-----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, edxIKK9MI6oAZ1YEB8zXKZ4rZonv8KrNBB7R6KQMb3mi01MeFDMllnrNcu+UvbAK /UNQ44kTDIVxoQTe9cdzTQ== 0000351145-95-000003.txt : 19950616 0000351145-95-000003.hdr.sgml : 19950616 ACCESSION NUMBER: 0000351145-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950323 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGRAPH CORP CENTRAL INDEX KEY: 0000351145 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 630573222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09722 FILM NUMBER: 95522704 BUSINESS ADDRESS: STREET 1: THIGPEN HQ011 #9384 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2057302000 10-K 1 =============================================================================== 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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission file number 0-9722 INTERGRAPH CORPORATION ----------------------- (Exact name of registrant as specified in its charter) DELAWARE 63-0573222 ---------- ----------- (State or other jurisdiction of(I.R.S. Employer Identification No.) incorporation or organization) INTERGRAPH CORPORATION HUNTSVILLE, ALABAMA 35894-0001 -------------------- ----------- (Address of principal executive offices)(Zip Code) 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. ( ) As of January 31, 1995, there were 45,652,929 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 $417,584,000 based on the closing sale price of such stock as reported by NASDAQ on January 31, 1995, 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, 1994 Part II, Part IV Portions of the Proxy Statement for the May 18, 1995 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 the single industry segment of 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. Consulting, support, and training services are also provided. Intergraph systems support the creation, analysis, display, output, and maintenance of virtually every type of design, model, 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: o Workstations and servers based on Intel Corporation (Intel) or Intergraph microprocessors o A variety of Intergraph and third-party peripheral devices o Industry-standard networking Software includes applications for computer-aided design, manufacturing, and engineering (CAD/CAM/CAE), mapping and geographic information systems, electronic publishing, and technical information management. INTERGRAPH SYSTEMS Intergraph systems include hardware and/or application software developed by the Company and others. These products can be configured to address the needs of any size organization. The Company provides point solutions as well as 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 based on Intel microprocessors with the Windows/DOS or Windows NT operating system or the Company's microprocessor with a UNIX operating system. In addition, the Company has developed interoperability products that allow Windows NT and UNIX applications to work together in a mixed environment. In November 1992, the Company announced its decision to port its technical software applications to Microsoft Corporation's new Windows NT operating system. Microsoft's standard Windows system has been widely accepted in the personal computing (PC) market, and Windows NT is Microsoft's operating system for high-end computing. The effect of this decision has been to expand the availability of the Company's workstations and software applications to Windows-based computing environments not previously addressed by the Company, including the availability of Intergraph software applications that operate across a variety of hardware architectures, including those of other hardware vendors that use the Windows NT operating system. Prior to this decision, the Company's software applications operated principally on Intergraph hardware platforms. At the same time, the Company has continued to develop and maintain products in the UNIX operating system environment, the foundation for its software applications prior to Windows NT, thereby offering existing and potential customers a choice of UNIX or Windows NT operating systems as well as a path to the Windows NT system if and when the customer chooses. Limited shipments of Windows NT-based software began in the fourth quarter of 1993. Sales of Windows based software represented 48% of software revenues in 1994 (60% for fourth quarter 1994). As of the end of 1994, the Company has completed the port of its applications software to Windows NT for all applications scheduled for conversion. While the Company believes that Windows NT will become the dominant operating system in the markets it serves, adoption of any new operating system requires considerable effort on the part of customers, and the timing of such conversions is unpredictable. In addition, competing operating systems are available in the market, and several competitors of the Company offer or are adopting the Windows NT operating system for their products. The Company believes that Intel Corporation's hardware architecture has an important role in the computing markets it serves. During the last half of 1993, the Company began to offer a hardware platform (in addition to its own) based on Intel microprocessors. Previously, the Company's hardware platform offering had been based on its own microprocessor. The Company ceased design of its own microprocessor at the end of 1993. Intel-based systems represented approximately 30% of hardware unit sales in 1993 and approximately 74% in 1994 (85% in the fourth quarter of 1994). 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. Systems currently sold by the Company either individually or in combination are as follows: (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. Intergraph workstations are general-purpose computer systems that can run Intergraph and third-party application, data management, data processing, and personal productivity and office automation software packages. (2) Intel- and RISC-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, 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 application software for the Windows/DOS, Windows NT, and UNIX operating systems. 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. 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 Windows-, Windows NT-, and UNIX-based software applications is MicroStation, a graphics software product owned by Bentley Systems, Inc., an Intergraph affiliate. MicroStation provides fundamental graphics element creation, maintenance, and display functions for Intergraph's UNIX and Intel-based workstations. MicroStation is also available on Apple Macintosh, Sun SPARCstations, and Hewlett-Packard HP700 workstations. A Japanese language version of MicroStation runs on the NEC personal computer. 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/MVS, DB2/400, Rdb, Microsoft SQL Server, and SyBase systems. Intergraph's Relational Interface System (RIS) is a middleware product that provides database-independent access to data stored in supported databases. To facilitate the use of Intergraph systems with those of 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. The architecture, engineering, and construction (AEC), mapping/geographic information systems (GIS), and mechanical design, engineering, and manufacturing (MDEM) product applications have dominated the Company's product mix over the last three years, with no other single application representing more than 10% of systems revenue. The relative contributions of these product families to total systems revenue for both 1994 and 1993 were AEC 34%, GIS 42%, MDEM 16%, and all other applications 8%. 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. Packages are also offered for space planning, facility layout, maintenance management, lease management and asset tracking. Intergraph's civil engineering software includes capabilities for coordinate geometry and for site, water resources, bridge, structural, 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 the generation of construction drawings. The Company's plant design software addresses the needs of process and power plant design efforts. The Plant Design System (PDS) product supports process flow diagrams, piping and instrumentation diagrams (P&ID), instrumentation data management, piping, equipment, heating/ventilation/air conditioning, electrical, structural, and other design aspects of a plant. Three-dimensional modeling capabilities are also provided. The system performs interference-checking and provides reports, materials lists, and drawings. A supporting product provides "walk-throughs" of three-dimensional plant models. Mapping and Geographic Information Systems. Intergraph offers a range of mapping and GIS solutions to assist businesses, governments, and academic institutions in solving geography-based problems. Intergraph's mapping/GIS software tools address the life cycle of mapping/GIS projects, from project and data management through data collection and integration, spatial query and analysis, output and map production. Intergraph's mapping/GIS 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 and aeronautical charting systems. Transportation industry applications range from decision support activities such as policy, planning, and programming to the creation of operations systems that support day- to-day tasks. Utility companies utilize Intergraph's mapping/GIS products to automate management and analysis applications such as market analyses, long-range planning and forecasting, corridor evaluation and selection, right-of-way analysis, and environmental impact studies for siting, permitting, contaminant studies, and risk evaluation. 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 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, utilizing 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. Intergraph's manufacturing 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, 1994, the Company spent $137.2 million (13.2% of revenues) for product development activities compared to $160.3 million (15.3% of revenues) in 1993, and $150.2 million (12.8% of revenues) in 1992. 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, by shorter product cycles, and by development and support of software standards that result in less specific hardware dependency by customers. The Company believes the life cycle of its products to be less than two years, and it is therefore engaged in continuous product development activity. The operating results of the Company and others in the industry will continue to depend on the ability to accurately anticipate customer requirements and technological trends and to rapidly and continuously develop and deliver new hardware and software products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability. MANUFACTURING AND SOURCES OF SUPPLY The Company's primary manufacturing activities consist of the manufacture of printed circuit boards used in the Company's workstations and servers and the assembly and testing of components and subassemblies manufactured by the Company and others. As described under "Intergraph Systems" above, the Company ceased design of its own microprocessor at the end of 1993. Substantially all of the Company's microprocessor needs are currently supplied by Intel Corporation. The Company does not have a fixed quantity commitment for microprocessors in its agreements with Intel, but believes it has a good relationship with Intel and is unaware of any reason that Intel might encounter difficulties in meeting the Company's microprocessor needs. An inability to obtain a sufficient supply of Intel microprocessors 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. In late November, 1994 it was disclosed that a rare problem may exist with Intel's Pentium microprocessor, which is used in many of the Company's workstations and servers. The problem relates to an unlikely sequence of operations that can produce a round-off error when dividing certain numbers and carrying the answer to several decimal places. Intel has said the error is likely to occur only once in every nine billion random division operations. The Company has shipped several thousand Pentium processor-based workstations and servers to date. The Company has not experienced any reports of this problem from a customer site, and has not experienced the problem during internal development. Accordingly, the Company has no reason to believe that current or future customers are likely to encounter the problem. However, the Company has committed to a plan of replacement of all such processors in its customer base. Intel has announced that it will warrant the processor on this issue, and the Company's business arrangements with Intel provide warranty coverage of the Pentium microprocessor by Intel. Neither the discovery of the Pentium problem or the replacement of the affected units significantly affected the Company's results of operations or cash flows in 1994, and the Company expects no impact on its 1995 results of operations or cash flows. All shipments of the Company's workstations and servers since January 1, 1995 have contained the corrected version of the Pentium processor. 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 through a combination of direct and indirect channels worldwide. Direct channel sales, which represent the majority of the Company's systems revenues, are generated by the Company's direct sales force through sales offices in over 50 countries worldwide. The efforts of the direct sales force are augmented by sales through indirect channels, including dealers, value-added-resellers, distributors, and system integrators. The Company believes that indirect channel sales are a key to future growth in sales volume and profitability, and expects that indirect channel sales will increase as a percentage of total systems revenue. The Company's selling efforts are organized along key industry lines (transportation and local government, utilities, building and process, manufacturing, vehicle design, defense, electronics, etc.). The Company believes an industry focus better enables it to meet the specialized needs of customers. In general, the Company's 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. 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 most users subscribe. INTERNATIONAL OPERATIONS International markets, particularly Europe, continue in importance to the industry and to the Company. Sales outside the U.S. represented 49% of total revenues in 1994 and 51% in 1993. European revenues were 33% of total revenues in 1994 and 35% in 1993. 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, 1994, the Company had approximately 1,600 employees in Europe and 1,100 employees in other international locations. 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. The Company has certain foreign currency related asset and liability exposures related to its international operations against which certain measures, primarily hedging, are taken to reduce currency risk. With respect to those exposures, the Company seeks to protect against financial statement volatility arising from changes in exchange rates with respect to amounts denominated for balance sheet purposes in currencies other than the functional currency of the local entity, and therefore enters into forward exchange contracts related to certain balance sheet items, primarily intercompany receivables, payables, and debt. Periodic changes in the value of these contracts offset exchange rate- related changes in the financial statement value of these balance sheet items. Forward exchange contracts are purchased only in amounts sufficient to offset possible rate-related changes in the recorded values of balance sheet items. The Company does not speculate or otherwise trade in foreign currencies. The Company has historically experienced slower collection periods for its international accounts receivable than for similar sales to customers in the United States. Slower collection periods adversely affect liquidity. In addition, in 1994 the Company wrote-off a receivable from a Middle Eastern customer in the amount of $5.5 million, and is experiencing slow collection periods throughout that region, particularly in Saudi Arabia. Total accounts receivable from Middle Eastern customers as of the end of 1994 was $18 million. Based on its prior experience with product transitions and knowledge of the international regions in which it conducts its business, the Company believes that customer acceptance of its new products based on the Windows NT operating system and Intel microprocessors may lag the pace of acceptance in the United States, particularly in Europe. This lag may temporarily increase the operating losses incurred in international regions. In addition, the Company conducts business in certain international regions that it considers to be emerging business areas, particularly parts of the Asia Pacific and Middle East regions. In these regions, operating costs tend to be higher as a percentage of revenue than in the Company's more mature business regions. See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 1, 4, and 11 of Notes to Consolidated Financial Statements contained in the Company's 1994 Annual Report, portions of which are incorporated by reference in this Form 10-K Annual Report, for further discussion of the Company's international operations. U.S. GOVERNMENT BUSINESS Total revenues from the United States government were approximately $167 million in both 1994 and 1993 and $186 million in 1992, representing 16% of total revenue in each of the three years. The Company sells to the U.S. government under long-term contract arrangements, primarily indefinite delivery, indefinite quantity and 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. No other customer exceeds 10% of the total revenue of the Company. The Company has historically experienced slower collection periods for its U.S. government accounts receivable than for its commercial customers, which adversely affects liquidity. At December 31, 1994, accounts receivable from the U.S. government was $49 million. 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, 1994, was $207 million. At December 31, 1993, backlog was $232 million. Substantially all of the December 1994 backlog of orders is expected to be shipped during 1995. 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 accurately anticipate customer requirements and technological trends and continuously develop products with enhanced performance that can be offered at competitive prices. 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, particularly in product pricing. Competition in the interactive computer graphics industry varies among the different product application areas. The Company considers its principal competitors in the interactive computer graphics market to be IBM, Computervision Corp., Hewlett-Packard Corp., Digital Equipment Corporation (DEC), Sun MicroSystems, Inc., Unigraphics (a division of Electronic Data Systems, Inc.), Silicon Graphics, Inc., and Mentor Graphics, Inc. In the low-end graphics market, Intergraph competes with the software products of Autodesk, Inc., Computervision, and several smaller companies. Several companies with greater financial resources than the Company, including IBM, DEC, and Hewlett-Packard are active in the industry. The Company provides point solutions and 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. Through December 31, 1994, the Company had an exclusive license agreement with Bentley Systems, Inc. (BSI), a 50%-owned affiliate of the Company, under which the Company distributed MicroStation, a software product developed and maintained by BSI and utilized in many of the Company's software applications. The exclusivity of the Company's distribution license was the subject of arbitration and litigation between the two companies and the other 50% shareholders of BSI during 1993 and 1994. In May, 1994, this dispute was settled and all related arbitration and litigation was terminated. As a result, effective January 1, 1995, both the Company and BSI will distribute MicroStation. The Company has a nonexclusive license to sell MicroStation via its direct sales force and to sell MicroStation via its indirect sales channels if MicroStation is sold with other Intergraph products. See Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 1994 Annual Report, portions of which are incorporated by reference in this Form 10-K Annual Report, for further discussion of the settlement with BSI and its effects on the Company. 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 via 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. EMPLOYEES At December 31, 1994, the Company had approximately 9,200 employees. Of these, approximately 2,700 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 its relations with employees to be good. ITEM 2. PROPERTIES The Company's corporate offices and primary manufacturing facility are located in Huntsville, Alabama. Sales and support facilities are maintained throughout the world. In January, 1994 the Company announced its decision to close its European manufacturing and distribution facility (IEM) located in Nijmegen, The Netherlands over the course of 1994 and transfer related activities to its Huntsville manufacturing facility. The phased closure of IEM was completed during the third quarter of 1994. In the fourth quarter of 1994, the Company determined that it will utilize a portion of this facility as a distribution center for Europe beginning in early 1995. Excess space will be placed for lease. All manufacturing activity will continue to be performed in the U.S. 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 distribution center 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 None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None. 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 61 Chairman of the Board and Chief Executive Officer 1969 Larry J. Laster 43 Executive Vice President, Chief Financial Officer, and Director 1986 Nancy B. Meadlock 56 Executive Vice President and Director 1969 James F. Taylor, Jr. 50 Executive Vice President and Director 1977 Robert E. Thurber 54 Executive Vice President and Director 1977 Lawrence F. Ayers, Jr. 62 Executive Vice President 1987 Richard S. Buchheim 49 Executive Vice President 1993 Penman R. Gilliam 57 Executive Vice President 1994 Neil E. Keith 49 Executive Vice President 1985 Stephen J. Phillips 53 Executive Vice President 1987 William E. Salter 53 Executive Vice President 1984 Tommy D. Steele 54 Executive Vice President 1992 Herman E. Thomason 69 Executive Vice President 1991 John M. Thorington, Jr. 51 Executive Vice President 1980 Edward A. Wilkinson 61 Executive Vice President 1987 Allan B. Wilson 46 Executive Vice President 1982 Manfred Wittler 54 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 10 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. James F. Taylor, Jr., joined the Company in July 1969, shortly after its formation, and is considered to be a founder. Mr. Taylor has served as a Director since 1973. He was responsible for the design and development of the Company's first commercial computer-aided design products and for many of the Company's other application-specific products. Mr. Taylor was elected Vice President in 1977 and was an Executive Vice President at his retirement in 1992. Mr. Taylor returned to full-time employment with the Company in January 1995 and is currently an Executive Vice President of the Company and President of the Intergraph Public Safety Business Unit. Mr. Taylor holds a bachelor of science degree in mathematics. Robert E. Thurber is a founder of the Company and has been a Director since 1972. He is responsible for developing requirements and strategic directions for application solutions. In June 1977, Mr. Thurber was elected Vice President and is currently Executive Vice President and Chief Engineer. 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 bachelor's degree in civil engineering and a master's degree in public administration. Richard S. Buchheim joined the Company in July 1992. He was elected Vice President in September 1993 and Executive Vice President in November 1994 and currently has responsibility for the Company's Information Management and Solutions Engineering Division. Mr. Buchheim came to Intergraph from the Camex subsidiary of DuPont Electronic Imaging Systems where he was Senior Vice President of Engineering. In his 18 year tenure at DuPont and Camex, Mr. Buchheim led teams of over 100 software engineers in the development of document management and publishing systems for major metropolitan newspapers, including the New York Times, New York Daily News, Toronto Star, and Orlando Sentinel, and for retail advertisers such as May Company, Osco Drug, Service Merchandise and Home Depot. Penman R. Gilliam joined the Company in April 1994 as Executive Vice President responsible for Federal Programs. Mr. Gilliam came to Intergraph from Hughes Aircraft Company where he was Vice President in charge of Hughes Communications and Data Systems Division. From late 1987 through early 1993, Mr. Gilliam served as Deputy Director of the Defense Mapping Agency (DMA), the senior civilian responsible for overall production, operations, and research. Mr. Gilliam also held a number of other positions with the DMA including production management positions at DMA facilities in St. Louis and Washington D.C. and a Program Director position for DMA's Digital Production System. 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. 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. 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 Director of Marketing Communications. Dr. Salter was elected Vice President in August 1984 and is currently an Executive Vice President of the Company and President of the Intergraph Federal Systems Business Unit. He holds a doctorate in electrical engineering. Tommy D. Steele joined the Company in June 1992 and is responsible for systems software, most applications software, and professional services. He is currently an Executive Vice President of the Company and President of the Intergraph Software Solutions Business Unit. Mr. Steele came to Intergraph from IBM Corporation, where he was employed 28 1/2 years. During his first 18 years of service at IBM, he worked on the Saturn, Apollo, and Skylab programs, the space shuttle, and a number of Department of Defense programs. Mr. Steele's last ten years at IBM were spent in the PC software business managing products for communications, databases, office automation, and operating systems with the last four of those years spent managing PC Operating Systems (OS/2, DOS, and AIX). 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. He has responsibility for the Company's scanning and plotting hardware and software, as well as for the MicroStation suite of 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 commercial hardware products. In May 1980, Dr. Thorington was elected Vice President, Graphics Engineering and is currently an Executive Vice President of the Company and President of the Intergraph Computer Systems Business Unit. He holds a doctorate in electrical engineering. Edward A. Wilkinson joined the Company in 1985 as Director of Government Relations. He was elected Vice President of Federal Systems in 1987 and Executive Vice President in 1994. Prior to joining Intergraph, Mr. Wilkinson served for 34 years in the U.S. Navy, retiring with the rank of Rear Admiral. He holds a master's degree in mechanical engineering. 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 has recently assumed responsibility for sales and support for the Company's Asia Pacific region. He holds bachelor's and master's degrees 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 held several positions with Data General Corporation in Europe, including Division Vice President. He holds a doctorate in engineering. 