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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 June 30, 1998
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)
(256) 730-2000
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(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO__
Common stock, par value $.10 per share: 48,365,475 shares
outstanding as of June 30, 1998
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INTERGRAPH CORPORATION
FORM 10-Q*
June 30, 1998
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 2
Consolidated Statements of Operations for the
quarters and six months ended June 30, 1998
and 1997 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
*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, its Form 10-Q for the quarter
ended March 31, 1998, and this Form 10-Q.
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, December 31,
1998 1997
- ---------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 85,456 $ 46,645
Accounts receivable, net 291,635 324,654
Inventories 107,338 105,032
Other current assets 31,440 25,693
- ---------------------------------------------------------------------------
Total current assets 515,869 502,024
Investments in affiliates 13,960 14,776
Other assets 62,702 53,566
Property, plant, and equipment, net 135,402 150,623
- ---------------------------------------------------------------------------
Total Assets $727,933 $720,989
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Liabilities and Shareholders' Equity
Trade accounts payable $ 50,110 $ 60,945
Accrued compensation 46,659 48,330
Other accrued expenses 75,258 71,126
Billings in excess of sales 71,509 66,680
Short-term debt and current maturities
of long-term debt 33,884 50,409
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Total current liabilities 277,420 297,490
Deferred income taxes 376 460
Long-term debt 51,561 54,256
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Total liabilities 329,357 352,206
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Shareholders' equity:
Common stock, par value $.10 per share -
100,000,000 shares authorized;
57,361,362 shares issued 5,736 5,736
Additional paid-in capital 225,242 226,362
Retained earnings 297,896 269,442
Accumulated other comprehensive income -
cumulative translation adjustment 808 1,090
- ----------------------------------------------------------------------------
529,682 502,630
Less - cost of 8,995,887 treasury shares at
June 30, 1998 and 9,183,845 treasury
shares at December 31, 1997 (131,106) (133,847)
- ----------------------------------------------------------------------------
Total shareholders' equity 398,576 368,783
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Total Liabilities and Shareholders' Equity $727,933 $720,989
============================================================================
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 June 30, Six Months Ended June 30,
1998 1997 1998 1997
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(In thousands except per share amounts)
Revenues
Systems $168,314 $199,883 $336,697 $368,926
Maintenance and services 78,299 88,726 155,734 172,441
- --------------------------------------------------------------------------------
Total revenues 246,613 288,609 492,431 541,367
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Cost of revenues
Systems 121,358 127,500 242,346 237,738
Maintenance and services 48,785 51,994 95,692 106,904
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Total cost of revenues 170,143 179,494 338,038 344,642
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Gross profit 76,470 109,115 154,393 196,725
Product development 22,249 25,171 45,949 51,130
Sales and marketing 59,306 65,518 119,244 125,221
General and administrative 24,436 25,753 50,970 50,810
Nonrecurring charges (credit) ( 859) --- 13,902 1,095
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Loss from operations (28,662) ( 7,327) (75,672) (31,531)
Gains on sales of assets 8,275 --- 111,042 ---
Arbitration award --- ( 6,126) --- ( 6,126)
Interest expense ( 1,861) ( 1,612) ( 4,050) ( 2,847)
Other income (expense) - net 1,260 ( 962) 634 ( 1,812)
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Income (loss) before
income taxes (20,988) (16,027) 31,954 (42,316)
Income tax expense --- --- 3,500 ---
- --------------------------------------------------------------------------------
Net income (loss) $(20,988) $(16,027) $ 28,454 $(42,316)
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Net income (loss) per share -
basic and diluted $( .43) $( .33) $ .59 $( .88)
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Weighted average shares outstanding -
basic and diluted (1) 48,311 47,888 48,265 47,823
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(1) Diluted shares were 48,358 for the six months ended June 30, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended June 30, 1998 1997
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(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net income (loss) $ 28,454 $(42,316)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation and amortization 26,921 31,511
Arbitration award --- 6,126
Noncash portion of nonrecurring charges 11,947 ---
Gains on sales of assets (111,042) ---
Net changes in current assets and liabilities 21,181 (12,117)
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Net cash used for operating activities ( 22,539) (16,796)
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Investing Activities:
Purchases of property, plant, and equipment ( 8,008) (11,679)
Capitalized software development costs ( 5,037) ( 4,371)
Proceeds from sales of assets 118,002 ---
Purchase of software rights ( 26,292) ---
Other 14 ( 1,146)
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Net cash provided by (used for) investing
activities 78,679 (17,196)
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Financing Activities:
Gross borrowings 168 36,565
Debt repayment ( 18,196) (17,424)
Proceeds of employee stock purchases and
exercise of stock options 1,449 1,620
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Net cash provided by (used for) financing
activities ( 16,579) 20,761
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Effect of exchange rate changes on cash ( 750) 3,041
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Net increase (decrease) in cash and
cash equivalents 38,811 (10,190)
Cash and cash equivalents at beginning of period 46,645 50,674
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Cash and cash equivalents at end of period $ 85,456 $ 40,484
===========================================================================
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 six months and quarter ended
June 30, 1997 to provide comparability with the current
period presentation.
