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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9722
INTERGRAPH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive offices) (Zip Code)
(205) 730-2000
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(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: 46,962,606
shares outstanding as of March 31, 1996
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INTERGRAPH CORPORATION
FORM 10-Q
March 31, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 2
Consolidated Statements of Operations for the
quarters ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
quarters ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, December 31,
1996 1995
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(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 43,969 $ 56,407
Accounts receivable, net 290,108 324,051
Inventories 119,325 111,813
Refundable income taxes 5,208 6,391
Other current assets 43,815 43,190
- -----------------------------------------------------------------------------
Total current assets 502,425 541,852
Investments in affiliated companies 13,428 11,636
Other assets 59,987 59,900
Property, plant, and equipment, net 206,825 212,657
- -----------------------------------------------------------------------------
Total Assets $782,665 $826,045
=============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 44,591 $ 54,352
Accrued compensation 53,531 51,301
Other accrued expenses 64,102 72,479
Billings in excess of sales 61,760 63,707
Income taxes payable 5,856 6,720
Short-term debt and current maturities of
long-term debt 14,575 32,153
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Total current liabilities 244,415 280,712
Deferred income taxes 3,899 3,881
Long-term debt 37,737 37,388
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Total liabilities 286,051 321,981
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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 233,682 233,940
Retained earnings 402,400 408,791
Cumulative translation adjustment 6,355 8,650
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648,173 657,117
Less - cost of 10,398,756 treasury
shares at March 31, 1996, and
10,501,309 treasury shares at
December 31, 1995 (151,559) (153,053)
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Total shareholders' equity 496,614 504,064
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Total Liabilities and Shareholders' Equity $782,665 $826,045
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The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Quarter Ended March 31, 1996 1995
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(In thousands except per share amounts)
Revenues
Systems $163,184 $164,042
Maintenance and services 93,522 93,287
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Total revenues 256,706 257,329
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Cost of revenues
Systems 105,508 105,010
Maintenance and services 55,797 54,171
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Total cost of revenues 161,305 159,181
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Gross profit 95,401 98,148
Product development 25,335 30,140
Sales and marketing 62,378 67,318
General and administrative 24,425 23,286
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Loss from operations (16,737) (22,596)
Interest expense ( 1,223) ( 960)
Interest income 485 541
Gain on sale of investment in affiliated company 9,373 ---
Equity in earnings of affiliated companies 2,180 949
Other income (expense) - net ( 469) ( 406)
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Loss before income taxes ( 6,391) (22,472)
Income taxes --- ---
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Net loss $( 6,391) $(22,472)
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Net loss per share $( .14) $( .49)
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Weighted average shares outstanding 46,902 45,601
============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Quarter Ended March 31, 1996 1995
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(In thousands)
Cash provided by (used for):
Operating Activities:
Net loss $( 6,391) $(22,472)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 18,655 19,005
Collection of income tax refunds 851 21,691
Gain on sale of investment in affiliated company ( 9,373) ---
Equity in earnings of affiliated companies ( 2,180) ( 949)
Net changes in current assets and liabilities 10,882 6,733
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Net cash provided by operating activities 12,444 24,008
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Investing Activities:
Sales and maturities of securities --- 1,000
Purchase of property, plant, and equipment (11,753) ( 9,843)
Capitalized software development costs ( 5,593) ( 7,001)
Proceeds from sale of investment in affiliated company 9,761 ---
Other 214 ( 860)
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Net cash used for investing activities ( 7,371) (16,704)
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Financing Activities:
Gross borrowings 7,602 3,110
Debt repayment (25,553) (12,369)
Proceeds of employee stock purchases 941 1,040
Proceeds of exercise of stock options 240 751
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Net cash used for financing activities (16,770) ( 7,468)
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Effect of exchange rate changes on cash ( 741) 969
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Net increase (decrease) in cash and cash equivalents (12,438) 805
Cash and cash equivalents at beginning of period 56,407 61,393
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Cash and cash equivalents at end of period $43,969 $62,198
============================================================================
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 balance sheet at December 31, 1995 and to
the consolidated statement of cash flows for the quarter ended
March 31, 1995 to provide comparability with the current period
presentations.
