-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZFAvdAuuWenbdbRhv5V3tjjGqXjIjtggCShdYrxXnSiR0OFUhAz0PAZOv2IHEhpu OLxC3gO3W5wBdc+a+ayIJA== 0000351145-94-000001.txt : 19940331 0000351145-94-000001.hdr.sgml : 19940331 ACCESSION NUMBER: 0000351145-94-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGRAPH CORP CENTRAL INDEX KEY: 0000351145 STANDARD INDUSTRIAL CLASSIFICATION: 3575 IRS NUMBER: 630573222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-09722 FILM NUMBER: 94518386 BUSINESS ADDRESS: STREET 1: THIGPEN HQ011 #9384 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2057302000 10-K 1 FORM 10-K - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 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 (Zip Code) offices) Registrant's telephone number, including area code: (205) 730-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share --------------------------------------- (Title of Class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) As of January 31, 1994, there were 45,389,118 shares of Intergraph Corporation Common Stock $0.10 par value outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $460,406,000 based on the closing sale price of such stock as reported by NASDAQ on January 31, 1994, assuming that all shares beneficially held by executive officers and members of the registrant's Board of Directors are shares owned by "affiliates," a status which each of the executive officers and directors individually disclaims. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference --------- ------------------- Portions of the Annual Report to Shareholders for the year ended December 31, 1993 Part II, Part IV Portions of the Proxy Statement for the May 12, 1994 Annual Shareholders' Meeting Part III - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ PART I ITEM 1. BUSINESS Intergraph Corporation was founded in 1969, and is organized as a Delaware corporation. Unless the context of this discussion dictates otherwise, references to the "Company" or "Intergraph" include Intergraph Corporation and subsidiaries. Intergraph's business is principally in one industry segment: interactive computer graphics systems. With an emphasis on technical disciplines, Intergraph systems combine graphics workstations, servers, and peripheral hardware with operating system and application-specific software programs authored by Intergraph and third party software developers to perform such functions as design, drafting, mapping, modeling, analysis, and documentation. These systems are developed, manufactured, sold, and serviced by the Company. Intergraph systems support the creation, analysis, display, output, and maintenance of virtually every type of design, drawing, map, and other graphic representation, while simultaneously providing capabilities to manage a database of non-graphic descriptive information associated with the graphics data. Systems hardware consists of: * Workstations and servers based on reduced instruction set computing (RISC) or Intel Corporation (Intel) microprocessors * A variety of Intergraph and third-party peripheral devices * Industry-standard networking Software includes applications for computer-aided design/computer- aided manufacturing/computer-aided engineering (CAD/CAM/CAE), mapping and geographic information systems, electronic publishing, technical information management, and database management. INTERGRAPH SYSTEMS Intergraph systems include hardware and application software developed by the Company and others. These products can be configured to address the needs of any size organization. The Company provides solutions which are integrated -- workstations, servers, peripherals, and software configured by the Company to work together and satisfy each customer's requirements. All Intergraph workstations and servers are currently based on the Company's microprocessor with a UNIX operating system or Intel microprocessors with the Windows/DOS or Windows NT operating system. The Company has historically manufactured workstations and servers based on its own microprocessor technology, and offered its software applications on the UNIX operating system, with only limited availability of its software applications on hardware platforms of other vendors. In late 1992, the Company announced its decision to port its technical software applications to Microsoft Corporation's new Windows NT operating system for high-end computing, and to make Windows NT available on Intergraph workstations. Microsoft's standard Windows system is widely accepted in the personal computing (PC) market. The effect of this decision is to expand the availability of the Company's workstations and software applications to Windows-based computing environments not previously addressed, including the availability of Intergraph software applications that will operate on selected hardware platforms of other manufacturers that use the Windows NT operating system. At the same time, the Company continues to develop and maintain products in the UNIX operating system environment, the foundation for its software applications before Windows NT, thereby offering existing and potential customers a choice of UNIX or Windows NT operating systems. In addition, the Company believes Intel's architecture has an important role in the technical computing market it serves and now offers a hardware platform for all its software applications based on Intel microprocessors under the Windows NT operating system. 1 Limited shipments of Windows NT-based applications software began in the fourth quarter of 1993. Most of the Company's software applications are expected to be available on Windows NT during 1994. The Company began shipping new Intel-based workstations in third quarter 1993, and expects that Intel-based systems will represent the majority of its 1994 workstation shipments. In addition, the Company has ceased design of its own microprocessor and has entered into an agreement with Sun Microsystems Computer Corporation (Sun) that, among other things, provides for the Company's purchase from Sun beginning in the second half of 1995 of a microprocessor to be co-developed by the Company and Sun. The Company may choose to offer future products based on the Sun microprocessor. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of the Sun agreement. The Company supports industry standards for operating systems, windowing, graphics, peripherals, and communication networks, allowing its systems to operate in computing environments with products from other vendors who support the same industry standards. Intergraph offers more than 1,200 interactive graphics application programs, including more than 700 developed by third parties. Systems currently sold by the Company are configured using a combination of the following: (1) Workstations manufactured by the Company that offer user- selectable main memory capacity and performance levels. This flexibility allows customers to match hardware capabilities with their production requirements. All Intergraph-manufactured workstations are based on its 32-bit RISC microprocessor or Intel microprocessors. Intergraph workstations are general-purpose computer systems that can run third-party application, data management, and data processing software packages. (2) RISC-based and Intel-based servers that function as plot, file, compute, and database nodes. The servers off-load these functions from standalone workstations and enable workstation users to share data and system resources in a distributed network. Intergraph's servers offer user-selectable configurations and performance levels. (3) Special-purpose peripherals, including scanners, scanner/plotters, photoplotters, electrostatic and pen plotters, color and monochrome hardcopy devices, magnetic and optical disk technology, a variety of disk and tape drives, alphanumeric terminals, screen image cameras, line printers, and other devices available from the Company, either manufactured in-house or as original equipment from third parties. (4) A broad range of UNIX application software and increasing numbers of applications based on Windows/DOS and Windows NT. See "Intergraph Applications Software" below. (5) MicroStation core graphics software from Bentley Systems, Inc., an Intergraph affiliate, for various operating systems and hardware platforms. (6) An open network architecture that ties Intergraph hardware and software products together and provides access to other systems and processes. PRODUCT TRANSITION The Company believes that offering a choice of UNIX and Windows NT operating systems and Intergraph and Intel hardware platforms will expand the market for its products. However, while the Company believes that Windows NT will become the dominant operating system in the markets it serves, other operating systems are available in the market, and several competitors of the Company also use UNIX or are adopting the Windows NT system for their product offerings. As in any product transition, the Company is unable to predict the precise effects of the transition on its revenues, margins, and profitability for 1994, but believes the transition may continue to adversely affect orders and revenues through the first half of 1994. See "Product Development" and "Competition" below. 2 INTERGRAPH SYSTEMS SOFTWARE At the systems software level, Intergraph develops software to provide graphics and database management capabilities on Intergraph systems, advanced compilers for Intergraph systems, and utilities to enable interoperability with systems from other vendors. The graphics software foundation for many Intergraph UNIX-based software applications is MicroStation 32, a graphics software product owned by Bentley Systems, Inc., an Intergraph affiliate. MicroStation 32 provides fundamental graphics element creation, maintenance, and display functions. In addition to MicroStation 32 for Intergraph workstations, other versions of MicroStation are available on many hardware platforms from other vendors, including MicroStation PC for personal computers, MicroStation Mac for the Apple Macintosh, MicroStation Sun for Sun SPARCstations and MicroStation HP700 for the Hewlett-Packard HP700 workstation. A Japanese language version of MicroStation (release 4.0) runs on the NEC personal computer. MicroStation is compatible with Intergraph's original core graphics software, the Interactive Graphics Design System, which runs on Digital Equipment Corporation (DEC) VAX- based systems. Intergraph supports relational database management systems for attribute (non-graphic) data management on its own workstations and servers, as well as on systems from other vendors. Currently supported are Ingres, Oracle, Informix, DB2, Rdb, and SyBase. Intergraph's Relational Interface System (RIS) is a core product that provides database-independent access to data stored in supported databases. To facilitate the use of Intergraph systems with those from other vendors, the Company develops software for translating data into Intergraph formats, inputting large volumes of text into graphics and attribute files, and communicating with other computer systems. Additionally, Intergraph provides interfaces to various models of electrostatic and pen plotters (both online and offline), online typesetters, units producing computer output microfilm, and other output devices such as those used in the graphic arts industry. INTERGRAPH APPLICATIONS SOFTWARE Intergraph offers a broad suite of graphics and data management applications software. Architecture/engineering/construction (AEC), mapping and geographic information systems (GIS), and mechanical design, engineering, and manufacturing (MDEM) applications have dominated the product mix over the last three years, with no other single application representing more than 10% of systems revenue. The following is a brief description of the Company's major product application areas. Each product organization is led by a senior executive responsible for product development, marketing, training, support, and documentation. ARCHITECTURE/ENGINEERING/CONSTRUCTION. Intergraph's architectural, facility management, and engineering product line automates the project design and management process. With this software, users can develop and model building concepts, produce construction documents, and manage space and assets in a finished facility. The system serves the needs of architecture/engineering firms and corporate or governmental facility management offices. Included are capabilities for producing three-dimensional models of design concepts, architectural drawings, reports, engineering plans, and construction drawings (for example, heating, ventilation, and air conditioning; electrical; and plumbing). Packages are also offered for space planning and facility layout. Intergraph's civil engineering software includes capabilities for coordinate geometry and for structural, site, water resources, bridge, geotechnical and transportation engineering. Structural engineering software is used to create two- and three-dimensional structural models that serve as the basis for frame and finite element-based structural design and analysis of steel and concrete structures. For construction needs, the products support traditional drafting and report requirements. The Company's highway, rail, site, and hydraulic/hydrologic engineering products link traditional workflow activities from data collection to plan and profile production, to generation of construction drawings. 3 The Company's plant design software addresses the needs of process and power plant design efforts. The Plant Design System (PDS) product supports piping and instrumentation diagram generation, electrical, structural, and other design aspects of a plant. Three- dimensional modeling capabilities are provided. The system performs interference-checking and provides reports, materials lists, and drawings. A supporting product provides "walk-throughs" of three- dimensional plant models. The electrical engineering products are used for engineering and analysis of power systems, panel layout, raceway design, and wiring diagram production. MAPPING AND GEOGRAPHIC INFORMATION SYSTEMS. Intergraph offers a range of GIS and mapping solutions to assist businesses, governments, and academic institutions in solving geography-based problems. Intergraph's GIS/mapping software tools address the entire life cycle of GIS/mapping projects from project and data management, through data collection and integration, spatial query and analysis, to output and map production. Intergraph's GIS/mapping solutions help companies address workflows in several major industries. These products support solutions for all levels of government including infrastructure management, planning, growth management, economic development, land information management, public safety and security, public works, redistricting, tactical and strategic defense applications (such as land-based command and control operations), and hydrographic systems. Transportation industry applications range from decision support activities such as policy, planning, and programming to the creation of operations systems that support such day-to-day tasks in transportation agencies. Utility companies utilize Intergraph's GIS/mapping products to develop cost-effective, efficient ways to automate management and analysis applications such as market analyses, environmental impact studies for siting, permitting, contaminant studies, and risk evaluation, long-range planning and forecasting, corridor evaluation and selection, and right-of-way analysis. Environmental and natural resource management applications include monitoring, evaluating and managing, conservation and remediation of the environment. Energy exploration and production products assist geoscientists in every phase of geological analysis related to energy exploration and production and mineral extraction. Intergraph also provides solutions for end-to-end digital map and chart publishing, digital image processing, orthophoto production, and digital photogrammetry. MECHANICAL DESIGN, ENGINEERING AND MANUFACTURING. For the mechanical design and manufacturing market, Intergraph offers software to automate the product development cycle from design through analysis, manufacturing, and documentation. Customers use the system to design mechanical parts and assemblies, defining complex parts with specialized sculptured surface and solid modeling software. Detailing, dimensioning, and drafting capabilities are included for the production of engineering drawings. Engineering software evaluates product designs for functional and structural integrity, predicting behavior under service or test conditions. Finite element modeling and analysis software evaluates designs by simulating stresses encountered in end use. Other products assist in optimizing material usage and cutting cycles for metalworking and fabrication. In addition, a data management system organizes shared product databases for coordination and management of product cycle phases. PRODUCT DEVELOPMENT The Company believes a strong commitment to ongoing product development is critical to success in the interactive computer graphics industry. Significant resources are devoted to development of Intergraph products, and the Company believes its product offerings are responsive to market and competitive demands. Product development expenditures include all costs related to designing new or improving existing equipment and software. During the year ended December 31, 1993, the Company spent $160.3 million (15.3% of revenues) for product development activities compared to $150.2 million (12.8% of revenues) in 1992, and $134.4 million (11.3% of revenues) in 1991. 4 The interactive computer graphics industry is characterized by intense price and performance competition and short product cycles, which necessitate new product development on an ongoing basis. The future operating results of the Company, and of others in the industry, depend in large part on the ability to rapidly and continuously develop and deliver new hardware and software products that are competitively priced and offer enhanced performance. MANUFACTURING AND SOURCES OF SUPPLY The Company's primary manufacturing activities consist of the fabrication and testing of Company-designed electronic circuits and the assembly and testing of components and subassemblies manufactured by the Company and others. In January, 1994 the Company announced its decision to close its manufacturing facility located in Nijmegen, The Netherlands. The decision was made to take advantage of lower costs of production and distribution in the U.S., and to utilize existing capacity in the U.S. manufacturing operation. The facility will be closed in phases over the course of 1994, with all manufacturing and distribution activity transferred to the Company's U.S. manufacturing facility. European sales and support activity will continue to be provided by the Company's subsidiary operations located throughout Europe and by its European headquarters located in The Netherlands. The Company plans to sell or lease the Nijmegen facility. As described under "Intergraph Systems" above, the Company no longer designs its own microprocessor. The Company has agreements in place currently with Intel, and beginning in the second half of 1995, with Sun for provision of its microprocessor needs. The Company believes it has good relationships with Intel and Sun and is unaware of any reason that Intel or Sun might encounter difficulties in meeting the Company's microprocessor needs. An inability to obtain a sufficient supply of microprocessors from Intel and Sun would adversely affect the Company's results of operations. The Company is not dependent on any other sole source supplier of purchased parts, components, or peripherals used in the systems manufactured by the Company. The Company is not required to carry extraordinary amounts of inventory to meet customer demands or to ensure allotment of parts from its suppliers. SALES AND SUPPORT SALES. The Company's systems are sold by its direct sales force through sales offices in 52 countries worldwide. The efforts of the direct sales force are augmented by dealers, value-added-resellers, distributors, and system integrators. In general, the direct sales force is compensated on a combined base salary and commission basis. Sales quotas are established along with certain incentives for exceeding those quotas. Additional specific incentive programs may be established periodically. The Company's sales organization is organized along industry lines to focus on key industries (transportation, utilities, local government, defense, building, vehicle design, electronics, manufacturing, etc.). The Company believes this structure enables it to better meet the specialized needs of these industries. International markets, particularly Europe, continue to increase in importance to the industry and to the Company. The percentage of total Company revenues from customers outside the United States was 51% for the last two fiscal years. European customers represented 35% of total Company revenues in 1993 and 38% in 1992. There are currently wholly-owned sales and support subsidiaries of the Company located in every major European country. European subsidiaries are supported by service and technical assistance operations located in The Netherlands. Outside of Europe, Intergraph systems are sold and supported through a combination of subsidiaries and distributorships. At December 31, 1993, the Company had approximately 1,900 employees in Europe and 900 employees in other international locations. 5 The Company's operations are subject to and may be adversely affected by a variety of risks inherent in doing business internationally, such as government policies or restrictions, currency exchange fluctuations, and other factors. See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 9 of Notes to Consolidated Financial Statements contained in the Company's 1993 Annual Report, portions of which are incorporated herein by reference, for further discussion of the Company's international operations. CUSTOMER SUPPORT. The Company believes that a high level of customer support is important to the sale of interactive graphics systems. Customer support includes pre-installation guidance, education services, customer training, onsite installation, hardware preventive maintenance, repair service, software help desk and technical support services in addition to consultative professional services. The Company employs engineers and technical specialists to provide customer assistance, maintenance, and training. Maintenance and repair of systems are covered by standard warranties and by maintenance agreements to which substantially all users subscribe. U.S. GOVERNMENT BUSINESS Revenues from the United States government were $165.7 million in 1993 (16% of total revenue), $186.5 million in 1992 (16% of total revenue), and $172.3 million in 1991 (14% of total revenue). Approximately 40% of total federal government revenues are earned under long-term contracts. The Company believes it has a good relationship with the federal government. While it is fully anticipated that these contracts will remain in effect through their expiration, the contracts are subject to termination at the election of the government (with damages paid to the Company). Any loss of a significant government contract through termination or expiration without renewal or replacement would have an adverse impact on the results of operations of the Company. No other customer exceeds 10% of the total revenue of the Company. BACKLOG An order is entered into backlog only when the Company receives a firm purchase commitment from a customer. The Company's backlog of unfilled systems orders at December 31, 1993, was $232 million. At December 31, 1992, backlog was $275 million. Substantially all of the December 1993 backlog of orders is expected to be shipped during 1994. The Company does not consider its business to be seasonal, though typically fourth quarter orders and revenues exceed those of other quarters. The Company does not ordinarily provide return of merchandise or extended payment terms to its customers. COMPETITION The industry in which the Company competes continues to be characterized by price and performance competition. To compete successfully, the Company and others in the industry must continuously develop products with enhanced performance that can be offered at a competitive price. The Company, along with other companies in the industry, engages in the practice of price discounting to meet competitive industry conditions. Other important competitive factors include quality, reliability, and customer service, support, and training. Management of the Company believes that competition will remain intense. Competition in the interactive computer graphics industry varies among the different application areas. The Company considers its principal competitors in the interactive computer graphics market to be IBM, Computervision Corp., Hewlett-Packard Corp., DEC, Sun, Unigraphics (a division of Electronic Data Systems, Inc.), Silicon Graphics, Inc., and Mentor Graphics, Inc. In the personal computer-based graphics market, Intergraph competes with the products of Autodesk, Inc. and Computervision. Several companies with greater financial resources than the Company, including IBM, DEC, and Hewlett-Packard, are increasing their activities in the industry. 6 The Company provides solutions which are integrated -- workstations, servers, peripherals, and software configured by the Company to work together and satisfy each customer's requirements. By delivering such integration, the Company believes it has an advantage over other vendors who provide only hardware or software, leaving system integration to the customer. In addition, the Company believes that its experience and extensive worldwide customer service and support infrastructure represent a competitive advantage. ENVIRONMENTAL AFFAIRS The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from plant wastes and emissions. In the opinion of the Company, compliance with these laws and regulations has not had, and should not have, a material effect on the capital expenditures, earnings, or competitive position of the Company. LICENSES, COPYRIGHTS, TRADEMARKS, AND PATENTS The Company develops its own graphics, data management, and applications software as part of its continuing product development activities. The Company has standard license agreements with UNIX Systems Laboratories for use and distribution of the UNIX operating system, and with Microsoft Corporation for use and distribution of the Windows NT operating system. The license agreements are perpetual and allow the Company to sublicense the operating systems software upon payment of required sublicensing fees. In addition, the Company has an exclusive worldwide license agreement with Bentley Systems, Inc. (a 50%-owned affiliate of the Company) to market, use, distribute, and sublicense MicroStation software. See Item 3. Legal Proceedings for further details. The Company has an extensive program for the licensing of third- party application and general utility software for use on systems and workstations. The Company owns and maintains a number of registered patents and registered and unregistered copyrights, trademarks, and servicemarks. The patents and copyrights held by the Company are the principal means by which the Company preserves and protects the intellectual property rights embodied in the Company's hardware and software products. Similarly, trademark rights held by the Company are used to preserve and protect the goodwill represented by the Company's registered and unregistered trademarks, such as the federally registered trademark "Intergraph". As industry standards proliferate, there is a possibility that the patents of others may become a significant factor in the Company's business. Personal computer technology, for example, is widely available, and many companies, including Intergraph, are attempting to develop patent positions concerning technological improvements related to PCs and workstations. At present, it does not appear that Intergraph will be prevented from using the technology necessary to compete successfully since patented technology is typically available in the industry under royalty- bearing licenses or patent cross-licenses, or the technology can be purchased on the open market. Any increase in royalty payments or purchase costs would increase the Company's costs of manufacture, however, and it is possible, though not anticipated, that some key improvement necessary to compete successfully in some markets served by the Company may not be available. The Company is actively engaged in a program to protect by patents the technology it is developing. The Company believes its success depends less on its ability to obtain and defend copyrights, trademarks, and patents than on its ability to offer higher-performance products for specific solutions at competitive prices. 7 EMPLOYEES At December 31, 1993, the Company had approximately 9,500 employees. Of these, approximately 2,800 were employed outside the United States. The Company's employees are not subject to collective bargaining agreements, and there have been no work stoppages due to labor difficulties. Management of the Company believes it has a good relationship with its employees. Total employment is approximately 800 less than at December 31, 1992. The reduction was achieved both through direct action by the Company and through normal attrition. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further details. ITEM 2. PROPERTIES The Company's corporate offices and primary manufacturing facility are located in Huntsville, Alabama. Manufacturing facilities located in Nijmegen, The Netherlands will be closed in 1994, as explained under "Manufacturing and Sources of Supply" above. Sales and support facilities are maintained throughout the world. The Company owns over 2,000,000 square feet of space in Huntsville that is utilized for manufacturing, product development, sales and administration. The Huntsville facilities also include over 500 acres of unoccupied land that can be used for future expansion. The Company maintains subsidiary company facilities and sales and support locations in major U.S. cities outside of Huntsville, primarily through operating leases. Outside the U.S., the Company owns approximately 500,000 square feet of space, primarily its Nijmegen manufacturing facility and European headquarters facility. Sales and support facilities are leased in most major international locations. The Company considers its facilities to be adequate for the immediate future. ITEM 3. LEGAL PROCEEDINGS The Company is a 50% owner of Bentley Systems, Inc. (BSI). BSI granted Intergraph an exclusive worldwide license to distribute MicroStation, which is a basic software package utilized by many of Intergraph's software applications. BSI notified Intergraph on February 3, 1994, that in its opinion certain events have occurred under the terms of the license agreement which make the license nonexclusive, and as a result, BSI may compete with Intergraph in the distribution of MicroStation and in the development and distribution of additional software products. Intergraph disputes that the license agreement has changed, and pursuant to the license agreement, Intergraph has submitted the dispute to arbitration under the rules of the American Arbitration Association. Related lawsuits were filed in February 1994, among BSI, Intergraph, and the other 50% shareholders of BSI in the Court of Common Pleas, Chester County, Pennsylvania, the Circuit Court of Madison County, Alabama and the United States District Court for the Eastern District of Pennsylvania. The principal relief sought is a declaration of the rights of the parties under the license and related agreements. The Company has entered into negotiations which could result in settlement of this matter. See the discussion under Results of Operations set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 1993 Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None. 8 EXECUTIVE OFFICERS OF THE COMPANY Certain information with respect to the executive officers of the Company is set forth below. Officers serve at the discretion of the Board of Directors.
