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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9722
INTERGRAPH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (205) 730-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K 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 January 31, 1994, there were 45,389,118 shares of Intergraph
Corporation Common Stock $0.10 par value outstanding. The aggregate
market value of the voting stock held by non-affiliates of the registrant
was approximately $460,406,000 based on the closing sale price of such
stock as reported by NASDAQ on January 31, 1994, assuming that all shares
beneficially held by executive officers and members of the registrant's
Board of Directors are shares owned by "affiliates," a status which each
of the executive officers and directors individually disclaims.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
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Portions of the Annual Report to Shareholders
for the year ended December 31, 1993 Part II, Part IV
Portions of the Proxy Statement for the May 12,
1994 Annual Shareholders' Meeting Part III
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<PAGE>
PART I
ITEM 1. BUSINESS
Intergraph Corporation was founded in 1969, and is organized as a
Delaware corporation. Unless the context of this discussion dictates
otherwise, references to the "Company" or "Intergraph" include Intergraph
Corporation and subsidiaries.
Intergraph's business is principally in one industry segment:
interactive computer graphics systems. With an emphasis on technical
disciplines, Intergraph systems combine graphics workstations, servers,
and peripheral hardware with operating system and application-specific
software programs authored by Intergraph and third party software
developers to perform such functions as design, drafting, mapping,
modeling, analysis, and documentation. These systems are developed,
manufactured, sold, and serviced by the Company.
Intergraph systems support the creation, analysis, display, output,
and maintenance of virtually every type of design, drawing, map, and
other graphic representation, while simultaneously providing capabilities
to manage a database of non-graphic descriptive information associated
with the graphics data. Systems hardware consists of:
* Workstations and servers based on reduced instruction set computing
(RISC) or Intel Corporation (Intel) microprocessors
* A variety of Intergraph and third-party peripheral devices
* Industry-standard networking
Software includes applications for computer-aided design/computer-
aided manufacturing/computer-aided engineering (CAD/CAM/CAE), mapping and
geographic information systems, electronic publishing, technical
information management, and database management.
INTERGRAPH SYSTEMS
Intergraph systems include hardware and application software
developed by the Company and others. These products can be configured to
address the needs of any size organization. The Company provides
solutions which are integrated -- workstations, servers, peripherals, and
software configured by the Company to work together and satisfy each
customer's requirements.
All Intergraph workstations and servers are currently based on the
Company's microprocessor with a UNIX operating system or Intel
microprocessors with the Windows/DOS or Windows NT operating system.
The Company has historically manufactured workstations and servers
based on its own microprocessor technology, and offered its software
applications on the UNIX operating system, with only limited availability
of its software applications on hardware platforms of other vendors. In
late 1992, the Company announced its decision to port its technical
software applications to Microsoft Corporation's new Windows NT operating
system for high-end computing, and to make Windows NT available on
Intergraph workstations. Microsoft's standard Windows system is widely
accepted in the personal computing (PC) market. The effect of this
decision is to expand the availability of the Company's workstations and
software applications to Windows-based computing environments not
previously addressed, including the availability of Intergraph software
applications that will operate on selected hardware platforms of other
manufacturers that use the Windows NT operating system. At the same
time, the Company continues to develop and maintain products in the UNIX
operating system environment, the foundation for its software
applications before Windows NT, thereby offering existing and potential
customers a choice of UNIX or Windows NT operating systems. In addition,
the Company believes Intel's architecture has an important role in the
technical computing market it serves and now offers a hardware platform
for all its software applications based on Intel microprocessors under
the Windows NT operating system.
1
<PAGE>
Limited shipments of Windows NT-based applications software began in
the fourth quarter of 1993. Most of the Company's software applications
are expected to be available on Windows NT during 1994. The Company
began shipping new Intel-based workstations in third quarter 1993, and
expects that Intel-based systems will represent the majority of its 1994
workstation shipments. In addition, the Company has ceased design of its
own microprocessor and has entered into an agreement with Sun
Microsystems Computer Corporation (Sun) that, among other things,
provides for the Company's purchase from Sun beginning in the second half
of 1995 of a microprocessor to be co-developed by the Company and Sun.
The Company may choose to offer future products based on the Sun
microprocessor. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further discussion of the Sun
agreement.
The Company supports industry standards for operating systems,
windowing, graphics, peripherals, and communication networks, allowing
its systems to operate in computing environments with products from other
vendors who support the same industry standards.
Intergraph offers more than 1,200 interactive graphics application
programs, including more than 700 developed by third parties.
Systems currently sold by the Company are configured using a
combination of the following:
(1) Workstations manufactured by the Company that offer user-
selectable main memory capacity and performance levels. This
flexibility allows customers to match hardware capabilities with
their production requirements. All Intergraph-manufactured
workstations are based on its 32-bit RISC microprocessor or Intel
microprocessors. Intergraph workstations are general-purpose
computer systems that can run third-party application, data
management, and data processing software packages.
(2) RISC-based and Intel-based servers that function as plot,
file, compute, and database nodes. The servers off-load these
functions from standalone workstations and enable workstation users
to share data and system resources in a distributed network.
Intergraph's servers offer user-selectable configurations and
performance levels.
(3) Special-purpose peripherals, including scanners, scanner/plotters,
photoplotters, electrostatic and pen plotters, color and monochrome
hardcopy devices, magnetic and optical disk technology, a variety of
disk and tape drives, alphanumeric terminals, screen image cameras,
line printers, and other devices available from the Company, either
manufactured in-house or as original equipment from third parties.
(4) A broad range of UNIX application software and increasing
numbers of applications based on Windows/DOS and Windows NT. See
"Intergraph Applications Software" below.
(5) MicroStation core graphics software from Bentley Systems,
Inc., an Intergraph affiliate, for various operating systems and
hardware platforms.
(6) An open network architecture that ties Intergraph hardware and
software products together and provides access to other systems
and processes.
PRODUCT TRANSITION
The Company believes that offering a choice of UNIX and Windows NT
operating systems and Intergraph and Intel hardware platforms will expand
the market for its products. However, while the Company believes that
Windows NT will become the dominant operating system in the markets it
serves, other operating systems are available in the market, and several
competitors of the Company also use UNIX or are adopting the Windows NT
system for their product offerings. As in any product transition, the
Company is unable to predict the precise effects of the transition on its
revenues, margins, and profitability for 1994, but believes the
transition may continue to adversely affect orders and revenues through
the first half of 1994. See "Product Development" and "Competition"
below.
2
<PAGE>
INTERGRAPH SYSTEMS SOFTWARE
At the systems software level, Intergraph develops software to
provide graphics and database management capabilities on Intergraph
systems, advanced compilers for Intergraph systems, and utilities to
enable interoperability with systems from other vendors.
The graphics software foundation for many Intergraph UNIX-based
software applications is MicroStation 32, a graphics software product
owned by Bentley Systems, Inc., an Intergraph affiliate. MicroStation 32
provides fundamental graphics element creation, maintenance, and display
functions. In addition to MicroStation 32 for Intergraph workstations,
other versions of MicroStation are available on many hardware platforms
from other vendors, including MicroStation PC for personal computers,
MicroStation Mac for the Apple Macintosh, MicroStation Sun for Sun
SPARCstations and MicroStation HP700 for the Hewlett-Packard HP700
workstation. A Japanese language version of MicroStation (release 4.0)
runs on the NEC personal computer. MicroStation is compatible with
Intergraph's original core graphics software, the Interactive Graphics
Design System, which runs on Digital Equipment Corporation (DEC) VAX-
based systems.
Intergraph supports relational database management systems for
attribute (non-graphic) data management on its own workstations and
servers, as well as on systems from other vendors. Currently supported
are Ingres, Oracle, Informix, DB2, Rdb, and SyBase. Intergraph's
Relational Interface System (RIS) is a core product that provides
database-independent access to data stored in supported databases.
To facilitate the use of Intergraph systems with those from other
vendors, the Company develops software for translating data into
Intergraph formats, inputting large volumes of text into graphics and
attribute files, and communicating with other computer systems.
Additionally, Intergraph provides interfaces to various models of
electrostatic and pen plotters (both online and offline), online
typesetters, units producing computer output microfilm, and other output
devices such as those used in the graphic arts industry.
INTERGRAPH APPLICATIONS SOFTWARE
Intergraph offers a broad suite of graphics and data management
applications software. Architecture/engineering/construction (AEC),
mapping and geographic information systems (GIS), and mechanical design,
engineering, and manufacturing (MDEM) applications have dominated the
product mix over the last three years, with no other single application
representing more than 10% of systems revenue.
The following is a brief description of the Company's major product
application areas. Each product organization is led by a senior
executive responsible for product development, marketing, training,
support, and documentation.
ARCHITECTURE/ENGINEERING/CONSTRUCTION. Intergraph's architectural,
facility management, and engineering product line
automates the project design and management process. With this
software, users can develop and model building concepts, produce
construction documents, and manage space and assets in a finished
facility. The system serves the needs of architecture/engineering
firms and corporate or governmental facility management offices.
Included are capabilities for producing three-dimensional models of
design concepts, architectural drawings, reports, engineering plans,
and construction drawings (for example, heating, ventilation, and air
conditioning; electrical; and plumbing). Packages are also offered
for space planning and facility layout.
Intergraph's civil engineering software includes capabilities for
coordinate geometry and for structural, site, water resources, bridge,
geotechnical and transportation engineering. Structural engineering
software is used to create two- and three-dimensional structural
models that serve as the basis for frame and finite element-based
structural design and analysis of steel and concrete structures. For
construction needs, the products support traditional drafting and
report requirements. The Company's highway, rail, site, and
hydraulic/hydrologic engineering products link traditional workflow
activities from data collection to plan and profile production, to
generation of construction drawings.
3
<PAGE>
The Company's plant design software addresses the needs of
process and power plant design efforts. The Plant Design System (PDS)
product supports piping and instrumentation diagram generation,
electrical, structural, and other design aspects of a plant. Three-
dimensional modeling capabilities are provided. The system performs
interference-checking and provides reports, materials lists, and
drawings. A supporting product provides "walk-throughs" of three-
dimensional plant models. The electrical engineering products are
used for engineering and analysis of power systems, panel layout,
raceway design, and wiring diagram production.
MAPPING AND GEOGRAPHIC INFORMATION SYSTEMS. Intergraph offers a
range of GIS and mapping solutions to assist businesses, governments,
and academic institutions in solving geography-based problems.
Intergraph's GIS/mapping software tools address the entire life cycle
of GIS/mapping projects from project and data management, through data
collection and integration, spatial query and analysis, to output and
map production.
Intergraph's GIS/mapping solutions help companies address
workflows in several major industries. These products support
solutions for all levels of government including infrastructure
management, planning, growth management, economic development, land
information management, public safety and security, public works,
redistricting, tactical and strategic defense applications (such as
land-based command and control operations), and hydrographic systems.
Transportation industry applications range from decision support
activities such as policy, planning, and programming to the creation
of operations systems that support such day-to-day tasks in
transportation agencies. Utility companies utilize Intergraph's
GIS/mapping products to develop cost-effective, efficient ways to
automate management and analysis applications such as market analyses,
environmental impact studies for siting, permitting, contaminant
studies, and risk evaluation, long-range planning and forecasting,
corridor evaluation and selection, and right-of-way analysis.
Environmental and natural resource management applications include
monitoring, evaluating and managing, conservation and remediation of
the environment. Energy exploration and production products assist
geoscientists in every phase of geological analysis related to energy
exploration and production and mineral extraction.
Intergraph also provides solutions for end-to-end digital map and
chart publishing, digital image processing, orthophoto production, and
digital photogrammetry.
MECHANICAL DESIGN, ENGINEERING AND MANUFACTURING. For the
mechanical design and manufacturing market, Intergraph offers software
to automate the product development cycle from design through
analysis, manufacturing, and documentation. Customers use the system
to design mechanical parts and assemblies, defining complex parts with
specialized sculptured surface and solid modeling software.
Detailing, dimensioning, and drafting capabilities are included for
the production of engineering drawings.
Engineering software evaluates product designs for functional and
structural integrity, predicting behavior under service or test
conditions. Finite element modeling and analysis software evaluates
designs by simulating stresses encountered in end use. Other products
assist in optimizing material usage and cutting cycles for
metalworking and fabrication. In addition, a data management system
organizes shared product databases for coordination and management of
product cycle phases.
PRODUCT DEVELOPMENT
The Company believes a strong commitment to ongoing product
development is critical to success in the interactive computer graphics
industry. Significant resources are devoted to development of Intergraph
products, and the Company believes its product offerings are responsive
to market and competitive demands.
Product development expenditures include all costs related to
designing new or improving existing equipment and software. During the
year ended December 31, 1993, the Company spent $160.3 million (15.3% of
revenues) for product development activities compared to $150.2 million
(12.8% of revenues) in 1992, and $134.4 million (11.3% of revenues) in
1991.
4
<PAGE>
The interactive computer graphics industry is characterized by
intense price and performance competition and short product cycles,
which necessitate new product development on an ongoing basis. The
future operating results of the Company, and of others in the industry,
depend in large part on the ability to rapidly and continuously develop
and deliver new hardware and software products that are competitively
priced and offer enhanced performance.
MANUFACTURING AND SOURCES OF SUPPLY
The Company's primary manufacturing activities consist of the
fabrication and testing of Company-designed electronic circuits and the
assembly and testing of components and subassemblies manufactured by the
Company and others.
In January, 1994 the Company announced its decision to close its
manufacturing facility located in Nijmegen, The Netherlands. The
decision was made to take advantage of lower costs of production and
distribution in the U.S., and to utilize existing capacity in the U.S.
manufacturing operation. The facility will be closed in phases over the
course of 1994, with all manufacturing and distribution activity
transferred to the Company's U.S. manufacturing facility. European sales
and support activity will continue to be provided by the Company's
subsidiary operations located throughout Europe and by its European
headquarters located in The Netherlands. The Company plans to sell or
lease the Nijmegen facility.
As described under "Intergraph Systems" above, the Company no longer
designs its own microprocessor. The Company has agreements in place
currently with Intel, and beginning in the second half of 1995, with Sun
for provision of its microprocessor needs. The Company believes it has
good relationships with Intel and Sun and is unaware of any reason that
Intel or Sun might encounter difficulties in meeting the Company's
microprocessor needs. An inability to obtain a sufficient supply of
microprocessors from Intel and Sun would adversely affect the Company's
results of operations. The Company is not dependent on any other sole
source supplier of purchased parts, components, or peripherals used in
the systems manufactured by the Company.
The Company is not required to carry extraordinary amounts of
inventory to meet customer demands or to ensure allotment of parts from
its suppliers.
SALES AND SUPPORT
SALES. The Company's systems are sold by its direct sales force
through sales offices in 52 countries worldwide. The efforts of the
direct sales force are augmented by dealers, value-added-resellers,
distributors, and system integrators. In general, the direct sales force
is compensated on a combined base salary and commission basis. Sales
quotas are established along with certain incentives for exceeding those
quotas. Additional specific incentive programs may be established
periodically.
The Company's sales organization is organized along industry lines
to focus on key industries (transportation, utilities, local government,
defense, building, vehicle design, electronics, manufacturing, etc.).
The Company believes this structure enables it to better meet the
specialized needs of these industries.
International markets, particularly Europe, continue to increase in
importance to the industry and to the Company. The percentage of total
Company revenues from customers outside the United States was 51% for the
last two fiscal years. European customers represented 35% of total
Company revenues in 1993 and 38% in 1992.
There are currently wholly-owned sales and support subsidiaries of
the Company located in every major European country. European
subsidiaries are supported by service and technical assistance operations
located in The Netherlands. Outside of Europe, Intergraph systems are
sold and supported through a combination of subsidiaries and
distributorships. At December 31, 1993, the Company had approximately
1,900 employees in Europe and 900 employees in other international
locations.
5
<PAGE>
The Company's operations are subject to and may be adversely
affected by a variety of risks inherent in doing business
internationally, such as government policies or restrictions, currency
exchange fluctuations, and other factors. See Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes 1
and 9 of Notes to Consolidated Financial Statements contained in the
Company's 1993 Annual Report, portions of which are incorporated herein
by reference, for further discussion of the Company's international
operations.
CUSTOMER SUPPORT. The Company believes that a high level of
customer support is important to the sale of interactive graphics
systems. Customer support includes pre-installation guidance, education
services, customer training, onsite installation, hardware preventive
maintenance, repair service, software help desk and technical support
services in addition to consultative professional services. The Company
employs engineers and technical specialists to provide customer
assistance, maintenance, and training. Maintenance and repair of systems
are covered by standard warranties and by maintenance agreements to which
substantially all users subscribe.
U.S. GOVERNMENT BUSINESS
Revenues from the United States government were $165.7 million in
1993 (16% of total revenue), $186.5 million in 1992 (16% of total
revenue), and $172.3 million in 1991 (14% of total revenue).
Approximately 40% of total federal government revenues are earned under
long-term contracts. The Company believes it has a good relationship
with the federal government. While it is fully anticipated that these
contracts will remain in effect through their expiration, the contracts
are subject to termination at the election of the government (with
damages paid to the Company). Any loss of a significant government
contract through termination or expiration without renewal or replacement
would have an adverse impact on the results of operations of the Company.
No other customer exceeds 10% of the total revenue of the Company.
BACKLOG
An order is entered into backlog only when the Company receives a
firm purchase commitment from a customer. The Company's backlog of
unfilled systems orders at December 31, 1993, was $232 million. At
December 31, 1992, backlog was $275 million. Substantially all of the
December 1993 backlog of orders is expected to be shipped during 1994.
The Company does not consider its business to be seasonal, though
typically fourth quarter orders and revenues exceed those of other
quarters.
The Company does not ordinarily provide return of merchandise or
extended payment terms to its customers.
COMPETITION
The industry in which the Company competes continues to be
characterized by price and performance competition. To compete
successfully, the Company and others in the industry must continuously
develop products with enhanced performance that can be offered at a
competitive price. The Company, along with other companies in the
industry, engages in the practice of price discounting to meet
competitive industry conditions. Other important competitive factors
include quality, reliability, and customer service, support, and
training. Management of the Company believes that competition will
remain intense.
Competition in the interactive computer graphics industry varies
among the different application areas. The Company considers its
principal competitors in the interactive computer graphics market to be
IBM, Computervision Corp., Hewlett-Packard Corp., DEC, Sun, Unigraphics
(a division of Electronic Data Systems, Inc.), Silicon Graphics, Inc.,
and Mentor Graphics, Inc. In the personal computer-based graphics
market, Intergraph competes with the products of Autodesk, Inc. and
Computervision. Several companies with greater financial resources than
the Company, including IBM, DEC, and Hewlett-Packard, are increasing
their activities in the industry.
6
<PAGE>
The Company provides solutions which are integrated -- workstations,
servers, peripherals, and software configured by the Company to work
together and satisfy each customer's requirements. By delivering such
integration, the Company believes it has an advantage over other vendors
who provide only hardware or software, leaving system integration to the
customer. In addition, the Company believes that its experience and
extensive worldwide customer service and support infrastructure represent
a competitive advantage.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws
and regulations designed to protect the environment, particularly from
plant wastes and emissions. In the opinion of the Company, compliance
with these laws and regulations has not had, and should not have, a
material effect on the capital expenditures, earnings, or competitive
position of the Company.
LICENSES, COPYRIGHTS, TRADEMARKS, AND PATENTS
The Company develops its own graphics, data management, and
applications software as part of its continuing product development
activities. The Company has standard license agreements with UNIX
Systems Laboratories for use and distribution of the UNIX operating
system, and with Microsoft Corporation for use and distribution of the
Windows NT operating system. The license agreements are perpetual and
allow the Company to sublicense the operating systems software upon
payment of required sublicensing fees.
In addition, the Company has an exclusive worldwide license
agreement with Bentley Systems, Inc. (a 50%-owned affiliate of the
Company) to market, use, distribute, and sublicense MicroStation
software. See Item 3. Legal Proceedings for further details.
The Company has an extensive program for the licensing of third-
party application and general utility software for use on systems and
workstations.
The Company owns and maintains a number of registered patents and
registered and unregistered copyrights, trademarks, and servicemarks.
The patents and copyrights held by the Company are the principal means by
which the Company preserves and protects the intellectual property rights
embodied in the Company's hardware and software products. Similarly,
trademark rights held by the Company are used to preserve and protect the
goodwill represented by the Company's registered and unregistered
trademarks, such as the federally registered trademark "Intergraph".
As industry standards proliferate, there is a possibility that the
patents of others may become a significant factor in the Company's
business. Personal computer technology, for example, is widely
available, and many companies, including Intergraph, are attempting to
develop patent positions concerning technological improvements related to
PCs and workstations.
At present, it does not appear that Intergraph will be prevented
from using the technology necessary to compete successfully since
patented technology is typically available in the industry under royalty-
bearing licenses or patent cross-licenses, or the technology can be
purchased on the open market. Any increase in royalty payments or
purchase costs would increase the Company's costs of manufacture,
however, and it is possible, though not anticipated, that some key
improvement necessary to compete successfully in some markets served by
the Company may not be available.
The Company is actively engaged in a program to protect by patents
the technology it is developing.
The Company believes its success depends less on its ability to
obtain and defend copyrights, trademarks, and patents than on its ability
to offer higher-performance products for specific solutions at
competitive prices.
7
<PAGE>
EMPLOYEES
At December 31, 1993, the Company had approximately 9,500 employees.
Of these, approximately 2,800 were employed outside the United States.
