-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUpILovZEtyqR32MoRtuPThpPzYlG1bcv4dAa5TodZRwwSTGqd9TlbWyhxTRw5ak efaHYTFaQQzl/9D8EskMPw== 0000906318-96-000012.txt : 19960328 0000906318-96-000012.hdr.sgml : 19960328 ACCESSION NUMBER: 0000906318-96-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRUCTURAL DYNAMICS RESEARCH CORP /OH/ CENTRAL INDEX KEY: 0000820235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 310733928 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16230 FILM NUMBER: 96539400 BUSINESS ADDRESS: STREET 1: 2000 EASTMAN DR CITY: MILFORD STATE: OH ZIP: 45150 BUSINESS PHONE: 5135762400 MAIL ADDRESS: STREET 2: 2000 EASTMAN DRIVE CITY: MILFORD STATE: OH ZIP: 45212 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-K __________________ 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 Annual Report to Shareholders for the year ended December 31, 1995. Part I, Part II and Part IV Registrant's definitive Proxy Statement dated March 26, 1996. Part II, Part III and Part IV PART I. Item 1. Business. General Structural Dynamics Research Corporation (the "Company" or "SDRC") is a leading international supplier of mechanical design automation (MDA) software, product data management (PDM) software and related services. The Company's MDA software product, I-DEAS Master Series(TM), is an integrated CAD/CAM/CAE product which allows manufacturers to optimize product performance and reduce 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, configuration, release management and workflow. Background The Company was incorporated under the laws of the State of Ohio in 1967. The Company was founded to provide advanced engineering consulting services and over time developed some of the industry's first mechanical engineering software packages to assist in its consulting efforts. After receiving strong customer interest in these software packages, the Company began marketing its software in the early 1970s. Today, SDRC's combination of software technology and related software services provides a comprehensive solution to address customer needs. During the past five years, the Company has restructured certain aspects of its business. In 1992, the Company and Control Data Systems, Inc. established a joint venture company, Metaphase Technology, Inc., to market product data management software. In 1994, the Company and Siemens Nixdorf Informationssysteme AG (SNI) formed a joint venture, SDRC Software and Services GmbH, to supply mechanical CAE/CAD/CAM software and services in Central Europe. In 1995, the Company purchased the remaining SNI interest of SDRC Software and Services GmbH. Also in 1995, the Company merged its software products marketing and engineering services subsidiaries into a single subsidiary which now provides all the software products and related services. Strategy The Company's strategy is to establish acknowledged technological leadership in marketing a highly functional set of mechanical design automation (MDA) and product data management (PDM) software tools and providing related software services. I-DEAS Master Series(TM) The Company develops and markets a comprehensive MDA software system called I-DEAS (Integrated Design Engineering Analysis Software) Master Series(TM). I-DEAS(TM) is a family of more than 90 tightly-integrated software modules that automate the entire mechanical product development process. I-DEAS is one of the most widely used mechanical design automation software tools in the industry, with more than 150,000 I-DEAS software licenses in use at more than 15,000 customer sites worldwide. I-DEAS allows manufacturers to design, simulate, test, optimize manufacturing and prototype product concepts in a fraction of the time required using standalone or partially integrated software tools. As a result, it helps customers develop higher quality products faster and less expensively than ever before. With I-DEAS, users are able to create and view a "master model", a solid representation of a product that precisely defines its geometry and material characteristics. This master model is easily understood by everyone concerned with the product, including representatives from management, marketing and manufacturing. It can be analyzed to evaluate the mechanical performance and structural integrity of the design concept, as well as provide information that can be used to optimize product performance. Metaphase Series 2 SDRC also markets product data management software, Metaphase Series 2, which helps track and manage data associated with the product throughout the development process. Metaphase Series 2 is a modular PDM system designed to provide the depth and breadth of functionality customers require to meet current and future data management needs. Metaphase Series 2 software helps customers improve the way they create, share, access, define, manufacture