==============================================================================
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 September 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: 46,281,805 shares
outstanding as of September 30, 1995
==============================================================================
INTERGRAPH CORPORATION
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30,
1995 and December 31, 1994 2
Consolidated Statements of Operations for the
quarters ended September 30, 1995 and 1994 3
Consolidated Statements of Operations for the
nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
nine months ended September 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 - 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- ----------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1995 1994
- ----------------------------------------------------------------------------
(In thousands except share and per share amounts)
ASSETS
Cash and cash equivalents $ 40,990 $ 61,393
Short-term investments --- 1,023
Accounts receivable 299,807 344,957
Inventories 104,297 114,444
Refundable income taxes 2,458 22,784
Other current assets 38,239 30,097
- ----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 485,791 574,698
Long-term investments, primarily in affiliates 10,679 9,453
Other assets 51,540 28,194
Property, plant, and equipment, net 220,611 227,273
- ----------------------------------------------------------------------------
TOTAL ASSETS $768,621 $839,618
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable $ 43,762 $ 51,224
Accrued compensation 55,655 47,533
Other accrued expenses 69,271 69,241
Billings in excess of sales 52,198 79,265
Income taxes payable 3,596 6,816
Short-term debt and current
maturities of long-term debt 23,967 37,726
- ----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 248,449 291,805
Deferred income taxes 2,808 2,088
Long-term debt 27,519 23,388
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 278,776 317,281
- ----------------------------------------------------------------------------
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 235,954 243,295
Retained earnings 401,660 454,139
Cumulative translation adjustment 7,977 2,458
- ----------------------------------------------------------------------------
651,327 705,628
Less - cost of 11,079,557 treasury shares
at September 30, 1995 and 12,576,082
treasury shares at December 31, 1994 (161,482) (183,291)
- ----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 489,845 522,337
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $768,621 $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 SEPTEMBER 30, 1995 1994
- ----------------------------------------------------------------------
(In thousands except per share amounts)
REVENUES
Systems $181,143 $167,048
Maintenance and services 98,088 95,177
- ----------------------------------------------------------------------
TOTAL REVENUES 279,231 262,225
- ----------------------------------------------------------------------
COST OF REVENUES
Systems 115,300 104,241
Maintenance and services 57,959 53,971
- ----------------------------------------------------------------------
TOTAL COST OF REVENUES 173,259 158,212
- ----------------------------------------------------------------------
GROSS PROFIT 105,972 104,013
Product development 26,561 35,419
Sales and marketing 64,486 66,138
General and administrative 23,752 23,459
- ----------------------------------------------------------------------
LOSS FROM OPERATIONS ( 8,827) ( 21,003)
Interest expense ( 896) ( 599)
Interest income 396 727
Other income (expense) - net 1,278 3,379
- ----------------------------------------------------------------------
LOSS BEFORE INCOME TAXES ( 8,049) ( 17,496)
Income taxes --- ---
- ----------------------------------------------------------------------
NET LOSS $( 8,049) $( 17,496)
======================================================================
NET LOSS PER SHARE $( .17) $( .39)
======================================================================
Weighted average shares outstanding 46,146 44,559
======================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- ----------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
- ----------------------------------------------------------------------
(In thousands except per share amounts)
REVENUES
Systems $506,831 $467,286
Maintenance and services 289,896 277,407
- ---------------------------------------------------------------------
TOTAL REVENUES 796,727 744,693
- ---------------------------------------------------------------------
COST OF REVENUES
Systems 321,636 281,381
Maintenance and services 169,584 158,386
- ---------------------------------------------------------------------
TOTAL COST OF REVENUES 491,220 439,767
- ---------------------------------------------------------------------
GROSS PROFIT 305,507 304,926
Product development 86,231 103,606
Sales and marketing 201,294 188,879
General and administrative 71,021 68,547
Restructuring charge 7,470 ---
- ---------------------------------------------------------------------
LOSS FROM OPERATIONS ( 60,509) ( 56,106)
Interest expense ( 2,726) ( 1,524)
Interest income 1,285 2,489
Other income (expense) - net 9,471 ( 537)