The Company's employees are not subject to collective bargaining
agreements, and there have been no work stoppages due to labor
difficulties. Management of the Company believes it has a good
relationship with its employees. Total employment is approximately 800
less than at December 31, 1992. The reduction was achieved both through
direct action by the Company and through normal attrition. See
Management's Discussion and Analysis of Financial Condition and Results
of Operations for further details.
ITEM 2. PROPERTIES
The Company's corporate offices and primary manufacturing facility
are located in Huntsville, Alabama. Manufacturing facilities located in
Nijmegen, The Netherlands will be closed in 1994, as explained under
"Manufacturing and Sources of Supply" above. Sales and support
facilities are maintained throughout the world.
The Company owns over 2,000,000 square feet of space in Huntsville
that is utilized for manufacturing, product development, sales and
administration. The Huntsville facilities also include over 500 acres of
unoccupied land that can be used for future expansion. The Company
maintains subsidiary company facilities and sales and support locations
in major U.S. cities outside of Huntsville, primarily through operating
leases.
Outside the U.S., the Company owns approximately 500,000 square feet
of space, primarily its Nijmegen manufacturing facility and European
headquarters facility. Sales and support facilities are leased in most
major international locations.
The Company considers its facilities to be adequate for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a 50% owner of Bentley Systems, Inc. (BSI). BSI
granted Intergraph an exclusive worldwide license to distribute
MicroStation, which is a basic software package utilized by many of
Intergraph's software applications. BSI notified Intergraph on February
3, 1994, that in its opinion certain events have occurred under the terms
of the license agreement which make the license nonexclusive, and as a
result, BSI may compete with Intergraph in the distribution of
MicroStation and in the development and distribution of additional
software products. Intergraph disputes that the license agreement has
changed, and pursuant to the license agreement, Intergraph has submitted
the dispute to arbitration under the rules of the American Arbitration
Association. Related lawsuits were filed in February 1994, among BSI,
Intergraph, and the other 50% shareholders of BSI in the Court of Common
Pleas, Chester County, Pennsylvania, the Circuit Court of Madison County,
Alabama and the United States District Court for the Eastern District of
Pennsylvania. The principal relief sought is a declaration of the rights
of the parties under the license and related agreements. The Company has
entered into negotiations which could result in settlement of this
matter. See the discussion under Results of Operations set forth in
Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in the Company's 1993 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to the executive officers of the
Company is set forth below. Officers serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
Officer
Name Age Position Since
- ---------------------- --- -------------------------------------------------------------- -------
<S> <C> <C> <C>
James W. Meadlock 60 Chairman of the Board and Chief Executive Officer 1969
Larry J. Laster 42 Executive Vice President, Chief Financial Officer,and Director 1986
Nancy B. Meadlock 55 Executive Vice President and Director 1969
Robert E. Thurber 53 Executive Vice President and Director 1972
Lawrence F. Ayers, Jr. 61 Executive Vice President 1987
Neil E. Keith 48 Executive Vice President 1985
Stephen J. Phillips 52 Executive Vice President 1987
Maurice G. Romine 52 Executive Vice President 1983
William E. Salter 52 Executive Vice President 1984
Tommy D. Steele 53 Executive Vice President 1992
Herman E. Thomason 68 Executive Vice President 1991
John M. Thorington, Jr. 50 Executive Vice President 1980
Damian Walters 43 Executive Vice President 1991
Allan B. Wilson 45 Executive Vice President 1982
Manfred Wittler 53 Executive Vice President 1989
</TABLE>
James W. Meadlock is a founder of the Company, has served as
Chairman of the Board of Directors since the Company's inception in 1969,
and is Chief Executive Officer. Mr. Meadlock and Nancy B. Meadlock are
husband and wife.
Larry J. Laster joined the Company in June 1981. Since that time,
he has held several managerial positions in the Company's Finance
Department and Federal Systems Division. He was elected Vice President
in December 1986, named Chief Financial Officer in February 1987, elected
to the Board of Directors in April 1987, and is currently Executive Vice
President. Mr. Laster is a certified public accountant.
Nancy B. Meadlock is a founder of the Company and has been a
Director since 1969, excluding the period from February 1970 to February
1972. Mrs. Meadlock served as Secretary for ten years, was elected Vice
President in 1979, and is currently Executive Vice President and
Director. She holds a master's degree in business administration. Mrs.
Meadlock and James W. Meadlock are wife and husband.
Robert E. Thurber is a founder of the Company and has been a
Director since 1972. He is responsible for the development of
applications software to support AEC, mapping/GIS and utilities
disciplines. In June 1977, Mr. Thurber was elected Vice President and is
currently Executive Vice President. Mr. Thurber holds a master's degree
in engineering.
Lawrence F. Ayers, Jr., joined the Company in September 1987 after
32 years in federal government mapping where he became the Civilian
Director of the Defense Mapping Agency. He served as Vice President for
International Federal Marketing until February 1993 and is currently
Executive Vice President with responsibility for commercial mapping and
utility products. Mr. Ayers holds a bachelors of science degree in civil
engineering and a master's degree in public administration.
Neil E. Keith joined the Company in December 1981. He was elected
Vice President in September 1985 and is currently Executive Vice
President. He has extensive experience in manufacturing management and
is responsible for the Company's manufacturing operations worldwide.
9
<PAGE>
Stephen J. Phillips joined the Company as Vice President and General
Counsel in November 1987 when Intergraph purchased the Advanced Processor
Division of Fairchild Semiconductor, where Mr. Phillips was General
Patent Counsel. He was elected Executive Vice President in August 1992.
Mr. Phillips holds a master's degree in electrical engineering and a
juris doctor in law.
Maurice G. Romine joined the Company in October 1976 in a Federal
Systems support role and has since held key positions in the Company
responsible for sales, marketing, development and support of the
Company's computer graphics systems. He was responsible for organizing
and managing the Company's European operations starting in January 1979.
He was elected Vice President of European Operations in 1983 where he
served until July 1986, when he returned to the U.S. as Vice President of
the Mapping and Energy software product center. He was elected Executive
Vice President in January 1987. Mr. Romine reassumed responsibility for
the European operations in January 1987 until October 1989. In November
1989 Mr. Romine was appointed as Executive Vice President of Corporate
Marketing and later also given responsibility for the MicroStation
software product center. Since October 1992, he has served as Executive
Vice President of Corporate Operations.
William E. Salter joined the Company in April 1973. Since that
time, he has held several managerial positions in the Company's Federal
Systems Division and has served as Manager of Marketing Communications.
Dr. Salter was elected Vice President in August 1984 and is currently
Executive Vice President with responsibility for the Company's Federal
Systems Division. He holds a doctorate in electrical engineering.
Tommy D. Steele joined the Company in June 1992 as Executive Vice
President with responsibility for software systems, mechanical design and
technical information management applications, and professional services.
Mr. Steele came to Intergraph from IBM Corporation, where he was employed
28 1/2 years. At IBM, he worked on Apollo/Skylab/Saturn programs, the
space shuttle, and a number of Department of Defense programs. In his
last four years with IBM, he managed PC Operating Systems (OS/2, DOS, and
AIX) for IBM.
Herman E. Thomason joined the Company in 1985 and was involved in
the development of the Company's federal government business. In 1991,
he was elected Executive Vice President with responsibility for the
Company's scanning and imaging hardware and software, as well as for the
graphic arts and publishing products. He holds a doctorate in electrical
engineering.
John M. Thorington, Jr., joined the Company in August 1977 and was
responsible for the design, development, and manufacture of many of the
Company's hardware products. In May 1980, Dr. Thorington was elected
Vice President, Graphics Engineering, and is currently Executive Vice
President. He holds a doctorate in electrical engineering.
Damian Walters joined the Company in 1984 as the Managing Director
of Intergraph Australia, a subsidiary of the Company. In 1986, he
established the Intergraph office in New Zealand and in 1987 established
the Asia Pacific regional headquarters operation in Hong Kong. In 1991,
Mr. Walters was elected Vice President. In 1994, he was elected
Executive Vice President. Mr. Walters is currently responsible for the
Company's Asia Pacific region.
Allan B. Wilson joined the Company in 1980 and was responsible for
the development of international operations outside of Europe and North
America. He was elected Vice President in May 1982 and Executive Vice
President in November 1982. Mr. Wilson is responsible for corporate
marketing (including marketing communications) as well as office
automation standards and support. He holds a master's degree in
electrical engineering.
Manfred Wittler joined the Company in 1989 as Vice President. In
1991, he was elected Executive Vice President and is currently
responsible for sales and support for Europe and the Americas. From 1983
through 1989, Mr. Wittler served as Division Vice President for Data
General Corporation in Europe.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information appearing under "Dividend Policy" and "Price Range
of Common Stock" on page 27 of the Intergraph Corporation 1993 Annual
Report to Shareholders is incorporated by reference in this Form 10-K
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1993,
appearing under "Five-Year Financial Summary" on the inside front cover
page of the Intergraph Corporation 1993 Annual Report to Shareholders are
incorporated by reference in this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations appearing on pages 8 to 12 of the Intergraph
Corporation 1993 Annual Report to Shareholders is incorporated by
reference in this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements appearing on pages 13 to 26 of
the Intergraph Corporation 1993 Annual Report to Shareholders are
incorporated by reference in this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing under "Election of Directors" and "Board
Committees and Attendance" on pages 4 to 5 of the Intergraph Corporation
Proxy Statement relative to the Annual Meeting of Shareholders to be held
May 12, 1994, is incorporated by reference in this Form 10-K Annual
Report. Directors are elected for terms of one year at the annual
meeting of the Company's shareholders.
Information relating to the executive officers of the Company
appearing under "Executive Officers of the Company" on pages 9 to 10 in
this Form 10-K Annual Report is incorporated herein by reference.
11
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on pages 5
to 12 of the Intergraph Corporation Proxy Statement relative to the
Annual Meeting of Shareholders to be held May 12, 1994, is incorporated
by reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Common Stock Outstanding and
Principal Shareholders" on pages 2 to 3 of the Intergraph Corporation
Proxy Statement relative to the Annual Meeting of Shareholders to be held
May 12, 1994, is incorporated by reference in this Form 10-K Annual
Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Certain Relationships and Related
Transactions" on page 5 of the Intergraph Corporation Proxy Statement
relative to the Annual Meeting of Shareholders to be held May 12, 1994,
is incorporated by reference in this Form 10-K Annual Report.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page in
Annual
Report *
--------
(a) 1) The following consolidated financial statements of Intergraph
Corporation and subsidiaries and the report of independent
auditors thereon are incorporated by reference from the
Intergraph Corporation 1993 Annual Report to Shareholders:
Consolidated Balance Sheets at December 31, 1993 and 1992 13
Consolidated Statements of Income for the three years ended
December 31, 1993 14
Consolidated Statements of Cash Flows for the three years
ended December 31, 1993 15
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1993 16
Notes to Consolidated Financial Statements 17 - 26
Report of Independent Auditors 27
Page in
Form 10-K
---------
2) Financial Statement Schedules:
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other
than Related Parties for the three years ended
December 31, 1993 17
Schedule V - Property, Plant, and Equipment for the
three years ended December 31, 1993 18
Schedule VI - Accumulated Depreciation of Property,
Plant, and Equipment for the three years ended
December 31, 1993 19
Schedule VIII - Valuation and Qualifying Accounts and
Reserves for the three years ended December 31, 1993 20
Schedule IX - Short-Term Borrowings for the three years
ended December 31, 1993 21
Schedule X - Supplementary Income Statement Information
for the three years ended December 31, 1993 22
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
Financial statements of 20%- to 50%-owned companies have been
omitted because the registrant's proportionate share of income before
income taxes and total assets of the companies is less than 20% of the
respective consolidated amounts, and the investments in and advances to
the companies are less than 20% of consolidated total assets.
* Incorporated by reference from the indicated pages of the 1993
Annual Report to Shareholders.
13
<PAGE>
3) Exhibits
Page in
Number Description Form 10-K
------ ----------- ---------
3(a) Certificate of Incorporation, Bylaws, and Certificate
of Merger. (1)
3(b) Amendment to Certificate of Incorporation. (2)
3(c) Restatement of Bylaws. (3)
4 Shareholder Rights Plan, dated August 25, 1993. (4)
10(a) 1990 Intergraph Corporation Employee Stock Option
Plan. *(5)
10(b) Intergraph Corporation 1992 Stock Option Plan. *(6)
10(c) Employment contracts of Manfred Wittler, dated
November 1, 1989 (7) and April 18, 1991. *
10(d) Loan program for executive officers of the
Company. *(7)
10(e) Employment contract of Howard G. Sachs, dated
February 8, 1993. *
10(f) Termination agreement with Howard G. Sachs, dated
August 9, 1993. *
10(g) Consulting contract of Keith H. Schonrock, Jr.,
dated January 17, 1990. *
10(h) Agreement between Intergraph Corporation and
Green Mountain, Inc., dated February 23, 1994. *
11 Computation of Earnings (Loss) Per Share 23
13 Portions of the Intergraph Corporation 1993 Annual
Report to Shareholders incorporated by reference
in this Form 10-K Annual Report
21 Subsidiaries of the Company 24
23 Consent of Independent Auditors 25
- --------------------
(1) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1984, under the Securities Exchange Act of 1934, File
No. 0-9722.
(2) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1987, under the Securities Exchange Act of 1934, File
No. 0-9722.
(3) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, under the Securities Exchange Act of 1934, File
No. 0-9722.
(4) Incorporated by reference to exhibits filed with the
Company's Current Report on Form 8-K dated August 25, 1993,
under the Securities Exchange Act of 1934, File No. 0-9722.
14
<PAGE>
(5) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, under the Securities Exchange Act of 1934,
File No. 0-9722.
(6) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, under the Securities Exchange Act of 1934,
File No. 0-9722.
(7) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, under the Securities Exchange Act of 1934,
File No. 0-9722.
* Denotes management contract or compensatory plan, contract
or arrangement required to be filed as an Exhibit to this Form
10-K.
- --------------------
(b) No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1993.
(c) Exhibits - the response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial statement schedules - the response to this portion of Item
14 is submitted as a separate section of this report.
15
<PAGE>
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.
INTERGRAPH CORPORATION
By Larry J. Laster Date: March 18, 1994
--------------------------
Larry J. Laster
Executive Vice President, Chief
Financial Officer and Director
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.
Date
----
James W. Meadlock
- ---------------------- Chief Executive Officer and March 18, 1994
James W. Meadlock Chairman of the Board
(Principal Executive Officer)
Larry J. Laster
- ---------------------- Executive Vice President, Chief March 18, 1994
Larry J. Laster Financial Officer and Director
(Principal Financial Officer)
Nancy B. Meadlock
- ---------------------- Executive Vice President March 18, 1994
Nancy B. Meadlock and Director
Robert E. Thurber
- ---------------------- Executive Vice President March 18, 1994
Robert E. Thurber and Director
Roland E. Brown
- ---------------------- Director March 18, 1994
Roland E. Brown
Keith H. Schonrock, Jr.
- ---------------------- Director March 18, 1994
Keith H. Schonrock, Jr.
James F. Taylor, Jr.
- ---------------------- Director March 18, 1994
James F. Taylor, Jr.
John W. Wilhoite
- ---------------------- Vice President and Controller March 18, 1994
John W. Wilhoite (Principal Accounting Officer)
16
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE II ---- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------- ---------- ---------- ------------------------ --------------------
Balance at end
Deductions of period
Balance at ------------------------ --------------------
Year ended beginning Amounts Amounts Not
December 31, Name of debtor of period Additions collected written off Current current
- ------------ --------------------- ---------- ---------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 James W. Meadlock (1) --- $2,502,000 --- --- $2,502,000 ---
========== ========== ========== =========== ========== =======
1992 James W. Meadlock (2) --- $1,500,000 $1,500,000 --- --- ---
========== ========== ========== =========== ========== =======
1991 Lewis S. Epstein (3) $475,000 --- $ 475,000 --- --- ---
========== ========== ========== =========== ========== =======
</TABLE>
(1) Amount represents an unsecured promissory note receivable from
Mr. Meadlock, who is Chief Executive Officer of the Company. Interest
is charged at the prime rate. The loan is due in full by the earlier
to occur of the date of sale of any common stock of the Company by Mr.
Meadlock or May 20, 1994. This loan was executed under the provisions
of the Executive Officer Loan Program.
(2) Amount represented an unsecured promissory note receivable from
Mr. Meadlock. The note was paid in full in 1992. Interest was
charged at a rate of prime plus 2%.
(3) Amount represented a non-interest bearing note receivable from
Mr. Epstein, who was a Vice President of the Company. The note was a
housing bridge loan secured by a mortgage on real estate. The note
was paid in full in 1991.
17
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE V ---- PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------------------------------- ---------- --------------- ----------- ----------- -------------
For the year Balance at Balance at
ended beginning Additions Other end
December 31, Classification of period at cost (1) (2) Retirements changes (3) of period (4)
- ------------ --------------------------------- ---------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993 Land and improvements $ 14,937 $ 70 $( 181) $ (233) $ 14,593
Buildings and improvements 143,477 6,249 ( 4,075) (2,619) 143,032
Equipment, furniture and fixtures 312,532 59,909 (47,371) (8,819) 316,251
---------- --------------- ----------- ----------- -------------
Totals $470,946 $66,228 $(51,627) $(11,671) $473,876
========== =============== =========== =========== =============
1992 Land and improvements $ 14,932 $ 226 --- $( 221) $ 14,937
Buildings and improvements 137,165 12,836 $( 1,465) ( 5,059) 143,477
Equipment, furniture and fixtures 295,248 70,310 (38,627) (14,399) 312,532
--------- --------------- ----------- ----------- -------------
Totals $447,345 $83,372 $(40,092) $(19,679) $470,946
========= =============== =========== =========== =============
1991 Land and improvements $ 14,132 $ 787 --- $ 13 $ 14,932
Buildings and improvements 112,049 25,193 $( 103) 26 137,165
Equipment, furniture and fixtures 258,668 72,124 (34,603) ( 941) 295,248
--------- --------------- ----------- ----------- -------------
Totals $384,849 $ 98,104 $(34,706) $( 902) $447,345
========= =============== =========== =========== =============
</TABLE>
(1) Additions to equipment, furniture and fixtures in each year
consist primarily of computer hardware manufactured by the Company and
used in product development.
(2) Non-cash additions consist of additions to a building at a cost
of $7,246 through a long-term debt transaction in 1991.
(3) Other changes consist primarily of changes in the reported dollar
amounts of fixed assets held by international subsidiaries as the
result of changes in currency translation rates.
(4) As a part of changes in the Company's product, sales and
manufacturing strategies, the Company will eliminate certain
operations in phases over the course of 1994. Included in property,
plant and equipment is $13.3 million in net book value of assets
related to these operations, consisting primarily of $10.6 million in
net book value of land and buildings comprising the Company's
Netherlands manufacturing facility. The net book value of that
facility approximates market value. The Company will sell or lease
the facility.
Certain reclassifications have been made to the previously reported
1991 and 1992 balances to provide comparability with the current year
presentation.
18
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE VI ---- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------------------------------- ---------- ------------ ----------- ----------- ------------
Additions
For the year Balance at charged to Balance at
ended beginning costs and Other end
December 31, Description of period expenses (1) Retirements changes (2) of period (3)
- ------------ ---------------------------------- ---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993 Land and improvements $ 1,852 $ 154 --- --- $ 2,006
Buildings and improvements 29,525 6,619 $( 1,938) $ 720 34,926
Equipment, furniture and fixtures 192,562 58,643 (31,050) ( 7,642) 212,513
--------- ------------ ----------- ------------ -------------
Totals $223,939 $65,416 $(32,988) $( 6,922) $249,445
========= ============ =========== ============ =============
1992 Land and improvements $ 1,588 $ 264 --- --- $ 1,852
Buildings and improvements 25,364 6,189 $( 379) $( 1,649) 29,525
Equipment, furniture and fixtures 171,299 59,202 (29,196) ( 8,743) 192,562
--------- ------------ ----------- ------------ -------------
Totals $198,251 $65,655 $(29,575) $(10,392) $223,939
========= ============ =========== ============ =============
1991 Land and improvements $ 1,285 $ 303 --- --- $ 1,588
Buildings and improvements 20,670 4,674 $( 66) $ 86 25,364
Equipment, furniture and fixtures 138,163 53,943 (19,794) ( 1,013) 171,299
--------- ------------ ----------- ------------ -------------
Totals $160,118 $58,920 $(19,860) $( 927) $198,251
========= ============ =========== ============ =============
</TABLE>
(1) Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Asset lives range from three to
thirty years.
(2) Other changes consist primarily of changes in the reported dollar
amounts of accumulated depreciation on fixed assets held by
international subsidiaries as the result of changes in currency
translation rates.
(3) See Note 4 in Schedule V regarding operations to be eliminated.
Certain reclassifications have been made to the previously reported
1991 and 1992 balances to provide comparability with the current year
presentation.
19
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE VIII ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------- ----------- --------- ------------- -------------
Additions
Balance at charged to
beginning costs and Balance at
Description of period expenses Deductions end of period
- ----------------------------------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet 1993 $18,969,000 6,201,000 4,379,000 (1) $20,791,000
1992 $18,720,000 4,457,000 4,208,000 (1) $18,969,000
1991 $16,040,000 5,829,000 3,149,000 (1) $18,720,000
Allowance for obsolete inventory
deducted from inventories
in the balance sheet 1993 $24,607,000 41,630,000 41,677,000 (2) $24,560,000
1992 $27,984,000 31,497,000 34,874,000 (2) $24,607,000
1991 $24,622,000 25,026,000 21,664,000 (2) $27,984,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory reduced to net realizable value.
