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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(205) 730-2000
------------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Common stock, par value $.10 per share: 47,836,471 shares
outstanding as of March 31, 1997
============================================================================
INTERGRAPH CORPORATION
FORM 10-Q *
March 31, 1997
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 2
Consolidated Statements of Operations for the quarters
ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the quarters
ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition 7 - 13
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
*Information contained in this Form 10-Q includes statements
that are forward looking as defined in Section 21-E of the
Securities Exchange Act of 1934. Actual results may differ
materially from those projected in the forward looking
statements. Information concerning factors that could cause
actual results to differ materially from those in the forward
looking statements is described in the Company's filings with
the Securities and Exchange Commission, including its most
recent Annual Report on Form 10-K and this Form 10-Q.
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- -----------------------------------------------------------------------------
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 54,581 $ 50,674
Accounts receivable, net 292,620 326,117
Inventories 87,578 89,411
Other current assets 39,076 37,718
- -----------------------------------------------------------------------------
Total current assets 473,855 503,920
Investments in affiliates 18,060 19,102
Other assets 59,432 59,106
Property, plant, and equipment, net 164,573 174,219
- -----------------------------------------------------------------------------
Total Assets $715,920 $756,347
=============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 48,516 $ 51,205
Accrued compensation 49,894 50,364
Other accrued expenses 68,405 72,798
Billings in excess of sales 58,986 62,869
Short-term debt and current
maturities of long-term debt 15,182 35,880
- -----------------------------------------------------------------------------
Total current liabilities 240,983 273,116
Deferred income taxes 6,120 6,204
Long-term debt 55,943 29,764
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Total liabilities 303,046 309,084
- -----------------------------------------------------------------------------
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 228,655 229,675
Retained earnings 313,390 339,679
Unrealized holding gain on
securities of affiliate 3,268 6,858
Cumulative translation adjustment 644 6,049
- -----------------------------------------------------------------------------
551,693 587,997
Less - cost of 9,524,891 treasury
shares at March 31, 1997, and
9,656,295 treasury shares at
December 31, 1996 (138,819) (140,734)
- -----------------------------------------------------------------------------
Total shareholders' equity 412,874 447,263
- -----------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $715,920 $756,347
=============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Quarter Ended March 31, 1997 1996
- -----------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $169,043 $163,184
Maintenance and services 83,715 93,522
- -----------------------------------------------------------------------------
Total revenues 252,758 256,706
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Cost of revenues
Systems 110,238 105,508
Maintenance and services 54,910 55,797
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Total cost of revenues 165,148 161,305
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Gross profit 87,610 95,401
Product development 25,959 25,335
Sales and marketing 59,703 62,378
General and administrative 25,057 24,425
Nonrecurring operating charge 1,095 ---
- -----------------------------------------------------------------------------
Loss from operations (24,204) (16,737)
Interest expense ( 1,235) ( 1,223)
Equity in earnings of affiliates 1,468 2,180
Gain on sale of investment in affiliate --- 9,373
Other income (expense) - net ( 2,318) 16
- -----------------------------------------------------------------------------
Loss before income taxes (26,289) ( 6,391)
Income taxes --- ---
- -----------------------------------------------------------------------------
Net loss $(26,289) $( 6,391)
=============================================================================
Net loss per share $( .55) $( .14)
=============================================================================
Weighted average shares outstanding 47,758 46,902
=============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -----------------------------------------------------------------------------
Quarter Ended March 31, 1997 1996
- -----------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net loss $(26,289) $( 6,391)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 15,962 18,655
Gain on sale of investment in affiliate --- ( 9,373)
Equity in earnings of affiliated companies ( 1,468) ( 2,180)
Net changes in current assets and liabilities 13,983 11,733
- -----------------------------------------------------------------------------
Net cash provided by operating activities 2,188 12,444
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Investing Activities:
Purchases of property, plant, and equipment ( 4,995) (11,753)
Capitalized software development costs ( 2,111) ( 5,593)
Proceeds from sale of division and investment
in affiliate 891 9,761
Other ( 1,059) 214
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Net cash used for investing activities ( 7,274) ( 7,371)
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Financing Activities:
Gross borrowings 28,396 7,602
Debt repayment (21,214) (25,553)
Proceeds of employee stock purchases and
exercise of stock options 841 1,181
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Net cash provided by (used for)
financing activities 8,023 (16,770)
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Effect of exchange rate changes on cash 970 ( 741)
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 3,907 (12,438)
Cash and cash equivalents at beginning of period 50,674 56,407
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 54,581 $ 43,969
=============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the
interim periods presented.
Certain reclassifications have been made to the
previously reported consolidated statements of operations
and cash flows for the quarter ended March 31, 1996 to
provide comparability with the current period
presentation.
NOTE 2: As further described in the Company's Form 10-K
filing for its year ending December 31, 1996, the Company
has been party to certain arbitration proceedings with
its 50%-owned affiliate, Bentley Systems, Inc. In May
1997, the Company was notified of an adverse
determination of one of such proceedings. See
Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q for
further details.
NOTE 3: Inventories are stated at the lower of average cost
or market and are summarized as follows:
-----------------------------------------------------
March 31, December 31,
1997 1996
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(In thousands)
Raw materials $25,925 $26,601
Work-in-process 29,021 24,008
Finished goods 11,368 12,945
Service spares 21,264 25,857
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Totals $87,578 $89,411
=====================================================
NOTE 4: Property, plant, and equipment - net includes
allowances for depreciation of $289,921,000 and $307,536,000
at March 31, 1997 and December 31, 1996, respectively.