- ---------------------------------------------------------------------
LOSS BEFORE INCOME TAXES ( 52,479) ( 55,678)
Income tax benefit --- 3,971
- ---------------------------------------------------------------------
NET LOSS $( 52,479) $( 51,707)
=====================================================================
NET LOSS PER SHARE $( 1.14) $( 1.15)
=====================================================================
Weighted average shares outstanding 45,894 44,915
=====================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net loss $(52,479) $(51,707)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 59,632 53,859
Non-cash portion of restructuring charge 4,110 ---
Collection of income tax refunds 22,146 32,955
Gain on sale of investment in affiliate --- ( 5,815)
Gain on sale of subsidiary ( 5,024) ---
Write-off of investments in affiliates --- 3,361
Net changes in current assets and liabilities 5,251 (14,463)
Foreign exchange (gain) loss ( 213) 1,104
- ---------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,423 19,294
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of securities --- (61,127)
Sales and maturities of securities 1,000 91,771
Proceeds from sale of subsidiary 6,434 ---
Purchase of property, plant, and equipment (30,532) (55,496)
Capitalized software development costs (20,476) (12,151)
Other ( 5,566) ( 1,809)
- ---------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (49,140) (38,812)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Gross borrowings 34,139 35,698
Debt repayment (46,518) (11,728)
Proceeds of employee stock purchases 2,856 3,025
Proceeds of exercise of stock options 2,770 ---
Acquisition of treasury stock --- (10,379)
- ---------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES ( 6,753) 16,616
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,067 ( 25)
- ---------------------------------------------------------------------------
Net decrease in cash and cash equivalents (20,403) ( 2,927)
Cash and cash equivalents at beginning of period 61,393 55,976
- ---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $40,990 $ 53,049
===========================================================================
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 nine months ended
September 30, 1994 to provide comparability with the current period
presentation.
NOTE 2: Inventories are stated at the lower of average cost or market and are
summarized as follows:
------------------------------------------------------
SEPTEMBER 30, December 31,
1995 1994
------------------------------------------------------
(In thousands)
Raw materials $ 23,792 $ 29,734
Work-in-process 24,011 35,617
Finished goods 18,691 14,198
Service spares 37,803 34,895
------------------------------------------------------
Totals $104,297 $114,444
======================================================
NOTE 3: Property, plant, and equipment - net includes allowances for
depreciation and amortization of $305,804,000 and $285,011,000 at
September 30, 1995 and December 31, 1994, respectively.
NOTE 4: On October 6, 1995, the Company entered into a three year revolving
credit agreement with a group of lenders. Borrowings available under
the agreement are determined by the amounts of eligible assets of the
Company, as defined in the agreement, including cash, accounts
receivable, inventory, and property, plant, and equipment, with maximum
borrowings of $100 million. Borrowings are secured by a pledge of
substantially all of the Company's assets in the U.S. and Canada and
the accounts receivable of certain European subsidiaries of the
Company. At November 9, 1995 the Company had outstanding borrowings of
$12 million, and $18 million of the available credit line was allocated
to support letters of credit issued by the Company. The rate of
interest on all borrowings under the agreement is, at the Company's
option, either the Citibank base rate of interest plus 1.75% or the
Eurodollar rate plus 2.75%. The agreement requires the Company to pay
a commitment fee of .5% annually on the average unused daily portion of
the revolving credit commitment.
The revolving credit agreement requires the Company to meet and
maintain certain financial covenants, including minimum net worth,
minimum fixed charge coverage, minimum interest coverage, and maximum
levels of capital expenditures and capitalized software development
costs. In addition, the agreement includes restrictive covenants that
limit various business transactions (including repurchases of the
Company's stock, mergers, acquisitions of or investments in other
businesses, and disposal of assets including individual businesses,
subsidiaries, and divisions) and limit or prevent certain other
business changes.
NOTE 5: During the second quarter, the Company undertook a restructuring
program designed to adapt the Company's cost structure to changed
market conditions. The program as originally planned consisted of
reductions in workforce and disposition of unprofitable business units
over the twelve month period ending June 30, 1996. The program, if
fully executed, is expected to provide approximately $100 million in
annual savings on a prospective basis. Approximately 600 positions
were eliminated in second quarter and 100 positions in the third
quarter, providing an estimated $31 million in annual savings.