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 39 of the Intergraph Corporation 1994 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, 1994, appearing under "Five-Year Financial Summary" on the inside front cover page of the Intergraph Corporation 1994 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 12 to 20 of the Intergraph Corporation 1994 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 21 to 39 of the Intergraph Corporation 1994 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", "Board Committees and Attendance" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on pages 4 to 5 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 18, 1995, 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 10 to 12 in this Form 10-K Annual Report is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Executive Compensation" on pages 5 to 11 of the Intergraph Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held May 18, 1995, 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 18, 1995, 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 18, 1995, is incorporated by reference in this Form 10-K Annual Report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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 1994 Annual Report to Shareholders: Consolidated Balance Sheets at December 31, 1994 and 1993 21 Consolidated Statements of Operations for the three years ended December 31, 1994 22 Consolidated Statements of Cash Flows for the three years ended December 31, 1994 23 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1994 24 Notes to Consolidated Financial Statements 25-38 Report of Independent Auditors 39 PAGE IN FORM 10-K ---------- 2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1994 19 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 of the companies is less than 20% of consolidated income before income taxes, 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 1994 Annual Report to Shareholders. 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), April 18, 1991 (8), and October 1, 1994 and amendment to the November 1,1989 contract, dated May 27, 1994. 10(d)* Consulting contract of Keith H. Schonrock, Jr., dated January 17, 1990 (8) and amendments. 10(e)* Agreement between Intergraph Corporation and Green Mountain, Inc., dated February 23, 1994. (8) 10(f) System OEM Upgrade Processor Trademark License Agreement, dated April 30, 1993, between the Company and Intel Corporation.(9) 10(g) Trademark License Agreement, dated May 1, 1993, between the Company and Intel Corporation. (9) 10(h) OEM Market Development Program and Trademark License Agreement, dated May 15, 1993, between the Company and Intel Corporation. (9) 10(i) Software License Agreement as amended, dated April 17, 1987, between the Company and Bentley Systems, Inc. (10) 10(j) Settlement Agreement and Mutual General Release, dated May 2, 1994, between the Company and Bentley Systems, Inc. (11) 10(k) Procurement Agreement, dated July 13, 1994, between the Company and the U.S. Navy. (12) 10(l)* Intercap Graphics Systems, Inc. 1989 Stock Option Plan. (13) 10(m)* Intercap Graphics Systems, Inc. 1994 Nonqualified Stock Option Program. (13) 10(n)* Employment contract of Damian Walters, dated January 24, 1994. 10(o)* Loan program for executive officers of the Company as amended, dated March 17, 1994. 10(p) Agreement between the Company and Bentley Systems, Inc., dated December 16, 1994. 11 Computation of Earnings (Loss) Per Share 20 13 Portions of the Intergraph Corporation 1994 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report 21 Subsidiaries of the Company 21 23 Consent of Independent Auditors 22 27 Financial Data Schedule * Denotes management contract or compensatory plan, contract, or arrangement required to be filed as an Exhibit to this Form 10-K - --------------- (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. (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. (8) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, under the Securities Exchange Act of 1934, File No. 0-9722. (9) Incorporated by reference to exhibits filed with the Company's Form 10-K/A, Amendment No. 1, for the fiscal year ended December 31, 1993, under the Securities Exchange Act of 1934, File No. 0-9722. (10) Incorporated by reference to exhibits filed with the Company's Form 10-K/A, Amendment No. 2, for the fiscal year ended December 31, 1993, under the Securities Exchange Act of 1934, File No. 0-9722. (11) Incorporated by reference to exhibits filed with the Company's Form 10-Q/A, Amendment No. 2, for the quarter ended March 31, 1994, under the Securities Exchange Act of 1934, File No. 0-9722. (12) Incorporated by reference to exhibits filed with the Company's Form 10-Q/A, Amendment No. 1, for the quarter ended June 30, 1994, under the Securities Exchange Act of 1934, File No. 0-9722. (13) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form S-8, Registration No. 33-57211, filed January 10, 1995, under the Securities Act of 1933. - --------------- (b) No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 1994. (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. 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 /s/ James W. Meadlock Date: March 21, 1995 ------------------------ James W. Meadlock Chief Executive Officer and Chairman of the Board (Principal Executive Officer) 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 ---- /s/ James W. Meadlock _________________________ Chief Executive Officer and March 21, 1995 James W. Meadlock Chairman of the Board (Principal Executive Officer) /s/ Larry J. Laster _________________________ Executive Vice President, Chief March 21, 1995 Larry J. Laster Financial Officer and Director (Principal Financial Officer) _________________________ Executive Vice President and Nancy B. Meadlock Director March 21, 1995 /s/ James F. Taylor, Jr. _________________________ Executive Vice President and James F. Taylor, Jr. Director March 21, 1995 /s/ Robert E. Thurber _________________________ Executive Vice President and Robert E. Thurber Director March 21, 1995 /s/ Roland E. Brown _________________________ Director March 21, 1995 Roland E. Brown /s/ Keith H. Schonrock, Jr. _________________________ Director March 21, 1995 Keith H. Schonrock, Jr. /s/ John W. Wilhoite _________________________ Vice President and Controller March 21, 1995 John W. Wilhoite (Principal Accounting Officer) INTERGRAPH CORPORATION AND SUBSIDIARIES SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - ------------------------ ---------- ---------- -------------- ------------ Allowance for doubtful accounts deducted from accounts receivable in the balance sheet 1994 $20,791,000 10,536,000 11,018,000 (1) $20,309,000 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 Allowance for obsolete inventory deducted from inventories in the balance sheet 1994 $24,560,000 20,137,000 13,664,000 (2) $31,033,000 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 (1) Uncollectible accounts written off, net of recoveries. (2) Obsolete inventory reduced to net realizable value. EX-11 2 INTERGRAPH CORPORATION AND SUBSIDIARIES EXHIBIT 11 ---- COMPUTATION OF EARNINGS (LOSS) PER SHARE YEAR ENDED DECEMBER 31, 1994 1993 1992 ------------- -------------- ------------ Primary: Weighted average common shares outstanding 44,860,000 46,199,000 47,616,000 Net common shares issuable on exercise of certain stock options (1) --- --- 404,000 ------------- -------------- ----------- Average common and equivalent common shares outstanding 44,860,000 46,199,000 48,020,000 ============= ============== ============ Income (loss) before cumulative effect of change in accounting for income taxes $(70,220,000) $(118,542,000) $8,442,000 Cumulative effect of change in accounting for income taxes --- 2,500,000 --- ------------- -------------- ----------- Net income (loss) $(70,220,000) $(116,042,000) $8,442,000 ============= ============== =========== Earnings (loss) per share: Income (loss) before cumulative effect of change in accounting for income taxes $(1.56) $(2.56) $.18 Cumulative effect of change in accounting for income taxes --- .05 --- ------------- -------------- ------------ Net income (loss) per share $(1.56) $(2.51) $.18 ============= ============== ============ Fully diluted: Weighted average common shares outstanding 44,860,000 46,199,000 47,616,000 Net common shares issuable on exercise of certain stock options (1) --- --- 404,000 ------------- -------------- ------------ Average common and equivalent common shares outstanding 44,860,000 46,199,000 48,020,000 ============= ============== ============ Income (loss) before cumulative effect of change in accounting for income taxes ($70,220,000) $(118,542,000) $8,442,000 Cumulative effect of change in accounting for income taxes --- 2,500,000 --- ------------- -------------- ------------- Net income (loss) ($70,220,000) $(116,042,000) $8,442,000 ============= ============== ============ Earnings (loss) per share: Income (loss) before cumulative effect of change in accounting for income taxes $(1.56) $(2.56) $.18 Cumulative effect of change in accounting for income taxes --- .05 --- ------------- -------------- ------------ Net income (loss) per share ($1.56) $(2.51) $.18 ============= ============== ============ (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. EX-21 3 INTERGRAPH CORPORATION AND SUBSIDIARIES EXHIBIT 21 ---- SUBSIDIARIES OF REGISTRANT PERCENTAGE OF VOTING STATE OR OTHER SECURITIES JURISDICTION OF OWNED BY NAME INCORPORATION PARENT - -------------------------------------------------- --------------- ---------- Bentley Systems, Inc. Delaware 50 Bestinfo, Inc. Delaware 100 Intergraph China, Inc. Delaware 100 Intergraph European Manufacturing, L.L.C. Delaware 100 Intergraph (Italy), L.L.C. Delaware 100 Intergraph (Middle East), L.L.C. Delaware 100 Quintus Corporation 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 Portugal 100 Computacao Grafica, S.A. Intergraph SSR sro Slovac Republic 100 Intergraph (Sverige) AB Sweden 100 Intergraph (Switzerland) A.G. Switzerland 100 Intergraph (UK), Ltd. United Kingdom 100 Intergraph Corporation (Malaysia) Sdn Bhd Malaysia 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 Singapore 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 Intergraph Electronics Ltd. Israel 100 EX-23 4 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 31, 1995, included in the 1994 Annual Report to Shareholders of Intergraph Corporation. Our audits also included the financial statement schedule of Intergraph Corporation listed in Item 14(a)(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents 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; in the Registration Statement (Form S-8 No. 33-35846) pertaining to the 1990 Employee Stock Option Plan dated July 12, 1990; in the Registration Statement (Form S-8 No. 33-53849) pertaining to the Intergraph Corporation 1992 Stock Option Plan dated May 27, 1994; in the Registration Statement (Amendment No. 3 to Form S-4 No. 33-85740) pertaining to the acquisition of InterCAP Graphics Systems, Inc. dated December 8, 1994; in the Registration Statement (Form S-8 No. 33-57211) pertaining to the Assumption of Options under InterCAP Graphics Systems, Inc. 1989 Stock Option Plan and 1994 Nonqualified Stock Option Program dated January 10, 1995; and in the related Prospectuses, of our report dated January 31, 1995, with respect to the consolidated financial statements and schedule of Intergraph Corporation and subsidiaries included or incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1994. /s/ Ernst & Young LLP Birmingham, Alabama March 20, 1995 EX-10.C 5 [INTERGRAPH LETTERHEAD] 11-008 CONTRACT OF EMPLOYMENT EXECUTIVE VICE PRESIDENT SALES AND SUPPORT The undersigned: Intergraph Corporation whose registered office is at: CORPORATE HEADQUARTERS HUNTSVILLE, ALABAMA 35894 referred to hereafter as Intergraph, and Dr. Manfred Wittler referred to hereafter as Mr. Wittler HAVE AGREED AS FOLLOWS - ---------------------- 1. APPOINTMENTS ------------ As from October 1, 1994 Intergraph engages Mr. Wittler in the position of Executive Vice President Sales and Support for the Americas for the part of his time not covered under the agreements between Mr. Wittler and Intergraph European Manufacturing LLC, Intergraph (Deutschland) GmbH and Intergraph France S.A. under the conditions hereinafter set out. Mr. Wittler declares to be free of any engagement to another employer with the exception of the three (3) mentioned above. 2. FUNCTIONS --------- The functions of Mr. Wittler will include: That he carries out the expected role related to the above in a professional manner reflecting the responsibility of the post, and that he acts as the surveyor of the Region and Country Management 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 Chief Executive Officer of Intergraph Corporation. 3. PLACE OF WORK ------------- Mr. Wittler will work at the Intergraph office in Huntsville and where ever it may be necessary in the assigned territory. 4. TERRITORY --------- The area assigned to Mr. Wittler includes: North, Central and South America. 5. REMUNERATION ------------ Intergraph will pay Mr. Wittler a gross annual salary in the amount of two hundred thousand Deutsch Marks (200,000 DM ($133,640)) to be paid in a lump sum at the beginning of each calendar year. Payment of the remuneration shall satisfy all claims for overtime and extra hours and includes a fixed amount for commissions on Intergraph sales in the Americas of 60,000 DM ($40,090). 6. 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. 7. VACATION ENTITLEMENT -------------------- In addition to the public holidays Mr. Wittler will be entitled to 25 days paid leave per annum as mentioned in the agreement between Mr. Wittler and Intergraph European Manufacturing LLC. 8. 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. 9. 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 or organization or self-employment operating in direct competition with Intergraph Corporation or its subsidiaries for a period of six (6) months following that termination provided that Intergraph compensates Mr. Wittler in accordance with article 5 of this agreement for those six (6) months. 10. STOCKHOLDING ------------ Mr. Wittler is required to declare all existing and future stockholding by himself, or immediate family, on any company or organization operating in direct competition with Intergraph or its affiliates. 11. OTHER EMPLOYMENT ---------------- Mr. Wittler is not permitted to enter into any form of additional employment whilst this contract is in force without the express written permission of the Chief Executive Officer of Intergraph. 12. CURRENCY AND TERMINATION ------------------------ This Agreement may be terminated by either party per the end of a month with six (6) months written notification. Upon involuntary termination on the part of Intergraph, Intergraph will provide six (6) months severance pay. 13. 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 months of Mr. Wittler's incapacity of work Mr. Wittler shall receive his monthly fixed remuneration in the amount of US$ 11,140 (eleven thousand one hundred forty dollars). 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 payment 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. 14. 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 Alabama and the Intergraph Corporate Tax Department in Huntsville, but Intergraph can not accept any liability for Mr. Wittler's non compliance with any legal requirement in this respect. 15. 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 matter here of except the agreement between Intergraph European Manufacturing LLC and Mr. Wittler, Intergraph (Deutschland) GmbH and Mr. Wittler as well as the agreement between Intergraph (France) S.A. and Mr. Wittler. No change of the provisions of this Agreement shall be binding unless in writing and signed by both parties. 16. PENSION/SOCIAL SECURITY ----------------------- Mr. Wittler has joined both the company pension plans 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 under this Agreement. 17. GOVERNING LAWS -------------- This Agreement will be subject to United States of America Law and Regulations of Employment For and on behalf of Intergraph Corporation /s/ Larry Laster - ---------------------------- ------------------------ Mr. Larry Laster Dr. Manfred Wittler Executive Vice President Executive Vice President Date: 10/1/94 Date: ----------------------- ------------------- - ---------------------------------------------------------------------------- 3 INTERGRAPH - ---------- Confidential Office of the Vice President Memorandum - ---------------------------------------------------------------------------- Ref.: 03-034 Date: May 27, 1994 To: Manfred Wittler Copy: Jim Meadlock Manfred Wittler Personnel File From: Jeff Heath Subject: Extension Of Your Netherlands Contract - --------------------------------------------------------------------------- With reference to the Contract between yourself and Intergraph European Manufacturing BV, effective November 1, 1989, and subsequently assigned to Intergraph European Manufacturing LLC, the aforementioned contract is hereby extended from November 1, 1994 until October 31, 1997, under the same terms and conditions as the original contract with the following changes: 1. Your new title is "Executive Vice President Sales and Support Americas and Europe. 2. You report to the Chief Executive Officer. 3. Your remuneration is as defined in the yearly Compensation Package approved by the Chief Executive Officer. Approved on May 24, 1994, Hoofddorp, The Netherlands /s/ Jeffrey P. Heath /s/ Manfred Wittler 5/27/94 - ----------------------------- -------------------- -------- Jeffrey P. Heath Manfred Wittler Date Vice President Business Operations Executive Vice President and Finance, Europe and Mid-World Sales and Support Managing Director Intergraph Europe Americas and Europe LLC EX-10.D 6 [INTERGRAPH LETTERHEAD] GREEN MOUNTAIN INC. CONSULTING CONTRACT AMENDMENT NUMBER FOUR The consulting contract between Intergraph Corporation and Green Mountain, Inc. dated January 17th 1990 is hereby extended through December 31, 1994. Green Mountain, Inc. Intergraph Corporation By: /s/ Gerald F. Donovan By: /s/ Larry Laster ---------------------- ------------------------ Title: President Title: Executive Vice President [INTERGRAPH LETTERHEAD] GREEN MOUNTAIN INC. CONSULTING CONTRACT AMENDMENT NUMBER FIVE The consulting contract between Intergraph Corporation and Green Mountain, Inc. dated January 17th 1990 is hereby extended through December 31, 1995. Green Mountain, Inc. Intergraph Corporation By: /s/ Gerald F. Donovan By: /s/ Larry Laster ----------------------- ------------------- Title: President Title: Executive Vice President EX-10.N 7 INTERGRAPH Interoffice Memorandum - ---------- - ----------------------------------------------------------------------- Office of the CEO Date: January 24, 1994 To: Damian Walters - Vice President From: Jim Meadlock Subject: Employment Agreement - ----------------------------------------------------------------------- I am pleased to confirm to you the following employment agreement: Appointment - ----------- Beginning with January 1, 1994 you will be Executive Vice President, Asia-Pacific Region. You will report to Jim Meadlock, CEO of Intergraph Corporation. Responsibility - -------------- As Executive Vice President, your responsibility will include the management of sales, marketing, and customer support services of the products offered by Intergraph Corporation. Your assigned territory will be the Asia-Pacific Region to include Singapore, Taiwan, Korea, China, Japan, Australia, New Zealand, Hong Kong and other Southeast Asia countries. Remuneration - ------------ Your base salary will be US$17,000 per month. A housing allowance of HK$67,500 per month will be paid. You will also be paid a quarterly bonus of 1/15th of 1% of all bookings received in your region during 1994. Other Employment Confidentiality - -------------------------------- While employed by Intergraph, you are not permitted to enter employment with another firm, organization or company without written permission of the CEO of Intergraph Corporation. If you terminate from Intergraph Corporation, voluntarily or involuntarily, you agree to treat as confidential all information pertaining to the business and interest of Intergraph Corporation. Benefits - -------- You will be covered under and eligible to participate in the benefit plans in effect for Hong Kong according to the terms and conditions of the plans. Upon approval by the CEO, membership fees for an appropriate club will be reimbursed. You will be provided a company automobile to be used in the performance of your duties. You will be entitled to twenty (20) days vacation per calendar year. While on vacation, the company will reimburse the equivalent expenses for return airline passage for you and your family from Hong Kong to Australia. Vacation time should be approved by the CEO of Intergraph Corporation. Whenever possible, vacation time should be scheduled with a planned business trip. Termination - ----------- Your employment may be terminated by yourself or Intergraph Corporation at any time for any reason. Upon termination, two (2) months' written notice prior to termination is required. Upon termination by Intergraph, you will also receive severance pay equal to one (1) month base salary and housing allowance (less applicable taxes) for each full calendar year of service. Bonus payments for orders will be determined as of the last day of work. General - ------- Intergraph Corporation reserves the right to amend or modify this agreement as business conditions may dictate. Amendments or modifications to this Agreement must be in writing and signed by yourself and the CEO of Intergraph Corporation. If the terms of this Agreement are acceptable, please sign in the space below: /s/ Jim Meadlock 1-30-94 - ----------------------- ----------------- Jim Meadlock, CEO Date Intergraph Corporation /s/ Damian Walters 27 Jan 1994 - ---------------------------- ----------------- Damian Walters, Executive Vice President Date Intergraph Asia Pacific EX-10.O 8 [INTERGRAPH LETTERHEAD] EXECUTIVE OFFICER LOAN AGREEMENT -------------------------------- This Agreement is between _________________________ (the Borrower) and Intergraph Corporation. The Borrower hereby agrees to all of the terms and conditions contained in this Agreement. Establishment of the Program. The Board of Directors has established a loan program for corporate officers who are required to report Intergraph stock transactions to the SEC. The purpose of the loan program is to assist such officers at such times that stock transactions would be prohibited, restricted, or otherwise impractical. On March 17, 1994, the Board amended the program by extending it for one year, as indicated in the following section. Program Beginning/End. The program will commence on January 7, 1993. The program will cease on the Program End Date, which is the earlier of May 1, 1995, or the date that the Intergraph common stock price reaches or exceeds $20 per share; provided, however, that such determination shall not be made during a restricted trading period (as announced from time-to-time by the corporate legal department). The Intergraph common stock price shall be based on the reported closing price as listed in the "Wall Street Journal" (or similar publication). Repayment. All principal and interest outstanding under the program must be repaid in full within fifteen (15) business days following the earlier of (i) the date of employment termination with Intergraph, (ii) the date that the Borrower sells any Intergraph stock or, (iii) the Program End Date. Full or partial pre-payments of principal are permitted at any time. All interest shall be paid with the final principal payment. Interest Rate. Interest on the amounts outstanding hereunder shall accrue for each calendar month or portion thereof at a rate equal to the Prime Rate as published in the "Money Rates" section of the "Wall Street Journal" (or similar publication) on the last business day of each calendar month (calculated on the basis of a year of 365 (or 366 as the case may be) days and actual days elapsed; provided, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise), such amount shall bear interest at the rate stated above plus two percent (2%) from the date such amount was due and payable until the date such amount is paid in full. Promissory Note. Loans made under this Agreement shall be evidenced by a promissory note (below). The Borrower's signature on the promissory note shall indicate agreement with all terms and conditions of this Agreement. I hereby certify that I am officer of Intergraph Corporation and that I am required to report Intergraph stock transactions to the SEC. I further certify that (i) I am the owner or beneficial owner of Intergraph common stock with a current market value of at least the amount of any loans made under this Agreement, and/or (ii) I have currently exercisable options to purchase Intergraph common stock with a net value (current market price less exercise price) of at least the amount of any loans made under this Agreement. I agree to provide suitable evidence of the foregoing upon request. I request a loan in the amount set forth in the promissory note shown below. PROMISSORY NOTE --------------- FOR VALUE RECEIVED, the Borrower promises to pay to the order of Intergraph Corporation at any such place as Intergraph may designate, the sum of ___________________ together with interest thereon, in accordance with the Agreement set forth above. In the event that any payment due hereunder is not received when due, this Note shall be deemed in default and the entire principal and interest due hereunder shall be immediately due and payable. In the event of default hereunder, the Borrower shall pay all costs of collection, including, without limitation, reasonable attorney's fees and legal expenses incurred by Intergraph in endeavoring to collect any amounts payable hereunder. The Borrower hereby expressly waives presentment, demand for payment, dishonor, notice of dishonor, protest and notice of protest. IN WITNESS WHEREOF, the Borrower has caused this Note to be made, executed and delivered as of the date and year written above. ---------------------------- Signature of the Borrower Witness:_____________________ EX-10.P 9 DECEMBER AGREEMENT ------------------ THIS AGREEMENT is entered into this 16th day of December, 1994, by and between INTERGRAPH CORPORATION ("Intergraph"), a Delaware corporation having its principal office and place of business at One Madison Industrial Park, Huntsville, Alabama 35894, and BENTLEY SYSTEMS, INCORPORATED ("Bentley"), a Delaware corporation having its principal office and place of business at 690 Pennsylvania Drive, Exton, Pennsylvania 19431. W I T N E S S E T H: WHEREAS, the parties hereto entered into a series of written agreements dated May 2, 1994; WHEREAS, a number of issues relating to the subject matter of those agreements have arisen between the parties, including issues regarding the acquisition by Bentley of certain foreign language translations of MicroStation and the continuation of the OEM Software License Agreement, one of the May 2 agreements; and WHEREAS, the parties have resolved these issues, and desire to enter into this Agreement to set forth the agreed resolution. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. The following words, terms and phrases shall in this Agreement have the following meaning: (a) "Value Added Pack Software" means the source code and object code for the computer programs developed by Intergraph entitled "Value Added Pack," together with all updates and enhancements thereto, and documentation therefor. (b) "Source Film" means the source film separates for printing the MicroStation Digitizing Menu Tablet Template. (c) "Localization Auxiliary Programs" means auxiliary programs developed by Intergraph or third parties to facilitate translation and MicroStation usage in local languages, such as keyboard input front-end processors, and includes source code, object code and documentation therefor. 2. European Language Foreign Translations. Concurrently with the execution of this Agreement, Intergraph and Bentley shall execute and deliver to the other an agreement between Bentley and Intergraph for the purchase by Bentley of the European language translations of MicroStation, in the form attached hereto as Exhibit "A". 3. Source Code for Value Added Pack Software/Film for Digitizing Menu Template. (a) Intergraph hereby grants, assigns and conveys to Bentley all of Intergraph's right, title and interest whatsoever throughout the world, including without limitation all of Intergraph's copyrights and other intellectual property rights, in and to (i) the Value Added Pack Software, and (ii) the Source Film. (b) Within ten (10) days after the execution of this Agreement, Intergraph shall deliver to Bentley on one or more diskettes an electronic copy and two paper copies of the Value Added Pack Software and the Source Film. (c) Intergraph shall perform acts and execute documents, at Bentley's expense and request, which are reasonably necessary to transfer or perfect in Bentley the foregoing rights granted by Intergraph to Bentley. 