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 June 30, 1999
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 July 31, 1999 there were 35,891,823 shares of the
Registrant's Common Stock without par value issued and
outstanding.
<PAGE>
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 Six Months
Ended June 30, Ended June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software licenses $46,950 $38,028 $92,792 $79,429
Software
maintenance and
services 64,103 57,114 126,390 106,825
------- ------ ------- -------
Total revenue 111,053 95,142 219,182 186,254
------- ------ ------- -------
Cost of revenue:
Cost of licenses 8,700 7,784 17,364 15,284
Cost of maintenance
and services 36,273 31,159 69,819 58,146
------- ------ ------- -------
Total cost of
revenue 44,973 38,943 87,183 73,430
------- ------ ------- -------
Gross profit 66,080 56,199 131,999 112,824
Operating expenses:
Selling and
marketing 29,848 30,033 60,698 55,503
Research and
development 16,706 17,162 32,405 33,216
General and
administrative 4,379 4,610 9,306 8,684
------- ------ ------- -------
Total operating
expense 50,933 51,805 102,409 97,403
------- ------ ------- -------
Operating income 15,147 4,394 29,590 15,421
Other income, net 1,974 3,041 3,435 6,687
------- ------ ------- -------
Income before
income taxes 17,121 7,435 33,025 22,108
Income tax
expense 6,335 2,322 12,220 6,667
------- ------ ------- -------
Net income $10,786 $5,113 $20,805 $15,441
------- ------ ------- -------
------- ------ ------- -------
Net income per
share:
Basic $ .30 $ .14 $ .58 $ .43
Diluted .29 .14 .55 .41
Comprehensive
income $10,095 $5,041 $18,224 $15,210
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND
SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $143,056 $100,581
Marketable securities 13,477 11,787
Trade accounts receivable,
net 85,673 92,169
Other accounts receivable 10,556 8,956
Prepaid expenses and other
current assets 10,000 12,102
------- --------
262,762 225,595
Marketable securities 14,299 9,937
Property and equipment,
at cost:
Computer and other
equipment 66,966 63,943
Office furniture and
equipment 18,989 18,929
Leasehold improvements 8,084 7,819
------- --------
94,039 90,691
Less accumulated
depreciation and
amortization 69,552 65,017
------- --------
Net property and
equipment 24,487 25,674
Marketable software costs, net 41,073 36,237
Goodwill and other
intangibles 30,901 32,886
Other assets 9,555 10,425
------- --------
Total assets $383,077 $340,754
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND
SUBSIDIARIES
Consolidated Balance Sheet
(in thousands, except per share data)
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
Liabilities and Shareholders' (unaudited)
Equity
<S> <C> <C>
Current liabilities:
Accounts payable $16,262 $14,840
Accrued expenses 46,303 49,371
Accrued income taxes 8,695 7,242
Deferred revenue 63,854 45,655
------- -------
Total current liabilities 135,114 117,108
Other long-term liabilities 8,171 7,872
Shareholders' equity:
Common stock, stated value
$.0069 per share Authorized
100,000 shares; outstanding
shares- 35,826 and 36,039
net of 2,345 and 1,514 shares
in treasury 249 246
Capital in excess of stated
value 120,290 114,499
Retained earnings 123,612 102,807
Accumulated other
comprehensive income (loss):
Foreign currency
translation adjustment (4,241) (1,843)
Unrealized holding results
of investments (118) 65
------- -------
Accumulated other
Comprehensive loss (4,359) (1,778)
------- -------
Total shareholders' equity 239,792 215,774
------- -------
Total liabilities and
shareholders' equity $383,077 $340,754
------- -------
------- -------
</TABLE>
<PAGE>
<TABLE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION AND
SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating
activities:
Net Income 20,805 15,441
Adjustments to reconcile
net income to net cash
flows from operating
activities:
Amortization of computer
software cost 6,898 8,957
Depreciation 5,952 5,657
Amortization of acquired
intangibles 2,500 403
Other 27 (209)
Changes in assets and
liabilities from operating
activities:
Accounts receivable 4,896 5,735
Prepaid expenses and
other assets 5,057 (4,659)
Accounts payable and
accrued expenses (194) (710)
Deferred revenue 18,199 11,648