20
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE IX ---- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------------------- ------------- -------- ----------- ----------- --------
Weighted
Maximum Average average
Weighted amount amount interest
Category of aggregate average outstanding outstanding rate
short-term Balance at interest during during during
borrowings end of period rate period period period
--------------------- ------------- -------- ----------- ----------- --------
(2) (3)
<S> <C> <C> <C> <C> <C> <C>
Year ended Amounts payable
December 31, 1993: to banks (1) $6,896,000 8.1% $7,794,000 $1,443,000 9.6%
Year ended Amounts payable
December 31, 1992: to banks (1) --- --- $1,931,000 $ 228,000 10.9%
Year ended Amounts payable
December 31, 1991: to banks (1) $1,931,000 9.6% $3,356,000 $2,133,000 9.8%
</TABLE>
(1) Represents financing arranged on behalf of an international
subsidiary with repayment guaranteed by the parent company.
(2) The average amount outstanding during the period was computed by
dividing the total of month-end outstanding principal balances by 12.
(3) The weighted average interest rate during the period was computed
by dividing actual interest expense for the period by the weighted
average amount outstanding during the period.
21
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE X ---- SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B
----------------- --------------------
Charged to costs
Item and expenses
----------------- --------------------
Amortization of
intangible assets 1993 $20,072,000
1992 $12,800,000
1991 $ 9,168,000
Royalties 1993 $40,048,000
1992 $37,175,000
1991 $31,168,000
Advertising 1993 $10,609,000
1992 $10,800,000
1991 $11,826,000
22
INTERGRAPH CORPORATION AND SUBSIDIARIES
EXHIBIT 11 ---- COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
- -------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding 46,199,000 47,616,000 47,646,000
Net common shares issuable on
exercise of certain stock options (1) --- 404,000 785,000
------------- ------------- -------------
Average common and equivalent
common shares outstanding 46,199,000 48,020,000 48,431,000
============= ============= =============
Income (loss) before cumulative effect of
change in accounting for income taxes $(118,542,000) $ 8,442,000 $ 71,108,000
Cumulative effect of change in accounting
for income taxes 2,500,000 --- ---
------------- ------------- -------------
Net income (loss) $(116,042,000) $ 8,442,000 $ 71,108,000
============= ============= =============
Earnings (loss) per share:
Income (loss) before cumulative effect of
change in accounting for income taxes $(2.56) $ .18 $ 1.47
Cumulative effect of change in accounting
for income taxes .05 --- ---
------------- ------------- -------------
Net income (loss) per share $(2.51) $ .18 $ 1.47
============= ============= =============
Fully diluted:
Weighted average common shares outstanding 46,199,000 47,616,000 47,646,000
Net common shares issuable on
exercise of certain stock options (1) --- 404,000 811,000
------------- ------------- -------------
Average common and equivalent
common shares outstanding 46,199,000 48,020,000 48,457,000
============= ============= =============
Income (loss) before cumulative effect of
change in accounting for income taxes $(118,542,000) $ 8,442,000 $ 71,108,000
Cumulative effect of change in accounting
for income taxes 2,500,000 --- ---
------------- ------------- -------------
Net income (loss) $(116,042,000) $ 8,442,000 $ 71,108,000
============= ============= =============
Earnings (loss) per share:
Income (loss) before cumulative effect of
change in accounting for income taxes $(2.56) $ .18 $ 1.47
Cumulative effect of change in accounting
for income taxes .05 --- ---
------------- ------------- -------------
Net income (loss) per share $(2.51) $ .18 $ 1.47
============= ============= =============
</TABLE>
(1) Net common shares issuable on exercise of certain stock options is
calculated based on the treasury stock method using the average market
price for the primary calculation and the ending market price, if higher
than the average, for the fully diluted calculation.
23
INTERGRAPH CORPORATION AND SUBSIDIARIES
EXHIBIT 21 ---- SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State or Other Percentage of
Jurisdiction of Voting Securities
Name Incorporation Owned by Parent
- ----- ---------------- -----------------
<S> <S> <C>
Intergraph China, Inc. Delaware 100
Intergraph European Manufacturing, L.L.C. Delaware 100
Intergraph (Middle East), L.L.C. Delaware 100
Intergraph (Italy), L.L.C. Delaware 100
Quintus Corporation Delaware 100
Bentley Systems, Inc. Delaware 50
Bestinfo, Inc. Delaware 100
Intergraph Benelux B.V. The Netherlands 100
Intergraph CAD/CAM (Danmark) A/S Denmark 100
Intergraph CR spol.s.r.o. Czech Republic 100
Intergraph (Deutschland) GmbH Germany 100
Intergraph Espana, S.A. Spain 100
Intergraph Europe (Polska) S.p.z.o.o. Poland 100
Intergraph Finland Oy Finland 100
Intergraph (France) SA France 100
Intergraph GmbH (Osterreich) Austria 100
Intergraph Graphic Systems Russia 100
Intergraph (Hellas) S.A. Greece 100
Intergraph Hungary, Ltd. Hungary 100
Intergraph Ireland, Ltd. Ireland 100
Intergraph Norge A/S Norway 100
Intergraph (Portugal)-Sistemas de Computacao Portugal 100
Grafica, S.A.
Intergraph (Sverige) AB Sweden 100
Intergraph (Switzerland) A.G. Switzerland 100
Intergraph (UK), Ltd. United Kingdom 100
Intergraph Corporation (N.Z.) Limited New Zealand 100
Intergraph Corporation Pty., Ltd. Australia 100
Intergraph Corporation Taiwan Taiwan, R.O.C. 100
Intergraph Graphics Systems Asia Pacific Limited Hong Kong 100
Intergraph Graphics Systems Hong Kong Limited Hong Kong 100
Intergraph Japan K.K. Japan 100
Intergraph Korea, Ltd. Korea 100
Intergraph Systems South-East Asia, (Pte.), Ltd. Singapore 100
Intergraph Wholesale Pty., Ltd. Australia 100
Intergraph Computer Services Industry & Trade, A.S. Turkey 97
Intergraph Saudi Arabia Ltd. Saudi Arabia 75
Intergraph Canada, Ltd. Canada 100
Intergraph de Mexico, S.A. de C.V. Mexico 100
Intergraph Servicios de Venezuela C.A. Venezuela 100
Intergraph (India) Pvt. Ltd. India 100
DAZIX (Israel) Ltd. Israel 100
</TABLE>
24
EXHIBIT 23 ---- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Intergraph Corporation and subsidiaries of
our report dated January 28, 1994, included in the 1993 Annual
Report to Shareholders of Intergraph Corporation.
Our audits also included the financial statement schedules of
Intergraph Corporation listed in Item 14(a)(2). These schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the
information set forth herein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-10614) pertaining to the
Intergraph Corporation Amended and Restated 1987 Employee Stock
Purchase Plan dated December 31, 1992; in the Registration
Statement (Form S-3 No. 33-25880) pertaining to the Stock Bonus
Plan dated December 22, 1988; and in the Registration
Statement (Form S-8 No. 33-35846) pertaining to the 1990 Employee
Stock Option Plan dated July 12, 1990, and in the related
Prospectuses, of our report dated January 28, 1994, with respect
to the consolidated financial statements and schedules of
Intergraph Corporation and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1993.
/s/ Ernst & Young
Birmingham, Alabama
March 22, 1994
25
CONTRACT OF EMPLOYMENT
VICE PRESIDENT SALES AND SUPPORT
The undersigned:
Intergraph France S.A.
whose registered office is at:
95-105, Rue des Solets, 94653 Rungis Cedex, France
referred to hereafter as Intergraph, and
Dr. Manfred Wittler
referred to hereafter as Mr. Wittler.
HAVE AGREED AS FOLLOWS
- ----------------------
1. APPOINTMENTS
------------
As from April 1, 1991 Intergraph engages Mr. Wittler in the
position of Vice President Sales and Support for the Republic
of France for the part of his time not covered under the
agreement between Intergraph European Manufacturing B.V. and
Mr. Wittler and the agreement between Intergraph (Deutschland)
GmbH and Mr. Wittler and the conditions hereinafter set out.
Mr. Wittler declares to be free of any engagement to another
employer with the exception of the two (2) mentioned above.
2. FUNCTIONS
---------
The function of Mr. Wittler will include:
That he carries out the expected role related to above
position in a professional manner reflecting the
responsibility of the post and that he acts as surveyor of the
Managing Director ensuring Intergraph meets its statutory
obligations and such management complies with the policies and
directives established by Intergraph Corporation of
Huntsville.
Mr. Wittler reports directly to the President of Intergraph
Corporation.
3. REMUNERATION
------------
Intergraph will pay Mr. Wittler a gross annual salary in the
amount of FFR 240,000 (two hundred and forty thousand French
Francs) to be paid in 12 equal monthly installments which are
due on the last day of each month. Payment of the
remuneration shall satisfy all claims for overtime and extra
hours pay and includes a fixed amount for commissions on
Intergraph sales in France of FFR 72,000.
<PAGE>
4. POLICIES AND PROCEDURES
-----------------------
Mr. Wittler will be required to adhere to company policies and
procedures at all times during his employment with Intergraph.
5. EXPENSES
--------
Intergraph will reimburse Mr. Wittler for reasonable and
actual business expenses incurred in the execution of his
position, in accordance with Intergraph policies and
procedures. All claims must be substantiated and properly
recorded.
6. VACATION ENTITLEMENT
--------------------
Mr. Wittler's vacation rights under this Agreement are
included in the 25 vacation days as mentioned in the agreement
between Intergraph European Manufacturing B.V. and Mr.
Wittler.
7. CONFIDENTIALITY
---------------
Both during and after the currency of this Agreement Mr.
Wittler shall treat as confidential all information with
respect to the business and the interests of Intergraph and/or
its affiliates and its parent company which has come to his
knowledge during the performance of his duties. He will make
restitution to Intergraph of all documents concerning
Intergraph in his possession at the end of his employment with
Intergraph. (for example lists, sketches, notes, drafts,
prints etc. and copies of all these documents.)
8. COMPETITION
-----------
In the event of the termination of this Agreement by either
party, Mr. Wittler agrees not to associate himself in any
manner, whether direct or indirect, with any company,
organization or selfemployment operating in direct competition
with Intergraph Corporation or its affiliates for a period of
six (6) months following that termination provided that
Intergraph compensates Mr. Wittler in accordance with article
3 of this Agreement for those 6 months.
9. STOCKHOLDING
------------
Mr. Wittler is required to declare all existing and future
controlling stockholding interests by himself, or immediate
family, in any company or organization operating in direct
competition with Intergraph or its affiliates.
10. OTHER EMPLOYMENT
----------------
Mr. Wittler is not permitted to enter into any form of
additional employment and/or side activities whilst this
contract is in force except with any other Intergraph
affiliate in Europe, without the express written permission of
his immediate manager.
11. CURRENCY AND TERMINATION
------------------------
This Agreement may be terminated by either party per the end
of a month with six (6) months written notification.
<PAGE>
12. ILLNESS OR ACCIDENT
-------------------
If, because of illness or accident, Mr. Wittler is not able to
perform his duties, he must so inform Intergraph as soon as
possible.
During the first 12 month of Mr. Wittler's incapacity of work
Mr. Wittler shall receive his monthly fixed remuneration in
the amount of FFR 20,000 (twenty thousand French Francs).
Intergraph is not bound to make any further payment.
If and in so far with regard to illness or an accident of
which Mr. Wittler is a victim Mr. Wittler has a claim against
one or more thirds for damage for lost wages, Intergraph shall
not be under an obligation to make payments to Mr. Wittler.
In that case, Intergraph is bound to make these payments to
Mr. Wittler by way of advance payment of damages. Mr. Wittler
is to assign unto Intergraph his claim of damages to the
amount of advance payments. Intergraph shall deduct the
amount of the advance payments from the damages.
13. ASSISTANCE
----------
Mr. Wittler acknowledges his responsibility to ensure that he
remains socially insured in Germany, also for income earned
from non German Intergraph subsidiaries. In this respect Mr.
Wittler can expect guidance from both Ernst & Young in Paris
and the Intergraph European Tax Department in Hoofddorp, The
Netherlands, but Intergraph can not accept any liability for
Mr. Wittler's non compliance with any legal requirement in
this respect.
14. GENERAL
-------
This contract of employment supersedes any previous agreement,
oral or written, between Mr. Wittler and Intergraph
Corporation or any of its subsidiaries in respect of the
subject matter hereof except the agreement between Intergraph
European Manufacturing B.V. and Mr. Wittler as well as the
agreement between Intergraph (Deutschland) GmbH and Mr.
Wittler. No change of the provisions of this Agreement shall
be binding unless in writing and signed by both parties.
15. PENSION/SOCIAL SECURITY
-----------------------
Mr. Wittler has joined both the company pension plan of
Intergraph (Deutschland) GmbH and the German social security
system as outlined in the agreement between Intergraph
(Deutschland) GmbH and Mr. Wittler and therefore Mr. Wittler
has no pension rights or social security rights under this
Agreement.
16. GOVERNING LAWS
--------------
This Agreement will be subject to French law and Regulation of
Employment.
For and on behalf of
Intergraph France S.A.
- ------------------------- -------------------------
Mr. Jimmy Oebel Dr. Manfred Wittler
Date: April 18, 1991 Date: April 18, 1991
------------------ -----------------
LETTER AGREEMENT
February 8, 1993
Mr. Howard Sachs
Dear Howard:
This letter sets forth terms of employment between Intergraph and
you, and, as noted below, supersedes and entirely replaces any
previous contract, arrangement, or understanding you may have had
with Intergraph, if any.
1. You will be the Executive Vice President of Engineering. Both
Huntsville Engineering and APD will report to you. Any
demotion, reduction in salary, or reassignment other than by
mutual agreement will be considered as a termination.
2. The term of this agreement shall be for three (3) years,
provided, however, that Intergraph may earlier terminate this
agreement as a result of your willful misconduct, gross
negligence, or a chemical or alcohol dependency which
interferes with your ability to perform your duties.
Intergraph may also earlier terminate your employment by
giving you written notice of termination, and paying you a
lump sum severance benefit equal to the aggregate salary which
would otherwise be paid to you during the remaining term of
this agreement.
3. You acknowledge and agree that you do not now have, nor will
you obtain, any personal rights in software, copyrights,
patents, or inventions which are either created by you, or
under your direction, while you are an employee of Intergraph.
You further agree to provide Intergraph with any assistance
Intergraph may require from you in order to register, record,
perfect, or otherwise secure Intergraph's rights in any such
intellectual property or the rights associated therewith.
4. This agreement constitutes the entire agreement between
Intergraph and you with respect to your employment, and it
supersedes any prior contracts, arrangements, or
understandings, if any, whether written or oral, between you
and Intergraph with respect to your employment.
5. This agreement and your employment relationship with
Intergraph shall be governed by the laws of the State of
Alabama.
Please acknowledge your acceptance of the terms of this letter offer
by signing where indicated below.
- ------------------------- -------------------------
James W. Meadlock Howard Sachs
CEO
Date: February 9, 1993
----------------
CONFIDENTIAL
Letter Agreement
August 9, 1993
Mr. Howard G. Sachs
Dear Howard:
By executing this Letter Agreement ("Agreement"), you and
Intergraph agree to be bound by each and every term of this
Agreement, effective as of the date first set forth above (the
"Effective Date"). Your execution of this Agreement also
constitutes your acknowledgment, with the desire and expectation
that Intergraph will rely on such acknowledgment, that you
understand each and every term of this Agreement.
Until you are separated from Intergraph you will perform your
regular duties as an Executive Vice President of Intergraph and
general manager of Intergraph's APD division. In addition, you may
be required from time to time to meet and confer with Sun
Microsystems Computer Corporation ("SMCC"), on Intergraph's behalf
and as Intergraph's representative in connection with that certain
Cooperative Development Agreement between Intergraph and SMCC (the
"Cooperative Agreement"), for the purpose of advising Intergraph and
SMCC regarding foundry operations, CAD technologies, and general
microprocessor design and development; provided that such advisory
activities shall not materially interfere with your regular duties
as an Executive Vice President of Intergraph, including but not
limited to serving as Intergraph's Executive Representative and
Voyager II Project Manager under the Cooperative Agreement.
1. You and Intergraph agree that your employment relationship with
Intergraph shall be terminated effective the date you become an
employee of SMCC (such date, which as of the Effective Date is
anticipated to be January 3, 1994, is hereinafter referred to as the
"Separation Date"). From the Effective Date until the Separation
Date, your weekly salary shall be three thousand, nine hundred and
thirty-seven dollars ($3,937), and you shall be entitled to all
benefits provided by Intergraph to regular full time employees.
With respect to Intergraph's Employee Stock Bonus Plan, Incentive
Stock Option Plan, and SavingsPlus Plan, and except as otherwise
provided herein, you shall have the same rights as any other
Intergraph employee prior to the Separation Date, and upon
termination.
2. In consideration of your executing, being bound by, and
complying with the terms of this Agreement, Intergraph shall
compensate you, in the amounts and on the dates set forth in
Schedule 2 (in each case, a "Compensation Payment") to this
Agreement an aggregate amount equal to three thousand, five hundred
and seventy-nine dollars ($3,579.00) multiplied by the number of
full calendar weeks remaining from the Separation Date until
February 8, 1996, plus a prorated amount reflecting any partial
weeks remaining between the last such full calendar week and
February 8, 1996 (the result of the foregoing calculation is
hereinafter referred to as the "Separation Amount"), less the
aggregate amount of any taxes or other amounts which Intergraph is
legally obligated to withhold in connection with each Compensation
Payment. You will not be entitled to receive interest as a result of
the deferral of Compensation Payments in accordance with Schedule 2.
3. In consideration of Intergraph executing, being bound by, and
complying with the terms of this Agreement, you hereby:
(a) Release Intergraph, its directors, officers, employees, and
agents from any and all claims you may have against any or all of them,
whether now known or hereafter discovered, and whether suspected or
unsuspected, attributable to, or arising out of or in connection with
(i) your employment relationship with Intergraph or Fairchild Semiconductor,
Inc.; (ii) that certain Letter Agreement dated February 8, 1993 (a copy of
which is attached hereto for your reference - Exhibit 10(e) to Form 10-K)
between you and Intergraph (the "February Agreement"); and (iii) the
termination of your employment relationship with Intergraph and Fairchild
Semiconductor, Inc., including but not limited to severance pay, and that
you hereby expressly waive any and all rights granted to you under
<PAGE>
Section 1542 of the California Civil Code (Section 1542 of the Civil
Code of California reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which, if known
by him, must have materially affected his settlement with the debtor"),
or any analogous state law or federal law; and
(b) Hold in confidence and not disclose under any
circumstances, at any time, any proprietary or confidential
information belonging to Intergraph or any party which has delivered
proprietary and confidential information to Intergraph (unless such
party consents to such disclosure), provided that you shall not be
obligated to maintain the confidentiality of any information which
is or becomes public, or which is discoverable through other proper
means; and
(c) Provide Intergraph with such assistance as Intergraph may
reasonably request in connection with Intergraph's efforts to
obtain, secure, or perfect rights in any of Intergraph's
intellectual property, including but not limited to patents,
trademarks, copyrights, and trade secrets, created on or before the
Separation Date.
4. This Agreement shall be interpreted and construed in accordance
with the laws of the State of California, notwithstanding any
conflicting law or public policy of any other state. This agreement
may not be amended except in a writing executed by both you and
Intergraph, and a waiver of the breach of any provision of this
Agreement shall not constitute a waiver of any subsequent breach of
the same or any other provision of this Agreement.
5. This Agreement shall be binding on and inure to the benefit of
the respective successors, executors, heirs, representatives,
administrators, and assigns of you and Intergraph.
6. This Agreement sets forth our entire and final understanding
and agreement concerning all matters related to, arising out of, or
in connection with the subject matter hereof, including but not
limited to (i) your employment relationship with Intergraph
Corporation, including but not limited to any matters concerning
Intergraph as a successor to Fairchild Semiconductor, Inc., and (ii)
the termination of that relationship. This Agreement supersedes any
prior contracts, arrangements, or understandings, whether written or
oral, between you and Intergraph, including but not limited to the
February Agreement (which you and Intergraph hereby expressly agree
is terminated and of no further force or effect), with respect to
such matters.
7. Any controversy between you and Intergraph regarding the
construction or application of this Agreement, or a claim arising
out of or in connection with (i) this Agreement, (ii) a breach of
this Agreement, (iii) your employment relationship with Intergraph
or, to the extent Intergraph is implicated, your employment
relationship with Fairchild Semiconductor, Inc., or (iv) the
termination of your employment relationship with Intergraph or, to
the extent Intergraph is implicated, your employment relationship
with Fairchild Semiconductor, Inc. shall be submitted to arbitration
at the written request of either party. Such arbitration shall be
held under California Code of Civil Procedure Section 1280, et seq.,
as amended. Subject to proration of costs by the arbitrators, the
costs of arbitration, including but not limited to reasonable
attorneys' fees which are directly related to preparing for and
conducting the arbitration proceeding, shall be borne by the losing
party.
