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 March 31, 1997
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 April 30, 1997 there were 33,040,914 shares of the
Registrant's Common Stock without par value issued and
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
(in thousands, except per share data)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Revenue:
Software licenses $ 41,158 $33,708
Software maintenance and services 39,706 31,341
Total revenue 80,864 65,049
Cost of revenue:
Cost of licenses 6,908 6,636
Cost of maintenance and services 23,131 12,501
Total cost of revenue 30,039 19,137
Gross profit 50,825 45,912
Operating expenses:
Selling and marketing 24,156 26,402
Research and development 11,538 7,855
General and administrative 4,187 4,346
Purchased in-process research 20,850 ---
and development
Total operating expenses 60,731 38,603
Operating income (loss) (9,906) 7,309
Equity in earnings of affiliates --- 995
Other income (loss), net 528 (159)
Income (loss) before income taxes (9,378) 8,145
Income tax expense 3,022 1,789
Net income (loss) $(12,400) $ 6,356
Earnings (loss) per share:
Primary: $ (.37) $ .18
Fully diluted (.37) .18
Common and common equivalent shares:
Primary 33,361 34,646
Fully diluted 33,361 34,893
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
<CAPTION>
March 31, December 31,
1997 1996
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 47,107 $ 71,278
Marketable securities 23,269 18,502
Trade accounts receivable, net 71,787 61,743
Other accounts receivable 12,845 7,464
Prepaid expenses and other current 9,574 7,918
assets
Total current assets 164,582 166,905
Marketable securities 6,502 10,509
Property and equipment, at cost:
Computer and other equipment 53,049 49,376
Office furniture and equipment 14,955 14,535
Leasehold improvements 5,798 5,695
73,802 69,606
Less accumulated depreciation and 51,627 48,661
amortization
Net property and equipment 22,175 20,945
Computer software construction 34,798 28,614
costs, net
Other assets 10,458 11,106
Total assets $238,515 $238,079
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands, except per share data)
<CAPTION>
March 31, December 31,
1997 1996
Liabilities and Shareholders' Equity (unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 12,663 $ 9,695
Accrued expenses 35,096 36,045
Accrued litigation settlement and 10,104 10,104
related costs
Accrued income taxes 9,091 8,082
Deferred revenue 42,575 36,460
Total current liabilities 109,529 100,386
Other long-term liabilities 8,111 8,394
Shareholders' equity:
Common stock, stated value $.0069
per share
Authorized 100,000 shares;
outstanding shares-
33,002 and 32,760 net of 1,553
and 1,542 shares in treasury 229 228
Capital in excess of stated value 92,877 87,292
Retained earnings 29,110 41,510
Foreign currency translation (1,237) 298
adjustment
Unrealized holding loss on (104) (29)
investments
Total shareholders' equity 120,875 129,299
Total liabilities and $238,515 $238,079
shareholders' equity
</TABLE>
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Net cash provided by operating $ 11,354 $ 1,753
activities
Cash flows from investing activities:
(Purchases) sales of marketable (835) 1,714
securities, net
Additions to property and equipment, (3,326) (3,624)
net
Additions to computer software (3,865) (1,255)
construction costs
Acquisition of Metaphase (28,050) ---
Technology, Inc.
Net cash (used in) investing (36,076) (3,165)
activities
Cash flows from financing activities:
Stock issued under employee benefit 2,894 9,295
plans
Purchases of treasury stock (808) (1,713)
Repayment of long term debt --- (132)
Net cash provided by financing 2,086 7,450
activities
Effect of exchange rate changes on cash (1,535) 12
(Decrease) increase in cash and cash (24,171) 6,050
equivalents
Cash and cash equivalents:
Beginning of period 71,278 61,848
End of period $ 47,107 $67,898
</TABLE>
See accompanying notes to consolidated financial statements.
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands except per share data)
(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) Acquisition of Metaphase Technology, Inc.
In 1992 the Company and Control Data Systems, Inc. (CDSI)
established a joint venture company, Metaphase Technology, Inc.,
(Metaphase), to develop and market product data management (PDM)
software worldwide. The Company initially owned a 35% interest
and increased such interest to 50% during 1993. The Company's
investment in Metaphase was accounted for on the equity basis.