NOTE 2: Litigation. As further described in the Company's Form
10-K for its year ended December 31, 1997, and its Form
10-Q for the quarter ended March 31, 1998, the Company
has risks related to certain litigation, in particular
that with Intel Corporation and Bentley Systems, Inc.
See Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q
for a discussion of developments in the second quarter
of 1998.
NOTE 3: Zydex. On January 15, 1998, the Company's litigation
with Zydex, Inc. was settled, resulting in the Company's
purchase of 100% of the common stock of Zydex for
$26,300,000, with $16,000,000 paid at closing of the
agreement and the remaining amount to be paid in 15
equal monthly installments, including interest. In
March, the Company prepaid in full the remaining amount
payable to Zydex. The former owner of Zydex retains
certain rights to use, but not sell or sublicense, plant
design system application software ("PDS") for a period
of 15 years following the date of closing. In addition
to the purchase price of common stock, the Company was
required to pay additional royalties to Zydex in the
amount of $1,000,000 at closing of the agreement. These
royalties were included in the Company's 1997 results of
operations and therefore did not affect 1998 results.
The first quarter cash payments to Zydex were funded by
the Company's primary lender and by proceeds from the
sale of the Company's Solid Edge and Engineering
Modeling System product lines. See Management's
Discussion and Analysis of Financial Condition and
Results of Operations in this Form 10-Q for a discussion
of the Company's liquidity.
The Company capitalized the $26,300,000 cost of the PDS
software rights and is amortizing it over its estimated
useful life of seven years. The unamortized balance,
approximately $24,400,000 at June 30, 1998, is included
in "Other assets" in the June 30, 1998 consolidated
balance sheet.
NOTE 4: Inventories are stated at the lower of average cost or
market and are summarized as follows:
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June 30, December 31,
1998 1997
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(In thousands)
Raw materials $ 32,944 $ 35,799
Work-in-process 30,973 37,357
Finished goods 25,687 11,760
Service spares 17,734 20,116
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Totals $107,338 $105,032
======================================================
NOTE 5: Property, plant, and equipment - net includes allowances
for depreciation of $271,009,000 and $289,775,000 at
June 30, 1998 and December 31, 1997, respectively.
NOTE 6: In first quarter 1998, the Company sold the assets of
its Solid Edge and Engineering Modeling System product
lines to Electronic Data Systems Corporation and its
Unigraphics Solutions, Inc. subsidiary for $105,000,000
in cash. The Company recorded a gain on this
transaction of $102,767,000 ($2.13 per share). This
gain is included in "Gains on sales of assets" in the
consolidated statement of operations for the six months
ended June 30, 1998.
In second quarter 1998, the Company sold the assets of
its printed circuit board manufacturing facility for
$16,002,000 in cash. The Company recorded a gain on
this transaction of $8,275,000 ($.17 per share). This
gain is included in "Gains on sales of assets" in the
consolidated statements of operations for the quarter
and six months ended June 30, 1998. The Company is now
outsourcing its printed circuit board needs and does not
expect this operational change to materially impact its
results of operations in the remainder of 1998.
NOTE 7: In first quarter 1998, the Company reorganized its
European operations to reflect the organization of the
Company into four distinct operating units and to
further align operating expense with revenue levels in
that region. The cost of this reorganization was
originally estimated at $5,400,000, primarily for
employee severance pay and related costs. In second
quarter 1998, $859,000 of the costs accrued in the first
quarter were reversed as the result of incurrence of
lower severance costs than originally anticipated. The
second quarter credit and year to date charge of
approximately $4,500,000 are included in "Nonrecurring
charges (credit)" in the consolidated statements of
operations for the quarter and six months ended June 30,
1998. Approximately 70 positions were eliminated in the
sales and marketing, general and administrative, and pre-
and post-sales support areas. Cash outlays related to
this charge approximated $2,000,000 in the first six
months of 1998. The remaining costs are expected to be
paid over the remainder of the year and are included in
"Other accrued expenses" in the June 30, 1998
consolidated balance sheet. The Company estimates the
European reorganization will result in annual savings of
approximately $5,200,000.