4. Cancellation of OEM Software License Agreement; Limited Release. (a) The parties hereby cancel and terminate the "OEM Software License Agreement for MicroStation V5 Runtime Engine" dated May 2, 1994 ("OEM Agreement"), and neither party shall have any further obligations under the OEM Agreement. (b) Except for the rights and obligations created by this Agreement, for good and valuable consideration, the receipt of which is hereby acknowledged, Bentley and Intergraph do hereby remise, release, acquit and forever discharge one another and their respective present and former parents, subsidiaries, affiliates, divisions, successors, assigns, agents, attorneys, officers, directors and employees of and from all manner of actions, causes of action, claims, suits, demands, dues, debts, liabilities, liens, indemnities, obligations, sums of money, accounts, bonds, covenants, compensation, contracts, agreements, judgments, controversies, promises, trespasses, damages, costs, losses, and expenses of any kind or nature whatsoever, whether legal, equitable or statutory, liquidated or unliquidated, fixed or contingent, known or unknown, suspected or unsuspected, which Bentley or Intergraph ever had, now have, or which they hereafter can, shall or may have against one another, expressly limited to any and all claims, asserted or unasserted, based upon any matter, cause, thing or event relating to the performance or non- performance by the parties of the OEM Agreement. 5. Amendment to Distribution Agreement. Concurrently with the execution of this Agreement, Intergraph and Bentley shall execute and deliver to the other an Amendment to the Distribution Agreement dated May 2, 1994, between Bentley and Intergraph, in the form attached hereto as Exhibit "B". 6. "I/RAS" Application Bundles. (a) Intergraph hereby confirms to Bentley its intent to develop a version of the "I/RAS" software for operation with MicroStation PowerDraft ("Power I/RAS"). Bentley shall furnish to Intergraph such development tools and technical support as may be reasonably necessary to facilitate Intergraph's development of Power I/RAS, including information for running "DLMs" within MicroStation PowerDraft. Intergraph shall not use the foregoing tools and information for any purpose other than the development of Power I/RAS. In the event of the discontinuation by Intergraph of the development or support of Power I/RAS or the termination of this Agreement, Intergraph shall promptly return to Bentley all of the foregoing tools and information. (b) Intergraph expressly acknowledges and agrees that all development tools, technical support and information furnished by Bentley pursuant to subparagraph (a) shall constitute Confidential Information within the meaning of Paragraph 6.11 of the Business Relations Agreement dated May 2, 1994, between the parties. Intergraph hereby accepts such Confidential Information. Intergraph agrees that, in addition to its confidentiality obligations under the foregoing provision of the Business Relations Agreement, it shall not, until the later of written agreement by the parties to announce Power I/RAS or the execution of a written agreement by the parties for the distribution of Power I/RAS: (i) publicly disclose or acknowledge the existence of tools to run DLMs within MicroStation PowerDraft, or (ii) discuss, demonstrate or acknowledge Power I/RAS or its development to or with any third party (including prospects and customers), even if such activities are subject to a non-disclosure agreement between Intergraph and such third party. The foregoing obligations of Intergraph shall survive the termination of this Agreement. (c) Intergraph and Bentley shall, upon the completion of Power I/RAS, enter into a written agreement (the "Power I/RAS Agreement") setting forth mutually agreeable terms for the marketing and distribution of Power I/RAS. (d) For so long as Intergraph diligently proceeds with the development of Power I/RAS, Intergraph shall have the right to distribute and license an "I/RAS Application Bundle" with one or more of the "I/RAS B", "I/RAS C", or "I/RAS Engineer" products, provided, however, I/RAS shall not be deemed an Application Bundle Product pursuant to the Amendment, and MicroStation V5 Kits purchased by Intergraph for licensing with I/RAS shall not be eligible for the volume discounts for Application Bundles set forth in the Amendment, unless and until Intergraph and Bentley enter into the Power I/RAS Agreement. In the event Intergraph and Bentley enter into the Power I/RAS Agreement on or before June 30, 1995, Bentley shall issue to Intergraph a credit in the amount of the difference between the price actually paid by Intergraph for such Kits distributed as part of I/RAS Application Bundles on or after January 1, 1995, and the price that would have been applicable to Kits distributed as part of I/RAS Application Bundles if they had been deemed an Application Bundle as of January 1, 1995, provided that the I/RAS Application Bundles meet all of the criteria for Application Bundles set forth in Paragraph 2 of the Amendment to the Distribution Agreement. In the event Intergraph and Bentley do not enter into the Power I/RAS Agreement on or before June 30, 1995, then Intergraph shall discontinue the distribution of I/RAS Application Bundles on July 1, 1995. 7. MicroStation PowerDraft Application Bundles. Bentley agrees to negotiate in good faith with Intergraph the establishment of Application Bundles based on MicroStation PowerDraft and discounts therefor. 8. Asia Pacific -- Japan/Korea. (a) Concurrently with the execution of this Agreement, Bentley and Intergraph shall execute and deliver to the other the Japanese and Korean Language Translations Purchase Agreement in the form attached hereto as Exhibit "C". (b) Intergraph shall introduce and acknowledge Bentley in product advertisements, marketing brochures and promotional materials for Bentley products directed to the Japanese and Korean markets. (c) Subject to availability, Intergraph shall provide reasonable office space for Bentley technical personnel (pre- and post-sales personnel and personnel supporting local independent software developers) in Intergraph's offices in Japan and Korea through December 31, 1996. Intergraph represents that reasonable office space is currently available. (d) Intergraph shall furnish advance written notice to Bentley of each Intergraph users group meeting in Japan and Korea through December 31, 1996. Intergraph shall encourage such user groups to invite representatives of Bentley to participate in such meetings, including making presentations and setting up displays of Bentley products. 9. Chinese/Taiwanese Translations. (a) Within thirty (30) days of the date of this Agreement, Intergraph shall deliver to Bentley on one or more diskettes for its review: (i) copies of the foreign language translations of MicroStation for China and Taiwan, and documentation therefor, (ii) the source code, object code and documentation for the Localization Auxiliary Programs, and (iii) any other software and documentation, including without limitation all font libraries and resource files, necessary or desirable for the development and distribution of the foreign language kits of MicroStation for China and Taiwan. (b) In the event Bentley elects to purchase some or all of the translations and other materials furnished pursuant to subparagraph (a), Bentley shall give written notice to Intergraph, and Intergraph shall, within ten (10) days of its receipt of such notice, execute and return to Bentley the Chinese and Taiwanese Language Translations Purchase Agreement with Bentley in the form of Exhibit "D" hereto. 10. Purchase of Intergraph Year-End Inventory of MicroStation Kits. Intergraph shall deliver to Bentley on or before January 6, 1995, in writing a complete and final list setting forth its inventory as of January 1, 1995, of all MicroStation Kits and MicroStation Review Kits, including work in progress. On or before January 13, 1995, Bentley shall notify Intergraph on one or more occasions in writing of the inventory items on such final list or on such preliminary list previously furnished to Bentley that Bentley intends to purchase as set forth below. Intergraph shall deliver at its expense to Bentley within fourteen (14) days after its receipt of each such request all of the inventory items that Bentley has elected to purchase for retrofitting by Bentley to conform with Bentley-manufactured Kits. Bentley shall have the right to use such retrofitted Kits to fulfill orders by Intergraph for Kits. Bentley shall issue to Intergraph within thirty (30) days after the later of delivery of or receipt of Intergraph's invoice for Alternate Platform MicroStation V5 Kits purchased by Bentley from Intergraph's inventory a credit in the amount of Forty-One Dollars (U.S.) ($41) for English-language Kits and Ninety Dollars (U.S.) ($90) for translated Kits. With respect to MicroStation 32 Kits, Bentley shall: (a) for each English-language MicroStation 32 Kit purchased by Bentley, issue to Intergraph within thirty (30) days after the later of delivery or receipt of Intergraph's invoice a credit equal to Forty-One Dollars (U.S.) ($41) toward the future purchase by Intergraph from Bentley of an English-language MicroStation 32 Kit, and (b) for each foreign language MicroStation 32 Kit purchased by Bentley,issue to Intergraph within thirty (30) days after the later of delivery or receipt of Intergraph's invoice a credit equal to Ninety Dollars (U.S.) ($90) toward the future purchase by Intergraph from Bentley of a foreign language MicroStation 32 Kit. Bentley shall be obligated hereunder to purchase all of Intergraph's 1994 year-end inventory of MicroStation Alternate Platform V5 Kits set forth in Exhibit E hereto (but not more), provided, however, Bentley shall not be obligated to purchase all of Intergraph's work in progress for such Kits. As used herein, "Alternate Platform" means a platform on which MicroStation operates other than a MicroStation 32 workstation. 11. MicroStation Registration Database. Intergraph shall, pursuant to Section 3.01 of the Business Relations Agreement, provide to Bentley registration information in its possession, custody or control for all end users known to Intergraph worldwide of any and all versions of MicroStation products, regardless of the physical form, condition or lack of organization of such information. In the event Intergraph locates additional user registration information after delivering the foregoing materials to Bentley, Intergraph shall promptly deliver the additional information to Bentley. 12. Japanese Kit Inventory. Intergraph shall, on or before March 31, 1995, deliver at its expense to Bentley the MicroStation Kits remaining in the inventory of Sharp, Mutoh and Softbank, its distributors in Japan, as of January 1, 1995. In the event Intergraph delivers such Kits, Bentley shall replace them within a reasonable time with Japanese-language MicroStation Kits manufactured and licensed by Bentley. Intergraph shall pay to Bentley within thirty (30) days after receipt of Bentley's invoice for each such Kit replaced by Bentley the difference between the royalty previously paid by Intergraph to Bentley for such Kit and the price applicable during 1995 under the Distribution Agreement for a Japanese- language MicroStation Kit, plus shipping costs. 13. Termination for Material Breach. Either party may, at its option, terminate this Agreement in the event of a material breach by the other party. Such termination may be effected only through a written notice to the other party, specifically identifying the breach or breaches on which termination is based. Following receipt of such notice, the party in breach shall have sixty (60) days to cure such breach or breaches, and this Agreement shall terminate in the event that such cure is not made by the end of such period. In the event that the parties dispute either the existence of a material breach or the adequacy of attempted cure, and either party submits such dispute to arbitration under Paragraph 15.09 hereof, the termination shall not be deemed effective until the arbitrator renders a final decision finding an uncured material breach. 14. Bankruptcy. If either party files a petition in bankruptcy (or is the subject of an involuntary petition in bankruptcy that is not dismissed within sixty (60) days after the effective filing date thereof); or is or becomes insolvent; or enters into any formal arrangement with its creditors, or ceases doing business in the ordinary course; or admits of a general inability to pay its debts as they become due; then the other party shall have the right to terminate this Agreement upon fifteen (15) days written notice. 15. General Provisions. 15.01 Entire Agreement. This Agreement, together with the Exhibits hereto, collectively set forth the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and, except as specifically provided herein, supersede and merge all prior oral and written agreements, discussions and understandings between the parties with respect to the subject matter hereof, and neither of the parties shall be bound by any conditions, inducements or representations other than as expressly provided for herein. 15.02 Independent Contractors. In making and performing this Agreement, Bentley and Intergraph act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Bentley and Intergraph. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 15.03 Notices. Any notice required or permitted to be given hereunder, shall, except where specifically provided otherwise, be given in writing to the person listed below by registered mail or overnight delivery service, and the date upon which any such notice is received at the designated address shall be deemed to be the date of such notice. Any notice shall be delivered as follows: If to Intergraph: Intergraph Corporation One Madison Industrial Park Huntsville, Alabama 35894 Attention: James W. Meadlock President If to Bentley: Bentley Systems, Inc. 690 Pennsylvania Drive Exton, Pennsylvania 19341 Attention: Keith Bentley, President or addressed to such other address as that party may have given by written notice in accordance with this provision. 15.04 Amendments; Modifications. This Agreement may not be amended or modified except in a writing duly executed by the parties hereto. 15.05 Assignment. Neither party shall assign this Agreement, or any part thereof, without the prior written consent of the other party. 15.06 Severability. The provisions of this Agreement shall be severable, and if any of them are held invalid or unenforceable for any reason, such provision shall be adjusted to the minimum extent necessary to cure such invalidity. The invalidity or unenforceability of one or more of the provisions contained in this Agreement shall not affect any other provisions of this Agreement. 15.07 Waivers. Any delay or forbearance by either party in exercising any right hereunder shall not be deemed a waiver of that right. 15.08 Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware. 15.09 Arbitration. In the event of a dispute between the parties arising under this Agreement, the parties shall submit to binding arbitration before a single arbitrator in Wilmington, Delaware, under the Commercial Arbitration Rules of the American Arbitration Association, except that temporary restraining orders or preliminary injunctions, or their equivalent in any country of the world, may be obtained from any court of competent jurisdiction. The pre-hearing and hearing proceedings in the arbitration shall be generally governed by the Federal Rules of Civil Procedure and the judicial precedent interpreting those rules. The decision of the arbitrator shall be final and binding with respect to the dispute subject to the arbitration and shall be enforceable in any court of competent jurisdiction. Each party shall bear its own expenses, attorney's fees and costs incurred in such arbitration. 15.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one Agreement. 15.11 Construction. This Agreement is the product of joint draftsmanship and shall not be construed against one party more strictly than against the other. 15.12 Confidentiality of Agreement. The detailed terms of this Agreement shall remain confidential. In no event shall either party disclose the detailed terms of this Agreement without the prior written consent of the other party; provided, however, each of the parties may announce publicly the framework of this Agreement without consent of the other party. 15.13 Headings. The headings in this Agreement are inserted merely for the purpose of convenience and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date and year first above written. ATTEST: BENTLEY SYSTEMS, INCORPORATED /s/ Jennifer S. Ware BY: /s/ Keith Bentley - -------------------- --------------------------- TITLE: /s/ President --------------------------- ATTEST: INTERGRAPH CORPORATION /s/ Marcus B. Maddox BY: /s/ T.D. Steele - -------------------- --------------------------- TITLE: /s/ President, Intergraph Software --------------------------- Solutions EXHIBIT A EUROPEAN LANGUAGE TRANSLATIONS PURCHASE AGREEMENT ------------------------------------------------- THIS AGREEMENT is entered into this 16th day of December, 1994, by and between INTERGRAPH CORPORATION ("Intergraph"), a Delaware corporation having its principal office and place of business at One Madison Industrial Park, Huntsville, Alabama 35894, and BENTLEY SYSTEMS, INCORPORATED ("Bentley"), a Delaware corporation having its principal office and place of business at 690 Pennsylvania Drive, Exton, Pennsylvania 19431. W I T N E S S E T H: WHEREAS, pursuant to Paragraph 3.04 of the Business Relations Agreement dated May 2, 1994, between Bentley and Intergraph, Bentley has elected to exercise its option to purchase Intergraph's interest in the Italian, Spanish, French and German translation of the documentation and machine- readable information prepared by Donnelley Language Service ("DLS") for Intergraph for the MicroStation software, as well as the Finnish translation and any other translation to be mutually agreed. NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. Definition. As used herein, "Translations" means the Italian, Spanish, French, German and Finnish foreign language translation, as well as any other translation to be mutually agreed, of the documentation, machine-readable information and resource files for all versions of MicroStation operating on any hardware or software platform, including without limitation the MicroStation Windows NT-specific, MicroStation DOS-specific and MicroStation Clipper-specific as well as German HP-specific documentation and resource files. 2. Grant. Intergraph hereby grants, assigns and conveys to Bentley all of Intergraph's right, title and interest whatsoever, including without limitation all of Intergraph's copyrights and other intellectual property rights, in and to the Translations, together with the right to sue for past infringement of the Translations. 3. Delivery of Materials. Within seven (7) days after the execution of this Agreement, Intergraph shall deliver to Bentley on one or more diskettes an electronic copy and two paper copies of the Clipper-specific, DOS-specific and Windows NT-specific as well as the German HP-specific versions of the Translations, together with a copy of the written assignments of the copyrights in and to the Translations from DLS to Intergraph. 4. Payment. (a) Bentley shall compensate Intergraph for the rights granted herein up to an amount representing seventy percent (70%) of the documented direct costs (as set forth in Exhibit A1 hereto) incurred by Intergraph to prepare the various Translations as set out hereunder: - German: Bentley's invoices to Intergraph for German kits of MicroStation Version 5 shall not bear the four percent (4%) mark-up for the translation until the earliest of December 31, 1996 or until the cumulative sum of the number of kits times four percent (4%) of U.S. list price is equal to seventy percent (70%) of the amount of the respective Translation mentioned in Exhibit A1. - Spanish, French, Italian and Finnish: Bentley's invoices to Intergraph for Spanish, French, Italian and Finnish kits of MicroStation Version 5 and PowerDraft shall bear the four percent (4%) mark- up and shall show a credit of Three Hundred Dollars (U.S.) ($300) per kit until the earlier of December 31, 1996 or when the cumulative sum of the number of kits times Three Hundred Dollars (U.S.) ($300) is equal to seventy percent (70%) of the amount of the respective Translation mentioned in Exhibit A1. (b) In addition, Bentley shall grant a credit of Three Hundred Dollars (U.S.) ($300) to Intergraph for each kit of MicroStation Version 5 directly or indirectly sold by Bentley in Italy and Finland until the earlier of December 31, 1996, or when the respective cumulative sum is equal to the above seventy percent (70%). This does not apply to sales by Intergraph since such is covered in the previous paragraph. 5. Other Translations. (a) Intergraph will make available for inspection by Bentley any MicroStation Version 5 Translation for Swedish, Polish, Czech/Slovakian, Hungarian, Russian/ Ukrainian, along with documentation of Intergraph's costs and rights for same. At Bentley's election, Intergraph shall promptly assign to Bentley its entire right, title and interest whatsoever in and to each Translation that Bentley elects to acquire. In the event of an assignment of any such Translation, Bentley invoices for MicroStation Version 5 and PowerDraft kits in such language shall also show a credit of Three Hundred Dollars (U.S.) ($300) for each kit, until the earlier of December 31, 1996 or (for each language respectively) when the cumulative sum of the number of kits times Three Hundred Dollars ($300) is equal to seventy percent (70%) of Intergraph's documented costs (per Exhibit A1) for such language Translation. (b) In addition, Bentley shall grant to Intergraph a credit of Three Hundred Dollars (U.S.) ($300) for each kit of MicroStation Version 5 directly or indirectly sold by Bentley in Sweden, Poland, Czech Republic, Slovakia, Hungary, Russia and Ukraine until the earlier of December 31, 1996, or when the respective cumulative sum is equal to the above seventy percent (70%). 6. Glossaries. Intergraph hereby grants to Bentley the non-exclusive right to use the glossaries for the above languages developed by Intergraph, and the software tools to utilize same, with basic instruction and perpetual rights to use such tools at material and instruction costs. 7. Execution of Documents. Intergraph shall perform acts and execute documents, at Bentley's expense and request, which are reasonably necessary to transfer or perfect in Bentley the rights granted by Intergraph to Bentley herein. 8. Warranty. Intergraph represents and warrants to Bentley that (a) it has paid DLS in full for the preparation of the relevant Clipper-specific, DOS-specific and Windows NT-specific as well as German HP-specific versions of the Translations, and has received from DLS an assignment of the copyrights for such translations; (b) it is the owner of the relevant Clipper- specific, DOS-specific and Window NT-specific as well as German HP-specific versions of the Translations, including all intellectual property rights therein; (c) it has the right, power and authority to grant the rights granted under this Agreement and fully perform its obligations hereunder; and (d) it has not, as of the date hereof, received notice of a claim that the Translations infringe any patent, copyright or other intellectual property right anywhere in the world or that any third party has any proprietary interest in or to the Translations. 9. DLS. The parties shall provide instructions to DLS in accordance with this Agreement upon its execution. 10. General Provisions. 10.01 Entire Agreement. This Agreement, together with the Exhibits hereto, collectively set forth the entire agreement and understanding between the parties hereto with respect to the purchase of the Translations and, except as specifically provided herein, supersede and merge all prior oral and written agreements, including the Agreement dated December 7, 1994, between Intergraph and Bentley Systems Europe, discussions and understandings between the parties with respect to the subject matter hereof, and neither of the parties shall be bound by any conditions, inducements or representations other than as expressly provided for herein. 10.02 Independent Contractors. In making and performing this Agreement, Bentley and Intergraph act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Bentley and Intergraph. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 10.03 Notices. Any notice required or permitted to be given hereunder, shall, except where specifically provided otherwise, be given in writing to the person listed below by registered mail or overnight delivery service, and the date upon which any such notice is received at the designated address shall be deemed to be the date of such notice. Any notice shall be delivered as follows: If to Intergraph: Intergraph Corporation One Madison Industrial Park Huntsville, Alabama 35894 Attention: James W. Meadlock President If to Bentley: Bentley Systems, Inc. 690 Pennsylvania Drive Exton, Pennsylvania 19341 Attention: Keith Bentley, President or addressed to such other address as that party may have given by written notice in accordance with this provision. 10.04 Amendments; Modifications. This Agreement may not be amended or modified except in a writing duly executed by the parties hereto. 10.05 Assignment. Neither party shall assign this Agreement, or any part thereof, without the prior written consent of the other party. 10.06 Severability. The provisions of this Agreement shall be severable, and if any of them are held invalid or unenforceable for any reason, such provision shall be adjusted to the minimum extent necessary to cure such invalidity. The invalidity or unenforceability of one or more of the provisions contained in this Agreement shall not affect any other provisions of this Agreement. 10.07 Waivers. Any delay or forbearance by either party in exercising any right hereunder shall not be deemed a waiver of that right. 10.08 Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware. 10.09 Arbitration. In the event of a dispute between the parties arising under this Agreement, the parties shall submit to binding arbitration before a single arbitrator in Wilmington, Delaware, under the Commercial Arbitration Rules of the American Arbitration Association, except that temporary restraining orders or preliminary injunctions, or their equivalent in any country of the world, may be obtained from any court of competent jurisdiction. The pre-hearing and hearing proceedings in the arbitration shall be generally governed by the Federal Rules of Civil Procedure and the judicial precedent interpreting those rules. The decision of the arbitrator shall be final and binding with respect to the dispute subject to the arbitration and shall be enforceable in any court of competent jurisdiction. Each party shall bear its own expenses, attorney's fees and costs incurred in such arbitration. 10.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one Agreement. 10.11 Construction. This Agreement is the product of joint draftsmanship and shall not be construed against one party more strictly than against the other. 10.12 Confidentiality of Agreement. The detailed terms of this Agreement shall remain confidential. In no event shall either party disclose the detailed terms of this Agreement without the prior written consent of the other party; provided, however, each of the parties may announce publicly the framework of this Agreement without consent of the other party. 