===============================================================================
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 March 31, 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: 45,307,909 shares
outstanding as of March 31, 1994
===============================================================================
<PAGE>
INTERGRAPH CORPORATION
FORM 10-Q
March 31, 1994
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1994 and
December 31, 1993 2
Consolidated Statements of Income for the quarters ended
March 31, 1994 and 1993 3
Consolidated Statements of Cash Flows for the quarters
ended March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
1
<PAGE>
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- - -------------------------------------------------------------------------------
March 31, December 31,
1994 1993
- - -------------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 41,124 $ 55,976
Short-term investments 24,673 19,772
Accounts receivable 303,811 314,256
Inventories 106,571 111,555
Refundable income taxes 36,530 42,380
Other current assets 59,284 41,118
- - -------------------------------------------------------------------------------
Total current assets 571,993 585,057
Long-term investments 23,618 23,560
Other assets 22,544 22,281
Property, plant, and equipment, net 219,619 224,431
- - -------------------------------------------------------------------------------
Total Assets $ 837,774 $ 855,329
===============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 39,185 $ 42,866
Accrued compensation 50,568 43,366
Other accrued expenses 69,488 75,608
Billings in excess of sales 60,608 62,087
Income taxes payable 3,987 3,309
Short-term debt and current maturities of
long-term debt 3,631 9,065
- - -------------------------------------------------------------------------------
Total current liabilities 227,467 236,301
Deferred income taxes 14,699 12,777
Long-term debt 17,306 17,541
- - -------------------------------------------------------------------------------
Total liabilities 259,472 266,619
- - -------------------------------------------------------------------------------
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 248,213 246,642
Retained earnings 510,312 524,359
Cumulative translation adjustment ( 5,675) ( 7,606)
- - -------------------------------------------------------------------------------
758,586 769,131
Less - cost of 12,053,453 treasury shares at
March 31, 1994 and 12,006,827 treasury
shares at December 31, 1993 (180,284) (180,421)
- - -------------------------------------------------------------------------------
Total shareholders' equity 578,302 588,710
- - -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 837,774 $ 855,329
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- - -------------------------------------------------------------------------------
Quarter Ended March 31, 1994 1993
- - -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $ 151,132 $ 188,781
Maintenance and services 88,941 93,296
- - -------------------------------------------------------------------------------
Total revenues 240,073 282,077
- - -------------------------------------------------------------------------------
Cost of revenues
Systems 90,781 98,089
Maintenance and services 51,923 66,029
- - -------------------------------------------------------------------------------
Total cost of revenues 142,704 164,118
- - -------------------------------------------------------------------------------
Gross profit 97,369 117,959
Product development 34,857 40,818
Sales and marketing 58,071 59,253
General and administrative 23,317 27,682
Restructuring charge --- 2,606
- - -------------------------------------------------------------------------------
Loss from operations ( 18,876) ( 12,400)
Interest expense ( 494) ( 668)
Interest income 866 1,278
Other income (expense) - net ( 1,563) ( 4,104)
- - -------------------------------------------------------------------------------
Loss before income taxes and cumulative
effect of change in accounting for income taxes ( 20,067) ( 15,894)
Income tax benefit 6,020 5,722
- - -------------------------------------------------------------------------------
Loss before cumulative effect of change in
accounting for income taxes ( 14,047) ( 10,172)
Cumulative effect as of January 1, 1993, of change in
method of accounting for income taxes --- 2,500
- - -------------------------------------------------------------------------------
Net loss $( 14,047) $( 7,672)
===============================================================================
Earnings (loss) per share:
Loss before cumulative effect of change in accounting
for income taxes $( .31) $( .21)
Cumulative effect of change in accounting for income
taxes --- .05
- - -------------------------------------------------------------------------------
Net loss $( .31) $( .16)
===============================================================================
Weighted average shares outstanding 45,353 47,724
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- - -------------------------------------------------------------------------------
Quarter Ended March 31, 1994 1993
- - -------------------------------------------------------------------------------
(In thousands)
Cash provided by (used for):
Operating Activities:
Net loss $( 14,047) $( 7,672)
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 17,823 21,914
Non-cash portion of restructuring charge --- 1,684
Gain on sale of long-term investment ( 2,475) ---
Write-off of long-term investments 3,361 3,273
Net changes in current assets and liabilities 4,745 ( 11)
Net exchange loss 652 1,181
- - -------------------------------------------------------------------------------
Net cash provided by operating activities 10,059 17,869
