SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K/A
Amendment No. 1
__________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
December 31, 1995 number 33-16541
STRUCTURAL DYNAMICS RESEARCH CORPORATION
An Ohio Corporation I.R.S. Employer
Identification No. 31-0733928
2000 Eastman Drive, Milford, Ohio 45150
Telephone Number (513) 576-2400
__________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock without par value
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
__________________
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
__________________
As of March 12, 1996 the latest practicable date, 31,252,775 shares
of Common Stock were outstanding. The aggregate market value of
Common Stock held by non-affiliates was approximately $1,020,764,811
at that date.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K into which the document is
incorporated:
Registrant's definitive Proxy Statement dated March 26,
1996.
Part II, Part III and Part IV
The Registrant hereby amends the following items and financial
statements of its Annual Report on Form 10-K for the year ended December
31, 1995 as set forth below. Items not referenced below are not amended.
Items referenced herein are amended in their entirety as set forth
below:
Item 3. Legal Proceedings.
Securities Litigation and Related Matters
Except for the following matters, SDRC is not a party to
any litigation other than ordinary routine litigation
incidental to its business.
On September 14, 1994, SDRC announced that in the course of an internal
review of the business practices of its Far East Headquarters Operations,
it had identified that certain shipments of its products intended for sale
to or through third party distribution channels apparently did not
represent valid sales and that as a result it expected to restate its
financial statements for 1992, 1993 and the first two quarters of 1994.
SDRC further announced that it had dismissed its vice president and
general manager of its Far East Operations, Tony Tolani, and had engaged
outside legal counsel to further examine its internal controls and
business practices. SDRC also stated that it expected to report a net
loss of $.15 to $.25 per share for the third quarter of 1994, well below
analysts' expectations of earnings of $.11 per share.
Following the September 14, 1994 announcement, the market price of SDRC
common stock dropped from approximately $7.625 per share to as low as
approximately $3.625.
On November 2, 1994, KPMG Peat Marwick LLP announced that it had
resigned as SDRC's audit firm and withdrew its audit certifications of
SDRC's financial statements for 1991 through 1993 due to serious questions
as to its ability to rely on the representations of SDRC's management. On
November 3, 1994, SDRC announced that as a result of its outside legal
counsel's ongoing investigation, its senior vice president and chief
financial officer, Ronald Hoffman, and its vice president and controller,
Richard Lajoie, left the company to pursue other interests. On November
4, 1994, SDRC announced the resignation of its Chairman, President and
Chief Executive Officer, Ronald Friedsam.
SDRC completed the restatement of its 1991, 1992 and 1993 annual
financial statements and its unaudited financial statements for the first
and second quarter of 1994 on January 17, 1995. After the restatement,
1991 revenues were $129.9 million and net income was $9.3 million.
Previously reported 1991 revenues were $146.30 million and net income was
$17.9 million. For the year 1992, restated revenues were $149.0 million
and net income was $9.5 million. Previously reported revenues for 1992
were $163.6 million and net income was $14.5 million. For the year 1993,
restated revenues were $147.6 million and net loss was $(11.7) million.
Previously reported revenues for 1993 were $186.3 million and net income
was $14.3 million.
Beginning on September 15, 1994 a total of 12 class action lawsuits
alleging various violations of the federal securities laws and two
derivative lawsuits alleging breaches of Ohio corporate law were filed
against SDRC, certain of its current and former officers and directors
(the "Individual Defendants"), and its then audit firm, KPMG Peat Marwick
LLP. All of the complaints sought unspecified damages. The class action
cases were consolidated into one case entitled In Re: Structural Dynamics
Research Corporation Securities Litigation, United States District Court,
Southern District of Ohio, Consolidated Master File No. C-1-94-630 (the
"Class Action Case"). Subsequently, the two derivative cases were
consolidated into one case entitled In Re: Structural Dynamics Research
Corporation Derivative Litigation, United States District Court, Southern
District of Ohio, Consolidated Master File No. C-1-94-650 (the "Derivative
Case").
The Class Action Case represents a direct claim against SDRC by certain
named plaintiffs acting on behalf of a class of plaintiffs consisting of
certain individuals who purchased and sold SDRC common stock in open
market transactions between February 3, 1992 and September 14, 1994. The
claims made by the plaintiffs in this case were based on SDRC's alleged
disclosures of misleading information and failure to disclose certain
adverse information arising from the facts described above and the alleged
participation of the Individual Defendants and KPMG Peat Marwick LLP
therein. The plaintiffs further alleged that certain of the Individual
Defendants had engaged in sales of SDRC Common Stock while in the
possession of material undisclosed information regarding SDRC ("insider
trading"). The plaintiffs asserted that all of the defendants violated
Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
and Rule 10b-5 promulgated thereunder and that the Individual Defendants,
as controlling persons of SDRC, were also liable under Section 20(a) of
the Exchange Act and, by reason of the alleged insider trading of certain
of the Individual Defendants, were liable under Section 20A(a) of the
Exchange Act. The plaintiffs also relied upon theories of common law
fraud. In December 1995, SDRC and plaintiffs' counsel in the Class Action
Case entered into a Memorandum of Understanding setting forth the terms of
a proposed settlement of this case. On March 22, 1996 the proposed
settlement was approved by the court and a final order was entered.
Pursuant to the settlement, SDRC established a settlement fund of $27.6
million consisting of $17.6 million cash and $10 million in shares of SDRC
Common Stock (to be valued based on market prices at the time of
distribution). The settlement does not constitute an admission of
liability on the part of any defendant. SDRC's Board of Directors
determined that the settlement was in the best interests of SDRC and its
shareholders in light of the high cost of continued litigation of the
matter and the high level of management time and attention it would
require which could be better spent on SDRC's business.
The Derivative Case remains pending, but the parties have entered into
a Memorandum of Understanding for a proposed settlement, subject to final
approval of the United States District Court. The legal theory of
derivative litigation is that the named plaintiffs, who are shareholders
of the corporation, are pursuing claims on behalf of the corporation
against third parties whose actions have injured the corporation but
against whom the corporation has refused to take independent action. In
such litigation the corporation is considered a "nominal" defendant. In
the Derivative Case, SDRC is therefore a "nominal" defendant. The "real"
defendants consist of various former officers and employees of SDRC and
certain of its directors. Since the plaintiffs are theoretically acting
on behalf of SDRC, any recovery in this matter would be for the benefit of
SDRC. However, SDRC could nevertheless face exposure to liability through
the legal obligation, which could be applicable under certain
circumstances, to indemnify and hold harmless certain of the defendants
against whom a judgment might be rendered. For this reason, and the cost
to SDRC of continued litigation, SDRC's Board of Directors determined that
a reasonable settlement of the Derivative Litigation would be in the best
interests of SDRC and its shareholders. Under the proposed settlement,
SDRC will pay the plaintiffs' counsel $900,000 in legal fees and up to
$50,000 for out-of-pocket expenses. The settlement does not constitute an
admission of liability on the part of any defendant.
Based on the same facts which gave rise to the Class Action Case and the
Derivative Case, the Commission commenced a formal, private
investigation of SDRC in September 1994 which remains pending. SDRC
is fully cooperating with this investigation but cannot predict its
outcome.
During 1994 and 1995 SDRC carried $5 million of primary directors and
officers liability insurance coverage from the Federal Insurance Company
plus "excess liability coverage" from Agricultural Excess and Surplus
Insurance Company ("AESIC"), which provides $3 million of such coverage,
and from Old Republic Insurance Company ("Old Republic"), which provides
an additional $2 million of such coverage. The directors and officers
liability insurance, both primary and excess, is potentially available
with respect to the Class Action Case and the Derivative Case because
certain of SDRC's directors and former officers are personal defendants in
those matters. Coverage under the excess policies is dependent upon first
exhausting the primary coverage. SDRC came to an early understanding with
the primary insurer with respect to its coverage, and has in fact received
payment of the entire $5 million of such coverage, but the excess carriers
have to date denied coverage. On October 11, 1995, SDRC and certain
officers and directors named in the Class Action Case and/or the
Derivative Case filed a declaratory judgment action against the excess
carriers in a case entitled Structural Dynamics Research Corporation, et
al. v. Agricultural Excess and Surplus Insurance Company, et al., Clermont
County Court of Common Pleas, Case No. 95-CV-9697. The action alleges
that neither AESIC nor Old Republic is entitled to rescind its policy or
exclude any of the named plaintiffs from coverage with respect to claims
in the Class Action Case or the Derivative Case. AESIC and Old Republic
each responded and have taken the position that they are entitled to
rescission and that all claims are excluded under the terms of the policy.