Officer Name Age Position Since - ---------------------- --- -------------------------------------------------------------- ------- James W. Meadlock 60 Chairman of the Board and Chief Executive Officer 1969 Larry J. Laster 42 Executive Vice President, Chief Financial Officer,and Director 1986 Nancy B. Meadlock 55 Executive Vice President and Director 1969 Robert E. Thurber 53 Executive Vice President and Director 1972 Lawrence F. Ayers, Jr. 61 Executive Vice President 1987 Neil E. Keith 48 Executive Vice President 1985 Stephen J. Phillips 52 Executive Vice President 1987 Maurice G. Romine 52 Executive Vice President 1983 William E. Salter 52 Executive Vice President 1984 Tommy D. Steele 53 Executive Vice President 1992 Herman E. Thomason 68 Executive Vice President 1991 John M. Thorington, Jr. 50 Executive Vice President 1980 Damian Walters 43 Executive Vice President 1991 Allan B. Wilson 45 Executive Vice President 1982 Manfred Wittler 53 Executive Vice President 1989
James W. Meadlock is a founder of the Company, has served as Chairman of the Board of Directors since the Company's inception in 1969, and is Chief Executive Officer. Mr. Meadlock and Nancy B. Meadlock are husband and wife. Larry J. Laster joined the Company in June 1981. Since that time, he has held several managerial positions in the Company's Finance Department and Federal Systems Division. He was elected Vice President in December 1986, named Chief Financial Officer in February 1987, elected to the Board of Directors in April 1987, and is currently Executive Vice President. Mr. Laster is a certified public accountant. Nancy B. Meadlock is a founder of the Company and has been a Director since 1969, excluding the period from February 1970 to February 1972. Mrs. Meadlock served as Secretary for ten years, was elected Vice President in 1979, and is currently Executive Vice President and Director. She holds a master's degree in business administration. Mrs. Meadlock and James W. Meadlock are wife and husband. Robert E. Thurber is a founder of the Company and has been a Director since 1972. He is responsible for the development of applications software to support AEC, mapping/GIS and utilities disciplines. In June 1977, Mr. Thurber was elected Vice President and is currently Executive Vice President. Mr. Thurber holds a master's degree in engineering. Lawrence F. Ayers, Jr., joined the Company in September 1987 after 32 years in federal government mapping where he became the Civilian Director of the Defense Mapping Agency. He served as Vice President for International Federal Marketing until February 1993 and is currently Executive Vice President with responsibility for commercial mapping and utility products. Mr. Ayers holds a bachelors of science degree in civil engineering and a master's degree in public administration. Neil E. Keith joined the Company in December 1981. He was elected Vice President in September 1985 and is currently Executive Vice President. He has extensive experience in manufacturing management and is responsible for the Company's manufacturing operations worldwide. 9 Stephen J. Phillips joined the Company as Vice President and General Counsel in November 1987 when Intergraph purchased the Advanced Processor Division of Fairchild Semiconductor, where Mr. Phillips was General Patent Counsel. He was elected Executive Vice President in August 1992. Mr. Phillips holds a master's degree in electrical engineering and a juris doctor in law. Maurice G. Romine joined the Company in October 1976 in a Federal Systems support role and has since held key positions in the Company responsible for sales, marketing, development and support of the Company's computer graphics systems. He was responsible for organizing and managing the Company's European operations starting in January 1979. He was elected Vice President of European Operations in 1983 where he served until July 1986, when he returned to the U.S. as Vice President of the Mapping and Energy software product center. He was elected Executive Vice President in January 1987. Mr. Romine reassumed responsibility for the European operations in January 1987 until October 1989. In November 1989 Mr. Romine was appointed as Executive Vice President of Corporate Marketing and later also given responsibility for the MicroStation software product center. Since October 1992, he has served as Executive Vice President of Corporate Operations. William E. Salter joined the Company in April 1973. Since that time, he has held several managerial positions in the Company's Federal Systems Division and has served as Manager of Marketing Communications. Dr. Salter was elected Vice President in August 1984 and is currently Executive Vice President with responsibility for the Company's Federal Systems Division. He holds a doctorate in electrical engineering. Tommy D. Steele joined the Company in June 1992 as Executive Vice President with responsibility for software systems, mechanical design and technical information management applications, and professional services. Mr. Steele came to Intergraph from IBM Corporation, where he was employed 28 1/2 years. At IBM, he worked on Apollo/Skylab/Saturn programs, the space shuttle, and a number of Department of Defense programs. In his last four years with IBM, he managed PC Operating Systems (OS/2, DOS, and AIX) for IBM. Herman E. Thomason joined the Company in 1985 and was involved in the development of the Company's federal government business. In 1991, he was elected Executive Vice President with responsibility for the Company's scanning and imaging hardware and software, as well as for the graphic arts and publishing products. He holds a doctorate in electrical engineering. John M. Thorington, Jr., joined the Company in August 1977 and was responsible for the design, development, and manufacture of many of the Company's hardware products. In May 1980, Dr. Thorington was elected Vice President, Graphics Engineering, and is currently Executive Vice President. He holds a doctorate in electrical engineering. Damian Walters joined the Company in 1984 as the Managing Director of Intergraph Australia, a subsidiary of the Company. In 1986, he established the Intergraph office in New Zealand and in 1987 established the Asia Pacific regional headquarters operation in Hong Kong. In 1991, Mr. Walters was elected Vice President. In 1994, he was elected Executive Vice President. Mr. Walters is currently responsible for the Company's Asia Pacific region. Allan B. Wilson joined the Company in 1980 and was responsible for the development of international operations outside of Europe and North America. He was elected Vice President in May 1982 and Executive Vice President in November 1982. Mr. Wilson is responsible for corporate marketing (including marketing communications) as well as office automation standards and support. He holds a master's degree in electrical engineering. Manfred Wittler joined the Company in 1989 as Vice President. In 1991, he was elected Executive Vice President and is currently responsible for sales and support for Europe and the Americas. From 1983 through 1989, Mr. Wittler served as Division Vice President for Data General Corporation in Europe. 10 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The information appearing under "Dividend Policy" and "Price Range of Common Stock" on page 27 of the Intergraph Corporation 1993 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 1993, appearing under "Five-Year Financial Summary" on the inside front cover page of the Intergraph Corporation 1993 Annual Report to Shareholders are incorporated by reference in this Form 10-K Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations appearing on pages 8 to 12 of the Intergraph Corporation 1993 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements appearing on pages 13 to 26 of the Intergraph Corporation 1993 Annual Report to Shareholders are incorporated by reference in this Form 10-K Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information appearing under "Election of Directors" and "Board Committees and Attendance" on pages 4 to 5 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 12, 1994, is incorporated by reference in this Form 10-K Annual Report. Directors are elected for terms of one year at the annual meeting of the Company's shareholders. Information relating to the executive officers of the Company appearing under "Executive Officers of the Company" on pages 9 to 10 in this Form 10-K Annual Report is incorporated herein by reference. 11 ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Executive Compensation" on pages 5 to 12 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 12, 1994, is incorporated by reference in this Form 10-K Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under "Common Stock Outstanding and Principal Shareholders" on pages 2 to 3 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 12, 1994, is incorporated by reference in this Form 10-K Annual Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Certain Relationships and Related Transactions" on page 5 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 12, 1994, is incorporated by reference in this Form 10-K Annual Report. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Page in Annual Report * -------- (a) 1) The following consolidated financial statements of Intergraph Corporation and subsidiaries and the report of independent auditors thereon are incorporated by reference from the Intergraph Corporation 1993 Annual Report to Shareholders: Consolidated Balance Sheets at December 31, 1993 and 1992 13 Consolidated Statements of Income for the three years ended December 31, 1993 14 Consolidated Statements of Cash Flows for the three years ended December 31, 1993 15 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1993 16 Notes to Consolidated Financial Statements 17 - 26 Report of Independent Auditors 27 Page in Form 10-K --------- 2) Financial Statement Schedules: Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other than Related Parties for the three years ended December 31, 1993 17 Schedule V - Property, Plant, and Equipment for the three years ended December 31, 1993 18 Schedule VI - Accumulated Depreciation of Property, Plant, and Equipment for the three years ended December 31, 1993 19 Schedule VIII - Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1993 20 Schedule IX - Short-Term Borrowings for the three years ended December 31, 1993 21 Schedule X - Supplementary Income Statement Information for the three years ended December 31, 1993 22 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of 20%- to 50%-owned companies have been omitted because the registrant's proportionate share of income before income taxes and total assets of the companies is less than 20% of the respective consolidated amounts, and the investments in and advances to the companies are less than 20% of consolidated total assets. * Incorporated by reference from the indicated pages of the 1993 Annual Report to Shareholders. 13 3) Exhibits Page in Number Description Form 10-K ------ ----------- --------- 3(a) Certificate of Incorporation, Bylaws, and Certificate of Merger. (1) 3(b) Amendment to Certificate of Incorporation. (2) 3(c) Restatement of Bylaws. (3) 4 Shareholder Rights Plan, dated August 25, 1993. (4) 10(a) 1990 Intergraph Corporation Employee Stock Option Plan. *(5) 10(b) Intergraph Corporation 1992 Stock Option Plan. *(6) 10(c) Employment contracts of Manfred Wittler, dated November 1, 1989 (7) and April 18, 1991. * 10(d) Loan program for executive officers of the Company. *(7) 10(e) Employment contract of Howard G. Sachs, dated February 8, 1993. * 10(f) Termination agreement with Howard G. Sachs, dated August 9, 1993. * 10(g) Consulting contract of Keith H. Schonrock, Jr., dated January 17, 1990. * 10(h) Agreement between Intergraph Corporation and Green Mountain, Inc., dated February 23, 1994. * 11 Computation of Earnings (Loss) Per Share 23 13 Portions of the Intergraph Corporation 1993 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report 21 Subsidiaries of the Company 24 23 Consent of Independent Auditors 25 - -------------------- (1) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984, under the Securities Exchange Act of 1934, File No. 0-9722. (2) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987, under the Securities Exchange Act of 1934, File No. 0-9722. (3) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, under the Securities Exchange Act of 1934, File No. 0-9722. (4) Incorporated by reference to exhibits filed with the Company's Current Report on Form 8-K dated August 25, 1993, under the Securities Exchange Act of 1934, File No. 0-9722. 14 (5) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, under the Securities Exchange Act of 1934, File No. 0-9722. (6) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, under the Securities Exchange Act of 1934, File No. 0-9722. (7) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, under the Securities Exchange Act of 1934, File No. 0-9722. * Denotes management contract or compensatory plan, contract or arrangement required to be filed as an Exhibit to this Form 10-K. - -------------------- (b) No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 1993. (c) Exhibits - the response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial statement schedules - the response to this portion of Item 14 is submitted as a separate section of this report. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By Larry J. Laster Date: March 18, 1994 -------------------------- Larry J. Laster Executive Vice President, Chief Financial Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date ---- James W. Meadlock - ---------------------- Chief Executive Officer and March 18, 1994 James W. Meadlock Chairman of the Board (Principal Executive Officer) Larry J. Laster - ---------------------- Executive Vice President, Chief March 18, 1994 Larry J. Laster Financial Officer and Director (Principal Financial Officer) Nancy B. Meadlock - ---------------------- Executive Vice President March 18, 1994 Nancy B. Meadlock and Director Robert E. Thurber - ---------------------- Executive Vice President March 18, 1994 Robert E. Thurber and Director Roland E. Brown - ---------------------- Director March 18, 1994 Roland E. Brown Keith H. Schonrock, Jr. - ---------------------- Director March 18, 1994 Keith H. Schonrock, Jr. James F. Taylor, Jr. - ---------------------- Director March 18, 1994 James F. Taylor, Jr. John W. Wilhoite - ---------------------- Vice President and Controller March 18, 1994 John W. Wilhoite (Principal Accounting Officer) 16 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE II ---- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Column A Column B Column C Column D Column E -------------------- ---------- ---------- ------------------------ -------------------- Balance at end Deductions of period Balance at ------------------------ -------------------- Year ended beginning Amounts Amounts Not December 31, Name of debtor of period Additions collected written off Current current - ------------ --------------------- ---------- ---------- ---------- ----------- ---------- ------- 1993 James W. Meadlock (1) --- $2,502,000 --- --- $2,502,000 --- ========== ========== ========== =========== ========== ======= 1992 James W. Meadlock (2) --- $1,500,000 $1,500,000 --- --- --- ========== ========== ========== =========== ========== ======= 1991 Lewis S. Epstein (3) $475,000 --- $ 475,000 --- --- --- ========== ========== ========== =========== ========== =======
(1) Amount represents an unsecured promissory note receivable from Mr. Meadlock, who is Chief Executive Officer of the Company. Interest is charged at the prime rate. The loan is due in full by the earlier to occur of the date of sale of any common stock of the Company by Mr. Meadlock or May 20, 1994. This loan was executed under the provisions of the Executive Officer Loan Program. (2) Amount represented an unsecured promissory note receivable from Mr. Meadlock. The note was paid in full in 1992. Interest was charged at a rate of prime plus 2%. (3) Amount represented a non-interest bearing note receivable from Mr. Epstein, who was a Vice President of the Company. The note was a housing bridge loan secured by a mortgage on real estate. The note was paid in full in 1991. 17 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE V ---- PROPERTY, PLANT AND EQUIPMENT (In Thousands)
Column A Column B Column C Column D Column E Column F --------------------------------- ---------- --------------- ----------- ----------- ------------- For the year Balance at Balance at ended beginning Additions Other end December 31, Classification of period at cost (1) (2) Retirements changes (3) of period (4) - ------------ --------------------------------- ---------- --------------- ----------- ----------- ------------- 1993 Land and improvements $ 14,937 $ 70 $( 181) $ (233) $ 14,593 Buildings and improvements 143,477 6,249 ( 4,075) (2,619) 143,032 Equipment, furniture and fixtures 312,532 59,909 (47,371) (8,819) 316,251 ---------- --------------- ----------- ----------- ------------- Totals $470,946 $66,228 $(51,627) $(11,671) $473,876 ========== =============== =========== =========== ============= 1992 Land and improvements $ 14,932 $ 226 --- $( 221) $ 14,937 Buildings and improvements 137,165 12,836 $( 1,465) ( 5,059) 143,477 Equipment, furniture and fixtures 295,248 70,310 (38,627) (14,399) 312,532 --------- --------------- ----------- ----------- ------------- Totals $447,345 $83,372 $(40,092) $(19,679) $470,946 ========= =============== =========== =========== ============= 1991 Land and improvements $ 14,132 $ 787 --- $ 13 $ 14,932 Buildings and improvements 112,049 25,193 $( 103) 26 137,165 Equipment, furniture and fixtures 258,668 72,124 (34,603) ( 941) 295,248 --------- --------------- ----------- ----------- ------------- Totals $384,849 $ 98,104 $(34,706) $( 902) $447,345 ========= =============== =========== =========== =============
(1) Additions to equipment, furniture and fixtures in each year consist primarily of computer hardware manufactured by the Company and used in product development. (2) Non-cash additions consist of additions to a building at a cost of $7,246 through a long-term debt transaction in 1991. (3) Other changes consist primarily of changes in the reported dollar amounts of fixed assets held by international subsidiaries as the result of changes in currency translation rates. (4) As a part of changes in the Company's product, sales and manufacturing strategies, the Company will eliminate certain operations in phases over the course of 1994. Included in property, plant and equipment is $13.3 million in net book value of assets related to these operations, consisting primarily of $10.6 million in net book value of land and buildings comprising the Company's Netherlands manufacturing facility. The net book value of that facility approximates market value. The Company will sell or lease the facility. Certain reclassifications have been made to the previously reported 1991 and 1992 balances to provide comparability with the current year presentation. 18 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE VI ---- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (In Thousands)
Column A Column B Column C Column D Column E Column F --------------------------------- ---------- ------------ ----------- ----------- ------------ Additions For the year Balance at charged to Balance at ended beginning costs and Other end December 31, Description of period expenses (1) Retirements changes (2) of period (3) - ------------ ---------------------------------- ---------- ------------ ----------- ----------- ------------- 1993 Land and improvements $ 1,852 $ 154 --- --- $ 2,006 Buildings and improvements 29,525 6,619 $( 1,938) $ 720 34,926 Equipment, furniture and fixtures 192,562 58,643 (31,050) ( 7,642) 212,513 --------- ------------ ----------- ------------ ------------- Totals $223,939 $65,416 $(32,988) $( 6,922) $249,445 ========= ============ =========== ============ ============= 1992 Land and improvements $ 1,588 $ 264 --- --- $ 1,852 Buildings and improvements 25,364 6,189 $( 379) $( 1,649) 29,525 Equipment, furniture and fixtures 171,299 59,202 (29,196) ( 8,743) 192,562 --------- ------------ ----------- ------------ ------------- Totals $198,251 $65,655 $(29,575) $(10,392) $223,939 ========= ============ =========== ============ ============= 1991 Land and improvements $ 1,285 $ 303 --- --- $ 1,588 Buildings and improvements 20,670 4,674 $( 66) $ 86 25,364 Equipment, furniture and fixtures 138,163 53,943 (19,794) ( 1,013) 171,299 --------- ------------ ----------- ------------ ------------- Totals $160,118 $58,920 $(19,860) $( 927) $198,251 ========= ============ =========== ============ =============
(1) Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Asset lives range from three to thirty years. (2) Other changes consist primarily of changes in the reported dollar amounts of accumulated depreciation on fixed assets held by international subsidiaries as the result of changes in currency translation rates. (3) See Note 4 in Schedule V regarding operations to be eliminated. Certain reclassifications have been made to the previously reported 1991 and 1992 balances to provide comparability with the current year presentation. 19 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE VIII ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E - ----------------------------------- ----------- --------- ------------- ------------- Additions Balance at charged to beginning costs and Balance at Description of period expenses Deductions end of period - ----------------------------------- ----------- --------- ------------- ------------- Allowance for doubtful accounts deducted from accounts receivable in the balance sheet 1993 $18,969,000 6,201,000 4,379,000 (1) $20,791,000 1992 $18,720,000 4,457,000 4,208,000 (1) $18,969,000 1991 $16,040,000 5,829,000 3,149,000 (1) $18,720,000 Allowance for obsolete inventory deducted from inventories in the balance sheet 1993 $24,607,000 41,630,000 41,677,000 (2) $24,560,000 1992 $27,984,000 31,497,000 34,874,000 (2) $24,607,000 1991 $24,622,000 25,026,000 21,664,000 (2) $27,984,000
(1) Uncollectible accounts written off, net of recoveries. (2) Obsolete inventory reduced to net realizable value. 20 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE IX ---- SHORT-TERM BORROWINGS
Column A Column B Column C Column D Column E Column F --------------------- ------------- -------- ----------- ----------- -------- Weighted Maximum Average average Weighted amount amount interest Category of aggregate average outstanding outstanding rate short-term Balance at interest during during during borrowings end of period rate period period period --------------------- ------------- -------- ----------- ----------- -------- (2) (3) Year ended Amounts payable December 31, 1993: to banks (1) $6,896,000 8.1% $7,794,000 $1,443,000 9.6% Year ended Amounts payable December 31, 1992: to banks (1) --- --- $1,931,000 $ 228,000 10.9% Year ended Amounts payable December 31, 1991: to banks (1) $1,931,000 9.6% $3,356,000 $2,133,000 9.8%
(1) Represents financing arranged on behalf of an international subsidiary with repayment guaranteed by the parent company. (2) The average amount outstanding during the period was computed by dividing the total of month-end outstanding principal balances by 12. (3) The weighted average interest rate during the period was computed by dividing actual interest expense for the period by the weighted average amount outstanding during the period. 21 INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE X ---- SUPPLEMENTARY INCOME STATEMENT INFORMATION Column A Column B ----------------- -------------------- Charged to costs Item and expenses ----------------- -------------------- Amortization of intangible assets 1993 $20,072,000 1992 $12,800,000 1991 $ 9,168,000 Royalties 1993 $40,048,000 1992 $37,175,000 1991 $31,168,000 Advertising 1993 $10,609,000 1992 $10,800,000 1991 $11,826,000 22 EX-11 2 COMPUTATION OF EARNINGS (LOSS) PER SHARE INTERGRAPH CORPORATION AND SUBSIDIARIES EXHIBIT 11 ---- COMPUTATION OF EARNINGS (LOSS) PER SHARE
