=================================================================
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, 1995
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: 46,084,168 shares
outstanding as of June 30, 1995
=================================================================
INTERGRAPH CORPORATION
FORM 10-Q
June 30, 1995
INDEX
Page No.
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1995 and
December 31, 1994 2
Consolidated Statements of Operations for the quarters
ended June 30, 1995 and 1994 3
Consolidated Statements of Operations for the six
months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
---------------------------------------------------------------------------
June 30, December 31,
1995 1994
---------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 42,470 $ 61,393
Short-term investments --- 1,023
Accounts receivable 300,074 344,957
Inventories 120,837 114,444
Refundable income taxes 2,472 22,784
Other current assets 38,382 30,097
---------------------------------------------------------------------------
Total current assets 504,235 574,698
Long-term investments, primarily in affiliates 9,934 9,453
Other assets 47,113 28,194
Property, plant, and equipment, net 225,631 227,273
---------------------------------------------------------------------------
Total Assets $786,913 $839,618
===========================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 55,577 $ 51,224
Accrued compensation 53,483 47,533
Other accrued expenses 70,309 69,241
Billings in excess of sales 56,263 79,265
Income taxes payable 4,544 6,816
Short-term debt and current maturities
of long-term debt 18,562 37,726
---------------------------------------------------------------------------
Total current liabilities 258,738 291,805
Deferred income taxes 2,886 2,088
Long-term debt 27,008 23,388
---------------------------------------------------------------------------
Total liabilities 288,632 317,281
---------------------------------------------------------------------------
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 236,700 243,295
Retained earnings 409,709 454,139
Cumulative translation adjustment 10,499 2,458
---------------------------------------------------------------------------
662,644 705,628
Less - cost of 11,277,194 treasury shares at
June 30, 1995 and 12,576,082 treasury
shares at December 31, 1994 (164,363) (183,291)
---------------------------------------------------------------------------
Total shareholders' equity 498,281 522,337
---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $786,913 $839,618
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
--------------------------------------------------------------------------
Quarter Ended June 30, 1995 1994
--------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $161,646 $149,106
Maintenance and services 98,521 93,289
--------------------------------------------------------------------------
Total revenues 260,167 242,395
--------------------------------------------------------------------------
Cost of revenues
Systems 101,326 86,359
Maintenance and services 57,454 52,492
--------------------------------------------------------------------------
Total cost of revenues 158,780 138,851
--------------------------------------------------------------------------
Gross profit 101,387 103,544
Product development 29,530 33,330
Sales and marketing 69,490 64,670
General and administrative 23,983 21,771
Restructuring charge 7,470 ---
--------------------------------------------------------------------------
Loss from operations (29,086) (16,227)
Interest expense ( 870) ( 431)
Interest income 348 896
Other income (expense) - net 7,650 ( 2,353)
--------------------------------------------------------------------------
Loss before income taxes (21,958) (18,115)
Income tax expense --- ( 2,049)
--------------------------------------------------------------------------
Net loss $(21,958) $(20,164)
==========================================================================
Net loss per share $( .48) $( .45)
==========================================================================
Weighted average shares outstanding 45,929 44,842
==========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------------------------------------------------------------------
Six Months Ended June 30, 1995 1994
-------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $325,688 $300,238
Maintenance and services 191,808 182,230
-------------------------------------------------------------------------
Total revenues 517,496 482,468
-------------------------------------------------------------------------
Cost of revenues
Systems 206,336 177,140
Maintenance and services 111,625 104,415
-------------------------------------------------------------------------
Total cost of revenues 317,961 281,555
-------------------------------------------------------------------------
Gross profit 199,535 200,913
Product development 59,670 68,187
Sales and marketing 136,808 122,741
General and administrative 47,269 45,088
Restructuring charge 7,470 ---
-------------------------------------------------------------------------
Loss from operations (51,682) (35,103)
Interest expense ( 1,830) ( 925)
Interest income 889 1,762
Other income (expense) - net 8,193 ( 3,916)
-------------------------------------------------------------------------
Loss before income taxes (44,430) (38,182)
Income tax benefit --- 3,971