Achievement of the remainder of the estimated annual savings is
dependent on disposition of business units that have not met the
Company's goals for profitability and strategic value. The Company
does not have a committed buyer for any of these operations at this
time. These business units improved their performance during third
quarter. If these units begin to meet the Company's goals for
profitability, it could cause the Company to reconsider or delay its
disposal of those operations. The Company has not recorded any
restructuring charges related to the disposition of these business
units, since the plan has not been finalized to the extent necessary
to reasonably estimate the restructuring charge, if any, resulting from
the dispositions. Revenues and operating losses from these business
units totaled approximately $60 million and $26 million, respectively,
for the nine months ended September 30, 1995, and $54 million and $31
million, respectively, for the same prior year period. Revenues and
operating losses for the third quarter of 1995 totaled $21 million and
$6 million, respectively.
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. Cash expenditures to date related to the restructuring charge
total approximately $3.4 million. The Company expects that future cash
expenditures related to the charge will total approximately $2.4
million and will be paid during the fourth quarter of 1995 from cash
generated by 1995 operations and borrowings. The $7.5 million charge
is included in "Restructuring charge" in the consolidated statement of
operations and the remaining related liability totaling approximately
$3.1 million 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
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
-----------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $ 51,144 $ 11,658
Inventories 4,303 (11,538)
Other current assets (11,891) ( 7,831)
Increase (decrease) in:
Trade accounts payable (10,587) ( 88)
Accrued compensation and other accrued
expenses 3,669 ( 5,906)
Billings in excess of sales (27,988) ( 583)
Income taxes payable ( 3,399) ( 175)
-----------------------------------------------------------------------
Net changes in current assets and liabilities $ 5,251 $(14,463)
=======================================================================
Cash payments for income taxes totaled $3,128,000 and $2,291,000 for
the nine months ended September 30, 1995 and 1994, respectively.
Cash payments for interest during those periods totaled $2,673,000 and
$1,613,000, respectively.
Investing and financing transactions in the first nine months of 1995
that did not require cash included 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 nine months of 1994.
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 nine month period ended September
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 $.17 per share in the third
quarter of 1995 versus a loss of $.39 per share in the third quarter of 1994.
For the first nine months of 1995 the Company lost $1.14 per share versus a
loss of $1.15 per share for the same prior year period. Losses in the third
quarter and first nine months 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
loss for the first nine months of 1995 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 adapt the Company's cost structure to changed
market conditions. The program as originally planned consisted of reductions in
workforce and disposition of unprofitable business units over the twelve month
period ending June 30, 1996. The program, if fully executed, is expected to
provide approximately $100 million in annual savings on a prospective basis.
Approximately 600 positions were eliminated in second quarter and 100 positions
in the third quarter, providing an estimated $31 million in annual savings.
Achievement of the remainder of the estimated annual savings is dependent on
disposition of business units that have not met the Company's goals for
profitability and strategic value. The Company does not have a committed buyer
for any of these operations at this time. These business units improved their
performance during third quarter. If these units begin to meet the Company's
goals for profitability, it could cause the Company to reconsider or delay its
disposal of these operations. The Company has not recorded any restructuring
charges related to the disposition of these business units, since the plan has
not been finalized to the extent necessary to reasonably estimate the
restructuring charge, if any, resulting from the dispositions. Revenues and
operating losses from these business units totaled approximately $60 million
and $26 million, respectively, for the nine months ended September 30, 1995,
and $54 million and $31 million, respectively, for the same prior year period.
Revenues and operating losses for the third quarter of 1995 totaled $21 million
$6 million, respectively.
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. Cash
expenditures to date related to the restructuring charge total approximately
$3.4 million. The Company expects that future cash expenditures related to the
charge will total approximately $2.4 million and will be paid during the fourth
quarter of 1995 from cash generated by 1995 operations and borrowings. The $7.5
million charge is included in "Restructuring charge" in the consolidated
statement of operations and the remaining related liability totaling
approximately $3.1 million 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 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. Achievement of
profitability will require a 7% - 8% increase in sales volume and/or further
reductions in 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 its
year to date 1995 results of operations was a reduction in revenues of
approximately 3% and an increase in net loss of approximately $10 million or
$.22 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 nine month period ended September 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. At the end of 1992, the Company announced its decision to
port its technical software applications to Microsoft Corporation's 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 completed
its transition to the Windows NT operating system at the end of 1994.