Understood, Acknowledged, and Agreed: Intergraph Corporation
- ------------------------------ --------------------------------
Howard G. Sachs John W. Wilhoite, Vice President
<PAGE>
CONFIDENTIAL
Schedule 2
Date Amount
---- ------
Separation Date Separation Amount multiplied by one-eighth (1/8),
less withheld taxes
April 1, 1994 Separation Amount multiplied by one-eighth (1/8),
less withheld taxes
July 1, 1994 Separation Amount multiplied by one-eighth (1/8),
less withheld taxes
October 1, 1994 Separation Amount multiplied by one-eighth (1/8),
less withheld taxes
January 1, 1995 Separation Amount multiplied by one-half (1/2),
less withheld taxes
<PAGE>
Howard G. Sachs
Calculation of Separation Payment
- ---------------------------------
Aggregate payment
- -----------------
$3,579 per week x no. of weeks from January 1, 1994 through
February 8, 1996
# full weeks 1994 - 52
# full weeks 1995 - 52
# weeks in 1996 - 5.71
------
109.71
======
$3,579 per week x 109.71 weeks = $392,652.09 total aggregate
payment before tax withholding
Payment schedule
- ----------------
DATE AMOUNT
--------------- -----------
January 1, 1994 $392,652.09 x .125 = $ 49,081.51 before tax withholding
April 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding
July 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding
October 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding
January 1, 1995 392,652.09 x .50 = 196,326.05 before tax withholding
-----------
$392,652.09
===========
J. Wilhoite
1/5/94
CONSULTING CONTRACT
This contract, made and entered into this 17th day of January,
1990, by and between Intergraph Corporation and Green Mountain,
Inc.
WITNESSETH:
In consideration of the mutual covenants set forth herein, the
parties hereto do hereby agree as follows:
1. Scope of Work
-------------
Green Mountain, Inc. shall provide the services of Keith
Schonrock as an independent contractor to perform tasks as
assigned by Intergraph Executive Management.
2. Term
----
The term of this contract shall be from January 1, 1990 through
December 31, 1990.
3. Termination
-----------
Intergraph or Green Mountain, Inc. may terminate this contract
at any time before December 31, 1990. In such event,
Intergraph shall be liable only for services rendered prior to
the effective date of termination.
4. Payment Schedule
----------------
Green Mountain, Inc. shall be paid monthly within 10 days of
receipt of a properly approved invoice. Invoices shall be
approved by Jim Meadlock, Eliott James or Larry Laster.
A. Consulting fees shall be $5,000 per month.
B. Travel expense, if any, shall be reimbursed under the
Intergraph Travel Policy.
5. Terms and Conditions
--------------------
The terms and conditions of Consulting Agreement dated January
17, 1990, attached hereto and by reference are made a part
hereof.
In witness whereof, the parties hereto have executed this contract
as of the day and year first written above.
Green Mountain, Inc. Intergraph Corporation
By: Gerald F. Donovan By: Larry Laster
-------------------- ------------------------
Title: President Title: Executive Vice President
-------------------- ------------------------
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
CONSULTING AGREEMENT
The terms and conditions set forth below establish further
rights and obligations of the parties to this Contract.
I. DEFINITIONS
-----------
As used throughout this Contract, the following terms shall
have the meanings set forth below unless otherwise indicated:
A. The term "Government" means the United States Government
or any department or agency thereof.
B. The term "Intergraph" means Intergraph Corporation,
acting through its duly authorized representative.
C. The term "Consultant" means the individual, partnership,
corporation, or association contracting to furnish the
article(s) described in the Statement of Work.
D. The word "articles" refers to the goods, products,
supplies, parts, assemblies, technical data, drawings,
services, or other items constituting the subject matter
of this Contract which are to be furnished by Consultant
to Intergraph hereunder.
II. CHANGES
-------
A. Intergraph may at any time, by a written change notice,
i. make changes within the general scope of this
Contract in drawings, designs, specifications, or
statement of work; or
ii. issue a suspension of work order.
If a change notice issued hereunder causes an increase
or decrease in the cost of performance or in the time
required for performance, an equitable adjustment shall
be made in the contract price and/or time of
performance; and the Contract shall be modified in
writing accordingly. Any claim for adjustment under
this Section shall be deemed waived unless asserted
within thirty (30) days from the date of receipt by the
Consultant of the change notice provided, however,
Intergraph, if it decides the facts justify such action,
may receive and act upon any such claim asserted at any
time prior to final payment under this Contract.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
B. Intergraph's engineering and technical personnel may,
from time to time, render assistance or give technical
advice to or effect an exchange of information with
Consultant's personnel in a liaison effort concerning
the work to be performed hereunder. However, such
advice or exchange of information shall not vest
Consultant with the authority to change the provisions
of the Contract or impose liability therefor, nor shall
any change in the provisions of the Contract be binding
upon Intergraph unless issued as a change in accordance
with Paragraph "A" above.
C. Changes beyond the scope of work hereof shall be by
mutual agreement and evidenced by Amendment in writing
hereto.
III. INTERGRAPH PROPERTY
-------------------
A. Intergraph will deliver to the Consultant, for use in
connection with and under the terms of the Contract
only, such Intergraph property as may be described in
this Contract, its exhibits or specifications, together
with such related data and information as may reasonably
be required for the intended use of such property
(hereinafter referred to as "Intergraph Furnished
Property"). In the event Intergraph Furnished Property
is received by the Consultant in a condition not
suitable for the intended use, the Consultant shall,
upon receipt thereof, notify Intergraph of such fact
and, as directed by Intergraph, either:
i. return such property at Intergraph's expense or
otherwise dispose of the property, or
ii. effect repairs or modifications.
B. Title to all property furnished under the provisions of
this Section shall remain in Intergraph. All property
furnished by Intergraph shall be segregated when not in
use.
C. Upon receipt of Intergraph furnished property from a
source other than Intergraph, the Consultant shall
forward to Intergraph a signed packing slip receipt,
together with such other forms as may be required by
Intergraph, evidencing certain material has been
received. These documents shall show the total amount
of material received in any one shipment, the amount
accepted, the amount rejected, and such other
information as Intergraph shall request.
D. The Consultant shall be liable for loss or destruction
of or damage to Intergraph property in its possession or
control; and shall return all such property in as good
condition as when received, except for reasonable wear
and tear or for the utilization of the property in
accordance with the provisions of this Contract.
IV. ASSIGNMENT
----------
No contract shall be made by Consultant for performing all
or any portion of the work hereunder without Intergraph's
express written approval. Monies due hereunder may be
assigned upon furnishing Intergraph a copy of the
assignment agreement and obtaining Intergraph's written
consent thereto.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
V. HANDLING OF CLASSIFIED INFORMATION
----------------------------------
Consultant acknowledges this Contract may involve the
handling and the creation of Security classified material
and represents and warrants all of the Consultant's
personnel having, or who are to have access thereto,
understand the "Industrial Security Manual for Safeguarding
Classified Information" and the Federal Espionage Acts,
Title 18, U.S. Code.
Consultant Security Type A, B, or C is as specified in the
Consulting Contract, Section I - Scope of Work.
Type A - The Consultant shall not possess classified
material except at the Intergraph facility, on the premises
of a User Agency, or while on authorized visits. The
Consultant and all of the Consultant's employees who shall
have access to classified information shall jointly, with
Intergraph, prepare a certificate security agreement in
accordance with Section VII of the "Industrial Security
Manual for Safeguarding Classified Information".
Type B - The Consultant possesses classified material at his
place of business or residence, the Consultant having full
responsibility for security of the classified material.
The Consultant acknowledges he has executed a Department of
Defense Security Agreement (DD Form 441) which is in effect
on the date of this Contract and his conduct in performance
of this Contract shall be guided by and in accordance with
the above referred to Industrial Security Manual and
Agreement.
Type C - The Consultant possesses classified material at his
regular employer's cleared facility, the Consultant and his
employer having agreed as to their respective
responsibilities for security of classified material. The
Consultant acknowledges he and his regular employer have
jointly executed a Letter Agreement to Safeguard Classified
Information for an Employee Performing Consultant Services
in accordance with Section VII of the above referred to
Industrial Security Manual.
VI. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT
-----------------------------------------------------------------
A. Consultant shall report to Intergraph, promptly and in
reasonable written detail, each notice or claim of
patent infringement, copyright infringement, or invasion
of any right of privacy of which Consultant has
knowledge and which is based on the performance of this
Contract.
B. In the event of litigation against Intergraph or its
customer(s) on account of any claim of patent
infringement, copyright infringement, or invasion of any
right of privacy arising out of the performance of this
Contract or out of the use of any supplies furnished or
work or services performed hereunder, the Consultant
shall furnish to Intergraph, upon request, all evidence
and information in possession of the Consultant
pertaining to such litigation.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
VII. PATENT RIGHTS AND "SUBJECT DATA"
--------------------------------
This Section shall be void in the event this Contract is
placed under or pursuant to a Government Prime Contract.
A. As used in this Section, the following terms shall have
the meaning set forth below:
1. The term "Subject Data" means all data, including
matters of fact and theory, which relate to the
objectives of this Contract and which are considered
pertinent to such objectives, and other conceptual
matters developed in the course of performance of
the tasks of the Statement of Work hereof, and
particularly such data which was not or was believed
not to be within the state-of-the-art whether or not
such data is patentable or copyrightable.
2. The term "Subject Invention" means any invention,
improvement, or discovery conceived or first
actually reduced to practice either:
i. in the performance of the work called for or
required under this Contract, or
ii. in the performance of any work relating to
objectives of this Contract which was done upon
an understanding in writing that a Contract
would be awarded
provided, however, the term "Subject Invention" shall
not include any invention, improvement, or discovery
which is specifically identified and listed in the
Statement of Work or Schedule of this Contract
excluding it from the rights granted by this
Section.
B. Consultant shall deliver to Intergraph full disclosure
of all Subject Data and Subject Inventions made or
conceived in the course of performance of this Contract
whether made or conceived solely by Consultant or
jointly with others and specifically, such Subject Data
and Subject Inventions
1. which are along the lines of business, work, or
investigations of Intergraph or of divisions or
affiliates which Intergraph owns or controls; or
2. which result from or are suggested by any work which
Consultant performed for or on behalf of Intergraph
under this Contract.
Such disclosures shall be made or deemed to have been
made with complete and exclusive grant of all right,
title, and interest in and to any and all Subject Data
and Subject Inventions and Consultant disclaims any
property and claim to such Subject Data or Subject
Inventions; any such Subject Data and Subject Inventions
disclosed to Intergraph under this Section are to be and
remain the sole and exclusive property of Intergraph,
its customers, its assigns, or others claiming under
Intergraph whether or not such Subject Data or Subject
Inventions are patentable or copyrightable.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
C. Consultant shall assist Intergraph, its customers, its
assigns, or others claiming under Intergraph during and
subsequent to the term of this Contract, in every
reasonable way to obtain for Intergraph, its customers,
its assigns, or others claiming under Intergraph,
patents for such Subject Inventions in any and all
countries.
D. Consultant shall make and maintain adequate and current
written records of all such Subject Data and Subject
Inventions in the form of notes, sketches, drawings, and
reports relating thereto, which records shall be and
remain the property of and available to Intergraph, its
customers, its assigns, or others claiming under
Intergraph.
E. Intergraph shall, with regard to Subject Data and
Subject Inventions originated in performance of this
Contract, undertake at its expense to secure any and all
patents and copyrights as Intergraph shall deem
necessary.
F. Consultant shall and does hereby assign to Intergraph
the entire right, title, and interest in and to any and
all inventions, improvements, discoveries, and
copyrightable material discovered or generated by
Consultant, whether solely or jointly with others, in
the performance of this Contract.
VIII. PATENT INDEMNITY
----------------
Consultant hereby agrees to indemnify and save harmless
Intergraph, its employees, customers, assigns, and others
claiming under Intergraph from liability for any actual or
alleged patent infringement by reason of any manufacture,
use, or sale of any items manufacturable from reports,
drawings, blueprints, data, or technical information
delivered by Consultant under this Contract. Such
liability shall include, but is not limited to, damages,
costs, fees, and expenses.
IX. REPRODUCTION OF DATA
--------------------
Consultant agrees to and does hereby grant to Intergraph the
right to reproduce, use, disseminate, and dispose of all or
any part of the reports, drawings, blueprints, data, and
technical and other information delivered to Intergraph in
the performance of this Contract, and all such reports,
drawings, blueprints, data and technical and other
information shall be and become the property of Intergraph,
its customers, its assigns, or others claiming under
Intergraph.
X. LIABILITY FOR REPRODUCTION OF DATA
----------------------------------
The Consultant shall indemnify, save and hold harmless
Intergraph, its officers, agents, employees and customers
against any liability including costs and expenses
A. for violation of proprietary rights, copyrights, or
right of privacy, arising out of the publication,
translation, reproduction, delivery, performance, use,
or disposition of any data furnished under this
Contract; or
B. based upon any libelous or other unlawful matter
contained in such data.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
XI. NON-DISCLOSURE
--------------
A. Consultant hereby agrees not to disclose at any time
except as Consultant's duties under this Contract may
require, either during or subsequent to the term of this
Contract, any information, knowledge, or data of
Intergraph which Consultant may receive during the
course of this Contract, relating to chemical formulae,
business processes, methods, machines, manufacture,
compositions, inventions, discoveries, or other matters
which are of a proprietary or trade secret nature.
B. Consultant hereby agrees to maintain in secrecy all
information or knowledge concerning or relating to
Intergraph's projects obtained in the performance of
this Contract whether or not such information or
knowledge directly relates to the work performed
pursuant to this Contract.
C. No release of any information, or confirmation or denial
of same with respect to this Contract or subject matter
thereof, will be made without the prior coordination and
express written approval of Intergraph. This includes,
but is not limited to, advertisements, brochures, and
the like. Any information submitted for approval of
release to the public in accordance with Section 1,
Paragraph 5c, "Industrial Security Manual for
Safeguarding Classified Information" will be submitted
through Intergraph.
D. Upon completion of work by Consultant under this
Contract, Consultant shall return to Intergraph all
classified information furnished by Intergraph in
connection herewith, including all reproductions thereof
then in Consultant's possession or control, and
Consultant shall surrender all classified information or
material developed by Consultant in connection with this
Contract unless the information has been destroyed or
the retention of the information is authorized in
writing by Intergraph or the Government.
XII. RULES AND REGULATIONS
---------------------
A. It is understood the Consultant and Consultant's
employees are not employees of Intergraph and are not
entitled to any Intergraph employee benefits or
privileges.
B. All employees of the Consultant shall, however, be
subject to the applicable rules and regulations
governing Intergraph employees while on Intergraph
premises.
C. Consultant shall not assign to performance of work or
providing of services under this Contract any personnel
who are not bona fide employees of Consultant.
XIII. CONSULTANT'S EMPLOYEES
----------------------
Intergraph shall have the right to require Consultant to
remove from the site of the work such employees as
Intergraph may deem incompetent, careless, or otherwise
unsatisfactory for the performance of work on Intergraph's
premises.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
XIV. INDEMNITY - DAMAGES TO PERSONS AND PROPERTY
-------------------------------------------
Consultant shall be responsible for and hereby agrees to
indemnify and save harmless Intergraph, its employees, its
customers, its assigns, its contractors, and others under
Intergraph from any and all damages to person or property
arising from or connected with its performance of this
Contract and for any liability of whatsoever nature arising
out of Consultant's negligence or misconduct.
XV. SET-OFF
-------
Intergraph shall be entitled at all times to set-off any
amount owing at any time from Consultant to Intergraph
against any amount payable at any time by Intergraph in
connection with this Contract.
XVI. BANKRUPTCY
----------
Either party may terminate this Contract in the event of the
appointment of a trustee, receiver, or liquidator for all
or a portion of the property of the other party or of any
act of bankruptcy by the other as defined in Section 3 of
the Bankruptcy Act as amended, or of any voluntary petition
in bankruptcy by the other, and such termination shall be
without further obligation to the other except payment of
obligations incurred in performance of this Contract prior
to any of the foregoing occurrences.
XVII. WAIVER
------
Intergraph's failure in any one or more instances to insist
upon strict performance of any of the terms or provisions
of this Contract or to exercise any option herein conferred
shall not be construed as a waiver or relinquishment, to
any extent, of the right to assert or reply upon such terms
or provisions or option in or with respect to any other
instance whether effective or occurring prior or subsequent
to the instance(s) for which strict performance was not
required or option exercised.
XVIII. CONSTRUCTION
------------
This Contract shall be governed by, subject to, and
construed according to the laws of the State of Alabama.
The Consultant will comply with all applicable Federal,
State and Local Laws.
XIX. RECORDS
-------
Consultant agrees Intergraph or any of its duly authorized
representative shall, until the expiration of three (3)
years after final payment under this Contract, have access
to and the right to examine any directly pertinent books,
documents, papers, and records of the Consultant involving
transactions related to this Contract.
<PAGE>
CONSULTING CONTRACT NO. 1/17/90
---------------
XX. REPORT OF ACCIDENT, INJURY, OR ILLNESS
--------------------------------------
A. Consultant shall immediately report to Intergraph any
illness resulting from work site conditions or any
accident or injury to any of Consultant's employees on
premises owned, occupied, or controlled by Intergraph.
Consultant shall make the initial report to Intergraph
by telephone. When the accident, illness, or injury is
of the type which requires the Consultant to file SF 1
under Workmen's Compensation, Consultant shall submit a
copy of SF 1 to Intergraph. Otherwise, Consultant shall
complete such report forms as Intergraph may reasonably
require. Upon request by Intergraph, Consultant shall
require its employees who have any information
concerning such illness, accident, or injury to furnish
written statements.
B. The Consultant shall impose the requirements of this
clause on subcontractors of any tier performing under
Consultant.
<PAGE>
GREEN MOUNTAIN, INC.
CONSULTING CONTRACT
AMENDMENT NUMBER THREE
The consulting contract between Intergraph Corporation and Green
Mountain, Inc. dated January 17th 1990 is hereby extended through
December 31, 1993.
Green Mountain, Inc. Intergraph Corporation
By: Keith Schonrock By: Larry Laster
------------------------ ------------------------
Title: Vice President Title: Executive Vice President
------------------------ ------------------------
AGREEMENT
---------
This Agreement is between Intergraph Corporation and Green
Mountain, Inc. d.b.a. UNIGLOBE Green Mountain Travel
("UNIGLOBE").
GENERAL
- -------
It is a primary objective of Intergraph to maximize its control
over the procurement of its business-travel arrangements and
minimize its cost of business travel.
It is a primary objective of UNIGLOBE to maximize its revenue
from handling the personal travel of Intergraph employees.
SCOPE
- -----
This Agreement covers business and personal travel arrangements
made by the employees and spouses of Intergraph Corporation or
any of its subsidiaries. Intergraph has the exclusive right to
include or exclude other companies, subsidiaries, divisions,
affiliates, associates or employee groups.
DEFINITIONS
- -----------
"ARC" means the Airlines Reporting Corporation.
"IATA" means the International Air Transport Association and
"IATAN" means the International Airlines Travel Agent Network.
DEDICATED FACILITIES
- --------------------
It is a primary objective of Intergraph to process as much of
its travel arrangements as is practical, at its discretion,
through facilities dedicated to Intergraph, including exclusive
pseudo-city codes and ARC/IATA numbers. UNIGLOBE will
cooperate fully in assisting Intergraph in achieving this
objective.
UNIGLOBE will maintain a fully-appointed (as defined herein),
full-service (as defined by ARC) travel agency on the premises
of Intergraph in Huntsville, Alabama. This location will serve
as the primary point of contact for all Intergraph employees
wishing to make business-travel arrangements.
UNIGLOBE Green Mountain Travel must be kept separate and
distinct from any other Green Mountain, Inc. travel agencies
and must be dedicated to serving Intergraph and others
specifically authorized by Intergraph. This will not prohibit
service by UNIGLOBE Green Mountain Travel to the general
public.
UNIGLOBE may be required, at the request of Intergraph, to
establish certain Remote Ticketing Branch locations as needed
to meet the travel document distribution requirements noted
herein. Unless otherwise agreed, all Remote Ticketing Branches
will be satellite ticket printer (STP) locations (as classified
by ARC) and are to be used exclusively for Intergraph.
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
ARC/IATA APPOINTMENTS
- ---------------------
UNIGLOBE must maintain in good standing all ARC and IATA
appointments at each location servicing Intergraph throughout
the term of the Agreement and Intergraph will cooperate fully
in these efforts. Intergraph will permit reasonable access to
its premises by authorized representatives of ARC, IATAN, and
the airlines for the purposes of verifying that UNIGLOBE and
Intergraph are in full compliance with all applicable rules and
regulations of these entities.
If this Agreement is terminated for any reason, and Intergraph
so requests, UNIGLOBE will use its best efforts to assist in
transferring the ARC and IATA appointments to Intergraph or its
designee.
UNIGLOBE will use its best efforts to secure and maintain
approval from all major domestic and international airlines and
Amtrak to issue their tickets, with full commissions (unless
otherwise negotiated by Intergraph), at all UNIGLOBE locations
servicing Intergraph.
ARC ADMINISTRATION
- ------------------
Intergraph will be responsible for the weekly processing of all
ARC coupons and ARC Sales reports as well as the timely
reconciliation of ARC Area Settlement Bank reports for all
transactions at UNIGLOBE Green Mountain Travel.
AUTOMATION
- ----------
UNIGLOBE will provide Intergraph with a computerized
reservations system ("CRS") acceptable to Intergraph to
facilitate the booking of airline, ground transportation,
lodging and related travel arrangements and the generation of
necessary travel documents. UNIGLOBE will also provide a
comprehensive, automated accounting and travel-information
management system ("Back-Office System") acceptable to
Intergraph to facilitate ARC administration and the generation
of the management-information reports defined by Intergraph.
