29,474
Fully diluted 32,125 29,339 31,513 29,474
See accompanying notes to consolidated financial statements.
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
(in thousands)
September 30, December 31
1995 1994
Assets
Current assets:
Cash and cash equivalents $ 40,186 $ 21,885
Short-term investments 10,747 17,296
Trade accounts receivable, net 46,923 35,867
Other accounts receivable 7,425 6,760
Prepaid expenses 5,987 6,110
Total current assets 111,268 87,918
Long-term investments 10,402 7,059
Property and equipment, at cost:
Computer and other equipment 32,599 36,259
Office furniture and equipment 9,434 9,258
Leasehold improvements 3,985 3,799
46,018 49,316
Less accumulated depreciation
and amortization 35,272 35,537
Net property and 10,746 13,779
equipment
Computer software construction
costs, net 29,900 30,854
Investment in joint ventures 3,368 2,445
Other assets 593 644
Total assets $166,277 $142,699
See accompanying notes to consolidated financial statements.
<PAGE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share data)
September 30, December 31,
1995 1994
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,199 $ 6,857
Accrued expenses 26,421 29,495
Accrued income taxes 5,817 4,262
Deferred revenues 31,127 19,714
Total current liabilities 69,564 60,328
Other long-term liabilities 6,272 4,336
Cumulative share of losses in
affiliates, net -- 5,883
Shareholders' equity:
Common stock, stated value
$.0069 per share
Authorized 100,000 shares;
outstanding shares -
30,247 and 28,897 net of
1,514 and 1,652 shares
in treasury 210 201
Capital in excess of stated value 54,612 46,482
Retained earnings 35,846 26,728
Foreign currency translation
adjustment -- (590)
Unrealized holding loss on
investments (227) (669)
Total shareholders' equity 90,441 72,152
Total liabilities and
shareholders' equity $166,277 $142,699
<PAGE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1995 1994
Net cash provided by operating
activities $14,803 $7,101
Cash flows from investing activities:
Sales (purchases) of investments, net 3,648 (7,128)
Additions to property and
equipment, net (1,116) (3,999)
Additions to computer software
construction costs (5,718) (6,613)
Investment in SDRC GmbH (2,193) (823)
Acquisition of SDRC GmbH, net of
cash received 1,152 --
Investment in Metaphase (1,000) --
Proceeds from sale of certain assets 542 --
(Increase) decrease in other assets, net 51 (154)
Net cash used in investing activities (4,634) (18,717)
Cash flows from financing activities:
Stock issued under employee benefit
plans 9,138 1,819
Purchases of treasury stock (999) (358)
Net cash provided by financing
activities 8,139 1,461
Effect of exchange rate changes on cash (7) 18
(Decrease) increase in cash and cash
equivalents 18,301 (10,137)
Cash and cash equivalents:
Beginning of period 21,885 34,783
End of period $40,186 $24,646
See accompanying notes to consolidated financial statements.
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. As
permitted by the rules of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by
generally accepted accounting principles. In the opinion of
management, these financial statements contain all adjustments
(consisting of only normal recurring adjustments, unless
otherwise noted) necessary to present fairly the Company's
financial position, results of operations and cash flows as of
the dates and for the periods indicated.
(2) Change in Accounting Principle
In 1994, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 112 "Employers' Accounting for Postemployment
Benefits" for benefits attributable to employees' service
previously rendered and recognized a one-time charge of $3,896
net of income tax benefits.
(3) Central European Joint Venture
In March 1994, the Company formed a joint venture with Siemens
Nixdorf Informationssysteme AG (SNI). The Company and SNI
contributed certain assets, cash and loans to the venture, known
as SDRC Software and Services GmbH (SDRC GmbH), along with the
rights to certain software products owned by SNI. Although the
Company received a 50.1% interest in the venture, it did not
exercise sufficient control to treat SDRC GmbH as a consolidated
subsidiary.
In the third quarter of 1995, the Company purchased the remaining
49.9% interest of SDRC GmbH. The acquisition was accounted for
using the purchase method. Accordingly, the purchase price was
allocated to assets acquired and liabilities assumed based on
their fair value.
As of the acquisition date, 100% of the operating results of SDRC
GmbH are included in the consolidated financial statements. The
acquisition did not have a material impact on 1995 consolidated
results of operations.
(4) Sale of Certain Assets
In the third quarter of 1995, SDRC sold certain of its
engineering consulting assets located in the United Kingdom to
MascoTech Engineering Europe Limited (MascoTech UK). The
transaction did not have a material impact on 1995 consolidated
results of operations.
(5) Taxes
The provision for income taxes reflects taxes currently payable.
Deferred tax benefits relating to temporary differences have been
offset by a valuation allowance due to doubt as to their ultimate
realization. These factors cause the effective tax rate to
differ from the expected statutory rate.
(6) Reclassification
In prior periods, the Company reported two segments of its
business: software products and services and engineering
services. The Company has recently realigned these two segments
into a single segment focusing on software and software related
services to provide a total mechanical design automation
solution. Accordingly, the Company now reports its operating
results as part of the software licenses and services segment.