AESIC and Old Republic based their position on numerous theories,
including among others allegations that their policies are voidable
because SDRC did not disclose alleged improper booking of sales on its
application for the insurance, that their policies do not cover pre-existing
litigation and the Class Action Case and Derivative Case included
various claims that had previously been asserted against SDRC in prior
litigation, that the matters in question are uninsurable as a matter of
law, and that coverage is not available with respect to alleged deliberate
fraudulent acts or willful violations of statutes or regulations. While
SDRC intends to vigorously pursue this case, there can be no assurance as
to its ultimate outcome.
<PAGE>
Item 6. Selected Financial Data.
The selected financial data for the five years ended
December 31, 1995 is as follows:
<TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
Structural Dynamics Research Corporation
<CAPTION>
Year ended December 31
(in thousands,
except per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net revenue $204,084 $167,547 $147,605 $149,041 $129,932
Income (loss) before income
taxes and cumulative effect
of accounting changes (1,917) (5,168) (7,356) 13,907 14,525
Income (loss) before cumulative
effect of accounting changes (8,467) (9,001) (11,732) 8,775 9,279
Net income (loss) (8,467) (12,897) (11,732) 9,475 9,279
Earnings (loss) per share:
Before cumulative effect of
accounting changes (.28) (.31) (.39) .29 .31
Net income (loss) (.28) (.45) (.39) .31 .31
Common and common equivalent
shares 29,921 28,844 29,876 30,093 29,817
Balance sheet data:
Working capital $ 35,695 $ 27,590 $ 27,474 $ 48,440 $ 45,207
Total assets 193,522 142,699 134,549 136,130 119,339
Long-term liabilities 8,163 10,219 326 -- --
Total shareholders' equity 77,409 72,152 84,581 92,447 80,359
</TABLE>
During 1993-1994,the Company's level of expenses increased to support
technological development and revenue growth. As anticipated revenue growth
did not materialize, the Company's expenses exceeded revenue resulting in
operating and net losses. In 1995, the anticipated cost of the class action
lawsuit settlement, net of estimated insurance proceeds, was included in the
results of the operations.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Company operates in a single industry segment providing
mechanical design automation (MDA) software, product data
management (PDM) software and related services. The Company's
MDA product, I-DEAS Master Series, is a world-class, integrated
CAD/CAM/CAE product which allows manufacturers to optimize
product performance and reduct cost, while streamlining the
product development process from concept through manufacturing.
This total approach to product and process engineering enables
significant improvements in quality, while reducing overall
development time and cost. Metaphase Series 2 software, SDRC's
PDM product, provides a comprehensive approach to the management
and control of product information and configuration, release
management and work flow.
Revenue
Consolidated revenue, including licenses and services, for 1995
rose to $204,084 compared with 1994 revenue of $167,547 and 1993
revenue of $147,605. This represents increases of 22% in 1995
and 14% in 1994. The growth is due to an increase in the
Company's installed software base and the associated increase in
maintenance, software services and training revenue. In 1995,
the Company merged its software products marketing and
engineering services subsidiaries.
Software License Revenue. Software license revenue for 1995
increased to $117,573 compared to 1994 revenue of $103,317 and
1993 revenue of $86,754. These amounts represent an increase of
14% in 1995 and 19% in 1994 which is attributed to the
enthusiastic market acceptance of the I-DEAS Master Series
product enhancements and increased demand for the PDM product.
In 1995, PDM license revenue increased 54% over 1994. Also in
1995, the Company purchased the minority interest in SDRC GmbH.
As of the acquisition date, license revenue generated by SDRC
GmbH was included in the consolidated financial statements.
Software Maintenance and Services Revenue. Software maintenance
and services revenue is derived from software maintenance
contracts, software services and training. Combined software
maintenance and services revenue increased to $86,511 in 1995 or
35% over 1994 and to $64,230 in 1994 or 6% over 1993. This
revenue represents 42%, 38% and 41% of consolidated net revenue
in 1995, 1994 and 1993, respectively. Software maintenance
growth is due to revenue generated from maintenance contracts for
both new and existing customers. Software services growth in
1995 over 1994 is primarily attributable to the increased level
of I-DEAS and Metaphase Series 2 implementation and integration
projects. In addition, the Company's software services revenue
was impacted in 1995 by a large contract from one of its major
automotive customers and a renewal of a services contract from
one of its major aerospace customers. In 1994, engineering
consulting revenue did not increase over 1993 due to downsizing
portions of the consulting business not considered synergistic
with the software segment. The Company expects that the software
maintenance and services revenue will continue to increase.
Geographic. Total revenue from international operations
accounted for 56%, 57% and 61% of consolidated net revenue in
1995, 1994 and 1993, respectively. The Company expects the
international market to continue to account for a significant
portion of total revenue.
Cost and Expenses
Cost of Revenue. Cost of licenses primarily consists of the cost of
distributing software producs and an allocation of the amortization of
capitalized software construction costs and royalty fees paid to third
parties under licensing agreements. Cost of maintenance and services
primarily consists of the staff and related costs associated with the
generation and support of software service revenue and allocation of the
amortization of capitalized software construction costs and royalty fees
paid to third parties under licensing agreements.
Total cost of revenue increased to $63,073 in 1995 from $48,785 in
1994 and $46,937 in 1993. As a percentage of revenue, these costs
were 31%, 29% and 32% of net consolidated revenue for 1995, 1994
and 1993, respectively.
The cost of licenses in 1995 increased 28% while the associated license
revenue increased 14%. The increase in cost during 1995 was due primarily
to increased author fees on the Company's I-DEAS Master Series and Product
Data Management products. In 1994, cost of licenses increased 13% as
compared to the associated license revenue increase of 19%. An increase
in author fees was partially offset by a decrease in amortization of
software construction costs.
Cost of maintenance and services in 1995 increased 30% while the
associated revenue increased 35%. In 1994, cost of maintenance and
services remained constant with 1993 levels while the associated revenue
increased 6%. The Company expects that total cost of revenue will
continue to increase due to variable costs associated with license
and related services revenue growth.
Research and Development Expenses. The Company continues to
invest significant amounts in the technological advancement of
its product line. Research and development expenses amounted to
$20,496, $20,715 and $17,526 in 1995, 1994 and 1993,
respectively. These amounts represent 10%, 12% and 12% of net
revenue for 1995, 1994 and 1993, respectively. In 1995,
research and development expenses as a percent of total revenue
decreased because of a reduction in staff and related staff costs
which occurred in the fourth quarter of 1994 and first quarter of
1995. The Company expects that the research and development
costs will increase due to the acceleration of the development of
its I-DEAS Master Series software and other product initiatives.
Research and development expenses consist of expenses for
development of software products which cannot be capitalized in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." Research and development
expenses exclude internally developed capitalized software costs
of $6,928, $9,312 and $11,282 in 1995, 1994 and 1993,
respectively. These capitalized amounts represent 34%, 45% and
64% of research and development expenses in 1995, 1994 and 1993,
respectively. The percentage of capitalized costs to total
research and development expenses has declined over the three-
year period because the product development staff is using a more
effective development process. With this process, more time is
spent in the phases before coding begins to refine the
requirements and approach, reducing the amount of software
development costs that are capitalizable. Capitalized computer
software costs are amortized over the useful lives of the related
products, which are estimated to be no more than five years.
Selling and Marketing Expenses. Selling and marketing expenses
consist of the costs associated with the world wide sales and
marketing staff, advertising and product localization. These
expenses amounted to $87,049, $89,628 and $80,906 in 1995, 1994
and 1993, respectively. These amounts represent 43%, 53% and 55%
of net consolidated revenue for 1995, 1994 and 1993,
respectively. The selling and marketing expense decrease in
1995 from 1994 is due to a reduction in staff and related staff
costs partially offset by an increase in sales incentives for
both the direct and indirect channels. The Company expects to
continue to expand its sales organization to meet the growing
customer demand for its products and services.