- - -------------------------------------------------------------------------------
Investing Activities:
Increase in short-term investments and long-term
debt securities, net --- ( 9,326)
Purchases of available-for-sale securities ( 15,552) ---
Sales of available-for-sale securities 12,980 ---
Purchase of property, plant, and equipment ( 11,878) ( 14,233)
Purchase of ownership interests in other businesses ( 600) ( 6,938)
Repayment of loan by affiliate --- 6,994
Other ( 3,079) ( 4,082)
- - -------------------------------------------------------------------------------
Net cash used for investing activities ( 18,129) ( 27,585)
- - -------------------------------------------------------------------------------
Financing Activities:
Proceeds of debt 259 ---
Payment of debt ( 6,205) ( 610)
Proceeds of employee stock purchases 994 1,116
Proceeds of exercise of stock options --- 323
Acquisition of treasury stock ( 1,588) ( 4,775)
- - -------------------------------------------------------------------------------
Net cash used for financing activities ( 6,540) ( 3,946)
- - -------------------------------------------------------------------------------
Effect of exchange rate changes on cash ( 242) ( 2,172)
- - -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents ( 14,852) ( 15,834)
Cash and cash equivalents at beginning of period 55,976 67,194
- - -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 41,124 $ 51,360
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
4
<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
three months ended March 31, 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 change in accounting
principle. Neither the cumulative effect of the change in
principle as of January 1, 1994 nor its application for
the quarter ended March 31, 1994 was material to the
Company's results of operations or financial position.
NOTE 3: In the quarter ended March 31, 1994, the Company wrote
down minority share investments in two companies,
resulting in a pretax charge of $3.4 million ($.05 per
share after tax benefit). In addition, the Company sold a
portion of a stock investment in another company,
resulting in a pretax gain of $2.5 million ($.04 per share
after tax). These items are included in "Other income
(expense) - net" in the consolidated income statement.
In the quarter ended March 31, 1993, the Company wrote off
a minority share investment in another company, resulting
in a pretax charge of $3.3 million ($.04 per share after
tax benefit). 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:
----------------------------------------------------------
March 31, December 31,
1994 1993
----------------------------------------------------------
(In thousands)
Raw materials $ 31,444 $ 31,023
Work-in-process 29,645 33,118
Finished goods 12,205 14,295
Service spares 33,277 33,119
----------------------------------------------------------
Totals $ 106,571 $ 111,555
==========================================================
NOTE 5: Property, plant, and equipment - net includes
allowances for depreciation and amortization of
$256,057,000 and $249,445,000 at March 31, 1994 and
December 31, 1993, respectively.
5
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: Supplementary 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 Quarter Ended March 31,
1994 1993
--------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $ 12,076 $( 6,158)
Inventories 8,137 13,546
Refundable income taxes 1,950 853
Other current assets ( 13,698) ( 4,018)
Increase (decrease) in:
Trade accounts payable ( 4,506) ( 1,606)
Accrued compensation and other
accrued expenses 1,395 5,310
Billings in excess of sales ( 1,962) ( 1,951)
Income taxes payable 1,353 ( 5,987)
--------------------------------------------------------------------
Net changes in current assets and
liabilities $ 4,745 $( 11)
====================================================================
Cash payments for income taxes totaled $873,000 and
$1,332,000 for the quarters ended March 31, 1994 and 1993,
respectively. Cash payments for interest during those
periods totaled $511,000 and $580,000, respectively.
There were no significant non-cash investing and financing
transactions in the first quarter of 1994. Non-cash
transactions in the first quarter of 1993 consisted of the
acquisition of a business in part through obligations
totaling approximately $2.5 million.
6
<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 $.31 per share in
the first quarter of 1994 versus a loss of $.16 per share in the
first quarter of 1993. First quarter 1993 earnings were reduced
by a net $.03 per share by nonrecurring items including 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 (shown as the cumulative
effect of a change in accounting principle in the first quarter
1993 consolidated income statement).
The current quarter net loss is the result of weak systems
revenues. The porting of the Company's technical software
applications to Microsoft Corporation's Windows-NT operating
system is not as complete as previously expected and the sales
cycle for these new products has been longer than expected,
causing a delay in customer orders (see "PRODUCT TRANSITION AND
RESTRUCTURING" below for further discussion of the product
transition). In addition, continued weak economic conditions in
Europe, a weak quarter for U.S. government business, and lower
than expected indirect sales channel business negatively impacted
first quarter revenues.
ORDERS. Systems orders were $130 million for first quarter 1994
versus $140 million for first quarter 1993. Orders were
adversely impacted by product transition as customers continue to
evaluate a change to the NT system and/or await completion of the
porting of specific software applications by the Company.