NOTE 5: In first quarter 1997 the Company sold an
unprofitable business unit to a third party. Total loss
on the sale was $8,100,000, of which $7,000,000 ($.15 per
share) had been recorded as an asset revaluation in
fourth quarter 1996. The remaining loss of $1,100,000
($.02 per share) was recorded upon final determination of
the loss and closure of the sale in first quarter 1997
and is included in "Nonrecurring operating charge" in the
consolidated statement of operations for that period. In
addition, the Company has discontinued the operations of
a second unprofitable business unit. This business
closure did not materially affect the results of
operations of the Company in first quarter 1997.
Revenues and losses of these two business units totaled
$24,000,000 and $16,000,000, respectively, for the full
year 1996. Assets of the business units totaled
$14,000,000 at December 31, 1996.
NOTE 6: In the quarter ended March 31, 1996, the Company sold
its stock investment in an affiliated company at a gain
of $9,373,000 ($.20 per share). The gain is included in
"Gain on sale of investment in affiliate" in the
consolidated statement of operations for the quarter
ended March 31, 1996.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: Supplementary cash flow information is summarized as follows:
Changes in current assets and liabilities, net of the
effects of business divestitures, in reconciling net
loss to net cash provided by operations are as follows:
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Cash Provided By (Used For) Operations
Quarter Ended March 31, 1997 1996
---------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $22,514 $31,628
Inventories (4,503) (5,832)
Other current assets ( 290) 1,896
Increase (decrease) in:
Trade accounts payable (1,755) (9,427)
Accrued compensation and other
accrued expenses ( 771) (4,951)
Billings in excess of sales (1,212) (1,581)
---------------------------------------------------------------
Net changes in current assets and liabilities $13,983 $11,733
===============================================================
Cash payments for income taxes totaled $918,000 and
$1,080,000 for the quarters ended March 31, 1997 and
1996, respectively. Cash payments for interest in
those periods totaled $1,243,000 and $1,198,000, respectively.
First quarter 1997 investing and financing transactions
that did not require cash included the sale of a noncore
business unit of the Company in part for guaranteed notes
receivable and future royalties totaling $3,200,000, and
a $3,590,000 unfavorable mark-to-market adjustment of an
investment in an affiliated company.
There were no significant non-cash investing and
financing transactions in the first quarter of 1996.
NOTE 8: Net loss per share is computed by dividing net loss
by the weighted average number of common and equivalent
common shares outstanding. Employee stock options are
the only common stock equivalent and are included in the
weighted average number of common shares only if
dilutive. Weighted average common and equivalent common
shares outstanding for both the primary and fully diluted
loss per share calculations for the quarters ended March
31, 1997 and 1996 were 47,758,000 and 46,902,000,
respectively.
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share, which establishes standards
for computing and presenting earnings per share for
publicly held entities. The Statement is effective for
fiscal years ending after December 15, 1997. Upon
adoption, the Statement requires restatement of prior
period earnings per share data. The Company will adopt
this Statement for its fiscal year ending December 31,
1997 and does not expect the adoption of this new
standard to materially affect previously reported or
future earnings per share data.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings. In first quarter 1997 the Company incurred a net loss
of $.55 per share on revenues of $252.8 million. The first
quarter 1996 loss was $.14 per share on revenues of $256.7
million, including a $9.4 million ($.20 per share) gain on the
sale of an investment in an affiliated company. The first
quarter 1997 loss from operations was $.51 per share versus a
loss of $.36 per share for the first quarter of 1996. The $.15
per share quarter-to-quarter operating loss increase results
primarily from a 16% decline in maintenance revenues and a 5.9
point decline in maintenance and professional services margin,
while the Company's continuing operating losses in general are
the result of stagnant revenues, declining margins, and
operating expenses that are too high for the level of revenue
being generated by the Company.
Disposition of Noncore Business Units. In first quarter 1997
the Company sold an unprofitable business unit to a third party.
Total loss on the sale was $8,100,000, of which $7,000,000 ($.15
per share) had been recorded as an asset revaluation in fourth
quarter 1996. The remaining loss of $1,100,000 ($.02 per share)
was recorded upon final determination of the loss and closure of
the sale in first quarter 1997 and is included in "Nonrecurring
operating charge" in the consolidated statement of operations
for that period. In addition, the Company has discontinued the
operations of a second unprofitable business unit. This
business closure did not materially affect the results of
operations of the Company in first quarter 1997. Revenues and losses
of these two business units totaled $24,000,000 and $16,000,000,
respectively, for the full year 1996. Assets of the business units
totaled $14,000,000 at December 31, 1996.
Litigation. As further described in the Company's Form 10-K
filing for its year ending December 31, 1996, the Company has
been party to certain arbitration proceedings with its 50%-owned
affiliate, Bentley Systems, Inc. (BSI), the developer and owner
of MicroStation, a software product utilized in many of the
Company's software applications and for which the Company serves
as a nonexclusive distributor. In May 1997, the Company
received notice of the adverse determination of an arbitration
proceeding with BSI in which the Company had alleged that BSI
had inappropriately and without cause terminated a contractual
arrangement with the Company, and in which BSI had filed a
counterclaim against the Company seeking significant damages as
the result of the Company's alleged failure to use best efforts
to sell software support services pursuant to terms of the
contractual arrangement terminated by BSI. The arbitrator's award
against the Company is in the amount of $6.1 million, against which
the Company will offset approximately $5.8 million in fees otherwise
owed the Company by BSI. The cash position of the Company will
therefore not be significantly adversely affected by this
arbitration award. However, the Company will record a charge
to earnings in the full amount of the $6.1 million award, or
approximately $.13 per share. In addition, the contractual
arrangement that was the subject of this arbitration has been
terminated effective with the award, and as a result the
Company will no longer sell the related software support
services. The Company believes the cessation of such sales will
not materially affect its financial position, results of
operations, or cash flows in future periods, although there likely
will be an increase in the expense of providing support services
for certain MicroStation customers.