NOTE 2: Inventories are stated at the lower of average cost or market and
are summarized as follows:
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March 31, December 31,
1996 1995
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(In thousands)
Raw materials $ 38,341 $ 36,336
Work-in-process 26,882 25,037
Finished goods 23,646 17,140
Service spares 30,456 33,300
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Totals $119,325 $111,813
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NOTE 3: Property, plant, and equipment - net includes allowances for
depreciation and amortization of $304,273,000 and $304,621,000 at
March 31, 1996 and December 31, 1995, respectively.
NOTE 4: In the quarter ended March 31, 1996, the Company sold its stock
investment in an affiliated company at a gain of $9,373,000 ($.20
per share). The gain is included in "Gain on sale of investment
in affiliated company" in the consolidated statement of operations
for the quarter ended March 31, 1996.
NOTE 5: Supplementary cash flow information is summarized as follows:
Changes in current assets and liabilities, net of the effects of a
business acquisition, in reconciling net loss to net cash provided
by operations are as follows:
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Cash Provided By (Used For) Operations
Quarter Ended March 31, 1996 1995
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(In thousands)
(Increase) decrease in:
Accounts receivable $31,628 $51,378
Inventories ( 5,832) ( 5,273)
Refundable income taxes 332 ( 2,142)
Other current assets 713 ( 3,773)
Increase (decrease) in:
Trade accounts payable ( 9,427) ( 9,459)
Accrued compensation and other
accrued expenses ( 4,087) ( 6,065)
Billings in excess of sales ( 1,581) (17,030)
Income taxes payable ( 864) ( 903)
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Net changes in current assets and
liabilities $10,882 $ 6,733
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INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash payments for income taxes totaled $1,080,000 and $1,901,000
for the quarters ended March 31, 1996 and 1995, respectively.
Cash payments for interest in those periods totaled $1,198,000
and $659,000, respectively.
There were no significant non-cash investing and financing
transactions in the first quarter of 1996. 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, consisting of issuance of 797,931 shares of the Company's
common stock and the granting of stock options on 148,718 of the
Company's shares to employees of the acquired company.
NOTE 6: Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". For long-lived assets and certain intangible assets
to be held and used by an entity, including goodwill, the
Statement requires a review for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable, including an estimate of the future
cash flows expected to result from use of the asset and its
eventual disposition. An impairment loss, based on a comparison
of the carrying value to the fair value of the asset, must be
recognized if the sum of the expected future cash flows from the
asset is less than the carrying amount of the asset. For long-lived
assets and certain identifiable intangible assets to be disposed of,
the Statement requires financial statement reporting at the lower of
the carrying amount or fair value of the asset less cost to sell.
Application of this Statement did not materially affect the Company's
results of operations or financial position for the first quarter of
1996.
NOTE 7: Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", which is effective for transactions
entered into during calendar year 1996 for the Company, establishes
accounting and reporting standards for stock-based employee
compensation plans including, with respect to the Company, stock
options and employee stock purchase plans.
The Statement defines a fair value-based method of accounting for
employee stock options under which compensation cost is measured at
the date options are granted and recognized by charges to expense
over the employees' service periods, and it encourages entities to
adopt that method of accounting. It also allows entities to
continue to measure compensation cost using the method prescribed
under Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", under which compensation expense is
recognized for the excess, if any, of the market price of the stock
at grant date over the amount the employee must pay to acquire the
stock. The Company, under the provisions of APB No. 25, recognizes
no compensation expense for employee stock options when options are
granted to employees at a price equal to the market price of the
Company's stock at the date of grant, and recognizes no
compensation expense for the price discount given its employees
under its employee stock purchase plan. The Company has elected to
remain under the provisions of APB No. 25 with respect to its
employee stock options that are granted at market price at date of
grant, and with respect to its employee stock purchase plan. This
decision will result in recognition of no compensation expense for
stock options or employee stock purchases in 1996 and future years.
However, in accordance with the disclosure provisions of the
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement, and commencing with its 1996 Annual Report to
Shareholders, the Company will provide proforma basis
information to reflect net income and earnings per share had
compensation expense been recognized for these items.