The remainder of the 1998 nonrecurring charges consists
of write-offs of a) certain intangible assets, primarily
capitalized business system software, b) goodwill
recorded on a prior acquisition of a domestic
subsidiary, and c) a noncompete agreement with a former
third party consultant. Prior to the write-off,
amortization of these intangibles accounted for
approximately $3,400,000 of the Company's annual
operating expenses.
NOTE 8: In first quarter 1997, the Company sold an unprofitable
business unit to a third party and discontinued the
operations of a second unprofitable business unit. This
second business unit was sold to a third party during
second quarter 1997. The total loss on these sales was
$8,300,000, of which $7,200,000 ($.15 per share) had
been recorded as an asset revaluation in fourth quarter
1996. The remaining loss of $1,100,000 ($.02 per share)
is included in "Nonrecurring charges" in the
consolidated statement of operations for the six months
ended June 30, 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.
The two business units did not have a material effect on
the Company's results of operations for the period in
1997 prior to their disposal.
NOTE 9: In second quarter 1997, the Company received notice of
the adverse determination of an arbitration proceeding
with Bentley Systems, Inc. (Bentley), an approximately
50%-owned affiliate of the Company and 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.
The arbitrator's award was in the amount of $6,126,000
and is included in "Arbitration award" in the
consolidated statements of operations for the quarter
and six months ended June 30, 1997. The cash position
of the Company was not significantly adversely affected
by this award, as the Company offset approximately
$5,835,000 in fees otherwise owed the Company by Bentley
against the amount awarded Bentley. For further details
of the Company's business relationship with Bentley and
a description of continuing arbitration proceedings
between the two companies, see the Company's Form 10-K
filing for the year ended December 31, 1997.
NOTE 10:Supplementary cash flow information is summarized as
follows:
Changes in current assets and liabilities, net of the
effects of business divestitures, in reconciling net
income (loss) to net cash used for operating activities
are as follows:
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Cash Provded By (Used For) Operations
Six Months Ended June 30, 1998 1997
-------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable, net $31,249 $( 512)
Inventories ( 2,732) (20,986)
Other current assets ( 1,888) ( 552)
Increase (decrease) in:
Trade accounts payable (10,737) 7,231
Accrued compensation and other
accrued expenses 216 2,091
Billings in excess of sales 5,073 611
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Net changes in current assets
and liabilities $21,181 $(12,117)
=============================================================
Investing and financing transactions in the first half
of 1997 that did not require cash included the sale of
two noncore business units of the Company in part for
notes receivable and future royalties totaling
$3,950,000, and a $4,649,000 unfavorable mark-to-market
adjustment of an investment in an affiliated company.
There were no significant noncash investing and
financing transactions in the first half of 1998.
NOTE 11:Basic income (loss) per share is computed by dividing
net income (loss) by the weighted average number of
common shares outstanding. Diluted income (loss) per
share is computed by dividing net income (loss) by the
weighted average number of common and equivalent common
shares outstanding. Employee stock options are the
Company's only common stock equivalent and are included
in the calculation only if dilutive.
NOTE 12:Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. This Statement
establishes standards for reporting comprehensive income
and its components. Under this Statement, all nonowner
changes in equity during a period are to be reported as
a component of comprehensive income. With respect to
the Company, such nonowner equity items include foreign
currency translation adjustments and unrealized gains
and losses on certain investments in debt and equity
securities. The Statement requires that the accumulated
balance of other comprehensive income be displayed
separately from retained earnings and additional paid in
capital in the equity section of the Company's statement
of financial position.
During the six months ended June 30, 1998 and 1997,
total comprehensive income (loss) was $28,172,000 and
($50,064,000), respectively. Comprehensive income
(loss) differs from net income (loss) due to foreign
currency translation adjustments and, for 1997 only, an
unrealized holding loss on securities of an affiliate.
NOTE 13:Effective January 1, 1998, the Company adopted
American Institute of Certified Public Accountants
Statement of Position 97-2, Software Revenue
Recognition. The Statement requires each element of a
software sale arrangement to be separately identified
and accounted for based on the relative fair value of
each element. Revenue cannot be recognized on any
element of the sale arrangement if undelivered elements
are essential to functionality of the delivered
elements. The Statement replaces the previous method of
software revenue recognition, under which a distinction
was made between significant and insignificant post-
shipment obligations for revenue recognition purposes.