-------------------------------------------------------------------------
Net loss $(44,430) $(34,211)
=========================================================================
Net loss per share $( .97) $( .76)
=========================================================================
Weighted average shares outstanding 45,766 45,096
=========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
------------------------------------------------------------------------
Six Months Ended June 30, 1995 1994
------------------------------------------------------------------------
(In thousands)
Cash provided by (used for):
Operating Activities:
Net loss $(44,430) $(34,211)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 39,379 34,967
Non-cash portion of restructuring charge 6,900 ---
Collection of income tax refunds 22,109 31,065
Gain on sale of investment in affiliate --- ( 2,475)
Gain on sale of subsidiary ( 5,024) ---
Write-off of investments in affiliates --- 3,361
Net changes in current assets and liabilities 6,931 1,009
Foreign exchange (gain) loss ( 69) 1,457
------------------------------------------------------------------------
Net cash provided by operating activities 25,796 35,173
------------------------------------------------------------------------
Investing Activities:
Purchases of securities --- (46,332)
Sales and maturities of securities 1,000 55,077
Proceeds from sale of subsidiary 6,434 ---
Purchase of property, plant, and equipment (21,223) (37,575)
Capitalized software development costs (13,470) ( 8,075)
Other ( 4,216) ( 1,492)
------------------------------------------------------------------------
Net cash used for investing activities (31,475) (38,397)
------------------------------------------------------------------------
Financing Activities:
Gross borrowings 13,639 7,410
Debt repayment (32,620) ( 7,764)
Proceeds of employee stock purchases 1,976 1,968
Proceeds of exercise of stock options 1,571 ---
Acquisition of treasury stock --- (10,379)
------------------------------------------------------------------------
Net cash used for financing activities (15,434) ( 8,765)
------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,190 ( 571)
------------------------------------------------------------------------
Net decrease in cash and cash equivalents (18,923) (12,560)
Cash and cash equivalents at beginning of period 61,393 55,976
------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 42,470 $ 43,416
========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
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, 1994 to provide comparability with
the current period presentation.
NOTE 2: On May 12, 1995, the Company was notified by its
primary source of external funding that an event of
default had occurred under its loan agreement with that
bank. The bank did not exercise any of its remedies of
the default condition, and the loan agreement expired on
May 31, 1995. All amounts due under the agreement were
paid in full at that time. The Company is currently
negotiating with a new source of external funding. See
Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results
of Operations for further details.
NOTE 3: Inventories are stated at the lower of average cost or
market and are summarized as follows:
----------------------------------------------------------
June 30, December 31,
1995 1994
----------------------------------------------------------
(In thousands)
Raw materials $ 32,618 $ 29,734
Work-in-process 28,097 35,617
Finished goods 19,165 14,198
Service spares 40,957 34,895
----------------------------------------------------------
Totals $120,837 $114,444
==========================================================
NOTE 4: Property, plant, and equipment - net includes
allowances for depreciation and amortization of
$307,409,000 and $285,011,000 at June 30, 1995 and
December 31, 1994, respectively.
NOTE 5: During the second quarter, the Company undertook a
restructuring program designed to restore profitability
through adapting its business operations and cost
structure to changed market conditions. The program
consists of reductions in workforce and disposition of
unprofitable business units over the next twelve months.
Approximately 600 positions were eliminated in second
quarter, providing an estimated $28 million in annual
savings. The Company estimates that upon completion of
the twelve month program it will have reduced expenses by
$100 million annually on a prospective basis. It is
anticipated that the remaining cost savings will be
achieved through employee attrition and through
disposition by sale or closure of four business units that
do not currently meet the Company's goals for
profitability and strategic value. Achievement of the
remainder of the estimated $100 million in annual savings
is heavily dependent on disposition of the four business
units. Effort will be focused primarily on attempts to
sell those units. The Company has not finalized the plan
of disposition for these business units to the extent
necessary to reasonably estimate the restructuring charge
that may result from the dispositions. Revenues and
operating losses from these business units totaled
approximately $38 million and $20 million, respectively,
for both the six month periods ended June 30, 1995 and 1994.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The second quarter restructuring charge totaled $7.5
million, primarily for severance pay and related costs.