and support their products. For product developers, this means fast, reliable access to the latest drawings, specifications and engineering changes they need regardless of location or the application used to create them. And for managers, it means accurate, reliable information about work-in-process as well as documentation of the entire product life cycle. Services The Company provides customers with technical applications software support and maintenance, technical support, training and consulting services. Technical applications software support and maintenance service provides telephone "hotline" support, software maintenance corrections for licensed I-DEAS products and features as well as enhancement versions released during the term of the contract, and documentation updates to support new vendor hardware and other services that enhance and maintain the customer's I-DEAS software investment. The Company provides basic training for each major I-DEAS software package. Advanced training classes are offered for selected I-DEAS applications to support continued growth of customer skills and to increase the productivity of departments utilizing I-DEAS. Building on its extensive knowledge of mechanical design automation technology and engineering applications, the Company also provides engineering consulting services to assist in the optimization of the design of its customers' products and to improve its customers' development process. In addition, advanced training and technology transfer are provided to customers to enable them to integrate and optimize their mechanical design automation investment. Advanced computer simulation methods and in-depth application expertise are utilized for traditional or highly specialized computer technologies including design audits, product design, troubleshooting and engineering process design. Heterogeneous environment/platforms The Company's software is available on the leading engineering workstations. This hardware platform independence allows the Company's customers to operate in a heterogeneous environment, selecting and adding software modules for a broad range of hardware systems based upon their unique requirements. The productivity benefits of leading-edge capabilities, such as unprecedented ease-of-use, team oriented product development, best-in-class design, integrated simulation and integrated applications, have increased the number of potential users who can utilize these tools. The Company believes its products and services are of great value to companies which must accelerate, improve and streamline design processes in response to increased competition while simultaneously designing and manufacturing mechanical products in accordance with specific quality and cost criteria. A broad range of industries are potential users of these tools, with the highest concentration of users at automotive, electronics, aerospace, and industrial equipment manufacturers. Sales channels The Company markets its products and services primarily through its direct sales and support force. The Company employs highly skilled engineers and technically proficient support people capable of serving the sophisticated needs of the customer. The Company has an established relationship with a distributor in Japan, Information Services International - Dentsu Ltd., which accounted for approximately 14%, 11% and 11% of the Company's consolidated revenues in 1995, 1994 and 1993, respectively. In addition, the Company also utilizes distributors, value-added resellers and other marketing representatives for its marketing efforts. Sales channels (continued) In certain markets where the Company does not maintain a direct sales force, it licenses its products through independent representatives. Telemarketing is also used to complement both the direct and marketing indirect channels. Seasonality Historically, the Company has tended to realize a disproportionate amount of its total revenue in each quarter during the last month of the quarter, and to realize a disproportionate amount of its total annual revenue during the fourth quarter of each year. Future quarterly results could be impacted by factors such as order deferrals, a slower growth rate in the market, increased competition or adverse changes in general economic conditions in any of the countries in which the Company does business. Any shortfall in revenue or earnings could have an immediate and significant adverse effect on the trading price of the Company's stock in any given period. The results of operations for the three years ending December 31,1995 are not necessarily indicative of future expectations. Competition The market for the Company's software products is highly competitive and the Company expects competitive pressure to increase in the future. To maintain its position of technological leadership, the Company