In January 1997, the Company acquired the remaining stock of
Metaphase and certain assets of CDSI's global PDM software sales
and support business. The purchase price of approximately
$34,000 included cash and a stock warrant. The warrant is
exercisable for 750 shares of the Company's common stock without
par value at the exercise price of $28 per share and expires on
December 31, 1998. A value of $3,500 has been assigned to the
warrant and recorded in Shareholders' equity. The excess of
purchase price over the fair values of the net assets acquired is
approximately $2,307 and has been recorded as goodwill. Certain
other intangibles, including computer software construction cost,
total approximately $8,555 and have been recorded on the balance
sheet. All intangibles associated with the acquisition are being
amortized over their useful lives, which do not exceed seven
years. Also in connection with the acquisition, the Company
recorded a one-time charge to operations of $20,850 for the write
off of in-process research and development acquired in the
transaction that did not have an alternative future use and had
not reached technological feasibility. The acquisition was
accounted for using the purchase method. The Company's
consolidated statement of operations includes the operating
results of Metaphase and the CDSI assets acquired, beginning
January 1, 1997.
(3) Taxes
The provision for income taxes reflects taxes currently payable.
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. These factors cause the effective tax rate to differ
from the expected statutory rate.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(in thousands)
Structural Dynamics Research Corporation is a leading
international supplier of mechanical design automation (MDA)
software, product data management (PDM) software and related
services. The Company provides software and related services to
manufacturers to optimize product performance and reduce cost,
while streamlining the product development process from concept
through manufacturing.
Certain statements in this Form 10-Q are forward looking
statements that involve risks and uncertainties, including the
timely availability and acceptance of new products, the impact of
competitive products and pricing, the management of growth, and
the other risks detailed from time to time in the Company's
Securities and Exchange Commission reports. The Company's
results could differ from those results described herein.
Forward looking information should be evaluated in the context of
these and other factors some of which are described in more
detail in Factors That May Affect Future Results.
Acquisition of Metaphase Technology, Inc.
In January 1997, the Company acquired the remaining stock of
Metaphase Technology, Inc., (Metaphase), and certain assets of
Control Data Systems, Inc.'s (CDSI) global PDM software sales and
support business. The purchase price of approximately $34,000
includes cash and a stock warrant. The acquisition was accounted
for as a purchase. During the three months ended March 31, 1997
the Company recorded a one-time charge of $20,850 to write off in-
process research and development acquired in the acquisition that
did not have an alternative future use and had not reached
technological feasibility.
Revenue
The Company's consolidated net revenue increased 24% to $80,864
for the three months ended March 31, 1997, as compared to
$65,049 for the three months ended March 31, 1996.
Software license revenue increased 22% to $41,158 for the three
months ended March 31, 1997 as compared to $33,708 for the three
months ended March 31, 1996. Further acceptance of the
I-DEAS Master Series product enhancements and increased demand
for Metaphase Series 2, particularly from the automotive
industry, were the key factors in strong license growth. PDM
license revenue grew 72% on the strength of a large order from a
major automotive customer.
Software maintenance and services revenue increased 27% to
$39,706 for the three months ended March 31, 1997 as compared to
$31,341 for the three months ended March 31, 1996. Software
services revenue continues to grow due to the overall increases
in I-DEAS Master Series and Metaphase Series 2 implementation
projects, generated from strong license sales of these products.
Additionally, software services revenue growth was positively
impacted by revenue generated from a large contract with one of
the Company's major automotive customers.
For the three month periods ended March 31, 1997 and 1996,
revenue in North America accounted for 52% and 47%, Europe 27%
and 18%, and Asia-Pacific 21% and 25%, respectively, of
consolidated revenues. The Company expects the international
market to continue to account for a significant portion of total
revenue.
Expenses
Cost of revenue consists principally of the staff and related
costs associated with the generation and support of software
service revenue, amortization of capitalized software
construction costs, royalty fees paid to third parties under
licensing agreements and the cost of distributing software
products. Cost of revenue increased 57% to $30,039 for the three
months ended March 31, 1997 as compared to $19,137 for the three
months ended March 31, 1996. Cost of revenue represented 37% of
revenue for the three months ended March 31, 1997, as compared to
29% for the comparable 1996 period.