The Company has one other arbitration proceeding in process related to
its business relationship with BSI. The Company is vigorously defending
its positions in that proceeding, but at present is unable to predict
its outcome. Separately, the Company has engaged an investment banking
firm to value and sell its ownership interest in BSI. At present, this
firm is not actively seeking a buyer for the Company's interest in BSI
due to disagreement between the Company and BSI regarding
information to be provided potential buyers. See "MicroStation"
below and the Company's Form 10-K for the year ended December
31, 1996 for further details of the Company's business
relationship with BSI, its sales of MicroStation, and the
financial effects on the Company of changes in this business
relationship.
The Company has other ongoing litigation, in particular that
with Zydex, Inc., on which it is at present unable to predict an
outcome. See the Company's Form 10-K filing for its year ended
December 31, 1996 for further description of the Zydex matter.
Remainder of the Year. Industry conditions and changes in
operating system and hardware architecture strategies (as more
fully described in the Company's Form 10-K filing for its year
ended December 31, 1996) resulted in a transition period for the
Company characterized by revenues that declined from 1992
through 1994, by restructuring charges in 1993 and 1995, and by
annual net losses from 1993 through 1995. Although the Company
substantially completed its operating system and hardware
architecture transition in 1995, revenue to date associated with
resulting new product offerings has not met expectations, and
gross margin on product sales has continued to decline due
primarily to price competition in the industry. The Company
expects that industry trends toward higher performance and lower
priced products, intense competition, rapidly changing
technologies, shorter product cycles, and development and
support of software standards that result in less specific
hardware and software dependencies by customers will continue in
1997 and beyond. The Company continues to believe that its
operating system and hardware architecture strategies will prove
to be the correct choices, that the industry is accepting
Windows-NT, and that Windows-NT will become the dominant
operating system in markets served by the Company. However,
acceptance of this system and the Company's new products has
been slower than anticipated, and the timing of such acceptance
is unpredictable. Competing operating systems and products are
available in the market, and several competitors of the Company
offer or are adopting Windows-NT as the operating system for
their products. There can be no assurance that the Windows-NT
operating system will become dominant in markets served by the
Company or that the Company's product strategies will result in
restoration of profitability. Improvement in the Company's
operating results will depend on its 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. To achieve profitability,
the Company must substantially increase sales volume and further
align its operating expenses with the level of revenue being
generated.
ORDERS/REVENUES
- ---------------
Orders. First quarter systems orders totaled $159.0 million, an
increase of 10% from first quarter 1996. U.S. orders increased
26% from the first quarter 1996 level due to improved orders in
the U.S. commercial and federal areas of 61% and 24%,
respectively. This improvement was partially offset by a
decline in orders resulting from disposal of the two
unprofitable business units described above. Excluding this
impact, U.S. orders increased approximately 39% over first
quarter 1996. Total international systems orders declined 3%
from first quarter 1996. A 40% decline in Asia Pacific orders
more than offset slight increases in all other international
regions. First quarter 1996 Asia Pacific orders included two
unusually large individual orders.
New Products. During the first quarter, the Company added a
line of Intel/Windows-based personal workstations that are
priced to compete with PCs. The workstations have features and
performance required by professional users and provide 3D
graphics that the Company believes users will require in the
future. In addition, the Company announced two new software
products, Solid Edge 3.0 and GeoMedia, based on its Jupiter
technology. Solid Edge 3.0 is a solid modeling system for
designing mechanical parts and assemblies. The Company believes
it removes the obstacles that once prevented companies from
using 3D solid modeling as a mainstream design tool. GeoMedia
allows users to access data warehouses virtually anywhere in the
world and simultaneously perform analyses with varying data
types and formats. Shipment of these products is planned to
begin in the second quarter of 1997.
Revenues. Total revenues for first quarter 1997 were $252.8
million, down approximately 2% from first quarter 1996. Sales
outside the U.S. represented 55% of total revenues in first
quarter 1997, relatively unchanged from the first quarter and
full year 1996 mix. European revenues were 35% of total
revenues for first quarter, compared to 37% for first quarter
1996 and 33% for the full year 1996.
Systems. Systems revenue for first quarter was $169.0 million,
up 4% from the same prior year period. U.S. commercial revenues
were up 31%, while federal government and U.S. divisions'
revenues declined by 2% and 66%, respectively, resulting in an
overall 5% systems revenue increase in the U.S. Excluding the
impact of the two unprofitable business units disposed of in the
first quarter, U.S. systems revenues were up 13% from first
quarter 1996. International systems revenues were up 3% from
first quarter 1996 as a result of modest increases in all
regions, with the exception of the Asia Pacific region, which
experienced a 13% systems revenue decline as a result of an
unusually large shipment to a single customer in first quarter
1996.
Hardware revenues for first quarter 1997 increased 18% from the
prior year period. Unit sales of workstations and servers were
up 59% from first quarter 1996, while workstation and server
revenues increased only 9% due to a 32% decline in the average
per unit selling price. Sales of peripheral hardware products
increased by 45% from the prior year period due to sales of
graphics cards introduced during the second quarter of 1996.
