============================================================================
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, 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: 45,822,571 shares
outstanding as of March 31, 1995
============================================================================
INTERGRAPH CORPORATION
FORM 10-Q
MARCH 31, 1995
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1995 and
December 31, 1994 2
Consolidated Statements of Operations for the quarters
ended March 31, 1995 and 1994 3
Consolidated Statements of Cash Flows for the quarters
ended March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- ---------------------------------------------------------------------------
MARCH 31, December 31,
1995 1994
- ---------------------------------------------------------------------------
(In thousands except share and per share amounts)
ASSETS
Cash and cash equivalents $ 62,198 $ 61,393
Short-term investments --- 1,023
Accounts receivable 300,173 344,957
Inventories 122,906 114,444
Refundable income taxes 3,235 22,784
Other current assets 36,135 30,097
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 524,647 574,698
Long-term investments, primarily in affiliates 10,452 9,453
Other assets 40,049 28,194
Property, plant, and equipment, net 225,424 227,273
- ---------------------------------------------------------------------------
TOTAL ASSETS $ 800,572 $ 839,618
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable $ 43,978 $ 51,224
Accrued compensation 51,049 47,533
Other accrued expenses 63,128 69,241
Billings in excess of sales 63,502 79,265
Income taxes payable 5,957 6,816
Short-term debt and current maturities of
long-term debt 28,975 37,726
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 256,589 291,805
Deferred income taxes 2,807 2,088
Long-term debt 25,747 23,388
- ---------------------------------------------------------------------------
TOTAL LIABILITIES 285,143 317,281
- ---------------------------------------------------------------------------
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 237,656 243,295
Retained earnings 431,667 454,139
Cumulative translation adjustment 8,563 2,458
- ---------------------------------------------------------------------------
683,622 705,628
Less - cost of 11,538,791 treasury shares at
March 31, 1995, and 12,576,082 treasury
shares at December 31, 1994 (168,193) (183,291)
- ---------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 515,429 522,337
- ---------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 800,572 $ 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 MARCH 31, 1995 1994
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
REVENUES
Systems $164,042 $151,132
Maintenance and services 93,287 88,941
- ---------------------------------------------------------------------------
TOTAL REVENUES 257,329 240,073
- ---------------------------------------------------------------------------
COST OF REVENUES
Systems 105,010 90,781
Maintenance and services 54,171 51,923
- ---------------------------------------------------------------------------
TOTAL COST OF REVENUES 159,181 142,704
- ---------------------------------------------------------------------------
GROSS PROFIT 98,148 97,369
Product development 30,140 34,857
Sales and marketing 67,318 58,071
General and administrative 23,286 23,317
- ---------------------------------------------------------------------------
LOSS FROM OPERATIONS (22,596) (18,876)
Interest expense ( 960) ( 494)
Interest income 541 866
Other income (expense) - net 543 ( 1,563)
- ---------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (22,472) (20,067)
Income tax benefit --- 6,020
- ---------------------------------------------------------------------------
NET LOSS $(22,472) $(14,047)
===========================================================================
NET LOSS PER SHARE $( .49) $( .31)
===========================================================================
Weighted average shares outstanding 45,601 45,353
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net loss $(22,472) $(14,047)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 19,005 17,823
Collection of income tax refunds 21,691 6,296
Gain on sale of investment in affiliate --- ( 2,475)
Write-off of investments in affiliates --- 3,361
Net changes in current assets and liabilities 5,029 ( 1,551)
Foreign exchange loss 755 652
- ---------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,008 10,059
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of securities --- (15,552)
Sales and maturities of securities 1,000 12,980
Purchase of property, plant, and equipment ( 9,843) (11,878)
Capitalized software development costs ( 7,001) ( 3,600)
Other ( 860) ( 79)
- ---------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (16,704) (18,129)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Gross borrowings 3,110 259
Debt repayment (12,369) ( 6,205)
Proceeds of employee stock purchases 1,040 994
Proceeds of exercise of stock options 751 ---
Acquisition of treasury stock --- ( 1,588)
- ---------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES ( 7,468) ( 6,540)
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash 969 ( 242)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 805 (14,852)
Cash and cash equivalents at beginning of period 61,393 55,976
- ---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,198 $ 41,124
===========================================================================
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 three months ended March
31, 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. 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:
------------------------------------------------------------------
MARCH 31, December 31,
1995 1994
------------------------------------------------------------------
(In thousands)
Raw materials $ 31,909 $ 29,734
Work-in-process 31,520 35,617
Finished goods 20,567 14,198
Service spares 38,910 34,895
------------------------------------------------------------------
Totals $ 122,906 $ 114,444
==================================================================
NOTE 4: Property, plant, and equipment - net includes allowances for
depreciation and amortization of $300,645,000 and $285,011,000 at
March 31, 1995 and December 31, 1994, respectively.