must continually enhance its existing software products and pursue the development and introduction of new products. There can be no assurance that the Company will be successful in developing or marketing new products. In addition, there can be no assurance that any new products will adequately achieve market acceptance. There can be no assurances that competition will not have a material adverse effect on the Company's results of operations. The Company competes against products in the CAE/CAD/CAM market including the CADAM and CATIA products marketed by IBM, the CADDS product marketed by Computervision Corporation, the UNIGRAPHICS product marketed by EDS, the I/EMS product marketed by Intergraph Corporation and the Pro/ENGINEER product marketed by Parametric Technology Corporation. In the PDM market, the company competes against such products as the Optegra product marketed by Computervision Corporation, the Sherpa product marketed by Sherpa Corporation, and others. The Company's future success will depend in a large part on its ability to further penetrate its installed customer base as well as the installed customer base of its competitors. An important component of the SDRC "total solution" approach to provide MDA and PDM software tools and related engineering consulting services to customers is the Company employees. The Company's success will depend in part on its ability to attract and retain employees who are in great demand. The principal competitive factors in the mechanical design and PDM market for software and related services are product functionality, product breadth and integration, product performance, product quality, hardware platform support, ease of product use, price, customer support, technical reputation and size of installed customer base. Other Information Segment and geographic information is included on page 39 of the Company's Annual report to Shareholders for the year ended December 31, 1995, which is incorporated herein by reference. The Company owns all the standard software products that it licenses with the exception of I-DEAS Documentation System(TM), I-DEAS Drafting(TM), I-DEAS View Markup(TM), I-DEAS GNC(TM), I-DEAS Post Writer(TM), I-DEAS GNC Multi-Axis(TM), I-DEAS Symbols Library(TM), I-DEAS TMG(TM), I-DEAS Electronic Systems Cooling(TM), I-DEAS Wire EDM(TM), I-DEAS Team Conference(TM), DMCS(TM), Desktop PDM(TM), Metaphase, portions of I-DEAS Sound Quality(TM), portions of I-DEAS Mechanism Design(TM), and a variety of data translators which it licenses from third parties. Under these license agreements, the Company pays a percentage royalty to the third parties. Other Information (continued) As is customary throughout the software industry, the Company relies both on copyrights and trade secrecy for proprietary protection of its software products. The duration of such protection is considered to be quite adequate given the constantly changing nature of the business. The Company also utilizes a number of trademarks, both registered and otherwise, with respect to its software products. The proprietary status of its trademarks lasts indefinitely, so long as the trademarks remain in use. The Company typically ships product within 30 days after acceptance of a customer purchase order and execution of a license agreement. A substantial portion of quarterly shipments tend to be made in the last month of the quarter. The Company does not believe that backlog is indicative of potential revenue for any future period. Research and development expense amounted to approximately $20,496,000, $20,715,000, and $17,526,000 in 1995, 1994, and 1993, respectively. As of December 31, 1995, the Company had 1,122 full-time employees, of whom 227 were engaged in research and development, 734 in sales and marketing, and 161 in general management and administration. In addition, the Company employed 9 part-time employees and cooperative students. Item 2. Properties. The following table sets forth certain information, as of December 31, 1995, with respect to principal properties in which the Company and its subsidiaries conduct their operations:
Space Used In Ownership Operations Location Or (Square Lease Feet) Principal Activities Cincinnati, Lease 221,000 Headquarters Office Facilities, Ohio (expires Technical Development Center, 2011) Marketing and Administration Dearborn, Lease 34,000 Technical Development Center Michigan (expires Support and Training Facilities. 1998) San Diego, Lease 25,000 Office Facilities California (expires 1999) Madison Lease 15,000 Office Facilities and Test Center Heights, (expires Michigan 1997) Hitchin, Lease 15,000 European Headquarters Office England (expires Facilities 2017) Paris, Lease 18,000 Southern Europe Office Facilities France (expires 2002) Frankfurt, Lease 19,000 Central Europe Office Facilities Germany (expires 1999) Munich, Lease 11,000 Central Europe Development Germany (expires Facilities 1996) Tokyo, Lease 8,000 Asia-Pacific Office Facilities Japan (expires 1997)