Adoption of this new accounting standard did not
significantly affect the Company's results of operations
for the six months ended June 30, 1998, nor is it
expected to have a significant impact on results for the
remainder of the year since the Company's revenue
recognition policies have historically been in
substantial compliance with the practices required by
the new pronouncement.
Note 14:In February 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits". This statement, which is effective fiscal year 1998
for the Company, revises the disclosures required for pension and
other postretirement benefit plans, but does not change the
recognition and measurement for these plans. In March 1998,
the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", defining which
computer software costs are to be capitalized and expensed.
This statement is effective fiscal year 1999 for the Company
and will be implemented effective January 1, 1999. In June 1998,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", requiring companies to
recognize all derivatives as either assets or liabilities on
the balance sheet and to measure the instruments at fair value.
This statement is effective fiscal year 2000 for the Company.
The Company does not anticipate implementation of any of these
newly issued accounting pronouncements to have a material impact
on its consolidated operating results or financial position.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
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Earnings. In second quarter 1998, the Company incurred a net
loss of $.43 per share on revenues of $246.6 million, including
an $8.3 million ($.17 per share) gain on the sale of its printed
circuit board manufacturing facility. The second quarter 1997
loss was $.33 per share on revenues of $288.6 million, including
a $6.1 million ($.13 per share) charge for an adverse contract
arbitration award to Bentley Systems, Inc. (Bentley). The
second quarter 1998 loss from operations was $.59 per share
versus a loss of $.15 per share for the second quarter of 1997.
This increased loss results primarily from a 15% decline in
revenues and a 6.8 point decline in gross margin, partially
offset by a 9% decline in operating expenses. For the first
half of 1998, the Company earned net income of $.59 per share on
revenues of $492.4 million, including a $102.8 million ($2.13
per share) gain on the sale of its Solid Edge and Engineering
Modeling System product lines, a $13.9 million ($.29 per share)
charge for nonrecurring operating expenses (primarily employee
termination costs and write-off of certain intangible assets),
and the $.17 per share gain on the sale of the printed circuit
board facility. For the first half of 1997, the Company
incurred a net loss of $.88 per share on revenues of $541.4
million, including the $.13 per share adverse contract
arbitration award. Excluding nonrecurring charges, the first
half 1998 loss from operations was $1.28 per share versus a loss
of $.64 per share for the first half of 1997. This increased
loss results from a 9% decline in revenues and a 7.6 point
decline in systems margin. The Company's declining revenues and
margins are primarily the result of its ongoing dispute with
Intel Corporation and of operating expenses that are too high
for the level of revenue being generated by the Company. The
Company's dispute with Intel is fully described in its Form 10-K
annual report for the year ended December 31, 1997, and updated
in subsequent Form 10-Q filings, including this report.
Nonrecurring Charges. In first quarter 1998, the Company
reorganized its European operations to reflect the organization
of the Company into four distinct operating units and to further
align operating expenses with revenue levels in that region.
The cost of this reorganization was originally estimated at $5.4
million, primarily for employee severance pay and related costs.
In second quarter 1998, $.9 million of the costs accrued in the
first quarter were reversed as the result of incurrence of lower
severance costs than originally anticipated. The second quarter
credit and year to date charge of $4.5 million are included in
"Nonrecurring charges (credit)" in the consolidated statements
of operations for the quarter and six months ended June 30,
1998. Approximately 70 positions were eliminated in the sales
and marketing, general and administrative, and pre- and post-
sales support areas. Cash outlays related to this charge
approximated $2 million in the first six months of 1998. The
remaining costs are expected to be paid over the remainder of
the year and are included in "Other accrued expenses" in the
June 30, 1998 consolidated balance sheet. The Company estimates
the European reorganization will result in annual savings of
approximately $5.2 million.
The remainder of the first quarter 1998 nonrecurring charges
consists of write-offs of a) certain intangible assets,
primarily capitalized business system software, b) goodwill
recorded on a prior acquisition of a domestic subsidiary, and c)
a noncompete agreement with a former third party consultant.
Prior to the write-off, amortization of these intangibles
accounted for approximately $3.4 million of the Company's annual
operating expenses.
In first quarter 1997, the Company sold an unprofitable business
unit to a third party and discontinued the operations of a
second unprofitable business unit. This second business unit
was sold to a third party during second quarter 1997. The total
loss on these sales was $8.3 million, of which $7.2 million
($.15 per share) had been recorded as an asset revaluation in
fourth quarter 1996. The remaining loss of $1.1 million ($.02
per share) is included in "Nonrecurring charges" in the
consolidated statement of operations for the six months ended
June 30, 1997. Revenues and losses of these two business units
totaled $24 million and $16 million, respectively, for the full
year 1996. Assets of the business units totaled $14 million at
December 31, 1996. The two business units did not have a
material effect on the Company's results of operations for the
period in 1997 prior to their disposal.