Year ended December 31, 1993 1992 1991 - -------------------------------------------- ------------- ------------- ------------- Primary: Weighted average common shares outstanding 46,199,000 47,616,000 47,646,000 Net common shares issuable on exercise of certain stock options (1) --- 404,000 785,000 ------------- ------------- ------------- Average common and equivalent common shares outstanding 46,199,000 48,020,000 48,431,000 ============= ============= ============= Income (loss) before cumulative effect of change in accounting for income taxes $(118,542,000) $ 8,442,000 $ 71,108,000 Cumulative effect of change in accounting for income taxes 2,500,000 --- --- ------------- ------------- ------------- Net income (loss) $(116,042,000) $ 8,442,000 $ 71,108,000 ============= ============= ============= Earnings (loss) per share: Income (loss) before cumulative effect of change in accounting for income taxes $(2.56) $ .18 $ 1.47 Cumulative effect of change in accounting for income taxes .05 --- --- ------------- ------------- ------------- Net income (loss) per share $(2.51) $ .18 $ 1.47 ============= ============= ============= Fully diluted: Weighted average common shares outstanding 46,199,000 47,616,000 47,646,000 Net common shares issuable on exercise of certain stock options (1) --- 404,000 811,000 ------------- ------------- ------------- Average common and equivalent common shares outstanding 46,199,000 48,020,000 48,457,000 ============= ============= ============= Income (loss) before cumulative effect of change in accounting for income taxes $(118,542,000) $ 8,442,000 $ 71,108,000 Cumulative effect of change in accounting for income taxes 2,500,000 --- --- ------------- ------------- ------------- Net income (loss) $(116,042,000) $ 8,442,000 $ 71,108,000 ============= ============= ============= Earnings (loss) per share: Income (loss) before cumulative effect of change in accounting for income taxes $(2.56) $ .18 $ 1.47 Cumulative effect of change in accounting for income taxes .05 --- --- ------------- ------------- ------------- Net income (loss) per share $(2.51) $ .18 $ 1.47 ============= ============= =============
(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. 23 EX-21 3 SUBSIDIARIES OF REGISTRANT INTERGRAPH CORPORATION AND SUBSIDIARIES EXHIBIT 21 ---- SUBSIDIARIES OF REGISTRANT
State or Other Percentage of Jurisdiction of Voting Securities Name Incorporation Owned by Parent - ----- ---------------- ----------------- Intergraph China, Inc. Delaware 100 Intergraph European Manufacturing, L.L.C. Delaware 100 Intergraph (Middle East), L.L.C. Delaware 100 Intergraph (Italy), L.L.C. Delaware 100 Quintus Corporation Delaware 100 Bentley Systems, Inc. Delaware 50 Bestinfo, Inc. Delaware 100 Intergraph Benelux B.V. The Netherlands 100 Intergraph CAD/CAM (Danmark) A/S Denmark 100 Intergraph CR spol.s.r.o. Czech Republic 100 Intergraph (Deutschland) GmbH Germany 100 Intergraph Espana, S.A. Spain 100 Intergraph Europe (Polska) S.p.z.o.o. Poland 100 Intergraph Finland Oy Finland 100 Intergraph (France) SA France 100 Intergraph GmbH (Osterreich) Austria 100 Intergraph Graphic Systems Russia 100 Intergraph (Hellas) S.A. Greece 100 Intergraph Hungary, Ltd. Hungary 100 Intergraph Ireland, Ltd. Ireland 100 Intergraph Norge A/S Norway 100 Intergraph (Portugal)-Sistemas de Computacao Portugal 100 Grafica, S.A. Intergraph (Sverige) AB Sweden 100 Intergraph (Switzerland) A.G. Switzerland 100 Intergraph (UK), Ltd. United Kingdom 100 Intergraph Corporation (N.Z.) Limited New Zealand 100 Intergraph Corporation Pty., Ltd. Australia 100 Intergraph Corporation Taiwan Taiwan, R.O.C. 100 Intergraph Graphics Systems Asia Pacific Limited Hong Kong 100 Intergraph Graphics Systems Hong Kong Limited Hong Kong 100 Intergraph Japan K.K. Japan 100 Intergraph Korea, Ltd. Korea 100 Intergraph Systems South-East Asia, (Pte.), Ltd. Singapore 100 Intergraph Wholesale Pty., Ltd. Australia 100 Intergraph Computer Services Industry & Trade, A.S. Turkey 97 Intergraph Saudi Arabia Ltd. Saudi Arabia 75 Intergraph Canada, Ltd. Canada 100 Intergraph de Mexico, S.A. de C.V. Mexico 100 Intergraph Servicios de Venezuela C.A. Venezuela 100 Intergraph (India) Pvt. Ltd. India 100 DAZIX (Israel) Ltd. Israel 100
24 EX-23 4 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 ---- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Intergraph Corporation and subsidiaries of our report dated January 28, 1994, included in the 1993 Annual Report to Shareholders of Intergraph Corporation. Our audits also included the financial statement schedules of Intergraph Corporation listed in Item 14(a)(2). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth herein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-10614) pertaining to the Intergraph Corporation Amended and Restated 1987 Employee Stock Purchase Plan dated December 31, 1992; in the Registration Statement (Form S-3 No. 33-25880) pertaining to the Stock Bonus Plan dated December 22, 1988; and in the Registration Statement (Form S-8 No. 33-35846) pertaining to the 1990 Employee Stock Option Plan dated July 12, 1990, and in the related Prospectuses, of our report dated January 28, 1994, with respect to the consolidated financial statements and schedules of Intergraph Corporation and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1993. /s/ Ernst & Young Birmingham, Alabama March 22, 1994 25 EX-10.C 5 EMPLOYMENT CONTRACT OF MANFRED WITTLER CONTRACT OF EMPLOYMENT VICE PRESIDENT SALES AND SUPPORT The undersigned: Intergraph France S.A. whose registered office is at: 95-105, Rue des Solets, 94653 Rungis Cedex, France referred to hereafter as Intergraph, and Dr. Manfred Wittler referred to hereafter as Mr. Wittler. HAVE AGREED AS FOLLOWS - ---------------------- 1. APPOINTMENTS ------------ As from April 1, 1991 Intergraph engages Mr. Wittler in the position of Vice President Sales and Support for the Republic of France for the part of his time not covered under the agreement between Intergraph European Manufacturing B.V. and Mr. Wittler and the agreement between Intergraph (Deutschland) GmbH and Mr. Wittler and the conditions hereinafter set out. Mr. Wittler declares to be free of any engagement to another employer with the exception of the two (2) mentioned above. 2. FUNCTIONS --------- The function of Mr. Wittler will include: That he carries out the expected role related to above position in a professional manner reflecting the responsibility of the post and that he acts as surveyor of the Managing Director ensuring Intergraph meets its statutory obligations and such management complies with the policies and directives established by Intergraph Corporation of Huntsville. Mr. Wittler reports directly to the President of Intergraph Corporation. 3. REMUNERATION ------------ Intergraph will pay Mr. Wittler a gross annual salary in the amount of FFR 240,000 (two hundred and forty thousand French Francs) to be paid in 12 equal monthly installments which are due on the last day of each month. Payment of the remuneration shall satisfy all claims for overtime and extra hours pay and includes a fixed amount for commissions on Intergraph sales in France of FFR 72,000. 4. POLICIES AND PROCEDURES ----------------------- Mr. Wittler will be required to adhere to company policies and procedures at all times during his employment with Intergraph. 5. EXPENSES -------- Intergraph will reimburse Mr. Wittler for reasonable and actual business expenses incurred in the execution of his position, in accordance with Intergraph policies and procedures. All claims must be substantiated and properly recorded. 6. VACATION ENTITLEMENT -------------------- Mr. Wittler's vacation rights under this Agreement are included in the 25 vacation days as mentioned in the agreement between Intergraph European Manufacturing B.V. and Mr. Wittler. 7. CONFIDENTIALITY --------------- Both during and after the currency of this Agreement Mr. Wittler shall treat as confidential all information with respect to the business and the interests of Intergraph and/or its affiliates and its parent company which has come to his knowledge during the performance of his duties. He will make restitution to Intergraph of all documents concerning Intergraph in his possession at the end of his employment with Intergraph. (for example lists, sketches, notes, drafts, prints etc. and copies of all these documents.) 8. COMPETITION ----------- In the event of the termination of this Agreement by either party, Mr. Wittler agrees not to associate himself in any manner, whether direct or indirect, with any company, organization or selfemployment operating in direct competition with Intergraph Corporation or its affiliates for a period of six (6) months following that termination provided that Intergraph compensates Mr. Wittler in accordance with article 3 of this Agreement for those 6 months. 9. STOCKHOLDING ------------ Mr. Wittler is required to declare all existing and future controlling stockholding interests by himself, or immediate family, in any company or organization operating in direct competition with Intergraph or its affiliates. 10. OTHER EMPLOYMENT ---------------- Mr. Wittler is not permitted to enter into any form of additional employment and/or side activities whilst this contract is in force except with any other Intergraph affiliate in Europe, without the express written permission of his immediate manager. 11. CURRENCY AND TERMINATION ------------------------ This Agreement may be terminated by either party per the end of a month with six (6) months written notification. 12. ILLNESS OR ACCIDENT ------------------- If, because of illness or accident, Mr. Wittler is not able to perform his duties, he must so inform Intergraph as soon as possible. During the first 12 month of Mr. Wittler's incapacity of work Mr. Wittler shall receive his monthly fixed remuneration in the amount of FFR 20,000 (twenty thousand French Francs). Intergraph is not bound to make any further payment. If and in so far with regard to illness or an accident of which Mr. Wittler is a victim Mr. Wittler has a claim against one or more thirds for damage for lost wages, Intergraph shall not be under an obligation to make payments to Mr. Wittler. In that case, Intergraph is bound to make these payments to Mr. Wittler by way of advance payment of damages. Mr. Wittler is to assign unto Intergraph his claim of damages to the amount of advance payments. Intergraph shall deduct the amount of the advance payments from the damages. 13. ASSISTANCE ---------- Mr. Wittler acknowledges his responsibility to ensure that he remains socially insured in Germany, also for income earned from non German Intergraph subsidiaries. In this respect Mr. Wittler can expect guidance from both Ernst & Young in Paris and the Intergraph European Tax Department in Hoofddorp, The Netherlands, but Intergraph can not accept any liability for Mr. Wittler's non compliance with any legal requirement in this respect. 14. GENERAL ------- This contract of employment supersedes any previous agreement, oral or written, between Mr. Wittler and Intergraph Corporation or any of its subsidiaries in respect of the subject matter hereof except the agreement between Intergraph European Manufacturing B.V. and Mr. Wittler as well as the agreement between Intergraph (Deutschland) GmbH and Mr. Wittler. No change of the provisions of this Agreement shall be binding unless in writing and signed by both parties. 15. PENSION/SOCIAL SECURITY ----------------------- Mr. Wittler has joined both the company pension plan of Intergraph (Deutschland) GmbH and the German social security system as outlined in the agreement between Intergraph (Deutschland) GmbH and Mr. Wittler and therefore Mr. Wittler has no pension rights or social security rights under this Agreement. 16. GOVERNING LAWS -------------- This Agreement will be subject to French law and Regulation of Employment. For and on behalf of Intergraph France S.A. - ------------------------- ------------------------- Mr. Jimmy Oebel Dr. Manfred Wittler Date: April 18, 1991 Date: April 18, 1991 ------------------ ----------------- EX-10.E 6 EMPLOYMENT CONTRACT OF HOWARD G. SACHS LETTER AGREEMENT February 8, 1993 Mr. Howard Sachs Dear Howard: This letter sets forth terms of employment between Intergraph and you, and, as noted below, supersedes and entirely replaces any previous contract, arrangement, or understanding you may have had with Intergraph, if any. 1. You will be the Executive Vice President of Engineering. Both Huntsville Engineering and APD will report to you. Any demotion, reduction in salary, or reassignment other than by mutual agreement will be considered as a termination. 2. The term of this agreement shall be for three (3) years, provided, however, that Intergraph may earlier terminate this agreement as a result of your willful misconduct, gross negligence, or a chemical or alcohol dependency which interferes with your ability to perform your duties. Intergraph may also earlier terminate your employment by giving you written notice of termination, and paying you a lump sum severance benefit equal to the aggregate salary which would otherwise be paid to you during the remaining term of this agreement. 3. You acknowledge and agree that you do not now have, nor will you obtain, any personal rights in software, copyrights, patents, or inventions which are either created by you, or under your direction, while you are an employee of Intergraph. You further agree to provide Intergraph with any assistance Intergraph may require from you in order to register, record, perfect, or otherwise secure Intergraph's rights in any such intellectual property or the rights associated therewith. 4. This agreement constitutes the entire agreement between Intergraph and you with respect to your employment, and it supersedes any prior contracts, arrangements, or understandings, if any, whether written or oral, between you and Intergraph with respect to your employment. 5. This agreement and your employment relationship with Intergraph shall be governed by the laws of the State of Alabama. Please acknowledge your acceptance of the terms of this letter offer by signing where indicated below. - ------------------------- ------------------------- James W. Meadlock Howard Sachs CEO Date: February 9, 1993 ---------------- EX-10.F 7 TERMINATION AGREEMENT WITH HOWARD G. SACHS CONFIDENTIAL Letter Agreement August 9, 1993 Mr. Howard G. Sachs Dear Howard: By executing this Letter Agreement ("Agreement"), you and Intergraph agree to be bound by each and every term of this Agreement, effective as of the date first set forth above (the "Effective Date"). Your execution of this Agreement also constitutes your acknowledgment, with the desire and expectation that Intergraph will rely on such acknowledgment, that you understand each and every term of this Agreement. Until you are separated from Intergraph you will perform your regular duties as an Executive Vice President of Intergraph and general manager of Intergraph's APD division. In addition, you may be required from time to time to meet and confer with Sun Microsystems Computer Corporation ("SMCC"), on Intergraph's behalf and as Intergraph's representative in connection with that certain Cooperative Development Agreement between Intergraph and SMCC (the "Cooperative Agreement"), for the purpose of advising Intergraph and SMCC regarding foundry operations, CAD technologies, and general microprocessor design and development; provided that such advisory activities shall not materially interfere with your regular duties as an Executive Vice President of Intergraph, including but not limited to serving as Intergraph's Executive Representative and Voyager II Project Manager under the Cooperative Agreement. 1. You and Intergraph agree that your employment relationship with Intergraph shall be terminated effective the date you become an employee of SMCC (such date, which as of the Effective Date is anticipated to be January 3, 1994, is hereinafter referred to as the "Separation Date"). From the Effective Date until the Separation Date, your weekly salary shall be three thousand, nine hundred and thirty-seven dollars ($3,937), and you shall be entitled to all benefits provided by Intergraph to regular full time employees. With respect to Intergraph's Employee Stock Bonus Plan, Incentive Stock Option Plan, and SavingsPlus Plan, and except as otherwise provided herein, you shall have the same rights as any other Intergraph employee prior to the Separation Date, and upon termination. 2. In consideration of your executing, being bound by, and complying with the terms of this Agreement, Intergraph shall compensate you, in the amounts and on the dates set forth in Schedule 2 (in each case, a "Compensation Payment") to this Agreement an aggregate amount equal to three thousand, five hundred and seventy-nine dollars ($3,579.00) multiplied by the number of full calendar weeks remaining from the Separation Date until February 8, 1996, plus a prorated amount reflecting any partial weeks remaining between the last such full calendar week and February 8, 1996 (the result of the foregoing calculation is hereinafter referred to as the "Separation Amount"), less the aggregate amount of any taxes or other amounts which Intergraph is legally obligated to withhold in connection with each Compensation Payment. You will not be entitled to receive interest as a result of the deferral of Compensation Payments in accordance with Schedule 2. 3. In consideration of Intergraph executing, being bound by, and complying with the terms of this Agreement, you hereby: (a) Release Intergraph, its directors, officers, employees, and agents from any and all claims you may have against any or all of them, whether now known or hereafter discovered, and whether suspected or unsuspected, attributable to, or arising out of or in connection with (i) your employment relationship with Intergraph or Fairchild Semiconductor, Inc.; (ii) that certain Letter Agreement dated February 8, 1993 (a copy of which is attached hereto for your reference - Exhibit 10(e) to Form 10-K) between you and Intergraph (the "February Agreement"); and (iii) the termination of your employment relationship with Intergraph and Fairchild Semiconductor, Inc., including but not limited to severance pay, and that you hereby expressly waive any and all rights granted to you under Section 1542 of the California Civil Code (Section 1542 of the Civil Code of California reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known by him, must have materially affected his settlement with the debtor"), or any analogous state law or federal law; and (b) Hold in confidence and not disclose under any circumstances, at any time, any proprietary or confidential information belonging to Intergraph or any party which has delivered proprietary and confidential information to Intergraph (unless such party consents to such disclosure), provided that you shall not be obligated to maintain the confidentiality of any information which is or becomes public, or which is discoverable through other proper means; and (c) Provide Intergraph with such assistance as Intergraph may reasonably request in connection with Intergraph's efforts to obtain, secure, or perfect rights in any of Intergraph's intellectual property, including but not limited to patents, trademarks, copyrights, and trade secrets, created on or before the Separation Date. 4. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, notwithstanding any conflicting law or public policy of any other state. This agreement may not be amended except in a writing executed by both you and Intergraph, and a waiver of the breach of any provision of this Agreement shall not constitute a waiver of any subsequent breach of the same or any other provision of this Agreement. 5. This Agreement shall be binding on and inure to the benefit of the respective successors, executors, heirs, representatives, administrators, and assigns of you and Intergraph. 6. This Agreement sets forth our entire and final understanding and agreement concerning all matters related to, arising out of, or in connection with the subject matter hereof, including but not limited to (i) your employment relationship with Intergraph Corporation, including but not limited to any matters concerning Intergraph as a successor to Fairchild Semiconductor, Inc., and (ii) the termination of that relationship. This Agreement supersedes any prior contracts, arrangements, or understandings, whether written or oral, between you and Intergraph, including but not limited to the February Agreement (which you and Intergraph hereby expressly agree is terminated and of no further force or effect), with respect to such matters. 7. Any controversy between you and Intergraph regarding the construction or application of this Agreement, or a claim arising out of or in connection with (i) this Agreement, (ii) a breach of this Agreement, (iii) your employment relationship with Intergraph or, to the extent Intergraph is implicated, your employment relationship with Fairchild Semiconductor, Inc., or (iv) the termination of your employment relationship with Intergraph or, to the extent Intergraph is implicated, your employment relationship with Fairchild Semiconductor, Inc. shall be submitted to arbitration at the written request of either party. Such arbitration shall be held under California Code of Civil Procedure Section 1280, et seq., as amended. Subject to proration of costs by the arbitrators, the costs of arbitration, including but not limited to reasonable attorneys' fees which are directly related to preparing for and conducting the arbitration proceeding, shall be borne by the losing party. Understood, Acknowledged, and Agreed: Intergraph Corporation - ------------------------------ -------------------------------- Howard G. Sachs John W. Wilhoite, Vice President CONFIDENTIAL Schedule 2 Date Amount ---- ------ Separation Date Separation Amount multiplied by one-eighth (1/8), less withheld taxes April 1, 1994 Separation Amount multiplied by one-eighth (1/8), less withheld taxes July 1, 1994 Separation Amount multiplied by one-eighth (1/8), less withheld taxes October 1, 1994 Separation Amount multiplied by one-eighth (1/8), less withheld taxes January 1, 1995 Separation Amount multiplied by one-half (1/2), less withheld taxes Howard G. Sachs Calculation of Separation Payment - --------------------------------- Aggregate payment - ----------------- $3,579 per week x no. of weeks from January 1, 1994 through February 8, 1996 # full weeks 1994 - 52 # full weeks 1995 - 52 # weeks in 1996 - 5.71 ------ 109.71 ====== $3,579 per week x 109.71 weeks = $392,652.09 total aggregate payment before tax withholding Payment schedule - ---------------- DATE AMOUNT --------------- ----------- January 1, 1994 $392,652.09 x .125 = $ 49,081.51 before tax withholding April 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding July 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding October 1, 1994 392,652.09 x .125 = 49,081.51 before tax withholding January 1, 1995 392,652.09 x .50 = 196,326.05 before tax withholding ----------- $392,652.09 =========== J. Wilhoite 1/5/94 EX-10.G 8 CONSULTING CONTRACT OF KEITH H. SCHONROCK CONSULTING CONTRACT This contract, made and entered into this 17th day of January, 1990, by and between Intergraph Corporation and Green Mountain, Inc. WITNESSETH: In consideration of the mutual covenants set forth herein, the parties hereto do hereby agree as follows: 1. Scope of Work ------------- Green Mountain, Inc. shall provide the services of Keith Schonrock as an independent contractor to perform tasks as assigned by Intergraph Executive Management. 2. Term ---- The term of this contract shall be from January 1, 1990 through December 31, 1990. 3. Termination ----------- Intergraph or Green Mountain, Inc. may terminate this contract at any time before December 31, 1990. In such event, Intergraph shall be liable only for services rendered prior to the effective date of termination. 4. Payment Schedule ---------------- Green Mountain, Inc. shall be paid monthly within 10 days of receipt of a properly approved invoice. Invoices shall be approved by Jim Meadlock, Eliott James or Larry Laster. A. Consulting fees shall be $5,000 per month. B. Travel expense, if any, shall be reimbursed under the Intergraph Travel Policy. 