Management of the Company considers the above properties to be adequate and suitable for present purposes. 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. 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 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 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 million consisting of $17 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 is subject to final approval of the United States District Court which has not yet been obtained. 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 can be no assurance as to the ultimate outcome of this matter, SDRC management does not believe it will have a material impact on the financial condition of SDRC. 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 has come to an understanding with the primary insurer with respect to its 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 Securities Litigation and Related Matters (continued) 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. While SDRC intends to vigorously pursue this case, there can be no assurance as to its ultimate outcome. Additional Executive Officers of the Registrant (at March 12, 1996). Item. Name Age Position Albert F. 53 President and Chief Executive Officer Peter* John A. 37 Vice President, Secretary and General Mongelluzzo Counsel Martin Neads 47 Senior Vice President and General Manager, SDRC Operations Martin D. 50 Vice President, Product Development Schussel Bryan Valentine 48 Vice President, Human Resources Jeffrey J. 43 Vice President, Chief Financial Officer Vorholt and Treasurer * Member of Board of Directors Mr. Peter has served as President and Chief Executive Officer since February, 1995. Prior to that time, Mr. Peter had been serving as SDRC's acting Chief Executive Officer since November, 1994. Mr. Peter was a founder of the Company who served in various capacities until his election to the office of Vice President, a position he held until his retirement in December, 1991. Mr. Peter continues to serve on the Company's Board of Directors, a position he has held since July, 1983. Mr. Mongelluzzo has served as Vice President, Secretary and General Counsel since October, 1991. From January 1, 1987 he served as Secretary and Counsel for the Company. In May, 1986 he joined the Company as Assistant Counsel, was elected Assistant Secretary in October, 1986 and Secretary in December, 1986. From February, 1985 until May, 1986 Mr. Mongelluzzo was employed as Staff Attorney for the Ohio Department of Commerce. Mr. Neads has served as Senior Vice President - SDRC Operations since November, 1994. Mr. Neads joined the Company in 1976 as a project engineer in our UK Engineering Services Division. In 1981 he transferred to the Software Products Marketing Division as General Manager, UK Operations and two years later was named General Manager, European Operations, SPMD. In 1987 he was promoted to the position of Vice President and General Manager, European Operations, SPMD. Mr. Schussel has served as Vice President, Product Development since February, 1995 and became a board-elected officer of the Company in April, 1995. Mr. Schussel joined the Company in 1988 and has served in various positions. Mr. Valentine has served as Vice President, Human Resources since October, 1995 and became a board-elected officer of the Company in December, 1995. Prior to accepting his position with the Company, he was employed by AM International, Inc. as Vice President, Human Resources from October, 1986 to June, 1995. Mr. Vorholt has served as Vice President, Chief Financial Officer and Treasurer since February, 1995. Prior to that time, Mr. Vorholt was the Vice President and Controller since December, 1994. Prior to accepting his position with the Company, he was employed by Cincinnati Bell Telephone Company as Senior Vice President - Accounting and Information Systems from 1991 - 1994, and by Cincinnati Bell Information Systems, Inc. as Senior Vice President and Director, 1989 - 1991. Mr. Vorholt is a licensed Certified Public Accountant and Attorney- at-Law. PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company's common stock is listed and traded on the National Association of Securities Dealers, Inc. Automatic Quotation (NASDAQ) National Market System. The high and low bid prices per share for the Company's common stock as reported on the NASDAQ National Market System are contained in the table below. Such quotations reflect inter-dealer prices without retail mark-up, mark-down or commission. The Company paid no dividends in 1994 or 1993 and intends to continue its policy of retaining earnings to finance future growth. There were approximately 1,600 shareholders of record as of December 31, 1995.