Software revenues declined 4% from the prior year level,
including a 21% decline in MicroStation revenues (see further
details below). Excluding MicroStation, software revenues
increased 3% from first quarter 1996 due primarily to an
increase in plant design, information management, and
infrastructure software applications sales, partially offset by
a decline in mechanical software sales. Sales of Windows-based
software represented approximately 80% of total software
revenues in the first quarter of 1997, up from approximately 70%
in the first quarter of 1996. The Company is unable to predict
the level of success of its products in the marketplace;
however, it expects systems revenue levels to increase
sequentially throughout the remainder of the year through growth
in core product sales and sales of new hardware and software
product offerings.
MicroStation. Through the end of 1994, the Company had an
exclusive license agreement with 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. As a result of
settlement of a dispute between the companies relative to the
exclusivity of the Company's distribution license, effective
January 1, 1995, the Company had 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. The Company's sales of MicroStation
have declined each year since the change in the license
agreement. During first quarter 1997, the Company's sales of
MicroStation declined by approximately 21% from the same prior
year period. The Company estimates that this decline increased
first quarter 1997 net loss by approximately $2 million or $.04
per share. The Company is unable to predict the level of
MicroStation sales that will occur in the future, but it is
possible such sales will be further reduced.
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 $83.7 million for first quarter
1997, down 10% from the same prior year period. Maintenance
revenues totaled $62.8 million for the quarter, down 16% from
the same prior year period. The trend in the industry toward
lower priced products and longer warranty periods has resulted
in reduced levels of maintenance revenue, and the Company
believes this trend will continue in the future. Services
revenue represents approximately 8% of total revenues and has
increased 10% from the same prior year period. Growth in
services revenue has acted to partially offset the decline in
maintenance revenue. The Company is endeavoring to increase
revenues from its services business. Such revenues, however,
produce lower gross margins than maintenance revenues.
GROSS MARGIN
- ------------
The Company's total gross margin was 34.7% for first quarter
1997, down 2.5 points from first quarter 1996 and 2.1 points
from the full year 1996 levels.
Systems margin for first quarter 1997 was 34.8%, down .5 points
from first quarter 1996 and down 1.0 point from the full year
1996 level as a result of higher hardware content in the product
mix and strengthening of the U.S. dollar in international
markets, primarily Europe, partially offset by a slight decline
in price discounting.
In general, the Company's systems margin may be lowered by price
competition, a stronger U.S. dollar in international markets,
the effects of technological changes on the value of existing
inventories, and a higher mix of federal government sales, which
generally produce lower margins than commercial sales. Systems
margins may be improved by higher software content in the
product, a weaker dollar in international markets, a higher mix
of international systems sales to total systems sales, and
reductions in prices of component parts, which generally tend to
decline over time in the industry. The Company is unable to
predict the effects that many of these factors may have, but
expects continuing pressure on its systems margin due primarily
to industry price competition.
Maintenance and services margin for first quarter 1997 was
34.4%, down 5.9 points from first quarter 1996 and 4.4 points
from the full year 1996 level due to a decline in maintenance
revenue without a corresponding decline in maintenance cost, and
to an increase in professional services cost without a
corresponding increase in professional services revenue. The
Company believes that the trend in the industry toward lower
priced products and longer warranty periods will continue to
reduce its maintenance revenue, which will pressure maintenance
margin in the absence of corresponding cost reductions.
OPERATING EXPENSES
- ------------------
Operating expenses for first quarter 1997 were flat with the
comparable prior year period. Total employee headcount has
declined 4.5% from that same period.
Sales and marketing expense declined 4% from first quarter 1996
due primarily to strengthening of the U.S. dollar in
international markets, primarily Europe, and to slight expense
declines in most geographic regions. Product development and
general and administrative expenses increased slightly as
compared to the prior year period.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $1.2 million for both first quarter 1997
and 1996. The Company's average outstanding debt has increased
in comparison to the first quarter of 1996; however, the
Company's rate of interest on the debt has declined
approximately 2 points due primarily to a change in lenders
under the Company's primary credit facility. See "Liquidity and
Capital Resources" below for a discussion of the Company's
current financing arrangements.
In the first quarter of 1996, the Company sold a stock
investment in an affiliated company, resulting in a gain of $9.4
million ($.20 per share). The gain is included in "Gain on sale
of investment in affiliate" in the consolidated statement of
operations for the quarter ended March 31, 1996.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of foreign exchange losses, other
miscellaneous items of nonoperating income and expense, and
nonrecurring charges/credits.
IMPACT OF CURRENCY FLUCTUATIONS AND CURRENCY RISK MANAGEMENT
- ------------------------------------------------------------
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results
of operations. For the first quarter of 1997 and the full year
1996, approximately 55% of the Company's revenues were derived
from customers outside the United States, primarily through
subsidiary operations. Most subsidiaries sell to customers and
incur and pay operating expenses in local currency. These local
currency revenues and expenses are translated to dollars for
U.S. reporting purposes. A stronger U.S. dollar will decrease
the level of reported U.S. dollar orders and revenues, decrease
the dollar gross margin, and decrease reported dollar operating
expenses of the international subsidiaries. For the first
quarter of 1997, the U.S. dollar strengthened on average from
its first quarter 1996 level, which decreased reported dollar
revenues, orders, and gross margin, but also decreased reported
dollar operating expenses in comparison to the prior year
period. Currency effects did not have a material impact on the
Company's results of operations for the first quarter of 1997
and 1996.
The Company conducts business in all major markets outside of
the U.S., but the most significant of these operations with
respect to currency risk are located in Europe (specifically
Germany, U.K., The Netherlands, France and Italy) and Australia.
Primarily, but not exclusively in these locations, the Company
has certain currency related asset and liability exposures
against which certain measures, primarily hedging, are taken to
reduce currency risk. With respect to these exposures, the
objective of the Company is to protect against financial
statement volatility arising from changes in exchange rates with
respect to amounts denominated for balance sheet purposes in a
currency other than the functional currency of the local entity.