Income taxes payable 1,453 (3,603)
Other long-term liabilities 310 (28)
------ ------
Net cash provided by
operating activities 65,903 38,632
Cash flows from investing
activities:
Sales (purchases) of
marketable securities,
net (6,235) (1,083)
Additions to property
and equipment, net (4,792) (6,917)
Additions to marketable
software costs (11,734) (5,794)
------ ------
Net cash used in investing
activities (22,761) (13,794)
Cash flows from financing
activities:
Stock issued under
employee benefit plans 3,481 5,891
Purchase of common stock (1,750) --
Repayment of long term debt -- (894)
------ ------
Net cash provided by
(used in) financing
Activities 1,731 4,997
Effect of exchange rate changes
on cash (2,398) (164)
------ ------
Increase in cash and cash
equivalents 42,475 29,671
Cash and cash equivalents:
Beginning of period 100,581 81,056
------ ------
End of period $143,056 $110,727
------- -------
------- -------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
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. 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, 1998.
(2) Earnings Per Share
Basic earnings per common share and dilutive earnings per share
are computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period,
respectively. Dilutive common equivalent shares are calculated
using the treasury stock method and consist of dilutive stock
option grants.
The reconciliations of amounts used for the basic and diluted
earnings per share calculations are as follows:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income
(numerator) $10,786 $5,113 $20,805 $15,441
------ ----- ------ ------
------ ----- ------ ------
Weighted average
outstanding:
Common shares
(basic
denominator) 35,760 36,171 35,665 36,006
Dilutive employee
stock options 1,889 1,446 1,957 1,493
------ ------ ------ ------
Common stock and
dilutive common
stock equivalents
(diluted
denominator) 37,649 37,617 37,622 37,499
------ ------ ------ ------
------ ------ ------ ------
Earnings per share:
Basic $ .30 $ .14 $ .58 $ .43
Diluted $ .29 $ .14 $ .55 $ .41
</TABLE>
Options to purchase 1,008 and 1,856 shares of common stock for
the three and six month periods ended June 30, 1999 and 1,613
shares of common stock for the three and six month periods ended
June 30, 1998 respectively, were not included in the computation
of dilutive earnings per share because the options' exercise
price was greater than the average market price of common shares.
(3) Subsequent Event
In July 1999, the Company announced a definitive agreement to
acquire all the outstanding stock of privately-held TD
Technologies, Inc. ("TD") of Dallas, Texas for approximately $12
million. The purchase price includes shares of common stock and
stock options issued to assume outstanding TD employee stock
options. TD develops and markets SLATE(tm), System Level
Automation Tool for Engineers. The Company plans to integrate
TD's technologies into Metaphase software while improving its
stand-alone capabilities. The transaction, which will be accounted
for as a purchase, is expected to be completed during the
Company's third quarter, subject to the approval of TD's
shareholders. Upon closure, the Company expects to record a
one-time charge against earnings to write off in-process
research and development, which has no alternative future use and
has not reached technological feasibility. Also, the Company will
record goodwill and other intangible assets which are likely to be
amortized over the next three to seven years. The amounts of the
charge and intangibles are not known at this time. The historic
operating results of TD are not material to the Company's
consolidated operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(in thousands)
Structural Dynamics Research Corporation is a leading supplier of
enterprise product development solutions. Its mechanical design
automation ("MDA") software, product data management ("PDM")
software and related services are employed by manufacturers
worldwide to streamline their entire product development process,
reduce cost and manage product information. The Company markets
MDA software primarily under the brand name I-DEAS(tm) and PDM
software under the brand name Metaphase(tm).
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".