Throughout 1994 and 1993, the Company incurred significant
expenses from increased headcount in the sales and technical
support organizations to promote direct sales and support new and
existing customers. The primary focus was to assist the
Company's customers in their transitioning efforts to the I-DEAS
Master Series product introduced in June 1993. The Company
anticipated higher revenue growth to offset the incremental
headcount costs from sales and support activities. In the fourth
quarter of 1994 and the first quarter of 1995, the Company
initiated a plan to cut costs and strengthen its competitive
position by reducing its workforce.
General and Administrative Expenses. General and administrative
expenses consist of costs associated with the corporate, finance,
human resource and administrative staffs. General and
administrative expenses amounted to $11,263, $10,379 and $9,455
in 1995, 1994 and 1993, respectively. These amounts represent 6%
of net consolidated revenue for each of these years.
Equity in Losses of Affiliates
During 1992, the Company and Control Data Systems, Inc. formed a
joint venture known as Metaphase Technology, Inc. (Metaphase).
Metaphase is involved in developing and marketing product data
management software. The Company pays royalty fees to Metaphase
based upon the amount of PDM sales.
During 1994, the Company formed a joint venture with Siemens
Nixdorf Informationssysteme AG (SNI), SDRC Software and Services,
GmbH (SDRC GmbH) to market the Company's software products in
Central Europe. The Company's equity in the losses of affiliates
represents its share of Metaphase and SDRC GmbH joint venture
losses, the majority of which resulted from the SDRC GmbH joint
venture.
In 1995, the Company purchased the minority interest in SDRC GmbH
at its net book value. As of the acquisition date, 100% of the
operating results of SDRC GmbH were included in the consolidated
financial statements. The balance sheet impact increased assets
by approximately $8,928, decreased long-term liabilities by
$4,737, and increased current liabilities approximately $13,665.
The increase in assets represented primarily cash and accounts
receivable. The reduction in long-term liabilities represented
the reversal of the cumulative losses offset by the recording of
long-term liability of $1,927 due to SNI under a limited set of
circumstances as described in the agreement between SNI and SDRC.
The increase in current liabilities represented primarily
accounts payable, accrued liabilities and deferred revenue.
Acquisition of CAMAX Manufacturing Technologies, Inc.
On January 16, 1996, the Company entered into a definitive
agreement to acquire CAMAX Manufacturing Technologies, Inc.
(CAMAX) and its wholly owned subsidiaries. CAMAX provides
computer-aided manufacturing (CAM) software for computerized-
numerical-control machining operations, with products and
services designed to simplify, automate and optimize the
machining process to streamline production and accelerate time-to-
market.
SDRC will issue common stock having a market value of $30,000 in
exchange for 100 percent ownership of CAMAX common stock. The
acquisition is expected to be accounted for under the pooling of
interests method. Completion of the transaction is subject to
receipt of customary governmental approvals and CAMAX
shareholders' approval.
Litigation Settlement
In December 1995, the Company and plaintiffs' counsel in a class
action lawsuit entered into a Memorandum of Understanding setting
forth the terms of a proposed settlement. Pursuant to the
proposed settlement, the Company will establish a settlement fund
of $27,600 consisting of $17,600 cash and $10,000 in the form of
shares of the Company's common stock. The anticipated cost of
the settlement net of $5,000 of estimated primary insurance proceeds
was recorded as a 1995 expense. An additional $5,000 of
potentially available excess liability insurance proceeds was not
offset against the recorded 1995 expense because of ongoing
coverage litigation with the excess liability insurers. Accordingly,
if proceeds from the excess liability coverage do not prove to
be ultimately available to the Company, there will be no
financial statement impact. In January 1996, $17,600 was transferred
to a settlement fund in accordance with the Memorandum
of Understanding. In April 1996, the Company received payment
of the $5,000 of primary insurance proceeds which had been offset
against the anticipated settlement cost recorded as a 1995 expense.
Other Income, Net
Other income, net, consists principally of interest income and
foreign currency losses. For the three-year period ending
December 31, 1995, interest income increased due to interest for
income tax refunds received in 1994 and 1995, higher investment
balances in 1995 and increasing interest rates throughout the
period. In 1995, other income, net, is offset by a net loss of
$1,878 resulting from the sale of the United Kingdom test and
analysis division.
Income Taxes
During 1995 and 1994, the Company recorded tax expense of $6,550
and $3,833 on pretax losses of $1,917 and $5,168, respectively.
Although the Company incurred losses in 1995 and 1994, there were
provisions for income taxes in both years consisting primarily of
income taxes currently payable to foreign jurisdictions and
foreign withholding taxes incurred on the Company's software
licensing revenue. These withholding taxes can be credited
against the Company's U.S. income tax liability. The Company is
not currently in a position to utilize all of these foreign tax
credits (FTCs). The FTCs and other tax carryforwards are
available to offset future U.S. income tax liabilities, subject
to various restrictions. No tax benefit was currently recognized
for the excess FTCs and other tax carryforwards since it is more
likely than not that they will not be realized.
In 1994, the Company received a tax refund of $1,754 for research
and experimentation credits not previously recorded.
Liquidity and Capital Resources
As of December 31, 1995, the Company had $78,167 in cash, cash
equivalents and liquid investments. The Company's working
capital was $35,695 and the Company had no borrowings. The
Company also has an unsecured bank line of credit of $15,000.
During 1995, 1994 and 1993 the Company generated cash flows from
operations of $31,343, $6,018 and $18,955, respectively. The
increase in net cash provided by operations was primarily due to
the increase in operating income and the increase in deferred
revenue, net of the accounts receivable increase.
The Company used $6,477, $20,053 and $19,699 during 1995, 1994
and 1993 for investing activities. The reduction in investing
activities from 1994 to 1995 was primarily due to reduction in
investments as defined in SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." The investment
balances were converted into cash and cash equivalents. The
acquisition of the remaining minority interest in SDRC GmbH also
resulted in a net increase in cash and cash equivalents of
$1,152. Net cash used in investing activities in each of the
years also includes the additions to computer software
construction costs and property and equipment.
Net cash provided by financing activities was $12,646, $1,108
and $3,906 during 1995, 1994 and 1993, respectively, representing
proceeds from the Company's stock option programs.
The Company's sources of liquidity and funds anticipated to be
generated from operations are expected to be adequate for the
Company's cash requirements in the foreseeable future. The
Company paid no dividends during the period 1993 through 1995 and
intends to continue its policy of retaining earnings to finance
future growth. The Company has no current commitments for
material capital expenditures. See Note 10 to the consolidated
financial statements for additional commitments and
contingencies. The Company does not expect inflation to have a
material impact on its future operations.
The Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," which is required to be adopted
by 1996. The implementation of this Statement will not have a
material impact on the Company's financial statements.
The provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" will be effective for the Company in 1996. This
recent standard requires that stock-based compensation either
continue to be determined under Accounting Principles Board
Opinion (APB) No. 25 "Accounting for Stock Issued to Employees"
or in accordance with the provisions of SFAS No. 123 whereby
compensation expense is recognized based on the fair value of
stock-based awards on the grant date. The Company currently
expects to continue to account for such awards under the
provisions of APB No. 25. Although SFAS No. 123 will require
additional disclosures beginning in 1996, management believes the
impact of SFAS No. 123 will not be material to the Company's
financial statements.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements:
Financial Statements
Pages
Report of Independent Accountants . . . . . . . . . . . . 14
Consolidated Statement of Operations -
Years ended December 31, 1995, 1994 and 1993. . . . . . .14-15
Consolidated Balance Sheet -
December 31, 1995 and 1994. . . . . . . . . . . . . . . .16-17
Consolidated Statement of Shareholders' Equity -
Years ended December 31, 1995, 1994 and 1993. . . . . . .18-19
Consolidated Statement of Cash Flows -
Years ended December 31, 1995, 1994 and 1993. . . . . . .20-21
Notes to Consolidated Financial Statements. . . . . . . . 22-36
Financial Statement Schedules
VIII Valuation and qualifying accounts . . . . . . . . . 37
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Structural Dynamics Research Corporation
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Structural Dynamics Research
Corporation and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial statements,
in 1994 the Company changed its method of accounting for
postemployment benefits.