Development of demand for Windows NT-based systems has been slower than
anticipated, but has improved sequentially in each quarter of 1995. Sales of
Windows-based software represented approximately 75% of software revenues for
the third quarter and 67% for the first nine months of 1995 versus 51% and 44%,
respectively, for the same prior year periods (approximately 48% for the full
year 1994).
Hardware Architecture. The Company continues to believe 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 93% of workstation and
server units sold in the first nine months of 1995 versus 70% for the same
prior year period (approximately 74% for the full year 1994).
ORDERS/REVENUES
- ---------------
Orders and revenues for the first nine months of 1995 were depressed by slower-
than-anticipated development of demand for Windows NT-based products. However,
orders for Windows NT-based products showed improvement in the third quarter
of 1995. Customer acceptance of Windows NT products in the U.S. and Asia
Pacific regions is increasing, while Europe is now beginning to gain momentum.
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. Systems orders for the third quarter and first nine months of 1995
totaled $189.0 million and $514.9 million, respectively, an increase of 8% and
13%, respectively, (including a portion of the "BEST" order described below)
from the same prior year periods. U.S. systems orders for the third quarter
were flat and for the first nine months of 1995 were up 6% from the same prior
year periods. U.S. commercial orders for the third quarter and first nine
months of 1995 decreased 14% and increased 8%, respectively, from the same
prior year periods. Federal government orders increased 18% and 4%,
respectively. International systems orders for the third quarter and first nine
months of 1995 were up 18% and 20%, respectively, from the same prior year
periods. European orders were up 30% and 15%, respectively, due in part to the
favorable effects of a weaker U.S. dollar. Other international orders for the
third quarter were flat and for the first nine months of 1995 were up 30% from
the same prior year periods. This increase in the first nine months of 1995
was due in large part 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 $17 million
for the first nine months of 1995. Revenues on this contract were not
significant during the first nine months of 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 has not delayed 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 third quarter and first nine months of 1995
were $279.2 million and $796.7 million, respectively, up approximately 7% from
the comparable 1994 levels. Sales outside the U.S. represented 52% of total
revenues in the first nine months of 1995 versus approximately 49% for both the
first nine months of 1994 and full year 1994. European revenues were 35% of
total revenues for the first nine months of 1995 versus 33% for the full year
1994.
Systems. Systems revenues for the third quarter and first nine months of 1995
were $181.1 million and $506.8 million, respectively, up 8% from the same prior
year periods. Workstation and server unit sales in the first nine months of
1995 were up 22% from the prior year period; however, workstation and server
revenues increased only 6% due to declining per unit sales prices. In addition,
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 for the third quarter declined 4% and for the first nine
months of 1995 were flat with the same prior year periods. For the first nine
months of 1995, U.S. commercial revenues were up 2% and federal government
systems revenues were down 4%. International systems revenues for the third
quarter and first nine months of 1995 were up 26% and 18%, respectively, from
the same prior year periods. European and other international systems revenues
increased by 13% and 29%, respectively, for the first nine months of 1995.
European revenues have been favorably impacted by a weaker U.S. dollar.
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 nine months 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 $98.1
million for the third quarter and $289.9 million for the first nine months of
1995, an increase of approximately 4% from both the third quarter and year to
date 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 6% of total
revenues.
New Products. In April 1995, the Company announced the next generation of its
Intel-based TD line of personal workstations, the TDY30 and Y40. These new
personal workstations are targeted for compute-intensive operations. In
addition, the Company has 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 began shipping in the third quarter. In November 1995, the Company
announced additional workstations in the TDZ line, the TDZ 300, 400 and 600.