Revenue
The Company's consolidated net revenue increased 17% to $111,053
for the quarter ended June 30, 1999 compared to $95,142 for the
quarter ended June 30, 1998. Revenue growth was led by sales of
software licenses. License revenue grew 23% compared to the same
quarter in 1998. I-DEAS and Metaphase license sales were $38,266
and $8,684 for the quarter, growing 24% and 22%, respectively,
compared to the corresponding 1998 quarter. License growth was
propelled by large automotive industry sales, as well as the
continued leadership of the Metaphase product in the PDM market.
I-DEAS and Metaphase services and maintenance revenue growth was
strong in all major geographic regions, growing 12% during the
quarter ended June 30, 1999 compared to the same period in 1998.
Revenues continued to grow due to a larger customer base and
overall increases in I-DEAS and Metaphase implementation projects
resulting from license sales. Total revenues from Metaphase
products grew 16% during the quarter and accounted for 22% of
consolidated net revenues for the quarters ended June 30, 1999 and
1998. Consolidated net revenue for the quarters ended June 30,
1999 and 1998 was comprised of 45% and 46% from North America, 38%
and 36% from Europe and 17% and 18% from Asia-Pacific,
respectively.
For the six months ended June 30, 1999, consolidated net revenue
was $219,182 and grew 18% compared to the same period in 1998.
License revenue grew 17% over the corresponding 1998 period.
Strong I-DEAS license sales in Europe and Metaphase license sales
in North America offset declines in Asia-Pacific. I-DEAS license
revenues grew 11% to $73,817 while Metaphase license revenues grew
46% to $18,975 for the six months ended June 30, 1999. Total
maintenance and service revenue grew 18% compared to the six month
period ended June 30, 1998. For the six month periods ended June
30, 1999 and 1998, revenue in North America accounted for 45% and
45%, Europe 37% and 34%, and Asia-Pacific 18% and 21%,
respectively, of consolidated net revenues. The 1999 Asia-Pacific
revenue decline resulted from a significant 1998 I-DEAS license
order from a major Japanese distributor. The Company expects the
international market to continue to account for a significant
portion of total future revenue.
Expenses
Cost of revenue consists principally of the staff and related
costs associated with fee based services and support for software
maintenance contracts; amortization of goodwill, other acquired
intangibles and capitalized software construction costs; royalty
fees paid to third parties under licensing agreements and the cost
of distributing software products. Cost of revenue increased 15%
and 19% for the three and six month periods ended June 30, 1999,
respectively compared to the corresponding 1998 periods. Cost of
revenue represented 40% of revenue for the three and six month
periods ended June 30, 1999, compared to 41% and 39% for the
corresponding periods in 1998.
The cost of licenses, as a percentage of license revenue was
stable at 19% for the three and six month periods ended June 30,
1999, compared to 20% and 19% for the same periods of 1998. The
cost of services and maintenance for the three and six month
periods ended June 30, 1999 were 57% and 55% of the related
revenue, compared to 55% and 54% for the corresponding 1998
periods. The increases were due to higher cost of services labor
and contractors.
Selling and marketing expenses consist of the costs associated
with the worldwide sales and marketing staff, advertising and
product localization. Selling and marketing expenses represented
27% of revenue for the three month period ended March 31, 1999,
compared to 32% for the corresponding 1998 quarter. The expenses
decreased 1% to $29,848 for the three months ended June 30, 1999
compared to $30,033 for the corresponding 1998 quarter. The 1998
expense levels were higher due to significant expenditures for
the I-DEAS branding program and higher bad debt expenses. For the
six months ended June 30, 1999, selling and marketing expenses
increased 9% compared to the corresponding 1998 period. The
increase is primarily due to an increase in related headcount. As
a percentage of revenue, selling and marketing expenses declined
to 28% from 30% for the six month period ended, June 30, 1999 and
1998 respectively. The percentage decline was primarily a result
of the 18% increase in revenue growth.
Research and development expenses consist primarily of salaries,
benefits, computer equipment and facilities cost associated with
the product development staff. It excludes costs which are
capitalized in accordance with Statement of Financial Accounting
Standards No. 86. Research and development expenses decreased 3%
and 2% for the three and six month periods ended June 30, 1999,
compared to the three and six month periods ended June 30, 1998.
