UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9722
INTERGRAPH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0573222
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
- - ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(205) 730-2000
------------------
(Telephone Number)
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
Common stock, par value $.10 per share: 44,512,412 shares
outstanding as of June 30, 1994
<PAGE>
INTERGRAPH CORPORATION
FORM 10-Q
June 30, 1994
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1994 and
December 31, 1993 2
Consolidated Statements of Income for the quarters ended
June 30, 1994 and 1993 3
Consolidated Statements of Income for the six months ended
June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
1
<PAGE>
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1994 1993
--------- ------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 43,416 $ 55,976
Short-term investments 19,263 19,772
Accounts receivable 307,404 314,256
Inventories 126,954 111,555
Refundable income taxes 6,061 42,380
Other current assets 58,129 41,118
--------- ---------
Total current assets 561,227 585,057
Long-term investments 15,483 23,560
Other assets 25,216 22,281
Property, plant, and equipment, net 232,501 224,431
--------- ---------
Total Assets $ 834,427 $ 855,329
========= =========
Liabilities and Shareholders' Equity
Trade accounts payable $ 61,583 $ 42,866
Accrued compensation 49,579 43,366
Other accrued expenses 63,784 75,608
Billings in excess of sales 62,180 62,087
Income taxes payable 2,583 3,309
Short-term debt and current maturities
of long-term debt 9,398 9,065
--------- ---------
Total current liabilities 249,107 236,301
Deferred income taxes 12,700 12,777
Long-term debt 18,266 17,541
--------- ---------
Total liabilities 280,073 266,619
--------- ---------
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 246,672 246,642
Retained earnings 490,148 524,359
Cumulative translation adjustment ( 935) ( 7,606)
--------- ---------
741,621 769,131
Less - cost of 12,848,950 treasury shares at
June 30, 1994 and 12,006,827 treasury
shares at December 31, 1993 (187,267) (180,421)
--------- ---------
Total shareholders' equity 554,354 588,710
--------- ---------
Total Liabilities and Shareholders' Equity $ 834,427 $ 855,329
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
2
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INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended June 30, 1994 1993
- - --------------------------------------- --------- ---------
(In thousands except per share amounts)
Revenues
Systems $ 149,106 $ 153,211
Maintenance and services 93,289 95,899
--------- ---------
Total revenues 242,395 249,110
--------- ---------
Cost of revenues
Systems 86,359 83,137
Maintenance and services 52,492 63,190
--------- ---------
Total cost of revenues 138,851 146,327
--------- ---------
Gross profit 103,544 102,783
Product development 33,330 42,304
Sales and marketing 64,670 60,839
General and administrative 21,771 27,065
Restructuring charge --- 1,984
--------- ---------
Loss from operations ( 16,227) ( 29,409)
Interest expense ( 431) ( 480)
Interest income 896 1,006
Other income (expense) - net ( 2,353) ( 192)
--------- ---------
Loss before income taxes ( 18,115) ( 29,075)
Income tax (expense) benefit ( 2,049) 10,467
--------- ---------
Net loss $( 20,164) $( 18,608)
========= =========
Net loss per share $( .45) $( .40)
========= =========
Weighted average shares outstanding 44,842 46,252
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30, 1994 1993
- - --------------------------------------- --------- ---------
(In thousands except per share amounts)
Revenues
Systems $ 300,238 $ 341,992
Maintenance and services 182,230 189,195
--------- ---------
Total revenues 482,468 531,187
--------- ---------
Cost of revenues
Systems 177,140 181,226
Maintenance and services 104,415 129,219
--------- ---------
Total cost of revenues 281,555 310,445
--------- ---------
Gross profit 200,913 220,742
Product development 68,187 83,122
Sales and marketing 122,741 120,092
General and administrative 45,088 54,747
Restructuring charge --- 4,590
--------- ---------
Loss from operations ( 35,103) ( 41,809)
Interest expense ( 925) ( 1,148)
Interest income 1,762 2,284
Other income (expense) - net ( 3,916) ( 4,296)
--------- ---------
Loss before income taxes and cumulative
effect of change in accounting for income taxes ( 38,182) ( 44,969)
Income tax benefit 3,971 16,189
--------- ---------
Loss before cumulative effect of change in
accounting for income taxes ( 34,211) ( 28,780)