Litigation and Other Risks and Uncertainties. As further
described in the Company's Form 10-K filing for its year ended
December 31, 1997 and its Form 10-Q for the quarter ended March
31, 1998, the Company has ongoing litigation, and its business
is subject to certain risks and uncertainties. Significant
developments during second quarter 1998 are discussed below.
Intel. As further described in the Company's Form 10-Q filing
for the quarter ended March 31, 1998, the U.S. District Court,
Northern District of Alabama, Northeastern Division, (the
"Alabama Court") ruled in favor of Intergraph on April 10, 1998
and ordered that Intel, the supplier of all the Company's
microprocessor needs, be preliminarily enjoined from terminating
Intergraph's rights as a strategic customer in current and
future Intel programs, and from otherwise taking any action
adversely affecting Intel's business relationship with
Intergraph or Intergraph's ability to design, develop, produce,
manufacture, market or sell products incorporating, or based
upon, Intel products or information. In response to the Alabama
Court's decision, on April 16, 1998, Intel appealed to the
United States Court of Appeals for the Federal Circuit (the
"Appeals Court"). Intel and the Company have each filed briefs
with the Appeals Court. No decision has been entered.
On May 18, 1998, the Alabama Court denied Intel's January 15,
1998 motion for a change of venue from Alabama to California,
and Intel subsequently dropped two retaliatory lawsuits which
Intel had brought against the Company in California. On June
17, 1998, Intel filed its answer in the Alabama case, which
included counterclaims against Intergraph, including claims that
Intergraph has infringed seven patents of Intel. On July 8,
1998, the Company filed its answer to the Intel counterclaims,
among other things denying any liability under the patent
infringement asserted by Intel. On June 17, 1998, Intel filed a
motion before the Alabama Court seeking a summary judgment
holding that Intel is licensed to use the patents that the
Company asserted against Intel in the Company's original
complaint. This "license defense" is based on Intel's
interpretation of the facts surrounding the acquisition by the
Company of the Advanced Processor Division of Fairchild
Semiconductor Corporation in 1987. The Company is vigorously
contesting Intel's motion for summary judgment on the license
defense, and currently plans to file a brief on this matter with
the Alabama Court September 15, 1998.
In a scheduling order entered June 25, 1998, the Alabama Court
has set a trial date of February 14, 2000.
Reference should be made to the Company's Form 10-K annual
report for the year ended December 31, 1997 for a complete
description of the background of and basis for these actions,
and for a description of the effects of this dispute on the
operations of the Company, which include lost revenues,
uncertain supply, and increased microprocessor costs and legal
expenses. The Company is vigorously prosecuting its positions
and believes it will prevail in these matters, but at present is
unable to predict the outcome of its dispute with Intel. The
Company does expect, however, that adverse effects on its
operations will continue at least through the third quarter of
1998.
Year 2000 Issue. As further described in the Company's Form 10-
K annual report for the year ended December 31, 1997, the
Company has initiated a program to mitigate/ and or prevent the
possible adverse effects on its operations of Year 2000 problems
in its software and hardware products and its internally used
software and hardware.
The Company's efforts to identify and resolve Year 2000 issues
related to its hardware and software product offerings are under
way. All products currently offered in the Company's standard
price list are Year 2000 compliant or will be so certified as
new versions and utilities are released in 1998. In addition,
the Company has made significant due diligence efforts to
contact its customers and business partners to ensure that
customers are aware of how to acquire detailed Year 2000
information regarding any Intergraph-produced product. The
Company's product compliance costs have not had and are not
anticipated to have a material impact on its results of
operations or financial condition. However, any unanticipated
customer claims could cause actual results to differ materially
from the Company's estimates and, if successful, could have an
adverse impact on future results.
The Company's preliminary efforts to identify and resolve Year
2000 issues affecting its internal business systems began in
1996. The Company has required all organizations to develop
program plans and implementation schedules addressing their
specific Year 2000 needs by the end of third quarter 1998.