The decrease reflects higher capitalized cost during 1999
compared to 1998. For the six months ended June 30, 1999, the
Company capitalized $11,734 of software development cost, while in
the corresponding 1998 period, only $5,669 of cost were
capitalized. Higher capitalization occurred in 1999 due to the
timing of coding work related to I-DEAS Master Series 7, which was
released in June 1999, and Master Series 8. Total software
development cost, including research expenses and capitalized
amounts, increased 15% and 14% for the three and six month periods
ended June 30, 1999 compared to the corresponding 1998 periods.
The increase is primarily due to an increase in the number of
product development personnel and more contracted developers. The
amount of capitalized software development cost and accordingly,
research and development expense, may vary among periods depending
on the stage of development being performed on future product
releases.
General and administrative expenses consist of costs associated
with the executive finance, legal, human resource and corporate
administrative staffs. General and administrative expenses
represented 4% of revenue for the three and six month periods
ended June 30, 1999, compared to 5% for the three and six month
periods ended June 30, 1998. These expenses decreased 5% for the
quarter ended June 30, 1999, compared to the corresponding 1998
quarter due primarily to lower third party legal fees.
Other Income
For the three and six month periods ended June 30, 1999, other
income was $1,974 and $3,435, respectively, and primarily
reflects interest income from cash equivalents and marketable
securities. For the three and six month periods ended June 30,
1998, other income was $3,041 and $6,687, respectively. In
addition to investment interest income, other income in 1998
included $2,590 received from insurance settlements and $670 of
interest income received on a federal income tax refund.
Taxes
In recent years, a substantial portion of the net deferred tax
assets was offset by a valuation allowance because of doubt
regarding the ultimate realization of the assets. This caused the
effective tax rate to differ from the expected statutory rate.
The factors, which necessitated the establishment of a complete
valuation allowance are not expected to be entirely present in the
future. As a result, the Company began a process in 1998 to reduce
the valuation allowance over approximately a three year time frame
based on current facts and forecasted circumstances.
The effective tax rate for the six month period ended June 30,
1999 was 37% compared to 30% for the corresponding 1998 period.
The increase is primarily due to a non-recurring, one-time tax
benefit relating to a refund received in 1998 from the Internal
Revenue Service in settlement of its audit of years prior to 1994.
Comprehensive Income
The differences between net income and comprehensive income were
primarily due to unrealized gains and losses from the translation
of foreign subsidiaries' balance sheets into U.S. dollars. Larger
net foreign currency translation losses occurred in 1999 compared
to 1998 because the U.S. dollar strengthened against the foreign
currencies of the subsidiaries.
Acquisition
In July 1999, the Company announced a definitive agreement to
acquire all the outstanding stock of privately-held TD
Technologies, Inc. ("TD") of Dallas, Texas for approximately $12
million. The purchase price includes shares of common stock and
stock options issued to assume outstanding TD employee stock
options. TD develops and markets SLATE(tm), System Level
Automation Tool for Engineers. The Company plans to integrate
TD's technologies into I-DEAS and Metaphase software while
improving its stand-alone capabilities. The transaction, which
will be accounted for as a purchase, is expected to be completed
during the Company's third quarter, subject to the approval of
TD's shareholders. Upon closure, the Company expects to record a
one-time charge against earnings to write off in-process research
and development, which has no alternative future use and has not
reached technological feasibility. Also, the Company will record
goodwill and other intangible assets which are likely to be
amortized over the next three to seven years. The amounts of the
charge and intangibles are not known at this time. The historic
operating results of TD are not material to the Company's
consolidated operations.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company generated
$65,903 of cash from operating activities, including large
customer prepayments for maintenance services. The Company
purchased one hundred thousand shares of its own stock for $1,750
under a stock repurchase program. At June 30, 1999, the Company
had cash and investments of $170,832 as compared to $122,305 at
December 31, 1998. The Company's net working capital was $127,648
at June 30, 1999. The Company does not have any long term debt or
current commitments for material capital expenditures. The Company
may use portions of its cash and investments to purchase
additional shares of its own stock or to acquire technology
complementary to its product offerings. The 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
Market Growth
The Company derives most of its revenues from selling software
products and services to the high-end users of the product design
markets. Market growth, and the Company's ability to match
resource levels with market growth rates, will directly impact its
future operating results. The Company invests resources in product
development, selling, marketing and customer service opportunities
with the expectation of revenue growth and incremental earnings.