NOTE 5: 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 statement of operation.
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, in reconciling net loss to net cash provided
by operations are as follows:
-----------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATIONS
QUARTER ENDED MARCH 31, 1995 1994
-----------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $ 51,378 $ 12,076
Inventories ( 5,273) 8,137
Refundable income taxes ( 2,142) ( 4,346)
Other current assets ( 5,477) (13,003)
Increase (decrease) in:
Trade accounts payable ( 9,459) ( 4,506)
Accrued compensation and other
accrued expenses ( 6,065) 1,395
Billings in excess of sales (17,030) ( 1,962)
Income taxes payable ( 903) 658
-----------------------------------------------------------------
Net changes in current assets
and liabilities $ 5,029 $( 1,551)
=================================================================
Cash payments for income taxes totaled $1,901,000 and $873,000 for
the quarters ended March 31, 1995 and 1994, respectively. Cash
payments for interest in those periods totaled $659,000 and $511,000,
respectively.
Investing and financing transactions in the first quarter 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 148,718 stock
options to employees of the acquired company. There were no
significant non-cash investing and financing transactions in the
first quarter of 1994.
NOTE 7: 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 797,931 shares of the Company's
common stock and assumption of InterCAP 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 first quarter
ended March 31, 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 $.49 per share on revenues of
$257.3 million in the first quarter of 1995 versus a loss of $.31 per share on
revenues of $240.1 million in the first quarter of 1994. The first quarter 1995
loss results primarily from a revenue base that is not sufficient to cover the
current level of operating expenses, from a further decline in gross margin on
systems sales, and from the loss of tax benefits of the Company's pretax loss.
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 substantially completed its operating system and
hardware architecture transition late in 1994, and believes that the full year
availability of its products and the growing acceptance of Windows NT,
together with the benefits of its restructuring efforts over the last two
years, will restore sales growth and profitability. To achieve profitability,
the Company must significantly increase its sales volume and continue to 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 fee 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 quarter 1995
results was a reduction in revenues of approximately 3% and an increase in net
loss of approximately $4 million or $.09 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 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 first
quarter ended March 31, 1994 or 1995.
BUSINESS TRANSITION
- -------------------
Business 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), 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. As of the end of 1994, the Company
completed the port of its applications software to Windows NT for all
applications scheduled for conversion. Sales of Windows-based software
represented 61% of software revenues for first quarter 1995 versus 38% for the
same prior year period (approximately 60% in the fourth quarter of 1994 and 48%
for full year 1994).
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. In addition, 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.
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 88% of workstation and server units sold in
the first quarter of 1995 versus 53% for the same prior year period
(approximately 85% in the fourth quarter of 1994 and 74% for the full year
1994).
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 are scheduled to begin shipping late in the second
quarter and the TDZ products 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.
ORDERS/REVENUES
- ---------------
Orders. First quarter systems orders totaled $150.4 million, an increase of 16%
from first quarter 1994. First quarter 1994 order levels were negatively
impacted by product transition. U.S. systems orders were up 8% from the same
prior year period (an increase in commercial orders of 24% and a decline in
federal government orders of 14%). The decline in federal government orders
results primarily from budget constraints. International systems orders
were up 22% from first quarter 1994. European and other international systems
orders were up 8% and 51%, respectively.
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 that upheld 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 has not delayed receipt of orders or
shipments under the contract. There were no orders or shipments under this
contract in 1994. Orders and shipments under this contract were not
significant during the first quarter of 1995. Given the nature of this
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 first quarter 1995 were $257.3 million, up 7%
from first quarter 1994. Sales outside the U.S. represented 53% of total
revenues in the first quarter of 1995 versus approximately 49% for both the
first quarter and full year 1994. European revenues were 36% of total revenues
for first quarter and approximately 33% for both the first quarter and full
year 1994.
Systems. Systems revenue for first quarter was $164.0 million, up 9% from the
same prior year period. Product transition negatively impacted first quarter
1994 systems revenue. First quarter 1995 systems revenue was below the
Company's expectations due in part to a problem with Microsoft Corporation's
Windows NT version 3.5 that delayed shipment of some of the Company's software
products, and to anticipation of the release of new products. The Windows NT
problem was corrected, and products began shipping in April. First quarter
workstation and server unit sales were up 22% from the prior year period;
however, workstation and server revenues were down 7% 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).
First quarter 1995 U.S. systems revenues were relatively flat with the prior
year period. U.S. commercial systems revenues were up 5%, but federal
government systems revenues declined 6%. International systems revenues were up
16% from the first quarter 1994 level. European and other international systems
revenues increased by 16% and 17%, respectively. The European market is
gradually improving, but the Company continues to expect slower European
acceptance of Windows NT than in other selling regions.