All employee groups were affected, but the majority of
positions eliminated derived from the research and
development, systems engineering and support, and sales
and marketing areas. The Company expects that cash
expenditures related to the charge will approximate $5.7
million, to be provided from cash generated by 1995
operations. The $7.5 million charge is included in
"Restructuring charge" in the consolidated statement of
operations and the related liability is included in "Other
accrued expenses" in the consolidated balance sheet.
NOTE 6: In the quarter ended June 30, 1995, the Company sold
one of its subsidiaries at a pretax gain of $5.0 million
($.11 per share). The subsidiary was not significant to
the Company's results of operations. The gain is included
in "Other income (expense) - net" in the consolidated
statement of operations.
NOTE 7: Supplemental cash flow information is summarized as follows:
Changes in current assets and liabilities, net of the
effects of business acquisitions and divestitures and
restructuring charges, in reconciling net loss to net cash
provided by operations are as follows:
-------------------------------------------------------------
Cash Provided By (Used For) Operations
Six Months Ended June 30, 1995 1994
-------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $ 53,258 $ 13,526
Inventories ( 7,495) ( 9,341)
Other current assets (11,627) ( 9,340)
Increase (decrease) in:
Trade accounts payable 66 16,781
Accrued compensation and other
accrued expenses ( 611) ( 7,388)
Billings in excess of sales (24,984) ( 1,272)
Income taxes payable ( 1,676) ( 1,957)
-------------------------------------------------------------
Net change in current assets
and liabilities $ 6,931 $ 1,009
=============================================================
Cash payments for income taxes totaled $2,136,000 and
$1,741,000 for the six months ended June 30, 1995 and
1994, respectively. Cash payments for interest during
those periods totaled $1,396,000 and $946,000, respectively.
Investing and financing transactions in the first half of
1995 that did not require cash consisted of acquisition of
a business for total consideration of $7,500,000 through
issuance of 797,931 shares of the Company's common stock
and the granting of options on 148,718 shares to employees
of the acquired company. There were no significant non-
cash investing and financing transactions in the first
half of 1994.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: In January 1995, the Company acquired all of the
outstanding stock of InterCAP Graphics Systems, Inc. for
total consideration of $7,500,000 consisting of issuance
of 797,391 shares of the Company's common stock and
assumption of InterCAP's obligations under employee stock
option plans. InterCAP is engaged in the business of
designing and producing computer software systems that
assist in creating, editing, converting and presenting
technical illustrations used by large manufacturing firms.
The accounts and results of operations of InterCAP have
been combined with those of the Company since the date of
acquisition using the purchase method of accounting. Had
the combination occurred January 1, 1994, net loss and
loss per share would not have been materially affected for
either the six months ended June 30, 1994 or 1995.
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 $.48 per share in
the second quarter of 1995 versus a loss of $.45 per share in the
second quarter of 1994. For the first half of 1995 the Company
lost $.97 per share versus $.76 per share for the same prior year
period. Losses in the second quarter and first half of 1995
result primarily from a revenue base that is not sufficient to
cover the current level of operating expenses and from a further
decline in gross margin on the Company's products. In addition,
the second quarter and first half 1995 loss included a $7.5
million ($.16 per share) restructuring charge and a $5.0 million
($.11 per share) gain on the sale of a subsidiary.
Restructuring. During the second quarter, the Company undertook
a restructuring program designed to restore profitability through
adapting the Company's business operations and cost structure to
changed market conditions. The program consists of reductions in
workforce and disposition of unprofitable business units over the
next twelve months. Approximately 600 positions were eliminated
in second quarter, providing an estimated $28 million in annual
savings. The Company estimates that upon completion of the
twelve month program, it will have reduced expenses by $100
million annually on a prospective basis. It is anticipated that
the remaining cost savings will be achieved through employee
attrition and through disposition by sale or closure of four
business units that do not currently meet the Company's goals for
profitability and strategic value. Achievement of the remainder
of the estimated $100 million in annual savings is heavily
dependent on disposition of the four business units. Effort will
be focused primarily on attempts to sell those units. The
Company has not finalized the plan of disposition for these
business units to the extent necessary to reasonably estimate the
restructuring charge that may result from the dispositions.
Revenues and operating losses from these business units totaled
approximately $38 million and $20 million, respectively, for both
the six month periods ended June 30, 1995 and 1994.