These plans are required to be implemented by mid-year 1999 and
must include contingency plans for continuing operations in the
event that remediation plans are unsuccessful. The Company
expects to successfully implement all internal systems and
programming changes necessary to resolve Year 2000 issues. New
systems, if necessary, will be selected before the end of 1998,
with most of the related costs to be incurred in 1999. While
the Company does not anticipate that these costs will have a
material effect on its results of operations or financial
condition for either 1998 or 1999, it will be unable to
accurately calculate the impact until all departmental program
plans are completed. Costs incurred to date are not
significant.
To ensure the Company's critical suppliers are able to continue
uninterrupted supply, the Company is conducting a program of
investigation with these suppliers and includes Year 2000
provisions in its new supplier agreements. The Company is also
initiating discussions with other entities with which it
interacts electronically, including customers and financial
institutions, to ensure those parties have appropriate plans to
remediate Year 2000 issues. However, there can be no guarantee
that the systems of other companies on which the Company relies
will be timely converted, and the Company could be adversely
impacted if suppliers, customers, and other businesses do not
address this issue successfully.
The costs of the Year 2000 project and the dates on which
significant phases will be completed are based on management's
best estimates, which were derived utilizing numerous
assumptions of future events, including the continued
availability of certain resources, third party modification
plans, and other factors. There can be no guarantee that these
estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and
similar uncertainties.
Remainder of the Year. The Company expects that the industry
will continue to be characterized by 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. The Company
believes that its operating system and hardware architecture
strategies are the correct choices, that the industry has
accepted Windows NT, and that Windows NT is becoming the
dominant operating system in the majority of markets served by
the Company. However, competing operating systems and products
are available in the market, and competitors of the Company
offer or are adopting Windows NT and Intel as the systems for
their products. 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, and will further depend on
its ability to successfully implement its strategic direction.
To achieve and maintain profitability, the Company must
substantially increase sales volume and/or further align its
operating expenses with the level of revenue and gross margin
being generated. In addition, the Company faces significant
operational and financial uncertainty of unknown duration due to
its dispute with Intel. There can be no assurance that actions
taken by the Company will restore profitability.
ORDERS/REVENUES
- ---------------
Orders. Second quarter and first half 1998 systems orders
totaled $222.5 million and $378.5 million, respectively, an
increase of approximately 2% and 1% from the same prior year
periods. U.S. systems orders increased 7% and 3%, respectively,
from the second quarter and first half 1997 levels due primarily
to increased orders from the federal government, partially
offset by weakness in the Company's U.S. commercial market
sector. International systems orders declined by 3% from both
the second quarter and first half 1997 levels. Strengthening of
the U.S. dollar against international currencies, primarily in
Europe and Asia, has reduced consolidated system orders growth
by approximately 3 points. Additionally, order levels in all
regions have been adversely affected by the previously described
dispute with Intel.
New Products. In July 1998, the Company introduced its new
Wildcat 3D graphics technology, which will substantially
increase the performance of Windows NT-based workstations beyond
current 3D graphics technology. This technology will streamline
workflows, enabling creative and technical professionals to work
interactively in real time with more realistic full-sized, fully
textured 3D models. The technology will be delivered on the
Company's new Intense 3D Wildcat series of 3D graphics
accelerators and will be available in the Company's TDZ 2000
ViZual workstations as well as in the Intel/Windows NT-based
workstations of other computer vendors. The first entry level
products based on this technology are scheduled to begin
shipping in December of this year. The Company does not expect
that introduction of this new technology will adversely affect
the carrying value of its existing inventories.
The success of new product introductions is dependent on a
number of factors, including market acceptance, the Company's
management of risk associated with product transition, the
effective management of inventory levels in line with
anticipated demand, and the risk that new products may have
defects in the introductory stage. Accordingly, the Company
cannot determine the ultimate effect that new products will have
on its sales or operating results.
Revenues. Total revenues for second quarter and first half 1998
were $246.6 million and $492.4 million, respectively, down 15%
and 9%, respectively, from the comparable prior year periods.
Sales outside the U.S. represented 51% of total revenues in the
first half of 1998, down from 52% for the first half of 1997 and
53% for the full year 1997. Strengthening of the U.S. dollar in
the Company's international markets, particularly Europe and
Asia, reduced the reported level of U.S. dollar revenues for the
period. European revenues were 31% of total revenues for the
first half of 1998, compared to 32% for both the first half and
full year 1997.
Systems. Systems revenue for the second quarter and first half
of 1998 was $168.3 million and $336.7 million, respectively,
down 16% and 9%, respectively, from the same prior year periods.