10.13 Headings. The headings in this Agreement are inserted merely for the purpose of convenience and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date and year first above written. ATTEST: BENTLEY SYSTEMS, INCORPORATED /s/ Jennifer S. Ware BY:/s/ Keith Bentley - -------------------- ------------------------ Title: /s/ President -------------------- ATTEST: INTERGRAPH CORPORATION /s/ Marcus B. Maddox BY: /s/ T.D. Steele - -------------------- ------------------- TITLE: /s/ President, Intergraph Software ----------------------------------------- Solutions ----------------- EXHIBIT A1 TO EUROPEAN LANGUAGE TRANSLATIONS PURCHASE AGREEMENT - --------------------------------------------------- Foreign Language Translations Full Intergraph costs (as agreed between the parties) French - ------ MicroStation Resource Files (Intergraph internal) $ 31,293.00 MicroStation Documentation MicroStation Clipper-specific Documentation MicroStation Windows NT-specific Documentation (Donnelly Language Solutions) $157,166.50 German - ------ MicroStation Resource Files (Intergraph internal) $ 27,815.00 MicroStation Documentation MicroStation Clipper-specific Documentation MicroStation Windows NT-specific Documentation (Donnelly Language Solutions) $157,166.50 Italian - ------- MicroStation Resource Files (Intergraph internal) $ 31,115.00 MicroStation Documentation MicroStation Clipper-specific Documentation MicroStation Windows NT-specific Documentation (Donnelly Language Solutions) $157,166.50 Spanish - ------- MicroStation Resource Files (Intergraph internal) $ 15,094.00 MicroStation Documentation MicroStation Clipper-specific Documentation MicroStation Windows NT-specific Documentation (Donnelly Language Solutions) $157,166.50 Finnish - ------- MicroStation Resource Files $ 70,000.00 and all available MicroStation documentation including derived Help Files Swedish - ------- - - External costs 468.062 SEK - - Internal Labor 186.000 SEK ----------- 654.062 SEK = $ 88,260.00 70% $ 61,782.00 Available Translations: - ----------------------- MicroStation Resource Files MicroStation On-line Help (in electronic format) MicroStation Reference Manual Introducing MicroStation PC (in electronic format) Russian/Ukraine - ---------------- - - External costs 4.100 US$ - - Labor costs 10.500 US$ - - Courses and overhead 1.000 US$ ---------- 15.600 US$ 70% $ 10,920.00 Available Translations: - ------------------------ MicroStation Resource Files MicroStation On-line Help MicroStation full documentation Czech/Slovak - ------------ - - External costs 14.200 US$ - - Labor costs 27.200 US$ ---------- 41.400 US$ 70% $ 28,980.00 Available Translations: - ----------------------- MicroStation Resource Files MicroStation Installation notes and dictionary MicroStation Czech installation program with four (4) installation diskettes Polish - ------ - - External costs 21.000 US$ - - Labor costs 3.500 US$ ---------- 24.500 US$ 70% $ 17,150.00 Available Translations: - ------------------------ MicroStation On-line Help MicroStation Polish fonts raster and vector MicroStation full documentation (all in electronic format) EXHIBIT B TO DECEMBER AGREEMENT AMENDMENT TO DISTRIBUTION AGREEMENT ----------------------------------- THIS AMENDMENT to the Distribution Agreement dated May 2, 1994 (this "Amendment"), is entered into this 16th day of December, 1994, by and between INTERGRAPH CORPORATION ("Intergraph"), a Delaware corporation having its principal office and place of business at One Madison Industrial Park, Huntsville, Alabama 35894, and BENTLEY SYSTEMS, INCORPORATED ("Bentley"), a Delaware corporation having its principal office and place of business at 690 Pennsylvania Drive, Exton, Pennsylvania 19431. W I T N E S S E T H: WHEREAS, the parties hereto entered into a series of written agreements dated May 2, 1994, including a Distribution Agreement (the "Agreement") and an OEM Software License Agreement for MicroStation V5 Runtime Engine ("OEM Agreement"); and WHEREAS, the parties have agreed to cancel and terminate the OEM Agreement and to enter into this Amendment to provide for special pricing to Intergraph for MicroStation Product Kits distributed by Intergraph with a minimum number of units of specified software applications. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. The following words, terms and phrases shall in this Agreement have the following meaning: 1.01 "Approved Application" means an Intergraph application software product set forth in Exhibit A hereto (as may be amended from time to time to add additional applications with the written consent of Bentley) and that meets each of the following criteria: (a) it must have been developed by Intergraph (but may contain third-party content comprising less than fifty percent (50%) of the object code), or Intergraph must hold the exclusive right to distribute it to all end users in the United States; (b) it must prerequisite MicroStation (that is, technically require MicroStation for its operation); (c) it must have been, and must continue to be, actively marketed, licensed and distributed as a product to end users and resellers for operation with MicroStation, even if also available in the form of an Application Bundle; and (d) Bentley and Intergraph must agree that it demonstrates "Significant Value Added," as to its Intergraph value content, to an extent at least on the order of existing Intergraph applications having a U.S. list price exceeding One Thousand Dollars ($1,000) and meeting the criteria of (a) through (c) above. For application products solely developed by Intergraph (or for which Intergraph holds the exclusive distribution right to all end users in the United States), the bona fide U.S. list price shall be considered to measure the Intergraph value content. 1.02 "Application Bundle" means a bundled software product distributed by Intergraph consisting of an Approved Application together with a MicroStation Kit. 1.03 "MicroStation Kit" means a Kit (as defined in the Agreement) for the then-current version of the product "MicroStation" distributed by Bentley. 1.04 "Significant Value Added" means vertical application software that provides significant functions not available through MicroStation alone. Such application software should combine the functionality of MicroStation in novel ways, enhance the basic capabilities of MicroStation, and otherwise provide "higher" level functions. 2. Application Bundle: Criteria. Notwithstanding Paragraph 5.03 of the Agreement, the price payable by Intergraph to Bentley for purchase of a MicroStation Kit shall be that set forth in Paragraph 3 of this Amendment where: a. said MicroStation Kit is licensed to end users as part of an Application Bundle; b. the US List Price for said Application Bundle is greater than or equal to Five Thousand Dollars (U.S.) ($5,000); c. the discounts offered by Intergraph to distributors, resellers and end-users on the Application Bundle are no greater than the discounts offered by Intergraph on its other application software products; and d. the MicroStation licenses distributed as part of the Application Bundles are not separately identified on either (i) any Intergraph quotation or (ii) the distributor, reseller or end-user purchase order. 3. Quantity Commitments; Discounts on MicroStation Kits for Bundled Applications. (a) Intergraph shall furnish to Bentley within ten (10) days of the date hereof in writing a list setting forth the unit quantities of each Application Bundle based on the Approved Applications set forth in Exhibit "A" hereto that Intergraph shall commit to distribute during calendar year 1995. The foregoing quantity figures shall be placed next to the corresponding Approved Applications in Exhibit "A", and made part of this Amendment. The cumulative total distribution commitment by Intergraph for 1995 for the Application Bundles based upon the Approved Applications set forth in Exhibit "A" shall equal or exceed five thousand (5,000) copies. Exhibit "A" may, with the written consent of Bentley, be amended from time to time to set forth additional Approved Applications. (b) The price payable by Intergraph to Bentley during a calendar year for a MicroStation Kit for distribution by Intergraph as part of each Approved Application identified in Exhibit A hereto ("Application Bundle Product") shall be based on the number of kits Intergraph commits in writing to purchase during such calendar year for distribution as part of said Application Bundle Product, and shall be expressed as a discount (the "Bundled Application Volume Discounts") to the price to Intergraph for such Kits set forth in Paragraph 5.03 of the Agreement. The "Bundled Application Volume Discounts" shall be divided into four categories as follows: (i) Where Intergraph commits in writing to purchase a minimum of two hundred (200), but not more than three hundred ninety-nine (399), MicroStation Kits for distribution as part of an Application Bundle Product, Intergraph shall receive a Fourteen and One-Quarter Percent (14.25%) discount from the price for each such Kit set forth in the Agreement. By way of example, if the US List Price of each MicroStation Kit during 1995 is Three Thousand Seven Hundred Ninety Dollars ($3,790), then the price payable by Intergraph in 1995 shall be One Thousand Three Hundred Dollars ($1,300) for each Kit distributed as part of an Application Bundle Product for which Intergraph has made a minimum commitment of between two hundred (200) and three hundred ninety-nine (399) Kits. (ii) Where Intergraph commits in writing to purchase a minimum of four hundred (400), but not more than five hundred ninety-nine (599), MicroStation Kits for distribution as part of an Application Bundle Product, Intergraph shall receive a Thirty-Four and Four One-Hundredths Percent (34.04%) discount from the price for each such Kit set forth in the Agreement. By way of example, if the US List Price of each MicroStation Kit during 1995 is Three Thousand Seven Hundred Ninety Dollars ($3,790), then the price payable by Intergraph in 1995 shall be One Thousand Dollars ($1,000) for each Kit distributed as part of an Application Bundle Product for which Intergraph has made a minimum commitment of between four hundred (400) and five hundred ninety-nine (599) Kits. (iii) Where Intergraph commits in writing to purchase a minimum of six hundred (600), but not more than nine hundred ninety-nine (999), MicroStation Kits for distribution as part of an Application Bundle Product, Intergraph shall receive a Forty-Three and Ninety-Three One-Hundredths Percent (43.93%) discount from the price for each such Kit set forth in the Agreement. By way of example, if the US List Price of each MicroStation Kit during 1995 is Three Thousand Seven Hundred Ninety Dollars ($3,790), then the price payable by Intergraph in 1995 shall be Eight Hundred Fifty Dollars ($850) for each Kit distributed as part of an Application Bundle Product for which Intergraph has made a minimum commitment of between six hundred (600) and nine hundred ninety-nine (999) Kits. (iv) Where Intergraph commits in writing to purchase a minimum of one thousand (1000) MicroStation Kits for license as part of an Application Bundle Product, Intergraph shall receive a Fifty and Fifty-Three One-Hundredths Percent (50.53%) discount from the price for each such Kit set forth in the Agreement. By way of example, if the US List Price of each MicroStation Kit during 1995 is Three Thousand Seven Hundred Ninety Dollars ($3,790), then the price payable by Intergraph in 1995 shall be Seven Hundred Fifty Dollars ($750) for each Kit distributed as part of an Application Bundle Product for which Intergraph has made a minimum commitment of one thousand (1000) Kits. 4. Order Procedure. (a) The procedures pursuant to which Intergraph shall order, purchase and make payment to Bentley for MicroStation Kits distributed as part of an Application Bundle Product shall be those set forth in the Distribution Agreement. (b) For each Application Bundle Product, Intergraph shall purchase a minimum of twenty-five percent (25%) of the committed annual number of MicroStation Kits on or before March 31, fifty percent (50%) of the committed annual number of Kits on or before June 30, seventy-five percent (75%) of the committed annual number of Kits on or before September 30, and one hundred percent (100%) of the committed annual number of Kits on or before December 31 as a condition to payment by Bentley of the rebate set forth in Paragraph 6 below. In the event cumulative purchases by Intergraph of Kits for distribution with an Application Bundle Product do not, at the end of any calendar quarter, meet the foregoing minimum purchase requirements, Intergraph shall purchase from Bentley within ten (10) days after the end of each calendar quarter a sufficient number of additional licenses for inventory ("Application Bundle Inventory") in order to meet or exceed its cumulative minimum purchase commitment as of the end of such quarter. Intergraph shall not be obliged to take delivery of physical Kits for such additional licenses for Application Bundle Inventory, provided, however, in the event Intergraph elects to accept delivery of physical Kits, it shall segregate and account for its inventory of such Kits with respect to each Application Bundle Product for which it has accepted delivery of such Kits. Intergraph may distribute Kits purchased for Application Bundle Inventory hereunder only as part the Application Bundle Product for which Intergraph has purchased them, unless and until Intergraph pays to Bentley the difference between the price actually paid by Intergraph and the total price otherwise payable to Bentley if all such Kits for said Application Bundle Product been purchased at the standard price set forth in the Agreement. 5. Reports; Records; Audit. (a) Intergraph shall, during the term of the Agreement and for so long thereafter as Intergraph continues to distribute Application Bundles or maintains any Application Bundle Inventory, furnish to Bentley within thirty (30) days after the end of each calendar quarter a written distribution report setting forth, by Application Bundle Product, the serial number of each MicroStation Kit distributed as part of each Application Bundle during such quarter, together with the date of license, the identity of the licensee and a contact person for such licensee, and the site to which the Kit was shipped. Such report shall also indicate, for each such Application Bundle Product, the number of Kits purchased by Intergraph from Bentley during such quarter and the number distributed by Intergraph from the Application Bundle Inventory. Bentley acknowledges that Intergraph does not currently have the technical capability to furnish Bentley with the serial number of each MicroStation Kit distributed as part of an Application Bundles. Intergraph shall use best efforts to develop such capability and shall thereafter furnish Bentley with such serial number information. (b) Intergraph shall maintain complete and accurate records of the distribution of Application Bundles to permit Bentley to determine whether Intergraph has complied with its obligations hereunder. Intergraph shall, upon ten (10) days advance written notice by Bentley, permit reasonable inspection of such records by Bentley or a third-party auditor retained by Bentley at the offices of Intergraph during normal working hours. Bentley shall maintain in confidence all information contained in or derived from such records. The cost of any audit shall be borne solely by Bentley. This provision shall survive the termination of the Agreement for a period of one (1) year after the date of receipt by Bentley of the last quarterly distribution report under subparagraph (a). 6. Rebate of Purchase Price on Application Bundles. If, at the conclusion of a calendar quarter, Intergraph has satisfied its cumulative minimum quarterly unit purchase commitment for an Application Bundle Product in compliance with Paragraph 2 of this Amendment, then Bentley shall, within thirty (30) days following its receipt of the quarterly distribution report from Intergraph, compute and furnish to Intergraph a credit toward future product purchases in an amount equal to the difference between the price actually paid by Intergraph for the MicroStation Kits under the Agreement and the price payable under the terms of this Amendment for Kits purchased during such quarter for distribution as part of said Application Bundle Product, less the price of the Kits purchased by Intergraph to meet its quarterly minimum unit purchase commitment pursuant to Paragraph 4(b). If the quarterly distribution report shows that Intergraph has distributed Kits from Application Bundle Inventory, then Bentley shall compensate Intergraph by increasing the foregoing credit by the total actual price previously paid by Intergraph to Bentley for such Kits. If these calculations yield a negative figure, Bentley will promptly issue a net invoice to Intergraph, payable by Intergraph within thirty (30) days. 7. Distribution in Excess of Unit Commitment. In the event Intergraph purchases in a calendar year, for an Application Bundle Product, a number of units of MicroStation Kits for distribution as part of such Application Bundle Product in excess of the discount category (i.e., Paragraphs 3(b)(i) through 3(b)(iv)) to which Intergraph has previously committed, then Intergraph shall, for those Kits purchased for distribution with said Application Bundle Product in excess of such discount category, receive the higher discount applicable in the category corresponding with the number of such Kits actually purchased. The higher discount level shall apply only to the excess Kits purchased by Intergraph above the category to which Intergraph committed. By way of example: (a) if Intergraph commits to purchase a minimum of four hundred (400), but not more than five hundred ninety-nine (599), Kits in a calendar year as part of a specific Application Bundle, but Intergraph in fact purchases seven hundred (700) Kits, then Intergraph shall pay to Bentley, assuming a U.S. list price for each Kit of Three Thousand Seven Hundred Ninety Dollars ($3,790), One Thousand Dollars ($1,000) for each of the first five hundred ninety-nine (599) Kits and Eight Hundred Fifty Dollars ($850) for each additional Kit. (b) if Intergraph commits to purchase a minimum of four hundred (400), but not more than five hundred ninety-nine (599), Kits in a calendar year as part of a specific Application Bundle, but Intergraph in fact purchases eleven hundred (1100) Kits, then Intergraph shall pay to Bentley, assuming a U.S. list price for each Kit of Three Thousand Seven Hundred Ninety Dollars ($3,790), One Thousand Dollars ($1,000) for each of the first five hundred ninety-nine (599) Kits, Eight Hundred Fifty Dollars ($850) for each of the next four hundred (400) Kits, and Seven Hundred Fifty Dollars ($750) for each of the remaining one hundred one (101) Kits. 8. 1996 Prices. In the event Intergraph purchases (including purchases for inventory) during 1995 a total of five thousand (5,000) or more MicroStation Kits for distribution as part of Application Bundles, then Intergraph shall continue to receive volume discounts for purchases during 1996 of MicroStation Kits for distribution as part of Application Bundles, as set forth below: (a) If the total unit commitment by Intergraph for purchases of both MicroStation Kits and MicroStation PowerDraft Kits during 1996 for distribution as part of Application Bundle Products is greater than or equal to Fifty Percent (50%) of the actual total unit volume of both MicroStation Kits and MicroStation PowerDraft Kits purchased during 1995 for distribution as part of Application Bundle Products, then the baseline price, before volume discounts, for MicroStation Kits purchased during 1996 for distribution as part of Application Bundles shall be Fifty-Two Percent (52%) of the US List Price, plus any surcharge for foreign translations. (b) If the total unit commitment by Intergraph for purchases of both MicroStation Kits and MicroStation PowerDraft Kits during 1996 for distribution as part of Application Bundle Products is greater than or equal to the actual total unit volume of both MicroStation Kits and MicroStation PowerDraft Kits purchased during 1995 for distribution as part of Application Bundle Products, then the baseline price, before volume discounts, for MicroStation Kits purchased during 1996 for distribution as part of Application Bundles shall be Forty- Six Percent (46%) of the US List Price, plus any surcharge for foreign translations. (c) If the total unit commitment by Intergraph for purchases of both MicroStation Kits and MicroStation PowerDraft Kits during 1996 for distribution as part of Application Bundle Products is greater than or equal to One Hundred Fifty Percent (150%) of the actual total unit volume of both MicroStation Kits and MicroStation PowerDraft Kits purchased during 1995 for distribution as part of Application Bundle Products, then the baseline price, before volume discounts, for MicroStation Kits purchased during 1996 for distribution as part of Application Bundles shall be Forty Percent (40%) of the US List Price, plus any surcharge for foreign translations. (d) If the total unit commitment by Intergraph for purchases of both MicroStation Kits and MicroStation PowerDraft Kits during 1996 for distribution as part of Application Bundle Products is less than fifty percent (50%) of the actual total unit volume of both MicroStation Kits and MicroStation PowerDraft Kits purchased during 1995 for distribution as part of Application Bundle Products, then the prices for MicroStation Kits set forth in the Distribution Agreement shall apply. 9. Distribution in Japan and Korea. Notwithstanding the limitations contained in Paragraph 2.01(a) of the Agreement, Intergraph shall have a non-transferable non-exclusive right to distribute Product Kits in Japan and Korea through Distributors and Resellers and directly to End Users during the period January 1, 1995, through December 31, 1996. 10. Demonstration; Loan. (a) Intergraph shall have the right to use Product Kits, as defined in the Agreement, for demonstrations to prospective end users of Bundled Applications and for training. (b) Intergraph shall have the right to loan Product Kits, as defined in the Agreement, to prospective end users of Bundled Applications upon the terms and conditions set forth in Paragraph 2.05 of the Agreement. 11. Trademarks. Intergraph shall have the right to market the Application Bundle Products under any name of its choosing, provided, however, Intergraph shall identify Bentley as the owner of MicroStation and designate the Application Bundle Products as containing Bentley's MicroStation product by labeling each such Product, and advertising and promotional materials therefor, with the "MicroStation Powered" logo, and shall do so in accordance with the existing standards prepared by Intergraph. Intergraph shall also comply with the standards set forth in Exhibit "B" hereto. Intergraph shall request and use reasonable diligence to ensure compliance herewith by all of its distributors and resellers. All other terms and conditions of the Distribution Agreement shall remain unchanged. IN WITNESS WHEREOF, each of the parties has executed this Amendment as of the date and year first above written. ATTEST: BENTLEY SYSTEMS, INCORPORATED /s/ Jennifer S. Ware BY: /s/ Keith Bentley - -------------------- ------------------------ TITLE: /s/ President ------------------------ ATTEST: INTERGRAPH CORPORATION /s/ Marcus B. Maddox BY: /s/ T.D. Steele - -------------------- ------------------------ TITLE: /s/ President, Intergraph Software ------------------------ Solutions ------------------------ EXHIBIT "A" TO AMENDMENT TO DISTRIBUTION AGREEMENT -------------------------------------------------- Minimum Annual Volume Product Commitment (1995) ------------------------------------------------- InXpress InRoads SiteWorks Project Architect MGE Nucleus MGE PC1/PC2 I/Call I/Dispatch FRAMME FRAMME Lite I/GEOVEC WireWorks FrameWorks FieldWorks CogoWorks EXHIBIT B TO AMENDMENT TO DISTRIBUTION AGREEMENT ------------------------------------------------ Intergraph shall acknowledge the use of MicroStation in all advertisements and promotional materials for Application Bundle Products and on the box, if any, for such Products by including the following statements: MicroStation (registered trademark) Copyright Bentley Systems, Incorporated "MicroStation Field (registered trademark)", "MicroStation Modeler (registered trademark)", "MicroStation PowerDraft (registered trademark)" "MicroStation Powered" and "MicroStation Review (registered trademark)" are a registered* trademarks of Bentley Systems, Incorporated MicroStationCSP (SM) is a service mark of Bentley Systems, Incorporated "MicroStation (registered trademark)" is the registered trademark of Bentley Systems, Incorporated * (to be added at such time as Bentley receives registration for this trademark) In connection with its distribution of Applications Bundle Products, Intergraph shall comply in all respects with a certain Amended License Agreement between the parties dated January 28, 1993 relating to the trademark "MICROSTATION." In the event of any conflict between the trademark provisions of the Distribution Agreement and those of the Amended License Agreement, the provisions of the Distribution Agreement shall control. In addition, Intergraph shall comply with the following requirements: BENTLEY SYSTEMS, INCORPORATED trademarks, service marks and trade names shall be used as follows: MicroStation (registered trademark) MicroStation CSP(SM) MicroStation Field (TM) MicroStation Modeler (TM) MicroStation PowerDraft (TM) MicroStation Powered (TM) MicroStation Review (TM) Upon registration , Intergraph shall include the appropriate (registered trademark) symbol to the Bentley trademarks When the Bentley name and the Company are used, the Bentley must always be in FULL CAPITALS, bold italic, Caslon 540 and the Bentley "B" as follows: [BENTLEY LOGO] The Bentley "B" is an artistic "B" and will be provided to Intergraph. When the Company name is used without the Company logo, it must always be in FULL CAPITALS, standard type as follows: BENTLEY SYSTEMS, INCORPORATED EXHIBIT C TO DECEMBER AGREEMENT JAPANESE AND KOREAN LANGUAGE TRANSLATIONS PURCHASE AGREEMENT - -------------------------------------------------------------- THIS AGREEMENT is entered into this 16th day of December, 1994, by and between INTERGRAPH CORPORATION ("Intergraph"), a Delaware corporation having its principal office and place of business at One Madison Industrial Park, Huntsville, Alabama 35894, and BENTLEY SYSTEMS, INCORPORATED ("Bentley"), a Delaware corporation having its principal office and place of business at 690 Pennsylvania Drive, Exton, Pennsylvania 19431. W I T N E S S E T H: WHEREAS, the parties hereto entered into a series of written agreements dated May 2, 1994, including a Business Relations Agreement; WHEREAS, pursuant to Paragraph 3.04 of the Business Relations Agreement, Bentley received an option to acquire Intergraph's rights to certain foreign language translations of MicroStation prepared by or for Intergraph; WHEREAS, Bentley desires to exercise its option to purchase Intergraph's interest in the Japanese and Korean translations of the documentation and machine-readable information of the MicroStation software; WHEREAS, the parties hereto have agreed to vary the terms under which Bentley may exercise such option. NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. Definitions. As used herein, the following words, terms and phrases shall have the following meanings: 1.01 "Translations" means the Japanese (Kanji) and Korean (Hangul) foreign language translations of the documentation, machine-readable information, and resource files for all versions of MicroStation operating on any hardware or software platform, including without limitation the MicroStation Windows NT-specific, MicroStation DOS-specific and MicroStation Clipper-specific as well as Japanese NEC-PC- specific documentation and resource files. 1.02 "Localization Auxiliary Programs" means auxiliary programs developed by Intergraph or third parties to facilitate translation and MicroStation usage in the Japanese and Korean languages, such as keyboard input front-end processors, and includes source code, object code and documentation therefor. 1.03 "Auxiliary Translation Materials" means: (i) the Localization Auxiliary Programs for Japan and Korea; and (ii) any other software and documentation, including without limitation glossaries (and software tools therefor), all font libraries and resource files, necessary or desirable for the development and distribution of the foreign language kits of MicroStation for Japan and Korea. 