Price Waterhouse LLP
Cincinnati, Ohio
January 30, 1996
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
Structural Dynamics Research Corporation
<CAPTION>
Year ended December 31
(in thousands,
except per share data) 1995 1994 1993
<S> <C> <C> <C>
Revenue:
Software licenses $117,573 $103,317 $ 86,754
Software maintenance
and services 86,511 64,230 60,851
Net revenue 204,084 167,547 147,605
Cost of licenses 23,172 18,118 16,065
Cost of maintainence
and services 39,901 30,667 30,872
Total cost of revenue 63,073 48,785 46,937
Gross profit 141,011 118,762 100,668
Operating expenses:
Selling and marketing 87,049 89,628 80,906
Research and development 20,496 20,715 17,526
General and administrative 11,263 10,379 9,455
Total operating expenses 118,808 120,722 107,887
Operating income (loss) 22,203 (1,960) (7,219)
Equity in losses of
affiliates (951) (5,329) (614)
Litigation settlement (24,300) -- --
Other income, net 1,131 2,121 477
Loss before income taxes and
cumulative effect of
accounting change (1,917) (5,168) (7,356)
Income tax expense 6,550 3,833 4,376
Loss before cumulative
effect of accounting change (8,467) (9,001) (11,732)
Cumulative effect of
accounting change -- (3,896) --
Net loss $ (8,467) $(12,897) $(11,732)
Loss per share:
Before cumulative effect
of accounting change $ (.28) $ (.31) $ (.39)
Cumulative effect of
accounting change -- (.14) --
Net loss per share $ (.28) $ (.45) $ (.39)
Weighted average common
shares outstanding 29,921 28,844 29,876
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
Structural Dynamics Research Corporation
<CAPTION>
December 31
(in thousands) 1995 1994
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 59,397 $ 21,885
Short-term investments 14,305 17,296
Trade accounts receivable, net 53,897 35,867
Other accounts receivable 10,164 6,760
Prepaid expenses and other current
assets 5,882 6,110
Total current assets 143,645 87,918
Long-term investments 4,465 7,059
Property and equipment, at cost:
Computer and other equipment 34,678 36,259
Office furniture and equipment 10,064 9,258
Leasehold improvements 4,058 3,799
48,800 49,316
Less accumulated depreciation and
amortization 36,604 35,537
Net property and equipment 12,196 13,779
Computer software construction
costs, net 30,568 30,854
Other assets 2,648 3,089
Total assets $193,522 $142,699
See accompanying notes to consolidated financial statements.
December 31
(in thousands, except per share data) 1995 1994
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,938 $ 6,857
Accrued expenses 31,411 29,495
Accrued litigation settlement and
related costs 28,600 --
Accrued income taxes 6,396 4,262
Deferred revenue 31,605 19,714
Total current liabilities 107,950 60,328
Long-term liabilities 8,163 4,336
Cumulative share of losses in
affiliate, net -- 5,883
Commitments and contingencies
(Note 10)
Shareholders' equity:
Common stock, stated value $.0069
per share Authorized 100,000 shares;
outstanding shares - 30,617 and
28,897 net of 1,510 and 1,652 shares
in treasury 213 201
Capital in excess of stated value 59,116 46,482
Retained earnings 18,261 26,728
Foreign currency translation
adjustment -- (590)
Unrealized holding loss on
investments (181) (669)
Total shareholders' equity 77,409 72,152
Total liabilities and
shareholders' equity $ 193,522 $ 142,699
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Structural Dynamics Research Corporation
<CAPTION>
Foreign Unrealized Total
Common stock Capital in currency holding share-
outstanding excess of Retained translation loss on holders'
(in thousands) Shares Stated value stated value earnings adjustment investments equity
<S> <C> <C> <C> <C> <C> <C> <C>
December 31,1992 28,136 $195 $41,474 $51,357 $(579) $ -- $92,447
Transactions
involving
employee
stock plans 582 4 4,067 4,071
Purchases of
treasury stock (9) (165) (165)
Net loss (11,732) (11,732)
Foreign currency
translation
adjustment (40) (40)
December 31,1993 28,709 199 45,376 39,625 (619) -- (84,581)
Transactions
involving
employee stock
plans 228 2 1,463 1,465
Purchases of
treasury stock (40) (357) (357)
Net loss (12,897) (12,897)
Foreign currency
translation
adjustment 29 29
Unrealized
holding
loss on
investments (669) (669)
December 31,1994 28,897 201 46,482 26,728 (590) (669) 72,152
Transactions
involving
employee stock
plans 1,832 13 14,521 14,534
Purchases of
treasury stock (112) (1) (1,887) (1,888)
Net loss (8,467) (8,467)
Foreign currency
translation 590 590
adjustment
Unrealized
holding
gain on
investments 488 488
December 31, 1995 30,617 $ 213 $59,116 $18,261 $ -- $ (181) $77,409
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Structural Dynamics Research Corporation
<CAPTION>
Year ended December 31
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,467) $(12,897) $(11,732)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 6,464 7,166 7,014
Amortization of computer software
construction costs 8,475 7,137 9,539
Equity in losses of affiliates 951 5,329 614
Postemployment benefits accounting
change -- 3,896 --
Litigation settlement 24,300 -- --
Loss on sale of UK test and analysis
division 1,878 -- --
Other (259) (36) (42)
Changes in assets and liabilities,
net of SDRC GmbH acquisition:
(Increase) decrease in accounts
receivable, net (9,472) (16,158) 8,468
(Increase) decrease in prepaid
expenses 429 (966) (717)
(Increase) decrease in other
assets 11 (261) (474)
Increase (decrease) in accounts
payable and accrued expenses (3,830) 5,141 6,433
Increase (decrease) in accrued
income taxes 2,134 (1,109) 13
Increase (decrease) in deferred
revenue 9,990 6,654 (141)
Increase (decrease) in long-term
liabilities (1,261) 2,122 (20)
Net cash provided by operating
activities 31,343 6,018 18,955
Cash flows from investing activities:
Purchases of investments (30,587) (32,007) (39,811)
Proceeds from sales of investments 36,660 28,250 39,296
Additions to property and equipment, net (3,844) (4,939) (6,106)
Proceeds from sale of UK test and
analysis division 524 -- --
Additions to computer software
construction costs (8,189) (9,534) (11,578)
Acquisition of minority interest in
SDRC GmbH, net of cash received 1,152 -- --
Investment in and advances to joint
ventures (2,193) (1,823) (1,500)
Net cash used in investing activities (6,477) (20,053) (19,699)
Cash flows from financing activities:
Stock issued under employee benefit plans 14,534 1,465 4,071
Purchases of treasury stock (1,888) (357) (165)
Net cash provided by financing
activities 12,646 1,108 3,906
Effect of exchange rate changes on cash -- 29 (40)
Increase (decrease) in cash and cash
equivalents 37,512 (12,898) 3,122
Cash and cash equivalents:
Beginning of period 21,885 34,783 31,661
End of period $59,397 $21,885 $34,783
Cash paid during the year for income taxes $ 5,901 $ 3,528 $ 4,450
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Structural Dynamics Research Corporation
(in thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Investments in which
the Company has significant influence, but not control, are
accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated.
(b) Revenue Recognition
The use of software programs is licensed through the Company's
direct sales force and by specific arrangements with certain
distributors, value-added resellers and other marketing
representatives. Revenue generated from licenses is recognized
when the following criteria have been met: (a) a written order
for the unconditional license of software has been received, (b)
the Company has delivered the products and performed
substantially all services for which it was committed, (c) the
customer is obligated to pay and (d) collectibility is probable.
Under the terms of a former licensing agreement with an OEM
customer, the Company was unable to determine the amount of
revenue earned until cash was received from the customer.
Amounts recorded as revenue on the cash basis were $5,877 and
$7,877 in 1994 and 1993, respectively. This licensing agreement
was terminated by the Company in 1994.
Maintenance revenue is recognized ratably over the term of the
agreement and represents the substantial component of deferred
revenue. Training revenue is recognized as the services are
performed.