The Company therefore enters into forward exchange contracts
primarily related to these balance sheet items (intercompany
receivables, payables, and formalized intercompany debt).
Periodic changes in the value of these contracts offset exchange
rate related changes in the financial statement value of these
balance sheet items. Forward exchange contracts are purchased
with maturities reflecting the expected settlement dates of
these balance sheet items (generally three months or less), and
only in amounts sufficient to offset possible significant
currency rate related changes in the recorded values of these
balance sheet items, which represent a calculable exposure for
the Company from period to period. Since this risk is
calculable, and these contracts are purchased only in offsetting
amounts, neither the contracts themselves nor the exposed
foreign currency denominated balance sheet items are likely to
have a significant effect on the Company's financial position or
results of operations. The Company's positions in these
derivatives are continuously monitored to ensure protection
against the known balance sheet exposures described above. By
policy, the Company is prohibited from market speculation via
such instruments and therefore does not take currency positions
exceeding its known financial statement exposures, and does not
otherwise trade in currencies.
INCOME TAXES
- ------------
The Company incurred a loss before income tax benefit of $26.3
million in first quarter 1997 versus $6.4 million in first
quarter 1996. These losses generated minimal net financial
statement tax benefit, as the majority of available tax benefits
were offset by tax expenses in individual profitable
international subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, cash totaled $54.6 million compared to $50.7
million at December 31, 1996. Cash generated from operations
in first quarter 1997 totaled $2.2 million ($12.4 million in
first quarter 1996).
Net cash used for investing activities totaled $7.3 million in
first quarter 1997 and 1996. Included in investing activities
were capital expenditures of $5.0 million ($11.8 million in
first quarter 1996), primarily for Intergraph products used in
hardware and software development and sales and marketing
activities. The Company expects that capital expenditures will
require $40 to $50 million for the full year 1997, primarily for
these same purposes. The Company's term loan and revolving
credit agreement contains certain restrictions on the level of
the Company's capital expenditures. Other significant investing
activities included $2.1 million for capitalizable software
development costs ($5.6 million in first quarter 1996).
Investing activities in the first quarter of 1996 also included
$9.8 million in proceeds from the sale of an investment in an
affiliated company.
Net cash provided by financing activities in first quarter 1997
totaled $8.0 million versus a net use of cash of $16.8 million
in first quarter 1996. First quarter 1997 financing activities
included a $7.2 million net addition to short- and long-term
debt, compared with a net repayment of $18.0 million in the
first quarter of 1996.
In January 1997, the Company entered into a three year fixed
term loan and revolving credit agreement. Available borrowings
are determined by the amounts of eligible assets of the Company
(the "borrowing base"), as defined in the agreement, including
accounts receivable, inventory, and property, plant, and equipment,
with maximum borrowings of $100 million. The term loan portion of
the agreement is in the principal amount of $20 million, with
principal due at expiration of the agreement. Borrowings are
secured by a pledge of substantially all of the Company's assets
in the U.S. The rate of interest on all borrowings under the
agreement is the greater of 7% or the Norwest Bank Minnesota
National Association base rate of interest (8.5% at March 31,
1997) plus .625%. The agreement requires the Company to pay a
facility fee at an annual rate of .15% of the maximum amount
available under the credit line, an unused credit line fee at an
annual rate of .25% of the average unused portion of the
revolving credit line, and a monthly agency fee. At March 31,
1997, the Company had outstanding borrowings of $20 million, all
of which was classified as long-term debt in the consolidated
balance sheet, and an additional $39 million of the available
credit line was allocated to support letters of credit issued by
the Company. As of this same date, the borrowing base under the
credit line was $89 million.
The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital
expenditures. In addition, the agreement includes restrictive
covenants that limit or prevent various business transactions
(including repurchases of the Company's stock, dividend
payments, mergers, acquisitions of or investments in other
businesses, and disposal of assets including individual
businesses, subsidiaries, and divisions) and limit or prevent
certain other business changes.
In March of 1997, the Company entered into an agreement for the
sale and leaseback of one of its facilities. Based on the terms
of the agreement, the transaction has been accounted for as a
borrowing. The amount borrowed totals $8.4 million and is
included in "Long-term debt" in the 1997 consolidated balance
sheet. The borrowing will be repaid over a period of 20 years
at an implicit rate of interest of 10.7%.
At March 31, 1997, the Company had approximately $54 million in
debt on which interest is charged under various floating rate
arrangements, primarily under its three year term loan and
revolving credit agreement, an Australian term loan, and various
mortgages. The Company is exposed to market risk of future
increases in interest rates on these loans, with the exception
of the Australian term loan, on which the Company has entered
into an interest rate swap agreement.
The Company is not currently generating sufficient cash to
adequately fund its operations and build cash reserves, but
believes that existing cash balances, together with cash to be
generated by operations and cash available under its term loan
and revolving credit agreement will be adequate to meet cash
requirements for the remainder of 1997.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10, agreement between Intergraph Corporation
and Green Mountain, Inc., dated April 1, 1997.*
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1997.
*Denotes management contract or compensatory plan, contract,
or arrangement required to be filed as an Exhibit to this
Form 10-Q.
INTERGRAPH CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERGRAPH CORPORATION
----------------------
(Registrant)
By: /s/ Larry J. Laster By: /s/ John W. Wilhoite
--------------------------- ---------------------
Larry J. Laster John W. Wilhoite
Executive Vice President, Vice President and Controller
Chief Financial Officer and (Principal Accounting Officer)
Director
Date: May 13, 1997 Date: May 13, 1997
AGREEMENT
---------
This agreement is between Intergraph Corporation and Green
Mountain, Inc. d.b.a. UNIGLOBE Green Mountain Travel ("UNIGLOBE").