The second quarter restructuring charge totaled $7.5 million,
primarily for severance pay and related costs. All employee
groups were affected, but the majority of positions eliminated
derived from the research and development, systems engineering
and support, and sales and marketing areas. The Company expects
that cash expenditures related to the charge will approximate
$5.7 million, to be provided from cash generated by 1995
operations. The $7.5 million charge is included in
"Restructuring charge" in the consolidated statement of
operations and the related liability is included in "Other
accrued expenses" in the consolidated balance sheet.
Remainder of the year. The Company expects that current industry
conditions characterized by the demand for higher performance and
lower priced products, intense competition and rapidly changing
technology will continue in 1995 and beyond. However, the
Company has substantially completed its operating system and
hardware architecture transition, and believes that the full
availability of its products and the growing acceptance of
Windows NT, together with the benefits to be derived from
completion of its planned restructuring actions over the next 12
months, will restore sales growth and profitability. To achieve
profitability, the Company must significantly increase its sales
volume and reduce its operating expenses.
Bentley Systems, Inc. Through the end of 1994 the Company had an
exclusive license agreement with Bentley Systems, Inc. (BSI), a
50%-owned affiliate of the Company, under which the Company
distributed MicroStation, a software product developed and
maintained by BSI and utilized in many of the Company's software
applications. Effective January 1, 1995, the Company's license
agreement became nonexclusive. Under the new agreement, the
Company has a right to sell MicroStation via its direct sales
force, and to sell MicroStation via its indirect sales channels
if MicroStation is sold with other Intergraph products. In
addition, effective January 1, 1995, the per copy royalty payable
by the Company to BSI was increased and, for 1995 only, BSI will
pay the Company a per copy distribution fee based on BSI's
MicroStation sales to resellers. The Company estimates that the
effect of this new agreement on first half 1995 results was a
reduction in revenues of approximately 2% and an increase in net
loss of approximately $5.0 million or $.11 per share.
Purchase Business Combination. In January 1995, the Company
acquired all of the outstanding stock of InterCAP Graphics
Systems, Inc. for total consideration of $7.5 million, consisting
of issuance of approximately 798,000 shares of the Company's
common stock and assumption of InterCAP's obligations under
employee stock option plans. InterCAP is engaged in the business
of designing and producing computer software systems that assist
in creating, editing, converting and presenting technical
illustrations used by large manufacturing firms. The accounts
and results of operations of InterCAP have been combined with
those of the Company since the date of acquisition using the
purchase method of accounting. Had the combination occurred
January 1, 1994, net loss and loss per share would not have been
materially affected for either the six month period ended June
30, 1994 or 1995.
BUSINESS TRANSITION
-------------------
Industry Conditions. 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), by shorter product cycles,
and by development and support of software standards that result
in less specific hardware dependency by customers. The Company
believes the life cycle of its products to be less than two
years, and it is therefore engaged in continuous product
development activity. The operating results of the Company and
others in the industry will continue to depend on the ability to
accurately anticipate customer requirements and technological
trends and 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.
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. The effect of
this decision has been 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 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 has continued 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 Windows NT system if and when the customer chooses.
The Company has now completed its transition to the Windows NT
operating system. Development of demand for Windows NT-based
systems has been slower than anticipated. Sales of Windows-based
software represented approximately 64% of software revenues for
both the second quarter and first half of 1995 versus
approximately 41% for the same prior year periods (approximately
48% for the full year 1994).
Hardware Architecture. The Company believes that Intel
Corporation's hardware architecture has an important role in the
computing markets it serves. During the last half of 1993, the
Company began to offer a hardware platform (in addition to its
own) based on Intel microprocessors. Previously, the Company's
hardware platform offering had been based on its own
microprocessor. The Company ceased design of its own
microprocessor at the end of 1993. Intel-based systems
represented approximately 91% of workstation and server units
sold in the first half of 1995 versus 62% for the same prior year
period (approximately 74% for the full year 1994).
ORDERS/REVENUES
---------------
Orders and revenues for the first six months of 1995 were
depressed by much slower development of demand for Windows NT-
based products than anticipated. Customer acceptance of Windows
NT products in the U.S. and Asia Pacific regions is increasing,
while Europe continues to lag behind. While the Company believes
that Windows NT will become the dominant operating system in the
markets it serves, adoption of any new operating system requires
considerable effort on the part of customers, and the timing of
such conversions is unpredictable. Competing operating systems
are available in the market, and several competitors of the
Company offer or are adopting the Windows NT operating system for
their products.