5. Terms and Conditions -------------------- The terms and conditions of Consulting Agreement dated January 17, 1990, attached hereto and by reference are made a part hereof. In witness whereof, the parties hereto have executed this contract as of the day and year first written above. Green Mountain, Inc. Intergraph Corporation By: Gerald F. Donovan By: Larry Laster -------------------- ------------------------ Title: President Title: Executive Vice President -------------------- ------------------------ CONSULTING CONTRACT NO. 1/17/90 --------------- CONSULTING AGREEMENT The terms and conditions set forth below establish further rights and obligations of the parties to this Contract. I. DEFINITIONS ----------- As used throughout this Contract, the following terms shall have the meanings set forth below unless otherwise indicated: A. The term "Government" means the United States Government or any department or agency thereof. B. The term "Intergraph" means Intergraph Corporation, acting through its duly authorized representative. C. The term "Consultant" means the individual, partnership, corporation, or association contracting to furnish the article(s) described in the Statement of Work. D. The word "articles" refers to the goods, products, supplies, parts, assemblies, technical data, drawings, services, or other items constituting the subject matter of this Contract which are to be furnished by Consultant to Intergraph hereunder. II. CHANGES ------- A. Intergraph may at any time, by a written change notice, i. make changes within the general scope of this Contract in drawings, designs, specifications, or statement of work; or ii. issue a suspension of work order. If a change notice issued hereunder causes an increase or decrease in the cost of performance or in the time required for performance, an equitable adjustment shall be made in the contract price and/or time of performance; and the Contract shall be modified in writing accordingly. Any claim for adjustment under this Section shall be deemed waived unless asserted within thirty (30) days from the date of receipt by the Consultant of the change notice provided, however, Intergraph, if it decides the facts justify such action, may receive and act upon any such claim asserted at any time prior to final payment under this Contract. CONSULTING CONTRACT NO. 1/17/90 --------------- B. Intergraph's engineering and technical personnel may, from time to time, render assistance or give technical advice to or effect an exchange of information with Consultant's personnel in a liaison effort concerning the work to be performed hereunder. However, such advice or exchange of information shall not vest Consultant with the authority to change the provisions of the Contract or impose liability therefor, nor shall any change in the provisions of the Contract be binding upon Intergraph unless issued as a change in accordance with Paragraph "A" above. C. Changes beyond the scope of work hereof shall be by mutual agreement and evidenced by Amendment in writing hereto. III. INTERGRAPH PROPERTY ------------------- A. Intergraph will deliver to the Consultant, for use in connection with and under the terms of the Contract only, such Intergraph property as may be described in this Contract, its exhibits or specifications, together with such related data and information as may reasonably be required for the intended use of such property (hereinafter referred to as "Intergraph Furnished Property"). In the event Intergraph Furnished Property is received by the Consultant in a condition not suitable for the intended use, the Consultant shall, upon receipt thereof, notify Intergraph of such fact and, as directed by Intergraph, either: i. return such property at Intergraph's expense or otherwise dispose of the property, or ii. effect repairs or modifications. B. Title to all property furnished under the provisions of this Section shall remain in Intergraph. All property furnished by Intergraph shall be segregated when not in use. C. Upon receipt of Intergraph furnished property from a source other than Intergraph, the Consultant shall forward to Intergraph a signed packing slip receipt, together with such other forms as may be required by Intergraph, evidencing certain material has been received. These documents shall show the total amount of material received in any one shipment, the amount accepted, the amount rejected, and such other information as Intergraph shall request. D. The Consultant shall be liable for loss or destruction of or damage to Intergraph property in its possession or control; and shall return all such property in as good condition as when received, except for reasonable wear and tear or for the utilization of the property in accordance with the provisions of this Contract. IV. ASSIGNMENT ---------- No contract shall be made by Consultant for performing all or any portion of the work hereunder without Intergraph's express written approval. Monies due hereunder may be assigned upon furnishing Intergraph a copy of the assignment agreement and obtaining Intergraph's written consent thereto. CONSULTING CONTRACT NO. 1/17/90 --------------- V. HANDLING OF CLASSIFIED INFORMATION ---------------------------------- Consultant acknowledges this Contract may involve the handling and the creation of Security classified material and represents and warrants all of the Consultant's personnel having, or who are to have access thereto, understand the "Industrial Security Manual for Safeguarding Classified Information" and the Federal Espionage Acts, Title 18, U.S. Code. Consultant Security Type A, B, or C is as specified in the Consulting Contract, Section I - Scope of Work. Type A - The Consultant shall not possess classified material except at the Intergraph facility, on the premises of a User Agency, or while on authorized visits. The Consultant and all of the Consultant's employees who shall have access to classified information shall jointly, with Intergraph, prepare a certificate security agreement in accordance with Section VII of the "Industrial Security Manual for Safeguarding Classified Information". Type B - The Consultant possesses classified material at his place of business or residence, the Consultant having full responsibility for security of the classified material. The Consultant acknowledges he has executed a Department of Defense Security Agreement (DD Form 441) which is in effect on the date of this Contract and his conduct in performance of this Contract shall be guided by and in accordance with the above referred to Industrial Security Manual and Agreement. Type C - The Consultant possesses classified material at his regular employer's cleared facility, the Consultant and his employer having agreed as to their respective responsibilities for security of classified material. The Consultant acknowledges he and his regular employer have jointly executed a Letter Agreement to Safeguard Classified Information for an Employee Performing Consultant Services in accordance with Section VII of the above referred to Industrial Security Manual. VI. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT ----------------------------------------------------------------- A. Consultant shall report to Intergraph, promptly and in reasonable written detail, each notice or claim of patent infringement, copyright infringement, or invasion of any right of privacy of which Consultant has knowledge and which is based on the performance of this Contract. B. In the event of litigation against Intergraph or its customer(s) on account of any claim of patent infringement, copyright infringement, or invasion of any right of privacy arising out of the performance of this Contract or out of the use of any supplies furnished or work or services performed hereunder, the Consultant shall furnish to Intergraph, upon request, all evidence and information in possession of the Consultant pertaining to such litigation. CONSULTING CONTRACT NO. 1/17/90 --------------- VII. PATENT RIGHTS AND "SUBJECT DATA" -------------------------------- This Section shall be void in the event this Contract is placed under or pursuant to a Government Prime Contract. A. As used in this Section, the following terms shall have the meaning set forth below: 1. The term "Subject Data" means all data, including matters of fact and theory, which relate to the objectives of this Contract and which are considered pertinent to such objectives, and other conceptual matters developed in the course of performance of the tasks of the Statement of Work hereof, and particularly such data which was not or was believed not to be within the state-of-the-art whether or not such data is patentable or copyrightable. 2. The term "Subject Invention" means any invention, improvement, or discovery conceived or first actually reduced to practice either: i. in the performance of the work called for or required under this Contract, or ii. in the performance of any work relating to objectives of this Contract which was done upon an understanding in writing that a Contract would be awarded provided, however, the term "Subject Invention" shall not include any invention, improvement, or discovery which is specifically identified and listed in the Statement of Work or Schedule of this Contract excluding it from the rights granted by this Section. B. Consultant shall deliver to Intergraph full disclosure of all Subject Data and Subject Inventions made or conceived in the course of performance of this Contract whether made or conceived solely by Consultant or jointly with others and specifically, such Subject Data and Subject Inventions 1. which are along the lines of business, work, or investigations of Intergraph or of divisions or affiliates which Intergraph owns or controls; or 2. which result from or are suggested by any work which Consultant performed for or on behalf of Intergraph under this Contract. Such disclosures shall be made or deemed to have been made with complete and exclusive grant of all right, title, and interest in and to any and all Subject Data and Subject Inventions and Consultant disclaims any property and claim to such Subject Data or Subject Inventions; any such Subject Data and Subject Inventions disclosed to Intergraph under this Section are to be and remain the sole and exclusive property of Intergraph, its customers, its assigns, or others claiming under Intergraph whether or not such Subject Data or Subject Inventions are patentable or copyrightable. CONSULTING CONTRACT NO. 1/17/90 --------------- C. Consultant shall assist Intergraph, its customers, its assigns, or others claiming under Intergraph during and subsequent to the term of this Contract, in every reasonable way to obtain for Intergraph, its customers, its assigns, or others claiming under Intergraph, patents for such Subject Inventions in any and all countries. D. Consultant shall make and maintain adequate and current written records of all such Subject Data and Subject Inventions in the form of notes, sketches, drawings, and reports relating thereto, which records shall be and remain the property of and available to Intergraph, its customers, its assigns, or others claiming under Intergraph. E. Intergraph shall, with regard to Subject Data and Subject Inventions originated in performance of this Contract, undertake at its expense to secure any and all patents and copyrights as Intergraph shall deem necessary. F. Consultant shall and does hereby assign to Intergraph the entire right, title, and interest in and to any and all inventions, improvements, discoveries, and copyrightable material discovered or generated by Consultant, whether solely or jointly with others, in the performance of this Contract. VIII. PATENT INDEMNITY ---------------- Consultant hereby agrees to indemnify and save harmless Intergraph, its employees, customers, assigns, and others claiming under Intergraph from liability for any actual or alleged patent infringement by reason of any manufacture, use, or sale of any items manufacturable from reports, drawings, blueprints, data, or technical information delivered by Consultant under this Contract. Such liability shall include, but is not limited to, damages, costs, fees, and expenses. IX. REPRODUCTION OF DATA -------------------- Consultant agrees to and does hereby grant to Intergraph the right to reproduce, use, disseminate, and dispose of all or any part of the reports, drawings, blueprints, data, and technical and other information delivered to Intergraph in the performance of this Contract, and all such reports, drawings, blueprints, data and technical and other information shall be and become the property of Intergraph, its customers, its assigns, or others claiming under Intergraph. X. LIABILITY FOR REPRODUCTION OF DATA ---------------------------------- The Consultant shall indemnify, save and hold harmless Intergraph, its officers, agents, employees and customers against any liability including costs and expenses A. for violation of proprietary rights, copyrights, or right of privacy, arising out of the publication, translation, reproduction, delivery, performance, use, or disposition of any data furnished under this Contract; or B. based upon any libelous or other unlawful matter contained in such data. CONSULTING CONTRACT NO. 1/17/90 --------------- XI. NON-DISCLOSURE -------------- A. Consultant hereby agrees not to disclose at any time except as Consultant's duties under this Contract may require, either during or subsequent to the term of this Contract, any information, knowledge, or data of Intergraph which Consultant may receive during the course of this Contract, relating to chemical formulae, business processes, methods, machines, manufacture, compositions, inventions, discoveries, or other matters which are of a proprietary or trade secret nature. B. Consultant hereby agrees to maintain in secrecy all information or knowledge concerning or relating to Intergraph's projects obtained in the performance of this Contract whether or not such information or knowledge directly relates to the work performed pursuant to this Contract. C. No release of any information, or confirmation or denial of same with respect to this Contract or subject matter thereof, will be made without the prior coordination and express written approval of Intergraph. This includes, but is not limited to, advertisements, brochures, and the like. Any information submitted for approval of release to the public in accordance with Section 1, Paragraph 5c, "Industrial Security Manual for Safeguarding Classified Information" will be submitted through Intergraph. D. Upon completion of work by Consultant under this Contract, Consultant shall return to Intergraph all classified information furnished by Intergraph in connection herewith, including all reproductions thereof then in Consultant's possession or control, and Consultant shall surrender all classified information or material developed by Consultant in connection with this Contract unless the information has been destroyed or the retention of the information is authorized in writing by Intergraph or the Government. XII. RULES AND REGULATIONS --------------------- A. It is understood the Consultant and Consultant's employees are not employees of Intergraph and are not entitled to any Intergraph employee benefits or privileges. B. All employees of the Consultant shall, however, be subject to the applicable rules and regulations governing Intergraph employees while on Intergraph premises. C. Consultant shall not assign to performance of work or providing of services under this Contract any personnel who are not bona fide employees of Consultant. XIII. CONSULTANT'S EMPLOYEES ---------------------- Intergraph shall have the right to require Consultant to remove from the site of the work such employees as Intergraph may deem incompetent, careless, or otherwise unsatisfactory for the performance of work on Intergraph's premises. CONSULTING CONTRACT NO. 1/17/90 --------------- XIV. INDEMNITY - DAMAGES TO PERSONS AND PROPERTY ------------------------------------------- Consultant shall be responsible for and hereby agrees to indemnify and save harmless Intergraph, its employees, its customers, its assigns, its contractors, and others under Intergraph from any and all damages to person or property arising from or connected with its performance of this Contract and for any liability of whatsoever nature arising out of Consultant's negligence or misconduct. XV. SET-OFF ------- Intergraph shall be entitled at all times to set-off any amount owing at any time from Consultant to Intergraph against any amount payable at any time by Intergraph in connection with this Contract. XVI. BANKRUPTCY ---------- Either party may terminate this Contract in the event of the appointment of a trustee, receiver, or liquidator for all or a portion of the property of the other party or of any act of bankruptcy by the other as defined in Section 3 of the Bankruptcy Act as amended, or of any voluntary petition in bankruptcy by the other, and such termination shall be without further obligation to the other except payment of obligations incurred in performance of this Contract prior to any of the foregoing occurrences. XVII. WAIVER ------ Intergraph's failure in any one or more instances to insist upon strict performance of any of the terms or provisions of this Contract or to exercise any option herein conferred shall not be construed as a waiver or relinquishment, to any extent, of the right to assert or reply upon such terms or provisions or option in or with respect to any other instance whether effective or occurring prior or subsequent to the instance(s) for which strict performance was not required or option exercised. XVIII. CONSTRUCTION ------------ This Contract shall be governed by, subject to, and construed according to the laws of the State of Alabama. The Consultant will comply with all applicable Federal, State and Local Laws. XIX. RECORDS ------- Consultant agrees Intergraph or any of its duly authorized representative shall, until the expiration of three (3) years after final payment under this Contract, have access to and the right to examine any directly pertinent books, documents, papers, and records of the Consultant involving transactions related to this Contract. CONSULTING CONTRACT NO. 1/17/90 --------------- XX. REPORT OF ACCIDENT, INJURY, OR ILLNESS -------------------------------------- A. Consultant shall immediately report to Intergraph any illness resulting from work site conditions or any accident or injury to any of Consultant's employees on premises owned, occupied, or controlled by Intergraph. Consultant shall make the initial report to Intergraph by telephone. When the accident, illness, or injury is of the type which requires the Consultant to file SF 1 under Workmen's Compensation, Consultant shall submit a copy of SF 1 to Intergraph. Otherwise, Consultant shall complete such report forms as Intergraph may reasonably require. Upon request by Intergraph, Consultant shall require its employees who have any information concerning such illness, accident, or injury to furnish written statements. B. The Consultant shall impose the requirements of this clause on subcontractors of any tier performing under Consultant. GREEN MOUNTAIN, INC. CONSULTING CONTRACT AMENDMENT NUMBER THREE The consulting contract between Intergraph Corporation and Green Mountain, Inc. dated January 17th 1990 is hereby extended through December 31, 1993. Green Mountain, Inc. Intergraph Corporation By: Keith Schonrock By: Larry Laster ------------------------ ------------------------ Title: Vice President Title: Executive Vice President ------------------------ ------------------------ EX-10.H 9 AGREEMENT BETWEEN INTERGRAPH AND GREEN MOUNTAIN AGREEMENT --------- This Agreement is between Intergraph Corporation and Green Mountain, Inc. d.b.a. UNIGLOBE Green Mountain Travel ("UNIGLOBE"). GENERAL - ------- It is a primary objective of Intergraph to maximize its control over the procurement of its business-travel arrangements and minimize its cost of business travel. It is a primary objective of UNIGLOBE to maximize its revenue from handling the personal travel of Intergraph employees. SCOPE - ----- This Agreement covers business and personal travel arrangements made by the employees and spouses of Intergraph Corporation or any of its subsidiaries. Intergraph has the exclusive right to include or exclude other companies, subsidiaries, divisions, affiliates, associates or employee groups. DEFINITIONS - ----------- "ARC" means the Airlines Reporting Corporation. "IATA" means the International Air Transport Association and "IATAN" means the International Airlines Travel Agent Network. DEDICATED FACILITIES - -------------------- It is a primary objective of Intergraph to process as much of its travel arrangements as is practical, at its discretion, through facilities dedicated to Intergraph, including exclusive pseudo-city codes and ARC/IATA numbers. UNIGLOBE will cooperate fully in assisting Intergraph in achieving this objective. UNIGLOBE will maintain a fully-appointed (as defined herein), full-service (as defined by ARC) travel agency on the premises of Intergraph in Huntsville, Alabama. This location will serve as the primary point of contact for all Intergraph employees wishing to make business-travel arrangements. UNIGLOBE Green Mountain Travel must be kept separate and distinct from any other Green Mountain, Inc. travel agencies and must be dedicated to serving Intergraph and others specifically authorized by Intergraph. This will not prohibit service by UNIGLOBE Green Mountain Travel to the general public. UNIGLOBE may be required, at the request of Intergraph, to establish certain Remote Ticketing Branch locations as needed to meet the travel document distribution requirements noted herein. Unless otherwise agreed, all Remote Ticketing Branches will be satellite ticket printer (STP) locations (as classified by ARC) and are to be used exclusively for Intergraph. AGREEMENT - --------------------------------------------------------------- ARC/IATA APPOINTMENTS - --------------------- UNIGLOBE must maintain in good standing all ARC and IATA appointments at each location servicing Intergraph throughout the term of the Agreement and Intergraph will cooperate fully in these efforts. Intergraph will permit reasonable access to its premises by authorized representatives of ARC, IATAN, and the airlines for the purposes of verifying that UNIGLOBE and Intergraph are in full compliance with all applicable rules and regulations of these entities. If this Agreement is terminated for any reason, and Intergraph so requests, UNIGLOBE will use its best efforts to assist in transferring the ARC and IATA appointments to Intergraph or its designee. UNIGLOBE will use its best efforts to secure and maintain approval from all major domestic and international airlines and Amtrak to issue their tickets, with full commissions (unless otherwise negotiated by Intergraph), at all UNIGLOBE locations servicing Intergraph. ARC ADMINISTRATION - ------------------ Intergraph will be responsible for the weekly processing of all ARC coupons and ARC Sales reports as well as the timely reconciliation of ARC Area Settlement Bank reports for all transactions at UNIGLOBE Green Mountain Travel. AUTOMATION - ---------- UNIGLOBE will provide Intergraph with a computerized reservations system ("CRS") acceptable to Intergraph to facilitate the booking of airline, ground transportation, lodging and related travel arrangements and the generation of necessary travel documents. UNIGLOBE will also provide a comprehensive, automated accounting and travel-information management system ("Back-Office System") acceptable to Intergraph to facilitate ARC administration and the generation of the management-information reports defined by Intergraph. The CRS and Back-Office System must be compatible, and fully interfaced with each other. Intergraph reserves the right to request a conversion of the primary CRS used by UNIGLOBE in support of the Intergraph account if, in its sole discretion, such a conversion would result in a substantial material benefit to Intergraph. UNIGLOBE will cooperate fully in such a conversion, including using its best efforts