GENERAL
- -------
It is a primary objective of Intergraph to maximize its control
over the procurement of its business-travel arrangements and
minimize its cost of business travel.
It is a primary objective of UNIGLOBE to maximize its revenue
from handling the personal travel of Intergraph employees.
SCOPE
- -----
This agreement covers business and personal travel arrangements
made by the employees and spouses of Intergraph Corporation or
any of its subsidiaries. Intergraph has the exclusive right to
include or exclude other companies, subsidiaries, divisions,
affiliates, associates or employee groups.
DEFINITIONS
- -----------
"ARC" means the Airlines Reporting Corporation
"IATA" means the International Air Transport Association and
"IATAN" means the International Airlines Travel Agent Network.
DEDICATED FACILITIES
- --------------------
It is a primary objective of Intergraph to process as much of its
travel arrangements as is practical, at its discretion, through
facilities dedicated to Intergraph, including exclusive pseudo-
city codes and ARC/IATA numbers. UNIGLOBE will cooperate fully
in assisting Intergraph in achieving this objective.
UNIGLOBE will maintain a fully-appointed (as defined herein),
full-service (as defined by ARC) travel agency on the premises
of Intergraph in Huntsville, Alabama. This location will serve
as the primary point of contact for all Intergraph employees
wishing to make business-travel arrangements.
UNIGLOBE must be kept separate and distinct from any other Green
Mountain Inc. travel agencies and must be dedicated to serving
Intergraph and others specifically authorized by Intergraph.
This will not prohibit service by UNIGLOBE to the general public.
UNIGLOBE may be required, at the request of Intergraph, to
establish certain Remote Ticketing Branch locations as needed to
meet the travel document distribution requirements noted herein.
Unless otherwise agreed, all Remote Ticketing Branches will be
satellite ticket printer (STP) locations (as classified by ARC)
and to be used exclusively for Intergraph.
ARC/IATA APPOINTMENTS
- ---------------------
UNIGLOBE must maintain in good standing all ARC and IATA
appointments at each location servicing Intergraph throughout the
term of the agreement and Intergraph will cooperate fully in
these efforts. Intergraph will permit reasonable access to its
premises by authorized representatives of ARC, IATAN, and the
airlines for the purposes of verifying that UNIGLOBE and
Intergraph are in full compliance with all applicable rules and
regulations of these entitles.
If this agreement is terminated for any reason, and Intergraph so
requests, UNIGLOBE will use its best efforts to assist in
transferring the ARC and IATA appointments to Intergraph or its
designee.
UNIGLOBE will use its best efforts to secure and maintain
approval from all major domestic and international airlines and
Amtrak to issue their rickets, with full commissions (unless
otherwise negotiated by Intergraph), at all UNIGLOBE locations
servicing Intergraph.
ARC ADMINISTRATION
- ------------------
Intergraph will be responsible for the weekly processing of all
ARC coupons and ARC Sales reports as well as the timely
reconciliation of ARC Area Settlement Bank reports for all
transactions at UNIGLOBE.
AUTOMATION
- ----------
UNIGLOBE will provide Intergraph with a computerized reservations
system ("CRS") acceptable to Intergraph to facilitate the booking
of airline, ground transportation, lodging and related travel
arrangements and the generation of necessary travel documents.
UNIGLOBE will also provide a comprehensive, automated
accounting and travel-information management system ("Back-Office
System") acceptable to Intergraph to facilitate ARC
administration and the generation of the generation of the
management-information reports defined by Intergraph. The CRS
and Back-Office System must be compatible, and fully interfaced
with each other.
Intergraph reserves the right to request a conversion of the
primary CRS used by UNIGLOBE in support of the Intergraph
account if, in its sole discretion, such a conversion would
result in a substantial material benefit to Intergraph. UNIGLOBE
will cooperate fully in such a conversion, including using its
best efforts to minimize any costs assessed by the outgoing CRS
vendor and, at the request of Intergraph Travel Services,
negotiating favorable terms and conditions with the incoming CRS
vendor.
All discounts, credits or incentives received by UNIGLOBE from
the CRS vendor(s) for CRS equipment, software, maintenance, and
services must be disclosed to Intergraph Travel Services and will
be used to offset the costs associated with servicing the
Intergraph account.
In the event that this agreement is terminated by either party,
Intergraph reserves the right, with the concurrence of the CRS
vendor(s), to retain the reservations system(s) equipment, and
all Intergraph data associated with the system, and to assume
responsibility for any payments for the remaining lease term.
OWNERSHIP OF DATA
- -----------------
UNIGLOBE agrees that Intergraph owns all data from reservations,
ticketing, and billing of Intergraph travel arrangements and that
Intergraph, or its authorized third party, will be given
complete and unrestricted access to such data. In the event that
this agreement is terminated by either party, UNIGLOBE will
immediately provide to Intergraph all detail and summary data
relative to Intergraph's travel activity stored in computer
system(s) provided by UNIGLOBE.
STAFFING/PERSONNEL
- ------------------
UNIGLOBE will designate a single, qualified employee, acceptable
to Intergraph, to act as the manager of UNIGLOBE.
Intergraph will be responsible for staffing UNIGLOBE
with qualified personnel in sufficient numbers to
handle all reservations, ticketing, support and accounting
functions required in support of the Intergraph account.