REMAINDER OF THE YEAR. The Company believes that its product
transition has slowed order and revenue levels and will continue
to do so pending availability of the new products for shipment.
Most new software product offerings are becoming available in
second and third quarters with most other applications expected
to be completed and offered to customers by the end of 1994. The
Company believes that profitability may return in the second half
of the year as new products are produced and sold in volume and
the benefits of restructuring actions taken during 1993 begin to
be more fully realized.
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
7
<PAGE>
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 expected to be available for delivery on Windows NT
during the second quarter, with most of the Company's other
software applications 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 began
shipping new Intel-based workstations in third quarter 1993.
Intel-based workstations accounted for approximately 60% of the
workstation units sold during the first quarter of 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 and 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.
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.
The TD-2 has begun shipping. The remaining products in the
series are scheduled to begin shipping during the late second to
early third quarter of 1994.
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.
Cost savings resulting from all restructuring actions taken in
1993 reduced first quarter 1994 expenses by approximately $13 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
restructuring plan during the first quarter 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 March 31, 1994 balance sheet is approximately $11
million representing the net book value (which approximates
market value) of the IEM facility and approximately $5.5 million
in related mortgage debt, which will be retired if the facility
is sold. Cash outlays in first quarter 1994 related to the 1993
restructuring were approximately $2 million, primarily for
severance pay and associated
8
<PAGE>
personnel costs, all of which was 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 and funded without outside assistance.
REVENUES/ORDERS
- - ---------------
Systems and total revenues for first quarter 1994 were $151.1
million and $240.1 million, respectively, down 20% and 15%,
respectively, from the prior year period. All geographic
segments were weak, particularly Europe. U.S. and European
systems revenues declined 9% and 33%, respectively, from the
comparable prior year period. Product transition and weak
economic conditions in Europe caused the decline in systems
revenue.
International revenues represented 50% of total first quarter
revenues, approximately equal to the full year 1993 portion.
European revenues represented 34% of total first quarter
revenues, also approximately equal to the full year 1993 portion.
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 first quarter of 1994
declined 4% from the comparable prior year period as a result of
the systems revenue decline and the shift within the industry to
lower priced workstations and software. Services revenue
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. Both maintenance and
services revenue produce lower gross margins than systems
revenues. The trend in the industry toward lower priced
workstations could continue to reduce maintenance revenue, if not
offset by higher volumes of product sales.
First quarter 1994 systems orders totaled $130 million, down 7%
from the comparable prior year period. Order levels have been
adversely affected by the product transition, economic weakness
in Europe and delayed federal government orders. U.S. orders
were up 15% (federal government orders were up 6%) from the
comparable prior year period; however, U.S. orders, including
federal government orders, still remain weak. Total
international and European orders declined 20% and 29%,
respectively, from the comparable prior year period.
GROSS MARGIN
- - ------------
Gross margin for the first quarter was 40.6% versus 41.8% for the
comparable prior year period and 40.8% for the full year 1993.
Systems margin for first quarter was 39.9%, down 8.1 points from
the comparable prior year period and 4.9 points from full year
1993. Maintenance and services margin for first quarter was
41.6%, an increase of 12.4 points from the comparable prior year
period and 8.1 points from full year 1993.
The decline in systems margin is the result of lower sales
volume, competitive discounting, and lower margins on new
hardware products. In addition, a stronger U.S. dollar against
European currencies negatively impacted systems margin. 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.
9
<PAGE>
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.
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 smaller, less expensive but more technologically
advanced client-server and PC-based systems, to new operating
systems that provide greater ease of use, and to systems
incorporating microprocessors more widely used in desktop
computing. This has resulted in lower obsolescence charges in
1994. 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 first quarter 1994 decreased 9% from the
comparable prior year period and 5% from the average second half
1993 level (excluding restructuring charges). Total employee
headcount has declined 8% from the first quarter 1993 level.
Product development expense for first quarter declined 15% from
the comparable prior year period and 10% from the average second
half 1993 level 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 in 1994. First quarter sales and marketing
and general and administrative expenses declined 2% and 16%,
respectively, from the comparable prior year period and 1% and
6%, respectively, from the average second half 1993 level due
primarily to close monitoring of spending and the effects of 1993
restructuring actions which reduced the workforce. The resulting
sales and marketing expense reduction in first quarter was offset
by higher advertising costs resulting from promotion of the
Company's new products. The Company continues to closely monitor
all costs.
NON-OPERATING INCOME AND EXPENSES
- - ---------------------------------
Interest income was $.9 million for first quarter versus $1.3
million in first quarter 1993. Both the average cash balance and
average yields earned on investments were lower in first quarter
1994 than in 1993.