The CRS and Back-Office System must be compatible, and fully
interfaced with each other.
Intergraph reserves the right to request a conversion of the
primary CRS used by UNIGLOBE in support of the Intergraph
account if, in its sole discretion, such a conversion would
result in a substantial material benefit to Intergraph.
UNIGLOBE will cooperate fully in such a conversion, including
using its best efforts to minimize any costs assessed by the
outgoing CRS vendor and, at the request of Intergraph Travel
Services, negotiating favorable terms and conditions with the
incoming CRS vendor.
All discounts, credits or incentives received by UNIGLOBE from
the CRS vendor(s) for CRS equipment, software, maintenance, and
services must be disclosed to Intergraph Travel Services and
will be used to offset the costs associated with servicing the
Intergraph account.
In the event that this Agreement is terminated by either party,
Intergraph reserves the right, with the concurrence of the CRS
vendor(s), to retain the reservations system(s) equipment, and
all Intergraph data associated with the system, and to assume
responsibility for any payments for the remaining lease term.
2
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
OWNERSHIP OF DATA
- -----------------
UNIGLOBE agrees that Intergraph owns all data from
reservations, ticketing, and billing of Intergraph travel
arrangements and that Intergraph, or its authorized third
party, will be given complete and unrestricted access to such
data. In the event that this Agreement is terminated by either
party, UNIGLOBE will immediately provide to Intergraph all
detail and summary data relative to Intergraph's travel
activity stored in computer system(s) provided by UNIGLOBE.
STAFFING/PERSONNEL
- ------------------
UNIGLOBE will designate a single, qualified employee,
acceptable to Intergraph, to act as the manager of UNIGLOBE
Green Mountain Travel. This individual must meet all
"management" and "ticketing" requirements for ARC and IATA
accreditation.
Intergraph will be responsible for staffing UNIGLOBE Green
Mountain Travel with qualified personnel in sufficient numbers
to handle all reservations, ticketing, support and accounting
functions required in support of the Intergraph account.
INDEPENDENT CONTRACTOR
- ----------------------
Intergraph and UNIGLOBE agree that all work performed by either
under this Agreement will be performed by each as an
independent contractor and not as the employee, agent or
representative of the other. Neither party will represent
itself as an employee, agent or representative of the other
when dealing with any third party. Neither party will have the
authority to bind the other to any agreement with any third-
party without the prior written authorization of the other
party.
VENDOR NEGOTIATIONS
- -------------------
Intergraph has the primary responsibility for the negotiation
of discount and value-added products and services for its
travelers. UNIGLOBE and Intergraph will advise each other
whenever their combined purchase volumes might be leveraged to
produce significant savings to Intergraph. UNIGLOBE will not
pledge, or otherwise commit, any of Intergraph's travel
activity for the purpose of obtaining volume discounts from
travel vendors without the prior, written approval of
Intergraph.
Intergraph retains the right to negotiate discounts, reduced
fares, credits, restriction waivers, and the like directly with
airline carriers, and UNIGLOBE will cooperate fully with
Intergraph and airline(s) in the negotiation and implementation
of such discounts.
RIGHTS TO REVENUE
- -----------------
UNIGLOBE and Intergraph agree that all revenue, including
overrides, generated as a result of Intergraph's business
travel and travel-related activities belongs to Intergraph and
will be retained by Intergraph to offset its direct and
indirect costs associated with managing its business travel.
Revenue generated by international travel will be used
exclusively to offset Intergraph's costs and reimbursements to
UNIGLOBE as outlined herein.
3
(PAGE>
AGREEMENT
- ---------------------------------------------------------------
Revenue generated as a result of the leisure or personal travel
of Intergraph employees or others booked directly with UNIGLOBE
will be retained by UNIGLOBE to offset its direct and indirect
costs associated with providing these services.
OVERRIDES/REVENUE ENHANCEMENTS
- ------------------------------
Intergraph and UNIGLOBE acknowledge that certain revenue will
accrue to UNIGLOBE in the form of overrides, bonuses, credits,
tickets or other revenue enhancements from the travel suppliers
used by Intergraph and its business travelers. As noted above,
all such revenue, regardless of form, belongs to Intergraph and
will be retained by Intergraph to offset its direct and
indirect costs associated with managing its business travel.
From time to time, Intergraph may not be able to utilize
certain non-cash revenue enhancements, including tickets. At
the sole discretion of Intergraph Travel Services, unused
tickets, credits, vouchers or similar non-cash benefits may be
made available to UNIGLOBE. Such situations will be dealt with
by Intergraph and UNIGLOBE on a case-by-case basis. Each case,
however, must be documented in writing by the parties.
Intergraph and UNIGLOBE agree that free or reduced-rate airline
tickets (exclusive of award tickets earned from individual
participation in incentive programs) will not be used by any
Intergraph employee or their immediate family for leisure or
personal travel.
FULL DISCLOSURE
- ---------------
UNIGLOBE will make full disclosure of all revenue, regardless
of its source, and operating costs associated with Intergraph's
travel activity.
FIDUCIARY RELATIONSHIP
- ----------------------
UNIGLOBE agrees that it has entered into a fiduciary
relationship with Intergraph with respect to all financial
obligations and responsibilities assumed by UNIGLOBE under the
Agreement. UNIGLOBE will maintain separate, complete and
accurate accounting records relating solely to Intergraph's
business. These records must be available for inspection in
Huntsville, Alabama by Intergraph or its representative(s).
FINANCIAL AUDITS
- ----------------
Intergraph, or its authorized representative, will have the
right to perform periodic financial/accounting audits, and to
review, in the course of any such audit, any of UNIGLOBE's
data, documents, records, worksheets, systems, standards,
procedures, or practices related to the Agreement. UNIGLOBE
must provide Intergraph its full cooperation and any assistance
reasonably required to facilitate said audit.
RECEIPT OF REVENUE
- ------------------
All receipts from the cash sales of airline tickets, or other
services, and all airline, ground services, and other
commissions or revenue earned as a result of Intergraph's
travel activity booked through UNIGLOBE Green Mountain Travel
received directly by UNIGLOBE will be held in trust by UNIGLOBE
for distribution as agreed herein.
4
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
All receipts from the cash sales of airline tickets, or other
services, and all airline, ground services, and other
commissions or revenue earned as a result of Intergraph's
travel activity booked through UNIGLOBE Green Mountain Travel
received at UNIGLOBE Green Mountain Travel will be endorsed
over to Intergraph Corporation and deposited into the account
of its choice.
UNIGLOBE and Intergraph will mutually agree on the
administrative details of handling the accounting of all
revenue, including the establishment of procedures to insure
that UNIGLOBE is funded in a timely manner for all authorized
operating expenses associated with servicing the Intergraph
account.
PAYMENTS TO INTERGRAPH
- ----------------------
Within fifteen (15) calendar days after the close of each
month, UNIGLOBE will submit to Intergraph a check, payable to
Intergraph, in an amount equal to all revenue received directly
by UNIGLOBE during the month as a result of Intergraph's
business travel activity booked through UNIGLOBE Green Mountain
Travel. In addition, UNIGLOBE will provide Intergraph with
sufficient information to reconcile the payment.
ALLOWABLE EXPENSES
- ------------------
The only expenses reimbursable by Intergraph under this
Agreement are as follows:
(a) Direct labor by UNIGLOBE employees at the rate mutually
agreed upon by the parties, provided the work was
requested by Intergraph's Senior Manager, Travel
Services.
(b) The monthly UNIGLOBE franchise fee to be calculated in
accordance to the attached Exhibit A.
(c) Charges for any authorized supplemental services outside
the scope of the Agreement and requested by Intergraph's
Senior Manager, Travel Services, in writing, during the
period.
(d) Costs of business insurance, operating licenses and taxes,
including property taxes, paid by UNIGLOBE and
directly attributable to the support of the Intergraph
account. UNIGLOBE will use its best efforts to minimize
all such costs.
(e) All costs for CRS equipment used by UNIGLOBE in support
of the Intergraph account, including all hardware,
software, data lines, modifications and interface
charges, as provided in the CRS agreements in place at
the time of this Agreement.
(f) All fees associated with the off-site storage of ARC/IATA
accountable documents.
PAYMENTS TO UNIGLOBE
- --------------------
Intergraph will, within fifteen (15) calendar days after
receipt of an original invoice, make payment to UNIGLOBE for
any authorized and allowable expenses incurred by UNIGLOBE.
UNIGLOBE will provide Intergraph with sufficient information to
reconcile the invoice.
5
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
LEISURE/PERSONAL TRAVEL
- -----------------------
UNIGLOBE will establish and maintain a leisure-travel office,
staffed by UNIGLOBE personnel, on Intergraph's premises in
Huntsville, Alabama. All requests received by Intergraph
Travel Services from Intergraph employees to handle
vacation/leisure-travel arrangements will be referred to this
office. No major corporate or group accounts are to be
serviced from this office without the prior authorization of
Intergraph Travel Services.
UNIGLOBE will be responsible for developing various discounted
leisure-travel and vacation packages for Intergraph employees.
Intergraph agrees to cooperate fully with UNIGLOBE Madison
Travel in promoting these packages to Intergraph employees,
provided that all such promotion efforts are in compliance with
Intergraph policy.
The leisure-travel office at Intergraph will use its best
efforts to assist Intergraph customers and consultants visiting
Huntsville with any changes or new reservations that they may
require. Such assistance will be provided even if it does not
generate any revenue to UNIGLOBE.
During the term of this agreement, no other travel agency will
be granted access to Intergraph offices in Huntsville for the
purpose of soliciting leisure, personal or vacation travel from
Intergraph employees.
Rent and Utilities.
- ------------------
Intergraph will provide UNIGLOBE with sufficient office space
on Intergraph's premises in Huntsville, Alabama. All costs
associated with the ongoing use of the space will be the
responsibility of Intergraph. All furnishings and office
equipment will be the responsibility of UNIGLOBE.
Telecommunications.
- ------------------
Intergraph will provide UNIGLOBE with a single telephone line
for access to the Intergraph telephone network. This line must
be used exclusively for communication with Intergraph
employees. Unless otherwise agreed, all telephone instruments
and related hardware and any external telephone lines will be
the responsibility of UNIGLOBE.
NON-DISCLOSURE
- --------------
This Agreement is confidential. Neither party will disclose
the existence of this Agreement or any of its terms or
conditions without the other's prior written consent.
PUBLICITY
- ---------
UNIGLOBE agrees to submit to Intergraph all advertising, sales
promotion, press releases and other publicity matters relating
to the services performed by UNIGLOBE under this Agreement
wherein Intergraph's names or marks are mentioned or language
from which the connection of said names or marks therewith may
be inferred or implied and UNIGLOBE further agrees not to
publish or use such advertising, sales promotion, press
releases, or publicity matters without Intergraph's written
approval.
6
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
TERM AND TERMINATION
- --------------------
This Agreement is effective as of September 1, 1992 and will
continue until December 31, 1995. Either party may terminate
this Agreement upon ninety days written notice to the other.
Any termination of this Agreement will be without prejudice to
any outstanding rights or obligations.
CONTINUITY OF SERVICE
- ---------------------
UNIGLOBE recognizes that the services provided under this
Agreement are vital to Intergraph's overall effort, that
continuity must be maintained without interruption, that upon
expiration of this Agreement a successor -- either Intergraph
or another vendor -- may continue these services, and that
UNIGLOBE must give its best efforts and cooperation to effect
an orderly and efficient transition to a successor. UNIGLOBE
will be reimbursed for all reasonable transition costs provided
those costs are incurred within an agreed transition period
after expiration of the Agreement and authorized, in writing,
by Intergraph.
NOTICES
- -------
Notices and other correspondence related to the Agreement
should be directed to the parties by facsimile, telegraph,
first-class mail (postage), or personal delivery, as follows:
TO THE COMPANY TO THE AGENCY
-------------- -------------
Senior Manager, Travel Services President
Mail Stop IW2002 Green Mountain, Inc.
Intergraph Corporation Suite 114
Huntsville, Alabama 35894-0004 900 Bob Wallace Avenue
Huntsville, Alabama 35801
FAX: 205-730-9465 FAX: 205-536-5942
ENTIRE AGREEMENT
- ----------------
The Agreement constitutes the entire understanding between
Intergraph and Green Mountain, Inc. relating to the subject
hereof and supersedes all prior communications on the subject.
Any further modification of the Agreement must be in writing
and executed by both parties.
For: Green Mountain, Inc. For: Intergraph Corporation
------------------------- -------------------------------
Gerald F. Donovan H. Richard Chew, Jr.
President Senior Manager, Travel Services
Date: February 23, 1994 Date: February 24, 1994
------------------ ------------------
7
<PAGE>
AGREEMENT
- ---------------------------------------------------------------
EXHIBIT A
UNIGLOBE SERVICE-FEE CALCULATION
For the term of this Agreement, the UNIGLOBE Service Fee paid
by Intergraph to UNIGLOBE will be calculated as follows:
(i) On the first $31,920.00 of gross income, ten percent (10%)
(ii) On the next $31,920.00 of gross income, seven percent (7%)
(iii) On the next $21,281.00 of gross income, five percent (5%)
(iv) On the balance over $85,121.00 of gross income, two percent (2%)
For the purpose of calculating this Service Fee, "gross income"
is defined as all commissions or other cash revenue received by
UNIGLOBE Green Mountain Travel as a result of Intergraph's
travel activity booked through UNIGLOBE Green Mountain Travel.
Bonuses, credits, discounts, incentives, or reimbursements paid
directly to Intergraph by service providers will not be
included in the calculation of gross income.
8
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,050,277 $1,176,661 $1,195,378 $1,044,617 $860,062
Restructuring charges 89,806 4,418 --- --- ---
Net income (loss) (116,042) 8,442 71,108 62,557 79,502
Net income (loss) per share (2.51) .18 1.47 1.28 1.48
Working capital 348,756 430,974 502,152 443,272 414,398
Total assets 855,329 986,663 996,615 907,460 808,026
Long-term debt 17,541 19,759 23,413 16,891 7,069
Shareholders' equity 588,710 736,863 754,994 682,272 629,759
</TABLE>
Inside Front Cover Page
<PAGE>
Pages 1 through 7 contain the President's Letter and certain marketing
literature.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY. The Company lost $2.51 per share in 1993 versus earnings of
$.18 and $1.47 per share in 1992 and 1991, respectively. The loss in
1993 was the result of a decline in systems revenue, a decline in
gross margin, and restructuring expenses. The earnings decline in
1992 was the result of a substantial decline in income from operations
and foreign exchange losses.
After growth in systems revenue of 12% for 1991, systems revenue
declined by 8% in 1992 and by 15% in 1993. The Company attributes the
decline in systems revenue to transition in its products and to weak
economic conditions in the U.S. in 1992 and in the U.S. and Europe in
1993. In addition to the revenue decline, systems gross margin
declined 1.9 points in 1992 and 8.8 points in 1993, due to lower sales
volume, discounting of older products pending availability of new
products, and continuing industry product performance and price
competition. Over the same three year period, the Company reduced
growth in operating expenses (exclusive of restructuring expenses)
from 18% in 1991 to 5.6% in 1992 and achieved a reduction in operating
expenses of 3.2% in 1993.
In 1993 the Company incurred pretax restructuring charges of $89.8
million ($61.7 million after related tax benefit, or $1.34 per share).
As further explained below, the charges resulted from changes in
product, sales, and manufacturing strategies that were made to enable
the Company to compete more effectively. The Company estimates that
the 1993 restructuring will produce savings of approximately $50
million annually beginning in 1994, primarily in the areas of selling,
product support, and product development expenses.
The Company expects that its product transition and economic weakness
in Europe, particularly in the large German market, may continue to
adversely affect orders and revenues through the first half of 1994.
The Company believes, however, that profitability should return in the
second half of the year as new products are produced and sold in
volume and the benefits of its restructuring begin to be realized.
BUSINESS TRANSITION AND RESTRUCTURING. Over the past several years
the industry in which the Company competes has been characterized by a
rapid move to higher performance, lower priced product offerings, by
intense price and performance competition (best exhibited by gross
margins that have declined steadily in the industry and for the
Company), by significantly shorter product cycles, and by development
and support of software standards that result in less specific
hardware dependency by customers. As a consequence, the operating
results of the Company and others in the industry have and will
continue to depend on the ability to rapidly and continuously develop
and deliver new hardware and software products that are competitively
priced, offer enhanced performance, and meet customers' requirements
for standardization and interoperability. As described further below,
during late 1992 and 1993 the Company made several strategic decisions
to better position itself to compete in this environment. These
decisions led to actions that resulted in an $89.8 million pretax
restructuring charge in 1993.
Operating Systems. In November, 1992 the Company announced its
decision to port its technical software applications to Microsoft
Corporation's new Windows NT operating system, and to make Windows NT
available on Intergraph workstations. Microsoft's standard Windows
system has been widely accepted in the personal computing (PC) market,
and Windows NT is Microsoft's new operating system for high-end
computing. The effect of this decision is to expand the availability
of the Company's workstations and software applications to Windows-
based computing environments not previously addressed by the Company,
including the availability of Intergraph software applications that
will operate across a variety of hardware architectures, including
those of other hardware vendors that use the Windows NT operating
system. Prior to this decision, the Company's software applications
operated principally on Intergraph hardware platforms. At the same
time, the Company is continuing to develop and maintain products in
the UNIX operating system environment, the foundation for its software
applications prior to Windows NT, thereby offering existing and
potential customers a choice of UNIX or Windows NT operating systems
as well as a path to the NT system if and when the customer chooses.
Limited shipments of Windows NT-based software began in the fourth
quarter of 1993. Most of the Company's software applications are
expected to be available for Windows NT by the end of 1994.
While the Company believes that Windows NT will become the dominant
operating system in the markets it serves, competing operating systems
are available in the market. In addition, several competitors of the
Company also offer UNIX or are adopting the Windows NT operating
system for product offerings.
Hardware Architecture. In addition to the Windows NT operating
system, the Company believes that Intel Corporation's hardware
architecture will play an increasingly important role in the computing
markets it serves, and has begun to offer a hardware platform (in
addition to its own) based on Intel microprocessors. Previously, the
Company's principal hardware platform offering had been based on its
own microprocessor. The Company began shipping new Intel-based
workstations in third quarter 1993, and expects that Intel-based
systems will represent the majority of its workstation shipments in
1994.
In August, 1993 the Company entered into an agreement with Sun
Microsystems Computer Corporation (Sun) to co-develop the next
generation Sun SPARC high-end microprocessor, develop a SPARC-based,
high quality desktop computer system, and port the Windows NT
operating system to that computer system. The commercial result of
the agreement for the Company is the right to purchase from Sun the co-
developed microprocessor and the right to sell the SPARC-based, high-
end computer system operating under Windows NT with Intergraph's
technical software applications, all in the second half of 1995. In
addition, under the terms of the agreement Sun hired 77 employees of
the Company's Advanced Processor Division (APD) effective January 1,
1994, and has the obligation to offer employment to the remaining 40
APD employees effective January 1, 1995. The Company has ceased
design of its own microprocessor.
8
<PAGE>
Restructuring Charge. The 1993 financial statement impact of changes
in the Company's product, sales, and manufacturing strategies are
described below.
1993 Restructuring Charge
Before Tax Benefit
(In thousands) -------------------------
Reduction in workforce $10,467
Elimination of operations, primarily the European
manufacturing and distribution facility 17,136
Revaluation of assets resulting from new product
strategy - primarily spares inventory, goodwill,
and investments in other companies 56,082
Restructure of electronics business 6,121
-------
Total $89,806
=======
Reduction in Workforce. During 1993 the Company directly reduced its
workforce by approximately 450 employees in an effort to reduce the
Company's fundamental cost structure. The related restructuring
charge consists of severance pay and other personnel related costs,
primarily for workforce reductions in the European and U.S. sales and
support operations. The total net reduction in workforce for the year
was approximately 800, consisting of these 450 employees, 77 APD
employees discussed in "Hardware Architecture" above, and other
employees who left the Company through attrition and were not
replaced.
Elimination of Operations. In January, 1994 the Company announced its
decision to close its European manufacturing and distribution facility
(IEM) located in Nijmegen, The Netherlands. The decision was made to
take advantage of lower costs of production and distribution in the
U.S., and to utilize existing capacity in the U.S. manufacturing
operation. The facility will be closed in phases over the course of
1994, with all manufacturing and distribution activity transferred to
the Company's U.S. manufacturing facility. European sales and support
activity will continue to be provided by the Company's subsidiary
operations located throughout Europe and by its European headquarters
located in The Netherlands. The charge for closure of the Nijmegen
facility consists primarily of the costs of severance and other
personnel related costs for the 130 employees that will be affected.
Also included in this amount are asset retirements related to the
phased closure of APD, and charges for consolidation of several sales
and support facilities in Europe.
Revaluation of Assets Due to New Product Strategy. This charge
consists of $35.3 million to retire spares inventory items and $20.8
million to write-off goodwill recognized on previous business
acquisitions and investments in less than 20%-owned companies. The
spares inventory write-off was taken in recognition of the diminished
value of these parts as the Company transitions to smaller, less
expensive but more technologically advanced client-server and PC-based
systems, to new operating systems that provide greater ease of use
and, in the specific case of the Company, to systems incorporating
microprocessors more widely used in desktop computing. The goodwill
and investee company write-offs relate to previous acquisitions
generally in small, privately-held, developing companies that
possessed technologies of value to the Company or that offered
products that complemented those of the Company. The product
transition of the Company diminished the value of these investments.