The Company's operating expense levels are planned, in part, on
forecasted revenue growth, and expense levels are generally
committed in advance. Since expenses are relatively fixed in the
near term, future operating results will be impacted by the
Company's ability to convert invested outlays into expected
revenue growth at profitable margins.
If market growth rates for MDA or PDM are less than forecasted,
the Company's license revenue growths, as well as maintenance and
services revenue growth, are likely to be less than expected.
High-end MDA market growth could slow due to preferences among new
users for lower priced, mid-range products or a strong capacity
within the installed base of seats already sold. Also, the entire
product development software industry may experience pricing
pressure which could adversely affect the Company's revenue
amounts.
Product Development
The product development software industry is highly competitive.
Software products compete based on software functionality,
integration, scalability, customer support, delivery timing, price
and other factors. Some competitors have focused their efforts to
develop software native to the Microsoft Windows platform. While
the Company's software products are available for a variety of
vendor platforms, including Windows, they currently do not provide
user interfaces or linking functionality native to Windows
applications. Customer preferences for the Company's products,
including platform choices, cannot be assured. The Company's
success is dependent on its ability to continue to develop,
enhance and market new products to meet its customers'
sophisticated needs within competitive pricing structures and in
a timely manner. The Company has committed to providing certain
enhancements and integrations to customers within aggressive time
frames. Failure to meet these time frames could result in delayed
or lost revenue opportunities. The Company relies on highly
skilled technical and other key employees who are competitively
recruited within the software industry. Additionally, the Company
relies, to a lesser degree, on third parties for development.
Failure to attract and retain key personnel and maintain important
third party relationships could have an adverse impact on future
operating results.
Technology Acquisitions
In recent months, the Company has purchased software technology
and software licensing rights from third parties and acquired
Imageware Corporation with the objective of extending its I-DEAS
and Metaphase product offerings. Such investments have resulted in
increased expenses to amortize the cost of goodwill and other
acquired intangible assets. The Company's recent intention to
purchase TD is likely to add to amortization expenses in future
periods. As a result, these acquisitions will have a dilutive
effect on the Company's 1999 earnings. The effect on future
years' earnings will depend, in part, on the Company's ability to
integrate the purchased technology, advance the technology for the
Company's customers and market the new technology profitably.
Product Distribution
Besides its own sales force, the Company relies on distributors,
representatives and value-added resellers to sell a significant
portion of its products. The loss of a major customer or a
reduction in orders from a major customer, distributor,
representative or value-added reseller could have a significant
impact on 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
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. The Company usually ships software licenses
within one to two weeks after receipt of a customer order.
Typically, orders exist at the end of a quarter, which have not
been shipped; however, the value of such orders is not indicative
of revenue results for any future period.
Year 2000
The Year 2000 causes uncertainties about whether computer systems
and other equipment with date sensitive hardware or software will
appropriately recognize and process dates beyond 1999. The
failure of software programs, computer hardware and equipment in
this regard could result in business interruptions and adversely
affect the Company's operating results. The Company has taken
measures to address its exposure to these potential date-related
failures. The Company's major exposures to date-related failures
include product liability for the software tools which it markets.
The Company's primary software offerings, (I-DEAS Master Series
and Metaphase Enterprise), store dates in a full, four-digit
format. The Company has conducted extensive testing of these
software offerings, including integrated third party
functionality, for Year 2000 compliance ("compliance"). Based on
testing to date, I-DEAS Master Series 5, Metaphase Enterprise 2.3
and their respective subsequent releases, properly recognize and
process dates beyond 1999 when the underlying operating system of
the host machine provides full date information to the software.