Cumulative effect as of January 1, 1993 of change in
method of accounting for income taxes --- 2,500
--------- ---------
Net loss $( 34,211) $( 26,280)
========= =========
Earnings (loss) per share:
Loss before cumulative effect of change
in accounting for income taxes $( .76) $( .61)
Cumulative effect of change in accounting
for income taxes --- .05
--------- ---------
Net loss $( .76) $( .56)
========= =========
Weighted average shares outstanding 45,096 46,957
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
4
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INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1994 1993
- - ------------------------- --------- ---------
(In thousands)
Cash provided by (used for):
Operating Activities:
Net loss $( 34,211) $( 26,280)
Adjustments to reconcile net loss to net
cash provided by operations:
Cumulative effect of change in method of
accounting for income taxes --- ( 2,500)
Depreciation and amortization 34,967 42,687
Non-cash portion of restructuring charge --- 3,752
Gain on sale of long-term investment ( 2,475) ---
Write-off of long-term investments 3,361 3,273
Collection of income tax refunds 31,065 2,464
Net changes in current assets and liabilities 1,009 20,264
Net exchange loss 1,457 783
--------- ---------
Net cash provided by operating activities 35,173 44,443
--------- ---------
Investing Activities:
Increase in short-term investments and long-term
debt securities, net --- ( 2,771)
Purchases of available-for-sale securities ( 46,332) ---
Sales of available-for-sale securities 55,077 ---
Purchase of property, plant, and equipment ( 37,575) ( 31,268)
Disposal of equipment 1,116 3,747
Purchase of ownership interests in other businesses ( 770) ( 6,938)
Repayment of loan by affiliate --- 6,994
Other ( 9,913) ( 8,339)
--------- ---------
Net cash used for investing activities ( 38,397) ( 38,575)
--------- ---------
Financing Activities:
Proceeds of debt 7,410 534
Payment of debt ( 7,764) ( 609)
Proceeds of employee stock purchases 1,968 2,219
Proceeds of exercise of stock options --- 828
Acquisition of treasury stock ( 10,379) ( 21,419)
--------- ---------
Net cash used for financing activities ( 8,765) ( 18,447)
--------- ---------
Effect of exchange rate changes on cash ( 571) ( 3,209)
--------- ---------
Net decrease in cash and cash equivalents ( 12,560) ( 15,788)
Cash and cash equivalents at beginning of period 55,976 67,194
--------- ---------
Cash and cash equivalents at end of period $ 43,416 $ 51,406
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the
interim periods presented.
Certain reclassifications have been made to the previously
reported consolidated statement of cash flows for the six
months ended June 30, 1993 to provide comparability with
the current period presentation.
NOTE 2: In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
115,"Accounting for Certain Investments in Debt and Equity
Securities". The Company adopted the provisions of the new
standard for investments held as of and acquired after
January 1, 1994. In accordance with the requirements of
the Statement, prior period financial statements have not
been restated to reflect the provisions of the new
standard. Neither the cumulative effect of the change in
principle as of January 1, 1994 nor its application for
the six months ended June 30, 1994 is material to the
Company's results of operations or financial position.
NOTE 3: In the first quarter of 1994, the Company wrote down
minority share investments in two companies, resulting in
a pretax charge of $3.4 million ($.07 per share). In
addition, the Company sold a portion of a stock investment
in another company, resulting in a pretax gain of $2.5
million ($.05 per share). These items are included in
"Other income (expense) - net" in the consolidated income
statement.
In the first quarter of 1993, the Company wrote off a
minority share investment in another company, resulting in
a pretax charge of $3.3 million ($.04 per share). The
charge is included in "Other income (expense) - net" in
the consolidated income statement.
NOTE 4: Inventories are stated at the lower of average cost or
market and are summarized as follows:
June 30, December 31,
1994 1993
------------ ------------
(In thousands)
Raw materials $ 40,535 $ 31,023
Work-in-process 36,085 33,118
Finished goods 15,484 14,295
Service spares 34,850 33,119
--------- ---------
Totals $ 126,954 $ 111,555
========= =========
NOTE 5: Property, plant, and equipment - net includes
allowances for depreciation and amortization of
$268,035,000 and $249,445,000 at June 30, 1994 and
December 31, 1993, respectively.