Orders. Second quarter and first half 1995 systems orders
totaled $175.5 million and $325.9 million, respectively, an
increase of approximately 16% (including portions of the "BEST"
order described below) from the same prior year periods. U.S.
systems orders were up 13% and 11%, respectively, from the second
quarter and first half 1994 levels due to an increase in
commercial orders of 24% in both periods. Federal government
orders have declined 7% from the first half 1994 level primarily
as a result of government budget constraints. International
systems orders were up 21% from both the second quarter and first
half 1994 levels. European orders were up 8% for both periods.
Other international orders were up 43% and 47%, respectively,
from the second quarter and first half 1994 levels due to
increased orders in the Company's Asia Pacific region.
During the second quarter, the Company signed a seven year, $120
million contract with the Bureau of Emergency Services
Telecommunications (BEST) to provide a centralized computer-aided
calltaking and dispatch system for the State of Victoria,
Australia. Orders under the contract totaled $14 million for the
second quarter and first six months of 1995. Revenues on this
contract will commence in fourth quarter 1995.
In July 1994, the U.S. Navy awarded the Company the Naval Air
Systems Command and Space and Naval Warfare Command contract
("NAVAIR and SPAWAR") to provide computer aided design,
manufacturing and engineering (CAD/CAM/CAE) systems and services
for electronics and mechanical applications. The contract is an
indefinite delivery, indefinite quantity contract with a maximum
value of $398 million, a minimum value of $1 million, and a
maximum term of 12 years if optional annual renewals are
exercised. Funding for other than the minimum quantity is
obligated by each delivery order and not by the contract itself.
The award of this contract was formally protested by one of the
losing bidders during 1994. The original award to the Company
was upheld. In February 1995, the Company was notified that one
of the losing bidders had filed an appeal of the decision
upholding the original award. The Company is supporting the
efforts of the Navy in defending against the appeal, and expects
the Navy to prevail in that defense. The appeal will not delay
receipt of orders or shipments under the contract. Orders and
shipments under this contract have been insignificant to date.
Given the nature of the contract, the Company cannot determine
the amount of orders that will be received or the anticipated
annual revenues over the term of the contract.
Revenues. Total revenues for the second quarter and first half
of 1995 were $260.2 million and $517.5 million, respectively, up
7% from the comparable 1994 levels. Sales outside the U.S.
represented 53% of total revenues in the first half of 1995
versus approximately 49% for both the first half and full year
1994. European revenues were 35% of total revenues for the first
half of 1995 versus 33% for the full year 1994.
Systems. Systems revenue for the second quarter and first half
of 1995 were $161.6 million and $325.7 million, respectively, up
8% from the same prior year periods. Workstation and server unit
sales in the first half of 1995 were up 23% from the prior year
period; however, workstation and server revenues increased only
6% due to declining per unit sales prices. In addition, the
Company believes that some MicroStation software sales were
diverted to Bentley Systems, Inc., a 50%-owned affiliate of the
Company, under the Company's new license agreement with Bentley
(for further discussion of this agreement and its impact on the
Company, see "Bentley Systems" above).
U.S. systems revenues in the first half of 1995 were relatively
flat with the prior year period. U.S. commercial systems
revenues were up 7%, but federal government systems revenues
declined 5%. International systems revenues were up 15% from the
first half 1994 level. European and other international systems
revenues increased by 7% and 29%, respectively.
The architecture, engineering and construction (AEC),
mapping/geographic information systems (GIS), and mechanical
design, engineering, and manufacturing (MDEM) product
applications have dominated the Company's product mix over the
last three years, with no other single application representing
more than 10% of systems revenue. The relative contributions of
these product families to total systems revenue for both the
first half of 1995 and the full year 1994 were AEC 34%, GIS 42%,
MDEM 16%, and all other applications 8%.