NOTE 8: 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 797,931 shares of the
Company's common stock and the granting of stock options on
148,718 of the Company's shares to employees of InterCAP. 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. This
acquisition has not had a material effect on the Company's
results of operations.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings. In the first quarter of 1996, the Company incurred a net loss
of $.14 per share on revenues of $256.7 million, including a $9.4
million ($.20 per share) gain on the sale of an investment in an affiliated
company, versus a net loss of $.49 per share on revenues of $257.3
million in the first quarter of 1995. The first quarter 1996 loss from
operations was $.36 per share versus a loss of $.49 per share for the
first quarter of 1995. This $.13 per share improvement in operating
loss over the first quarter of 1995 was due to a 7% decline in operating
expenses. The Company believes its new operating system and hardware
architecture strategies will prove to be the correct choices; however,
revenue growth associated with new product offerings is occurring at a
slower rate than expected, resulting in a revenue base that is not
adequate to cover operating expenses.
Remainder of the Year. The Company expects that current industry
conditions characterized by rapidly changing technologies, demand
for higher performance and lower priced products, intense competition,
shorter product cycles, and by development and support of software
standards that result in less specific hardware and software
dependencies by customers will continue in 1996 and beyond. 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, deliver
enhanced performance, and meet customer requirements for standardization and
interoperability. The Company believes that its product development
transition period is completed, and that its new operating system and hardware
architecture strategies, the availability of new products, and the cost
benefits of the 1995 restructuring of its business will act to improve its
operating results in the remainder of 1996. To achieve profitability, the
Company must substantially increase sales volume while continuing to
control cost.
Restructuring. During the second quarter of 1995, the Company undertook a
restructuring program designed to further adapt the Company's cost
structure to changed industry and market conditions. The program, as
originally planned, consisted of direct reductions in workforce, other
workforce reductions through attrition, and disposition of four
unprofitable business units over the twelve month period ending June 30,
1996. The program, had it been fully executed with respect to the four
business units, would have provided an operating expense reduction of
approximately $100 million annually on a prospective basis. Of this
total anticipated annual savings, approximately $66 million was to be
derived from disposition of the four business units. Subsequent to
formulation of the restructuring plan, the Company determined that, based
on their improving outlook and strategic value to other business units,
two of the original four business units designated for disposal
(representing $45 million of the original $100 million in annual operating
expense reduction) will not currently be considered for disposal. This
revision to the original plan, together with adjustments relating to the
final workforce reduction via attrition, has resulted in a revised total
anticipated annual operating expense reduction under the June 1995
restructuring plan of approximately $50 million, if the two business units
being considered for disposal are sold. Revenues and losses of the two
business units that continue to be considered for disposal, both of which
develop computer products for the printing and publishing industry, totaled
$8 million and $1 million, respectively, for the first quarter of 1996 ($11
million and $1.8 million, respectively, for the first quarter of 1995), and
their total assets are approximately $23 million ($26.5 million at March
31, 1995). The Company anticipates disposal of these two business units by
sale to third parties. The Company does not have committed buyers for
these two business units but does not anticipate incurrence of a loss on sale
of the units.
The 1995 restructuring charge totaled $6 million, primarily for employee
severance pay and related costs. Approximately 450 positions were eliminated
through direct reductions in workforce, with approximately 350 others
eliminated through attrition. All employee groups were affected, but the
majority of eliminated positions derived from the research and
development, systems engineering and support, and sales and marketing
areas. Cash expenditures related to the restructuring totaled $3.6 million
through December 31, 1995. Cash expenditures during the first
quarter of 1996 were insignificant. The $6 million charge was
included in "Restructuring charge" in the 1995 consolidated statement of
operations.
Bentley Systems, Inc. The Company has a non-exclusive license agreement
with Bentley Systems, Inc. (BSI), a 50%-owned affiliate of the
Company, under which the Company has a right to sell MicroStation, a
software product developed and maintained by BSI and utilized in many of
the Company's software applications, via its direct sales force, and
to sell MicroStation via its indirect sales channels if MicroStation is sold
with other Intergraph products. During the first quarter of 1996, the
Company's sales of MicroStation declined by 39% to approximately $8
million. Effective January 1, 1996, the per copy royalty payable by the
Company to BSI was increased 31%. In addition, in 1995 BSI paid the
Company a per copy distribution fee based on BSI's MicroStation sales to
resellers. In 1996, the Company no longer receives per copy distribution
fees from BSI. The Company estimates that the effect of reduced revenues,
increased royalties and discontinued distribution fees on first quarter
1996 results of operations was a 3% reduction in revenues and an increase
in net loss of approximately $4.5 million or $.10 per share.