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 first quarter 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 $93.3 million
for the first quarter of 1995, an increase of 5% from first quarter 1994.
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.
GROSS MARGIN
- ------------
The Company's total gross margin was 38.1% for first quarter 1995, down
approximately 2.4 points from both the first quarter and full year 1994 levels.
Systems margin for first quarter 1995 was 36.0%, down approximately 3.8 points
from both the first quarter and full year 1994 levels. The 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 rate 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.
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 first quarter was 41.9%, relatively
unchanged from both the first quarter and full year 1994 levels.
OPERATING EXPENSES
- ------------------
Operating expenses for first quarter 1995 increased 4% from the comparable
prior year period. Total employee headcount has declined 5% from that same
period.
Sales and marketing expense increased 16% from first quarter 1994 due primarily
to an increase in presales support costs. The Company believes that the
current level of sales and marketing expense is necessary in its attempt to
increase revenue in both its direct and indirect sales channels. Product
development expense declined 14% 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. General and administrative
expense was unchanged.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $1 million for first quarter 1995 versus $.5 million in
first quarter 1994. The Company's outstanding debt increased in comparison to
the same prior year period. Interest expense may increase during the remainder
of the year if debt is not reduced and if interest rates continue to increase.
Interest income was $.5 million for first quarter 1995 versus $.9 million in
first quarter 1994. The average cash balance for first quarter 1995 has
declined from the first quarter 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 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 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 quarter 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 quarter of 1995, the U.S. dollar
weakened on average from its first quarter 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 $22.5 million in first
quarter 1995 and $20.1 million in first quarter 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 first quarter 1994 was
30%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1995, cash and short-term investments totaled $62.2 million, flat
with the December 31, 1994 level. Cash generated from operations in first
quarter 1995 totaled $24 million ($10.1 million in first quarter 1994),
including $21.7 million of refunds of prior years' U.S. federal income tax
payments as the result of carryback of the 1994 U.S. tax return loss.
Net cash used for investing activities totaled $16.7 million in first quarter
1995 versus $18.1 million in first quarter 1994. Included in investing
activities were capital expenditures of $9.8 million in first quarter 1995
($11.9 million in first quarter 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 $7.5 million in first quarter
1995 versus $6.5 million in first quarter 1994. Included in first quarter 1995
financing activities was $12.4 million for repayment of short-term debt ($6.2
million in first quarter 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 has a $50 million revolving credit agreement with a bank that
enables the Company to borrow funds on a revolving basis until May 31, 1995.
Outstanding borrowings under this agreement totaled $15 million at March 31,
1995 ($5 million at May 15, 1995). The loan commitment is conditional on the
maintenance of minimum levels of tangible net worth at various dates through
its expiration. As of March 31, 1995 and April 30, 1995, the Company did not
meet the minimum tangible net worth requirement of the loan agreement, and was
notified May 12 by the bank that an event of default of the loan agreement had
occurred. In these circumstances, the bank is entitled to terminate its
obligation to make further loans to the Company, to declare the outstanding
loan balance due and payable, and to activate a security interest in certain of
the accounts receivable of the Company. As of May 15, 1995 the bank has not
waived its remedies of the default condition and has indicated it will consider
requests for further advances under the loan agreement, on a case-by-case
basis. The bank has indicated that at the present time it will not demand
immediate payment of the outstanding loan balance and it will not activate a
security interest in certain accounts receivable of the Company, but it
reserves the right to take these actions at a future date.
The Company believes it will have cash reserves adequate to fund its
operations without further advances under this loan agreement, pending
finalization of negotiations with other lenders. External financing will,
however, be required prior to the end of second quarter, 1995.
The Company also has outstanding borrowings of $9.4 million under uncommitted
lines of credit and other short-term borrowing facilities as of March 31, 1995.
The amount of the Company's requirements for cash from external sources is
dependent on the future operating results of the Company. Its access to and
cost of additional external funds similarly depend on results of operations and
on general economic conditions. The Company is currently evaluating sources of
funding and expects to have adequate external financing arranged during second
quarter. The cost of any additional funding may exceed the cost of
external funding to date due to the Company's operating losses and generally
higher interest rates. The Company expects to meet its 1995 cash requirements
through cash generated from operations and from external sources.
INTERGRAPH CORPORATION AND SUBSIDIARIES
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10, Loan program for executive officers of the Company as
amended, dated April 26, 1995.
Exhibit 11, Computations of loss per share, page 16.
(b) There were no reports on Form 8-K filed during the quarter ended
March 31, 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: May 15, 1995
By: John W. Wilhoite
---------------------------
John W. Wilhoite
Vice President and Controller
(Principal Accounting Officer)
Date: May 15, 1995
Exhibit 11
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- ---------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 1995 1994
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(22,472) $(14,047)
========= =========
PRIMARY
Weighted average common shares outstanding 45,601 45,353
Net common shares issuable on exercise of certain
stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 45,601 45,353
========= =========
Net loss per share $( .49) $( .31)
========= =========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,601 45,353
Net common shares issuable on exercise of certain
stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 45,601 45,353
========= =========
Net loss per share $( .49) $( .31)
========= =========
(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%.