6
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: Supplemental cash flow information is summarized as follows:
Changes in current assets and liabilities, net of the
effects of business acquisitions and restructuring
charges, in reconciling net loss to net cash provided by
operations are as follows:
Cash Provided By (Used For) Operations
for the Six Months Ended June 30,
1994 1993
---------- ----------
(In thousands)
(Increase) decrease in:
Accounts receivable $ 13,526 $ 47,874
Inventories ( 9,341) 17,793
Other current assets ( 9,340) (17,757)
Increase (decrease) in:
Trade accounts payable 16,781 (11,118)
Accrued compensation and
other accrued expenses ( 7,388) ( 320)
Billings in excess of sales ( 1,272) (10,378)
Income taxes payable ( 1,957) ( 5,830)
--------- ---------
Net change in current assets
and liabilities $ 1,009 $ 20,264
========= =========
Cash payments for income taxes totaled $1,741,000 and
$1,744,000 for the six months ended June 30, 1994 and
1993, respectively. Cash payments for interest during
those periods totaled $946,000 and $1,028,000,
respectively.
There were no significant non-cash investing and financing
transactions in the first half of 1994. Non-cash
transactions in the first half of 1993 consisted of the
acquisition of a business in part through obligations
totaling approximately $2.5 million.
NOTE 7: The Company's effective tax benefit rate for the first
half of 1994 was 10.4% versus 36% for first half 1993 and
31.3% for the full year 1993. During the second quarter
of 1994 the Company reduced its estimated annual effective
tax benefit rate from 30% to 10.4% as a result of
exhaustion of all available U.S. tax loss carryback refund
opportunities and as a result of a reduction in the
Company's deferred tax assets due to a change in the
Company's expectations for realization of these future
benefits. This reduction in the estimated annual tax
benefit rate increased second quarter and year to date net
loss by $7,500,000 or $.17 per share versus the previously
anticipated full year benefit rate of 30%. Any further
losses in 1994 will carry no tax benefit.
7
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- - -------
EARNINGS. The Company incurred a net loss of $.45 per share in
the second quarter of 1994 versus a loss of $.40 per share in the
second quarter of 1993. First half net losses are $.76 in 1994
and $.56 in 1993. Losses in the second quarter and first half of
1994 are the result of a major product transition (to a new
operating system and new hardware products) that has resulted in
weak systems revenue. The Company has substantially completed
its port to Microsoft Corporation's Windows NT operating system
for two of its three dominant software applications
(architecture, engineering, and construction and
mapping/geographic information systems). Porting of most of the
remaining software applications is expected to be complete by the
end of the year. In addition, most of the hardware products
included in the Company's new line of personal workstations are
currently available for shipment. The anticipated increase in
orders related to the Company's new product offerings has not yet
materialized as customers continue to evaluate both the Windows
NT operating system and the Company's new hardware offerings.
See "PRODUCT TRANSITION AND RESTRUCTURING" below for further
discussion of the product transition.
During the second quarter of 1994 the Company reduced its
estimated annual effective tax benefit rate as a result of
exhaustion of all available U.S. tax loss carryback refund
opportunities and a reduction in the Company's deferred tax
assets due to a change in the Company's expectations for
realization of these future benefits. This reduction in the
estimated annual effective tax benefit rate increased second
quarter and year to date net losses by $7.5 million or $.17 per
share versus the previously anticipated full year benefit rate of
30%. Second quarter 1993 earnings were reduced $.03 per share by
a restructuring charge primarily for severance costs related to
the restructuring of various of the Company's European
operations, primarily its European headquarters in the
Netherlands. First half 1993 earnings were reduced by a net $.05
per share by nonrecurring items including a restructuring charge
of $.06 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 (shown as the cumulative effect of a change in accounting
principle in the year to date 1993 consolidated income
statement). Excluding the 1993 nonrecurring charges, first half
1994 earnings are down $.25 per share from the first half 1993
level due in large part to the decline in tax benefit.
ORDERS. Systems orders were $150.3 million for second quarter
and $280.4 million for the first half of 1994, down 3% and 5%,
respectively, from the same prior year periods. Second quarter
1994 orders were up 15% from the very low first quarter level.
Orders have been adversely impacted by the product transitions as
customers continue to evaluate the Windows NT operating system
and the Company's new hardware offerings.