These workstations were engineered specifically for the 150MHz and the 200MHz
Intel Pentium Pro processor and utilize one, two, or four Pentium Pro
processors, plus Windows-NT, and the Company's GLZ OpenGL graphics accelerators
to provide 3D graphics performance. The TDZ 300 and 400 have begun shipping,
and the TDZ 600 is scheduled to begin shipping in the first quarter of 1996.
The Company also announced in the second quarter 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. In October
1995, the Company announced its Solid Edge product, a next-generation computer-
aided design (CAD) software product for mechanical assembly and part modeling.
Solid Edge is Windows-based and utilizes the Jupiter technology as its
foundation. Products based on Jupiter technology will be available for
shipment by the end of 1995 or early 1996.
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 both the third quarter and first nine
months of 1995 was approximately 38.3% versus approximately 40.5% for both the
first nine months of 1994 and the full year 1994.
Systems margin for third quarter was 36.3%, down 1.3 points from the third
quarter 1994 level. Systems margin for the first nine months of 1995 was 36.5%,
down approximately 3.3 points from both the same prior year period and 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 third quarter was 40.9%, down 2.4
points from the third quarter 1994 level. Maintenance and services margin for
the first nine months of 1995 was 41.5%, down slightly from the same prior year
period and full year l994 levels.
OPERATING EXPENSES
- ------------------
Operating expenses for the third quarter of 1995 decreased 8% from the third
quarter 1994 level. Operating expenses (excluding restructuring charges) for
the first nine months of 1995 were relatively flat with the same prior year
period. Total employee headcount has declined 9.5% from the third quarter 1994
level.
Product development expense for the third quarter and first nine months of 1995
declined 25% and 17%, 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.
Sales and marketing expense for the third quarter and first nine months of 1995
decreased 2.5% and increased 7%, respectively, from the same prior year
periods. The increase in year to date 1995 sales and marketing expense is due
primarily to an increase in presales support costs and weakening of the dollar
against European currencies. General and administrative expense for the third
quarter and first nine months of 1995 increased 1% and 4%, respectively, from
the same prior year periods due primarily to weakening of the dollar against
European currencies. Restructuring actions taken in the second quarter of 1995
produced total third quarter operating expense savings of approximately $3.5
million.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $.9 million for the third quarter and $2.7 million for the
first nine months of 1995 versus $.6 million and $1.5 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 that interest
expense may increase during the remainder of the year due to increases in the
level of debt and an increase in the rate of interest the Company is required
to pay. See "Liquidity and Capital Resources" below for discussion of the
Company's current financing requirements.
Interest income was $.4 million for the third quarter and $1.3 million for the
first nine months of 1995 versus $.7 million and $2.5 million, respectively,
for the same prior year periods. The average cash balance for the first nine
months of 1995 has declined from the year to date 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 year to date
1995 amount includes a gain of $5.0 million from the sale of a subsidiary. The
year to date 1994 amount includes a charge of $3.4 million for write-down of
the Company's investments in two affiliates and a gain of $5.8 million from the
sale of the Company's 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 nine months of
1995, approximately 52% 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 nine months of 1995,
the U.S. dollar weakened on average from the comparable 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 forward exchange contracts 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 $52.5 million in the
first nine months of 1995 versus $55.7 million in the first nine months 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 nine months of 1994 was 7.1%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1995, cash and short-term investments totaled $41.0 million, a
decrease of $21.4 million from the December 31, 1994 level. Cash generated
from operations in the first nine months of 1995 totaled $33.4 million
(including $22.1 million in tax refunds arising from prior years' losses)
versus $19.3 million (including $33 million in tax refunds) for the first nine
months of 1994. All significant tax refund opportunities have been exhausted.