The Company's hardware revenues remain low due to effects of the
ongoing litigation with Intel, with delays in new product
releases resulting in lost sales for the Company as well as
increased discounting on available products, severely impacting
the Company's systems revenues and margins. While the April 10
ruling of the Alabama Court requires Intel to provide Intergraph
with advance product samples and technical information, the
current level of compliance with the ruling indicates that a
revenue recovery will most likely not occur until fourth
quarter. Of the Company's June 30 backlog of $211 million,
approximately $25 million was undeliverable due to product
delays arising from effects of the dispute with Intel. Most of
these undeliverable products were high-end, higher margin
hardware.
U.S. revenues were down 18% from second quarter 1997 and 6% from
first half 1997 levels, due to significant declines in both
federal government and U.S. commercial revenues, partially
offset by continued growth in the Company's public safety
business. International systems revenues were down
approximately 14% from second quarter 1997 and 12% from the
first half of 1997. Asia Pacific and European revenues have
declined by 24% and 15%, respectively, from the first half of
1997. Excluding the impact of a stronger dollar, the revenue
declines in these regions were 14% and 10%, respectively. These
declines are primarily due to factors associated with the Intel
lawsuit and the sale of the Company's Solid Edge and Engineering
Modeling System product lines and, in Asia, due to currency and
economic problems affecting that region.
Hardware revenues for the first half of 1998 declined 8% from
the prior year period. Unit sales of workstations and servers
were up 7% from first half 1997, while workstation and server
revenues declined by 12% due to a 17% decline in the average per
unit selling price. Price competition continues to erode per
unit selling prices, and volumes have been suppressed by the
aforementioned factors associated with the Intel lawsuit. Sales
of peripheral hardware products declined by 2% from the prior
year period due primarily to a 50% decline in sales of graphics
cards, partially offset by increased memory and storage device
revenues and upgrades to Intel-based hardware. Software
revenues declined 18% from the prior year level. With the
exception of the Company's plant design product offerings,
software revenues were down across the board, with the largest
declines occurring in sales of MicroStation, mechanical
(includes the Solid Edge and Engineering Modeling System product
lines), and infrastructure products. (The Company's Form 10-K
filing for the year ended December 31, 1997 contains further
discussion of the Company's MicroStation sales and relationship
and ongoing arbitration proceedings with Bentley Systems, Inc.,
the developer and owner of MicroStation.) Sales of the
Company's plant design products increased by 28% from the prior
year level. Plant design is currently the Company's highest
volume software offering, representing 28% of total software
sales for the first half of 1998. Sales of Windows-based
software represented approximately 85% of total software
revenues in the first half of 1998, up from approximately 80% in
the first half of 1997.
Maintenance and Services. Maintenance and services revenue
consists of revenues from maintenance of Company systems and
from Company provided services, primarily training and
consulting. These forms of revenue totaled $78.3 million for
the second quarter and $155.7 million for the first half of
1998, down 12% and 10%, respectively, from the comparable prior
year periods. Maintenance revenues for the first half of 1998
totaled $106.4 million, 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 10% of total first half 1998 revenues and has
increased 7% 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 for the second quarter of 1998
was 31%, down 6.8 points from the second quarter 1997 level.
For the first half of 1998, total gross margin was 31.4%, down
4.9 points from the first half of 1997 and 4.2 points from the
full year 1997 level.
Systems margin for the second quarter was 27.9%, down 8.3 points
from second quarter 1997. First half 1998 margin was 28%, down
7.6 points from the first half of 1997 and 6.6 points from the
full year 1997 level. The previously discussed factors
contributing to the Company's systems revenue decline have also
had a significant adverse effect on systems margin. In
addition, systems margins continue to be negatively impacted by
a higher hardware content in the product mix and by unfavorable
manufacturing variances resulting from a sales volume that was
below Company expectations.
In general, the Company's systems margin may be lowered by price
competition, a higher hardware content in the product mix, 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 the second quarter of 1998
was 37.7%, down 3.7 points from the second quarter of 1997 due
primarily to costs incurred on long term service contracts
without corresponding revenue recognition. Revenue on services
contracts is often based on completion of milestones or other
factors appropriate to the individual contract of sale. Year to
date maintenance and services margin is 38.6%, relatively
unchanged from the same prior year period and from the full year
1997 level. The Company continues to closely monitor
maintenance and services cost and has taken certain measures,
including reductions in headcount, to align cost with the
current revenue level. 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 the second quarter and first half of 1998
declined by 9% and 5%, respectively, from the comparable prior
year periods. Total employee headcount has declined by 8% from
that same period.