to minimize any costs assessed by the outgoing CRS vendor and, at the request of Intergraph Travel Services, negotiating favorable terms and conditions with the incoming CRS vendor. All discounts, credits or incentives received by UNIGLOBE from the CRS vendor(s) for CRS equipment, software, maintenance, and services must be disclosed to Intergraph Travel Services and will be used to offset the costs associated with servicing the Intergraph account. In the event that this Agreement is terminated by either party, Intergraph reserves the right, with the concurrence of the CRS vendor(s), to retain the reservations system(s) equipment, and all Intergraph data associated with the system, and to assume responsibility for any payments for the remaining lease term. 2 AGREEMENT - --------------------------------------------------------------- OWNERSHIP OF DATA - ----------------- UNIGLOBE agrees that Intergraph owns all data from reservations, ticketing, and billing of Intergraph travel arrangements and that Intergraph, or its authorized third party, will be given complete and unrestricted access to such data. In the event that this Agreement is terminated by either party, UNIGLOBE will immediately provide to Intergraph all detail and summary data relative to Intergraph's travel activity stored in computer system(s) provided by UNIGLOBE. STAFFING/PERSONNEL - ------------------ UNIGLOBE will designate a single, qualified employee, acceptable to Intergraph, to act as the manager of UNIGLOBE Green Mountain Travel. This individual must meet all "management" and "ticketing" requirements for ARC and IATA accreditation. Intergraph will be responsible for staffing UNIGLOBE Green Mountain Travel with qualified personnel in sufficient numbers to handle all reservations, ticketing, support and accounting functions required in support of the Intergraph account. INDEPENDENT CONTRACTOR - ---------------------- Intergraph and UNIGLOBE agree that all work performed by either under this Agreement will be performed by each as an independent contractor and not as the employee, agent or representative of the other. Neither party will represent itself as an employee, agent or representative of the other when dealing with any third party. Neither party will have the authority to bind the other to any agreement with any third- party without the prior written authorization of the other party. VENDOR NEGOTIATIONS - ------------------- Intergraph has the primary responsibility for the negotiation of discount and value-added products and services for its travelers. UNIGLOBE and Intergraph will advise each other whenever their combined purchase volumes might be leveraged to produce significant savings to Intergraph. UNIGLOBE will not pledge, or otherwise commit, any of Intergraph's travel activity for the purpose of obtaining volume discounts from travel vendors without the prior, written approval of Intergraph. Intergraph retains the right to negotiate discounts, reduced fares, credits, restriction waivers, and the like directly with airline carriers, and UNIGLOBE will cooperate fully with Intergraph and airline(s) in the negotiation and implementation of such discounts. RIGHTS TO REVENUE - ----------------- UNIGLOBE and Intergraph agree that all revenue, including overrides, generated as a result of Intergraph's business travel and travel-related activities belongs to Intergraph and will be retained by Intergraph to offset its direct and indirect costs associated with managing its business travel. Revenue generated by international travel will be used exclusively to offset Intergraph's costs and reimbursements to UNIGLOBE as outlined herein. 3 (PAGE> AGREEMENT - --------------------------------------------------------------- Revenue generated as a result of the leisure or personal travel of Intergraph employees or others booked directly with UNIGLOBE will be retained by UNIGLOBE to offset its direct and indirect costs associated with providing these services. OVERRIDES/REVENUE ENHANCEMENTS - ------------------------------ Intergraph and UNIGLOBE acknowledge that certain revenue will accrue to UNIGLOBE in the form of overrides, bonuses, credits, tickets or other revenue enhancements from the travel suppliers used by Intergraph and its business travelers. As noted above, all such revenue, regardless of form, belongs to Intergraph and will be retained by Intergraph to offset its direct and indirect costs associated with managing its business travel. From time to time, Intergraph may not be able to utilize certain non-cash revenue enhancements, including tickets. At the sole discretion of Intergraph Travel Services, unused tickets, credits, vouchers or similar non-cash benefits may be made available to UNIGLOBE. Such situations will be dealt with by Intergraph and UNIGLOBE on a case-by-case basis. Each case, however, must be documented in writing by the parties. Intergraph and UNIGLOBE agree that free or reduced-rate airline tickets (exclusive of award tickets earned from individual participation in incentive programs) will not be used by any Intergraph employee or their immediate family for leisure or personal travel. FULL DISCLOSURE - --------------- UNIGLOBE will make full disclosure of all revenue, regardless of its source, and operating costs associated with Intergraph's travel activity. FIDUCIARY RELATIONSHIP - ---------------------- UNIGLOBE agrees that it has entered into a fiduciary relationship with Intergraph with respect to all financial obligations and responsibilities assumed by UNIGLOBE under the Agreement. UNIGLOBE will maintain separate, complete and accurate accounting records relating solely to Intergraph's business. These records must be available for inspection in Huntsville, Alabama by Intergraph or its representative(s). FINANCIAL AUDITS - ---------------- Intergraph, or its authorized representative, will have the right to perform periodic financial/accounting audits, and to review, in the course of any such audit, any of UNIGLOBE's data, documents, records, worksheets, systems, standards, procedures, or practices related to the Agreement. UNIGLOBE must provide Intergraph its full cooperation and any assistance reasonably required to facilitate said audit. RECEIPT OF REVENUE - ------------------ All receipts from the cash sales of airline tickets, or other services, and all airline, ground services, and other commissions or revenue earned as a result of Intergraph's travel activity booked through UNIGLOBE Green Mountain Travel received directly by UNIGLOBE will be held in trust by UNIGLOBE for distribution as agreed herein. 4 AGREEMENT - --------------------------------------------------------------- All receipts from the cash sales of airline tickets, or other services, and all airline, ground services, and other commissions or revenue earned as a result of Intergraph's travel activity booked through UNIGLOBE Green Mountain Travel received at UNIGLOBE Green Mountain Travel will be endorsed over to Intergraph Corporation and deposited into the account of its choice. UNIGLOBE and Intergraph will mutually agree on the administrative details of handling the accounting of all revenue, including the establishment of procedures to insure that UNIGLOBE is funded in a timely manner for all authorized operating expenses associated with servicing the Intergraph account. PAYMENTS TO INTERGRAPH - ---------------------- Within fifteen (15) calendar days after the close of each month, UNIGLOBE will submit to Intergraph a check, payable to Intergraph, in an amount equal to all revenue received directly by UNIGLOBE during the month as a result of Intergraph's business travel activity booked through UNIGLOBE Green Mountain Travel. In addition, UNIGLOBE will provide Intergraph with sufficient information to reconcile the payment. ALLOWABLE EXPENSES - ------------------ The only expenses reimbursable by Intergraph under this Agreement are as follows: (a) Direct labor by UNIGLOBE employees at the rate mutually agreed upon by the parties, provided the work was requested by Intergraph's Senior Manager, Travel Services. (b) The monthly UNIGLOBE franchise fee to be calculated in accordance to the attached Exhibit A. (c) Charges for any authorized supplemental services outside the scope of the Agreement and requested by Intergraph's Senior Manager, Travel Services, in writing, during the period. (d) Costs of business insurance, operating licenses and taxes, including property taxes, paid by UNIGLOBE and directly attributable to the support of the Intergraph account. UNIGLOBE will use its best efforts to minimize all such costs. (e) All costs for CRS equipment used by UNIGLOBE in support of the Intergraph account, including all hardware, software, data lines, modifications and interface charges, as provided in the CRS agreements in place at the time of this Agreement. (f) All fees associated with the off-site storage of ARC/IATA accountable documents. PAYMENTS TO UNIGLOBE - -------------------- Intergraph will, within fifteen (15) calendar days after receipt of an original invoice, make payment to UNIGLOBE for any authorized and allowable expenses incurred by UNIGLOBE. UNIGLOBE will provide Intergraph with sufficient information to reconcile the invoice. 5 AGREEMENT - --------------------------------------------------------------- LEISURE/PERSONAL TRAVEL - ----------------------- UNIGLOBE will establish and maintain a leisure-travel office, staffed by UNIGLOBE personnel, on Intergraph's premises in Huntsville, Alabama. All requests received by Intergraph Travel Services from Intergraph employees to handle vacation/leisure-travel arrangements will be referred to this office. No major corporate or group accounts are to be serviced from this office without the prior authorization of Intergraph Travel Services. UNIGLOBE will be responsible for developing various discounted leisure-travel and vacation packages for Intergraph employees. Intergraph agrees to cooperate fully with UNIGLOBE Madison Travel in promoting these packages to Intergraph employees, provided that all such promotion efforts are in compliance with Intergraph policy. The leisure-travel office at Intergraph will use its best efforts to assist Intergraph customers and consultants visiting Huntsville with any changes or new reservations that they may require. Such assistance will be provided even if it does not generate any revenue to UNIGLOBE. During the term of this agreement, no other travel agency will be granted access to Intergraph offices in Huntsville for the purpose of soliciting leisure, personal or vacation travel from Intergraph employees. Rent and Utilities. - ------------------ Intergraph will provide UNIGLOBE with sufficient office space on Intergraph's premises in Huntsville, Alabama. All costs associated with the ongoing use of the space will be the responsibility of Intergraph. All furnishings and office equipment will be the responsibility of UNIGLOBE. Telecommunications. - ------------------ Intergraph will provide UNIGLOBE with a single telephone line for access to the Intergraph telephone network. This line must be used exclusively for communication with Intergraph employees. Unless otherwise agreed, all telephone instruments and related hardware and any external telephone lines will be the responsibility of UNIGLOBE. NON-DISCLOSURE - -------------- This Agreement is confidential. Neither party will disclose the existence of this Agreement or any of its terms or conditions without the other's prior written consent. PUBLICITY - --------- UNIGLOBE agrees to submit to Intergraph all advertising, sales promotion, press releases and other publicity matters relating to the services performed by UNIGLOBE under this Agreement wherein Intergraph's names or marks are mentioned or language from which the connection of said names or marks therewith may be inferred or implied and UNIGLOBE further agrees not to publish or use such advertising, sales promotion, press releases, or publicity matters without Intergraph's written approval. 6 AGREEMENT - --------------------------------------------------------------- TERM AND TERMINATION - -------------------- This Agreement is effective as of September 1, 1992 and will continue until December 31, 1995. Either party may terminate this Agreement upon ninety days written notice to the other. Any termination of this Agreement will be without prejudice to any outstanding rights or obligations. CONTINUITY OF SERVICE - --------------------- UNIGLOBE recognizes that the services provided under this Agreement are vital to Intergraph's overall effort, that continuity must be maintained without interruption, that upon expiration of this Agreement a successor -- either Intergraph or another vendor -- may continue these services, and that UNIGLOBE must give its best efforts and cooperation to effect an orderly and efficient transition to a successor. UNIGLOBE will be reimbursed for all reasonable transition costs provided those costs are incurred within an agreed transition period after expiration of the Agreement and authorized, in writing, by Intergraph. NOTICES - ------- Notices and other correspondence related to the Agreement should be directed to the parties by facsimile, telegraph, first-class mail (postage), or personal delivery, as follows: TO THE COMPANY TO THE AGENCY -------------- ------------- Senior Manager, Travel Services President Mail Stop IW2002 Green Mountain, Inc. Intergraph Corporation Suite 114 Huntsville, Alabama 35894-0004 900 Bob Wallace Avenue Huntsville, Alabama 35801 FAX: 205-730-9465 FAX: 205-536-5942 ENTIRE AGREEMENT - ---------------- The Agreement constitutes the entire understanding between Intergraph and Green Mountain, Inc. relating to the subject hereof and supersedes all prior communications on the subject. Any further modification of the Agreement must be in writing and executed by both parties. For: Green Mountain, Inc. For: Intergraph Corporation ------------------------- ------------------------------- Gerald F. Donovan H. Richard Chew, Jr. President Senior Manager, Travel Services Date: February 23, 1994 Date: February 24, 1994 ------------------ ------------------ 7 AGREEMENT - --------------------------------------------------------------- EXHIBIT A UNIGLOBE SERVICE-FEE CALCULATION For the term of this Agreement, the UNIGLOBE Service Fee paid by Intergraph to UNIGLOBE will be calculated as follows: (i) On the first $31,920.00 of gross income, ten percent (10%) (ii) On the next $31,920.00 of gross income, seven percent (7%) (iii) On the next $21,281.00 of gross income, five percent (5%) (iv) On the balance over $85,121.00 of gross income, two percent (2%) For the purpose of calculating this Service Fee, "gross income" is defined as all commissions or other cash revenue received by UNIGLOBE Green Mountain Travel as a result of Intergraph's travel activity booked through UNIGLOBE Green Mountain Travel. Bonuses, credits, discounts, incentives, or reimbursements paid directly to Intergraph by service providers will not be included in the calculation of gross income. 8 EX-13 10 1993 ANNUAL REPORT TO SHAREHOLDERS FIVE-YEAR FINANCIAL SUMMARY (In thousands except per share amounts)
1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- -------- Revenues $1,050,277 $1,176,661 $1,195,378 $1,044,617 $860,062 Restructuring charges 89,806 4,418 --- --- --- Net income (loss) (116,042) 8,442 71,108 62,557 79,502 Net income (loss) per share (2.51) .18 1.47 1.28 1.48 Working capital 348,756 430,974 502,152 443,272 414,398 Total assets 855,329 986,663 996,615 907,460 808,026 Long-term debt 17,541 19,759 23,413 16,891 7,069 Shareholders' equity 588,710 736,863 754,994 682,272 629,759
Inside Front Cover Page Pages 1 through 7 contain the President's Letter and certain marketing literature. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SUMMARY. The Company lost $2.51 per share in 1993 versus earnings of $.18 and $1.47 per share in 1992 and 1991, respectively. The loss in 1993 was the result of a decline in systems revenue, a decline in gross margin, and restructuring expenses. The earnings decline in 1992 was the result of a substantial decline in income from operations and foreign exchange losses. After growth in systems revenue of 12% for 1991, systems revenue declined by 8% in 1992 and by 15% in 1993. The Company attributes the decline in systems revenue to transition in its products and to weak economic conditions in the U.S. in 1992 and in the U.S. and Europe in 1993. In addition to the revenue decline, systems gross margin declined 1.9 points in 1992 and 8.8 points in 1993, due to lower sales volume, discounting of older products pending availability of new products, and continuing industry product performance and price competition. Over the same three year period, the Company reduced growth in operating expenses (exclusive of restructuring expenses) from 18% in 1991 to 5.6% in 1992 and achieved a reduction in operating expenses of 3.2% in 1993. In 1993 the Company incurred pretax restructuring charges of $89.8 million ($61.7 million after related tax benefit, or $1.34 per share). As further explained below, the charges resulted from changes in product, sales, and manufacturing strategies that were made to enable the Company to compete more effectively. The Company estimates that the 1993 restructuring will produce savings of approximately $50 million annually beginning in 1994, primarily in the areas of selling, product support, and product development expenses. The Company expects that its product transition and economic weakness in Europe, particularly in the large German market, may continue to adversely affect orders and revenues through the first half of 1994. The Company believes, however, that profitability should return in the second half of the year as new products are produced and sold in volume and the benefits of its restructuring begin to be realized. BUSINESS TRANSITION AND RESTRUCTURING. Over the past several years the industry in which the Company competes has been characterized by a rapid move to higher performance, lower priced product offerings, by intense price and performance competition (best exhibited by gross margins that have declined steadily in the industry and for the Company), by significantly shorter product cycles, and by development and support of software standards that result in less specific hardware dependency by customers. As a consequence, the operating results of the Company and others in the industry have and will continue to depend on the ability to rapidly and continuously develop and deliver new hardware and software products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability. As described further below, during late 1992 and 1993 the Company made several strategic decisions to better position itself to compete in this environment. These decisions led to actions that resulted in an $89.8 million pretax restructuring charge in 1993. Operating Systems. In November, 1992 the Company announced its decision to port its technical software applications to Microsoft Corporation's new Windows NT operating system, and to make Windows NT available on Intergraph workstations. Microsoft's standard Windows system has been widely accepted in the personal computing (PC) market, and Windows NT is Microsoft's new operating system for high-end computing. The effect of this decision is to expand the availability of the Company's workstations and software applications to Windows- based computing environments not previously addressed by the Company, including the availability of Intergraph software applications that will operate across a variety of hardware architectures, including those of other hardware vendors that use the Windows NT operating system. Prior to this decision, the Company's software applications operated principally on Intergraph hardware platforms. At the same time, the Company is continuing to develop 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 NT system if and when the customer chooses. Limited shipments of Windows NT-based software began in the fourth quarter of 1993. Most of the Company's software applications are expected to be available for Windows NT by the end of 1994. While the Company believes that Windows NT will become the dominant operating system in the markets it serves, competing operating systems are available in the market. In addition, several competitors of the Company also offer UNIX or are adopting the Windows NT operating system for product offerings. Hardware Architecture. In addition to the Windows NT operating system, the Company believes that Intel Corporation's hardware architecture will play an increasingly important role in the computing markets it serves, and has begun to offer a hardware platform (in addition to its own) based on Intel microprocessors. Previously, the Company's principal hardware platform offering had been based on its own microprocessor. The Company began shipping new Intel-based workstations in third quarter 1993, and expects that Intel-based systems will represent the majority of its workstation shipments in 1994. In August, 1993 the Company entered into an agreement with Sun Microsystems Computer Corporation (Sun) to co-develop the next generation Sun SPARC high-end microprocessor, develop a SPARC-based, high quality desktop computer system, and port the Windows NT operating system to that computer system. The commercial result of the agreement for the Company is the right to purchase from Sun the co- developed microprocessor and the right to sell the SPARC-based, high- end computer system operating under Windows NT with Intergraph's technical software applications, all in the second half of 1995. In addition, under the terms of the agreement Sun hired 77 employees of the Company's Advanced Processor Division (APD) effective January 1, 1994, and has the obligation to offer employment to the remaining 40 APD employees effective January 1, 1995. The Company has ceased design of its own microprocessor. 8 Restructuring Charge. The 1993 financial statement impact of changes in the Company's product, sales, and manufacturing strategies are described below. 