EXECUTIVE OFFICER LOAN AGREEMENT
This Agreement is between _________________ (the Borrower) and
Intergraph Corporation. The Borrower hereby agrees to all of the
terms and conditions contained in this Agreement.
Establishment of the Program. The Board of Directors has
established a loan program for corporate officers who are
required to report Intergraph stock transactions to the SEC.
The purpose of the loan program is to assist such officers at
such times that stock transactions would be prohibited,
restricted, or otherwise impractical. In March 1994, the Board
amended the program by extending it to May 1, 1995, and in
April 1995, the Board again amended the program by extending it
to May 1, 1996.
Program Beginning/ End. The program will commence on January
7, 1993. The program will cease on the Program End Date, which
is the earlier of May 1, 1996, or the date that the Intergraph
common stock price reaches or exceeds $20 per share; provided,
however, that such determination shall not be made during a
restricted trading period (as announced from time-to-time by
the corporate legal department). The Intergraph common stock
price shall be based on the reported closing price as listed in
the Wall Street Journal (or similar publication).
Repayment. All principal and interest outstanding under the
program must be repaid in full within fifteen (15) business
days following the earlier of (i) the date of employment
termination with Intergraph, (ii) the date that the Borrower
sells any Intergraph stock or, (iii) the Program End Date.
Full or partial pre-payments of principal are permitted at any
time. All interest shall be paid with the final principal
payment.
Interest Rate. Interest on the amounts outstanding hereunder
shall accrue for each calendar month or portion thereof at a
rate equal to the Prime Rate as published in the "Money Rates"
section of the Wall Street Journal (or similar publication) on
the last business day of each calendar month (calculated on the
basis of a year of 365 (or 366 as the case may be) days and
actual days elapsed; provided, however, that if any amount
shall not be paid when due (at maturity, by acceleration or
otherwise), such amount shall bear interest at the rate stated
above plus two percent (2%) from the date such amount was due
and payable until the date such amount is paid in full.
Promissory Note. Loans made under this Agreement shall be
evidenced by a promissory note (below). The Borrower's
signature on the promissory note shall indicate agreement with
all terms and conditions of this Agreement.
I hereby certify that I am officer of Intergraph Corporation and
that I am required to report Intergraph stock transactions to the
SEC. I further certify that (i) I am the owner or beneficial
owner of Intergraph common stock with a current market value of
at least the amount of any loans made under this Agreement,
and/or (ii) I have currently exercisable options to purchase
Intergraph common stock with a net value (current market price
less exercise price) of at least the amount of any loans made
under this Agreement. I agree to provide suitable evidence of
the foregoing upon request. I request a loan in the amount set
forth in the promissory note shown below.
PROMISSORY NOTE
$___________________ Date ___________
FOR VALUE RECEIVED, the Borrower promises to pay to the order of
Intergraph Corporation at any such place as Intergraph may
designate, the sum of $________________ together with interest
thereon, in accordance with the Agreement set forth above.
This note replaces and includes amounts loaned to the Borrower
under the Executive Officer Loan Program from __________________
to _________________, such amounts being listed on the attachment
hereto, which is an integral part of this note.
In the event that any payment due hereunder is not received when
due, this Note shall be deemed in default and the entire
principal and interest due hereunder shall be immediately due and
payable. In the event of default hereunder, the Borrower shall
pay all costs of collection, including, without limitation,
reasonable attorney's fees and legal expenses incurred by
Intergraph in endeavoring to collect any amounts payable
hereunder. The Borrower hereby expressly waives presentment,
demand for payment, dishonor, notice of dishonor, protest and
notice of protest.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered as of the date and year written above.
___________________________________
Signature of the Borrower
Witness:
___________________________________
<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 March 31,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 62,198
<SECURITIES> 0
<RECEIVABLES> 300,173
<ALLOWANCES> 0
<INVENTORY> 122,906
<CURRENT-ASSETS> 524,647
<PP&E> 526,069
<DEPRECIATION> 300,645
<TOTAL-ASSETS> 800,572
<CURRENT-LIABILITIES> 256,589
<BONDS> 25,747
<COMMON> 5,736
0
0
<OTHER-SE> 509,693
<TOTAL-LIABILITY-AND-EQUITY> 800,572
<SALES> 164,042
<TOTAL-REVENUES> 257,329
<CGS> 105,010
<TOTAL-COSTS> 159,181
<OTHER-EXPENSES> 120,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 960
<INCOME-PRETAX> (22,472)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,472)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