Maintenance and Services. Maintenance and services revenue
consists of revenues from maintenance of Company systems and from
Company-provided training, consulting, and other services. These
forms of revenue totaled $98.5 million for the second quarter and
$191.8 million for the first half of 1995, an increase of
approximately 5% from both the second quarter and first half 1994
levels. Maintenance revenues grow as the Company's installed
base of systems grows. The shift within the industry toward
lower priced products and longer warranty periods has reduced the
rate of increase in maintenance revenue and may continue to do
so. Services revenue represents less than 5% of total revenues.
New Products. In April 1995, the Company announced the next
generation of its Intel-based TD line of personal workstations,
the TD-30 and TD-40. These new personal workstations are
targeted for compute-intensive operations. In addition, the
Company announced its TDZ line of high-end 3D graphics personal
workstations, which integrate up to six Intel Pentium processors.
These workstations are designed for compute-intensive interactive
3D-design and rendering. The TD products began shipping late in
the second quarter and the TDZ products are scheduled to begin
shipping in the third quarter.
The Company has also announced a new software technology that
will be the foundation of new CAD/CAM/CAE and GIS software
applications developed and sold by the Company. The "Jupiter"
Windows-based software architecture is built in components,
allowing customers to choose the software they need rather than
buying larger software programs containing functions that may not
be used. The Company believes this technology will bring
increased productivity and improved software performance to its
customers. Products based on Jupiter technology will be
available for shipment by the end of 1995.
The Company believes these products complement rather than
replace existing product lines and therefore anticipates no
adverse effects on existing inventories or significant delays in
orders pending their availability.
GROSS MARGIN
------------
The Company's total gross margin for the second quarter and first
half of 1995 was 39.0% and 38.6%, respectively, versus 41.6% for
first half of 1994 and 40.5% for the full year 1994.
Systems margin for second quarter was 37.3%, down 4.8 points from
the second quarter 1994 level. First half 1995 systems margin
was 36.6%, down 4.4 points from the first half 1994 level and
down 3.1 points from the full year 1994 level. The systems
margin decline is due in part to continuation of competitive
pricing conditions in the industry, in particular hardware
pricing. In addition, under the Company's new license agreement
with Bentley Systems, Inc., the per copy royalty paid to Bentley
for MicroStation software products sold by the Company was
increased, which negatively impacted the Company's systems margin
(for further discussion of this agreement and its impact on the
Company, see "Bentley Systems" above). These negative factors
were partially offset by the favorable impact of weakening of the
dollar against European currencies and an increase in the mix of
international systems sales to total systems sales.
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, but expects continuing pressure on its
systems margin due primarily to industry price competition.
Maintenance and services margin for the second quarter was
41.7%, down 2 points from the second quarter 1994 level.
Maintenance and services margin for the first half of 1995 was
41.8%, down slightly from the first half and full year l994
levels.
OPERATING EXPENSES
------------------
Operating expenses for the second quarter and first half of 1995
increased 3% from the same prior year periods. Total employee
headcount has declined 8% from the first half 1994 level.
Sales and marketing expense for the second quarter and first half
of 1995 increased 7% and 11%, respectively, from the same prior
year periods due primarily to an increase in presales support
costs and weakening of the dollar against European currencies.
General and administrative expense for the second quarter and
first half of 1995 increased 10% and 5%, respectively, from the
same prior year periods due primarily to weakening of the dollar
against European currencies and, to a lesser extent, to an
increase in legal and bad debt expenses. Product development
expense for the second quarter and first half of 1995 declined
11% and 12%, respectively, from the same prior year periods due
to an increase in the amount of new product software development
costs qualifying for capitalization and to a decline in headcount
and related overhead expenses.
NONOPERATING INCOME AND EXPENSE
-------------------------------
Interest expense was $.9 million for the second quarter and $1.8
million for the first half of 1995 versus $.4 million and $.9
million, respectively, for the same prior year periods. The
Company's outstanding debt increased in comparison to the same
prior year periods. The Company expects interest expense to
increase during the remainder of the year due to necessary
increases in the level of debt and an increase in the rate of
interest the Company will be required to pay. See "Liquidity and
Capital Resources" below for discussion of the Company's current
financing requirements.