Prior period results have been reclassified for comparative
purposes.
The Company has also reclassified certain revenue and costs in
the 1994 financial statements to conform with the current period
presentation.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
(in thousands)
Revenue
The Company's consolidated net revenue increased 16% to $141,283
for the nine months ended September 30, 1995 as compared to
$122,004 for the nine months ended September 30, 1994. Revenue
increased 19% to $50,694 for the three months ended September 30,
1995 as compared to $42,500 for the three months ended September
30, 1994.
Software license revenue increased 10% to $81,784 for the nine
months ended September 30, 1995 as compared to $74,299 for the
nine months ended September 30, 1994 and software license
revenue increased 13% to $29,908 for the three months ended
September 30, 1995 as compared to $26,541 for the three months
ended September 30, 1994. These increases are due to the
continued worldwide acceptance of the Company's I-DEAS Master
Series and Metaphase Series 2 products.
Software maintenance and services revenue increased 25% to
$59,499 for the nine months ended September 30, 1995 as compared
to $47,705 for the nine months ended September 30, 1994.
Software maintenance and services revenue increased 30% to
$20,786 for the three months ended September 30, 1995 as compared
to $15,959 for the three months ended September 30, 1994.
Software maintenance growth is due to revenue generated from
maintenance contracts for both new and existing customers.
Software services growth was primarily attributable to the
increased level of I-DEAS and Product Data Management
implementation projects.
For the nine month period ended September 30, 1995 and 1994,
revenue in North America accounted for 44% and 43%, Asia-Pacific
29% and 28% and Europe 27% and 29%, respectively, of consolidated
revenues.
Expenses
Cost of revenue increased 24% to $45,315 for the nine months
ended September 30, 1995 as compared to $36,447 for the nine
months ended September 30, 1994. Cost of revenue increased 24%
to $17,369 for the three months ended September 30, 1995 as
compared to $14,013 for the three months ended September 30,
1994. Cost of revenue represents 32% of revenue for the nine
months ended September 30, 1995 as compared to 30% for the
comparable 1994 period. The increase in cost of revenue was due
to an increase in amortization of capitalized software, third
party royalty fees and other variable cost increases directly
associated with revenue. With the January 1995 release of I-DEAS
Master Series 2.0, amortization of software development costs
increased 25% for the nine month period ended September 30, 1995
as compared to the comparable 1994 period. For this same period,
third party royalty fees increased 35% primarily due to fees
associated with product data management (PDM) software developed
by a joint venture investee.
Selling and marketing expenses increased slightly for the nine
months ended September 30, 1995 as compared to the nine months
ended September 30, 1994. Selling and marketing expenses
represent 43% of revenue for the nine months ended September 30,
1995 as compared to 50% for the comparable 1994 period. External
commissions related to third party distribution agreements for
the nine months ended September 30, 1995 increased 82% over the
comparable 1994 period due to revenue growth in countries where
independent representatives are utilized. The accrual of
severance costs recorded in the first half of 1995 relating to a
workforce reduction and the increased level of 1995 external
commission expense were partially offset by the cost containment
program instituted by management in the fourth quarter of 1994.
Expenses (continued)
Research and development expense represents 9% of revenue for the
nine months ended September 30, 1995 as compared to 13% for the
comparable 1994 period. Research and development expense
decreased 20% to $12,822 for the nine months ended September 30,
1995 as compared to $16,086 for the nine months ended September
30, 1994. Research and development expense decreased 26% to
$4,018 for the three months ended September 30, 1995 as compared
to $5,460 for the three months ended September 30, 1994. The
decreases were due primarily to a decrease in labor and
associated expenses relating to a workforce reduction in the
first half of 1995. In addition, the level of capitalized
software construction costs at September 30, 1995 decreased from
September 30, 1994 by 16%.
General and administrative expenses increased 22% to $8,660 for
the nine months ended September 30, 1995 as compared to $7,078
for the nine months ended September 30, 1994. General and
administrative expenses represent 6% of revenue for the nine
months ended September 30, 1995 and 1994. The improvements from
the cost containment program instituted by management in the
fourth quarter of 1994 were offset by increased legal and other
corporate expenses.
Other Income
Equity in earnings (losses) of affiliates primarily represents
the Company's share of operating results of its two joint
ventures Metaphase Technology. Inc. (Metaphase) and SDRC GmbH.
For the third quarter of 1995, the Company's share of income from
the Metaphase joint venture was approximately $1,981 as compared
to $147 for the third quarter of 1994. This increase in income
was primarily due to royalty income associated with a major
customer contract. Income from SDRC GmbH for the third quarter
of 1995 was approximately $163 as compared to a loss of $1,217
for the third quarter of 1994.
In the third quarter of 1995, the Company purchased the remaining
49.9% interest of SDRC GmbH, previously a joint venture company
with the Company and Siemens Nixdorf Informationssysteme AG. As
of the acquisition date, 100% of the operating results of SDRC
GmbH are included in the consolidated financial statements.
Prior to the acquisition of the remaining 49.9% interest, the
Company accounted for its 50.1% interest under the equity method.