1993 Restructuring Charge Before Tax Benefit (In thousands) ------------------------- Reduction in workforce $10,467 Elimination of operations, primarily the European manufacturing and distribution facility 17,136 Revaluation of assets resulting from new product strategy - primarily spares inventory, goodwill, and investments in other companies 56,082 Restructure of electronics business 6,121 ------- Total $89,806 ======= Reduction in Workforce. During 1993 the Company directly reduced its workforce by approximately 450 employees in an effort to reduce the Company's fundamental cost structure. The related restructuring charge consists of severance pay and other personnel related costs, primarily for workforce reductions in the European and U.S. sales and support operations. The total net reduction in workforce for the year was approximately 800, consisting of these 450 employees, 77 APD employees discussed in "Hardware Architecture" above, and other employees who left the Company through attrition and were not replaced. Elimination of Operations. In January, 1994 the Company announced its decision to close its European manufacturing and distribution facility (IEM) located in Nijmegen, The Netherlands. The decision was made to take advantage of lower costs of production and distribution in the U.S., and to utilize existing capacity in the U.S. manufacturing operation. The facility will be closed in phases over the course of 1994, with all manufacturing and distribution activity transferred to the Company's U.S. manufacturing facility. European sales and support activity will continue to be provided by the Company's subsidiary operations located throughout Europe and by its European headquarters located in The Netherlands. The charge for closure of the Nijmegen facility consists primarily of the costs of severance and other personnel related costs for the 130 employees that will be affected. Also included in this amount are asset retirements related to the phased closure of APD, and charges for consolidation of several sales and support facilities in Europe. Revaluation of Assets Due to New Product Strategy. This charge consists of $35.3 million to retire spares inventory items and $20.8 million to write-off goodwill recognized on previous business acquisitions and investments in less than 20%-owned companies. The spares inventory write-off was taken in recognition of the diminished value of these parts as the Company transitions to smaller, less expensive but more technologically advanced client-server and PC-based systems, to new operating systems that provide greater ease of use and, in the specific case of the Company, to systems incorporating microprocessors more widely used in desktop computing. The goodwill and investee company write-offs relate to previous acquisitions generally in small, privately-held, developing companies that possessed technologies of value to the Company or that offered products that complemented those of the Company. The product transition of the Company diminished the value of these investments. Restructure of Electronics Business. In December, 1990 the Company acquired substantially all of the operating assets of Daisy Systems Corporation and its wholly-owned subsidiary, Daisy/Cadnetix, Inc. (DAZIX). DAZIX and the Company's existing electronics business combined to form the Company's new electronic design automation (EDA) business. In 1992 the Company recorded pretax charges of $4.4 million ($.06 per share) associated with restructuring the EDA business to focus the Company's efforts toward the stronger growth areas in the EDA market and to further integrate the DAZIX unit with the Company's existing electronics business. As a result of the product transition described above, the Company continued to restructure and position its EDA business in 1993, incurring additional severance and facilities consolidation expenses and revaluing assets, including goodwill from other related acquisitions and investments in companies offering complementary products. Expected Impact on Future Results, Liquidity, and Sources and Uses of Capital Resources. The Company anticipates that the restructuring actions taken in 1993 will reduce expenses by approximately $50 million annually beginning in 1994, primarily in the areas of selling, product support, and product development expenses. Approximately 75% of the restructuring charges are asset retirements and do not involve a cash outlay. The charges required cash expenditures in 1993 of approximately $7 million, primarily for severance pay, and the Company expects a total 1994 cash expenditure related to the 1993 restructuring of approximately $20 million (primarily for severance pay, related personnel costs, and IEM debt retirement), all of which is expected to be provided from cash generated by 1994 operations and the sale or lease of the IEM facility. Long-term effects on the Company's liquidity and sources and uses of capital are expected to be minimal, as described below. Closure of European Manufacturing and Distribution Facility. All manufacturing and distribution activity previously performed by IEM will be performed in the U.S. manufacturing facility. The Company expects an expense and cash savings to accrue from this change, since European activity can be absorbed by existing capacity in the U.S. facility with no significant further investment in the U.S. facility. All European sales and service activity will remain in Europe, and the Company expects no impact on its ability to conduct its European business. 9 Closure of Advanced Processor Division. The Company no longer designs its own microprocessor, and has agreements in place with Intel and Sun for provision of its microprocessor needs. Although the unit cost of the Company's microprocessor requirements may increase, the Company expects a net savings to accrue from the APD closure since it no longer will fund the substantial cost of microprocessor design. Windows NT Product Strategy. The Company has incurred significant expense in 1993 to port its technical software applications to operate under the Windows NT operating system and to simultaneously enhance its UNIX operating system product offerings. This higher level of development expense will continue through 1994. The Company believes, however, that funds generated by the future savings from restructuring and arising from normal operations will be adequate to meet these requirements without assistance from external sources. ORDERS. Systems orders for 1993 were $630 million, down 23% for the year after a decline of 2% in 1992 and 4% growth in 1991. The decline in 1993 orders is the result of the Company's ongoing product transition that began in late 1992, economic weakness, particularly in the Company's primary U.S. and European markets, and strengthening of the U.S. dollar against European currencies. U.S. orders, including federal government orders, were $312.2 million for the year, down 26% (federal government orders were down 34%), and international orders were $317.8 million, down 21% for the year. European orders were down 30% in 1993. Order levels in each quarter of 1993 showed sequential improvement with second quarter up 10%, third quarter up 4%, and fourth quarter up 9%, but orders were weak for the full year compared to 1992. In August 1993, the U.S. Navy awarded Intergraph and another company multi-year, indefinite delivery, indefinite quantity contracts (the Naval Engineering Command Computer Aided Design or "NAVFAC CAD 2" contracts) to fulfill facility engineering requirements for computer- aided design and drafting, geographic information systems, and computer-aided facility management for the Navy as well as other Department of Defense and civilian agencies with a facilities engineering mission. Under these contracts, each company will compete for orders. Each 12 year contract has a guaranteed minimum of $1 million over its life; however, the maximum combined value of the contracts totals $550 million. The contracts did not have a significant impact on 1993 orders and revenues but could contribute substantially to 1994 orders and revenues. In April 1991, the U.S. Navy awarded the Company a multi-year, indefinite delivery, indefinite quantity contract to provide computer-aided design and manufacturing (CAD/CAM) systems to support the design, construction, maintenance, overhaul, alteration and repair of Navy ships and shipboard systems (the Naval Sea Systems Command or "NAVSEA" contract). This contract extends over a twelve year period and has an estimated value of $363 million. The NAVSEA contract contributed substantially to total orders and revenues in 1992 and 1993. REVENUES. Revenues for 1993 were $1.05 billion, down 11% for the year after a 2% decline in 1992 and 14% growth in 1991. Sales of Intergraph systems were $673 million, down 15% for the year after an 8% decline and 12% growth in the preceding two years. Maintenance and services revenue, consisting of revenues from maintenance of Intergraph systems and training, consulting and other services, was down 1% in 1993 after 14% and 21% growth in the preceding two years. The Company believes that its product transition, general economic weakness, particularly in the Company's primary U.S. and European markets, and intensified competition in the industry account for the decline in systems revenue in 1993 and 1992. In addition, 1993 systems revenue was reduced by approximately 4% by strengthening of the U.S. dollar against European currencies. U.S. systems sales were weak in 1993 and 1992, declining 15% and 16%, respectively, from the prior year after increasing 16% in 1991. European systems revenue declined 23% during 1993, after growing by 7% in 1992 and 11% in 1991. For the year, sales outside the U.S. represented 51% of the total revenues of the Company, versus 51% and 46% in the two preceding years. European revenues were 35% of total revenues for 1993, 38% for 1992, and 34% for 1991. Among the Company's product applications, AEC (architecture, engineering, and construction), mapping/GIS (geographic information systems), and MDEM (mechanical design, engineering, and manufacturing) continue to dominate the product application mix. The Company has a license agreement with Bentley Systems, Inc. (BSI), a 50%-owned affiliate of the Company, under which the Company was granted exclusive rights to distribute MicroStation, a software product developed and maintained by BSI. BSI now contends that the license has become nonexclusive, giving BSI the right to distribute MicroStation and develop and distribute additional software products in competition with Intergraph. This matter is the subject of litigation between the parties. MicroStation is a basic graphics software package upon which many of the Company's software application products are built. The Company's sales of the MicroStation product during the year ended December 31, 1993 were approximately $70 million. The gross margin on MicroStation is approximately 70% before allocation of selling, marketing, research and development, and general and administrative expenses. Preliminary settlement negotiations have begun which, if successful, would allow BSI after 1994 to distribute MicroStation and develop and distribute additional software products. Since the litigation and settlement negotiations are in a very early stage, the Company is unable to predict the effects that any changes in the agreement with BSI may have on its results of operations for 1994 and subsequent years. The impact of any profits lost by the Company would be partially offset by the Company's 50% ownership of BSI, and the advent of new Intergraph products currently under development. Revenues from the United States government were $166 million in 1993 (16% of total Company revenues), $186 million in 1992 (16% of total Company revenues), and $172 million in 1991 (14% of total Company revenues). The Company sells to the U.S. government under long-term contract arrangements, primarily cost-plus award fee contracts, and through commercial sales of products not covered by long-term contracts. Approximately 40% of total federal government revenues are earned under long-term contracts. The Company believes its relationship with the federal government to be good. While it is fully anticipated that these contracts will remain in effect through their expiration, the contracts are subject to termination (with damages paid to the Company) at the election of the government. Any loss of a significant government contract would have an adverse impact on the results of operations of the Company. 10 Maintenance revenues grow as the Company's installed base of systems grows. Maintenance revenue was down 2% in 1993 as the result of the systems revenue decline, the shift within the industry toward less expensive workstations, and the strengthening of the U.S. dollar against European currencies. Services revenue, which grew by 9% in 1993, is expected to represent an increasing portion of the Company's revenue in the future, though it now represents less than 5% of total revenues. Both maintenance and services revenue produce lower gross margins than systems revenues. The trend in the industry toward less expensive workstations could continue to reduce maintenance revenue, if not offset by higher volumes of product sales. GROSS MARGIN. The Company's total gross margin was 40.8% in 1993, a decline of 5.9 points after a decline of 2.6 points in 1992 and an increase of .5 points in 1991. Margin on systems sales declined 8.8 points in 1993 and 1.9 points in 1992 after increasing 1.1 points in 1991. The margin decline since 1991 is the result of lower sales volume, price discounting, and lower margins on new hardware products. In addition, strengthening of the U.S. dollar against European currencies reduced the Company's 1993 systems margin by approximately 2 points. These negative effects are partially offset by higher software content in the Company's systems. Margin on maintenance and services revenue improved 1.3 points in 1993 after declining .8 points in 1992 and remaining stable in 1991. Margin improvement in 1993 is the result of a decline in post sales support cost. Factors that contribute to lower margins 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 sales to total sales. Margins are improved by higher software content in the product, a weaker dollar in international markets, a higher mix of international sales to total sales, and reductions in prices of component parts, which generally tend to decline over time in the industry. The Company is unable to predict the effects that many of these factors may have on its gross margin, but expects that hardware margins may continue to decline due to price competition in the industry. OPERATING EXPENSES (EXCLUSIVE OF RESTRUCTURING EXPENSES). Operating expenses declined by 3.2% in 1993 after growth of 5.6% in 1992 and 18% in 1991. Growth in operating expenses in 1991 was the result of planned staff level increases, primarily in the sales and marketing and product development areas, and increased advertising and related expenses in an effort to gain market share. Growth in operating expenses moderated in 1992 as the result of closer monitoring of hiring and spending and a decline in the Company's discretionary contribution to the Employees' Stock Ownership Plan. The decline in operating expenses in 1993 results primarily from close monitoring of spending, the effects of a stronger U.S. dollar in the Company's European markets, and from workforce reductions due to restructuring, which occurred primarily in the last half of the year. The total number of employees of the Company declined by a net 8% in 1993 after 1% growth in 1992 and 8% growth in 1991. For 1993, product development expense grew by 7% as a result of development efforts enabling the Company to offer products under two operating systems (UNIX and Windows NT) and provide for interoperability between the two. Sales and marketing and general and administrative expenses declined by 6% and 10%, respectively, due to workforce reductions, other cost control measures, and a stronger U.S. dollar in European markets. The Company continues to closely monitor spending. NONOPERATING INCOME AND EXPENSE. Interest income was $4.5 million in 1993, $5.4 million in 1992 and $9.3 million in 1991. Both the average cash balance and average yields earned on investments declined during 1992 and 1993. The Company's cash position in 1993 was negatively impacted by a decline in cash generated from operations and by purchases of the Company's stock in the open market. In 1992, the Company made substantial cash investments in business acquisitions, investments in other related businesses, and purchases of the Company's stock. The Company's cash position in 1991 benefited from sales of long-term investments in common stock and proceeds from the exercise of employee stock options. In 1993 and 1992 the Company incurred net foreign exchange losses of $3.3 million ($.05 per share) and $12.5 million ($.18 per share), respectively. The 1992 loss occurred primarily in the third and fourth quarters and resulted in large part from instability during that time within the EMS (European Monetary System). This portion of the loss occurred within the Company's European manufacturing and distribution center, located in The Netherlands. The center's exposure among the European currencies was not hedged, since to that time currency values were generally controlled within the EMS. Subsequent to this time, the Company has partially hedged its exposure among the European currencies. "Other income (expense)-net" in the consolidated statements of income consists primarily of equity in the earnings of 20%- to 50%-owned companies, other miscellaneous items of nonoperating income and expense, and nonrecurring charges other than restructuring. The 1993 amount includes a $3.3 million write-off of an equity investment. In 1991, the Company recognized an $8.1 million gain on the sale of a long-term investment. INCOME TAXES. The Company incurred a loss before income tax benefit and the cumulative effect of a change in method of accounting for income taxes of $172.6 million in 1993. Income before income taxes was $12.4 million in 1992 and $111.9 million in 1991. The effective tax rate for the 1993 tax benefit was 31.3%. Effective rates on income for 1992 and 1991 were 31.9% and 36.5%, respectively. Note 6 of Notes to Consolidated Financial Statements contains a reconciliation of statutory to actual income tax benefit or expense. At December 31, 1993 the Company's balance sheet included a net deferred tax asset in the amount, after consideration of available deferred tax credits, of approximately $9 million. The deferred tax asset is expected to be realized through tax return deductions in 1994 that will reduce 1994 taxes payable or through carryback of losses to 1991 that would result in refund of taxes paid in that year. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". The resulting change in method of accounting for income taxes did not significantly affect 1993 results of operations. See Note 6 of Notes to Consolidated Financial Statements for further details of the Company's tax position. 11 IMPACT OF CURRENCY FLUCTUATIONS. Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on results of operations at the level of international business currently conducted by the Company. For 1993, approximately 51% of the Company's revenues were derived from customers outside the United States (51% for 1992 and 46% for 1991), 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 stronger U.S. dollar will decrease the level of reported U.S. dollar orders and revenues, decrease the dollar gross margin, and decrease reported dollar operating expenses of the international subsidiaries. During 1993, the U.S. dollar strengthened on average from its 1992 levels, which reduced the Company's total revenues, orders, and operating expenses by approximately 4%. Systems margin was reduced approximately 2 points. The Company's international operations are also subject to certain risks inherent in doing business abroad and may be adversely affected by government policies, restrictions, or other factors. In addition, the Company has certain currency related asset and liability exposures related to its international operations against which certain measures, including hedging, are taken to reduce currency risk. PURCHASE BUSINESS COMBINATIONS AND INVESTMENTS IN OTHER BUSINESSES. In February 1993, the Company acquired a 100% ownership interest in a company engaged in a related business for $9.5 million in cash and other consideration. The accounts and results of operations of that company have been combined with those of the Company since the date of acquisition using the purchase method of accounting. The acquisition did not have a material effect on the Company's results of operations in 1993. During 1992, the Company acquired 100% ownership interests in three companies for a total purchase price of approximately $25.5 million in cash and other consideration, and acquired less than majority interests or otherwise invested in six other companies for a total of $19.4 million in cash and other consideration. All such companies are engaged in businesses related to that of the Company. These acquisitions and investments did not have a material effect on the results of operations of the Company for 1992. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1993, cash and short-term investments totaled $75.7 million, down $16.9 million from year end 1992. Cash generated from operations in 1993 was $71.0 million versus $135.9 million in 1992 and $110.7 million in 1991. Capital expenditures of $65.4 million in 1993 were primarily for Intergraph products used in hardware and software development. Capital expenditures of $79.5 million in 1992 and $91.6 million in 1991 were for Intergraph products and additional facilities and related fixtures and equipment. Other significant uses of cash in 1993 included $29.7 million to purchase Company stock for the treasury ($13.9 million in 1992 and $18.8 million in 1991), and $8.1 million for business acquisitions and investments in other businesses ($36.1 million in 1992 and $7.0 million in 1991). The Company's 1991 cash position benefited by the sale of a long-term common stock investment ($14.9 million) and proceeds from the exercise of employee stock options ($10.6 million). Over the last six years, the Board of Directors of the Company has authorized the purchase of up to 20 million shares of the Company's stock in the open market. As of December 31, 1993, the Company had purchased approximately 17.7 million shares for the treasury, of which 2.8 million were purchased in 1993. Further purchases of treasury shares are dependent on market conditions and availability of cash. The Company has a $50 million revolving credit agreement with a bank enabling the Company to borrow funds on a revolving basis until May 31, 1995. There were no outstanding borrowings under this agreement at December 31, 1993 or 1992. The loan commitment is conditional on the maintenance of minimum levels of tangible net worth at various dates through May, 1995. Under certain circumstances, borrowings under the agreement may create a security interest in certain of the accounts receivable of the Company. The Company expects that capital expenditures will require $55 million to $65 million in 1994, primarily for computer equipment manufactured by the Company for use in hardware and software development. The Company has historically enjoyed a strong working capital and liquidity position. Cash generated from operations has historically provided the level of cash required to finance ongoing operations, reinvest in plant and equipment, and finance growth of the business. However, the Company is unable to precisely predict long-term conditions in an industry characterized by rapid technological change and intense competition, and therefore entered into the credit agreement described above to ensure access to capital at a reasonable price. FOURTH QUARTER 1993 Revenues for the fourth quarter were $268.5 million, down 13% from fourth quarter 1992. The Company incurred a loss of $1.54 per share for the quarter versus a loss of $.04 per share in fourth quarter 1992. The fourth quarter 1993 loss included a $1.18 per share charge against earnings for restructuring related to the planned closure of the Company's manufacturing and distribution facility in The Netherlands, and the revaluation of assets resulting from new product strategies. A 5.4 point decline in gross margin from the fourth quarter 1992 level also negatively impacted fourth quarter 1993 results of operations. The margin decline resulted from the factors described under "GROSS MARGIN" above. 