Interest income was $.3 million for the second quarter and $.9
million for the first half of 1995 versus $.9 million and $1.8
million, respectively, for the same prior year periods. The
average cash balance for the first half of 1995 has declined from
the first half 1994 average due to a decline in cash generated
from operations.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of aggregate foreign exchange
gains/losses, equity in the earnings of 20%- to 50%-owned
companies, other miscellaneous items of nonoperating income and
expense, and nonrecurring charges. The second quarter and first
half 1995 amounts include a gain of $5.0 million from the sale of
a subsidiary. 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 an investment in an affiliated company.
IMPACT OF CURRENCY FLUCTUATIONS AND CURRENCY RISK MANAGEMENT
------------------------------------------------------------
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on results of operations.
In the first half of 1995, approximately 53% of the Company's
revenues were derived from customers outside the United States
(49% for the full year 1994), 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 weaker U.S. dollar will increase the level
of reported U.S. dollar orders and revenues, increase the dollar
gross margin, and increase reported dollar operating expenses of
the international subsidiaries. For the first half of 1995, the
U.S. dollar weakened on average from its first half 1994 level,
which increased the level of reported dollar revenues, orders,
and gross margin, but also increased the level of reported dollar
operating expenses in comparison to the prior year period.
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, primarily hedging, are taken to
reduce currency risk. With respect to these exposures, the
objective of the Company is to protect against financial
statement volatility arising from changes in exchange rates with
respect to amounts denominated for balance sheet purposes in a
currency other than the functional currency of the local entity.
Forward exchange contracts are purchased with maturities
reflecting the expected settlement dates of these balance sheet
items (generally three months or less), and only in amounts
sufficient to offset possible significant currency rate-related
changes in the recorded values of these balance sheet items,
which represent a calculable exposure for the Company from period
to period. The Company's positions in these derivatives are
continuously monitored to ensure protection against the known
balance sheet exposure described above. By policy the Company is
prohibited from market speculation via such instruments and
therefore it does not take currency positions exceeding its known
financial statement exposures, and does not otherwise trade in
currencies.
INCOME TAXES
------------
The Company incurred a loss before income tax benefit of $44.4
million in the first half of 1995 versus $38.2 million in the
first half of 1994. The 1995 loss generated no tax benefit as
virtually all available financial statement tax benefits were
exhausted in 1994. The effective tax benefit rate for the first
half of 1994 was 10.4%.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 1995, cash and short-term investments totaled $42.5
million, a decrease of $19.9 million from the December 31, 1994
level. Cash generated from operations in the first half of 1995
totaled $25.8 million (including $22.1 million in tax refunds
arising from prior years' losses) versus $35.2 million (including
$31.1 million in tax refunds) for first half 1994. All
significant tax refund opportunities have been exhausted.
Net cash used for investing activities totaled $31.5 million in
the first half of 1995 versus $38.4 million in the first half of
1994. Included in investing activities were capital expenditures
of $21.2 million in the first half of 1995 ($37.6 million in the
first half of 1994), primarily for Intergraph products used in
hardware and software development. The Company expects that
capital expenditures for the full year 1995 will require $40 to
$50 million, primarily for computer equipment manufactured by the
Company for use in hardware and software development.
Net cash used for financing activities totaled $15.4 million in
the first half of 1995 versus $8.8 million in the first half of
1994. Included in first half 1995 financing activities was $32.6
million for repayment of short-term debt ($7.8 million in the
first half of 1994). Cash used to purchase Company stock for the
treasury totaled $10.4 million in the first half of 1994.
Historically, the Company's collection period for accounts
receivable has approximated 100 days. Approximately 49% of the
Company's sales are derived from the U.S. government and European
customers, both of which traditionally carry longer collection
periods. The Company endeavors to enforce its payment terms with
these and other customers, and grants extended payment terms only
in very limited circumstances. The Company is actively seeking
to reduce its collection period.
The Company had a $50 million revolving credit agreement with a
bank that enabled it to borrow funds on a revolving basis through
May 31, 1995. The loan commitment was conditional on maintenance
of minimum levels of tangible net worth at various dates through
its expiration. As of March 31, 1995 and continuing through
expiration of the agreement, the Company did not meet the minimum
tangible net worth requirement of the loan agreement, and was
notified on May 12 by the bank that an event of default of the
loan agreement had occurred. The bank did not exercise any of
its remedies of the default condition, and the loan agreement
expired on May 31, 1995. All amounts due under the agreement
were paid in full at that time.