Restructure of Electronics Business. In December, 1990 the Company
acquired substantially all of the operating assets of Daisy Systems
Corporation and its wholly-owned subsidiary, Daisy/Cadnetix, Inc.
(DAZIX). DAZIX and the Company's existing electronics business
combined to form the Company's new electronic design automation (EDA)
business. In 1992 the Company recorded pretax charges of $4.4 million
($.06 per share) associated with restructuring the EDA business to
focus the Company's efforts toward the stronger growth areas in the
EDA market and to further integrate the DAZIX unit with the Company's
existing electronics business. As a result of the product transition
described above, the Company continued to restructure and position its
EDA business in 1993, incurring additional severance and facilities
consolidation expenses and revaluing assets, including goodwill from
other related acquisitions and investments in companies offering
complementary products.
Expected Impact on Future Results, Liquidity, and Sources and Uses of
Capital Resources. The Company anticipates that the restructuring
actions taken in 1993 will reduce expenses by approximately $50
million annually beginning in 1994, primarily in the areas of selling,
product support, and product development expenses. Approximately 75%
of the restructuring charges are asset retirements and do not involve
a cash outlay. The charges required cash expenditures in 1993 of
approximately $7 million, primarily for severance pay, and the Company
expects a total 1994 cash expenditure related to the 1993
restructuring of approximately $20 million (primarily for severance
pay, related personnel costs, and IEM debt retirement), all of which
is expected to be provided from cash generated by 1994 operations and
the sale or lease of the IEM facility. Long-term effects on the
Company's liquidity and sources and uses of capital are expected to be
minimal, as described below.
Closure of European Manufacturing and Distribution Facility. All
manufacturing and distribution activity previously performed by
IEM will be performed in the U.S. manufacturing facility. The
Company expects an expense and cash savings to accrue from this
change, since European activity can be absorbed by existing
capacity in the U.S. facility with no significant further
investment in the U.S. facility. All European sales and service
activity will remain in Europe, and the Company expects no impact
on its ability to conduct its European business.
9
<PAGE>
Closure of Advanced Processor Division. The Company no longer
designs its own microprocessor, and has agreements in place with
Intel and Sun for provision of its microprocessor needs.
Although the unit cost of the Company's microprocessor
requirements may increase, the Company expects a net savings to
accrue from the APD closure since it no longer will fund the
substantial cost of microprocessor design.
Windows NT Product Strategy. The Company has incurred
significant expense in 1993 to port its technical software
applications to operate under the Windows NT operating system and
to simultaneously enhance its UNIX operating system product
offerings. This higher level of development expense will
continue through 1994. The Company believes, however, that funds
generated by the future savings from restructuring and arising
from normal operations will be adequate to meet these
requirements without assistance from external sources.
ORDERS. Systems orders for 1993 were $630 million, down 23% for the
year after a decline of 2% in 1992 and 4% growth in 1991. The decline
in 1993 orders is the result of the Company's ongoing product
transition that began in late 1992, economic weakness, particularly in
the Company's primary U.S. and European markets, and strengthening of
the U.S. dollar against European currencies. U.S. orders, including
federal government orders, were $312.2 million for the year, down 26%
(federal government orders were down 34%), and international orders
were $317.8 million, down 21% for the year. European orders were down
30% in 1993. Order levels in each quarter of 1993 showed sequential
improvement with second quarter up 10%, third quarter up 4%, and
fourth quarter up 9%, but orders were weak for the full year compared
to 1992.
In August 1993, the U.S. Navy awarded Intergraph and another company
multi-year, indefinite delivery, indefinite quantity contracts (the
Naval Engineering Command Computer Aided Design or "NAVFAC CAD 2"
contracts) to fulfill facility engineering requirements for computer-
aided design and drafting, geographic information systems, and
computer-aided facility management for the Navy as well as other
Department of Defense and civilian agencies with a facilities
engineering mission. Under these contracts, each company will compete
for orders. Each 12 year contract has a guaranteed minimum of $1
million over its life; however, the maximum combined value of the
contracts totals $550 million. The contracts did not have a
significant impact on 1993 orders and revenues but could contribute
substantially to 1994 orders and revenues. In April 1991, the U.S.
Navy awarded the Company a multi-year, indefinite delivery, indefinite
quantity contract to provide computer-aided design and manufacturing
(CAD/CAM) systems to support the design, construction, maintenance,
overhaul, alteration and repair of Navy ships and shipboard systems
(the Naval Sea Systems Command or "NAVSEA" contract). This contract
extends over a twelve year period and has an estimated value of $363
million. The NAVSEA contract contributed substantially to total
orders and revenues in 1992 and 1993.
REVENUES. Revenues for 1993 were $1.05 billion, down 11% for the year
after a 2% decline in 1992 and 14% growth in 1991. Sales of
Intergraph systems were $673 million, down 15% for the year after an
8% decline and 12% growth in the preceding two years. Maintenance and
services revenue, consisting of revenues from maintenance of
Intergraph systems and training, consulting and other services, was
down 1% in 1993 after 14% and 21% growth in the preceding two years.
The Company believes that its product transition, general economic
weakness, particularly in the Company's primary U.S. and European
markets, and intensified competition in the industry account for the
decline in systems revenue in 1993 and 1992. In addition, 1993
systems revenue was reduced by approximately 4% by strengthening of
the U.S. dollar against European currencies. U.S. systems sales were
weak in 1993 and 1992, declining 15% and 16%, respectively, from the
prior year after increasing 16% in 1991. European systems revenue
declined 23% during 1993, after growing by 7% in 1992 and 11% in 1991.
For the year, sales outside the U.S. represented 51% of the total
revenues of the Company, versus 51% and 46% in the two preceding
years. European revenues were 35% of total revenues for 1993, 38% for
1992, and 34% for 1991.
Among the Company's product applications, AEC (architecture,
engineering, and construction), mapping/GIS (geographic information
systems), and MDEM (mechanical design, engineering, and manufacturing)
continue to dominate the product application mix.
The Company has a license agreement with Bentley Systems, Inc. (BSI),
a 50%-owned affiliate of the Company, under which the Company was
granted exclusive rights to distribute MicroStation, a software
product developed and maintained by BSI. BSI now contends that the
license has become nonexclusive, giving BSI the right to distribute
MicroStation and develop and distribute additional software products
in competition with Intergraph. This matter is the subject of
litigation between the parties. MicroStation is a basic graphics
software package upon which many of the Company's software application
products are built. The Company's sales of the MicroStation product
during the year ended December 31, 1993 were approximately $70
million. The gross margin on MicroStation is approximately 70% before
allocation of selling, marketing, research and development, and
general and administrative expenses.
Preliminary settlement negotiations have begun which, if successful,
would allow BSI after 1994 to distribute MicroStation and develop and
distribute additional software products. Since the litigation and
settlement negotiations are in a very early stage, the Company is
unable to predict the effects that any changes in the agreement with
BSI may have on its results of operations for 1994 and subsequent
years. The impact of any profits lost by the Company would be
partially offset by the Company's 50% ownership of BSI, and the advent
of new Intergraph products currently under development.
Revenues from the United States government were $166 million in 1993
(16% of total Company revenues), $186 million in 1992 (16% of total
Company revenues), and $172 million in 1991 (14% of total Company
revenues). The Company sells to the U.S. government under long-term
contract arrangements, primarily cost-plus award fee contracts, and
through commercial sales of products not covered by long-term
contracts. Approximately 40% of total federal government revenues are
earned under long-term contracts. The Company believes its
relationship with the federal government to be good. While it is
fully anticipated that these contracts will remain in effect through
their expiration, the contracts are subject to termination (with
damages paid to the Company) at the election of the government. Any
loss of a significant government contract would have an adverse impact
on the results of operations of the Company.
10
<PAGE>
Maintenance revenues grow as the Company's installed base of systems
grows. Maintenance revenue was down 2% in 1993 as the result of the
systems revenue decline, the shift within the industry toward less
expensive workstations, and the strengthening of the U.S. dollar
against European currencies. Services revenue, which grew by 9% in
1993, is expected to represent an increasing portion of the Company's
revenue in the future, though it now represents less than 5% of total
revenues. Both maintenance and services revenue produce lower gross
margins than systems revenues. The trend in the industry toward less
expensive workstations could continue to reduce maintenance revenue,
if not offset by higher volumes of product sales.
GROSS MARGIN. The Company's total gross margin was 40.8% in 1993, a
decline of 5.9 points after a decline of 2.6 points in 1992 and an
increase of .5 points in 1991. Margin on systems sales declined 8.8
points in 1993 and 1.9 points in 1992 after increasing 1.1 points in
1991. The margin decline since 1991 is the result of lower sales
volume, price discounting, and lower margins on new hardware products.
In addition, strengthening of the U.S. dollar against European
currencies reduced the Company's 1993 systems margin by approximately
2 points. These negative effects are partially offset by higher
software content in the Company's systems. Margin on maintenance and
services revenue improved 1.3 points in 1993 after declining .8 points
in 1992 and remaining stable in 1991. Margin improvement in 1993 is
the result of a decline in post sales support cost.
Factors that contribute to lower margins include price competition, a
stronger dollar in international markets, the effects of technological
changes on the value of existing inventories, and a higher mix of
Federal government sales to total sales. Margins are improved by
higher software content in the product, a weaker dollar in
international markets, a higher mix of international sales to total
sales, and reductions in prices of component parts, which generally
tend to decline over time in the industry. The Company is unable to
predict the effects that many of these factors may have on its gross
margin, but expects that hardware margins may continue to decline due
to price competition in the industry.
OPERATING EXPENSES (EXCLUSIVE OF RESTRUCTURING EXPENSES). Operating
expenses declined by 3.2% in 1993 after growth of 5.6% in 1992 and 18%
in 1991. Growth in operating expenses in 1991 was the result of
planned staff level increases, primarily in the sales and marketing
and product development areas, and increased advertising and related
expenses in an effort to gain market share. Growth in operating
expenses moderated in 1992 as the result of closer monitoring of
hiring and spending and a decline in the Company's discretionary
contribution to the Employees' Stock Ownership Plan. The decline in
operating expenses in 1993 results primarily from close monitoring of
spending, the effects of a stronger U.S. dollar in the Company's
European markets, and from workforce reductions due to restructuring,
which occurred primarily in the last half of the year. The total
number of employees of the Company declined by a net 8% in 1993 after
1% growth in 1992 and 8% growth in 1991. For 1993, product
development expense grew by 7% as a result of development efforts
enabling the Company to offer products under two operating systems
(UNIX and Windows NT) and provide for interoperability between the
two. Sales and marketing and general and administrative expenses
declined by 6% and 10%, respectively, due to workforce reductions,
other cost control measures, and a stronger U.S. dollar in European
markets. The Company continues to closely monitor spending.
NONOPERATING INCOME AND EXPENSE. Interest income was $4.5 million in
1993, $5.4 million in 1992 and $9.3 million in 1991. Both the average
cash balance and average yields earned on investments declined during
1992 and 1993. The Company's cash position in 1993 was negatively
impacted by a decline in cash generated from operations and by
purchases of the Company's stock in the open market. In 1992, the
Company made substantial cash investments in business acquisitions,
investments in other related businesses, and purchases of the
Company's stock. The Company's cash position in 1991 benefited from
sales of long-term investments in common stock and proceeds from the
exercise of employee stock options.
In 1993 and 1992 the Company incurred net foreign exchange losses of
$3.3 million ($.05 per share) and $12.5 million ($.18 per share),
respectively. The 1992 loss occurred primarily in the third and
fourth quarters and resulted in large part from instability during
that time within the EMS (European Monetary System). This portion of
the loss occurred within the Company's European manufacturing and
distribution center, located in The Netherlands. The center's
exposure among the European currencies was not hedged, since to that
time currency values were generally controlled within the EMS.
Subsequent to this time, the Company has partially hedged its exposure
among the European currencies.
"Other income (expense)-net" in the consolidated statements of income
consists primarily of equity in the earnings of 20%- to 50%-owned
companies, other miscellaneous items of nonoperating income and
expense, and nonrecurring charges other than restructuring. The 1993
amount includes a $3.3 million write-off of an equity investment.
In 1991, the Company recognized an $8.1 million gain on the sale of a
long-term investment.
INCOME TAXES. The Company incurred a loss before income tax benefit
and the cumulative effect of a change in method of accounting for
income taxes of $172.6 million in 1993. Income before income taxes
was $12.4 million in 1992 and $111.9 million in 1991. The effective
tax rate for the 1993 tax benefit was 31.3%. Effective rates on
income for 1992 and 1991 were 31.9% and 36.5%, respectively. Note 6
of Notes to Consolidated Financial Statements contains a
reconciliation of statutory to actual income tax benefit or expense.
At December 31, 1993 the Company's balance sheet included a net
deferred tax asset in the amount, after consideration of available
deferred tax credits, of approximately $9 million. The deferred tax
asset is expected to be realized through tax return deductions in 1994
that will reduce 1994 taxes payable or through carryback of losses to
1991 that would result in refund of taxes paid in that year.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". The
resulting change in method of accounting for income taxes did not
significantly affect 1993 results of operations.
See Note 6 of Notes to Consolidated Financial Statements for further
details of the Company's tax position.
11
<PAGE>
IMPACT OF CURRENCY FLUCTUATIONS. Fluctuations in the value of the
U.S. dollar in international markets can have a significant impact on
results of operations at the level of international business currently
conducted by the Company. For 1993, approximately 51% of the
Company's revenues were derived from customers outside the United
States (51% for 1992 and 46% for 1991), primarily through subsidiary
operations. Most subsidiaries sell to customers and incur and pay
operating expenses in local currency. These local currency revenues
and expenses are translated to dollars for U.S. reporting purposes. A
stronger U.S. dollar will decrease the level of reported U.S. dollar
orders and revenues, decrease the dollar gross margin, and decrease
reported dollar operating expenses of the international subsidiaries.
During 1993, the U.S. dollar strengthened on average from its 1992
levels, which reduced the Company's total revenues, orders, and
operating expenses by approximately 4%. Systems margin was reduced
approximately 2 points. The Company's international operations are
also subject to certain risks inherent in doing business abroad and
may be adversely affected by government policies, restrictions, or
other factors. In addition, the Company has certain currency related
asset and liability exposures related to its international operations
against which certain measures, including hedging, are taken to reduce
currency risk.
PURCHASE BUSINESS COMBINATIONS AND INVESTMENTS IN OTHER BUSINESSES.
In February 1993, the Company acquired a 100% ownership interest in a
company engaged in a related business for $9.5 million in cash and
other consideration. The accounts and results of operations of that
company have been combined with those of the Company since the date of
acquisition using the purchase method of accounting. The acquisition
did not have a material effect on the Company's results of operations
in 1993. During 1992, the Company acquired 100% ownership interests
in three companies for a total purchase price of approximately $25.5
million in cash and other consideration, and acquired less than
majority interests or otherwise invested in six other companies for a
total of $19.4 million in cash and other consideration. All such
companies are engaged in businesses related to that of the Company.
These acquisitions and investments did not have a material effect on
the results of operations of the Company for 1992.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, cash and short-term investments totaled $75.7
million, down $16.9 million from year end 1992.
Cash generated from operations in 1993 was $71.0 million versus $135.9
million in 1992 and $110.7 million in 1991. Capital expenditures of
$65.4 million in 1993 were primarily for Intergraph products used in
hardware and software development. Capital expenditures of $79.5
million in 1992 and $91.6 million in 1991 were for Intergraph products
and additional facilities and related fixtures and equipment. Other
significant uses of cash in 1993 included $29.7 million to purchase
Company stock for the treasury ($13.9 million in 1992 and $18.8
million in 1991), and $8.1 million for business acquisitions and
investments in other businesses ($36.1 million in 1992 and $7.0
million in 1991). The Company's 1991 cash position benefited by the
sale of a long-term common stock investment ($14.9 million) and
proceeds from the exercise of employee stock options ($10.6 million).
Over the last six years, the Board of Directors of the Company has
authorized the purchase of up to
20 million shares of the Company's stock in the open market. As of
December 31, 1993, the Company had purchased approximately 17.7
million shares for the treasury, of which 2.8 million were purchased
in 1993. Further purchases of treasury shares are dependent on market
conditions and availability of cash.
The Company has a $50 million revolving credit agreement with a bank
enabling the Company to borrow funds on a revolving basis until May
31, 1995. There were no outstanding borrowings under this agreement
at December 31, 1993 or 1992. The loan commitment is conditional on
the maintenance of minimum levels of tangible net worth at various
dates through May, 1995. Under certain circumstances, borrowings
under the agreement may create a security interest in certain of the
accounts receivable of the Company.
The Company expects that capital expenditures will require $55 million
to $65 million in 1994, primarily for computer equipment manufactured
by the Company for use in hardware and software development.
The Company has historically enjoyed a strong working capital and
liquidity position. Cash generated from operations has historically
provided the level of cash required to finance ongoing operations,
reinvest in plant and equipment, and finance growth of the business.
However, the Company is unable to precisely predict long-term
conditions in an industry characterized by rapid technological change
and intense competition, and therefore entered into the credit
agreement described above to ensure access to capital at a reasonable
price.
FOURTH QUARTER 1993
Revenues for the fourth quarter were $268.5 million, down 13% from
fourth quarter 1992. The Company incurred a loss of $1.54 per share
for the quarter versus a loss of $.04 per share in fourth quarter
1992. The fourth quarter 1993 loss included a $1.18 per share charge
against earnings for restructuring related to the planned closure of
the Company's manufacturing and distribution facility in The
Netherlands, and the revaluation of assets resulting from new product
strategies. A 5.4 point decline in gross margin from the fourth
quarter 1992 level also negatively impacted fourth quarter 1993
results of operations. The margin decline resulted from the factors
described under "GROSS MARGIN" above.