1.04 "Third-Party Contractor" means a third party which has entered into a written agreement with Bentley to prepare Japanese or Korean foreign language translations of MicroStation, or to manufacture or distribute Japanese or Korean language kits of MicroStation. 2. Grant. (a) Intergraph hereby grants, assigns and conveys to Bentley all of Intergraph's right, title and interest whatsoever, including without limitation all of Intergraph's copyrights and other intellectual property rights, in and to the Translations, together with the right to sue for past infringement of the Translations. (b) Intergraph hereby grants to Bentley, its distributors, resellers and Third-Party Contractors a perpetual non-exclusive royalty-free worldwide right and license to use, reproduce, modify, enhance, publicly perform, publicly display, transmit and distribute to the public as an integral part of a localized MicroStation product the Auxiliary Translation Materials. 3. Delivery of Materials. Within the later of (a) fourteen (14) days after the date of this Agreement, or (b) seven (7) days after completion of any Translation, Intergraph shall deliver to Bentley on one or more diskettes an electronic copy and two paper copies of the Translations and the Auxiliary Translation Materials, together with a copy of the written assignments of the copyrights in and to the Translations to Intergraph. 4. Payment; Documentation. Bentley shall compensate Intergraph for the rights granted herein as follows: (a) Bentley's invoices to Intergraph for purchases by Intergraph of Japanese MicroStation Version 5 kits shall not include the ten percent (10%) surcharge, as permitted in Paragraph 5.03(e) of the Distribution Agreement dated May 2, 1994, between the parties, for such translated kits until the earlier of December 31, 1996, or such time as the cumulative number of such kits purchased by Intergraph times four percent (4%) of the U.S. list price for MicroStation is equal to seventy percent (70%) of the documented direct costs (as set forth in Exhibit A hereto) incurred by Intergraph to prepare the Japanese Translations. (b) Bentley's invoices to Intergraph for purchases by Intergraph of Korean MicroStation Version 5 kits shall not include the ten percent (10%) surcharge, as permitted in Paragraph 5.03(e) of the Distribution Agreement dated May 2, 1994, between the parties, for such translated kits until the earlier of December 31, 1996, or such time as the cumulative number of such kits purchased by Intergraph times four percent (4%) of the U.S. list price for MicroStation is equal to seventy percent (70%) of the documented direct costs (as set forth in Exhibit A hereto) incurred by Intergraph to prepare the Korean Translations. (c) Upon written request by Bentley, Intergraph shall permit reasonable inspection by Bentley or a third-party auditor retained by Bentley of all of its documentation supporting the direct costs of the Translations. 5. Execution of Documents. Intergraph shall perform acts and execute documents, at Bentley's expense and request, which are reasonably necessary to transfer or perfect in Bentley the rights granted by Intergraph to Bentley herein. 6. Warranty. Intergraph represents and warrants to Bentley that (a) it has paid in full for the preparation of the Translations and Auxiliary Translation Materials, and has received from an assignment of the copyrights in each instance where such materials were prepared by third parties; (b) it is the owner of the Translations and the Auxiliary Translation Materials, including all intellectual property rights therein; (c) it has the right, power and authority to grant the rights granted under this Agreement and fully perform its obligations hereunder; and (d) it has not, as of the date hereof, received notice of a claim that the Translations or Auxiliary Translation Materials infringe any patent, copyright or other intellectual property right anywhere in the world or that any third party has any proprietary interest in or to the Translations or Auxiliary Translation Materials. 7. Instructions. The parties shall provide instructions to Bentley's Third-Party Contractor in accordance with this Agreement upon its execution. 8. Termination for Material Breach. Either party may, at its option, terminate this Agreement in the event of a material breach by the other party. Such termination may be effected only through a written notice to the other party, specifically identifying the breach or breaches on which termination is based. Following receipt of such notice, the party in breach shall have sixty (60) days to cure such breach or breaches, and this Agreement shall terminate in the event that such cure is not made by the end of such period. In the event that the parties dispute either the existence of a material breach or the adequacy of attempted cure, and either party submits such dispute to arbitration under Paragraph 10.09 hereof, the termination shall not be deemed effective until the arbitrator renders a final decision finding an uncured material breach. 9. Bankruptcy. If either party files a petition in bankruptcy (or is the subject of an involuntary petition in bankruptcy that is not dismissed within sixty (60) days after the effective filing date thereof); or is or becomes insolvent; or enters into any formal arrangement with its creditors, or ceases doing business in the ordinary course; or admits of a general inability to pay its debts as they become due; then the other party shall have the right to terminate this Agreement upon fifteen (15) days written notice. 10. General Provisions. 10.01 Entire Agreement. This Agreement, together with the Exhibits hereto, collectively set forth the entire agreement and understanding between the parties hereto with respect to the purchase of the Translations and license of the Auxiliary Translation Materials and, except as specifically provided herein, supersede and merge all prior oral and written agreements, discussions and understandings between the parties with respect to the subject matter hereof, and neither of the parties shall be bound by any conditions, inducements or representations other than as expressly provided for herein. 10.02 Independent Contractors. In making and performing this Agreement, Bentley and Intergraph act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Bentley and Intergraph. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 10.03 Notices. Any notice required or permitted to be given hereunder, shall, except where specifically provided otherwise, be given in writing to the person listed below by registered mail or overnight delivery service, and the date upon which any such notice is received at the designated address shall be deemed to be the date of such notice. Any notice shall be delivered as follows: If to Intergraph: Intergraph Corporation One Madison Industrial Park Huntsville, Alabama 35894 Attention: James W. Meadlock President If to Bentley: Bentley Systems, Inc. 690 Pennsylvania Drive Exton,Pennsylvania 19341 Attention: Keith Bentley, President or addressed to such other address as that party may have given by written notice in accordance with this provision. 10.04 Amendments; Modifications. This Agreement may not be amended or modified except in a writing duly executed by the parties hereto. 10.05 Assignment. Neither party shall assign this Agreement, or any part thereof, without the prior written consent of the other party. 10.06 Severability. The provisions of this Agreement shall be severable, and if any of them are held invalid or unenforceable for any reason, such provision shall be adjusted to the minimum extent necessary to cure such invalidity. The invalidity or unenforceability of one or more of the provisions contained in this Agreement shall not affect any other provisions of this Agreement. 10.07 Waivers. Any delay or forbearance by either party in exercising any right hereunder shall not be deemed a waiver of that right. 10.08 Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware. 10.09 Arbitration. In the event of a dispute between the parties arising under this Agreement, the parties shall submit to binding arbitration before a single arbitrator in Wilmington, Delaware, under the Commercial Arbitration Rules of the American Arbitration Association, except that temporary restraining orders or preliminary injunctions, or their equivalent in any country of the world, may be obtained from any court of competent jurisdiction. The pre-hearing and hearing proceedings in the arbitration shall be generally governed by the Federal Rules of Civil Procedure and the judicial precedent interpreting those rules. The decision of the arbitrator shall be final and binding with respect to the dispute subject to the arbitration and shall be enforceable in any court of competent jurisdiction. Each party shall bear its own expenses, attorney's fees and costs incurred in such arbitration. 10.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one Agreement. 10.11 Construction. This Agreement is the product of joint draftsmanship and shall not be construed against one party more strictly than against the other. 10.12 Confidentiality of Agreement. The detailed terms of this Agreement shall remain confidential. In no event shall either party disclose the detailed terms of this Agreement without the prior written consent of the other party; provided, however, each of the parties may announce publicly the framework of this Agreement without consent of the other party. 10.13 Headings. The headings in this Agreement are inserted merely for the purpose of convenience and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date and year first above written. ATTEST: BENTLEY SYSTEMS, INCORPORATED /s/ Jennifer S. Ware BY: /s/ Keith Bentley - --------------------- ----------------------- TITLE: /s/ President ----------------------- ATTEST: INTERGRAPH CORPORATION /s/ Marcus B. Maddox BY: /s/ T.D. Steele - -------------------- ----------------------- TITLE: /s/ President, Intergraph Software ----------------------- Solutions ----------------------- EXHIBIT A TO JAPANESE AND KOREAN LANGUAGE TRANSLATIONS PURCHASE AGREEMENT ------------------------------------------------------------ Japanese - -------- MicroStation Resource Files MicroStation DOS-specific Documentation MicroStation Windows NT-specific Documentation MicroStation Clipper-specific Documentation MicroStation NEC-PC-specific Documentation TOTAL: $560,000 (U.S.) Korean - ------ MicroStation Resource Files MicroStation DOS-specific Documentation MicroStation Windows NT-specific Documentation MicroStation Clipper-specific Documentation TOTAL: $210,000 (U.S.) EXHIBIT D TO DECEMBER AGREEMENT CHINESE AND TAIWANESE LANGUAGE TRANSLATIONS PURCHASE AGREEMENT - -------------------------------------------------------------- THIS AGREEMENT is entered into this 16th day of December, 1994, by and between INTERGRAPH CORPORATION ("Intergraph"), a Delaware corporation having its principal office and place of business at One Madison Industrial Park, Huntsville, Alabama 35894, and BENTLEY SYSTEMS, INCORPORATED ("Bentley"), a Delaware corporation having its principal office and place of business at 690 Pennsylvania Drive, Exton, Pennsylvania 19431. W I T N E S S E T H: WHEREAS, the parties hereto entered into a series of written agreements dated May 2, 1994, including a Business Relations Agreement; WHEREAS, pursuant to Paragraph 3.04 of the Business Relations Agreement, Bentley received an option to acquire Intergraph's rights to certain foreign language translations of MicroStation prepared by or for Intergraph; WHEREAS, Bentley desires to exercise its option to purchase Intergraph's interest in the foreign language translations of the documentation and machine-readable information of the MicroStation software for China and Taiwan; WHEREAS, the parties hereto have agreed to vary the terms under which Bentley may exercise such option. NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. Definitions. As used herein, the following words, terms and phrases shall have the following meanings: 1.01 "Translations" means the foreign language translations for China and Taiwan of the documentation, machine- readable information and resource files for all versions of MicroStation operating on any hardware or software platform, including without limitation the MicroStation Windows NT- specific, MicroStation DOS-specific and MicroStation Clipper- specific documentation and resource files. 1.02 "Localization Auxiliary Programs" means auxiliary programs developed by Intergraph or third parties to facilitate translation and MicroStation usage in the Chinese and Taiwanese languages, such as keyboard input front-end processors, and includes source code, object code and documentation therefor. 1.03 "Auxiliary Translation Materials" means: (i) the Localization Auxiliary Programs for China and Taiwan; and (ii) any other software and documentation, including without limitation glossaries (and software tools therefor), all font libraries and resource files, necessary or desirable for the development and distribution of the foreign language kits of MicroStation for China and Taiwan. 1.04 "Third-Party Contractor" means a third party which has entered into a written agreement with Bentley to prepare Chinese or Taiwanese foreign language translations of MicroStation, or to manufacture or distribute Chinese or Taiwanese language kits of MicroStation. 2. Grant. (a) Intergraph hereby grants, assigns and conveys to Bentley all of Intergraph's right, title and interest whatsoever, including without limitation all of Intergraph's copyrights and other intellectual property rights, in and to the Translations, together with the right to sue for past infringement of the Translations. (b) Intergraph hereby grants to Bentley, its distributors, resellers and Third-Party Contractors a perpetual non-exclusive royalty-free worldwide right and license to use, reproduce, modify, enhance, publicly perform, publicly display, transmit and distribute to the public as an integral part of a localized MicroStation product the Auxiliary Translation Materials. 3. Delivery of Materials. Within the later of (a) fourteen (14) days after the date of this Agreement, or (b) seven (7) days after completion of any Translation, Intergraph shall deliver to Bentley on one or more diskettes an electronic copy and two paper copies of the Translations and the Auxiliary Translation Materials, together with a copy of the written assignments of the copyrights in and to the Translations to Intergraph. 4. Payment; Documentation. Bentley shall compensate Intergraph for the rights granted herein as follows: (a) Bentley's invoices to Intergraph for purchases by Intergraph of Chinese MicroStation Version 5 kits shall not include the ten percent (10%) surcharge, as permitted in Paragraph 5.03(e) of the Distribution Agreement dated May 2, 1994, between the parties, for such translated kits until the earlier of December 31, 1996, or such time as the cumulative number of such kits purchased by Intergraph times four percent (4%) of the U.S. list price for MicroStation is equal to seventy percent (70%) of the documented direct costs (as set forth in Exhibit A hereto) incurred by Intergraph to prepare the Chinese Translations. (b) Bentley's invoices to Intergraph for purchases by Intergraph of Taiwanese MicroStation Version 5 kits shall not include the ten percent (10%) surcharge, as permitted in Paragraph 5.03(e) of the Distribution Agreement dated May 2, 1994, between the parties, for such translated kits until the earlier of December 31, 1996, or such time as the cumulative number of such kits purchased by Intergraph times four percent (4%) of the U.S. list price for MicroStation is equal to seventy percent (70%) of the documented direct costs (as set forth in Exhibit A hereto) incurred by Intergraph to prepare the Taiwanese Translations. (c) Upon written request by Bentley, Intergraph shall permit reasonable inspection by Bentley or a third-party auditor retained by Bentley of all of its documentation supporting the direct costs of the Translations. 5. Execution of Documents. Intergraph shall perform acts and execute documents, at Bentley's expense and request, which are reasonably necessary to transfer or perfect in Bentley the rights granted by Intergraph to Bentley herein. 6. Warranty. Intergraph represents and warrants to Bentley that (a) it has paid in full for the preparation of the Translations and Auxiliary Translation Materials, and has received from an assignment of the copyrights in each instance where such materials were prepared by third parties; (b) it is the owner of the Translations and the Auxiliary Translation Materials, including all intellectual property rights therein; (c) it has the right, power and authority to grant the rights granted under this Agreement and fully perform its obligations hereunder; and (d) it has not, as of the date hereof, received notice of a claim that the Translations or Auxiliary Translation Materials infringe any patent, copyright or other intellectual property right anywhere in the world or that any third party has any proprietary interest in or to the Translations or Auxiliary Translation Materials. 7. Instructions. The parties shall provide instructions to Bentley's Third-Party Contractor in accordance with this Agreement upon its execution. 8. Termination for Material Breach. Either party may, at its option, terminate this Agreement in the event of a material breach by the other party. Such termination may be effected only through a written notice to the other party, specifically identifying the breach or breaches on which termination is based. Following receipt of such notice, the party in breach shall have sixty (60) days to cure such breach or breaches, and this Agreement shall terminate in the event that such cure is not made by the end of such period. In the event that the parties dispute either the existence of a material breach or the adequacy of attempted cure, and either party submits such dispute to arbitration under Paragraph 10.09 hereof, the termination shall not be deemed effective until the arbitrator renders a final decision finding an uncured material breach. 9. Bankruptcy. If either party files a petition in bankruptcy (or is the subject of an involuntary petition in bankruptcy that is not dismissed within sixty (60) days after the effective filing date thereof); or is or becomes insolvent; or enters into any formal arrangement with its creditors, or ceases doing business in the ordinary course; or admits of a general inability to pay its debts as they become due; then the other party shall have the right to terminate this Agreement upon fifteen (15) days written notice. 10. General Provisions. 10.01 Entire Agreement. This Agreement, together with the Exhibits hereto, collectively set forth the entire agreement and understanding between the parties hereto with respect to the purchase of the Translations and license of the Auxiliary Translation Materials and, except as specifically provided herein, supersede and merge all prior oral and written agreements, discussions and understandings between the parties with respect to the subject matter hereof, and neither of the parties shall be bound by any conditions, inducements or representations other than as expressly provided for herein. 10.02 Independent Contractors. In making and performing this Agreement, Bentley and Intergraph act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Bentley and Intergraph. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 10.03 Notices. Any notice required or permitted to be given hereunder, shall, except where specifically provided otherwise, be given in writing to the person listed below by registered mail or overnight delivery service, and the date upon which any such notice is received at the designated address shall be deemed to be the date of such notice. Any notice shall be delivered as follows: If to Intergraph: Intergraph Corporation One Madison Industrial Park Huntsville, Alabama 35894 Attention: James W. Meadlock President If to Bentley: Bentley Systems, Inc. 690 Pennsylvania Drive Exton, Pennsylvania 19341 Attention: Keith Bentley, President or addressed to such other address as that party may have given by written notice in accordance with this provision. 10.04 Amendments; Modifications. This Agreement may not be amended or modified except in a writing duly executed by the parties hereto. 10.05 Assignment. Neither party shall assign this Agreement, or any part thereof, without the prior written consent of the other party. 10.06 Severability. The provisions of this Agreement shall be severable, and if any of them are held invalid or unenforceable for any reason, such provision shall be adjusted to the minimum extent necessary to cure such invalidity. The invalidity or unenforceability of one or more of the provisions contained in this Agreement shall not affect any other provisions of this Agreement. 10.07 Waivers. Any delay or forbearance by either party in exercising any right hereunder shall not be deemed a waiver of that right. 10.08 Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware. 10.09 Arbitration. In the event of a dispute between the parties arising under this Agreement, the parties shall submit to binding arbitration before a single arbitrator in Wilmington, Delaware, under the Commercial Arbitration Rules of the American Arbitration Association, except that temporary restraining orders or preliminary injunctions, or their equivalent in any country of the world, may be obtained from any court of competent jurisdiction. The pre-hearing and hearing proceedings in the arbitration shall be generally governed by the Federal Rules of Civil Procedure and the judicial precedent interpreting those rules. The decision of the arbitrator shall be final and binding with respect to the dispute subject to the arbitration and shall be enforceable in any court of competent jurisdiction. Each party shall bear its own expenses, attorney's fees and costs incurred in such arbitration. 10.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one Agreement. 10.11 Construction. This Agreement is the product of joint draftsmanship and shall not be construed against one party more strictly than against the other. 10.12 Confidentiality of Agreement. The detailed terms of this Agreement shall remain confidential. In no event shall either party disclose the detailed terms of this Agreement without the prior written consent of the other party; provided, however, each of the parties may announce publicly the framework of this Agreement without consent of the other party. 10.13 Headings. The headings in this Agreement are inserted merely for the purpose of convenience and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date and year first above written. ATTEST: BENTLEY SYSTEMS, INCORPORATED BY: - --------------------- -------------------------------- TITLE: -------------------------- ATTEST: INTERGRAPH CORPORATION /s/ Marcus B. Maddox BY: /s/ T.D. Steele - --------------------- -------------------------------- TITLE: /s/ President,Intergraph Software -------------------------------- Solutions -------------------------------- EXHIBIT A TO CHINESE AND TAIWANESE LANGUAGE TRANSLATIONS PURCHASE AGREEMENT -------------------------------------------------------------- Chinese and Taiwanese Translations - ---------------------------------- MicroStation Resource Files MicroStation DOS-specific Documentation MicroStation Windows NT- specific Documentation MicroStation Clipper-specific Documentation TOTAL: $115,000 (U.S.) EXHIBIT E TO DECEMBER AGREEMENT INTERGRAPH 1994 YEAR-END INVENTORY OF MICROSTATION ALTERNATE PLATFORM V5 KITS --------------------------------------- Platform Number of Kits - -------- -------------- (English) (Foreign Languages) MS NT 572 MS DOS 2,292 DEC ALPHA 355 HP 613 SPARC 3 EX-13 10 FIVE-YEAR FINANCIAL SUMMARY
- ------------------------------------------------------------------------------------ 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------ (In thousands except per share amounts) Revenues $1,041,403 $1,050,277 $1,176,661 $1,195,378 $1,044,617 Restructuring charges (credit) (4,826) 89,806 4,418 --- --- Net income (loss) (70,220) (116,042) 8,442 71,108 62,557 Net income (loss) per share (1.56) (2.51) .18 1.47 1.28 Working capital 282,893 348,756 430,974 502,152 443,272 Total assets 839,618 855,329 986,663 996,615 907,460 Total debt 61,114 26,606 21,887 27,661 21,416 Shareholders' equity 522,337 588,710 736,863 754,994 682,272