The cost of licenses as a percentage of license revenue declined
to 17% for the three months ended March 31, 1997, compared to 20%
for the same period of 1996. The decline in the cost of
licenses, relative to license sales, occurred because the Company
no longer has royalty payments to Metaphase, due to the Company's
acquisition of that software developer. The cost of services and
maintenance for the three months ended March 31, 1997, as a
percentage of the related revenue, increased to 58%, compared to
40% for the same period of 1996. Relative to the associated
sales, cost of services and maintenance increased due to the
hiring, training and integration cost of expanding the workforce
to meet the growing demand for software implementation and
training services. Additionally, for the three months ended
March 31, 1997, cost of services and maintenance included
expenses to support, at lower margins, service commitments
transferred to the Company as a result of purchasing certain
assets of CDSI in connection with the Metaphase acquisition.
These service operations are being combined with the Company and
the existing commitments will be restructured as they expire.
Selling and marketing expenses consist of the costs associated
with the world-wide sales and marketing staff, advertising and
product localization. These expenses decreased 9% for the three
months ended March 31, 1997 as compared to the three months ended
March 31, 1996. Selling and marketing expenses represented 30%
of revenue for the three months ended March 31, 1997 as compared
to 41% for the comparable 1996 period. While the Company
expanded its sales force and marketing efforts since March 31,
1996, the net decrease in selling and marketing expense resulted
from certain charges which occurred during the three months ended
March 31, 1996 but which did not recur for the same period of
1997. These non recurring charges included significant expenses
for a corporate advertising campaign, bad debt expense and
certain commission programs. Also, cost efficiencies were gained
over the prior year period by integrating Camax Manufacturing
Technologies, Inc.'s sales and marketing resources with the
Company's.
Research and development expenses consist of expenses for the
development of software products which cannot be capitalized in
accordance with Statement of Financial Accounting Standards
No. 86. These expenses increased 47% to $11,538 for the three
months ended March 31, 1997 as compared to $7,855 for the three
months ended March 31, 1996. Research and development expenses
represent 14% and 12% of revenue for the three months ended
March 31, 1997 and 1996, respectively. The increase was due
primarily to the addition of development staff from the
acquisition of Metaphase in January 1997. Research and
development cost excluded capitalized, internal software cost of
$3,326 for the three months ended March 31, 1997, compared to
$1,255 for the same period last year. The increase in
capitalized cost reflected a higher level of development staff
since March 31, 1996 and different timing of new product releases
compared to the prior year. The Company expects to continue to
devote substantial resources to research and development.
General and administrative expenses consist of costs associated
with the corporate, finance, legal, human resource and
administrative staffs. These expenses decreased 4 % to $4,187
for the three months ended March 31, 1997 as compared to $4,346
for the three months ended March 31, 1996. General and
administrative expenses represent 5% of revenue for the three
months ended March 31, 1997 and 7% for the three months
ended March 31, 1996. The decrease in general and administrative
expenses was due to lower legal and accounting fees, which were
associated with the acquisition of Camax Manufacturing
Technologies, Inc. and the settlement of a lawsuit in 1996.
Equity in Losses of Affiliates
For the three month period ended March 31, 1996, equity in
earnings of affiliates represented the Company's share of
operating results of its joint venture investee, Metaphase.
Since the Company's acquisition of Metaphase in January, 1997,
the operating results of Metaphase are consolidated in the
Company's statement of operations.
Other Income
For the three months ended March 31, 1997, other income (loss)
includes interest income of approximately $900 and foreign
exchange losses of approximately $400. For the three month
period ended March 31, 1996, other income (loss) includes a
charge of approximately $950 for the settlement of a lawsuit.
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.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and investments of
$76,878 as compared to $100,289 at December 31, 1996. The
decrease in cash and investments from December 31, 1996 is due
primarily to the use of cash in the acquisition of Metaphase and
certain assets of CDSI. The Company's working capital was $55,053
at March 31, 1997. In addition, the Company has an unused
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.
Factors That May Affect Future Results
Forward looking statements and the Company's results are subject
to certain risks and uncertainties, including those discussed
below, that could cause actual results to differ from those
disclosed. Any risk and uncertainty posed by competitive,
technological or financial factors could have an immediate and
significant adverse effect on the trading price of the Company's
stock in any given period.
Future quarterly results could be impacted by factors such as
customer order delays, 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. The loss of a major customer or a reduction in orders
from a major customer or distributor could have a significant
impact to the results of operations in any particular quarter.