On July 13, 1994, the U.S. Navy awarded the Company a multi-year,
indefinite delivery, indefinite quantity contract (the Naval Air
Systems Command and Space and Naval Warfare Command or "NAVAIR
and SPAWAR" contract) to provide computer aided design,
manufacturing and engineering (CAD/CAM/CAE) systems and services
for electronics and mechanical applications. The twelve year
contract has an estimated value of $398 million. The award of
this contract has been formally protested by one of the losing
bidders. The Company is supporting the efforts of the Navy in
defending against the protest, and expects the Navy to prevail in
that defense. There will be no order and shipment activity until
the dispute is settled.
8
<PAGE>
REMAINDER OF THE YEAR. The Company anticipates improvement in
order and revenue levels in the second half of 1994 as it
completes its software applications porting effort and with full
availability of its new hardware offerings, although another loss
will likely be incurred in third quarter. The Company believes
it may return to profitability in fourth quarter 1994.
PRODUCT TRANSITION AND RESTRUCTURING
- - ------------------------------------
PRODUCT TRANSITION. 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 below, during late 1992 and
1993 the Company made several strategic decisions to better
position itself to compete in this environment.
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 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. Both the
Company's offering of new products and customers' evaluation of
the change to a new operating system are occurring more slowly
than anticipated. However, two of the three software
applications that dominate the Company's product mix
(architecture, engineering, and construction and
mapping/geographic information systems) are now available for
delivery on Windows NT, with most of the Company's other software
applications becoming available 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 is offering 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 has
ceased design of its own microprocessor, although limited
production of that microprocessor will continue through 1994.
The Company began shipping new Intel-based workstations in third
quarter 1993. Intel-based workstations accounted for
approximately 70% of the workstation units sold during the second
quarter of 1994.
9
<PAGE>
NEW PRODUCTS. In May, 1994 the Company announced a new series of
Intel-based personal workstations, the TD-2, TD-3, TD-4 and TD-5.
Personal workstations combine PC and workstation functionality
into a single computer system. These systems are designed and
engineered for high-end and technical applications and are
powered by single or dual Intel Pentium microprocessors. All
products in the series are available for shipping except for the
TD-5, which is scheduled for availability early in third quarter
1994.
To improve the Company's competitiveness in the separate hardware
and software businesses, the Company has adopted a new
organizational structure consisting of four business units:
Intergraph Software Solutions, Intergraph Computer Systems
(hardware), Intergraph Federal Systems, and Intergraph
Electronics. The Company believes this new structure could
broaden market penetration by allowing each unit to focus solely
on its line of products.
RESTRUCTURING. As described above, during late 1992 and 1993,
the Company made several strategic decisions to better position
itself to compete in the current industry and economic
environment. These decisions led to actions that resulted in an
$89.8 million pretax restructuring charge in 1993. The
restructuring charge was comprised of $10.5 million for direct
workforce reductions, $17.1 million for elimination of
operations, primarily the Company's European manufacturing and
distribution facility, $56.1 million for revaluation of assets
resulting from new product strategy, primarily spares inventory,
goodwill, and investments in other companies, and $6.1 million
for restructure of the Company's electronics business unit.
The Company continues to believe that these actions will reduce
expenses by approximately $50 million annually beginning in 1994.
The Company estimates that cost savings resulting from all
restructuring actions taken in 1993 reduced first half 1994
expenses by approximately $28 million, primarily in the areas of
selling, product support, and product development expenses. The
Company will not fully realize the benefits of its 1993
restructuring until the closure of its European manufacturing and
distribution facility is completed.
There have been no material changes to the Company's 1993
restructuring plan during the first half of 1994. The phased
closure over the course of 1994 of the Company's European
manufacturing and distribution facility (IEM) is progressing in
accordance with the 1993 plan. The Company believes that the
closure will be completed during the third quarter of this year.