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SUMMARY. The Company lost $1.56 per share in 1994 and $2.51 per share in 1993 (including a restructuring charge of $1.34 per share) versus earnings of $.18 per share in 1992. Competitive price and performance conditions in the industry, the Company's transition to software applications based on the Windows NT operating system and to hardware based on Intel Corporation microprocessors, and slower than anticipated market acceptance of Windows NT have adversely affected the Company's revenues and profitability during 1993 and 1994. These factors combined to reduce systems revenue by 8% in 1992, 15% in 1993, and 1% in 1994, and to reduce systems gross margin by 1.9 points in 1992, 8.8 points in 1993, and 5.1 points in 1994, resulting in net losses in 1993 and 1994. In addition, the 1994 net loss was increased by the expiration of tax loss benefits. The Company expects that current industry conditions characterized by the demand for higher performance and lower priced products, intense competition and rapidly changing technology will continue in 1995 and beyond. However, the Company substantially completed its product transition late in 1994, and believes that the availability of its products for a full year and the growing acceptance of Windows NT, together with the benefits of its restructuring efforts over the last two years, will restore sales growth and profitability. To achieve profitability in 1995, the Company must significantly increase its sales volume and continue to reduce its operating expenses. 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), by shorter product cycles, and by development and support of software standards that result in less specific hardware dependency by customers. The Company believes the life cycle of its products to be less than two years, and it is therefore engaged in continuous product development activity. The operating results of the Company and others in the industry will continue to depend on the ability to accurately anticipate customer requirements and technological trends and to rapidly and continuously develop and deliver new hardware and software products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability. 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 an $89.8 million restructuring charge in 1993 and operating losses in the transitional years of 1993 and 1994. 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 operating system for high- end computing. The effect of this decision has been to expand the availability of the Company's workstations and software applications to Windows-based computing environments not previously addressed by the Company, including the availability of Intergraph software applications that operate across a variety of hardware architectures, including those of other hardware vendors that use the Windows NT operating system. Prior to this decision, the Company's software applications operated principally on Intergraph hardware platforms. At the same time, the Company has continued to develop and maintain products in the UNIX operating system environment, the foundation for its software applications prior to Windows NT, thereby offering existing and potential customers a choice of UNIX or Windows NT operating systems as well as a path to the Windows NT system if and when the customer chooses. Limited shipments of Windows NT-based software began in the fourth quarter of 1993. Sales of Windows-based software represented 48% of software revenues in 1994 (60% for fourth quarter 1994). As of the end of 1994, the Company has completed the port of its applications software to Windows NT for all applications scheduled for conversion. While the Company believes that Windows NT will become the dominant operating system in the markets it serves, adoption of any new operating system requires considerable effort on the part of customers, and the timing of such conversions is unpredictable. In addition, competing operating systems are available in the market, and several competitors of the Company offer or are adopting the Windows NT operating system for their products. Hardware Architecture. The Company believes that Intel Corporation's hardware architecture has an important role in the computing markets it serves. During the last half of 1993, the Company began to offer a hardware platform (in addition to its own) based on Intel microprocessors. Previously, the Company's hardware platform offering had been based on its own microprocessor. The Company ceased design of its own microprocessor at the end of 1993. Intel-based systems represented approximately 30% of hardware unit sales in 1993 and approximately 74% in 1994 (85% in the fourth quarter of 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. Under the agreement, the Company had 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, both in the second half of 1995. In addition, Sun hired all of the employees of the Company's former microprocessor division. Sun and the Company agreed to revise certain terms of the agreement in mid-1994. Thereafter, Sun terminated the agreement effective October 7, 1994. As a result, the next generation Sun SPARC microprocessor will not be co-developed and the Company will not develop the SPARC-based desktop computer system, port the Windows NT operating system to that computer system, or have the right to sell the computer system. However, the Company has retained the right for three years to purchase Sun developed microprocessors. Company employees hired by Sun remain the employees of Sun. Termination of the contract by Sun did not of itself produce any adverse financial effects for the Company, and the Company does not expect that such termination will result in adverse effects on its future operations. Restructuring Charge. The strategic decisions described above led to actions that resulted in an $89.8 million pretax restructuring charge in 1993 ($61.7 million after related tax benefit, or $1.34 per share). The restructuring charge was comprised of $10.5 million for direct workforce reductions, $17.1 million for elimination of operations, primarily the Company's European manufacturing and distribution facility (IEM), $56.1 million for revaluation of assets resulting from new product strategies (primarily spares inventory, goodwill, and investments in other companies), and $6.1 million for restructure of the Company's electronics business. There have been no changes to the Company's 1993 restructuring plan that have a material effect on the amount of the 1993 restructuring charge. The phased closure of IEM was completed during the third quarter of 1994. In the fourth quarter of 1994, the Company determined that it will utilize a portion of this facility as a distribution center for Europe beginning in early 1995. The original plan called for sale or lease of the facility. All manufacturing activity will continue to be performed in the U.S. The Company expects its limited use of the IEM facility to positively impact its results of operations in 1995 and that the savings anticipated from its 1994 closure will not be significantly reduced. The Company estimates that restructuring actions taken in 1993 reduced full year 1994 expenses by approximately $50 million, as expected, primarily in the areas of selling, product support, and product development expenses. However, the beneficial effect of these savings was offset in 1994 by the continuing decline in systems margins and by increases in certain sales and marketing expenses. Cash outlays during 1994 related to the 1993 restructuring were approximately $10 million, which was less than anticipated, primarily for severance pay and associated personnel costs, all of which was funded by cash from operations or borrowings under credit facilities. There are no significant remaining cash requirements from the 1993 restructuring, and the Company expects no long-term effects on its liquidity and sources and uses of capital. Included in the statement of operations for the year ended December 31, 1994, is a $4.8 million credit representing reversal of the remaining unincurred portion of the restructuring charge related to IEM. Severance costs incurred were less than anticipated. ORDERS. Systems orders for 1994 were $640.9 million, an increase of 2% for the year after declines of 23% and 2% in 1993 and 1992, respectively. Systems orders during 1994 were adversely affected by product transition and by slower than anticipated customer acceptance of the Windows NT operating system. Orders for the Company's new software products based on Windows NT improved during the last half of the year as more software applications became available, with the U.S. and Asian markets representing the majority of the improvement. The Company's European market has been slower in its acceptance of the new operating system. The decline in systems orders in 1993 was the result of product transition and general economic weakness, particularly in the Company's primary U.S. and European markets. U.S. orders, including federal government orders, were $316.7 million for 1994, up 1% after a 26% decline in 1993 and an 8% decline in 1992. Federal government orders totaled $111.2 million, down 7% for the year. European orders totaled $194.5 million, down 4% after a 30% decrease in 1993 and a 6% increase in 1992. Other international systems orders totaled $129.7 million, up 12% after remaining relatively unchanged during the previous two years. In July 1994, the U.S. Navy awarded the Company the Naval Air Systems Command and Space and Naval Warfare Command contract ("NAVAIR and SPAWAR") to provide computer aided design, manufacturing, and engineering (CAD/CAM/CAE) systems and services for electronics and mechanical applications. The contract is an indefinite delivery, indefinite quantity (IDIQ) contract. IDIQ contracts generally provide for the purchase of indefinite quantities of goods and services, with stated minimum and maximum amounts eligible for order, and with deliveries scheduled by placing specific orders with the vendor. Funding for other than the stated minimum quantities is obligated by each delivery order and not by the contract itself. The estimated maximum value of the NAVAIR/SPAWAR contract is $398 million, and the term of the contract is twelve years, assuming all optional annual renewals of the contract are exercised. Under the terms of of the contract, the customer is obligated to purchase only $1 million in systems and services, and there can be no assurance that the Company will receive orders for the maximum value of the contract. Products and services will be sold to the Navy over the term of the contract at firm, fixed prices, with escalation of certain prices allowed under certain circumstances. Given the nature of the contract as described above, the Company cannot determine the amount of orders that will be received or the anticipated annual revenues over the term of the contract. There were no orders or revenues under this contract in 1994. Soon after the original award, the NAVAIR/SPAWAR contract was formally protested by one of the losing bidders. The Company supported the efforts of the Navy in defending against the protest, and in October 1994, the Company was notified that the original award was upheld. It is possible that the award of the contract will again be protested. At present, the Company does not expect any further protest to delay receipt of orders under the contract, and expects to prevail in any such further protest. REVENUES. Total revenues for 1994 were $1.04 billion, down 1% for the year after an 11% decline in 1993 and a 2% decline in 1992. Systems. Sales of Intergraph systems in 1994 were $665.6 million, down 1% after declines of 15% and 8%, respectively, in the two preceding years. Factors previously cited as adversely affecting systems orders also affected systems revenue. In addition, competitive conditions manifested in declining per unit sales prices depressed systems revenues in 1994. Workstation and server unit volume increased 41% in 1994, while workstation and server revenue increased 4%. Systems revenues in 1993 were impacted by product transition and by competitive conditions, but also by general economic weakness, particularly in the Company's primary U.S. and European markets. Systems revenue in the U.S. improved in the last half of 1994; however, in international markets, systems revenue did not show improvement until late in the fourth quarter. U.S. systems sales, including sales to the federal government, grew by 7% (federal government sales grew by 2%) in 1994 after declining approximately 15% in each of the two previous years. European systems sales declined 12% in 1994 and 23% in 1993 after growing by 7% in 1992. Other international systems sales were relatively unchanged in 1994 after growing by 6% in 1993 and declining 6% in 1992. The architecture, engineering, and construction (AEC), mapping/geographic information systems (GIS), and mechanical design, engineering, and manufacturing (MDEM) product applications have dominated the Company's product mix over the last three years, with no other single application representing more than 10% of systems revenue. The relative contributions of these product families to total systems revenue for both 1994 and 1993 were AEC 34%, GIS 42%, MDEM 16%, and all other applications 8%. Maintenance and Services. Maintenance and services revenue consists of revenues from maintenance of Company systems and from Company-provided training, consulting and other services. These forms of revenue totaled $375.8 million in 1994, relatively unchanged from the previous year after a 14% increase in 1992. Maintenance revenues grow as the Company's installed base of systems grows. The shift within the industry toward lower priced products and longer warranty periods has reduced the rate of increase in maintenance revenue. Services revenue, which represents less than 5% of total revenues, declined by 9% in 1994 after growth of 9% in 1993. Bentley Systems, Inc. Through the end of 1994 the Company had an exclusive license agreement with Bentley Systems, Inc. (BSI), a 50%-owned affiliate of the Company, under which the Company distributed MicroStation, a software product developed and maintained by BSI and utilized in many of the Company's software applications. The Company's sales of MicroStation during the year ended December 31, 1994, were approximately $88 million, with a gross margin after royalty payments to BSI of approximately 70% before allocation of selling, marketing, product development, and general and administrative expenses. BSI notified Intergraph in February 1994 that, in its opinion, certain events had occurred that, under the terms of the license agreement, made the Company's license nonexclusive and, as a result, BSI could compete with Intergraph in the distribution of MicroStation and in the development and distribution of additional software products. The Company disputed that the license agreement had changed and, pursuant to the license agreement, 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 May 1994, the Company and BSI completed negotiations settling this matter and terminated all related arbitration and lawsuits. Under the terms of the settlement, the Company's exclusive worldwide license to distribute MicroStation, including related financial terms, remained in effect through December 31, 1994. Effective January 1, 1995, both BSI and the Company will distribute MicroStation. The Company has a non-exclusive license to sell MicroStation via its direct sales force, and to sell MicroStation via its indirect sales channels if MicroStation is sold with other Intergraph products. In addition, effective January 1, 1995, the per copy royalty payable by the Company to BSI is increased and, for 1995 only, BSI will pay the Company a per copy distribution fee based on BSI's MicroStation sales to resellers. The financial impact of the settlement to the Company beyond 1994 ultimately depends on the level of the Company's and BSI's MicroStation sales, which the Company is currently unable to predict. It is likely that some MicroStation sales will be diverted to BSI, and the settlement agreement provides that the Company will pay royalties to BSI at a higher per copy rate on its MicroStation sales, though that expense will be partially offset by per copy distribution fees payable from BSI to the Company in 1995. Any adverse financial effects of the settlement beyond 1994 will be mitigated by the Company's 50% interest in existing and incremental profits, if any, earned by BSI, and by reduction in the Company's MicroStation product marketing and support expense, which become the responsibility of BSI. Federal Government Sales. Total systems and maintenance and services revenue from the United States government was approximately $167 million in both 1994 and 1993 and $186 million in 1992 (16% of total revenue in each of the three years). The Company sells to the U.S. government under long-term contract arrangements, primarily IDIQ and 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. PENTIUM PROCESSORS. In late November 1994, it was disclosed that a rare problem may exist with Intel's Pentium microprocessor, which is used in many of the Company's workstations and servers. The problem relates to an unlikely sequence of operations that can produce a round-off error when dividing certain numbers and carrying the answer to several decimal places. Intel has said the error is likely to occur only once in every nine billion random division operations. The Company has shipped several thousand Pentium processor-based workstations and servers to date. The Company has not experienced any reports of this problem from a customer site and has not experienced the problem during internal development. Accordingly, the Company has no reason to believe that current or future customers are likely to encounter the problem. However, the Company has committed to a plan of replacement of all such processors in its customer base. Intel has announced that it will warrant the processor on this issue, and the Company's business arrangements with Intel provide warranty coverage of the Pentium microprocessor by Intel. Neither the discovery of the Pentium problem nor the replacement of the affected units significantly affected the Company's results of operations or cash flows in 1994, and the Company expects no impact on its 1995 results of operations or cash flows. All shipments of the Company's workstations and servers since January 1, 1995, have contained the corrected versions of the Pentium processor. The Company has ceased design and volume production of its own microprocessor. Substantially all of the Company's microprocessor needs are currently supplied by Intel. The Company does not have a fixed quantity commitment for microprocessors in its agreements with Intel, but believes it has a good relationship with Intel and is unaware of any reason that Intel might encounter difficulties in meeting the Company's microprocessor needs. An inability to obtain a sufficient supply of Intel microprocessors would adversely affect the Company's results of operations. GROSS MARGIN. The Company's total gross margin was 40.5% in 1994, unchanged from the previous year after a decline of 5.9 points in 1993 and 2.6 points in 1992. Margin on systems sales declined 5.1 points in 1994, 8.8 points in 1993, and 1.9 points in 1992. This decline of 15.8 points since 1991 is the result of lower sales volume and competitive pricing conditions in the industry. Systems margin was further reduced in 1994 by a decline in the mix of international systems sales to total systems sales. These negative effects are partially offset by the increasing software content of the Company's systems. The primary reason for the Company's lower systems margin is price competition, but systems margin may also be lowered by 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 systems sales. Systems margins may be improved by higher software content in the product, a weaker dollar in international markets, a higher mix of international systems sales to total systems sales, and reductions in prices of component parts, which generally tend to decline over time in the industry. The Company is unable to predict the effects that many of these factors may have, but it expects continuing pressure on its systems margin due primarily to industry price competition. Margin on maintenance and services revenue improved 8.6 points in 1994 and 1.3 points in 1993 after a decline of .8 points in 1992. As a result of the change in product strategy in 1993, the Company revalued its oldest generation spares inventory items in recognition of the diminished value of these parts. The increase in 1994 maintenance and services margin results in part from the corresponding decline in the provision for inventory obsolescence. In addition, headcount reductions from the 1993 restructuring have favorably affected maintenance and services margin, as have increased presales activities of application engineers, which are charged to sales and marketing expense. OPERATING EXPENSES (EXCLUSIVE OF RESTRUCTURING EXPENSES). Operating expenses declined by 1% in 1994 and 3% in 1993 after growth of 6% in 1992. The total number of employees of the Company declined by 5% in 1994 and 8% in 1993 after 1% growth in 1992. Product development expense declined 14% in 1994 after increases of 7% in 1993 and 12% in 1992. The 1994 reduction was due in large part to the 1993 restructuring action that eliminated the Company's microprocessor design division. Increases in 1992 and 1993 were due to development efforts related to product transition. After a 1% increase in 1992, general and administrative expense declined 10% in 1993 and 4% in 1994 due primarily to workforce reductions and other cost control measures. Savings generated in 1994 were partially offset by the write-off of a $5.5 million account receivable from a customer in the Middle East. Sales and marketing expense increased 10% in 1994 after decreasing 6% in 1993 and increasing 5% in 1992. The savings generated by 1993 restructuring actions were offset by an increase in presales support costs (see "Gross Margin" above) and advertising and promotion costs of the Company's new product offerings. The Company continues to closely monitor spending. NONOPERATING INCOME AND EXPENSE. Interest expense was $2.4 million in 1994, $2.1 million in 1993, and $3.0 million in 1992. The Company's outstanding debt increased in 1994, primarily in the last half of the year. Interest expense may increase in 1995 if debt is not reduced and if interest rates continue to increase. The Company has two interest rate swap agreements in the principal amounts of its two European floating rate mortgages (approximately $20 million at December 31, 1994). The agreements are for an original term of two years, expiring in first quarter 1995 and were entered into to reduce the risk of increase in interest rates. The Company does no trading in this form of derivative instrument. Under the agreements, the Company pays a fixed rate of interest and receives payment based on a variable rate of interest and is thus exposed to market risk of potential future decreases in interest rates. The weighted average pay and receive rates of the two agreements as of December 31, 1994 were 7.36% and 5.91%, respectively. The agreements had an insignificant effect on the total cash flows of the Company in 1994. The fair value of the agreements approximated original contract amounts at December 31, 1994 based on the insignificant amount the Company would pay to transfer the agreements to a third party as of that date. Deferred gains on terminated agreements, which are not material to the Company's results of operations, are amortized over the remaining terms of the agreements. Interest income was $3.0 million in 1994, $4.5 million in 1993, and $5.4 million in 1992. The average cash balance declined during 1993 and 1994 as the result of a decline in cash generated from operations in both years and, in 1993, as the result of purchase of the Company's stock in the open market. The Company incurred net foreign exchange losses of $2.6 million ($.05 per share) in 1994, $3.3 million ($.05 per share) in 1993, and $12.5 million ($.18 per share) in 1992. 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 operations 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 1994 amount includes a charge of $3.4 million for write-down of the Company's investments in two affiliates and a gain of $5.8 million from the sale of an investment in an affiliated company. The 1993 amount includes a $3.3 million write-off of an investment in an affiliated company. INCOME TAXES. The Company incurred a loss before income tax benefit of $74.2 million in 1994 and 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. The 1994 loss generated only minimal tax benefit as virtually all available financial statement tax benefits were exhausted with the 1993 loss. The decline in tax benefit increased 1994 net losses by $19.3 million or $.43 per share. 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. Note 8 of Notes to Consolidated Financial Statements contains a reconciliation of statutory to actual income tax benefit and further details of the Company's tax position. GEOGRAPHIC AREAS. The Company incurred a loss from operations of $72.6 million in 1994 (including a credit from 1993 restructuring of $4.8 million) after a loss of $164.6 million in 1993 (including a restructuring charge of $89.8 million). The Company earned operating income of $25.4 million in 1992. For 1994, sales outside the U.S. represented 49% of total revenues versus 51% for both 1993 and 1992. European revenues were 33% of total revenues for 1994, 35% for 1993 and 38% for 1992. The factors that have limited or reduced the Company's revenue and profitability over the past three years have similarly affected each of the geographic areas in which the Company does business. Product transition and declining per unit sales prices due to competitive conditions negatively impacted systems revenues and margin in all geographic areas during 1993 and 1994. In addition, in 1993 general economic weakness, particularly in the Company's primary U.S. and European markets, negatively impacted systems revenue. The U.S. geographic region incurred a loss from operations of $27.6 million in 1994 after a loss of $116.5 million in 1993 (including a restructuring charge of $55.5 million) and income of $18.3 million in 1992. The improvement in operations in 1994 is attributable to a 7% increase in systems revenue, a 10 point increase in maintenance and services margin, and a 5% decline in operating expenses, primarily product development, virtually all of which is performed in the U.S. The increase in systems revenue occurred in the last half of the year as the Company completed its transition of applications software to the Windows NT operating system. The Company believes Windows NT is currently gaining its greatest degree of acceptance in the U.S. market. Improvements in maintenance and services margin and product development expense occurred for the reasons previously cited for the total Company. Operations in 1993 were adversely affected by a 12% decline in systems revenue, an 8 point decline in systems margin, and a 6% increase in operating expenses (primarily product development and sales and marketing), all attributable to factors previously discussed that negatively affected the total Company. The European geographic region incurred a loss from operations of $33.1 million in 1994 (including a $4.8 million credit for reversal of 1993 restructuring charges) after a loss of $43.3 million in 1993 (including a restructuring charge of $30.9 million) and income of $8.2 million in 1992. The increase in operating loss in 1994 (excluding restructuring charges in both years) is the result of a 13% decrease in systems revenue and a 9 point decrease in systems margin. Factors previously cited affecting the revenue and margin of the entire Company also had effect in Europe, but revenue and profits were also affected by economic conditions in Germany and the UK, particularly in the first three quarters of the year. In addition, the Company believes acceptance of Windows NT in Europe has lagged the pace of acceptance in the U.S. and Asia Pacific regions, as did acceptance of the UNIX operating system. The loss from operations in 1993 was due to sharply reduced systems revenue and margin, due largely to product transition and poor economic conditions. Other international regions are comprised primarily of the Asia Pacific and Middle East regions and Canada, with the Asia Pacific region representing approximately 60% of total revenues generated in these regions in 1994. The Company considers the majority of these areas to be emerging businesses and, as such, operating costs are higher as a percentage of revenue than in the Company's more mature business regions. These regions in total incurred a loss from operations of $17.4 million in 1994, $16.8 million in 1993 (including restructuring charges of $8.3 million), and $11.9 million in 1992. The 1994 loss from operations included the write-off of a Middle Eastern account receivable of $5.5 million. See Note 11 of Notes to Consolidated Financial Statements for further details of operations by geographic area. IMPACT OF CURRENCY FLUCTUATIONS AND CURRENCY RISK MANAGEMENT. Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on results of operations. For 1994, approximately 49% of the Company's revenues were derived from customers outside the United States (51% for both 1993 and 1992), primarily through subsidiary operations. Most subsidiaries sell to customers and incur and pay operating expenses in local currency. These local currency revenues and expenses are translated to dollars for U.S. reporting purposes. A weaker U.S. dollar will increase the level of reported U.S. dollar orders and revenues, increase the dollar gross margin, and increase reported dollar operating expenses of the international subsidiaries. During 1994, the U.S. dollar weakened on average from its 1993 level, which increased reported dollar revenues, orders, and gross margin, but also increased reported dollar operating expenses in comparison to the prior year period. These effects were not material to the Company's results of operations in 1994. Currency effects on the Company's results of operations could become significant if the percentage of revenues and expenses attributed to the Company's international operations increases and/or if the dollar fluctuates significantly against international currencies. In addition, the Company has certain currency related asset and liability exposures related to its international operations against which certain measures, primarily hedging, are taken to reduce currency risk. With respect to these exposures, the objective of the Company is to protect against financial statement volatility arising from changes in exchange rates with respect to amounts denominated for balance sheet purposes in a currency other than the functional currency of the local entity. The Company therefore enters into forward exchange contracts primarily related to balance sheet items (intercompany receivables, payables, and formalized intercompany debt) which are denominated in a currency other than the local entity functional currency. Periodic changes in the value of these contracts offset exchange rate-related changes in the financial statement value of these balance sheet items. Forward exchange contracts are purchased with maturities reflecting the expected settlement dates of these balance sheet items (generally three months or less), and only in amounts sufficient to offset possible significant currency rate- related changes in the recorded values of these balance sheet items, which represent a calculable exposure for the Company from period to period. Since this risk is calculable and these contracts are purchased only in offsetting amounts, neither the contracts themselves or the exposed foreign currency denominated balance sheet items are likely to have a significant effect on the Company's financial position or results of operations. Based on the terms of contracts outstanding and the amount of the Company's balance sheet exposure at December 31, 1994, the Company's results of operations would not be materially affected by a 10% increase or decrease in exchange rates underlying the contracts and the exposure being hedged. The Company's positions in these derivatives are continuously monitored to ensure protection against the known balance sheet exposure described above. By policy the Company is prohibited from market speculation via such instruments and therefore it does not take currency positions exceeding its known financial statement exposures, and does not otherwise trade in currencies. At December 31, 1994, the Company had net outstanding forward exchange contracts of approximately $41 million ($49 million at December 31, 1993), maturing at various dates through March 31, 1995. The fair values of these contracts approximated original contract amounts based on the insignificant amounts the Company would pay or receive to transfer the contracts to third parties at those dates. Neither the gains and losses resulting from changes in exchange rates underlying the exposed balance sheet amounts or the offsetting gains and losses from the Company's hedging activity were material to results of operations in 1994 and 1993. See the preceding section "Nonoperating Income and Expense" for a discussion of 1992 activity. Net cash flow from forward contract activity, consisting of realized gains and losses from settlement of exposed assets and liabilities at exchange rates in effect at the settlement date rather than at the time of recording, settlement of the forward contracts purchased to mitigate the exposures, and payment of bank fees on the forward contracts, was $1.8 million negative in 1994, $5.1 million negative in 1993, and $2.1 million positive in 1992. Deferred gains and losses as of December 31, 1994 and 1993 were not significant. See Notes 1 and 4 to the consolidated financial statements for further information related to management of 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, 1994, cash and short-term investments totaled $62.4 million, down $13.3 million from year end 1993. Cash generated from operations in 1994 was $35.7 million ($71.0 million in 1993 and $135.9 million in 1992), including $34.5 million of refunds of prior years' U.S. federal income tax payments as the result of carryback of the 1993 U.S. tax return loss. The decline in cash generated from operations in 1994 and 1993 is due primarily to the Company's net losses in those years. Net cash used for investing activities totaled $54.4 million in 1994, $58.9 million in 1993, and $131.5 million in 1992. Included in investing activities were capital expenditures of $68.0 million in 1994 and $65.4 million in 1993, primarily for Intergraph products used in hardware and software development. Capital expenditures of $79.5 million in 1992 were for Intergraph products and additional facilities and related fixtures and equipment. Other significant investing activities included cash expenditures of $8.1 million in 1993 and $36.1 million in 1992 for business acquisitions and investments in other businesses. Net cash generated from financing activities totaled $26.1 million in 1994 versus a net use of cash for financing activities of $18.4 million in 1993 and $11.7 million in 1992. Primarily in the last half of 1994, the Company borrowed a net $32.5 million to fund capital expenditures. Cash used to purchase Company stock for the treasury totaled $10.4 million in 1994, $29.7 million in 1993, and $13.9 million in 1992. Historically the Company's collection period for accounts receivable has been slightly in excess of 100 days. Approximately 49% of the Company's sales are derived from the U.S. government and European customers, both of which traditionally carry longer collection periods. The Company endeavors to enforce its payment terms with these and other customers, and grants extended payment terms only in very limited circumstances. The Company has added collections personnel in the U.S. government and international areas in an attempt to improve its collection period. Over the last seven 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, 1994, the Company had purchased approximately 18.8 million shares for the treasury, of which 1.1 million were purchased in 1994. Further purchases of treasury shares are dependent on availability of cash and on market conditions. The Company expects that capital expenditures will require $40 million to $50 million in 1995, primarily for computer equipment manufactured by the Company for use in hardware and software development. The Company has a $50 million revolving credit agreement with a bank that enables the Company to borrow funds on a revolving basis until May 31, 1995. Outstanding borrowings under this agreement totaled $15 million at December 31, 1994. The loan commitment is conditional on the maintenance of minimum levels of tangible net worth at various dates through its expiration. Under certain circumstances, borrowings under the agreement may create a security interest in certain of the accounts receivable of the Company. The Company also had outstanding borrowings of $18.6 million under uncommitted lines of credit and other short-term borrowing facilities as of December 31, 1994. The Company's requirements for cash from external sources are dependent on the future operating results of the Company. Its access to and cost of additional external funds similarly depend on results of operations and on general economic conditions. The Company is currently evaluating sources of funding and expects to have adequate external financing arranged before the expiration date of its $50 million revolving credit agreement. The cost of any additional funding may exceed the cost of external funding to date due to the Company's operating losses and generally higher interest rates. The Company expects to meet its 1995 cash requirements through cash generated from operations and from existing and other external sources. FOURTH QUARTER 1994 Revenues for the fourth quarter were $296.7 million, up 10% from fourth quarter 1993. The Company incurred a loss of $.41 per share for the quarter versus a loss of $1.54 per share in the fourth quarter of 1993, which included a restructuring charge of $1.18 per share. The fourth quarter 1994 loss included the write-off of a $5.5 million account receivable from a Middle Eastern customer ($.12 per share) and the reversal of $4.8 million of the restructuring charge recognized in 1993 ($.11 per share). INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------- DECEMBER 31, 1994 1993 - ------------------------------------------------------------------------------- (In thousands except share and per share amounts) ASSETS Cash and cash equivalents $61,393 $55,976 Short-term investments 1,023 19,772 Accounts receivable 344,957 314,256 Inventories 114,444 111,555 Refundable income taxes 22,784 42,380 Other current assets 30,097 41,118 - ------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 574,698 585,057 Long-term investments, primarily in affiliates 9,453 23,560 Other assets 28,194 22,281 Property, plant, and equipment, net 227,273 224,431 - ------------------------------------------------------------------------------- TOTAL ASSETS $839,618 $855,329 =============================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Trade accounts payable $51,224 $42,866 Accrued compensation 47,533 43,366 Other accrued expenses 69,241 75,608 Billings in excess of sales 79,265 62,087 Income taxes payable 6,816 3,309 Short-term debt and current maturities of long-term debt 37,726 9,065 - ------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 291,805 236,301 Deferred income taxes 2,088 12,777 Long-term debt 23,388 17,541 - ------------------------------------------------------------------------------- TOTAL LIABILITIES 317,281 266,619 - ------------------------------------------------------------------------------- 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 243,295 246,642 Retained earnings 454,139 524,359 Cumulative translation adjustment 2,458 (7,606) - ------------------------------------------------------------------------------- 705,628 769,131 Less -- cost of 12,576,082 treasury shares at December 31, 1994 and 12,006,827 treasury shares at December 31, 1993 (183,291) (180,421) - ------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 522,337 588,710 - ------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $839,618 $855,329 =============================================================================== The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 1993 1992 - ------------------------------------------------------------------------------- (In thousands except per share amounts) REVENUES Systems $665,583 $672,790 $795,862 Maintenance and services 375,820 377,487 380,799 - ------------------------------------------------------------------------------- TOTAL REVENUES 1,041,403 1,050,277 1,176,661 - ------------------------------------------------------------------------------- COST OF REVENUES Systems 401,515 371,157 369,258 Maintenance and services 217,756 251,129 258,110 - ------------------------------------------------------------------------------- TOTAL COST OF REVENUES 619,271 622,286 627,368 - ------------------------------------------------------------------------------- GROSS PROFIT 422,132 427,991 549,293 Product development 137,247 160,294 150,152 Sales and marketing 262,322 238,054 252,619 General and administrative 100,031 104,459 116,696 Restructuring charge (credit) (4,826) 89,806 4,418 - ------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS (72,642) (164,622) 25,408 Interest expense (2,359) (2,097) (3,025) Interest income 3,049 4,467 5,432 Foreign exchange loss (2,626) (3,267) (12,531) Other income (expense) -- net 387 (7,031) (2,892) - ------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (74,191) (172,550) 12,392 Income tax benefit (expense) 3,971 54,008 (3,950) - ------------------------------------------------------------------------------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (70,220) (118,542) 8,442 Cumulative effect as of January 1, 1993, of change in method of accounting for income taxes --- 2,500 --- - ------------------------------------------------------------------------------- NET INCOME (LOSS) $(70,220) $(116,042) $8,442 =============================================================================== EARNINGS (LOSS) PER SHARE: Income (loss) before cumulative effect of change in accounting for income taxes $(1.56) $(2.56) $.18 Cumulative effect of change in accounting for income taxes --- .05 --- - ------------------------------------------------------------------------------- NET INCOME (LOSS) $(1.56) $(2.51) $.18 =============================================================================== Weighted average shares outstanding 44,860 46,199 48,020 =============================================================================== The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 1993 1992 - --------------------------------------------------------------------------------- (In thousands) CASH PROVIDED BY (USED FOR): OPERATING ACTIVITIES: Net income (loss) $(70,220) $(116,042) $ 8,442 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 73,640 85,124 79,455 Non-cash portion of restructuring charge (credit) (4,826) 79,565 1,637 Deferred income tax expense (benefit) 15,625 (20,348) 5,300 Collection of income tax refunds 34,472 10,697 6,653 Gain on sale of investment in affiliate (5,815) --- --- Write-off of investments in affiliates 3,361 3,273 --- Net changes in current assets and liabilities (13,181) 27,930 21,867 Foreign exchange loss 2,626 3,267 12,531 - --------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 35,682 70,966 135,885 - --------------------------------------------------------------------------------- INVESTING ACTIVITIES: Net decrease (increase) in short- and long-term securities investments --- 12,376 (4,293) Purchases of securities (86,620) --- --- Sales and maturities of securities 118,441 --- --- Purchase of property, plant, and equipment (67,967) (65,414) (79,497) Capitalized software development costs (16,584) (9,735) (9,735) Business acquisitions, net of cash acquired --- (6,938) (19,658) Purchase of ownership interests in other businesses (770) (1,119) (16,466) Repayment of loan by affiliate --- 6,994 --- Other (913) 4,917 (1,813) - --------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (54,413) (58,919) (131,462) - --------------------------------------------------------------------------------- FINANCING ACTIVITIES: Gross borrowings 44,609 8,236 363 Debt repayment (12,138) (2,097) (4,722) Proceeds of employee stock purchases 4,019 4,409 4,418 Proceeds of exercise of stock options --- 829 2,119 Acquisition of treasury stock (10,379) (29,734) (13,925) - --------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 26,111 (18,357) (11,747) - --------------------------------------------------------------------------------- Effect of exchange rate changes on cash (1,963) (4,908) (7,796) - --------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 5,417 (11,218) (15,120) Cash and cash equivalents at beginning of year 55,976 67,194 82,314 - --------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 61,393 $ 55,976 $ 67,194 =================================================================================
The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------- Common Stock Treasury Stock Additional Cumulative Total Paid-in Retained Translation Shareholders' Shares Amount Shares Amount Capital Earnings Adjustment Equity - ----------------------------------------------------------------------------------------------------------------------------- (In thousands except share amounts) Balance at January 1, 1992 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 Treasury shares acquired --- --- ( 1,080,000) ( 10,379) --- --- --- ( 10,379) Shares issued under employee stock purchase plan --- --- 510,625 7,508 ( 3,489) --- --- 4,019 Translation adjustments --- --- --- --- --- --- 10,064 10,064 Other --- --- 120 1 142 --- --- 143 Net loss for the year --- --- --- --- --- ( 70,220) --- ( 70,220) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 57,361,362 $5,736 (12,576,082) $(183,291) $243,295 $454,139 $ 2,458 $522,337 ============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 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 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, which may include short-term municipal bonds, time deposits, money market preferred stocks, commercial paper, and U.S. government securities. The Company's investment policy limits the amount of credit exposure to any single issuer of securities. All cash equivalents and short-term investments are stated at fair market value based on quoted market prices. For financial statement purposes, investments with original maturities of three months or less are considered to be cash equivalents. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), for investments held as of or acquired after January 1, 1994. In accordance with the provisions of SFAS 115, prior period financial statements have not been restated to reflect the provisions of the new standard. Neither the cumulative effect of adopting SFAS 115 as of January 1, 1994, nor its application for the year ended December 31, 1994 was material to the Company's results of operations or financial position. Under the provisions of SFAS 115, the Company's investments in debt securities and in marketable equity securities not accounted for by the equity method are valued at fair market value in the balance sheet with any unrealized gains and losses due to market value changes reported as a component of shareholders' equity, net of tax. Interest on these securities is included in "Interest income" in the consolidated statements of operations. Any realized gains and losses on sales of these securities are included in "Other income (expense) - net" in the consolidated statements of operations. The cost of securities sold is based on the specific identification method. See Note 3 for details of securities held at December 31, 1994. INVENTORIES: Inventories are stated at the lower of average cost or market and are summarized as follows: - -------------------------------------------------------- DECEMBER 31, 1994 1993 - -------------------------------------------------------- (In thousands) Raw materials $ 29,734 $ 31,023 Work-in-process 35,617 33,118 Finished goods 14,198 14,295 Service spares 34,895 33,119 - --------------------------------------------------------- Totals $114,444 $111,555 ========================================================= INVESTMENTS IN AFFILIATES: Investments in other companies in which the Company has the ability to influence operations or finances, generally 20%- to 50%-owned companies, are accounted for by the equity method. Investments in companies in which the Company does not exert such influence, generally in less than 20%-owned companies, are accounted for by the cost method. 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. - ---------------------------------------------------------------------- DECEMBER 31, 1994 1993 - ---------------------------------------------------------------------- (In thousands) Land and improvements $ 14,950 $ 14,593 Buildings and improvements 147,632 143,032 Equipment, furniture, and fixtures 349,702 316,251 - ---------------------------------------------------------------------- 512,284 473,876 Allowances for depreciation and amortization (285,011) (249,445) - ---------------------------------------------------------------------- Totals $227,273 $224,431 ====================================================================== 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 1994, the Company had purchased approximately 18,800,000 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 by the percentage-of-completion method with progress to completion measured on the basis of labor costs and other factors. Revenues from certain 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. 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 revenue deferred until completion of installation services and expiration of the warranty period. PRODUCT DEVELOPMENT COSTS: The Company capitalizes certain costs of computer software development incurred after the technological feasibility of the product has been established. Such capitalized costs are amortized over a two year period on a straight-line basis. Amortization expense included in "Cost of revenues - Systems" in the consolidated statements of operations amounted to $11,278,000 in 1994, $8,409,000 in 1993, and $6,736,000 in 1992. The unamortized balance of capitalized software development costs, which is included in "Other assets" in the consolidated balance sheets, totaled $16,068,000 and $10,762,000 at December 31, 1994 and 1993, respectively. 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 all other international subsidiaries. Foreign currency gains and losses resulting from remeasurement or settlement of receivables and payables denominated in a currency other than the functional currency are included in "Foreign exchange loss" in the consolidated statements of operations. Translation gains and losses resulting from translating subsidiaries' financial statements from the functional currency into dollars for U.S. reporting purposes and foreign currency gains and losses resulting from remeasurement of intercompany advances of a long-term investment nature are included in the "Cumulative translation adjustment" component of shareholders' equity. The foreign exchange loss included in the 1992 statement of operations was 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. DERIVATIVE FINANCIAL INSTRUMENTS: Derivatives utilized by the Company consist of forward exchange contracts and interest rate swap agreements. The Company has certain currency related asset and liability exposures related to its international operations against which certain measures, primarily hedging, are taken to reduce currency risk. With respect to these exposures, the objective of the Company is to protect against financial statement volatility arising from changes in exchange rates with respect to amounts denominated for balance sheet purposes in a currency other than the functional currency of the local entity. The Company therefore enters into forward exchange contracts related to balance sheet items (intercompany receivables, payables, and formalized intercompany debt) which are denominated in a currency other than the functional currency of the local entity. Periodic changes in the value of these contracts offset exchange rate-related changes in the financial statement value of these balance sheet items. Forward exchange contracts are purchased with maturities reflecting the expected settlement dates of these balance sheet items, which are generally less than three months. Gains and losses on forward exchange contracts are recognized in the period in which the exchange rate changes. Bank fees charged on the contracts are amortized over the period of the contract. Gains and losses and fees paid on the contracts are included in "Foreign exchange loss" in the consolidated statements of operations, together with exchange rate-related changes in the financial statement value of the items being hedged. The Company is prohibited by policy from taking currency positions exceeding its known balance sheet currency exposure and from otherwise trading in currencies. The Company has two interest rate swap agreements in the principal amounts of its two European floating rate mortgages described in Note 7. The agreements were entered into to reduce the risk of increases in interest rates. The agreements provide for the receipt of interest based on floating rates in exchange for fixed rate interest payments over the life of the swap agreements. The Company accounts for its interest rate swaps as hedges of its debt obligations. The difference in amounts to be paid and received is accrued and recognized as an adjustment to interest expense on the debt. Deferred gains related to terminated interest rate swap agreements are amortized to interest expense over the remaining terms of the agreements, and are not significant to the Company's results of operations. The Company does no trading in this form of derivative investment. Amounts payable to or receivable from counterparties related to derivative financial instruments are included in "Other accrued expenses" or "Other current assets" in the consolidated balance sheets. These amounts were not significant at December 31, 1994. Cash flows from derivative financial instruments are classified in the consolidated statements of cash flows consistent with the cash flows from the assets and liabilities being hedged. See Note 4 for further details of the Company's derivative financial instruments. INCOME TAXES: Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which changed the Company's method of accounting for income taxes from the deferred method to an asset and liability approach. The provision for income taxes includes Federal, foreign, and state income taxes currently payable or refundable and income taxes deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. See Note 8. 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 9. RECLASSIFICATIONS: Certain reclassifications have been made to the previously reported consolidated statements of cash flows for the years ended December 31, 1993 and 1992 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 those decisions that resulted in a before-tax charge to 1993 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 included 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 included closure of the Company's European manufacturing and distribution facility (IEM) and consolidation of worldwide manufacturing and distribution activities in the U.S., cessation of the design and manufacture of the Company's microprocessor that resulted in closure of the Company's Advanced Processor Division at the end of 1994, porting of the Company's technical software applications to a new operating system (Microsoft Corporation's Windows NT), and the offering of a new hardware platform based on Intel Corporation microprocessors. The 1993 restructuring charge was comprised of $10,467,000 for direct workforce reductions, $17,136,000 for elimination of operations, primarily IEM, $56,082,000 for revaluation of assets resulting from new product strategies (primarily spares inventory, goodwill, and investments in other companies), and $6,121,000 for restructure of the Company's electronics business unit. These charges are described individually below. REDUCTION IN WORKFORCE: This portion of the restructuring charge was the result of termination of approximately 450 employees, primarily in the Company's European and U.S. sales and support operations. The charge consisted of severance pay and other personnel related charges. ELIMINATION OF OPERATIONS: In January 1994, the Company announced its decision to close IEM over the course of 1994 and transfer related activities to its U.S. manufacturing facility. The related restructuring charge consisted primarily of the costs of severance and other personnel related costs for the 130 employees that were affected. Also included in this amount were charges related to consolidation of sales and support facilities, primarily in Europe, connected with the direct reductions in workforce discussed above, and asset retirements of the Company's Advanced Processor Division. The phased closure of IEM was completed during the third quarter of 1994. In the fourth quarter of 1994, the Company determined that it will utilize a portion of this facility as a distribution center for Europe beginning in early 1995. Excess space will be placed for lease. The original plan called for sale or lease of the facility. All manufacturing activity will continue to be performed in the U.S. In 1994 the Company reversed the remaining unincurred portion of the 1993 restructuring charge related to IEM ($4,826,000) as the result of lower severance costs than originally anticipated. REVALUATION OF ASSETS DUE TO NEW PRODUCT STRATEGY: The portion of the restructuring charge related to revaluation of assets was comprised of $35,300,000 to retire spares inventory and $20,800,000 to write-off goodwill recognized on previous acquisitions and write-off investments in less than 20%- owned companies, all as a result of the diminished value of these assets due to the Company's new product strategy and transition. RESTRUCTURE OF ELECTRONICS BUSINESS: The Company continued in 1993 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 $6,121,000 restructuring charge in 1993 and $4,418,000 restructuring charge in 1992 consisted 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. NOTE 3 -- INVESTMENTS IN DEBT SECURITIES. At December 31, 1994 the Company held various debt securities, including bank time deposits, repurchase agreements, and master note arrangements, with a fair market value of $32,780,000. These investment securities, all of which were within three months of maturity at December 31, 1994, are included in "Cash and cash equivalents" ($31,757,000) and "Short-term investments" ($1,023,000) in the consolidated balance sheet. Gross realized gains and losses on securities sold during the year ended December 31, 1994, were not significant. There were no unrealized holding gains or losses at December 31, 1994. NOTE 4 -- FINANCIAL INSTRUMENTS. Information related to the Company's financial instruments other than cash equivalents and short-term investments is summarized below. LONG-TERM INVESTMENTS: The Company's stock investments in less than 20%-owned companies are included in the consolidated balance sheets as of December 31, 1994 and 1993, at cost of $2,400,000 and $9,100,000, respectively. These companies are privately held, and therefore quoted market values for these investments are not available. The Company is unable to determine fair values for these investments without incurring excessive costs but believes its investments in these companies have not been impaired. The Company held long-term debt securities at December 31, 1993 with a carrying value of $6,100,000, which approximated fair market value based on quoted market prices at that date. SHORT- AND LONG-TERM DEBT: The balance sheet carrying amounts of the Company's floating rate debt, consisting of loans under various short-term credit facilities and a revolving credit