12
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 1992
- ------------------------- -------- --------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 55,976 $ 67,194
Short-term investments 19,772 25,442
Accounts receivable 314,256 335,588
Inventories 111,555 178,107
Refundable income taxes 42,380 13,259
Other current assets 41,118 28,799
-------- --------
Total current assets 585,057 648,389
Long-term investments 23,560 46,664
Other assets 22,281 44,603
Property, plant, and equipment, net 224,431 247,007
-------- --------
Total Assets $ 855,329 $ 986,663
======== ========
Liabilities and Shareholders' Equity
Trade accounts payable $ 42,866 $ 37,444
Accrued compensation 43,366 42,309
Other accrued expenses 75,608 66,224
Billings in excess of sales 62,087 59,395
Income taxes payable 3,309 9,915
Short-term debt and current maturities
of long-term debt 9,065 2,128
-------- --------
Total current liabilities 236,301 217,415
Deferred income taxes 12,777 12,626
Long-term debt 17,541 19,759
-------- --------
Total liabilities 266,619 249,800
-------- --------
Shareholders' equity:
Common stock, par value $.10 per share --
100,000,000 shares authorized;
57,361,362 shares issued 5,736 5,736
Additional paid-in capital 246,642 250,549
Retained earnings 524,359 640,401
Cumulative translation adjustment ( 7,606) 212
-------- --------
769,131 896,898
Less -- cost of 12,006,827 treasury shares
at December 31, 1993 and 9,803,371
treasury shares at December 31, 1992 (180,421) (160,035)
-------- --------
Total shareholders' equity 588,710 736,863
-------- --------
Total Liabilities and Shareholders' Equity $ 855,329 $ 986,663
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
13
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1993 1992 1991
- ------------------------- --------- --------- ---------
(In thousands except per share amounts)
Revenues
Systems $ 672,790 $ 795,862 $ 861,965
Maintenance and services 377,487 380,799 333,413
--------- --------- ---------
Total revenues 1,050,277 1,176,661 1,195,378
--------- --------- ---------
Cost of revenues
Systems 371,157 369,258 383,361
Maintenance and services 251,129 258,110 223,240
--------- --------- ---------
Total cost of revenues 622,286 627,368 606,601
--------- --------- ---------
Gross profit 427,991 549,293 588,777
Product development 160,294 150,152 134,382
Sales and marketing 238,054 252,619 241,582
General and administrative 104,459 116,696 115,780
Restructuring charge 89,806 4,418 ---
--------- --------- ---------
Income (loss) from operations (164,622) 25,408 97,033
Interest expense ( 2,097) ( 3,025) ( 2,100)
Interest income 4,467 5,432 9,337
Foreign exchange loss ( 3,267) ( 12,531) ( 259)
Gains on sales of long-term investments --- --- 8,118
Other income (expense) -- net ( 7,031) ( 2,892) ( 236)
--------- --------- ---------
Income (loss) before income taxes
and cumulative effect of change
in accounting for income taxes (172,550) 12,392 111,893
Income tax benefit (expense) 54,008 ( 3,950) ( 40,785)
--------- --------- ---------
Income (loss) before cumulative
effect of change in accounting
for income taxes (118,542) 8,442 71,108
Cumulative effect as of January 1, 1993,
of change in method of accounting
for income taxes 2,500 --- ---
--------- --------- ---------
Net income (loss) $(116,042) $ 8,442 $ 71,108
========= ========= =========
Earnings (loss) per share:
Income (loss) before cumulative
effect of change in accounting
for income taxes $( 2.56) $ .18 $ 1.47
Cumulative effect of change in
accounting for income taxes .05 --- ---
--------- --------- ---------
Net income (loss) $( 2.51) $ .18 $ 1.47
========= ========= =========
Weighted average shares outstanding 46,199 48,020 48,431
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
14
<PAGE>
<TABLE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
(In thousands)
Cash provided by (used for):
Operating Activities:
Net income (loss) $(116,042) $ 8,442 $ 71,108
Adjustments to reconcile net income
(loss) to net cash provided by operations:
Cumulative effect of change in method
of accounting for income taxes ( 2,500) --- ---
Depreciation and amortization 85,124 79,455 68,088
Non-cash portion of restructuring charge 79,565 1,637 ---
Provision for ESOP --- --- 7,670
Provision for deferred income taxes ( 20,348) 5,300 ( 12,713)
Write-off of long-term investment 3,273 --- ---
Gains on sales of long-term investments --- --- ( 8,118)
Net changes in current assets and liabilities 38,627 28,520 ( 15,556)
Net exchange loss 3,267 12,531 259
--------- --------- ---------
Net cash provided by operating activities 70,966 135,885 110,738
--------- --------- ---------
Investing Activities:
Decrease in short-term investments, net 13,207 8,347 6,796
Purchase of property, plant, and equipment ( 65,414) ( 79,497) ( 91,580)
Disposal of equipment 8,768 6,331 9,064
Business acquisitions, net of cash acquired ( 6,938) ( 19,658) ---
Purchase of interests in other businesses ( 1,119) ( 16,466) ( 6,975)
Investment in long-term debt securities, net ( 831) ( 12,640) ---
Proceeds from sale of long-term investments --- --- 14,902
Repayment of loan by affiliate 6,994 --- ---
Other ( 13,586) ( 17,879) ( 3,979)
--------- --------- ---------
Net cash used for investing activities ( 58,919) (131,462) ( 71,772)
--------- --------- ---------
Financing Activities:
Proceeds of debt 8,236 363 1,978
Payment of debt ( 2,097) ( 4,722) ( 3,300)
Proceeds of employee stock purchases 4,409 4,418 4,068
Proceeds of exercise of stock options 829 2,119 10,575
Acquisition of treasury stock ( 29,734) ( 13,925) ( 18,805)
--------- --------- ---------
Net cash used for financing activities ( 18,357) ( 11,747) ( 5,484)
--------- --------- ---------
Effect of exchange rate changes on cash ( 4,908) ( 7,796) ( 864)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ( 11,218) ( 15,120) 32,618
Cash and cash equivalents at beginning of year 67,194 82,314 49,696
--------- --------- ---------
Cash and cash equivalents at end of year $ 55,976 $ 67,194 $ 82,314
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
15
<PAGE>
<TABLE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share amounts)
<CAPTION>
Common Stock Treasury Stock Additional Cumulative Total
Paid-in Retained Translation Shareholders'
Shares Amount Shares Amount Capital Earnings Adjustment Equity
---------- ------ ---------- --------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 56,929,220 $5,693 (9,400,142) $(152,023) $241,373 $560,851 $26,378 $682,272
Treasury shares acquired --- --- (1,000,000) ( 18,805) --- --- --- ( 18,805)
Shares issued to employee
retirement plan 432,142 43 --- --- 7,627 --- --- 7,670
Shares issued under employee
stock purchase plan --- --- 222,923 3,636 432 --- --- 4,068
Shares issued upon exercise of
stock options --- --- 607,222 9,850 924 --- --- 10,774
Translation adjustments --- --- --- --- --- --- ( 3,344) ( 3,344)
Other --- --- --- --- 1,251 --- --- 1,251
Net income for the year --- --- --- --- --- 71,108 --- 71,108
---------- ------ ----------- ---------- ---------- -------- ----------- ------------
Balance at December 31, 1991 57,361,362 5,736 (9,569,997) (157,342) 251,607 631,959 23,034 754,994
Treasury shares acquired --- --- ( 918,000) ( 13,925) --- --- --- ( 13,925)
Shares issued under employee
stock purchase plan --- --- 353,879 5,801 ( 1,383) --- --- 4,418
Shares issued upon exercise of
stock options --- --- 139,393 2,299 ( 133) --- --- 2,166
Shares issued upon
purchase of a business --- --- 191,354 3,132 ( 548) --- --- 2,584
Translation adjustments --- --- --- --- --- --- ( 22,822) ( 22,822)
Other --- --- --- --- 1,006 --- --- 1,006
Net income for the year --- --- --- --- --- 8,442 --- 8,442
---------- ------ ---------- -------- ---------- -------- ----------- ------------
Balance at December 31, 1992 57,361,362 5,736 (9,803,371) (160,035) 250,549 640,401 212 736,863
Treasury shares acquired --- --- (2,805,000) ( 29,734) --- --- --- ( 29,734)
Shares issued under employee
stock purchase plan --- --- 494,462 7,656 ( 3,247) --- --- 4,409
Shares issued upon exercise of
stock options --- --- 107,082 1,692 ( 863) --- --- 829
Translation adjustments --- --- --- --- --- --- ( 10,570) ( 10,570)
Recognition of net cumulative
translation loss resulting
from restructuring --- --- --- --- --- --- 2,752 2,752
Other --- --- --- --- 203 --- --- 203
Net loss for the year --- --- --- --- --- (116,042) --- (116,042)
---------- ------ ----------- --------- ---------- -------- ----------- ------------
Balance at December 31, 1993 57,361,362 $5,736 (12,006,827) $(180,421) $ 246,642 $524,359 $( 7,606) $588,710
========== ====== =========== ========= ========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES.
BASIS OF PRESENTATION: The consolidated financial statements include
the accounts of Intergraph Corporation and its majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company's business is
principally in one industry segment -- the development, manufacturing,
marketing, and service of interactive computer graphics systems.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company's excess
funds are generally invested in short-term, highly liquid, interest-
bearing securities. The Company's investment policy limits the amount
of credit exposure to any single issuer of securities. At December
31, 1993 and 1992, cash was invested in highly rated, short-term
municipal bonds, time deposits, money market preferred stocks,
commercial paper, and U.S. government securities. All cash
equivalents and short-term investments are stated at cost plus accrued
interest, which approximates fair value based on quoted market prices
for these financial instruments. For financial statement purposes,
investments with original maturities of three months or less are
considered to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of average cost or
market and are summarized as follows:
1993 1992
(In thousands) --------- ---------
Raw materials $ 31,023 $ 36,506
Work-in-process 33,118 30,257
Finished goods 14,295 16,372
Service spares 33,119 94,972
--------- ---------
Totals $ 111,555 $ 178,107
========= =========
LONG-TERM INVESTMENTS: Long-term investments include investments in
20%- to 50%-owned companies accounted for by the equity method, less
than 20%-owned companies accounted for by the cost method, and debt
securities stated at cost plus accrued interest.
The Company's investments in less than 20%-owned companies are
included in the consolidated balance sheets as of December 31, 1993
and 1992 at cost of $9,100,000 and $25,600,000, respectively. These
companies are privately held, and therefore quoted market values for
these investments are not available. During 1993 the Company, as part
of the restructuring described in Note 2, wrote off approximately
$7,800,000 in investments in these companies. The Company is unable
to determine fair values for its remaining investments without
incurring excessive costs, but believes its investments in these
companies, most of which are developing businesses with technologies
of continuing value to the Company, have not been impaired. Debt
securities are included in the consolidated balance sheets as of
December 31, 1993 and 1992, at a carrying value of $6,100,000 and
$12,600,000, respectively, which approximates fair value based on
quoted market prices.
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment,
summarized below, is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the
assets.
1993 1992
(In thousands) --------- ---------
Land and improvements $ 14,593 $ 14,937
Buildings and improvements 143,032 143,477
Equipment, furniture, and fixtures 316,251 312,532
--------- ---------
473,876 470,946
Allowances for depreciation and amortization (249,445) (223,939)
--------- ---------
Totals $ 224,431 $ 247,007
========= =========
TREASURY STOCK: Treasury stock is accounted for by the cost method.
The Board of Directors of the Company has authorized the purchase of
up to 20,000,000 shares of the Company's common stock in the open
market. From the initial authorization in 1987 through the end of
1993, the Company had purchased approximately 17,700,000 shares for
the treasury. Treasury stock activity is presented in the
consolidated statements of shareholders' equity.
REVENUE RECOGNITION: Revenues from systems sales with no post-shipment
obligations are recognized as equipment and software are
shipped. Revenues on systems sales with significant post-shipment
obligations are recognized on a percentage-of-completion method with
progress to completion measured on the basis of labor costs and other
factors. Revenues from contracts with the U.S. government, primarily
cost-plus award fee contracts, are recognized monthly as costs are
incurred and fees are earned under the contracts. A certain portion
of revenues from all systems sales is not recognized until
installation is complete and the warranty period has expired.
Maintenance and services revenues are recognized ratably over the
lives of the maintenance contracts or as services are performed.
17
<PAGE>
Billings may not coincide with the recognition of revenue. Unbilled
accounts receivable occur when revenue recognition precedes billing to
the customer and arise primarily from commercial sales with
predetermined billing schedules, U.S. government sales with billing at
the end of a performance period, and U.S. government cost-plus award
fee contracts. Billings in excess of sales occur when billing to the
customer precedes revenue recognition, and arise primarily from
maintenance revenue billed in advance of performance of the
maintenance activity, and systems revenue billed at shipment with a
portion of the related revenue deferred until completion of
installation services and expiration of the warranty period.
PRODUCT DEVELOPMENT COSTS: The Company capitalizes certain computer
software development costs. Costs capitalized do not have a
significant impact on the Company's results of operations.
FOREIGN CURRENCY EXCHANGE AND TRANSLATION: Local currencies are the
functional currencies for the Company's European subsidiaries. The
U.S. dollar is the functional currency for the Company's other
international subsidiaries. The foreign exchange loss incurred in
1992 is primarily the result of third and fourth quarter instability
within the European Monetary System (EMS). Currency exposure within
the Company's European manufacturing and distribution center was not
hedged, since European currency values to that time were generally
controlled within the EMS. Subsequently, the Company began hedging a
portion of its exposure among the European currencies.
FOREIGN CURRENCY EXCHANGE CONTRACTS: The Company enters into foreign
currency exchange contracts of less than one year duration to hedge
certain foreign currency denominated receivables and payables. Gains
and losses on the contracts are included in "foreign exchange loss" in
the consolidated statements of income. Cash flows from the contracts
are classified in the consolidated statements of cash flows in the
same manner as cash flows from receivables and payables. At December
31, 1993, the Company had outstanding foreign currency exchange
contracts of approximately $48 million. The fair value of these
contracts approximates the original contract amount based on quoted
market prices for contracts with similar terms.
INCOME TAXES: Deferred tax liabilities or assets are recognized for
the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Effective January 1, 1993
the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". See Note 6.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is computed
using the weighted average number of common and equivalent common
shares outstanding. Stock options are the only common stock
equivalent. See Note 7.
RECLASSIFICATIONS: Certain reclassifications have been made to the
previously reported consolidated balance sheet at December 31, 1992
and to the consolidated statements of cash flows for the years ended
December 31, 1992 and 1991 to provide comparability with the current
year presentation.
NOTE 2 -- RESTRUCTURING.
During 1993 the Company made several changes in its product, sales,
and manufacturing strategies designed to make the Company more
competitive in the current industry and economic environment, and took
actions based on these decisions that resulted in a before-tax charge
to earnings of $89,806,000 ($61,697,000 after related tax benefit, or
$1.34 per share). Industry conditions considered by the Company in
its decisions include the trend toward higher performance, lower
priced products and intense competition that have resulted in lower
gross margins in the industry and for the Company, shorter product
cycles, and development and support of software standards that have
resulted in less specific hardware dependency by customers. Changes
in strategy include consolidation of worldwide manufacturing and
distribution activities in its U.S. operation, execution of an
agreement with Sun Microsystems Computer Corporation (Sun) that, among
other things, ends the Company's design of its own microprocessor,
porting of the Company's technical software applications to a new
operating system (Microsoft Corporation's Windows NT) and the
availability of Windows NT on Intergraph workstations, and the
offering of a new hardware platform (in addition to its own) based on
Intel Corporation microprocessors.
Restructuring charges in 1993 and the preceding year are summarized as
follows:
1993 1992
(In thousands) ------- -------
Reduction in workforce $10,467 ---
Elimination of operations, primarily the European
manufacturing and distribution facility 17,136 ---
Revaluation of assets resulting from new product
strategy - primarily spares inventory, goodwill,
and investments in other companies 56,082 ---
Restructure of electronics business 6,121 $4,418
------- ------
Totals $89,806 $4,418
======= ======
REDUCTION IN WORKFORCE: During 1993 the Company directly reduced its
workforce by approximately 450 employees, primarily in its European
and U.S. sales and support operations. The related restructuring
charge consists of severance pay and other personnel related costs.
These 450 employees, the 77 APD employees described in "ELIMINATION OF
OPERATIONS" below, and other employees who left the Company through
attrition and were not replaced comprise the total net reduction of
approximately 800 employees during 1993.
18
<PAGE>
ELIMINATION OF OPERATIONS: In January, 1994 the Company announced its
decision to close its European manufacturing and distribution facility
(IEM) over the course of 1994 and transfer the related activities to
its U.S. manufacturing facility. The related restructuring charge
consists primarily of the costs of severance and other personnel
related costs for the 130 employees that will be affected. In
addition, under the terms of an August, 1993 agreement with Sun,
effective January 1, 1994 the Company terminated and Sun hired 77
employees of the Company's Advanced Processor Division (APD),
resulting in charges primarily for asset retirements. Also included
in this amount are charges related to consolidation of sales and
support facilities, primarily in Europe, connected with the direct
reductions in workforce discussed above.
REVALUATION OF ASSETS DUE TO NEW PRODUCT STRATEGY: Included in the
"revaluation of assets" amount above is $35,300,000 to retire spares
inventory and $20,800,000 to write-off goodwill recognized on previous
acquisitions and investments in less than 20%-owned companies, both as
a result of the Company's new product strategy and transition. The
spares inventory write-off was made to recognize the diminished value
of these parts as the Company transitions to smaller but more
technologically advanced client-server and PC-based systems, to new
operating systems and, specifically for the Company, to sale of
systems incorporating microprocessors more widely used. The goodwill
and investee company write-offs relate to prior acquisitions of small,
privately-held, developing companies that possessed technologies or
complementary products of value to the Company. The product
transition of the Company resulted in a diminished value for these
investments.
RESTRUCTURE OF ELECTRONICS BUSINESS: Also in 1993, the Company
continued to restructure and position its electronics business in an
effort to focus activity on growth areas and further integrate its
DAZIX unit, acquired in December, 1990, with the Company's existing
electronics business. The related restructuring charge in both 1993
and 1992 consists of severance pay and facilities consolidation
expenses and, in 1993, of write-off of goodwill from related
acquisitions and investments in companies offering complementary
products.
Amounts included in the Company's December 31, 1993 balance sheet
related to operations to be eliminated and amounts otherwise related
to the restructuring are as follows:
Other
IEM APD Entities Total
------- ------ -------- -------
(In thousands)
Inventories, at cost $14,369 $ 996 --- $15,365
Land, buildings, and equipment, at
cost less accumulated depreciation 11,497 1,490 $ 295 13,282
------- ------ ------- -------
Total assets $25,866 $2,486 $ 295 $28,647
======= ====== ======= =======
Trade accounts payable and accrued
liabilities, including those directly
related to restructuring $15,555 $1,966 $5,877 $23,398
Short-term debt 5,182 --- --- 5,182
Current portion of long-term mortgage 466 --- --- 466
------- ------ ------- -------
Total current liabilities 21,203 1,966 5,877 29,046
Long-term portion of mortgage 4,922 --- --- 4,922
------- ------ ------- -------
Total liabilities $26,125 $1,966 $5,877 $33,968
======= ====== ======= =======
The IEM facility will be closed over the course of 1994. Any
inventory remaining at closure will be transferred for use in the U.S.
manufacturing operation or used as spare parts in Europe. The
facility itself will be placed for sale or lease in 1994. The net
book value of IEM land and buildings at December 31, 1993
($10,800,000) approximates market value and the Company does not
expect significant costs of disposal. All IEM accounts payable and
accrued liabilities, including those relating directly to the
restructuring ($9,100,000), will be paid in the normal course of
business in 1994. Short-term debt represents a working capital loan
at a rate of 6.12% that will be paid at maturity in first quarter,
1994. The mortgage on the facility, which is guaranteed by the parent
company, is payable in annual installments through the year 2003. The
Company will retire the mortgage debt if the facility is sold. See
Note 5 for further description of this mortgage debt.
19
<PAGE>
APD has ceased design but will continue to assemble microprocessors
during 1994. At the end of 1994, Sun has the obligation to offer
employment to the remaining 40 APD employees, and the facility will be
closed. The remaining assets of APD will be utilized, transferred to
other Company entities, or sold to Sun, and remaining liabilities will
be paid in the normal course of 1994 business.
Accrued liabilities of other entities of $5,877,000 represent
primarily remaining severance pay liabilities of European subsidiaries
for direct workforce reductions made in 1993 which will be settled in
1994.
NOTE 3 -- SUPPLEMENTARY CASH FLOW INFORMATION.
Changes in current assets and liabilities, net of the effects of
business acquisitions and restructuring charges, in reconciling net
income (loss) to net cash provided by operations are as follows:
Cash Provided By (Used For) Operations
1993 1992 1991
------- ------- --------
(In thousands)
(Increase) decrease in:
Accounts receivable $17,801 $12,680 $(26,848)
Inventories 36,805 6,988 ( 1,161)
Refundable income taxes (29,121) ( 8,291) ( 4,968)
Other current assets 5,165 2,099 5,262
Increase (decrease) in:
Trade accounts payable 9,460 ( 3) ( 5,142)
Accrued compensation and other
accrued expenses ( 1,569) 11,990 15,107
Billings in excess of sales 4,287 6,377 ( 460)
Income taxes ( 4,201) ( 3,320) 2,654
------- ------- --------
Net changes in current assets
and liabilities $38,627 $28,520 $(15,556)
======= ======= ========
Cash payments for income taxes totaled $4,201,000, $13,051,000, and
$46,972,000 in 1993, 1992, and 1991, respectively. Cash payments for
interest in those years totaled $2,252,000, $2,913,000, and
$2,134,000, respectively.
There were no significant non-cash investing and financing
transactions in 1993. Non-cash transactions in 1992 consisted of
acquisition of and investments in other businesses in part through
issuance of notes payable and forgiveness of debt totaling $3,272,000,
issuance of treasury shares valued at $2,584,000, and obligations for
other amounts totaling $2,896,000 (see Note 8). Non-cash transactions
in 1991 consisted of additions to a building at a cost of $7,246,000
through a long-term debt transaction.
NOTE 4 -- ACCOUNTS RECEIVABLE.
Accounts receivable are summarized as follows:
1993 1992
-------- --------
(In thousands)
Billed receivables:
Trade $243,152 $254,640
Unreimbursed costs and fees under
government contracts 10,047 9,638
-------- --------
253,199 264,278
-------- --------
Unbilled receivables:
Trade 72,002 81,063
Unreimbursed costs and fees under
government contracts 9,846 9,216
-------- --------
81,848 90,279
-------- --------
335,047 354,557
Less allowances ( 20,791) ( 18,969)
-------- --------
Totals $314,256 $335,588
======== ========
Concentrations of credit risk with respect to trade receivables are
limited due to the diversity of the Company's customer base. The
Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
20
<PAGE>
NOTE 5 -- DEBT AND LEASES.
Short- and long-term debt at December 31, 1993 and 1992 is summarized
below. The carrying amounts for debt approximate fair values since
interest rates on the debt adjust periodically to reflect changes in
market rates of interest.
1993 1992
------- -------
(In thousands)
Short-term credit facilities $ 6,896 ---
Long-term mortgages 18,497 $20,829
Other 1,213 1,058
------- -------
26,606 21,887
Less amounts payable within one year 9,065 2,128
------- -------
Total long-term debt $17,541 $19,759
======= =======
The Company has entered into short-term credit facilities to provide
temporary working capital for its subsidiary companies. The credit
facilities bear interest at market rates.
The Company has two long-term mortgages that have provided financing
for the construction and expansion of certain European facilities,
including the manufacturing and distribution facility that will be
closed in 1994. See Note 2 for further description of that mortgage
debt. The mortgages are payable in varying installments through the
year 2017 and bear interest at the floating Amsterdam Interbank
Offering Rate (AIBOR), which ranged from 6.4% to 9.4% in 1993 and from
9.1% to 10.3% in 1992. During 1993, the Company entered into two-year
interest rate swap agreements in the amount of the mortgages to reduce
the risk of increases in interest rates, effectively converting the
interest rates on these mortgages to a fixed rate. The Company is
exposed to market risk of potential future decreases in AIBOR. The
fair value of the interest rate swap agreements approximated carrying
value at December 31, 1993.
The Company has a $50 million revolving credit agreement with a bank
enabling the Company to borrow funds on a revolving basis until May
31, 1995. At December 31, 1993 and 1992, there were no outstanding
borrowings under this agreement. The loan commitment by the lender is
conditional on the maintenance of minimum levels of tangible net worth
at various dates through May, 1995. Under certain circumstances,
borrowings under the agreement may create a security interest in
certain of the accounts receivable of the Company.
The Company leases various property, plant, and equipment under
operating leases as lessee. Rental expense for operating leases was
$41,668,000 in 1993, $44,527,000 in 1992, and $36,445,000 in 1991.