INDEPENDENT CONTRACTOR
- ----------------------
Intergraph and UNIGLOBE agree that all work performed by either
under this agreement will be performed by each as an independent
contractor and not as the employee, agent, or representative of
the other. Neither party will be represent itself as an
employee, agent or representative of the other when dealing with
any third party. Neither party will have the authority to bind
the other to any agreement with any third party without the prior
written authorization of the other party.
VENDOR NEGOTIATIONS
- -------------------
Intergraph has the primary responsibility for the negotiation of
discount and value-added products and services for its travelers.
UNIGLOBE and Intergraph will advise each other whenever their
combined purchase volumes might be leveraged to produce
significant savings to Intergraph. UNIGLOBE will not pledge, or
otherwise commit, any of Intergraph's travel activity for the
purpose of obtaining volume discounts from travel vendors
without the prior, written approval of Intergraph.
Intergraph retains the right to negotiate discounts, reduced
fares, credits, restriction waivers, and the like directly with
airline carriers, and UNIGLOBE will cooperate fully with
Intergraph and airline(s) in the negotiation and implementation
of such discounts.
RIGHTS TO REVENUE
- -----------------
UNIGLOBE and Intergraph agree that all revenue, including
overrides, generated as a result of Intergraph's business travel
and travel-related activities belongs to Intergraph and will be
retained by Intergraph to offset its direct and indirect costs
associated with managing its business travel. Revenue generated
by international travel will be used exclusively to offset
Intergraph's costs and reimbursements to UNIGLOBE as outlined
herein.
Revenue generated as a result of the leisure or personal travel
of Intergraph employees or others booked directly with UNIGLOBE
will be retained by UNIGLOBE to offset its direct and indirect
costs associated with providing these services.
OVERRIDES/REVENUE ENHANCEMENTS
- ------------------------------
INTERGRAPH and UNIGLOBE acknowledge that certain revenue will
accrue to UNIGLOBE in the form of overrides, bonuses, credits,
tickets or other revenue enhancements from the travel suppliers
used by Intergraph and its business travelers. As noted above,
all such revenue, regardless of form, belongs to Intergraph and
will be retained by Intergraph to offset its direct and indirect
costs associated with managing its business travel.
From time to time, Intergraph may not be able to utilize certain
non-cash revenue enhancements, including tickets. At the sole
discretion of Intergraph Travel Services, unused tickets,
credits, vouchers or similar non-cash benefits may be made
available to UNIGLOBE. Such situations will be dealt with by
Intergraph and UNIGLOBE on a case-by-case basis.
FULL DISCLOSURE
- ---------------
UNIGLOBE will make full disclosure of all revenue, regardless of
its source, and operating costs associated with Intergraph's
travel activity.
FIDUCIARY RELATIONSHIP
- ----------------------
UNIGLOBE agrees that it has entered into a fiduciary relationship
with Intergraph with respect to all financial obligations and
responsibilities assumed by UNIGLOBE under the agreement.
UNIGLOBE will maintain separate, complete and accurate records
relating solely to Intergraph's business. These records must be
available for inspection in Huntsville, Alabama by Intergraph or
its representative(s).
FINANCIAL AUDITS
- -----------------
Intergraph, or its authorized representative, will have the right
to perform periodic financial/accounting audits, and to review,
in the course of any such audit, any of UNIGLOBE's data,
documents, records, worksheets, systems, standards, procedures,
or practices related to the agreement. UNIGLOBE must provide
Intergraph its full cooperation and any assistance reasonably
required to facilitate said audit.
RECEIPT OF REVENUE
- ------------------
All receipts from the cash sales of airline tickets, or other
services, and all airline, ground services, and other commissions
or revenue earned as a result of Intergraph's travel activity
booked through UNIGLOBE will be distributed to Intergraph.
ALLOWABLE EXPENSES
- ------------------
The only expenses reimbursable by Intergraph under this agreement
are as follows:
(a) Direct labor by UNIGLOBE employees at the rate mutually
agreed upon by the parties, provided the work was requested by
Intergraph's Manager, Travel Services.
(b) The monthly UNIGLOBE franchise fee to be calculated in
accordance to the attached Exhibit A.
(c) Changes for any authorized supplemental services
outside the scope of the agreement and requested by Intergraph's
Manager, Travel Services, in writing, during the period.
(d) Costs of business insurance, operating licenses and
taxes, including property taxes, paid by UNIGLOBE and directly
attributable to the support of the Intergraph account. UNIGLOBE
will use its best efforts to minimize all such costs.
(e) All costs for CRS equipment used by UNIGLOBE in support
of the Intergraph account, including all hardware, software, data
lines, modifications and interface charges, as provided in the
CRS agreements in place at the time of this agreement.
(f) All fees associated with the off-site storage of
ARC/IATA accountable documents.
PAYMENTS
- --------
UNIGLOBE and Intergraph will mutually agree on the administrative
details of handling the accounting and distribution of all revenue,
including the establishment of procedures to insure that UNIGLOBE
is funded in a timely manner for all authorized operating
expenses associated with servicing the Intergraph account.
UNIGLOBE will provide Intergraph with sufficient information to
reconcile invoices submitted for reimbursement.
LEISURE/PERSONAL TRAVEL
- -----------------------
UNIGLOBE will establish and maintain a leisure-travel office,
staffed by UNIGLOBE personnel, on Intergraph's premises in
Huntsville, Alabama. All requests received by Intergraph Travel
Services from Intergraph employees to handle vacation/leisure-
travel arrangements will be referred to this office. No major
corporate or group accounts are to be serviced from this office
without the prior authorization of Intergraph Travel Services.
UNIGLOBE will be responsible for developing various discounted
leisure-travel and vacation packages for Intergraph employees.