Included in the June 30, 1994 balance sheet is approximately $11
million representing the net book value (which approximates
market value) of the IEM facility and approximately $5.3 million
in related mortgage debt, which will be retired if the facility
is sold. Cash outlays in the first half of 1994 related to the
1993 restructuring were approximately $5 million, primarily for
severance pay and associated personnel costs, all of which were
funded by cash generated from operations. Total 1994 cash
expenditures related to the restructuring are expected to be $20
million, primarily for severance pay, related personnel costs,
and IEM debt retirement, all of which will be funded from
operations and sale or lease of the IEM facility. The Company
continues to believe that the long-term effects of the 1993
restructuring on liquidity and sources and uses of capital will
be minimal. See "LIQUIDITY AND CAPITAL RESOURCES" below for
comments regarding the Company's cash position.
REVENUES/ORDERS
- - ---------------
Total revenues for second quarter and first half 1994 were $242.4
million and $482.5 million, respectively, down 3% and 9%,
respectively, from the same prior year periods. Second quarter
and first half 1994 systems revenues were $149.1 million and
$300.2 million, respectively, down 3% and 12%, respectively, from
the same prior year periods. Revenue in all of the Company's
geographic regions was weak, particularly Europe. For the first
half of 1994, U.S. and European systems revenues have declined
10
<PAGE>
9% and 22%, respectively, from the comparable prior year period.
Product transitions are the primary cause for the decline in
systems revenue.
International revenues represented 50% of total first half 1994
revenues, approximately equal to the full year 1993 percentage.
European revenues represented 35% of total first half 1994
revenues, also approximately equal to the full year 1993
percentage.
Among the Company's software applications, AEC (architecture,
engineering and construction), mapping/GIS (geographic
information systems), and MDEM (mechanical design, engineering,
and manufacturing) continue to dominate the product mix.
Maintenance revenues grow as the Company's installed base of
systems grows. Maintenance revenue for the second quarter and
first half of 1994 declined 3% and 4%, respectively, from the
comparable prior year periods as a result of the systems revenue
decline, the shift within the industry to lower priced
workstations and software, and longer product warranty periods.
The trend in the industry toward lower priced workstations could
continue to reduce maintenance revenue, if not offset by higher
volumes of product sales. Services revenue (basically consulting
and training activities) represents less than 5% of total
revenues, but it is expected that this form of revenue may
represent an increasing portion of the Company's revenue in the
future.
Second quarter and first half 1994 systems orders totaled $150.3
million and $280.4 million, respectively, down 3% and 5%,
respectively, from the comparable prior year periods. Order
levels have been adversely affected by the product transition.
Second quarter 1994 orders showed some improvement, increasing
15% over the first quarter level. Total U.S. orders for the
second quarter and first half 1994 were up 4% and 9%,
respectively, from the comparable prior year periods due to
increased Federal government orders, which were up 70% and 51%,
respectively, from the prior year periods. U.S. commercial
orders remain weak. International systems orders for the second
quarter and first half 1994 declined 9% and 15%, respectively,
from the comparable prior year periods. European orders for the
second quarter and first half 1994 were up 4% and down 16%,
respectively, from the same prior year periods.
GROSS MARGIN
- - ------------
Gross margins for second quarter and first half 1994 were 42.7%
and 41.6%, respectively, versus 41.6% for first half 1993 and
40.8% for the full year 1993.
Systems margin for second quarter was 42.1%, down 3.6 points from
the comparable prior year period. First half 1994 systems margin
was 41%, down 6 points from the same prior year period and down
3.8 points from the full year 1993 level. The decline in systems
margin is the result of lower sales volume, competitive price
discounting, and lower margins on new hardware products. A
higher software content in the product slightly offset these
negative effects. The Company believes that hardware margins in
the industry may continue to decline, offset somewhat by higher
software content in the product mix.
In general, factors that contribute to lower systems margin
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
systems sales to total systems sales. Systems margins are
improved by higher software content in the product, a weaker
dollar in international markets, a higher mix of international
systems sales to total systems 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 systems margin, but expects
continuing margin pressure, due primarily to industry price
competition.
11
<PAGE>
Maintenance and services margin for second quarter was 43.7%, an
increase of 9.6 points from the second quarter 1993 level. First
half 1994 maintenance and services margin was 42.7%, up 11 points
from the same prior year period and up 9.2 points from the full
year 1993 level. The increase in maintenance and services margin
results primarily from a decline in the provision for inventory
obsolescence. As part of the restructuring actions taken during
1993, the Company revalued its oldest generation spares inventory
items in recognition of the diminished value of these parts as
the Company transitions to Intel based workstations and new
operating systems that provide greater ease of use. In addition,
costs of service have declined due in large part to headcount
reductions in 1993 that were also the result of restructuring.