(c) Cost of Revenue
The cost of licenses primarily consists of the cost of distributing the
software products and an allocation of the amortization of capitalized
software construction costs and royalty fees paid to third parties under
licensing agreements. Costs of maintenance and services primarily
consists of the staff and and related costs associated with the generation
and support of software service revenue and an allocation of the
amortization of capitalized software construction costs and royalty fees
paid to third parties under licensing agreements. The allocation between
cost of licenses and maintenance and services have been based upon the
percentage of the related revenue source to total revenue. Management
believes that the methodology for allocating the costs is reasonable.
(d) Per Share Data
Income (loss) per common and common equivalent share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock option grants using the
treasury stock method.
(e) Cash and Cash Equivalents
The Company considers investments in interest bearing accounts,
certificates of deposit, commercial paper and reverse repurchase
agreements with original maturities of less than 90 days to be
cash equivalents.
The Company also has an unsecured bank line of credit of $15,000.
(f) Investments
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" which requires
the Company to distinguish between those securities held for sale
and those for which the ability and intent to hold to maturity
exists. Unrealized gains and losses on assets held for sale are
included in a separate component of equity. The effect of
adopting SFAS No. 115 was not material.
The Company invests in government agency obligations which are
available-for-sale and are recorded at market value. The Company
also invests in certificates of deposit which are held-to-
maturity and are recorded at amortized cost which approximates
market value. Realized and unrealized gains and losses are
determined based on the specific identification method.
(g) Property and Equipment
Depreciation is primarily computed on the straight-line method.
Leasehold improvements are amortized on the straight-line method
over the lesser of the life of the lease or the estimated useful
life of the improvement. The general ranges of years used in
calculating depreciation and amortization are: computer and other
equipment, 2-5 years; office furniture and equipment, 7
years; leasehold improvements, 1-10 years.
The Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," which is required to be adopted
by 1996. The implementation of this Statement will not have a
material impact on the Company's financial statements.
(h) Computer Software Construction Costs
The Company designs, develops and markets computer software
products. Costs related to the construction of software that are
incurred after the technological feasibility of the product has
been demonstrated are capitalized and are amortized over the
useful lives of such software, which are estimated to be no more
than five years. Computer software construction costs are shown
net of accumulated amortization of $20,048 and $11,573 at
December 31, 1995 and 1994, respectively. As of December 31,
1995 and 1994, computer software construction costs, net, include
only those costs related to current software products.
Amortization is calculated on a product by product basis and is
the greater of the amount computed using (a) the ratio that
current gross revenue bears to the total of current and
anticipated future years' revenue, or (b) the straight-line
method over the remaining estimated economic lives of the
software products. The Company included in amortization expense
approximately $3,311 for the year ended December 31, 1993 related
to software construction costs determined to be non-recoverable.
(i) Foreign Currency Translation and Hedging Contracts
For foreign software operations, the U.S. dollar is the
functional currency and foreign currency gains and losses, which
are not material, are included in determining net income. Prior
to the sale of the UK test and analysis division in 1995, the
functional currency was the division's local currency and its
assets and liabilities were translated at period-end exchange
rates. Revenue, expenses, gains and losses were translated at a
weighted average rate of exchange. Translation gains and losses
were not included in determining net income but were
accumulated in a separate component of shareholders' equity.
With the sale of the UK test and analysis division, the
accumulated foreign currency translation loss of $590 was
realized and included in the determination of income for 1995.
In 1993 the Company began hedging certain portions of its
exposure to foreign currency fluctuations, primarily the
financial instruments of the Company's European subsidiaries, by
utilizing forward foreign exchange contracts. At December 31,
1995, the Company had contracts to exchange foreign currencies
totaling $6,250 which matured in January 1996. Gains and losses
associated with these financial instruments are recorded
currently in income to offset the foreign exchange gains and
losses on the assets and liabilities being hedged. The interest
element of the foreign currency instruments is recognized over
the life of the contract. Should the counterparty to these
contracts fail to meet its obligations, the Company would be
exposed to foreign currency fluctuations, along with the cost, if
any, to extinguish the contracts.
(j) Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes",
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities
and their respective tax bases. Based on the Company's
historical tax position and estimates of taxable income for the
next four years, a valuation allowance is provided against
deferred tax assets when the Company believes it is more likely
than not that the deferred tax assets will not be realized.
The Company does not accrue Federal income taxes on undistributed
earnings of its foreign subsidiaries that (1) have been, or are
intended to be, permanently reinvested or (2) if remitted, would
not have material income tax consequences. Undistributed earnings
amounted to approximately $4,331 at December 31, 1995.
(k) Concentration of Credit Risk
The Company's revenue is generated from customers in diversified
industries, primarily in North America, Europe and Asia-Pacific.
The Company generated revenue from a significant customer
aggregating 14%, 11% and 11% in 1995, 1994 and 1993,
respectively. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The
Company maintains allowances for potential credit losses which
management believes to be adequate in the circumstances.
The Company invests its excess cash with major financial
institutions with strong credit ratings and, by policy, limits
the amount of credit exposure in any one such institution.
(l) Use of Estimates
The financial statements, which are prepared in conformity with
generally accepted accounting principles, require management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. In particular,
management has utilized estimates based on the facts and
circumstances existing at the date of the financial statements
which are sensitive to change in the near term. The significant
estimates include the estimated useful lives of computer software
construction costs, the likelihood of realization of the deferred
tax assets and litigation exposures.
(m) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, investments,
accounts receivable, accounts payable, accrued expenses and
forward foreign exchange contracts approximate fair value.
(n) Postemployment Benefits
As of January 1, 1994, the Company adopted the provisions of SFAS
No. 112, "Employers' Accounting for Postemployment Benefits."
This statement requires that entities providing postemployment
benefits to their employees accrue the cost of benefits, if
attributable to employees' service already rendered. The Company
provides severance benefits for involuntarily terminated
employees. The cumulative effect of adopting SFAS No. 112
reduced income by $3,896, net of zero tax benefit, in the first
quarter of 1994.
(o) Stock-Based Compensation
The provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" will be effective for the Company in 1996. This
recent standard requires that stock-based compensation either
continue to be determined under Accounting Principles Board
Opinion (APB) No. 25 "Accounting for Stock Issued to Employees"
or in accordance with the provisions of SFAS No. 123 whereby
compensation expense is recognized based on the fair value of
stock-based awards on the grant date. The Company currently
expects to continue to account for such awards under the
provisions of APB No. 25. Although SFAS No. 123 will require
additional disclosures beginning in 1996, management believes the
impact of SFAS No. 123 will not be material to the Company's
financial statements.
(p) Reclassifications
Certain amounts have been reclassified in the 1993 and 1994
financial statements to conform with the current year
presentation. During 1995, the Company re-evaluated
classifications of certain expense categories and, based on its
current organizational structure, determined that certain
operating expenses were more appropriately classified as cost of
revenue. The Company has reflected the reclassifications in all
periods presented.
(2) Acquisition of CAMAX Manufacturing Technologies, Inc.
On January 16, 1996, the Company entered into a definitive
agreement to acquire CAMAX Manufacturing Technologies, Inc. (CAMAX)
and its wholly owned subsidiaries. CAMAX provides computer-aided
manufacturing (CAM) software for computerized-numerical-control
machining operations, with products and services designed to
simplify, automate and optimize the machining process to streamline
production and accelerate time-to-market.
SDRC will issue common stock having a market value of $30,000 in
exchange for 100 percent ownership of CAMAX common stock. The
total number of SDRC shares of common stock to be issued will be
determined based on the market price for a twenty-day period
preceding the close of the transaction.
The acquisition is expected to be accounted for under the pooling
of interests method. Completion of the transaction is subject to
receipt of customary governmental approvals and CAMAX shareholders'
approval.
Condensed combined proforma data (unaudited) is based on the
respective consolidated historical financial statements of SDRC and
CAMAX adjusted to give effect to the transaction as though it had
occurred as of January 1, 1993.