The Company has tested, and will continue to test, its code for
new products and enhancements to ensure compliance in future
software releases. Potential causes of failure will continue to be
rectified in a timely manner. Compliance of product versions prior
to I-DEAS Master Series 5 and Metaphase Enterprise 2.3 is not
completely known; however, if there are issues of non-compliance,
current customers of such products can upgrade to achieve Year
2000 compliance. While the software products were developed to be
compliant, customizations and modifications to the products are
the responsibilities of the customer and may not necessarily be
compliant. To date, the Company is not aware of any customer
customizations or modifications which result in significant
date-related failures of otherwise compliant software.
The Company relies on third parties for telecommunications,
electricity, banking, shipping and other essential business
operations. Additionally, its information systems depend on
computer hardware, software, and other equipment also supplied by
third parties. To reduce the risk caused by third party reliance,
and mitigate the consequences of the Year 2000, the Company has
adopted a Year 2000 conversion approach with five basic phases:
Awareness, Assessment, Renovation, Validation, and
Implementation. The approach is being applied throughout the
Company and is in differing phases among areas of exposure. So
far, no significant deficiencies have been identified. The
Company's enterprise management information system, SAP R/3, is
Year 2000 compliant based on representations from its supplier,
SAP AG. Approximately 100% of the enterprise-wide networks and
critical computer systems have been assessed and have been
validated as compliant or renovated to compliance.
All of the Company's North American facilities have been assessed
and are expected to be compliant as to power, communication and
other necessary utilities. Of the European and Asian facilities
that have been assessed, all have been validated as compliant.
Approximately 15% of the Company's employees are in European and
Asian facilities that have not been assessed for compliance. The
Company continues to assess sites in Europe and Asia-Pacific to
identify areas that may need renovation. The Company is
formulating contingency plans for the potential disruption of
critical functions.
The total cost of any modifications necessary to achieve
compliance is not expected to be material to operating results.
The Company's policy, in accordance with generally accepted
accounting procedures, is to expense as incurred the cost of
maintenance and modification to existing systems, and to
capitalize the cost of any new software or hardware and amortize
that cost over the estimated useful lives of the assets. While
the Company has taken measures to reduce the risk of date-related
failures, it cannot eliminate the potential for business
interruption or product failure due to third party non-compliance.
Additionally, Year 2000 interruptions in the Company's customer
base could reduce or delay sales.
Stock Market Volatility
The trading price of the Company's stock, like other software and
technology stocks, is subject to significant volatility. 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's stock. In addition,
the Company's stock price may be affected by broader market
factors that may be unrelated to the Company's performance.
Item 3. Quantitative and Qualitative Disclosures about Market
Rights.
There have not been any significant changes to the Company's
financial market risk exposure since filing of the Company's 1998
Annual Report on Form 10-K.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the May 6, 1999 Annual Meeting of Shareholders, the
Company's shareholders voted to:
- - Elect the following Class II directors to
serve until the 2001 Annual Meeting as follows:
William J. Weyand - 31,897,523 shares in favor; 277,205 shares
withheld or against.
James W. Nethercott - 31,897,434 shares in favor; 277,294
shares withheld or against.
John E. McDowell - 31,395,745 shares in favor; 778,983 shares
withheld or against.
Gilbert R. Whitaker, Jr. - 31,910,941 shares in favor; 263,787
shares withheld or shares against.
There were no broker votes.
- Ratify the appointment of PricewaterhouseCoopers LLP
as the independent auditors of the Company for 1999.
Shares totaling 32,108,437 voted in favor, 43,690 voted
against and 22,601 abstained with no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27 Financial data schedule for the period ended
June 30, 1999, filed herewith.
b) No report on Form 8-K was filed during the second
quarter of 1999.
<PAGE>
<PAGE>
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: August 13, 1999 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.
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