12 INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1993 1992 - ------------------------- -------- -------- (In thousands except share and per share amounts) Assets Cash and cash equivalents $ 55,976 $ 67,194 Short-term investments 19,772 25,442 Accounts receivable 314,256 335,588 Inventories 111,555 178,107 Refundable income taxes 42,380 13,259 Other current assets 41,118 28,799 -------- -------- Total current assets 585,057 648,389 Long-term investments 23,560 46,664 Other assets 22,281 44,603 Property, plant, and equipment, net 224,431 247,007 -------- -------- Total Assets $ 855,329 $ 986,663 ======== ======== Liabilities and Shareholders' Equity Trade accounts payable $ 42,866 $ 37,444 Accrued compensation 43,366 42,309 Other accrued expenses 75,608 66,224 Billings in excess of sales 62,087 59,395 Income taxes payable 3,309 9,915 Short-term debt and current maturities of long-term debt 9,065 2,128 -------- -------- Total current liabilities 236,301 217,415 Deferred income taxes 12,777 12,626 Long-term debt 17,541 19,759 -------- -------- Total liabilities 266,619 249,800 -------- -------- 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 246,642 250,549 Retained earnings 524,359 640,401 Cumulative translation adjustment ( 7,606) 212 -------- -------- 769,131 896,898 Less -- cost of 12,006,827 treasury shares at December 31, 1993 and 9,803,371 treasury shares at December 31, 1992 (180,421) (160,035) -------- -------- Total shareholders' equity 588,710 736,863 -------- -------- Total Liabilities and Shareholders' Equity $ 855,329 $ 986,663 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 13 INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1993 1992 1991 - ------------------------- --------- --------- --------- (In thousands except per share amounts) Revenues Systems $ 672,790 $ 795,862 $ 861,965 Maintenance and services 377,487 380,799 333,413 --------- --------- --------- Total revenues 1,050,277 1,176,661 1,195,378 --------- --------- --------- Cost of revenues Systems 371,157 369,258 383,361 Maintenance and services 251,129 258,110 223,240 --------- --------- --------- Total cost of revenues 622,286 627,368 606,601 --------- --------- --------- Gross profit 427,991 549,293 588,777 Product development 160,294 150,152 134,382 Sales and marketing 238,054 252,619 241,582 General and administrative 104,459 116,696 115,780 Restructuring charge 89,806 4,418 --- --------- --------- --------- Income (loss) from operations (164,622) 25,408 97,033 Interest expense ( 2,097) ( 3,025) ( 2,100) Interest income 4,467 5,432 9,337 Foreign exchange loss ( 3,267) ( 12,531) ( 259) Gains on sales of long-term investments --- --- 8,118 Other income (expense) -- net ( 7,031) ( 2,892) ( 236) --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting for income taxes (172,550) 12,392 111,893 Income tax benefit (expense) 54,008 ( 3,950) ( 40,785) --------- --------- --------- Income (loss) before cumulative effect of change in accounting for income taxes (118,542) 8,442 71,108 Cumulative effect as of January 1, 1993, of change in method of accounting for income taxes 2,500 --- --- --------- --------- --------- Net income (loss) $(116,042) $ 8,442 $ 71,108 ========= ========= ========= Earnings (loss) per share: Income (loss) before cumulative effect of change in accounting for income taxes $( 2.56) $ .18 $ 1.47 Cumulative effect of change in accounting for income taxes .05 --- --- --------- --------- --------- Net income (loss) $( 2.51) $ .18 $ 1.47 ========= ========= ========= Weighted average shares outstanding 46,199 48,020 48,431 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 14 INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1993 1992 1991 - ------------------------- --------- --------- --------- (In thousands) Cash provided by (used for): Operating Activities: Net income (loss) $(116,042) $ 8,442 $ 71,108 Adjustments to reconcile net income (loss) to net cash provided by operations: Cumulative effect of change in method of accounting for income taxes ( 2,500) --- --- Depreciation and amortization 85,124 79,455 68,088 Non-cash portion of restructuring charge 79,565 1,637 --- Provision for ESOP --- --- 7,670 Provision for deferred income taxes ( 20,348) 5,300 ( 12,713) Write-off of long-term investment 3,273 --- --- Gains on sales of long-term investments --- --- ( 8,118) Net changes in current assets and liabilities 38,627 28,520 ( 15,556) Net exchange loss 3,267 12,531 259 --------- --------- --------- Net cash provided by operating activities 70,966 135,885 110,738 --------- --------- --------- Investing Activities: Decrease in short-term investments, net 13,207 8,347 6,796 Purchase of property, plant, and equipment ( 65,414) ( 79,497) ( 91,580) Disposal of equipment 8,768 6,331 9,064 Business acquisitions, net of cash acquired ( 6,938) ( 19,658) --- Purchase of interests in other businesses ( 1,119) ( 16,466) ( 6,975) Investment in long-term debt securities, net ( 831) ( 12,640) --- Proceeds from sale of long-term investments --- --- 14,902 Repayment of loan by affiliate 6,994 --- --- Other ( 13,586) ( 17,879) ( 3,979) --------- --------- --------- Net cash used for investing activities ( 58,919) (131,462) ( 71,772) --------- --------- --------- Financing Activities: Proceeds of debt 8,236 363 1,978 Payment of debt ( 2,097) ( 4,722) ( 3,300) Proceeds of employee stock purchases 4,409 4,418 4,068 Proceeds of exercise of stock options 829 2,119 10,575 Acquisition of treasury stock ( 29,734) ( 13,925) ( 18,805) --------- --------- --------- Net cash used for financing activities ( 18,357) ( 11,747) ( 5,484) --------- --------- --------- Effect of exchange rate changes on cash ( 4,908) ( 7,796) ( 864) --------- --------- --------- Net increase (decrease) in cash and cash equivalents ( 11,218) ( 15,120) 32,618 Cash and cash equivalents at beginning of year 67,194 82,314 49,696 --------- --------- --------- Cash and cash equivalents at end of year $ 55,976 $ 67,194 $ 82,314 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 15 INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands except share amounts)
Common Stock Treasury Stock Additional Cumulative Total Paid-in Retained Translation Shareholders' Shares Amount Shares Amount Capital Earnings Adjustment Equity ---------- ------ ---------- --------- ---------- -------- ----------- ------------ Balance at January 1, 1991 56,929,220 $5,693 (9,400,142) $(152,023) $241,373 $560,851 $26,378 $682,272 Treasury shares acquired --- --- (1,000,000) ( 18,805) --- --- --- ( 18,805) Shares issued to employee retirement plan 432,142 43 --- --- 7,627 --- --- 7,670 Shares issued under employee stock purchase plan --- --- 222,923 3,636 432 --- --- 4,068 Shares issued upon exercise of stock options --- --- 607,222 9,850 924 --- --- 10,774 Translation adjustments --- --- --- --- --- --- ( 3,344) ( 3,344) Other --- --- --- --- 1,251 --- --- 1,251 Net income for the year --- --- --- --- --- 71,108 --- 71,108 ---------- ------ ----------- ---------- ---------- -------- ----------- ------------ Balance at December 31, 1991 57,361,362 5,736 (9,569,997) (157,342) 251,607 631,959 23,034 754,994 Treasury shares acquired --- --- ( 918,000) ( 13,925) --- --- --- ( 13,925) Shares issued under employee stock purchase plan --- --- 353,879 5,801 ( 1,383) --- --- 4,418 Shares issued upon exercise of stock options --- --- 139,393 2,299 ( 133) --- --- 2,166 Shares issued upon purchase of a business --- --- 191,354 3,132 ( 548) --- --- 2,584 Translation adjustments --- --- --- --- --- --- ( 22,822) ( 22,822) Other --- --- --- --- 1,006 --- --- 1,006 Net income for the year --- --- --- --- --- 8,442 --- 8,442 ---------- ------ ---------- -------- ---------- -------- ----------- ------------ Balance at December 31, 1992 57,361,362 5,736 (9,803,371) (160,035) 250,549 640,401 212 736,863 Treasury shares acquired --- --- (2,805,000) ( 29,734) --- --- --- ( 29,734) Shares issued under employee stock purchase plan --- --- 494,462 7,656 ( 3,247) --- --- 4,409 Shares issued upon exercise of stock options --- --- 107,082 1,692 ( 863) --- --- 829 Translation adjustments --- --- --- --- --- --- ( 10,570) ( 10,570) Recognition of net cumulative translation loss resulting from restructuring --- --- --- --- --- --- 2,752 2,752 Other --- --- --- --- 203 --- --- 203 Net loss for the year --- --- --- --- --- (116,042) --- (116,042) ---------- ------ ----------- --------- ---------- -------- ----------- ------------ Balance at December 31, 1993 57,361,362 $5,736 (12,006,827) $(180,421) $ 246,642 $524,359 $( 7,606) $588,710 ========== ====== =========== ========= ========== ======== =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 16 INTERGRAPH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Intergraph Corporation and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's business is principally in one industry segment -- the development, manufacturing, marketing, and service of interactive computer graphics systems. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company's excess funds are generally invested in short-term, highly liquid, interest- bearing securities. The Company's investment policy limits the amount of credit exposure to any single issuer of securities. At December 31, 1993 and 1992, cash was invested in highly rated, short-term municipal bonds, time deposits, money market preferred stocks, commercial paper, and U.S. government securities. All cash equivalents and short-term investments are stated at cost plus accrued interest, which approximates fair value based on quoted market prices for these financial instruments. For financial statement purposes, investments with original maturities of three months or less are considered to be cash equivalents. INVENTORIES: Inventories are stated at the lower of average cost or market and are summarized as follows: 1993 1992 (In thousands) --------- --------- Raw materials $ 31,023 $ 36,506 Work-in-process 33,118 30,257 Finished goods 14,295 16,372 Service spares 33,119 94,972 --------- --------- Totals $ 111,555 $ 178,107 ========= ========= LONG-TERM INVESTMENTS: Long-term investments include investments in 20%- to 50%-owned companies accounted for by the equity method, less than 20%-owned companies accounted for by the cost method, and debt securities stated at cost plus accrued interest. The Company's investments in less than 20%-owned companies are included in the consolidated balance sheets as of December 31, 1993 and 1992 at cost of $9,100,000 and $25,600,000, respectively. These companies are privately held, and therefore quoted market values for these investments are not available. During 1993 the Company, as part of the restructuring described in Note 2, wrote off approximately $7,800,000 in investments in these companies. The Company is unable to determine fair values for its remaining investments without incurring excessive costs, but believes its investments in these companies, most of which are developing businesses with technologies of continuing value to the Company, have not been impaired. Debt securities are included in the consolidated balance sheets as of December 31, 1993 and 1992, at a carrying value of $6,100,000 and $12,600,000, respectively, which approximates fair value based on quoted market prices. PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment, summarized below, is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. 1993 1992 (In thousands) --------- --------- Land and improvements $ 14,593 $ 14,937 Buildings and improvements 143,032 143,477 Equipment, furniture, and fixtures 316,251 312,532 --------- --------- 473,876 470,946 Allowances for depreciation and amortization (249,445) (223,939) --------- --------- Totals $ 224,431 $ 247,007 ========= ========= TREASURY STOCK: Treasury stock is accounted for by the cost method. The Board of Directors of the Company has authorized the purchase of up to 20,000,000 shares of the Company's common stock in the open market. From the initial authorization in 1987 through the end of 1993, the Company had purchased approximately 17,700,000 shares for the treasury. Treasury stock activity is presented in the consolidated statements of shareholders' equity. REVENUE RECOGNITION: Revenues from systems sales with no post-shipment obligations are recognized as equipment and software are shipped. Revenues on systems sales with significant post-shipment obligations are recognized on a percentage-of-completion method with progress to completion measured on the basis of labor costs and other factors. Revenues from contracts with the U.S. government, primarily cost-plus award fee contracts, are recognized monthly as costs are incurred and fees are earned under the contracts. A certain portion of revenues from all systems sales is not recognized until installation is complete and the warranty period has expired. Maintenance and services revenues are recognized ratably over the lives of the maintenance contracts or as services are performed. 17 Billings may not coincide with the recognition of revenue. Unbilled accounts receivable occur when revenue recognition precedes billing to the customer and arise primarily from commercial sales with predetermined billing schedules, U.S. government sales with billing at the end of a performance period, and U.S. government cost-plus award fee contracts. Billings in excess of sales occur when billing to the customer precedes revenue recognition, and arise primarily from maintenance revenue billed in advance of performance of the maintenance activity, and systems revenue billed at shipment with a portion of the related revenue deferred until completion of installation services and expiration of the warranty period. PRODUCT DEVELOPMENT COSTS: The Company capitalizes certain computer software development costs. Costs capitalized do not have a significant impact on the Company's results of operations. FOREIGN CURRENCY EXCHANGE AND TRANSLATION: Local currencies are the functional currencies for the Company's European subsidiaries. The U.S. dollar is the functional currency for the Company's other international subsidiaries. The foreign exchange loss incurred in 1992 is primarily the result of third and fourth quarter instability within the European Monetary System (EMS). Currency exposure within the Company's European manufacturing and distribution center was not hedged, since European currency values to that time were generally controlled within the EMS. Subsequently, the Company began hedging a portion of its exposure among the European currencies. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Company enters into foreign currency exchange contracts of less than one year duration to hedge certain foreign currency denominated receivables and payables. Gains and losses on the contracts are included in "foreign exchange loss" in the consolidated statements of income. Cash flows from the contracts are classified in the consolidated statements of cash flows in the same manner as cash flows from receivables and payables. At December 31, 1993, the Company had outstanding foreign currency exchange contracts of approximately $48 million. The fair value of these contracts approximates the original contract amount based on quoted market prices for contracts with similar terms. INCOME TAXES: Deferred tax liabilities or assets are recognized for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". See Note 6. NET INCOME (LOSS) PER SHARE: Net income (loss) per share is computed using the weighted average number of common and equivalent common shares outstanding. Stock options are the only common stock equivalent. See Note 7. RECLASSIFICATIONS: Certain reclassifications have been made to the previously reported consolidated balance sheet at December 31, 1992 and to the consolidated statements of cash flows for the years ended December 31, 1992 and 1991 to provide comparability with the current year presentation. NOTE 2 -- RESTRUCTURING. During 1993 the Company made several changes in its product, sales, and manufacturing strategies designed to make the Company more competitive in the current industry and economic environment, and took actions based on these decisions that resulted in a before-tax charge to earnings of $89,806,000 ($61,697,000 after related tax benefit, or $1.34 per share). Industry conditions considered by the Company in its decisions include the trend toward higher performance, lower priced products and intense competition that have resulted in lower gross margins in the industry and for the Company, shorter product cycles, and development and support of software standards that have resulted in less specific hardware dependency by customers. Changes in strategy include consolidation of worldwide manufacturing and distribution activities in its U.S. operation, execution of an agreement with Sun Microsystems Computer Corporation (Sun) that, among other things, ends the Company's design of its own microprocessor, porting of the Company's technical software applications to a new operating system (Microsoft Corporation's Windows NT) and the availability of Windows NT on Intergraph workstations, and the offering of a new hardware platform (in addition to its own) based on Intel Corporation microprocessors. Restructuring charges in 1993 and the preceding year are summarized as follows: 1993 1992 (In thousands) ------- ------- Reduction in workforce $10,467 --- Elimination of operations, primarily the European manufacturing and distribution facility 17,136 --- Revaluation of assets resulting from new product strategy - primarily spares inventory, goodwill, and investments in other companies 56,082 --- Restructure of electronics business 6,121 $4,418 ------- ------ Totals $89,806 $4,418 ======= ====== REDUCTION IN WORKFORCE: During 1993 the Company directly reduced its workforce by approximately 450 employees, primarily in its European and U.S. sales and support operations. The related restructuring charge consists of severance pay and other personnel related costs. These 450 employees, the 77 APD employees described in "ELIMINATION OF OPERATIONS" below, and other employees who left the Company through attrition and were not replaced comprise the total net reduction of approximately 800 employees during 1993. 18 ELIMINATION OF OPERATIONS: In January, 1994 the Company announced its decision to close its European manufacturing and distribution facility (IEM) over the course of 1994 and transfer the related activities to its U.S. manufacturing facility. The related restructuring charge consists primarily of the costs of severance and other personnel related costs for the 130 employees that will be affected. In addition, under the terms of an August, 1993 agreement with Sun, effective January 1, 1994 the Company terminated and Sun hired 77 employees of the Company's Advanced Processor Division (APD), resulting in charges primarily for asset retirements. Also included in this amount are charges related to consolidation of sales and support facilities, primarily in Europe, connected with the direct reductions in workforce discussed above. REVALUATION OF ASSETS DUE TO NEW PRODUCT STRATEGY: Included in the "revaluation of assets" amount above is $35,300,000 to retire spares inventory and $20,800,000 to write-off goodwill recognized on previous acquisitions and investments in less than 20%-owned companies, both as a result of the Company's new product strategy and transition. The spares inventory write-off was made to recognize the diminished value of these parts as the Company transitions to smaller but more technologically advanced client-server and PC-based systems, to new operating systems and, specifically for the Company, to sale of systems incorporating microprocessors more widely used. The goodwill and investee company write-offs relate to prior acquisitions of small, privately-held, developing companies that possessed technologies or complementary products of value to the Company. The product transition of the Company resulted in a diminished value for these investments. RESTRUCTURE OF ELECTRONICS BUSINESS: Also in 1993, the Company continued to restructure and position its electronics business in an effort to focus activity on growth areas and further integrate its DAZIX unit, acquired in December, 1990, with the Company's existing electronics business. The related restructuring charge in both 1993 and 1992 consists of severance pay and facilities consolidation expenses and, in 1993, of write-off of goodwill from related acquisitions and investments in companies offering complementary products. Amounts included in the Company's December 31, 1993 balance sheet related to operations to be eliminated and amounts otherwise related to the restructuring are as follows: Other IEM APD Entities Total ------- ------ -------- ------- (In thousands) Inventories, at cost $14,369 $ 996 --- $15,365 Land, buildings, and equipment, at cost less accumulated depreciation 11,497 1,490 $ 295 13,282 ------- ------ ------- ------- Total assets $25,866 $2,486 $ 295 $28,647 ======= ====== ======= ======= Trade accounts payable and accrued liabilities, including those directly related to restructuring $15,555 $1,966 $5,877 $23,398 Short-term debt 5,182 --- --- 5,182 Current portion of long-term mortgage 466 --- --- 466 ------- ------ ------- ------- Total current liabilities 21,203 1,966 5,877 29,046 Long-term portion of mortgage 4,922 --- --- 4,922 ------- ------ ------- ------- Total liabilities $26,125 $1,966 $5,877 $33,968 ======= ====== ======= ======= The IEM facility will be closed over the course of 1994. Any inventory remaining at closure will be transferred for use in the U.S. manufacturing operation or used as spare parts in Europe. The facility itself will be placed for sale or lease in 1994. The net book value of IEM land and buildings at December 31, 1993 ($10,800,000) approximates market value and the Company does not expect significant costs of disposal. All IEM accounts payable and accrued liabilities, including those relating directly to the restructuring ($9,100,000), will be paid in the normal course of business in 1994. Short-term debt represents a working capital loan at a rate of 6.12% that will be paid at maturity in first quarter, 1994. The mortgage on the facility, which is guaranteed by the parent company, is payable in annual installments through the year 2003. The Company will retire the mortgage debt if the facility is sold. See Note 5 for further description of this mortgage debt. 19 APD has ceased design but will continue to assemble microprocessors during 1994. At the end of 1994, Sun has the obligation to offer employment to the remaining 40 APD employees, and the facility will be closed. The remaining assets of APD will be utilized, transferred to other Company entities, or sold to Sun, and remaining liabilities will be paid in the normal course of 1994 business. Accrued liabilities of other entities of $5,877,000 represent primarily remaining severance pay liabilities of European subsidiaries for direct workforce reductions made in 1993 which will be settled in 1994. NOTE 3 -- SUPPLEMENTARY CASH FLOW INFORMATION. Changes in current assets and liabilities, net of the effects of business acquisitions and restructuring charges, in reconciling net income (loss) to net cash provided by operations are as follows: Cash Provided By (Used For) Operations 1993 1992 1991 ------- ------- -------- (In thousands) (Increase) decrease in: Accounts receivable $17,801 $12,680 $(26,848) Inventories 36,805 6,988 ( 1,161) Refundable income taxes (29,121) ( 8,291) ( 4,968) Other current assets 5,165 2,099 5,262 Increase (decrease) in: Trade accounts payable 9,460 ( 3) ( 5,142) Accrued compensation and other accrued expenses ( 1,569) 11,990 15,107 Billings in excess of sales 4,287 6,377 ( 460) Income taxes ( 4,201) ( 3,320) 2,654 ------- ------- -------- Net changes in current assets and liabilities $38,627 $28,520 $(15,556) ======= ======= ======== Cash payments for income taxes totaled $4,201,000, $13,051,000, and $46,972,000 in 1993, 1992, and 1991, respectively. Cash payments for interest in those years totaled $2,252,000, $2,913,000, and $2,134,000, respectively. There were no significant non-cash investing and financing transactions in 1993. Non-cash transactions in 1992 consisted of acquisition of and investments in other businesses in part through issuance of notes payable and forgiveness of debt totaling $3,272,000, issuance of treasury shares valued at $2,584,000, and obligations for other amounts totaling $2,896,000 (see Note 8). Non-cash transactions in 1991 consisted of additions to a building at a cost of $7,246,000 through a long-term debt transaction. NOTE 4 -- ACCOUNTS RECEIVABLE. Accounts receivable are summarized as follows: 1993 1992 -------- -------- (In thousands) Billed receivables: Trade $243,152 $254,640 Unreimbursed costs and fees under government contracts 10,047 9,638 -------- -------- 253,199 264,278 -------- -------- Unbilled receivables: Trade 72,002 81,063 Unreimbursed costs and fees under government contracts 9,846 9,216 -------- -------- 81,848 90,279 -------- -------- 335,047 354,557 Less allowances ( 20,791) ( 18,969) -------- -------- Totals $314,256 $335,588 ======== ======== Concentrations of credit risk with respect to trade receivables are limited due to the diversity of the Company's customer base. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. 20 NOTE 5 -- DEBT AND LEASES. Short- and long-term debt at December 31, 1993 and 1992 is summarized below. The carrying amounts for debt approximate fair values since interest rates on the debt adjust periodically to reflect changes in market rates of interest. 