Intergraph agrees to cooperate fully with UNIGLOBE Madison Travel
in promoting these packages to Intergraph employees, provided
that all such promotion efforts are in compliance with Intergraph
policy.
The leisure-travel office at Intergraph will use its best efforts
to assist Intergraph customers and consultants visiting
Huntsville with any changes or new reservations that they may
require. Such assistance will be provided even if it does not
generate any revenue to UNIGLOBE.
During the term of this agreement, no other travel agency will be
granted access to Intergraph offices in Huntsville for the
propose of soliciting leisure, personal or vacation travel from
Intergraph employees.
RENT AND UTILITIES
- ------------------
Intergraph will provide UNIGLOBE with sufficient office space on
Intergraph's premises in Huntsville, Alabama. All costs associated
with the ongoing use of the space will be the responsibility of
Intergraph. All furnishings and office equipment will be the
responsibility of UNIGLOBE.
TELECOMMUNICATIONS
- ------------------
Intergraph will provide UNIGLOBE with a single telephone line for
access to Intergraph telephone network. This line must be used
exclusively for communication with Intergraph employees. Unless
otherwise agreed, all telephone instruments and related hardware
and any external telephone lines will be responsibility of
UNIGLOBE.
NON-DISCLOSURE
- --------------
This agreement is confidential. Neither party will disclose the
existence of this agreement or any of its terms or conditions
without the other's prior written consent.
PUBLICITY
- ---------
UNIGLOBE agrees to submit to Intergraph all advertising, sales
promotion, press releases and other publicity matters relating to
the services performed by UNIGLOBE under this agreement wherein
Intergraph's names or marks are mentioned or language from which
the connection of said names or marks there with may be inferred
or implied and UNIGLOBE further agrees not to publish or use such
advertising, sales promotion, press releases, or publicity
matters without Intergraph's written approval.
TERM AND TERMINATION
- --------------------
This agreement is effective as of April 1, 1997 and will continue
until April 1, 1998. Either party may terminate this agreement
upon ninety days written notice to the other. Any termination of
this agreement will be without prejudice to any outstanding
rights or obligations.
CONTINUITY OF SERVICE
- ---------------------
UNIGLOBE recognizes that the services provided under this
agreement are vital to Intergraph's overall effort, that
continuity must be maintained without interruption, that upon
expiration of this agreement a successor--either Intergraph or
another vendor -- may continue these services, and that UNIGLOBE
must give its best efforts and cooperation to effect an orderly
and efficient transition to a successor. UNIGLOBE will be
reimbursed for all reasonable transition costs provided those
costs are incurred within an agreed transition period after
expiration of the agreement and authorized, in writing, by
Intergraph.
NOTICES
- -------
Notices and other correspondence related to the agreement should
be directed to the parties by facsimile, telegraph, first-class
mail (postage), or personal delivery, as follows:
TO THE COMPANY TO THE AGENCY
-------------- -------------
Manager, Travel Services President
Mail Stop IW2002 Green Mountain, Inc.
Intergraph Corporation Suite 114
Huntsville, Alabama 35894-0004 900 Bob Wallace Avenue
Huntsville, Alabama 35801
Fax: 205-730-1029 Fax: 205-536-5942
EXHIBIT A
UNIGLOBE SERVICE-FEE CALCULATION
For the term of this agreement, the UNIGLOBE Service Fee paid by
Intergraph to UNIGLOBE will be calculated as follows:
(I) On the first $31,920.00 of gross income, ten percent (10%)
(II) On the next $31,920.00 of gross income, seven percent (7%)
(III) On the next $21,281.00 of gross income, five percent (5%)
(IV) On the balance over $85,121.00 of gross income, two percent (2%)
For the purpose of calculating this Service Fee, "gross income"
is defined as all commissions or other cash revenue received by
UNIGLOBE as a result of Intergraph's travel activity booked through
UNIGLOBE. Bonuses, credits, discounts, incentives, or reimbursements
paid directly to Intergraph by service providers will not be included
in the calculation of gross income.
ENTIRE AGREEMENT
- ----------------
The agreement constitutes the entire understanding between
Intergraph and Green Mountain, Inc. relating to the subject
hereof and supersedes all prior communications on the subject.
Any further modification of the agreement must be in writing and
executed by both parties.
For: Green Mountain, Inc. For: Intergraph Corporation
/s/ Gerald F Donovan /s/ Pam Kilby
- ---------------------- ---------------------
Gerald F Donovan Pam Kilby
President Senior Staff Supervisor,
Travel Services
Date: March 31, 1997 Date: March 31, 1997
---------------- ----------------
For: Intergraph Corporation
/s/ Thomas Burridge
---------------------
Thomas Burridge
Executive Director of
Business Development
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 54,581
<SECURITIES> 0
<RECEIVABLES> 292,620
<ALLOWANCES> 0
<INVENTORY> 87,578
<CURRENT-ASSETS> 39,076
<PP&E> 454,494
<DEPRECIATION> 289,921
<TOTAL-ASSETS> 715,920
<CURRENT-LIABILITIES> 240,983
<BONDS> 55,943
0
0
<COMMON> 5,736
<OTHER-SE> 407,138
<TOTAL-LIABILITY-AND-EQUITY> 715,920
<SALES> 169,043
<TOTAL-REVENUES> 252,758
<CGS> 110,238
<TOTAL-COSTS> 165,148
<OTHER-EXPENSES> 111,814<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235
<INCOME-PRETAX> (26,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,289)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
<FN>
<F1>Other expenses include Product development expenses, Sales and marketing
expenses, general and administrative expenses, and nonrecurring operating
charges.
</FN>
</TABLE>