New Products. During the first quarter, the Company announced a complete
line of workstations and servers based on Intel Corporation's Pentium
Pro microprocessor, including the TD desktop and high-end TDZ workstations
for graphics-intensive applications, the StudioZ workstation for
manipulation of video and film imagery, and a line of Web servers for
meeting the heavy demand of visitors to a web site. These products began
shipping in the first quarter with the exception of the StudioZ workstation,
which will begin shipping in the second quarter.
In late 1995, the Company announced its Jupiter technology, a Windows-based
component software architecture that is the foundation of many new
computer-aided-design/computer-aided-manufacturing/computer-aided-
engineering (CAD/CAM/CAE) and geographic information systems (GIS)
applications software developed and sold by the Company. This technology
creates a Windows-native environment where information from competing CAD
systems comes together without translation to form unified design models
and drawings. 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. The first two products built on Jupiter technology are
scheduled to ship in the second quarter.
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.
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 797,931
shares of the Company's common stock and assumption of InterCAP's
obligations under its 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. This acquisition has not had a material effect on the
Company's results of operations.
ORDERS/REVENUES
- ---------------
Orders. First quarter systems orders totaled $144.3 million, a decrease of
4% from first quarter 1995. U.S. commercial orders decreased by 12%, and
Federal government orders increased by 25%, resulting in overall flat
orders in the U.S. region versus first quarter 1995. Total
international systems orders decreased 7% from first quarter 1995.
European and other international systems orders were down 4% and 12%,
respectively. U.S. commercial orders were negatively impacted by a
reorganization of the sales force which is now nearing completion.
In addition, indirect distribution channel orders worldwide were below planned
levels as the Company continues the process of building its indirect channels.
NAVAIR/SPAWAR Contract. 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 CAD/CAM/CAE systems and
services for electronics and mechanical applications. The contract is
an indefinite delivery, indefinite quantity (IDIQ) contract. IDIQ
contracts generally provide for the purchase of indefinite quantities of
goods and services, with stated minimum and maximum amounts eligible for
order, and with deliveries scheduled by placing specific orders with the
vendor. Funding for other than the stated minimum quantities is
obligated by each delivery order and not by the contract itself. The
estimated maximum value of the NAVAIR/SPAWAR contract is $398
million, and the term of the contract is twelve years, assuming all
optional annual renewals of the contract are exercised. Under the terms of
the contract, the customer is obligated to purchase only $1 million in
systems and services, and there can be no assurance that the Company
will receive orders for the maximum value of the contract. Products and
services are sold to the Navy over the term of the contract at firm,
fixed prices, with escalation of certain prices allowed under certain
circumstances. Given the nature of the contract, the Company cannot
determine the amount of orders that will be received or anticipate the
level of annual revenues over the term of the contract.
Orders and revenues under this contract in the first quarter of 1996 were
not significant.
Soon after the original award, the NAVAIR/SPAWAR contract was formally
protested by one of the losing bidders. The Company supported the
efforts of the Navy in defending against the protest, and in October
1994, the Company was notified that the original award was upheld.
This holding is currently being appealed through the federal court
system, and the Company is awaiting the outcome of the appeals process.
The Company does not expect this process to significantly delay orders
and revenues under the contract.
Revenues. Total revenues for first quarter 1996 were $256.7 million,
relatively flat with first quarter 1995. Sales outside the U.S.
represented 55% of total revenues in the first quarter of 1996,
relatively unchanged from the first quarter and full year 1995 level.
European revenues were 37% of total revenues for first quarter, also
relatively unchanged from the first quarter and full year 1995 level.
Systems. Systems revenue for the first quarter was $163.2 million,
relatively flat with the same prior year period. Federal government
systems revenues were up 11%, while U.S. commercial systems revenue
declined 11%, resulting in an overall 4% systems revenue decline in the
U.S. from first quarter 1995. International systems revenues were up 3%
from the first quarter 1995 level. European and other international
systems revenues increased by 3% and 2%, respectively.
First quarter workstation and server unit sales were up 57% from the prior
year period, while workstation and server revenues increased only 30% due
to declining per unit sales prices. Unit sales prices have declined from
the first quarter 1995 level, but have held firm since the third
quarter of 1995. Software revenues were flat with the prior year level,
despite a 39% decline in MicroStation revenues (for further discussion of
this impact on the Company, see "Bentley Systems, Inc." above).