The Company is at present not generating sufficient cash from
operations to adequately fund growth of the Company. The Company
is currently negotiating with sources of external financing, and
believes adequate financing will be arranged by the end of third
quarter. The cost of such funding will exceed the cost of
external funding to date due to the Company's operating losses,
and restrictions on the Company required by any such new loan
commitment will be more stringent than under the previous
revolving credit agreement.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
Intergraph Corporation's Annual Meeting of
Shareholders was held on May 18, 1995. 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 serving as Directors at the time
of their nomination.
Votes
-------------------------------
For Against/Withheld
------------ ----------------
Roland E. Brown 38,134,592 696,499
Larry J. Laster 38,156,337 674,754
James W. Meadlock 38,160,743 670,348
Nancy B. Meadlock 38,146,344 684,747
Keith H. Schonrock, Jr. 38,090,573 740,518
James F. Taylor, Jr. 38,090,798 740,293
Robert E. Thurber 38,094,591 736,500
(2) Ratification of the appointment by the Board of
Directors of Ernst & Young LLP as the Company's
independent auditors for the current year was
approved by a vote of 38,690,094 for, 72,270
against, and 68,727 abstentions.
(3) The 1995 Intergraph Corporation Employee Stock
Purchase Plan was approved by a vote of 36,050,208
for, 1,122,215 against, 359,126 abstentions, and
1,299,542 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 18,287,198 against,
10,513,507 for, 963,484 abstentions and 9,066,902
broker non-votes.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 11, Computations of loss per share, pages 18 to 19.
(b) There were no reports on Form 8-K filed during the
quarter ended June 30, 1995.
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
-----------------------
Larry J. Laster
Executive Vice President,
Chief Financial Officer and
Director
Date: August 11, 1995
Exhibit 11
----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
---------------------------------------------------------------------------
Quarter Ended June 30, 1995 1994
---------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(21,958) $(20,164)
=========== =========
PRIMARY
Weighted average common shares outstanding 45,929 44,842
Net common shares issuable on exercise of certain
stock options (1) --- ---
---------- ---------
Average common and equivalent common
shares outstanding 45,929 44,842
========== =========
Net loss per share $( .48) $( .45)
========== =========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,929 44,842
Net common shares issuable on exercise of certain
stock options (1) --- ---
---------- ---------
Average common and equivalent common
shares outstanding 45,929 44,842
========== =========
Net loss per share $( .48) $( .45)
========== =========
(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%.
Exhibit 11
----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
--------------------------------------------------------------------------
Six Months Ended June 30, 1995 1994
--------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(44,430) $(34,211)
=========== =========
PRIMARY
Weighted average common shares outstanding 45,766 45,096
Net common shares issuable on exercise of certain
stock options (1) --- ---
---------- ---------
Average common and equivalent common
shares outstanding 45,766 45,096
========== =========
Net loss per share $( .97) $( .76)
========== =========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,766 45,096
Net common shares issuable on exercise of certain
stock options (1) --- ---
---------- ---------
Average common and equivalent common
shares outstanding 45,766 45,096
========== =========
Net loss per share $( .97) $( .76)
========== =========
(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%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 42,470
<SECURITIES> 0
<RECEIVABLES> 300,074
<ALLOWANCES> 0
<INVENTORY> 120,837
<CURRENT-ASSETS> 504,235
<PP&E> 533,040
<DEPRECIATION> 307,409
<TOTAL-ASSETS> 786,913
<CURRENT-LIABILITIES> 258,738
<BONDS> 27,008
<COMMON> 5,736
0
0
<OTHER-SE> 492,545
<TOTAL-LIABILITY-AND-EQUITY> 786,913
<SALES> 325,688
<TOTAL-REVENUES> 517,496
<CGS> 206,336
<TOTAL-COSTS> 317,961
<OTHER-EXPENSES> 251,217<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,830
<INCOME-PRETAX> (44,430)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,430)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> (.97)
<FN>
<F1>Other expenses include Product development expenses, Sales and marketing
expenses, General and administrative expenses, and the Restructuring charge.
</FN>
</TABLE>