Net cash used for investing activities totaled $49.1 million in the first nine
months of 1995 versus $38.8 million in the first nine months of 1994. Included
in investing activities were capital expenditures of $30.5 million in the first
nine months of 1995 ($55.5 million in the first nine months 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 $6.8 million in the first nine
months of 1995 versus a net provision of cash from financing activities of
$16.6 million in the first nine months of 1994. Included in financing
activities was $46.5 million for repayment of short-term debt ($11.7 million in
the first nine months of 1994). Cash used to purchase Company stock for the
treasury totaled $10.4 million in the first nine months 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 is at present not generating sufficient cash from operations to
adequately fund operations and growth of the Company. On October 6, 1995, the
Company entered into a three year revolving credit agreement with a group of
lenders. Borrowings available under the agreement are determined by the amounts
of eligible assets of the Company, as defined in the agreement, including cash,
accounts receivable, inventory, and property, plant, and equipment, with
maximum borrowings of $100 million. Borrowings are secured by a pledge of
substantially all of the Company's assets in the U.S. and Canada and the
accounts receivable of certain European subsidiaries of the Company. At
November 9, 1995 the Company had outstanding borrowings of $12 million, and $18
million of the available credit line was allocated to support letters of credit
issued by the Company. The rate of interest on all borrowings under the
agreement is, at the Company's option, either the Citibank base rate of
interest plus 1.75% or the Eurodollar rate plus 2.75%. The agreement requires
the Company to pay a commitment fee of .5% annually on the average unused daily
portion of the revolving credit commitment.
The revolving credit agreement requires the Company to meet and maintain
certain financial covenants including minimum net worth, minimum fixed charge
coverage, minimum interest coverage, and maximum levels of capital expenditures
and capitalized software development costs. In addition, the agreement
includes restrictive covenants that limit various business transactions
(including repurchases of the Company's stock, mergers, acquisitions of or
investments in other businesses, and disposal of assets including individual
businesses, subsidiaries, and divisions) and limit or prevent certain other
business changes.
The Company believes that existing cash balances together with cash generated
by operations and cash available from its revolving credit agreement will be
adequate to meet cash requirements for the foreseeable future.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 11, Computations of loss per share, pages 19 to 20.
(b) There were no reports on Form 8-K filed during the quarter ended
September 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: /s/ Larry J. Laster By: /s/ John W. Wilhoite
--------------------------- ----------------------------------
Larry J. Laster John W. Wilhoite
Executive Vice President, Vice President and Controller
Chief Financial Officer and (Principal Accounting Officer)
Director
Date: November 13, 1995 Date: November 13, 1995
Exhibit 11
- ----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- ---------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, 1995 1994
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $( 8,049) $(17,496)
========= =========
PRIMARY
Weighted average common shares outstanding 46,146 44,559
Net common shares issuable on exercise of
certain stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 46,146 44,559
========= =========
Net loss per share $( .17) $( .39)
========= =========
FULLY DILUTED (2)
Weighted average common shares outstanding 46,146 44,559
Net common shares issuable on exercise of certain
stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 46,146 44,559
========= =========
Net loss per share $( .17) $( .39)
========= =========
(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
- ---------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $(52,479) $(51,707)
========= =========
PRIMARY
Weighted average common shares outstanding 45,894 44,915
Net common shares issuable on exercise of
certain stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 45,894 44,915
========= =========
Net loss per share $( 1.14) $( 1.15)
========= =========
FULLY DILUTED (2)
Weighted average common shares outstanding 45,894 44,915
Net common shares issuable on exercise of
certain stock options (1) --- ---
--------- ---------
Average common and equivalent common
shares outstanding 45,894 44,915
========= =========
Net loss per share $( 1.14) $( 1.15)
========= =========
(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 September 30,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 40,990
<SECURITIES> 0
<RECEIVABLES> 299,807
<ALLOWANCES> 0
<INVENTORY> 104,297
<CURRENT-ASSETS> 485,791
<PP&E> 526,415
<DEPRECIATION> 305,804
<TOTAL-ASSETS> 768,621
<CURRENT-LIABILITIES> 248,449
<BONDS> 27,519
<COMMON> 5,736
0
0
<OTHER-SE> 484,109
<TOTAL-LIABILITY-AND-EQUITY> 768,621
<SALES> 506,831
<TOTAL-REVENUES> 796,727
<CGS> 321,636
<TOTAL-COSTS> 491,220
<OTHER-EXPENSES> 366,016<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,726
<INCOME-PRETAX> (52,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,479)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
<FN>
<F1>Other expenses include Product development expenses, Sales and marketing
expenses, General and administrative expenses, and the Restructuring charge.
</FN>
</TABLE>