Excluding MicroStation, software revenues increased 14% from the first
quarter 1995 level due primarily to an increase in plant design and
electronics software applications sales. Sales of Windows-based software
represented approximately 70% of total software revenues in the first
quarter of 1996, up from approximately 60% in the first quarter of
1995. Peripheral equipment and non-core business unit sales were down
16% and 30%, respectively. The Company expects systems revenue levels to
increase throughout the remainder of the year through growth in core
product sales and sales of new hardware and software product offerings.
The architecture, engineering and construction (AEC), mapping/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 1996 and the
full year 1995 were AEC 34%, GIS 43%, MDEM 14%, and all other applications
9%.
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
$93.5 million for the first quarter of 1996, flat with the same
prior year period. Maintenance revenues grow as the Company's installed
base of systems grows. The trend in the industry toward lower priced
products and longer warranty periods has reduced the rate of increase
in maintenance revenue, and the Company believes this trend will continue
in the future. Services revenue represents less than 8% of total revenues.
GROSS MARGIN
- ------------
The Company's total gross margin was 37.2% for first quarter 1996, down
approximately 1 point from first quarter 1995 and down 2 points from the
full year 1995 level.
Systems margin for first quarter 1996 was 35.3%, down .7 points from
first quarter 1995 and down 2.8 points from the full year 1995 level.
The decline is due primarily to a higher hardware content in the
product. Additionally, in 1996, the Company no longer receives per copy
distribution fees on BSI's MicroStation sales to resellers, and the
Company is paying per copy royalties to BSI at a 31% higher rate
(for further discussion of the impact on the Company, see "Bentley
Systems, Inc." above).
In general, systems margin may be lowered by price competition, a
stronger dollar in international markets, effects of technological
changes on the value of existing inventories, and a higher mix of
federal government sales, which generally produce lower margins than
commercial sales, to total systems sales. Systems margins may be
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 1996 was 40.3%,
down 1.6 points from first quarter 1995 and down .7 points from the full
year 1995 level. The Company believes that the trend in the industry
toward lower priced products and longer warranty periods will limit
growth in maintenance revenues, which will pressure maintenance margin in
the absence of corresponding cost reductions or additional services
revenues.
OPERATING EXPENSES
- ------------------
Operating expenses for first quarter 1996 decreased 7% from the comparable
prior year period. Total employee headcount has declined 6% from that
same period.
Product development and sales and marketing expenses declined 16% and 7%,
respectively, from first quarter 1995 levels due to a decline in
headcount and related overhead expenses resulting from restructuring actions
taken in mid-1995. General and administrative expense increased 5% due
primarily to an increasing level of business activity in the Asia
Pacific region.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
In first quarter 1996, the Company sold a stock investment in an affiliated
company, resulting in a gain of $9.4 million ($.20 per share). The gain is
included in "Gain on sale of investment in affiliated company" in the
consolidated statement of operations for the quarter ended March 31, 1996.
"Other income (expense) - net" in the consolidated statements of operations
consists primarily of foreign exchange losses, other miscellaneous items of
nonoperating income and expense, and nonrecurring charges/credits.
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 the Company's results of operations. For the
first quarter of 1996 and the full year 1995, approximately 55% of the
Company's revenues were derived from customers outside the United
States, 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 1996, the U.S.
dollar weakened on average from its first quarter 1995 level, which
increased reported dollar revenues, orders, and gross margin, but also
increased reported dollar operating expenses in comparison to the
prior year period. Such currency effects did not materially affect the
Company's results of operations for the first quarter of 1996.
