SDRC 3Q net to fall short; Far East blip

Electronic News, Sept 19, 1994

MILFORD, OHIO - Structural Dynamics Research Corp. (SDRC) said third-quarter earnings and revenue will come in below analysts, expectations. SDRC said it expects to report a net loss in the range of 15 cents to 25 cents per share versus analysts, consensus of a gain of of 11 cents.

The maker of mechanical design automation software will also restate financial results for 1992 and 1993, and the first two quarters of 1994, based on a review of its Far East Headquarters Operations. The restated 1992 financial statements are expected to result in a decrease in previously reported earnings, and the restated 1993 financial statements are expected to result in a slight loss versus previously reported earnings of 48 cents per share.

"The review was initiated because of a significant shortfall in expected cash collections which was resulting in unusually high third-quarter accounts receivable write-offs in the Far East," said CEO Ronald J. Friedsam. "... SDRC identified that certain shipments intended for sale to or through third-party distribution channels ... did not represent valid sales. Preliminary indications re that there will be a pretax earnings impact of about $30 million over a 2-1/2-year period related to these transactions. As a result, the company will restate financial results for 1992 and 1993 and the first two quarters of 1994."

Mr. Friedsam continued. "Beginning Jan. 1, 1991, SDRC will recognize revenues with respect to its Far East Operations when third-party distribution channels sell the product to end-users. Previously, SDRC recorded revenue when products were shipped to the third-party distribution channel.

"Other factors will also impact our results for the third quarter," said Mr. Friedsam. "In Europe, the seasonally slow summer was an issue and the German economy continued to be sluggish, causing revenue to be lower than expected. Also, revenue from our IBM relationship, once a substantial component of our business in Japan and Europe, is now minimal. Our software marketing agreement with IBM has not yet produced the revenue that was anticipated, and SDRC was unable to replace the shortfall from the IBM channel. Business in our North American Operations is strong this quarter, but it will not offset the shortfall elsewhere."

The company terminated the employment of the VP and general manager of Far East Operations, based at its U.S. headquarters in Ohio. It also said it continues to control expenses and while we are obviously disappointed, these problems do not impact the financial viability of the company, which has a strong, debt-free balance sheet and a high level of liquidity."