OPERATING EXPENSES
- - ------------------
Operating expenses for the second quarter and first half 1994
decreased 8% and 9%, respectively, from the comparable prior year
periods (excluding restructuring charges) due primarily to close
monitoring of spending and the effects of 1993 restructuring
actions which reduced the workforce. Total employee headcount
has declined 7% from the first half 1993 level.
Product development expense for second quarter and first half
1994 declined 21% and 18%, respectively, from the comparable
prior year periods due in large part to the 1993 restructuring
action that eliminated the Company's microprocessor design
division. The Company's continuing efforts to complete its
transition to Windows NT has partially offset the savings
generated by its 1993 restructuring in the development area and
may continue to do so for the next few quarters. Second quarter
and first half 1994 sales and marketing expense increased 6% and
2%, respectively, from the comparable prior year periods.
Savings generated by the restructuring have been offset by higher
advertising costs resulting from promotion of the Company's new
product offerings. General and administrative expense for the
second quarter and first half 1994 declined 20% and 18%,
respectively, from the comparable prior year periods. The
Company continues to closely monitor all costs.
NON-OPERATING INCOME AND EXPENSES
- - ---------------------------------
Interest income was $.9 million for the second quarter and $1.8
million for the first half of 1994 versus $1.0 million and $2.3
million, respectively, for the same prior year periods. Both the
average cash balance and average yields earned on investments
were lower during the first half of 1994 than in 1993.
"Other income (expense) - net" in the consolidated statements of
income consists primarily of aggregate exchange gains/losses,
equity in the earnings of 20%- to 50%-owned companies, other
miscellaneous items of non-operating income and expense, and non-
recurring charges other than restructuring. The first half 1994
amount includes a charge of $3.4 million for write-down of the
Company's investments in two affiliates and a gain of $2.5
million from the sale of a portion of the Company's investment in
another company. The first half 1993 amount includes a $3.3
million write-off of the Company's investment in an affiliated
company.
12
<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. Approximately 50% of the Company's first half 1994
revenues were derived from customers outside the United States
(51% for the full year 1993), 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. For the first half
of 1994, the U.S. dollar strengthened on average from levels of
the comparable prior year period, which decreased the level of
reported dollar revenues, orders, and gross margin, but also
decreased the level of reported dollar operating expenses in
comparison to the prior year period. These effects for the first
half of 1994 were not material to the Company's results of
operations. Currency effects on the Company's results of
operations could become significant if the percentage of revenues
and expenses attributed to the Company's international operations
increases and/or if the dollar fluctuates significantly against
international currencies. 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.
INCOME TAXES
- - ------------
The Company's effective tax benefit rate for the first half of
1994 was 10.4% versus 36% for the prior year period and 31.3% for
the full year 1993. See "SUMMARY" above for discussion of the
decline in benefit rate. Any further losses in 1994 will carry
no tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At June 30, 1994, cash and short-term investments totaled $62.7
million, a decrease of $13.1 million from the December 31, 1993
level.
In the first half of 1994, the Company generated $35.2 million
from operations ($44.4 million during the first half of 1993)
consisting primarily of 1994 refunds of prior years' federal
income tax payments as the result of carryback of the 1993 U.S.
tax return loss. Significant uses of Company funds in the first
half included $37.6 million in capital expenditures, primarily
for Intergraph products used in hardware and software
development, $10.4 million to purchase the Company's stock in the
open market, $9.3 million in inventory build-ups, and $7.8
million for repayment of short-term debt. Significant uses in
the first half of 1993 included $31.3 million in capital
expenditures, $21.4 million to purchase the Company's stock in
the open market, and $6.9 million for a business acquisition.
The Company anticipates capital expenditures for the full year
1994 in the $55-65 million range (excluding those related to the
industrial revenue bonds described below), primarily for computer
equipment manufactured by the Company for use in hardware and
software development.
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 June 30, 1994. 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.
13
<PAGE>
During the second quarter, the State Industrial Development
Authority of Alabama authorized the issuance of up to $30 million
of industrial revenue bonds to finance the cost of a possible
expansion project to increase hardware production capacity. The
funds will be used primarily for facilities expansion and new
manufacturing equipment. The Company anticipates that the bonds
may be issued late in the third quarter. The award includes
certain state tax incentives.