1993 1992 ------- ------- (In thousands) Short-term credit facilities $ 6,896 --- Long-term mortgages 18,497 $20,829 Other 1,213 1,058 ------- ------- 26,606 21,887 Less amounts payable within one year 9,065 2,128 ------- ------- Total long-term debt $17,541 $19,759 ======= ======= The Company has entered into short-term credit facilities to provide temporary working capital for its subsidiary companies. The credit facilities bear interest at market rates. The Company has two long-term mortgages that have provided financing for the construction and expansion of certain European facilities, including the manufacturing and distribution facility that will be closed in 1994. See Note 2 for further description of that mortgage debt. The mortgages are payable in varying installments through the year 2017 and bear interest at the floating Amsterdam Interbank Offering Rate (AIBOR), which ranged from 6.4% to 9.4% in 1993 and from 9.1% to 10.3% in 1992. During 1993, the Company entered into two-year interest rate swap agreements in the amount of the mortgages to reduce the risk of increases in interest rates, effectively converting the interest rates on these mortgages to a fixed rate. The Company is exposed to market risk of potential future decreases in AIBOR. The fair value of the interest rate swap agreements approximated carrying value at December 31, 1993. The Company has a $50 million revolving credit agreement with a bank enabling the Company to borrow funds on a revolving basis until May 31, 1995. At December 31, 1993 and 1992, there were no outstanding borrowings under this agreement. The loan commitment by the lender is conditional on the maintenance of minimum levels of tangible net worth at various dates through May, 1995. Under certain circumstances, borrowings under the agreement may create a security interest in certain of the accounts receivable of the Company. The Company leases various property, plant, and equipment under operating leases as lessee. Rental expense for operating leases was $41,668,000 in 1993, $44,527,000 in 1992, and $36,445,000 in 1991. Subleases and contingent rentals are not significant. Future minimum lease payments, by year and in the aggregate, under non-cancellable operating leases with initial or remaining terms of one year or more are as follows: Operating Leases --------- (In thousands) 1994 $ 32,138 1995 25,015 1996 17,865 1997 12,358 1998 6,072 Thereafter 31,471 -------- Total future minimum lease payments $124,919 ======== NOTE 6 -- INCOME TAXES. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, tax liabilities are provided in the financial statements at tax rates known to be in effect in the future years in which items of income and expense currently deferred for tax return purposes become includable in the tax return, rather than at rates in effect in the year of deferral. Since the Company had historically provided taxes at rates higher than the reduced tax rates now in effect, it was required to reduce deferred tax liabilities to reflect current tax rates, which resulted in an increase in 1993 income (shown as the cumulative effect of a change in accounting principle in the consolidated income statement) of $2,500,000 or $.05 per share. The change in method did not significantly affect the Company's effective rate of tax for 1993. 21 The components of income (loss) before income taxes are as follows: 1993 1992 1991 ---------- --------- --------- (In thousands) U.S. $(115,025) $ 29,379 $ 113,464 International ( 57,525) ( 16,987) ( 1,571) ---------- --------- --------- Totals $(172,550) $ 12,392 $ 111,893 ========== ========= ========= Income tax benefit (expense) consists of the following. The "liability method" is the method prescribed by SFAS 109 and adopted prospectively by the Company effective January 1, 1993. The "deferred method" is the method utilized prior to adoption of SFAS 109. Liability Method Deferred Method 1993 1992 1991 ---------------- ------- -------- (In thousands) Current benefit (expense): Federal $ 32,460 $ 4,579 $(47,010) State 900 93 ( 5,664) International 300 (3,322) ( 824) -------- -------- -------- 33,660 1,350 (53,498) -------- -------- -------- Deferred benefit (expense): Federal 16,429 (7,936) 14,273 State 200 ( 55) 738 International 3,719 2,691 ( 2,298) -------- -------- -------- 20,348 (5,300) 12,713 -------- -------- -------- Totals $ 54,008 $ (3,950) $(40,785) ======== ======== ======== "Refundable income taxes" included in the December 31, 1993 consolidated balance sheet consist primarily of the benefit of the 1993 loss for U.S. federal income tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1993 are as follows:
Non- Current Current Total (In thousands) -------- -------- -------- Deferred tax assets: Inventory reserves $ 18,504 --- $ 18,504 Vacation pay and other employee benefit accruals 6,367 --- 6,367 Accrued liabilities related to 1993 restructuring 4,292 --- 4,292 Other financial statement reserves, primarily allowance for doubtful accounts 6,132 --- 6,132 Net operating loss carryforwards of international subsidiaries --- $12,031 12,031 Other - net 4,805 3,084 7,889 -------- -------- -------- 40,100 15,115 55,215 Valuation allowance ( 3,024) (12,750) (15,774) -------- -------- -------- Total deferred tax assets, net of allowance 37,076 2,365 39,441 -------- -------- -------- Deferred tax liabilities: Profit on uncompleted sales contracts deferred for tax purposes 11,730 --- 11,730 Depreciation --- 10,426 10,426 Other - net 3,289 4,716 8,005 -------- -------- -------- Total deferred tax liabilities 15,019 15,142 30,161 -------- -------- -------- Net deferred tax assets/(liabilities) $ 22,057 $(12,777) $ 9,280 ======== ======== ========
22 The net current deferred tax asset of $22,057,000 is included in "Other current assets" in the December 31, 1993 consolidated balance sheet. The net deferred tax asset of $9,280,000 at December 31, 1993 is expected to be realized through tax return deductions in 1994 that will reduce 1994 taxes payable or through carryback of losses to 1991 that would result in refund of taxes paid in that year. The deferred tax asset valuation allowance of $15,774,000 at December 31, 1993 consists primarily of reserves against the tax benefit of net operating loss carryforwards of international subsidiaries. Such loss carryforwards amounted to approximately $30,000,000 as of December 31, 1993 and are available to offset future earnings of international subsidiaries within specified time periods ranging from a minimum of three years to a maximum of permanent carryforward. If realized, the tax benefit of those losses will be applied to reduce income tax expense in the year realized. During 1992 and 1991 deferred income taxes were provided for significant timing differences in the recognition of revenue and expenses for tax reporting and financial statement purposes. These timing differences related primarily to deferred profit on uncompleted contracts of $1,004,000 in 1992 and $5,574,000 in 1991 and profits on intercompany asset transfers of ($6,599,000) in 1992 and $3,380,000 in 1991. A reconciliation from income tax benefit (expense) at the federal statutory tax rate of 35% for 1993 (34% for both 1992 and 1991) to the Company's income tax benefit (expense) is as follows: Liability Method Deferred Method 1993 1992 1991 --------- -------- -------- (In thousands) Income tax benefit (expense) at federal statutory rate $60,393 $(4,213) $(38,044) Research and development tax credit 3,400 643 926 Benefit from Foreign Sales Corp. (FSC) 1,415 1,161 2,099 Benefit of tax exempt investments 459 598 1,209 Tax effects of international operations, net (13,933) (5,667) ( 5,464) Tax effect of reorganization of certain international subsidiaries 6,200 3,483 2,051 State income taxes, net of federal tax benefit 754 86 ( 3,251) Non-deductible goodwill amortization ( 3,290) 439 ( 20) Other - net ( 1,390) ( 480) ( 291) -------- ------- -------- Income tax benefit (expense) $54,008 $(3,950) $(40,785) ======== ======= ======== The Company does not provide for federal income taxes or tax benefits on the undistributed earnings and/or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. At December 31, 1993, the Company had not provided federal income taxes on earnings of individual international subsidiaries of approximately $48,000,000. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in the various international jurisdictions. Determination of the related amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation. Withholding taxes of approximately $2,900,000 would be payable if all previously unremitted earnings as of December 31, 1993 were remitted to the U.S. company. The Internal Revenue Service has completed examination of the Company's federal income tax returns for the years 1987 and 1988. The Company has reached agreement with the Internal Revenue Service on substantially all issues raised in the examination. The Company's federal income tax returns for the years 1989 through 1991 are currently under examination. The Company does not expect the result of that examination to have a significant effect on future results of operations. NOTE 7 -- EMPLOYEE STOCK OPTION AND BENEFIT PLANS. The Company has reserved a total of 5,000,000 shares of common stock to grant as options to key employees under the 1990 and 1992 stock option plans. Options may be granted at fair market value or at a price less than fair market value on the date of grant. Options are not exercisable prior to twenty-four months from the date of grant or later than ten years after the date of grant (not later than five years after the date of grant under the 1990 Plan). 23 At December 31, 1993, 2,519,677 shares were available for future grants. A summary of activity in the Company's stock option plans is presented below.
Year Ended December 31, 1993 1992 1991 - ------------------------- --------- --------- --------- Options outstanding at beginning of year 1,574,087 1,761,740 2,424,362 Granted 345,004 140,000 --- Exercised (107,082) (139,393) (607,222) Cancelled (403,084) (188,260) ( 55,400) --------- --------- --------- Options outstanding at end of year 1,408,925 1,574,087 1,761,740 ========= ========= ========= Options exercisable at end of year 538,602 470,966 338,396 ========= ========= ========= Option prices per share: Granted $ 9.00-12.25 $ 7.88-16.00 --- Exercised 7.56-11.00 11.00-18.25 $15.00-27.50 Cancelled 7.56-27.25 11.00-27.25 11.00-28.00 Options outstanding at end of year 7.88-16.00 7.56-27.25 7.56-27.25 Options exercisable at end of year 11.00-15.13 7.56-27.25 7.56-27.25
Under the 1987 Employee Stock Purchase Plan, 3,200,000 shares of common stock were made available for purchase through a series of ten consecutive annual offerings each January beginning January 1, 1987. In order to purchase stock, each participant may have up to 10% of his pay, not to exceed $25,000 in any offering period, withheld through payroll deductions. All full-time employees, except members of the Administrative Committee of the Plan, are eligible to participate. The purchase price of each share is 85% of the closing market price of the Company's common stock on the last pay date of each calendar month. Employees purchased 494,462, 353,879, and 222,923 shares of stock in 1993, 1992, and 1991, respectively. In 1975 the Intergraph Corporation Stock Bonus Plan was established to provide retirement benefits to substantially all U.S. employees. Effective January 1, 1987, the Company amended the Plan to qualify it as an employee stock ownership plan (ESOP). The Company makes contributions to the Plan in amounts determined at the discretion of the Board of Directors, and the contributions are funded with Company stock. Amounts are allocated to the accounts of participants based on compensation. Benefits are payable to participants subject to the vesting provisions of the Plan. The Company did not make a contribution to the Plan in 1993 or 1992. The contribution for 1991 was $7,670,000. On October 1, 1990, the Company established the Intergraph Corporation SavingsPlus Plan, an employee savings plan qualified under Section 401(k) of the Internal Revenue Code, covering substantially all U.S. employees. Employees can elect to contribute up to 13% of their compensation to the Plan. The Company matches 50% of employee contributions up to 6% of each employee's compensation. Employee contributions and matching Company contributions began in February 1991. Company contributions to the Plan were $5,993,000, $6,099,000, and $4,979,000 in 1993, 1992, and 1991, respectively. The Company also maintains various retirement benefit plans for employees of its international subsidiaries, primarily defined contribution plans that cover substantially all employees. Contributions to the plans are made in cash and are allocated to the accounts of participants based on compensation. Benefits are payable based on vesting provisions contained in each plan. Contributions to the plans were $2,928,000, $3,127,000, and $3,321,000 in 1993, 1992, and 1991, respectively. NOTE 8 -- ACQUISITIONS. In February 1993, the Company acquired Bestinfo, Inc. for $9.5 million in cash and other consideration. Bestinfo is a producer of merchandise advertising technology for the retail/catalog markets. The accounts and results of operations of Bestinfo have been combined with those of the Company since the date of acquisition using the purchase method of accounting. Had the purchase occurred January 1, 1992, the Company's revenues, net income (loss), and earnings (loss) per share would not have been materially affected for either the year ended December 31, 1992 or 1993. During 1992, the Company in separate transactions acquired three companies for $25,514,000, consisting of $19,658,000 in cash, issuance of notes payable and forgiveness of debt totaling $3,272,000, and issuance of 191,354 shares of the Company's stock valued at $2,584,000. These companies are engaged in businesses related to that of the Company. The accounts and results of operations of these companies have been combined with those of the Company since the dates of acquisition using the purchase method of accounting. Had the purchases occurred January 1, 1991, the Company's revenues, net income, and earnings per share would not have been materially affected for either the year ended December 31, 1991 or 1992. During 1992, the Company in separate transactions acquired less than majority ownership interests or otherwise invested in six companies for a total of $19,362,000, consisting of $16,466,000 in cash and $2,896,000 in other amounts payable. All of these companies are engaged in businesses related to that of the Company. These investments, which are included in "Long-term investments" in the accompanying consolidated balance sheets, did not have a significant impact on the Company's results of operations for the year ended December 31, 1992. 24 NOTE 9-- OPERATIONS BY GEOGRAPHIC AREA. The following summary of operations by geographic area includes both sales to unaffiliated customers and intercompany transfers between geographic areas. Transfers between geographic areas are accounted for under a transfer pricing policy. Income (loss) from operations by geographic areas reflects these transfers. 1993 1992 1991 ---------- ---------- ---------- (In thousands) Revenues United States: Unaffiliated customers - U.S. $ 514,399 $ 571,856 $ 640,438 Unaffiliated customers - export 36,017 41,014 42,123 Consolidated subsidiaries 185,673 189,109 198,430 ---------- ---------- ---------- 736,089 801,979 880,991 ---------- ---------- ---------- Europe: Unaffiliated customers 371,313 447,134 400,724 ---------- ---------- ---------- Other International: Unaffiliated customers 128,548 116,657 112,093 U.S. parent 2,994 4,554 5,747 ---------- ---------- ---------- 131,542 121,211 117,840 ---------- ---------- ---------- Eliminations -- net (188,667) (193,663) (204,177) ---------- ---------- ---------- Total revenues $1,050,277 $1,176,661 $1,195,378 ========== ========== ========== Income (Loss) From Operations United States $ (116,500) $ 18,257 $ 98,520 Europe ( 43,262) 8,224 ( 153) Other International ( 16,782) ( 11,885) ( 4,009) Eliminations -- net 11,922 10,812 2,675 ---------- ---------- ---------- Total income (loss) from operations $ (164,622) $ 25,408 $ 97,033 ========== ========== ========== Identifiable Assets United States $ 612,370 $ 649,764 $ 736,447 Europe 224,011 322,604 339,232 Other International 103,168 102,310 105,290 Eliminations -- net ( 84,220) ( 88,015) (184,354) ---------- ---------- ---------- Total identifiable assets $ 855,329 $ 986,663 $ 996,615 ========== ========== ========== Revenues from the U.S. government were $165,655,000 (16% of total revenue) for 1993, $186,497,000 (16% of total revenue) for 1992, and $172,286,000 (14% of total revenue) for 1991. No other customer of the Company accounts for more than 10% of the total revenues of the Company. NOTE 10 -- SHAREHOLDER RIGHTS PLAN. On August 25, 1993, the Company's Board of Directors adopted a Shareholder Rights Plan. As part of this plan the Board of Directors declared a distribution of one common stock purchase right (a "Right") for each share of the Company's common stock outstanding on September 7, 1993. Each Right entitles the holder to purchase from the Company one common share at a price of $50, subject to adjustment. The Rights are not exercisable until the occurrence of certain events related to a person or a group of affiliated or associated persons acquiring, obtaining the right to acquire, or commencing a tender offer or exchange offer, the consummation of which would result in beneficial ownership by such a person or group of 15% or more of the outstanding common shares of the Company. Rights will also become exercisable in the event of certain mergers or an asset sale involving more than 50% of the Company's assets or earnings power. Upon becoming exercisable, each Right will allow the holder, except the person or group whose action has triggered the exercisability of the Rights, to either buy securities of Intergraph or securities of the acquiring company, depending on the form of the transaction, having a value of twice the exercise price of the Rights. The Rights trade with the Company's common stock. The Rights are subject to redemption at the option of the Board of Directors at a price of $.01 per Right until the occurrence of certain events, and are exchangeable for the Company's common stock at the discretion of the Board of Directors under certain circumstances. The Rights expire on September 7, 2003. 25 NOTE 11 -- RELATED PARTY TRANSACTIONS. The Company has an exclusive worldwide license agreement with Bentley Systems, Inc., a 50%-owned affiliate, to market, use, distribute, and sublicense MicroStation software, which is the core graphics software for various operating systems and hardware platforms included in the systems currently sold by the Company. Under this agreement the Company pays royalties to Bentley based on its sales of MicroStation. Royalties expense totaled $18,085,000 in 1993, $16,854,000 in 1992, and $14,004,000 in 1991. At December 31, 1993 and 1992, amounts due to Bentley and included in "Other accrued expenses" in the balance sheet totaled $5,642,000 and $6,330,000, respectively. Bentley notified Intergraph on February 3, 1994, that in its opinion, certain events have occurred under the terms of the license agreement which make the license nonexclusive. Intergraph disputes that the license agreement has changed, and pursuant to the license agreement, Intergraph has submitted the dispute to arbitration. NOTE 12 -- SUMMARY OF QUARTERLY INFORMATION -- UNAUDITED.
Quarter Ended March 31 June 30 Sept. 30 Dec. 31 - ------------------------- --------- -------- -------- -------- (In thousands except per share amounts) Year ended December 31, 1993: Revenues $282,077 $249,110 $250,561 $268,529 Gross profit 117,959 102,783 103,938 103,311 Loss before cumulative effect of change in accounting for income taxes (10,172) (18,608) (19,839) (69,923) Net loss ( 7,672) (18,608) (19,839) (69,923) Net income (loss) per share: Loss before cumulative effect of change in accounting for income taxes ( .21) ( .40) ( .43) ( 1.54) Cumulative effect of accounting change .05 --- --- --- Net loss ( .16) ( .40) ( .43) ( 1.54) Weighted average shares outstanding 47,724 46,252 45,769 45,343 Year ended December 31, 1992: Revenues $277,247 $288,745 $303,344 $307,325 Gross profit 134,881 135,132 144,475 134,805 Net income (loss) 2,945 2,917 4,577 ( 1,997) Net income (loss) per share .06 .06 .10 ( .04) Weighted average shares outstanding 48,508 48,184 47,686 47,690
First quarter 1993 earnings were reduced by a net $.03 per share by three nonrecurring items which included a restructuring charge of $.04 per share, the write-off of an equity investment of $.04 per share, and the required adoption of a change in the method of accounting for income taxes, which improved earnings by $.05 per share. Restructuring charges reduced second quarter 1993 earnings by $.03 per share, third quarter by $.14 per share and fourth quarter by $1.18 per share. Third quarter 1992 earnings were reduced $.07 per share by foreign exchange losses and $.06 per share by a restructuring charge. Fourth quarter 1992 earnings were reduced $.13 per share by foreign exchange losses and adjustment to previously recorded third party royalties expense, the effects of which were partially offset by an $.08 per share reversal of prior quarters' expense for the Company's discretionary contribution to the Employees' Stock Ownership Plan. 26 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Intergraph Corporation We have audited the accompanying consolidated balance sheets of Intergraph Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intergraph Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 6, in 1993 the Company changed its method of accounting for income taxes. Ernst & Young Birmingham, Alabama January 28, 1994 DIVIDEND POLICY The Company has never declared or paid a cash dividend on its common stock. It is the present policy of the Company's Board of Directors to retain all earnings to finance the Company's operations. PRICE RANGE OF COMMON STOCK Since April 1981, Intergraph common stock has traded in the National Association of Securities Dealers Automated Quotation (NASDAQ) system under the symbol INGR. As of January 31, 1994, there were 45,389,118 shares of common stock outstanding, held by 5,522 shareholders of record. The following table sets forth, for the periods indicated, the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System. Period High Low - ------ ------- ------- 1993 First Quarter $13 1/2 $11 5/8 Second Quarter 12 8 7/8 Third Quarter 12 3/8 8 1/2 Fourth Quarter 11 1/8 9 1/8 1992 First Quarter $22 3/8 $17 Second Quarter 18 3/4 12 1/2 Third Quarter 16 3/4 12 5/8 Fourth Quarter 14 1/4 11 27 TRANSFER AGENT AND REGISTRAR Harris Trust and Savings Bank Shareholder Services Division P. O. Box 755 Chicago, IL 60690-0755 CORPORATE COUNSEL Lanier Ford Shaver & Payne P.C. 200 West Court Square, Suite 5000 Huntsville, AL 35801 INDEPENDENT AUDITORS Ernst & Young AmSouth/Harbert Plaza, Suite 1900 Birmingham, AL 35203 FORM 10-K A copy of the Company's Form 10-K filed with the Securities and Exchange Commission is available without charge upon written request to Shareholder Relations, Intergraph Corporation, Huntsville, AL 35894-0001. ANNUAL MEETING The annual meeting of Intergraph Corporation will be held May 12, 1994, at the Corporate offices in Huntsville, Alabama. 28 BOARD MEMBERS AND OFFICERS BOARD OF DIRECTORS VICE PRESIDENTS James W. Meadlock Edward J. Blaum Chief Executive Officer and Chairman of the Board Edward F. Boyle Roland E. Brown Bruce J. Brasseale Director Richard S. Buchheim Larry J. Laster Executive Vice President Coleman P. Callaway and Director Roger O. Coupland Nancy B. Meadlock Executive Vice President Anthony B. Crawford and Director Jeffrey H. Edson Keith H. Schonrock, Jr. Director Milford B. French James F. Taylor, Jr. Jeffrey P. Heath Director Fred D. Heddens Robert E. Thurber Executive Vice President Robert L. Kuehlthau and Director William H. McClure EXECUTIVE VICE PRESIDENTS Robert A. Mueller Lawrence F. Ayers, Jr. Winston P. Newton Neil E. Keith Robert Patience Stephen J. Phillips Charles E. Robertson, Jr. Maurice G. Romine Richard M. Salva William E. Salter John W. Wilhoite Tommy D. Steele Edward A. Wilkinson Herman E. Thomason TREASURER John M. Thorington, Jr. James H. Dorton Damian Walters SECRETARY Allan B. Wilson John R. Wynn Manfred Wittler 29 -----END PRIVACY-ENHANCED MESSAGE-----