Historically, a significant portion of the Company's revenue is
generated from shipments in the last month of a quarter. In
addition, higher volumes of orders have been experienced in the
second and fourth quarter. The concentration of orders makes
projections of quarterly financial results difficult. If
customers delay their orders or a disruption in the Company's
distribution occurs, quarterly results of operations in any
particular quarter may be negatively impacted. A significant
portion of the Company's revenue is from the international
market. As a result, the Company's financial results could be
impacted by weakened general economic conditions, differing
technological advances or preferences, volatile foreign exchange
rates and government trade restrictions in any country in which
the Company does business. The Company relies on distributors,
representatives and value added resellers to market its products.
The Company's revenue in any particular quarter may be
negatively impacted by a lower than anticipated performance of
any significant distributor, representative or value added
reseller.
The Company's success is dependent on its ability to continue to
develop, enhance and market new products to meet its customers'
sophisticated needs in a timely manner and which are consistent
with current technological developments.
The Company's success also depends in part on its ability to
attract and retain technical and other key employees who are in
great demand, to protect the intellectual property rights of its
products and to continue key relationships with third party
authors. As development cycles become shorter, product quality,
performance, reliability, ease of use, functionality, breadth and
integration may be impacted. Therefore, customer acceptance of
new products cannot be assured. The CAD/CAE/CAM software
industry is highly competitive. The entire industry may
experience pricing and margin pressure which as a result could
adversely affect the Company's operating results and financial
position.
In addition, the Company's expense levels are based, in part, on
its future revenue expectations. The Company continues to
increase its operating expense levels to meet the growing
customer demand for the Company's products and services. If
revenue is below expectations, operating results could be
adversely and materially affected. Net income may be
disproportionately affected by an unexpected reduction in revenue
because the Company's expense levels are generally committed in
advance and a relatively small portion of the Company's expenses
vary with revenue.
Future results could also be impacted by the integration of the
Company and Metaphase. In addition, the Company is in the
process of upgrading its world-wide information management
system. Such a major undertaking could cause significant
disruption as a result of unexpected delays in the implementation
of this project. There can be no assurance that the project will
be completed within the projected time frame and budget.
The trading price of the Company's stock, like other software and
technology stocks, is subject to significant volatility due to
factors impacting the overall market which are unrelated to the
Company's performance. The historical results of operations and
financial position of the Company are not necessarily indicative
of future financial performance. If revenues or earnings fail to
meet securities analysts' expectations, there could be an
immediate and significant adverse impact on the trading price of
the Company stock.
While the Company believes that the disclosures are adequate to
make the information not misleading, these financial statements
should be read in conjunction with the Consolidated Financial
Statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The Company has not experienced a material adverse impact of such
risks or uncertainties and does not anticipate such an impact.
However, no assurance can be given that such risks and
uncertainties will not affect the Company's future results of
operations or its financial position.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits filed as part of this report:
11(a) Calculation of Primary Earnings Per Common Share
11(b) Calculation of Fully Diluted Earnings Per Common Share
(B) No report on Form 8-K was filed during the first quarter of
1997.
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: May 13, 1997 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 Ended March 31,
1997 1996
PRIMARY
Average shares outstanding 33,361 31,982
Net effect of dilutive stock
options after
application of the treasury
stock method --- 2,664
Total $ 33,361 34,646
Net income (loss) $(12,400) 6,356
Net income (loss) per share $ (.37) $ .18
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 Ended March
31,
1997 1996
FULLY DILUTED
Average shares outstanding
33,361 31,982
Net effect of dilutive stock
options after
application of the treasury
stock method --- 2,911
Total $33,361 34,893
Net income (loss) $12,400) $ 6,356
Net income (loss) per share $ (.37) $ .18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 47,107
<SECURITIES> 23,269
<RECEIVABLES> 75,441
<ALLOWANCES> 3,654
<INVENTORY> 0
<CURRENT-ASSETS> 164,582
<PP&E> 73,802
<DEPRECIATION> (51,627)
<TOTAL-ASSETS> 238,515
<CURRENT-LIABILITIES> 109,529
<BONDS> 0
229
0
<COMMON> 0
<OTHER-SE> 120,646
<TOTAL-LIABILITY-AND-EQUITY> 328,515
<SALES> 80,864
<TOTAL-REVENUES> 80,864
<CGS> 30,039
<TOTAL-COSTS> 60,731
<OTHER-EXPENSES> (528)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,378)
<INCOME-TAX> 3,022
<INCOME-CONTINUING> (12,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,400)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