agreement (see Note 7), approximate fair market values since interest rates on the debt adjust periodically to reflect changes in market rates of interest. The carrying amounts of fixed rate debt, including the Company's mortgage debts that are the subject of interest rate swap agreements described below, approximate fair market values based on current interest rates for debt of the same remaining maturities and character. DERIVATIVES: The fair market values of the Company's derivative financial instruments, consisting of forward exchange contracts and interest rate swap agreements, were determined by obtaining quotes from banks, and are expressed in terms of amounts the Company would receive or pay should the Company's obligations under the instruments be transferred to a third party at the reporting date. The fair values of the Company's forward exchange contracts and interest rate swap agreements approximate the original contract amounts on that basis. Forward exchange contracts: The Company had outstanding net forward exchange contracts of $41,030,000 and $49,000,000 at December 31, 1994 and 1993, respectively. Such amounts approximated the Company's currency related asset and liability exposures at those dates. The table below summarizes in U.S. dollars the face amounts of these contracts by major currency. For purposes of presentation, foreign currency amounts are translated to dollars at the rates in effect at each balance sheet date. "Sell" amounts represent the U.S. dollar equivalent of commitments to sell currencies and "buy" amounts represent the U.S. dollar equivalent of commitments to purchase currencies. - ---------------------------------------------------------------------------- DECEMBER 31, 1994 1993 -------------------------- ---------------------------- NET FORWARD NET FORWARD CONTRACT CONTRACT SELL BUY POSITION SELL BUY POSITION - ---------------------------------------------------------------------------- (In thousands) German mark $12,743 --- $12,743 $9,739 $5,762 $3,977 U.S. dollar 6,200 $5,200 1,000 16,000 1,000 15,000 Italian lira 4,859 --- 4,859 6,945 --- 6,945 French franc 3,824 1,120 2,704 1,707 --- 1,707 Dutch guilder 3,600 --- 3,600 24,093 15,544 8,549 Belgian franc 2,944 --- 2,944 6,457 --- 6,457 Other currencies 13,180 --- 13,180 6,365 --- 6,365 - ---------------------------------------------------------------------------- Totals $47,350 $6,320 $41,030 $71,306 $22,306 $49,000 ============================================================================ Based on the terms of outstanding forward exchange contracts and the amount of the Company's balance sheet exposure at December 31, 1994, the Company's results of operations would not be materially affected by a 10% increase or decrease in exchange rates underlying the contracts and the exposures hedged. Cash requirements of forward exchange contracts are limited to receipt of an amount equal to the exchange gain or payment of an amount equal to the exchange loss at the contract settlement date, and payment of bank fees related to the contracts. Net cash flow from forward contract activity, consisting of realized gains and losses from settlement of exposed assets and liabilities at exchange rates in effect at the settlement date rather than at the time of recording, settlement of the forward contracts purchased to mitigate the exposures, and payment of bank fees on the forward contracts, was $1,800,000 negative in 1994, $5,100,000 negative in 1993, and $2,100,000 positive in 1992. Interest rate swap agreements: The Company has two interest rate swap agreements in the principal amounts of its two European floating rate mortgages ($20,000,000 at December 31, 1994 and $18,497,000 at December 31, 1993). The agreements are for an original term of two years, expiring in first quarter 1995. The Company pays a fixed rate of interest and receives a variable rate of interest based on the Amsterdam Interbank Offering Rate (AIBOR), and is thus exposed to market risk of potential future decreases in AIBOR. The weighted average pay and receive rates of the two agreements were 7.36% and 5.91%, respectively, at December 31, 1994 and 7.36% and 6.10%, respectively, at December 31, 1993. The weighted average receive rate is based on the rate in effect at each balance sheet date. Cash requirements of the agreements, which were not significant in either of the two years, are limited to the differential between the fixed rate paid and the variable rate received. NOTE 5 -- 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 YEAR ENDED DECEMBER 31, 1994 1993 1992 - ----------------------------------------------------------------------------- (In thousands) (Increase) decrease in: Accounts receivable $(20,738) $17,801 $12,680 Inventories 8,331 36,805 6,988 Refundable income taxes (19,596) (39,818) (14,944) Other current assets (6,476) 5,165 2,099 Increase (decrease) in: Trade accounts payable 8,013 9,460 (3) Accrued compensation and other accrued expenses (836) (1,569) 11,990 Billings in excess of sales 14,824 4,287 6,377 Income taxes payable 3,297 (4,201) (3,320) - ----------------------------------------------------------------------------- Net changes in current assets and liabilities $(13,181) $27,930 $21,867 ============================================================================== Cash payments for income taxes totaled $4,588,000, $4,201,000, and $13,051,000 in 1994, 1993, and 1992, respectively. Cash payments for interest in those years totaled $2,413,000, $2,252,000, and $2,913,000, respectively. There were no significant non-cash investing and financing transactions in 1994 or 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 10). NOTE 6 -- ACCOUNTS RECEIVABLE. Accounts receivable are summarized as follows: - -------------------------------------------------------------------- DECEMBER 31, 1994 1993 - -------------------------------------------------------------------- (In thousands) Billed receivables: Trade $273,603 $243,152 Unreimbursed costs and fees under government contracts 16,336 10,047 - -------------------------------------------------------------------- 289,939 253,199 - -------------------------------------------------------------------- Unbilled receivables: Trade 65,227 72,002 Unreimbursed costs and fees under government contracts 10,100 9,846 - -------------------------------------------------------------------- 75,327 81,848 - -------------------------------------------------------------------- 365,266 335,047 Less allowances (20,309) (20,791) - -------------------------------------------------------------------- Totals $344,957 $314,256 ==================================================================== Concentrations of credit risk with respect to accounts receivable 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. Historically, the Company has not experienced significant losses related to trade receivables from individual customers or from groups of customers in any geographic area, with the exception of the 1994 write-off of a $5,500,000 receivable from a Middle Eastern customer. The Company's total accounts receivable from Middle Eastern customers at December 31, 1994 was $18,000,000. Revenues from the U.S. government were $166,955,000 in 1994, $165,655,000 in 1993, and $186,497,000 in 1992, representing 16% of total revenues in each of the three years. At December 31, 1994, accounts receivable from the U.S. government was $49,000,000. NOTE 7 -- DEBT AND LEASES. Short- and long-term debt is summarized as follows: - --------------------------------------------------------------- DECEMBER 31, 1994 1993 - --------------------------------------------------------------- (In thousands) Short-term credit facilities $18,617 $6,896 Revolving credit agreement 15,003 --- Long-term mortgages 20,000 18,497 Other 7,494 1,213 - ---------------------------------------------------------------- Total debt 61,114 26,606 Less amounts payable within one year 37,726 9,065 - ---------------------------------------------------------------- Total long-term debt $23,388 $17,541 ================================================================ The Company has entered into short-term, uncommitted credit arrangements with various banks to provide temporary working capital. 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. 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 weighted average interest rate on combined debt outstanding under short-term credit arrangements and the revolving credit agreement for 1994 and 1993 was 6.8% and 9.6%, respectively. The Company has two long-term mortgages on certain of its European facilities, including the manufacturing and distribution facility that was closed in 1994 in connection with the Company's 1993 restructuring plan (see Note 2). 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 5.2% to 6.5% in 1994 and from 6.4% to 9.4% in 1993. During 1993, the Company entered into two-year interest rate swap agreements in the amounts of the mortgages to reduce the risk of increases in interest rates, effectively converting the interest rates on these mortgages to a fixed rate of 7.4%. The agreements expire in first quarter 1995. See Note 4 for discussion of fair values of the Company's debt and interest rate swap agreements. The Company leases various property, plant, and equipment under operating leases as lessee. Rental expense for operating leases was $38,628,000 in 1994, $41,668,000 in 1993, and $44,527,000 in 1992. 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 LEASE COMMITMENTS - --------------------------------------------------------- (In thousands) 1995 $30,328 1996 21,606 1997 14,992 1998 7,246 1999 4,729 Thereafter 28,485 - ---------------------------------------------------------- Total future minimum lease payments $107,386 ========================================================== NOTE 8 -- 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 statement of operations) 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. The components of income (loss) before income taxes are as follows: - -------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 1993 1992 - -------------------------------------------------------------------------- (In thousands) U.S. $(26,330) $(115,025) $29,379 International (47,861) ( 57,525) (16,987) - -------------------------------------------------------------------------- Total income (loss) before income taxes $(74,191) $(172,550) $12,392 ========================================================================== 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 YEAR ENDED DECEMBER 31, 1994 1993 1992 - ---------------------------------------------------------------------------- (In thousands) Current benefit (expense): Federal $19,931 $32,460 $4,579 State (132) 900 93 International (203) 300 (3,322) - ---------------------------------------------------------------------------- 19,596 33,660 1,350 - ---------------------------------------------------------------------------- Deferred benefit (expense): Federal (14,775) 16,429 (7,936) State --- 200 (55) International (850) 3,719 2,691 - ---------------------------------------------------------------------------- (15,625) 20,348 (5,300) - ---------------------------------------------------------------------------- Total income tax benefit (expense) $ 3,971 $54,008 $(3,950) ============================================================================ "Refundable income taxes" included in the consolidated balance sheets consist primarily of the benefit of 1994 and 1993 losses for U.S. federal income tax return purposes. Deferred income taxes included in the Company's balance sheet reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts for income tax return purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: - ---------------------------------------------------------------------------- DECEMBER 31, 1994 1993 - ---------------------------------------------------------------------------- (In thousands) Current deferred tax assets (liabilities): Inventory reserves $12,194 $18,504 Vacation pay and other employee benefit accruals 7,005 6,367 Accrued liabilities related to restructuring --- 4,292 Other financial statement reserves, primarily allowance for doubtful accounts 6,875 6,132 Profit on uncompleted sales contracts deferred for tax return purposes (13,826) (11,730) Other current tax assets and liabilities, net 3,876 1,516 - ---------------------------------------------------------------------------- 16,124 25,081 Less asset valuation allowance (14,911) (3,024) - ---------------------------------------------------------------------------- Total net current asset (1) 1,213 22,057 - ---------------------------------------------------------------------------- Noncurrent deferred tax assets (liabilities): Net operating loss and tax credit carryforwards: U.S. federal and state 15,377 --- Foreign operations 24,874 12,031 Depreciation (10,047) (10,426) Other noncurrent tax assets and liabilities, net (2,033) (1,632) - ---------------------------------------------------------------------------- 28,171 (27) Less asset valuation allowance (30,259) (12,750) - ---------------------------------------------------------------------------- Total net noncurrent liability (2,088) (12,777) - ---------------------------------------------------------------------------- Net deferred tax asset (liability) $(875) $9,280 ============================================================================ (1) Included in "Other current assets" in the consolidated balance sheets. The valuation allowance for deferred tax assets, which consists primarily of reserves against the tax benefit of net operating loss carryforwards, increased by $29,396,000 in 1994 due to the incurrence of additional losses that may be carried forward, the future tax benefits of which cannot be assured. If realized, these tax benefits will be applied to reduce income tax expense in the year realized. Net operating loss carryforwards are available to offset future earnings within the time periods specified by law. At December 31, 1994, the Company had a U.S. federal net operating loss carryforward of approximately $11,000,000 expiring in 2009. International net operating loss carryforwards total approximately $70,000,000 and expire as follows: - -------------------------------------------------------------- INTERNATIONAL NET OPERATING LOSS DECEMBER 31, 1994 CARRYFORWARDS - -------------------------------------------------------------- (In thousands) Expiration: 3 years or less $10,000 4 to 5 years 8,000 6 to 10 years 7,000 Unlimited carryforward 45,000 - -------------------------------------------------------------- Total $70,000 ============================================================== Additionally, the Company has $5,400,000 of U.S. alternative minimum tax credit carryforwards which have no expiration date. U.S. research and development tax credit carryforwards of $2,500,000 are available to offset regular tax liability through 2008. Under the then-prevailing deferred method, deferred income taxes were provided in 1992 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 and profits on intercompany asset transfers. A reconciliation from income tax benefit (expense) at the U.S. federal statutory tax rate of 35% for 1994 and 1993 (34% for 1992) to the Company's income tax benefit (expense) is as follows: - ----------------------------------------------------------------------------- LIABILITY METHOD DEFERRED METHOD YEAR ENDED DECEMBER 31, 1994 1993 1992 - ----------------------------------------------------------------------------- (In thousands) Income tax benefit (expense) at federal statutory rate $25,967 $60,393 $(4,213) Research and development tax credit --- 3,400 643 Benefit from Foreign Sales Corp. (FSC) 1,689 1,415 1,161 Tax effects of international operations, net (9,836) (13,933) (5,667) Tax effects of reorganization of certain international subsidiaries --- 6,200 3,483 State income taxes, net of federal tax benefit (86) 754 86 Non-deductible goodwill amortization --- (3,290) 439 Tax effect of U.S. tax loss carried forward (3,804) --- --- Tax effect of U.S. tax credits carried forward (7,900) --- --- Other - net (2,059) ( 931) 118 - ----------------------------------------------------------------------------- Income tax benefit (expense) $3,971 $54,008 $(3,950) ============================================================================= 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, 1994, the Company had not provided federal income taxes on earnings of individual international subsidiaries of approximately $47,000,000. 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 $2,400,000 would be payable if all previously unremitted earnings as of December 31, 1994 were remitted to the U.S. company. During 1994, agreement was reached with the Internal Revenue Service on all issues raised in the examination of the Company's 1989 and 1990 U.S. federal income tax returns, with no resulting effect on the Company's results of operations. NOTE 9 -- 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). At December 31, 1994, 2,484,677 shares were available for future grants. A summary of activity in the Company's stock option plans is presented below. - ---------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 - ---------------------------------------------------------------------------- Options outstanding at beginning of year 1,408,925 1,574,087 1,761,740 Granted 70,000 345,004 140,000 Exercised --- (107,082) (139,393) Cancelled (218,288) (403,084) (188,260) - ---------------------------------------------------------------------------- Options outstanding at end of year 1,260,637 1,408,925 1,574,087 ============================================================================ Options exercisable at end of year 598,814 538,602 470,966 ============================================================================ Option prices per share: Granted $ 9.50 $9.00-12.25 $7.88-16.00 Exercised --- 7.56-11.00 11.00-18.25 Cancelled 9.25-15.13 7.56-27.25 11.00-27.25 Options outstanding at end of year 7.88-16.00 7.88-16.00 7.56-27.25 Options exercisable at end of year 7.88-16.00 11.00-15.13 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 510,625, 494,462, and 353,879 shares of stock in 1994, 1993, and 1992, 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 1994, 1993, or 1992. In 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 15% of their compensation (13% prior to July 1, 1994) to the Plan. The Company matches 50% of employee contributions up to 6% of each employee's compensation. Company contributions to the Plan were $6,169,000, $5,993,000, and $6,099,000 in 1994, 1993, and 1992, 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 $3,331,000, $2,928,000, and $3,127,000 in 1994, 1993, and 1992, respectively. NOTE 10 -- ACQUISITIONS. In February 1993, the Company acquired Bestinfo, Inc. for $9,500,000 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. Revenues, net income, and earnings per share were not materially affected for the year ended December 31, 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 did not have a significant impact on the Company's results of operations for the year ended December 31, 1992. NOTE 11-- 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. - ---------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 1993 1992 - ---------------------------------------------------------------------------- (In thousands) REVENUES United States: Unaffiliated customers - U.S. $526,082 $514,399 $571,856 Unaffiliated customers - export 38,908 36,017 41,014 Consolidated subsidiaries 199,663 185,673 189,109 - ----------------------------------------------------------------------------- 764,653 736,089 801,979 - ----------------------------------------------------------------------------- Europe: Unaffiliated customers 344,579 371,313 447,134 - ----------------------------------------------------------------------------- Other International: Unaffiliated customers 131,834 128,548 116,657 U.S. parent 2,620 2,994 4,554 - ----------------------------------------------------------------------------- 134,454 131,542 121,211 - ----------------------------------------------------------------------------- Eliminations -- net (202,283) (188,667) (193,663) - ----------------------------------------------------------------------------- Total revenues $1,041,403 $1,050,277 $1,176,661 ============================================================================= INCOME (LOSS) FROM OPERATIONS United States $(27,640) $(116,500) $18,257 Europe (33,147) (43,262) 8,224 Other International (17,403) (16,782) (11,885) Eliminations -- net 5,548 11,922 10,812 - ----------------------------------------------------------------------------- Total income (loss) from operations $(72,642) $(164,622) $25,408 ============================================================================= IDENTIFIABLE ASSETS United States $586,041 $612,370 $649,764 Europe 239,649 224,011 322,604 Other International 109,459 103,168 102,310 Eliminations -- net (95,531) (84,220) (88,015) - ----------------------------------------------------------------------------- Total identifiable assets $839,618 $855,329 $986,663 ============================================================================= Loss from operations in 1993 includes restructuring charges of $55,500,000 in the U.S., $30,900,000 in Europe, and $8,300,000 in Other International. Loss from operations in 1994 includes a restructuring credit (reversal of the unincurred portion of the 1993 restructuring charge) of $4,800,000 in Europe. NOTE 12 -- 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. NOTE 13 -- RELATED PARTY TRANSACTIONS. BENTLEY SYSTEMS, INC.: Through December 31, 1994, the Company had an exclusive license agreement with Bentley Systems, Inc. (BSI), a 50%-owned affiliate of the Company, under which the Company distributed MicroStation, a software product developed and maintained by BSI and utilized in many of the Company's software applications. Under this agreement, the Company paid royalties to BSI based on its sales of MicroStation. Royalties expense totaled $21,820,000 in 1994, $18,085,000 in 1993, and $16,854,000 in 1992. At December 31, 1994 and 1993, amounts due to BSI and included in "Other accrued expenses" in the consolidated balance sheets totaled $5,821,000 and $5,642,000, respectively. In May 1994, the Company and BSI settled their dispute regarding the exclusivity of the Company's distribution license. As a result, effective January 1, 1995, both BSI and the Company will distribute MicroStation. The Company has a nonexclusive license to sell MicroStation via its direct sales force and to sell MicroStation via its indirect sales channels if MicroStation is sold with other Intergraph products. In addition, effective January 1, 1995, the per copy royalty payable by the Company to BSI is increased and, for 1995 only, BSI will pay the Company a per copy distribution fee based on BSI's MicroStation sales to resellers. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the settlement with BSI and its effects on the Company. LOAN PROGRAM FOR EXECUTIVE OFFICERS: In order to encourage retention of Company stock by executive officers, the Company adopted a loan program effective January 1993, under which executive officers may borrow from the Company, on an unsecured basis, an amount not exceeding (1) the current market value of the common stock of the Company owned by any such executive officer, and/or (2) the net value (current market price less exercise price) of currently exercisable stock options owned by any such executive officer. Interest on the loans is charged monthly at the prevailing prime rate. Amounts must be repaid by the earliest to occur of termination of employment, the date of sale of any common stock of the Company by the executive officer, or May 1, 1995. At December 31, 1994 and 1993, James W. Meadlock, Chief Executive Officer and Chairman of the Board of the Company, was indebted to the Company in the amounts of $4,778,000 and $2,502,000, respectively, under the program. NOTE 14 -- 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, 1994: Revenues $240,073 $242,395 $262,225 $296,710 Gross profit 97,369 103,544 104,013 117,206 Net loss (14,047) (20,164) (17,496) (18,513) Net loss per share (.31) (.45) (.39) (.41) Weighted average shares outstanding 45,353 44,842 44,559 44,695 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 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 =============================================================================== First quarter 1994 losses were increased by a net $.01 per share by the write- down of two equity investments totaling $.05 per share and a $.04 per share gain from the sale of a portion of the Company's stock investment in another company. Third quarter 1994 losses were reduced by a $.07 per share gain from the sale of the Company's stock investment in another company. Fourth quarter 1994 losses were increased by a $.12 per share write-off of a Middle Eastern account receivable and reduced by an $.11 per share reversal of the remaining unincurred portion of the restructuring charge recognized in 1993. First quarter 1993 losses were increased by a net $.03 per share by 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 reduced losses by $.05 per share. Restructuring charges increased 1993 losses by $.03 per share in second quarter, by $.14 per share in third quarter, and by $1.18 per share in fourth quarter. 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, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 8, in 1993 the Company changed its method of accounting for income taxes. /s/ Ernst & Young LLP Birmingham, Alabama January 31, 1995 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 on The NASDAQ Stock Market under the symbol INGR. As of January 31, 1995, there were 45,652,929 shares of common stock outstanding, held by 6,360 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 Stock Market. - ----------------------------------------------------------------------------- 1994 1993 PERIOD HIGH LOW HIGH LOW - ----------------------------------------------------------------------------- First Quarter $11 1/4 $ 8 7/8 $13 1/2 $11 5/8 Second Quarter 10 1/4 8 3/4 12 8 7/8 Third Quarter 11 8 5/8 12 3/8 8 1/2 Fourth Quarter 9 1/8 7 3/8 11 1/8 9 1/8 ============================================================================= 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 LLP 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 18, 1995, at the Corporate offices in Huntsville, Alabama. BOARD MEMBERS AND OFFICERS BOARD OF DIRECTORS VICE PRESIDENTS James W. Meadlock Thomas G. Baybrook Chief Executive Officer and Chairman of the Board Edward J. Blaum Roland E. Brown Klaas Borgers Director Edward F. Boyle 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 Graeme J. Farrell James F. Taylor, Jr. Milford B. French Executive Vice President, President, Intergraph Public Safety Business Unit, and Director Jeffrey P. Heath Robert E. Thurber Fred D. Heddens Executive Vice President and Director Rune Kahlbom William H. McClure EXECUTIVE VICE PRESIDENTS Robert A. Mueller William E. Salter President, Intergraph Federal Systems Business Unit Winston P. Newton Tommy D. Steele John R. Owens President, Intergraph Software Solutions Business Unit Robert Patience John M. Thorington, Jr. Wade C. Patterson President, Intergraph Computer Systems Business Unit Charles E. Robertson, Jr. Kenneth C. Sullivan Lawrence F. Ayers, Jr. John W. Wilhoite Richard S. Buchheim TREASURER Penman R. Gilliam James H. Dorton Neil E. Keith SECRETARY Stephen J. Phillips John R. Wynn Herman E. Thomason Edward A. Wilkinson Allan B. Wilson Manfred Wittler EX-27 11
5 This schedule contains summary financial information extracted from the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1994 DEC-31-1994 61,393 1,023 365,266 20,309 114,444 574,698 512,284 285,011 839,618 291,805 23,388 5,736 0 0 516,601 839,618 665,583 1,041,403 401,515 619,271 494,774 10,536 2,359 (74,191) (3,971) (70,220) 0 0 0 (70,220) (1.56) (1.56) Accounts receivable in the Consolidated Balance Sheet is shown net of allowances for doubtful accounts. Other expenses include Product development expenses, Sales and marketing expenses, General and administrative expenses, and the Restructuring charge credit. The provision for doubtful accounts is included in Other expenses above.
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