The acquisition did not have a material impact on 1995
consolidated results of operations.
In the third quarter of 1995, SDRC sold certain of its
engineering consulting assets located in the United Kingdom to
MascoTech UK. The transaction resulted in a $250 loss in the
third quarter of 1995 which is reported as a reduction of other
income.
In 1994, the Company adopted SFAS 112 "Employers' Accounting for
Postemployment Benefits" for benefits attributable to employees'
service previously rendered and recognized a one-time charge of
$3,896 net of income tax benefits.
Taxes
The provision for income taxes reflects taxes currently payable.
Deferred tax benefits relating to temporary differences have been
offset by a valuation allowance due to doubt as to their ultimate
realization. These factors cause the effective tax rate to
differ from the expected statutory rate.
Quarterly Results
Future quarterly results could be impacted by factors such as
order deferrals, a slower growth rate in the market, increased
competition or adverse changes in general economic conditions in
any of the countries in which the Company does business. Any
shortfall in revenue or earnings could have an immediate and
significant adverse effect on the trading price of the Company's
stock in any given period. The results of operations for the
three and nine month periods ended September 30, 1995 are not
necessarily indicative of future expectations.
Liquidity and Capital Resources
At September 30, 1995, the Company had cash and investments of
$61,335. The increase in cash and investments from December 31,
1994 is due from the results of operations and exercise of
employee stock options. The Company's working capital was
$41,704 at September 30, 1995. In addition, the Company has an
unsecured bank line of credit of $15,000. The Company has no
current commitments for material capital expenditures. These
existing sources of liquidity and funds anticipated to be
generated from operations are expected to provide adequate cash
to fund the Company's projected needs for the foreseeable future.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits filed as part of this report:
11(a) Calculation of Primary Earnings (Loss) Per
Common Share
11(b) Calculation of Fully Diluted Earnings (Loss)
Per Common Share
(B) No report on Form 8-K was filed during the third quarter of
1995.
The information furnished in this report has not been audited.
It reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the
interim periods reported. The results are not necessarily
indicative of results of operations to be expected for the full
fiscal year.
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 thereunto duly authorized.
STRUCTURAL DYNAMICS RESEARCH CORPORATION
Date: November 9, 1995 By: /s/ Jeffrey J. Vorholt
Jeffrey J. Vorholt,
Vice President,
Chief Financial Officer and
Treasurer
*Pursuant to the last
sentence of General
Instruction G to Form 10-Q,
Mr. Jeffrey J. Vorholt has
executed this Quarterly Report on
Form 10-Q both on behalf of the
registrant and in his capacity as
its principal financial and
accounting officer.
EXHIBIT 11(a)
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Calculation of Primary Earnings (Loss) Per Common Share
(in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
PRIMARY
Average shares
outstanding 30,195 28,860 29,757 28,826
Net effect of
dilutive stock
options after
application of the
treasury stock
method 1,271 479 231 648
Total 31,466 29,339 29,988 29,474
Income (loss) before
cumulative effect
of accounting
change $ 5,796 $ 8 $ 9,118 $(2,714)
Cumulative effect
of accounting
change -- -- -- (3,896)
Net income (loss) 5,796 8 9,118 (6,610)
Primary per
share amount:
Before cumulative
effect of
accounting
change $ .18 $ -- $ .30 $ (.09)
Cumulative effect of
accounting change -- -- -- (.13)
Net income (loss)
per share $ .18 $ -- $ .30 $ (.22)
Exhibit 11(b)
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Calculation of Fully Diluted Earnings (Loss) Per Common Share
(in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
FULLY DILUTED
Average shares
outstanding 30,195 28,860 29,757 28,826
Net effect of
dilutive stock
options after
application of the
treasury stock method 1,930 479 1,756 648
Total 32,125 29,339 31,513 29,474
Income (loss) before
cumulative effect of
accounting change $ 5,796 $ 8 $ 9,118 $(2,714)
Cumulative effect of
accounting change -- -- -- (3,896)
Net income (loss) 5,796 8 9,118 (6,610)
Fully diluted per
share amount:
Before cumulative
effect of
accounting change $ .18 $ -- $ .29 $ (.09)
Cumulative effect of
accounting change -- -- -- (.13)
Net income (loss)
per share $ .18 $ -- $ .29 $ (.22)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 40,186
<SECURITIES> 10,747
<RECEIVABLES> 49,863
<ALLOWANCES> (2,940)
<INVENTORY> 0
<CURRENT-ASSETS> 111,268
<PP&E> 46,018
<DEPRECIATION> (35,272)
<TOTAL-ASSETS> 166,277
<CURRENT-LIABILITIES> 69,564
<BONDS> 0
<COMMON> 210
0
0
<OTHER-SE> 90,231
<TOTAL-LIABILITY-AND-EQUITY> 166,277
<SALES> 141,283
<TOTAL-REVENUES> 141,283
<CGS> 45,315
<TOTAL-COSTS> 82,342
<OTHER-EXPENSES> (508)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,134
<INCOME-TAX> 5,016
<INCOME-CONTINUING> 9,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,118
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