<TABLE>
<CAPTION>
Year ended
December 31
Condensed combined proforma data
(unaudited) is as follows: 1994 1993
<S> <C> <C>
Net revenue $185,358 $165,893
Loss before income taxes and
cumulative effect
of accounting changes (7,696) (7,050)
Loss before cumulative effect of
accounting changes (11,577) (11,365)
Net loss (15,473) (11,365)
Loss per share:
Before cumulative effect of
accounting changes (.39) (.37)
Net loss $ (.52) $ (.37)
</TABLE>
SDRC's assets, long-term liabilities and shareholders' equity were
$166,277, $6,272 and $90,441, respectively, at September 30, 1995.
Condensed combined proforma data as of September 30, 1995 includes
assets of $175,801, long-term liabilities of $7,219 and
shareholders' equity of $93,239. CAMAX data as of December 31,
1995 was not yet available.
(3) Supplemental Consolidated Balance Sheet Data
December 31
Trade accounts receivable, net, consists of: 1995 1994
Trade accounts receivable $56,217 $38,774
Allowance for doubtful accounts and
reserve for returns and allowances (2,320) (2,907)
$53,897 $35,867
December 31, December 31,
1995 1994
Fair Amortized Fair Amortized
Investments consists of: Value Cost Value Cost
Short term:
Available-for-sale U.S.
government agency
obligations $11,230 $11,239 $10,548 $10,741
Held-to-maturity
certificates of deposit 3,075 3,075 6,748 6,748
$14,305 $14,314 $17,296 $17,489
Long-term:
Available-for-sale U.S.
government agency
obligations $ 4,465 $ 4,637 $ 7,059 $ 7,535
Available-for-sale investments have maturities of $11,230 in
1996, $3,547 in 1997 and $918 in 2013.
December 31
Accrued expenses consists of: 1995 1994
Accrued compensation $18,399 $13,171
Accrued royalties 5,009 3,020
Accrued taxes other than income
taxes 2,310 1,776
Accrued marketing costs 88 2,715
Other 5,605 8,813
$31,411 $29,495
(4) Leases
Future minimum lease payments under noncancelable operating leases for
the five years ending December 31, 2000 approximate $10,193, $7,488,
$4,951, $3,346 and $2,673, respectively, and $33,802 thereafter.
Total rental expenses under operating leases for the years ended
December 31, 1995, 1994 and 1993 were $13,730, $13,042 and $10,673,
respectively.
(5) Income Taxes
Pre-tax accounting income(loss) is as follows:
Year ended December 31,
1995 1994 1993
Domestic $ (7,774) $ (4,900) $ (5,620)
Foreign 5,857 ( 268) (1,736)
----------------------------------
$ (1,917) $ (5,168) $ (7,356)
Year ended December 31
The provision for income taxes
consists of the following: 1995 1994 1993
Federal:
Current $ -- $(1,754) $ --
Deferred -- -- --
-- (1,754) --
State 257 411 500
Foreign:
Income taxes 2,209 1,113 444
Withholding taxes 4,084 4,063 3,432
$6,550 $ 3,833 $4,376
Deferred state and foreign taxes are not material.
The provision for income taxes differs
from the amounts computed by using the
statutory U.S. Federal income tax rate.
The reasons for the differences are Year ended December 31
as follows: 1995 1994 1993
Computed expected income tax benefit $ (671) $(1,809) $(2,575)
Increase (reduction) resulting
from:
Foreign taxes, without current
benefit 6,293 5,176 3,876
U.S. losses without tax benefit 671 1,809 2,575
Receipt of research and
experimentation tax credit
refund not previously recorded -- (1,754) --
State taxes, net of federal
benefit 257 411 500
$6,550 $ 3,833 $ 4,376
(5) Income Taxes - continued
The tax effects of temporary differences
that give rise to the deferred tax assets December 31
and deferred tax liabilities are as follows: 1995 1994
Deferred tax assets:
Revenue recognition and accounts
receivable $ 971 $ 730
Property and equipment 802 1,028
Accrued lawsuit settlement 8,260 --
Other liabilities and reserves 5,882 2,926
Tax credit and net operating loss
carryforwards 16,023 24,412
Other 1,375 792
Total deferred tax assets 33,313 29,888
Valuation allowance (31,995) (19,537)
Net deferred tax assets 1,318 10,351
Deferred tax liabilities:
Computer software construction costs
and capitalized research expenses,
net of amortization (1,318) (10,351)
Total net deferred taxes $ -- $ --
Of the $16,023 in tax credit carryforwards available at December
31, 1995, $11,980 of foreign tax credits expire in the years 1996
through 1999, $2,792 of research and experimentation credits
expire in the years 2006 through 2010, and $1,251 of alternative
minimum taxes never expire.
The net change in the valuation allowance for deferred tax assets
was an increase of $12,458 in 1995 and $4,909 in 1994. Of the
$31,995 in valuation allowance at December 31, 1995, $11,070 is
attributable to the tax benefit of stock option exercises. Such
benefits will be credited to capital in excess of stated value
when realized.
(6) Joint Venture Investments
In 1992 the Company and Control Data Systems, Inc. established a
joint venture company, Metaphase Technology, Inc. (Metaphase), to
develop and market product data management software worldwide.
The Company initially owned a 30% interest in Metaphase and
increased such interest to 50% during 1993. The Company's
investment in the joint venture is accounted for on the equity
basis.
In March 1994, the Company formed a joint venture with Siemens
Nixdorf Informationssysteme AG (SNI). The Company and SNI
contributed certain assets to the venture, SDRC Software and
Services GmbH (SDRC GmbH), along with the rights to certain
software products owned by SNI and made loans to the venture.
Although the Company received a 50.1% interest in the venture, it
did not exercise sufficient control to account for SDRC GmbH as a
consolidated subsidiary.
(6) Joint Venture Investments - continued
In 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 of $175 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. Proforma results of the purchase are not presented
as the amounts are not material when considered in conjunction
with the consolidated financial statements.
Financial data for the years ended December 31, 1995 and 1993 for
Metaphase and for the year ended December 31, 1994 for Metaphase
and SDRC GmbH is presented below:
Year ended and as of December 31
1995 1994 1993
Current assets $ 3,304 $ 5,905 $ 764
Non-current assets 4,766 4,426 2,185
Current liabilities 8,901 8,564 1,075
Non-current liabilities 3,470 6,760 4,670
Net revenue 11,295 14,379 3,412
Loss before income taxes (405) (10,483) (1,756)
Net loss $ (417) $(10,502) $(1,756)
In 1989, the Company and Nissan Motor Co., Ltd.establised a Japanese
joint venture company, ESTECH Corporation ("ESTECH") to provide
engineering services in Japan and the Far East. The impact of the ESTECH
results were not material to the Company's results of operations.
(7) Other Income, Net
Year ended December 31
Other income, net consists of: 1995 1994 1993
Interest income $ 3,480 $2,243 $ 1,642
Loss on sale of UK test and
analysis division (1,878) -- --
Other, primarily foreign
currency losses (471) (122) (1,165)
$ 1,131 $2,121 $ 477
In July 1995, SDRC sold its test and analysis division located in
the United Kingdom to MascoTech Engineering Europe Limited
(MascoTech UK) for net proceeds of $524 and realized a loss on
the sale of $1,878. The loss includes foreign currency losses
and estimated costs pertaining to a lease commitment.
(8) Shareholders' Rights Plan
In 1988 the Board of Directors adopted a Shareholders' Rights
Plan to protect shareholders' interests in the event of an
unsolicited attempt to gain control of the Company. The Rights
become exercisable if a person acquires 20% or more of the
Company's outstanding common stock (Common Stock) or announces a
tender offer which would result in a person or group acquiring
20% or more of the Common Stock (Distribution Date). If, at any
time following the Distribution Date, and the Company has not
redeemed the Rights, the Company becomes the surviving
corporation in a merger or a person becomes the beneficial owner
of 20% or more of the Common Stock (Triggering Date), each holder
of a Right will have the right to purchase shares of Common Stock
having a value equal to two times the Right's exercise price of
$110. If, at any time following the Triggering Date, the Company
is acquired in a merger or other business combination transaction
in which the Company is not the surviving corporation, each
holder of a Right shall have the right to purchase shares of
Common Stock of the acquiring company having a value equal to two
times the exercise price of the Right. The Rights expire on
August 10, 1998, and may be redeemed by the Company for $.0025
per Right.