Subleases and contingent rentals are not significant. Future minimum
lease payments, by year and in the aggregate, under non-cancellable
operating leases with initial or remaining terms of one year or more
are as follows:
Operating
Leases
---------
(In thousands)
1994 $ 32,138
1995 25,015
1996 17,865
1997 12,358
1998 6,072
Thereafter 31,471
--------
Total future minimum lease payments $124,919
========
NOTE 6 -- INCOME TAXES.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
Under SFAS 109, tax liabilities are provided in the financial
statements at tax rates known to be in effect in the future years in
which items of income and expense currently deferred for tax return
purposes become includable in the tax return, rather than at rates in
effect in the year of deferral. Since the Company had historically
provided taxes at rates higher than the reduced tax rates now in
effect, it was required to reduce deferred tax liabilities to reflect
current tax rates, which resulted in an increase in 1993 income (shown
as the cumulative effect of a change in accounting principle in the
consolidated income statement) of $2,500,000 or $.05 per share. The
change in method did not significantly affect the Company's effective
rate of tax for 1993.
21
<PAGE>
The components of income (loss) before income taxes are as follows:
1993 1992 1991
---------- --------- ---------
(In thousands)
U.S. $(115,025) $ 29,379 $ 113,464
International ( 57,525) ( 16,987) ( 1,571)
---------- --------- ---------
Totals $(172,550) $ 12,392 $ 111,893
========== ========= =========
Income tax benefit (expense) consists of the following. The
"liability method" is the method prescribed by SFAS 109 and adopted
prospectively by the Company effective January 1, 1993. The "deferred
method" is the method utilized prior to adoption of SFAS 109.
Liability Method Deferred Method
1993 1992 1991
---------------- ------- --------
(In thousands)
Current benefit (expense):
Federal $ 32,460 $ 4,579 $(47,010)
State 900 93 ( 5,664)
International 300 (3,322) ( 824)
-------- -------- --------
33,660 1,350 (53,498)
-------- -------- --------
Deferred benefit (expense):
Federal 16,429 (7,936) 14,273
State 200 ( 55) 738
International 3,719 2,691 ( 2,298)
-------- -------- --------
20,348 (5,300) 12,713
-------- -------- --------
Totals $ 54,008 $ (3,950) $(40,785)
======== ======== ========
"Refundable income taxes" included in the December 31, 1993
consolidated balance sheet consist primarily of the benefit of the
1993 loss for U.S. federal income tax purposes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1993 are as follows:
<TABLE>
<CAPTION> Non-
Current Current Total
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Inventory reserves $ 18,504 --- $ 18,504
Vacation pay and other employee benefit accruals 6,367 --- 6,367
Accrued liabilities related to 1993 restructuring 4,292 --- 4,292
Other financial statement reserves, primarily
allowance for doubtful accounts 6,132 --- 6,132
Net operating loss carryforwards of international
subsidiaries --- $12,031 12,031
Other - net 4,805 3,084 7,889
-------- -------- --------
40,100 15,115 55,215
Valuation allowance ( 3,024) (12,750) (15,774)
-------- -------- --------
Total deferred tax assets, net of allowance 37,076 2,365 39,441
-------- -------- --------
Deferred tax liabilities:
Profit on uncompleted sales contracts deferred
for tax purposes 11,730 --- 11,730
Depreciation --- 10,426 10,426
Other - net 3,289 4,716 8,005
-------- -------- --------
Total deferred tax liabilities 15,019 15,142 30,161
-------- -------- --------
Net deferred tax assets/(liabilities) $ 22,057 $(12,777) $ 9,280
======== ======== ========
</TABLE>
22
<PAGE>
The net current deferred tax asset of $22,057,000 is included in
"Other current assets" in the December 31, 1993 consolidated balance
sheet. The net deferred tax asset of $9,280,000 at December 31, 1993
is expected to be realized through tax return deductions in 1994 that
will reduce 1994 taxes payable or through carryback of losses to 1991
that would result in refund of taxes paid in that year.
The deferred tax asset valuation allowance of $15,774,000 at December
31, 1993 consists primarily of reserves against the tax benefit of net
operating loss carryforwards of international subsidiaries. Such loss
carryforwards amounted to approximately $30,000,000 as of December 31,
1993 and are available to offset future earnings of international
subsidiaries within specified time periods ranging from a minimum of
three years to a maximum of permanent carryforward. If realized, the
tax benefit of those losses will be applied to reduce income tax
expense in the year realized.
During 1992 and 1991 deferred income taxes were provided for
significant timing differences in the recognition of revenue and
expenses for tax reporting and financial statement purposes. These
timing differences related primarily to deferred profit on uncompleted
contracts of $1,004,000 in 1992 and $5,574,000 in 1991 and profits on
intercompany asset transfers of ($6,599,000) in 1992 and $3,380,000 in
1991.
A reconciliation from income tax benefit (expense) at the federal
statutory tax rate of 35% for 1993 (34% for both 1992 and 1991) to the
Company's income tax benefit (expense) is as follows:
Liability
Method Deferred Method
1993 1992 1991
--------- -------- --------
(In thousands)
Income tax benefit (expense) at federal
statutory rate $60,393 $(4,213) $(38,044)
Research and development tax credit 3,400 643 926
Benefit from Foreign Sales Corp. (FSC) 1,415 1,161 2,099
Benefit of tax exempt investments 459 598 1,209
Tax effects of international operations, net (13,933) (5,667) ( 5,464)
Tax effect of reorganization of certain
international subsidiaries 6,200 3,483 2,051
State income taxes, net of federal tax benefit 754 86 ( 3,251)
Non-deductible goodwill amortization ( 3,290) 439 ( 20)
Other - net ( 1,390) ( 480) ( 291)
-------- ------- --------
Income tax benefit (expense) $54,008 $(3,950) $(40,785)
======== ======= ========
The Company does not provide for federal income taxes or tax benefits
on the undistributed earnings and/or losses of its international
subsidiaries because earnings are reinvested and, in the opinion of
management, will continue to be reinvested indefinitely. At December
31, 1993, the Company had not provided federal income taxes on
earnings of individual international subsidiaries of approximately
$48,000,000. Upon distribution of these earnings in the form of
dividends or otherwise, the Company would be subject to both U.S.
income taxes and withholding taxes in the various international
jurisdictions. Determination of the related amount of unrecognized
deferred U.S. income tax liability is not practicable because of the
complexities associated with its hypothetical calculation.
Withholding taxes of approximately $2,900,000 would be payable if all
previously unremitted earnings as of December 31, 1993 were remitted
to the U.S. company.
The Internal Revenue Service has completed examination of the
Company's federal income tax returns for the years 1987 and 1988. The
Company has reached agreement with the Internal Revenue Service on
substantially all issues raised in the examination. The Company's
federal income tax returns for the years 1989 through 1991 are
currently under examination. The Company does not expect the result
of that examination to have a significant effect on future results of
operations.
NOTE 7 -- EMPLOYEE STOCK OPTION AND BENEFIT PLANS.
The Company has reserved a total of 5,000,000 shares of common stock
to grant as options to key employees under the 1990 and 1992 stock
option plans. Options may be granted at fair market value or at a
price less than fair market value on the date of grant. Options are
not exercisable prior to twenty-four months from the date of grant or
later than ten years after the date of grant (not later than five
years after the date of grant under the 1990 Plan).
23
<PAGE>
At December 31, 1993, 2,519,677 shares were available for future
grants. A summary of activity in the Company's stock option plans is
presented below.
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
Options outstanding at beginning of year 1,574,087 1,761,740 2,424,362
Granted 345,004 140,000 ---
Exercised (107,082) (139,393) (607,222)
Cancelled (403,084) (188,260) ( 55,400)
--------- --------- ---------
Options outstanding at end of year 1,408,925 1,574,087 1,761,740
========= ========= =========
Options exercisable at end of year 538,602 470,966 338,396
========= ========= =========
Option prices per share:
Granted $ 9.00-12.25 $ 7.88-16.00 ---
Exercised 7.56-11.00 11.00-18.25 $15.00-27.50
Cancelled 7.56-27.25 11.00-27.25 11.00-28.00
Options outstanding at end of year 7.88-16.00 7.56-27.25 7.56-27.25
Options exercisable at end of year 11.00-15.13 7.56-27.25 7.56-27.25
</TABLE>
Under the 1987 Employee Stock Purchase Plan, 3,200,000 shares of
common stock were made available for purchase through a series of ten
consecutive annual offerings each January beginning January 1, 1987.
In order to purchase stock, each participant may have up to 10% of his
pay, not to exceed $25,000 in any offering period, withheld through
payroll deductions. All full-time employees, except members of the
Administrative Committee of the Plan, are eligible to participate.
The purchase price of each share is 85% of the closing market price of
the Company's common stock on the last pay date of each calendar
month. Employees purchased 494,462, 353,879, and 222,923 shares of
stock in 1993, 1992, and 1991, respectively.
In 1975 the Intergraph Corporation Stock Bonus Plan was established to
provide retirement benefits to substantially all U.S. employees.
Effective January 1, 1987, the Company amended the Plan to qualify it
as an employee stock ownership plan (ESOP). The Company makes
contributions to the Plan in amounts determined at the discretion of
the Board of Directors, and the contributions are funded with Company
stock. Amounts are allocated to the accounts of participants based on
compensation. Benefits are payable to participants subject to the
vesting provisions of the Plan. The Company did not make a
contribution to the Plan in 1993 or 1992. The contribution for 1991
was $7,670,000.
On October 1, 1990, the Company established the Intergraph Corporation
SavingsPlus Plan, an employee savings plan qualified under Section
401(k) of the Internal Revenue Code, covering substantially all U.S.
employees. Employees can elect to contribute up to 13% of their
compensation to the Plan. The Company matches 50% of employee
contributions up to 6% of each employee's compensation. Employee
contributions and matching Company contributions began in February
1991. Company contributions to the Plan were $5,993,000, $6,099,000,
and $4,979,000 in 1993, 1992, and 1991, respectively.
The Company also maintains various retirement benefit plans for
employees of its international subsidiaries, primarily defined
contribution plans that cover substantially all employees.
Contributions to the plans are made in cash and are allocated to the
accounts of participants based on compensation. Benefits are payable
based on vesting provisions contained in each plan. Contributions to
the plans were $2,928,000, $3,127,000, and $3,321,000 in 1993, 1992,
and 1991, respectively.
NOTE 8 -- ACQUISITIONS.
In February 1993, the Company acquired Bestinfo, Inc. for $9.5 million
in cash and other consideration. Bestinfo is a producer of
merchandise advertising technology for the retail/catalog markets.
The accounts and results of operations of Bestinfo have been combined
with those of the Company since the date of acquisition using the
purchase method of accounting. Had the purchase occurred January 1,
1992, the Company's revenues, net income (loss), and earnings (loss)
per share would not have been materially affected for either the year
ended December 31, 1992 or 1993.
During 1992, the Company in separate transactions acquired three
companies for $25,514,000, consisting of $19,658,000 in cash, issuance
of notes payable and forgiveness of debt totaling $3,272,000, and
issuance of 191,354 shares of the Company's stock valued at
$2,584,000. These companies are engaged in businesses related to that
of the Company. The accounts and results of operations of these
companies have been combined with those of the Company since the dates
of acquisition using the purchase method of accounting. Had the
purchases occurred January 1, 1991, the Company's revenues, net
income, and earnings per share would not have been materially affected
for either the year ended December 31, 1991 or 1992.
During 1992, the Company in separate transactions acquired less than
majority ownership interests or otherwise invested in six companies
for a total of $19,362,000, consisting of $16,466,000 in cash and
$2,896,000 in other amounts payable. All of these companies are
engaged in businesses related to that of the Company. These
investments, which are included in "Long-term investments" in the
accompanying consolidated balance sheets, did not have a significant
impact on the Company's results of operations for the year ended
December 31, 1992.
24
<PAGE>
NOTE 9-- OPERATIONS BY GEOGRAPHIC AREA.
The following summary of operations by geographic area includes both
sales to unaffiliated customers and intercompany transfers between
geographic areas. Transfers between geographic areas are accounted
for under a transfer pricing policy. Income (loss) from operations by
geographic areas reflects these transfers.
1993 1992 1991
---------- ---------- ----------
(In thousands)
Revenues
United States:
Unaffiliated customers - U.S. $ 514,399 $ 571,856 $ 640,438
Unaffiliated customers - export 36,017 41,014 42,123
Consolidated subsidiaries 185,673 189,109 198,430
---------- ---------- ----------
736,089 801,979 880,991
---------- ---------- ----------
Europe:
Unaffiliated customers 371,313 447,134 400,724
---------- ---------- ----------
Other International:
Unaffiliated customers 128,548 116,657 112,093
U.S. parent 2,994 4,554 5,747
---------- ---------- ----------
131,542 121,211 117,840
---------- ---------- ----------
Eliminations -- net (188,667) (193,663) (204,177)
---------- ---------- ----------
Total revenues $1,050,277 $1,176,661 $1,195,378
========== ========== ==========
Income (Loss) From Operations
United States $ (116,500) $ 18,257 $ 98,520
Europe ( 43,262) 8,224 ( 153)
Other International ( 16,782) ( 11,885) ( 4,009)
Eliminations -- net 11,922 10,812 2,675
---------- ---------- ----------
Total income (loss) from operations $ (164,622) $ 25,408 $ 97,033
========== ========== ==========
Identifiable Assets
United States $ 612,370 $ 649,764 $ 736,447
Europe 224,011 322,604 339,232
Other International 103,168 102,310 105,290
Eliminations -- net ( 84,220) ( 88,015) (184,354)
---------- ---------- ----------
Total identifiable assets $ 855,329 $ 986,663 $ 996,615
========== ========== ==========
Revenues from the U.S. government were $165,655,000 (16% of total
revenue) for 1993, $186,497,000 (16% of total revenue) for 1992, and
$172,286,000 (14% of total revenue) for 1991. No other customer of
the Company accounts for more than 10% of the total revenues of the
Company.
NOTE 10 -- SHAREHOLDER RIGHTS PLAN.
On August 25, 1993, the Company's Board of Directors adopted a
Shareholder Rights Plan. As part of this plan the Board of Directors
declared a distribution of one common stock purchase right (a "Right")
for each share of the Company's common stock outstanding on September
7, 1993. Each Right entitles the holder to purchase from the Company
one common share at a price of $50, subject to adjustment. The Rights
are not exercisable until the occurrence of certain events related to
a person or a group of affiliated or associated persons acquiring,
obtaining the right to acquire, or commencing a tender offer or
exchange offer, the consummation of which would result in beneficial
ownership by such a person or group of 15% or more of the outstanding
common shares of the Company. Rights will also become exercisable in
the event of certain mergers or an asset sale involving more than 50%
of the Company's assets or earnings power. Upon becoming exercisable,
each Right will allow the holder, except the person or group whose
action has triggered the exercisability of the Rights, to either buy
securities of Intergraph or securities of the acquiring company,
depending on the form of the transaction, having a value of twice the
exercise price of the Rights. The Rights trade with the Company's
common stock. The Rights are subject to redemption at the option of
the Board of Directors at a price of $.01 per Right until the
occurrence of certain events, and are exchangeable for the Company's
common stock at the discretion of the Board of Directors under certain
circumstances. The Rights expire on September 7, 2003.
25
<PAGE>
NOTE 11 -- RELATED PARTY TRANSACTIONS.
The Company has an exclusive worldwide license agreement with Bentley
Systems, Inc., a 50%-owned affiliate, to market, use, distribute, and
sublicense MicroStation software, which is the core graphics software
for various operating systems and hardware platforms included in the
systems currently sold by the Company. Under this agreement the
Company pays royalties to Bentley based on its sales of MicroStation.
Royalties expense totaled $18,085,000 in 1993, $16,854,000 in 1992,
and $14,004,000 in 1991. At December 31, 1993 and 1992, amounts due
to Bentley and included in "Other accrued expenses" in the balance
sheet totaled $5,642,000 and $6,330,000, respectively. Bentley
notified Intergraph on February 3, 1994, that in its opinion, certain
events have occurred under the terms of the license agreement which
make the license nonexclusive. Intergraph disputes that the license
agreement has changed, and pursuant to the license agreement,
Intergraph has submitted the dispute to arbitration.
NOTE 12 -- SUMMARY OF QUARTERLY INFORMATION -- UNAUDITED.
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- ------------------------- --------- -------- -------- --------
<S> <C> <C> <C> <C>
(In thousands except per share amounts)
Year ended December 31, 1993:
Revenues $282,077 $249,110 $250,561 $268,529
Gross profit 117,959 102,783 103,938 103,311
Loss before cumulative
effect of change in accounting
for income taxes (10,172) (18,608) (19,839) (69,923)
Net loss ( 7,672) (18,608) (19,839) (69,923)
Net income (loss) per share:
Loss before cumulative effect
of change in accounting for
income taxes ( .21) ( .40) ( .43) ( 1.54)
Cumulative effect of accounting change .05 --- --- ---
Net loss ( .16) ( .40) ( .43) ( 1.54)
Weighted average shares outstanding 47,724 46,252 45,769 45,343
Year ended December 31, 1992:
Revenues $277,247 $288,745 $303,344 $307,325
Gross profit 134,881 135,132 144,475 134,805
Net income (loss) 2,945 2,917 4,577 ( 1,997)
Net income (loss) per share .06 .06 .10 ( .04)
Weighted average shares outstanding 48,508 48,184 47,686 47,690
</TABLE>
First quarter 1993 earnings were reduced by a net $.03 per share by
three nonrecurring items which included a restructuring charge of $.04
per share, the write-off of an equity investment of $.04 per share,
and the required adoption of a change in the method of accounting for
income taxes, which improved earnings by $.05 per share.
Restructuring charges reduced second quarter 1993 earnings by $.03 per
share, third quarter by $.14 per share and fourth quarter by $1.18 per
share.
Third quarter 1992 earnings were reduced $.07 per share by foreign
exchange losses and $.06 per share by a restructuring charge. Fourth
quarter 1992 earnings were reduced $.13 per share by foreign exchange
losses and adjustment to previously recorded third party royalties
expense, the effects of which were partially offset by an $.08 per
share reversal of prior quarters' expense for the Company's
discretionary contribution to the Employees' Stock Ownership Plan.
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Intergraph Corporation
We have audited the accompanying consolidated balance sheets of
Intergraph Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Intergraph Corporation and subsidiaries at December 31, 1993 and
1992, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles.
As discussed in Note 6, in 1993 the Company changed its method of
accounting for income taxes.
Ernst & Young
Birmingham, Alabama
January 28, 1994
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its common
stock. It is the present policy of the Company's Board of Directors
to retain all earnings to finance the Company's operations.
PRICE RANGE OF COMMON STOCK
Since April 1981, Intergraph common stock has traded in the National
Association of Securities Dealers Automated Quotation (NASDAQ) system
under the symbol INGR. As of January 31, 1994, there were 45,389,118
shares of common stock outstanding, held by 5,522 shareholders of
record. The following table sets forth, for the periods indicated,
the high and low sale prices of the Company's common stock as reported
on the NASDAQ National Market System.
Period High Low
- ------ ------- -------
1993
First Quarter $13 1/2 $11 5/8
Second Quarter 12 8 7/8
Third Quarter 12 3/8 8 1/2
Fourth Quarter 11 1/8 9 1/8
1992
First Quarter $22 3/8 $17
Second Quarter 18 3/4 12 1/2
Third Quarter 16 3/4 12 5/8
Fourth Quarter 14 1/4 11
27
<PAGE>
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
Shareholder Services Division
P. O. Box 755
Chicago, IL 60690-0755
CORPORATE COUNSEL
Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
Huntsville, AL 35801
INDEPENDENT AUDITORS
Ernst & Young
AmSouth/Harbert Plaza, Suite 1900
Birmingham, AL 35203
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities and
Exchange Commission is available without charge upon written
request to Shareholder Relations, Intergraph Corporation, Huntsville, AL
35894-0001.
ANNUAL MEETING
The annual meeting of Intergraph Corporation will be held May 12,
1994, at the Corporate offices in Huntsville, Alabama.
28
<PAGE>
BOARD MEMBERS AND OFFICERS
BOARD OF DIRECTORS VICE PRESIDENTS
James W. Meadlock Edward J. Blaum
Chief Executive Officer and
Chairman of the Board Edward F. Boyle
Roland E. Brown Bruce J. Brasseale
Director
Richard S. Buchheim
Larry J. Laster
Executive Vice President Coleman P. Callaway
and Director
Roger O. Coupland
Nancy B. Meadlock
Executive Vice President Anthony B. Crawford
and Director
Jeffrey H. Edson
Keith H. Schonrock, Jr.
Director Milford B. French
James F. Taylor, Jr. Jeffrey P. Heath
Director
Fred D. Heddens
Robert E. Thurber
Executive Vice President Robert L. Kuehlthau
and Director
William H. McClure
EXECUTIVE VICE PRESIDENTS Robert A. Mueller
Lawrence F. Ayers, Jr. Winston P. Newton
Neil E. Keith Robert Patience
Stephen J. Phillips Charles E. Robertson, Jr.
Maurice G. Romine Richard M. Salva
William E. Salter John W. Wilhoite
Tommy D. Steele Edward A. Wilkinson
Herman E. Thomason TREASURER
John M. Thorington, Jr. James H. Dorton
Damian Walters SECRETARY
Allan B. Wilson John R. Wynn
Manfred Wittler
29