"Other income (expense) - net" in the consolidated statements of
income consists primarily of aggregate exchange and translation
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 quarter 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 quarter 1993 amount
includes a $3.3 million write-off of the Company's investment in
an affiliated company.
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 the first quarter of 1994, approximately 50% of the
Company's revenues were derived from customers outside the United
States (51% for the full year 1993), primarily through subsidiary
operations. Most subsidiaries sell
10
<PAGE>
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 first quarter
1994, the U.S. dollar strengthened on average from first quarter
1993 levels, which decreased the level of reported dollar
revenues, orders, and gross margin, but also decreased the level
of reported dollar operating expenses for the period. These
effects for first quarter 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 first quarter 1994
was 30% versus 36% for first quarter 1993 and 31.3% for the full
year 1993. The Company anticipates the full year 1994 rate to
approximate 30%.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At March 31, 1994, cash and short-term investments totaled $65.8
million, a decrease of $10 million from the December 31, 1993
level.
In first quarter 1994, the Company generated $10.1 million from
operations ($17.9 million during the first quarter of 1993).
Significant uses of Company funds in the first quarter included
$11.9 million in capital expenditures, primarily for Intergraph
products used in hardware and software development, and $6.2
million for repayment of short-term debt. Significant uses in
the first quarter of 1993 included $14.2 million in capital
expenditures, $6.9 million for a business acquisition, and $4.8
million to purchase the Company's stock in the open market. The
Company anticipates capital expenditures for the full year 1994
in the $55-65 million range, primarily for computer equipment
manufactured by the Company for use in hardware and software
development.
Subsequent to the March 31, 1994 first quarter balance sheet
date, the Company received a refund of prior years' federal
income tax payments of $27.2 million as the result of carryback
of its 1993 U.S. tax return loss.
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 March 31, 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.
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.
11
<PAGE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1: 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. The Company's sales of the
MicroStation product during the year ended December
31, 1993 were approximately $70 million, with a gross
margin after royalty payments to BSI of approximately
70% before allocation of selling, marketing, product
development, and general and administrative expenses.
BSI notified Intergraph on February 3, 1994, that in
its opinion certain events had 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 disputed that the
license agreement had changed, and pursuant to the
license agreement, Intergraph 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 was a declaration of the
rights of the parties under the license and related
agreements.
In May 1994, the Company and BSI completed
negotiations settling this matter and terminated all
related arbitration and lawsuits. Under the terms of
the settlement, the Company's exclusive worldwide
license to distribute MicroStation, including related
financial terms, remains in effect through December
31, 1994. Effective January 1, 1995, BSI will be
allowed to distribute MicroStation, and Intergraph
retains a distribution right to the product but only
when sold with other Intergraph software and/or
hardware. In addition, effective January 1, 1995, the
per copy royalty payable by Intergraph to BSI is
increased and, for 1995 only, BSI will pay Intergraph
a per copy distribution fee based on BSI's MicroStation sales.
The financial impact of the settlement on the Company
beyond 1994 ultimately depends on the level of the Company's
and BSI's MicroStation sales, which the Company is currently
unable to predict. It is possible that some MicroStation
sales will be diverted to BSI, and the settlement agreement
provides that the Company will pay royalties to BSI at a
higher per copy rate on its MicroStation sales, though
that expense will be partially offset by per copy
distribution fees payable from BSI to Intergraph in 1995.
Any adverse financial effects of the settlement beyond 1994
will be mitigated by the Company's 50% interest in existing
and incremental profits, if any, earned by BSI, and by
reduction in MicroStation product marketing and support
expenses which become the responsibility of BSI.
12
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 11, Computations of loss per share, page 15.
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1994.
13
<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: May 12, 1994 Date: May 12, 1994
14
<PAGE>
Exhibit 11
- - ----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- - ------------------------------------------------------------------------------
Quarter Ended March 31, 1994 1993
- - ------------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(14,047) $( 7,672)
========= =========
PRIMARY
Weighted average common shares outstanding 45,353 47,528
Net common shares issuable on exercise of certain
stock options (1) --- 196
--------- ---------
Average common and equivalent common
shares outstanding 45,353 47,724
========= =========
Per share amount $( .31) $( .16)
========= =========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,353 47,528
Net common shares issuable on exercise of certain
stock options (1) --- 196
--------- ---------
Average common and equivalent common
shares outstanding 45,353 47,724
========= =========
Per share amount $( .31) $( .16)
========= =========
(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%.
15