The Company conducts business in all major markets outside of the U.S.,
but the most significant of these operations with respect to currency
risk are located in Europe, specifically Germany, U.K., The Netherlands,
France and Spain. Primarily but not exclusively in these locations, the
Company has certain currency related asset and liability exposures
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. The Company therefore enters into forward exchange contracts
primarily related to these balance sheet items (intercompany receivables,
payables, and formalized intercompany debt). Periodic changes in the
value of these contracts offset exchange rate-related changes in the
financial statement value of these balance sheet items. 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. Since this risk is calculable and these contracts are purchased
only in offsetting amounts, neither the contracts themselves nor the
exposed foreign currency denominated balance sheet items are likely to have
a significant effect on the Company's financial position or results
of operations. The Company's positions in these derivatives are
continuously monitored to ensure protection against the known balance
sheet exposures described above. By policy, the Company is prohibited
from market speculation via such instruments and therefore 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 $6.4 million in
first quarter 1996 versus $22.5 million in first quarter 1995. The
1996 loss generated minimal net financial statement tax benefit, as the
majority of available tax benefits were offset by tax expenses in
individual profitable international subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1996, cash and short-term investments totaled $44.0 million
compared to $56.4 million at December 31, 1995. Cash generated from
operations in first quarter 1996 totaled $12.4 million ($24 million in
first quarter 1995, including $21.7 million in 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 $7.4 million in first
quarter 1996 versus $16.7 million in first quarter 1995. Included in
investing activities were capital expenditures of $11.8 million ($9.8
million in first quarter 1995), primarily for Intergraph products used
in hardware and software development. The Company expects that capital
expenditures for the full year 1996 will require $35 to $40 million,
primarily for computer equipment manufactured by the Company for use in
hardware and software development. The Company's revolving credit
agreement contains certain restrictions on the level of the Company's capital
expenditures. Other significant investing activities included $5.6 million
for capitalizable software development costs ($7.0 million in first quarter
1995) and $9.8 million in proceeds from the sale of an investment in an
affiliated company.
Net cash used for financing activities totaled $16.8 million versus
$7.5 million in first quarter 1995. First quarter 1996 financing
activities included $18.0 million for net repayment of short- and long-
term debt, compared with $9.3 million in the first quarter of 1995.
Historically the Company's collection period for accounts receivable
has approximated 100 days. Approximately 69% of the Company's sales are
derived from the U.S. government and international 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.
In October 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,
under certain circumstances, the accounts receivable of some European
subsidiaries of the Company. The rate of interest on all borrowings
under the agreement is, at the Company's option, the Citibank base rate of
interest plus 1.75% or the Eurodollar rate plus 2.75%. The average
effective rate of interest was 10.21% for the period of time in the first
quarter of 1996 during which the Company had outstanding borrowings under
the agreement. There were no outstanding borrowings under this
agreement at March 31, 1996; however, $19 million of the available credit
line was allocated to support letters of credit issued by the
Company. 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 contains certain financial covenants
of the Company, 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, dividend payments, 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.
At March 31, 1996, the Company had $52 million in debt on which interest
is charged under various floating rate arrangements, primarily under
short-term credit facilities, mortgages, and a term loan. The Company is
exposed to market risk of future increases in interest rates on these
loans.
The Company believes that existing cash balances, together with cash
generated by operations and cash available under its revolving
credit agreement, will be adequate to meet cash requirements for the
remainder of 1996.
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, page 17.
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1996.
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: May 15, 1996 Date: May 15, 1996
Exhibit 11
- ----------
INTERGRAPH CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER SHARE
- ----------------------------------------------------------------
Quarter Ended March 31, 1996 1995
- -----------------------------------------------------------------
(In thousands except per share amounts)
NET LOSS $( 6,391) $(22,472)
========= =========
PRIMARY
Weighted average common shares outstanding 46,902 45,601
Net common shares issuable on exercise of
certain stock options (1) --- ---
-------- -------
Average common and equivalent common
shares outstanding 46,902 45,601
========= ========
Net loss per share $( .14) $( .49)
========= =========
FULLY DILUTED (2)
Weighted average common shares outstanding 46,902 45,601
Net common shares issuable on exercise of
certain stock options (1) --- ---
-------- --------
Average common and equivalent common
shares outstanding 46,902 45,601
========= =========
Net loss per share $( .14) $( .49)
========== ==========
(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 March 31,
1996, 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 43,969
<SECURITIES> 0
<RECEIVABLES> 290,108
<ALLOWANCES> 0
<INVENTORY> 119,325
<CURRENT-ASSETS> 502,425
<PP&E> 511,098
<DEPRECIATION> 304,273
<TOTAL-ASSETS> 782,665
<CURRENT-LIABILITIES> 244,415
<BONDS> 37,737
0
0
<COMMON> 5,736
<OTHER-SE> 490,878
<TOTAL-LIABILITY-AND-EQUITY> 782,665
<SALES> 163,184
<TOTAL-REVENUES> 256,706
<CGS> 105,508
<TOTAL-COSTS> 161,305
<OTHER-EXPENSES> 112,138<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,223
<INCOME-PRETAX> (6,391)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,391)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<FN>
<F1>Other expenses include Product development expenses, Sales and marketing
expenses, and General and administrative expenses.
</FN>
</TABLE>