(9) Common Stock and Employee Benefit Plans
In 1991 the shareholders adopted the 1991 Employee Stock Option
Plan. Under the 1991 plan, the Company has reserved 5,300 shares
of previously unissued common stock. Options to purchase such
shares may be granted to key employees and executive officers at
the fair market value at the date of grant.
In 1991 the shareholders also adopted the Director's
Non-Discretionary Stock Option Plan which converted the Amended
and Restated 1986 Stock Option Plan into a non-discretionary plan
allowing future grants to outside directors at the fair market
value at the date of grant. Under the original 1986 plan, the
Company had reserved 7,000 shares of previously unissued common
stock. The status of all outstanding options previously granted
to employees remained unchanged.
In 1994 the shareholders adopted the 1994 Long-Term Stock
Incentive Plan, allowing stock incentives including stock
options, stock appreciation rights, stock awards, and
combinations thereof, to be granted to employees. The number of
shares with respect to which stock incentives may be granted in
one calendar year shall not exceed 4% of the Company's issued and
outstanding common stock. No stock incentives other than non-
qualified stock options have been granted under the 1994 plan.
Under the plans, employee options expire ten years from the date
of grant and are exercisable as follows: 33% on the first
anniversary of the grant date; an additional 34% on the second
anniversary; and all or any remaining options on the third
anniversary until expiration. Director options expire five years
from the date of grant and are exercisable 50% upon expiration of
six months from the grant date and all or any remaining options
on the first anniversary of the grant date until expiration. As
of December 31, 1995 there were approximately 3,200 shares on
which options were exercisable.
Transactions with respect to the Company's stock options
for the years ended December 31, 1993, 1994 and 1995
are as follows:
Option Price
Shares Per Share
Shares under option December 31, 1992 6,386 $ 1.25-28.75
Granted 1,627 $13.06-20.18
Exercised 439 $ 1.25-16.25
Cancelled 164 $ 9.88-28.75
Shares under option December 31, 1993 7,410 $ 1.38-28.75
Granted 1,357 $ 4.31-15.94
Exercised 154 $ 1.38-15.94
Cancelled 1,368 $ 1.81-28.75
Shares under option December 31, 1994 7,245 $ 1.38-28.75
Granted 1,022 $ 5.63-23.38
Exercised 1,510 $ 1.38-24.44
Cancelled 1,917 $ 4.50-28.75
Shares under option December 31, 1995 4,840 $ 1.38-28.75
(9) Common Stock and Employee Benefit Plans - continued
In 1990 the Company's Board of Directors established a Stock
Purchase Plan. Under the plan all domestic full-time employees
who are non-executive officers are entitled to purchase the
Company's common stock at 90% of fair market value. Employees
electing to participate must contribute at least one percent with
a maximum of ten percent of the participants' base salary and
commissions each month. All incidental expenses related to the
issuance of these shares including the 10% discount have been
charged to income. The plan has no fixed expiration date, may be
terminated by the Company at any time and has no limitation on
the number of shares that may be issued.
The Company provides retirement benefits to substantially all
employees principally through defined contribution retirement
plans. The Company's contributions to these plans are primarily
based on employee compensation and years of service. Expenses
related to these plans totaled $2,982, $2,091 and $943 in 1995, 1994
and 1993, respectively.
(10) Commitments and Contingencies
Except for the following matters, SDRC is not a party to any
litigation other than ordinary routine litigation incidental to
its business. Beginning in September 1994 a total of 12 class
action lawsuits alleging various violations of the federal
securities laws and two derivative lawsuits alleging breaches of
Ohio corporate law were filed against SDRC following SDRC's
public disclosure of certain accounting irregularities. All of
the complaints sought unspecified damages. The class action
cases were consolidated into one case (the "Class Action Case")
filed in the United States District Court, Southern District of
Ohio. Subsequently, the two derivative cases were consolidated
into one case (the "Derivative Case") filed in the United States
District Court, Southern District of Ohio.
The Class Action Case represents a direct claim against SDRC by
certain named plaintiffs acting on behalf of a class of
plaintiffs consisting of certain purchasers of SDRC's common
stock between February 3, 1992 and September 14, 1994. In
December 1995, SDRC and plaintiffs' counsel in the Class Action
Case entered into a Memorandum of Understanding setting forth the
terms of a proposed settlement of this case. Pursuant to the
proposed settlement, SDRC will establish a settlement fund of
$27,600 consisting of $17,600 cash and $10,000 in the form of
shares of SDRC's common stock (to be valued based on market
prices at the time of distribution). The anticipated cost of
the settlement, net of $5,000 of estimated primary insurance
proceeds as to which there was no dispute with the insurer (and
which were in fact received by the Company in April 1996), was
recorded as a 1995 expense. The recorded expense was not
reduced by additional potentially available excess liability
insurance proceeds as to which the insurers are contesting
coverage. The settlement was subject to final approval of
the District Court which had not yet been obtained as of
December 31, 1995 but which was subsequently obtained on
March 22, 1996.
The Derivative Case remains pending. The legal theory of
derivative litigation is that the named plaintiffs, who are
shareholders of the corporation, are pursuing claims on behalf of
the corporation against third parties whose actions have injured
the corporation but against whom the corporation has refused to
take independent action. In such litigation the corporation is
considered a "nominal" defendant. In the Derivative Case, SDRC is
therefore a "nominal" defendant. The "real" defendants consist
of various former officers and employees of SDRC and certain of
its directors. Since the plaintiffs are theoretically acting on
behalf of SDRC, any recovery in this matter would be for the
benefit of SDRC. However, SDRC could nevertheless face exposure
to liability through the legal obligation, which could be
applicable under certain circumstances, to indemnify and hold
harmless certain of the defendants against whom a judgment might
be rendered. Although there could be no assurance as of
December 31, 1995 as to the ultimate outcome of this matter, management
did not then believe it would have a material adverse impact on the
Company's financial condition, results of operations and/or liquidity,
but could not estimate the range of loss that was reasonably
possible. Subsequently, in April 1996, the parties to the Derivative
Case entered into a Memorandum of Understanding pursuant to which
the matter would be settled with the Company's payment to the plaintiffs'
counsel of $900,000 of legal fees and up to $50,000 of out-of-pocket
expenses, subject only to final court approval, thus confirming the
nonmateriality of the loss.
Based on the same facts which gave rise to the Class Action Case
and the Derivative Case, the Securities and Exchange Commission
commenced a formal, private investigation of SDRC in September
1994 which remains pending. SDRC is fully cooperating with this
investigation but cannot predict its outcome.
(10) Commitments and Contingencies - continued
Pursuant to certain contractual obligations, the Company has
agreed to indemnify its directors and officers under certain
circumstances against claims arising from lawsuits. The Company
may be obligated to indemnify certain of its directors and
officers for the costs they may incur as a result of the
lawsuits.
(11) Segment and Geographic Information
In 1995, the Company reevaluated its industry segment reporting
because of an internal reorganization and the sale of the
Company's UK test and analysis division (see Note 7). The
Company determined that it operates in a single industry segment
providing mechanical design automation software and related
services to manufacturers for the design, analysis, testing and
manufacturing of mechanical products. SDRC also supplies product
data management systems providing a comprehensive approach to the
management and control of engineering information.
<PAGE>
<TABLE>
Financial data by industry segment for 1994 and 1993 is as follows:
Depreciation
and
Operating Identifiable Amortization Capital
Revenue Income (loss) Assets Expense Expenditures
Year ended December 31, 1994
<S> <C> <C> <C> <C> <C>
Software products and services $148,450 $(2,255) $ 82,436 $4,991 $4,223
Engineering services 19,097 295 9,030 1,061 391
Corporate -- -- 51,233 1,114 325
Consolidated $167,547 $(1,960) $142,699 $7,166 $4,939
Year ended December 31, 1993
Software products and services $127,473 $(7,532) $ 67,922 $4,545 $4,296
Engineering services 20,132 313 8,455 1,316 1,323
Corporate -- -- 58,172 1,153 487
Consolidated $147,605 $(7,219) $134,549 $7,014 $6,106
Disclosure of industry segment for 1995 is not considered material.