Three months ended March 31, June 30, September 30, December 31, 1995 1995 1995 1995 High 9 5/8 15 20 1/4 30 1/2 Low 5 1/8 8 3/8 10 3/8 16 Three months ended March 31, June 30, September 30, December 31, 1994 1994 1994 1994 High 17 1/8 13 7/8 10 6 3/4 Low 12 9 1/8 3 5/8 3 3/4
Item 6. Selected Financial Data. The selected financial data for the five years ended December 31, 1995, which appears on page 19 of the Company's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated by reference in this Form 10-K Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Management's Discussion and Analysis of Financial Condition and Results of Operations, which appears on pages 20 to 23 of the Company's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated by reference in this Form 10-K Annual Report. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements and Report of Independent Accountants appearing on pages 24 to 40 of the Company's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and the information incorporated in Items 6 and 7, the 1995 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K Annual Report. 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. 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. Financial Statements The following Consolidated Financial Statements and related notes of Structural Dynamics Research Corporation and subsidiaries, included in the Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8. of Part II: Report of Independent Accountants. Consolidated Statement of Operations - Years ended December 31, 1995, 1994 and 1993. Consolidated Balance Sheet - December 31, 1995 and 1994. Consolidated Statement of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993. Consolidated Statement of Cash Flows - Years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. a. 2. Financial Statement Schedules The Report of Independent Accountants on the financial statement schedule of Structural Dynamics Research Corporation and subsidiaries appears immediately prior to the Schedule VIII in this Form 10-K. The following financial statement schedule of Structural Dynamics Research Corporation and subsidiaries is included in this Item 14: Schedule VIII Valuation and qualifying accounts 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. 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 share earnings 13 Portions of the Annual Report to Shareholders incorporated herein by reference 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 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. b. Reports on Form 8-K None c. Exhibits as required by Item 601 of Regulation S-K None 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 March 27, 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 March 27, 1996 /s/John E. McDowell March 27, 1996 Albert F. Peter, (Date) John E. McDowell (Date) President, Chief Director Executive Officer and Director (Principal Executive Officer) /s/William P. Conlin March 27, 1996 /s/James W. Nethercott March 27, 1996 William P. Conlin, (Date) James W. Nethercott (Date) Chairman of the Board Director /s/Jeffrey J. Vorholt March 27, 1996 /s/Arthur B. Sims March 27, 1996 Jeffrey J. Vorholt, (Date) Arthur B. Sims (Date) Vice President, Director Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/Robert P. Henderson March 27, 1996 Robert P. Henderson (Date) Director /s/Gilbert R. Whitaker, Jr. March 27, 1996 Gilbert R. Whitaker, Jr. (Date) Director /s/Bannus B. Hudson March 27, 1996 Bannus B. Hudson (Date) Director Report of Independent Accountants To the Board of Directors of Structural Dynamics Research Corporation Our audits of the consolidated financial statements referred to in our report dated January 30, 1996 appearing on page 24 of the 1995 Annual Report to Shareholders of Structural Dynamics Research Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14 (a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Cincinnati, Ohio January 30, 1996 SCHEDULE VIII STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (in thousands)
Balance at Charged Deductions/ Balance at End Description Beginning (Credited) (Recoveries) of Period of Period to Income 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
EX-11 2 EXHIBIT 11 STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (in thousands, except share data)
1995 1994 1993 PRIMARY Average shares outstanding 29,921 28,844 28,491 Net effect of dilutive stock options-- based on the treasury stock method using average market price -- -- 1,385 Total 29,921 28,844 29,876 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) Primary per share amount: Before cumulative effect of accounting change $ (.28) $ (.31) $ (.39) Cumulative effect of accounting change -- (.14) -- Net loss per share $ (.28) $ (.45) $ (.39) FULLY DILUTED Average shares outstanding 29,921 28,844 28,491 Net effect of dilutive stock options -- based on the treasury stock method using the year-end market price, if higher than average market price -- -- 1,600 Total 29,921 28,844 30,091 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) Fully diluted per share amount: Before cumulative effect of accounting change $ (.28) $ (.31) $ (.39) Cumulative effect of accounting change -- (.14) -- Net loss per share $ (.28) $ (.45) $ (.39)
This computation is required by Regulation S-K Item 601 and is filed as an exhibit under Item 14a(3) of Form 10-K. SEC Release No. 33-5133 requires ". . . when per share earnings are disclosed, . . . the information with respect to the computation of per share earnings on both primary and fully diluted bases, presented by exhibit or otherwise, must be furnished even though the amounts of per share earnings on the fully diluted basis are not required to be stated under the provisions of Accounting Principles Board Opinion No. 15." EX-13 3 PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 SUMMARY OF SELECTED FINANCIAL DATA Structural Dynamics Research Corporation