The Company believes that existing cash balances together with
cash available from its revolving credit agreement will be
adequate to meet cash requirements in the remainder of 1994.
14
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Refer to information appearing under "Item 1: Legal
Proceedings" on page 12 of the Intergraph Corporation
Form 10-Q Quarterly Report for the quarterly period
ended March 31, 1994.
Item 4: Submission of Matters to a Vote of Security Holders
Intergraph Corporation's Annual Meeting of
Shareholders was held on May 12, 1994. The results of
the meeting follow.
(1) Seven directors were elected to the Board of
Directors to serve for the ensuing year and until
their successors are duly elected and qualified.
All nominees were current members of the Board of
Directors.
Votes
-------------------------------
For Against/Withheld
---------- ----------------
Roland E. Brown 37,274,516 1,133,468
Larry J. Laster 37,365,609 1,042,375
James W. Meadlock 37,483,710 924,274
Nancy B. Meadlock 37,475,196 932,788
Keith H. Schonrock, Jr. 37,300,471 1,107,513
James F. Taylor, Jr. 37,232,375 1,175,609
Robert E. Thurber 37,479,144 928,840
(2) Ratification of the appointment by the Board of
Directors of Ernst & Young as the Company's
independent auditors for the current year was
approved by a vote of 38,098,858 for, 193,875
against, and 115,251 abstentions.
(3) A proposal by a shareholder that requested the
Bylaws of the Company be amended so as to require
that each of the Company's directors possess voting
rights to at least 1% of the outstanding shares of
the Company's common stock was disapproved by a
vote of 28,030,930 against, 2,759,250 for, 339,510
abstentions, and 7,278,294 broker non-votes.
(4) A proposal by a shareholder that requested the
Company's Shareholder Rights Plan be amended so as
to "not interfere with any public tender offer
which treats all shareholders fairly" was
disapproved by a vote of 18,543,225 against,
11,514,262 for, 1,072,203 abstentions and 7,278,294
broker non-votes.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 11, Computations of loss per share,
pages 17 to 18 .
(b) There were no reports on Form 8-K filed during the
quarter ended June 30, 1994.
15
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERGRAPH CORPORATION
(Registrant)
By: Larry J. Laster By: John W. Wilhoite
------------------------- ------------------
Larry J. Laster John W. Wilhoite
Executive Vice President, Vice President and Controller
Chief Financial Officer and (Principal Accounting Officer)
Director
Date: August 11, 1994 Date: August 11, 1994
16
<PAGE>
Exhibit 11
- - ----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- - -----------------------------------------------------------------------------
Quarter Ended June 30, 1994 1993
- - -----------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(20,164) $(18,608)
======== ========
PRIMARY
Weighted average common shares outstanding 44,842 46,217
Net common shares issuable on exercise of certain
stock options (1) --- 35
-------- --------
Average common and equivalent common
shares outstanding 44,842 46,252
======== ========
Per share amount $( .45) $( .40)
======== ========
FULLY DILUTED (2)
Weighted average common shares outstanding 44,842 46,217
Net common shares issuable on exercise of certain
stock options (1) --- 35
-------- --------
Average common and equivalent common
shares outstanding 44,842 46,252
======== ========
Per share amount $( .45) $( .40)
======== ========
(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.
(2) This calculation is submitted in accordance with Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because it
results in dilution of less than 3%.
17
<PAGE>
Exhibit 11
- - ----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- - ----------------------------------------------------------------------------
Six Months Ended June 30, 1994 1993
- - ----------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(34,211) $(26,280)
======== ========
PRIMARY
Weighted average common shares outstanding 45,096 46,869
Net common shares issuable on exercise of certain
stock options (1) --- 88
-------- --------
Average common and equivalent common
shares outstanding 45,096 46,957
======== ========
Per share amount $( .76) $( .56)
======== ========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,096 46,869
Net common shares issuable on exercise of certain
stock options (1) --- 88
-------- --------
Average common and equivalent common
shares outstanding 45,096 46,957
======== ========
Per share amount $( .76) $( .56)
======== ========
(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.
(2) This calculation is submitted in accordance with Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because it
results in dilution of less than 3%.
18