Financial data by geographic area is as follows:
Operating Identifiable
Revenue Income (Loss) Assets
Year ended December 31, 1995
North America $89,866 $10,112 $66,278
Europe 57,430 7,554 38,027
Asia-Pacific 56,788 13,654 13,843
Corporate -- (9,117) 75,374
Consolidated $204,084 $22,203 $193,522
Year ended December 31, 1994
North America $ 71,805 $ 5,615 $ 59,168
Europe 46,027 (477) 26,102
Asia-Pacific 49,715 1,079 6,196
Corporate -- (8,177) 51,233
Consolidated $167,547 $(1,960) $142,699
Year ended December 31, 1993
North America $ 57,760 $ 1,407 $ 41,821
Europe 47,497 (6,977) 30,352
Asia-Pacific 42,348 4,209 4,204
Corporate -- (5,858) 58,172
Consolidated $147,605 $(7,219) $134,549
</TABLE>
(12) Quarterly Results of Operations (Unaudited)
The following table sets forth selected unaudited quarterly financial
information for 1995 and 1994. The Company believes that all
necessary adjustments have been included to present fairly the
selected quarterly information.
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, June 30, September 30, December 31, December 31,
1995 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
Revenue $43,812 46,777 50,694 62,801 $204,084
Gross profit $30,790 31,853 33,325 45,043 $141,011
Income(loss) before
cumulative effect
of accounting
change $ 267 3,055 5,796 (17,585) $(8,467)
Net Income(loss) $ 267 3,055 5,796 (17,585) $(8,467)
Earnings(loss) per
share $ .01 .10 .18 (.58) $ (.31)*
Three months ended Year ended
March 31, June 30, September 30, December 31, December 31,
1994 1994 1994 1994 1994
Revenue $36,795 42,709 42,500 45,543 $167,547
Gross profit $26,399 30,671 28,487 33,205 $118,762
Income(loss) before
cumulative effect
of accounting
change $(4,314) 1,592 8 (6,287) $ (9,001)
Net income(loss) $(8,210) 1,592 8 (6,287) $(12,897)
Earnings(loss) per
share $ (.27) .05 -- (.22) $ (.45)*
* Per share amounts are not additive.
/TABLE
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Subsequent to the filing of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, KPMG Peat
Marwick LLP withdrew its opinion with respect to the Company's
financial statements for the years ended December 31, 1993,
1992, and 1991 and resigned as the Company's auditors under
circumstances which may be deemed to have involved a
disagreement. Such matters are described in the Company's
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on November 2, 1994, as amended by a Form 8-
K/A filed with the Securities and Exchange Commission on
November 15, 1994, each of which is incorporated herein by
reference.
Schedule
VIII Valuation and qualifying accounts
SCHEDULE VIII
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(in thousands)
<CAPTION>
Balance at Charged Deductions/ Balance at
End
Description Beginning (Credited) (Recoveries) of Period
of Period to Income
<S> <C> <C> <C> <C>
Accounts Receivable:
Year ended
December 31, 1993 $1,697 1,790 1,136 $2,351
Year ended
December 31, 1994 $2,351 424 (132) $2,907
Year ended
December 31, 1995 $2,907 (283) 304 $2,320
</TABLE>
All other schedules have been omitted because the
information either has been shown in the Consolidated Financial
Statements or notes thereto, or is not applicable or required
under the instructions.
Financial statements of Metaphase Technology, Inc. and
Estech Corporation in which the Company owns equity interests
of 50% and 30%, respectively, have been omitted because the
registrant's proportionate share of the income or losses from
continuing operations before income taxes, and total assets of
each such company is less than 20% of the respective
consolidated amounts, and the investment in and advances to
each company is less than 20% of consolidated total assets.
PART III.
The information required by Item 10. "Directors and
Executive Officers of the Registrant," Item 11. "Executive
Compensation," Item 12. "Security Ownership of Certain
Beneficial Owners and Management," and Item 13. "Certain
Relationships and Related Transactions" is incorporated by
reference to the Company's definitive Proxy Statement dated
March 26, 1996 which relates to its April 30, 1996 Annual
Meeting of Shareholders.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
a.1. and a.2 Financial Statements and Financial Statement Schedules
See Part II, Item 8 for index to financial statements and
related financial statement schedules, which is hereby incorporated herein
by reference.
a.3. Exhibits:
Exhibit Reference
3(a) Amended Articles of Incorporation of
Registrant, including subsequent updates Note (h)
3(b) Amended Code of Regulations of Registrant Note (a)
4 Shareholder Rights Plan Note (b)
10(a) Structural Dynamics Research Corporation
Tax Deferred Capital Accumulation Plan
dated January 1, 1989 Note (f)
10(b) Executive Employment Agreement between
Registrant and Ronald J. Friedsam dated
February 15, 1993 Note (h)
10(d) Form of Structural Dynamics Research
Corporation Director Class A Common Stock
Option Agreement Note (a)
10(e) Structural Dynamics Research Corporation
1991 Employee Stock Option Plan Note (e)
10(f) Structural Dynamics Research Corporation
Directors' Non-Discretionary Stock Option
Plan Note (e)
10(g) Joint Venture Agreement between Structural
Dynamics Research Corporation and Nissan
Motor Co., Ltd. Note (c)
10(h) Joint Venture Agreement between
Structural Dynamics Research Corporation
and Vickers, Inc., a Trinova Company Note (d)
10(i) Lease agreement (including amendments #1
and #2) between Park 50 Development Company
Limited Partnership and Structural
Dynamics Research Corporation Note(f)
10(j) Joint Venture Formation Agreement between
Structural Dynamics Research Corporation
and Control Data Systems, Inc. Note (g)
Exhibit Reference
10(k) Joint Venture Agreement between
Structural Dynamics Research Corporation
and Siemens Nixdorf Informationssysteme AG Note(i)
11 Statement regarding computation of per Note (j)
share earnings
21 Subsidiaries of the Registrant Note (j)
23 Consent of Independent Accountants
27 Financial Data Schedule Note (j)
NOTE REFERENCE:
(a) Incorporated by reference to the Company's
Registration Statement No. 33-16541, which was
originally filed on August 17, 1987 and became
effective on September 29, 1987.
(b) Incorporated by reference to the Company's report
on Form 8-K filed on August 3, 1988.
(c) Incorporated by reference to the Company's report
on Form 10-Q dated May 12, 1989.
(d) Incorporated by reference to an exhibit filed in
the Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
(e) Incorporated by reference to the Company's
definitive Proxy Statement dated March 11, 1991.
(f) Incorporated by reference to an exhibit filed in
the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
(g) Incorporated by reference to an exhibit filed in
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
(h) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993 as originally filed on March 11, 1994.
(i) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994.
(j) Previously provided in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
b. Reports on Form 8-K
None
c. Exhibits as required by Item 601 of Regulation S-K
None
<PAGE>
Report on Form 10-K/A
for year ended
December 31, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
May 10, 1996 By:/s/ Jeffrey J. Vorholt
Date Jeffrey J. Vorholt, Vice President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ Albert F. Peter May 10, 1996 /s/ John E. McDowell May 10, 1996
Albert F. Peter, (Date) John E. McDowell (Date)
President, Chief Director
Executive Officer
and Director
(Principal Executive
Officer)
/s/ William P. Conlin May 10, 1996 /s/ James W. Nethercott May 10, 1996
William P. Conlin, (Date) James W. Nethercott (Date)
Chairman of the Board Director
/s/ Jeffrey J. Vorholt May 10, 1996 /s/Arthur B. Sims May 10, 1996
Jeffrey J. Vorholt, (Date) Arthur B. Sims (Date)
Vice President, Director
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Gilbert R. Whitaker, Jr. May 10, 1996
Gilbert R. Whitaker, Jr. (Date)
Director
/s/ Bannus B. Hudson May 10, 1996
Bannus B. Hudson (Date)
Director
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-20774, 33-22136, 33-40561, 33-41671, 33-58701
and 33-72328) of Structural Dynamics Research Corporation of our
report dated January 30, 1996 appearing in Item 8 of this Form 10-K/A.
Price Waterhouse LLP
Cincinnati, Ohio
May 10, 1996