Year ended December 31 (in thousands, except per share data) 1995 1994 1993 1992 1991 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
Management's Discussion and Analysis of Financial Condition and Results of Operations Structural Dynamics Research Corporation (in thousands) 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 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. These expenses 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. In 1994, cost of revenue as a percent of total revenue decreased primarily because staff and related costs increased at a slower rate than revenue. The Company expects that 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 estimated insurance proceeds was recorded as a 1995 expense. In January 1996, $17,600 was transferred to a settlement fund in accordance with the Memorandum of Understanding. 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. Report of Independent Accountants To the Board of Directors and Shareholders of Structural Dynamics Research Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of shareholders' equity 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 CONSOLIDATED STATEMENT OF OPERATIONS Structural Dynamics Research Corporation
Year ended December 31 (in thousands, except per share data) 1995 1994 1993 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 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
See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEET Structural Dynamics Research Corporation
December 31 (in thousands) 1995 1994 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
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Structural Dynamics Research Corporation
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 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
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS Structural Dynamics Research Corporation
Year ended December 31 (in thousands) 1995 1994 1993 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 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) 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. (d) 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. (e) 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. (f) 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. (g) 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. (h) 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. (i) 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. (j) 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. (k) 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. (l) 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. (m) 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. (n) 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. (o) 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.
Year ended December 31 Condensed combined proforma data (unaudited) is as follows: 1994 1993 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)
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 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 estimated insurance proceeds, was recorded as a 1995 expense. The settlement is subject to final approval of the District Court which has not yet been obtained. 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 can be no assurance as to the ultimate outcome of this matter, management does not believe it will have a material impact on the Company's financial position. 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. 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 (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.
Three months ended Year ended March 31, June 30, September 30, December 31, December 31, 1995 1995 1995 1995 1995 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.
EX-21 4 EXHIBIT 21 STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT State or Other Jurisdiction Name of Incorporation SDRC Operations, Inc. Ohio SDRC Systems, Inc. Ohio SDRC U.K. Limited United Kingdom SDRC Italia, Srl. Italy SDRC Korea Limited South Korea SDRC Svenska AB Sweden SDRC Singapore Pte. Ltd. Singapore SDRC Nederland B.V. Netherlands SDRC AG Switzerland SDRC Belgium N.V./S.A. Belgium SDRC France S.A. France SDRC Espaua, S.A. Spain SDRC Japan K.K. Japan SDRC Software and Services, GmbH Germany Note: All of the above corporations are wholly-owned subsidiaries of the Registrant except SDRC U.K. Limited, which is .1% owned by the Registrant and 99.9% owned by SDRC Operations, Inc., SDRC France S.A., which is a majority owned subsidiary of SDRC Operations, Inc., SDRC Japan K.K. which is a wholly-owned subsidiary of SDRC Operations, Inc. and SDRC AG which is a wholly-owned subsidiary of SDRC Software and Services GmbH. EX-23 5 EXHIBIT 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8(Nos. 33-20774, 33-22136, 33-41671, 33-46011 and 33-58701) of Structural Dynamics Research Corporation of our report dated January 30, 1996 appearing on page 24 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page ___ of such Annual Report on Form 10-K. /S/ Price Waterhouse LLP Price Waterhouse LLP Cincinnati, Ohio March 27, 1996 EX-27 6
5 0000820235 STRUCTURAL DYNAMICS RESEARCH CORPORATION 1000 12-MOS DEC-31-1995 DEC-31-1995 59,397 14,305 56,217 (2,320) 0 143,645 48,800 (36,604) 193,522 107,950 0 0 0 213 77,196 193,522 204,084 204,084 63,073 118,808 24,120 0 0 (1,917) (6,550) (8,467) 0 0 0 (8,467) (.28) (.28)
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