Product development expense for the second quarter and first
half of 1998 declined by 12% and 10%, respectively, from the
same prior year periods due primarily to a decline in labor and
related overhead expenses. Headcount in the product development
area has declined by 10% from the prior year level. Sales and
marketing expense for the second quarter and first half of 1998
declined by 10% and 5%, respectively, from the corresponding
prior year periods due to strengthening of the U.S. dollar in
the Company's international markets and to across the board
expense reductions in Europe resulting primarily from
restructuring actions taken in the first quarter (see
"Nonrecurring Charges"). Second quarter general and
administrative expense declined 5% from the same prior year
period; however, year to date expense is flat with the prior
year level. The positive impact resulting from a strong U.S.
dollar was offset by increases in legal expenses and worldwide
provisions for bad debts.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $1.9 million for second quarter and $4.1
million for the first half of 1998 versus $1.6 million and $2.8
million, respectively, for the corresponding prior year periods.
The Company's average outstanding debt increased in comparison
to the same prior year periods due primarily to borrowings under
the Company's revolving credit facility and term loan. See
"Liquidity and Capital Resources" below for a discussion of the
Company's current financing arrangements.
In first quarter 1998, the Company sold the assets of its Solid
Edge and Engineering Modeling System product lines to Electronic
Data Systems Corporation and its Unigraphics Solutions, Inc.
subsidiary for $105 million in cash. The Company recorded a
gain on this transaction of $102.8 million. This gain is
included in "Gains on sales of assets" in the consolidated
statement of operations for the six months ended June 30, 1998.
Full year 1997 revenues and operating loss for these product
lines were $35.2 million and $4.1 million, respectively. The
Company estimates the sale of this business will result in an
improvement in its 1998 operating results of approximately $5
million, excluding the impact of the gain on the sale.
In second quarter 1998, the Company sold the assets of its
printed circuit board manufacturing facility for $16 million in
cash. The Company recorded a gain on this transaction of $8.3
million. This gain is included in "Gains on sales of assets" in
the consolidated statements of operations for the quarter and
six months ended June 30, 1998. The Company is now outsourcing
its printed circuit board needs and does not expect this
operational change to materially impact its results of
operations in the remainder of 1998.
In second quarter 1997, the Company received notice of the
adverse determination of an arbitration proceeding with Bentley
Systems, Inc. (Bentley), an approximately 50%-owned affiliate of
the Company and 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.
The arbitrator's award was in the amount of $6.1 million and is
included in "Arbitration award" in the consolidated statements
of operations for the quarter and six months ended June 30,
1997. The cash position of the Company was not significantly
adversely affected by this award, as the Company offset
approximately $5.8 million in fees otherwise owed the Company by
Bentley against the amount awarded Bentley. For further details
of the Company's business relationship with Bentley and a
description of continuing arbitration proceedings between the
two companies, see the Company's Form 10-K filing for the year
ended December 31, 1997.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of interest income, foreign
exchange gains (losses), equity in the earnings of investee
companies, and other miscellaneous items of nonoperating income
and expense.
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 half of 1998, approximately 51%
(53% for the full year 1997) 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 half of 1998, the U.S. dollar
strengthened on average from its first half 1997 level, which
decreased reported dollar revenues, orders, and gross margin,
but also decreased reported dollar operating expenses in
comparison to the prior year period. The Company estimates that
this strengthening of the U.S. dollar in its international
markets, primarily Europe and Asia, adversely affected its
results of operations for the first half of 1998 by
approximately $.10 per share in comparison to the first half of
1997. (Operating results for first half 1997 were reduced by
$.09 per share from first half 1996 as a result of strengthening
of the U.S. dollar.)
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 and Asia. With
respect to the currency exposures in these regions, 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 will therefore enter into forward exchange contracts
related to certain balance sheet items, primarily intercompany
receivables, payables, and formalized intercompany debt, when a
significant risk has been identified. 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 the balance sheet
items being hedged, which are generally less than three months,
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
forward exchange contracts and therefore does not take currency
positions exceeding its known financial statement exposures, and
does not otherwise trade in currencies.
At June 30, 1998, the Company's only outstanding hedge contracts
related to formalized intercompany loans between the Company's
European subsidiaries. The Company is not currently hedging any
of its foreign currency risks in the Asia Pacific region.
INCOME TAXES
- ------------
The Company earned pretax income of $32 million in the first
half of 1998 versus a pretax loss of $42.3 million in the first
half of 1997. Income tax expense for the first half of 1998
results primarily from U.S. alternative minimum tax and taxes on
individually profitable international subsidiaries. The sale of
the Solid Edge and Engineering Modeling System product lines did
not create a significant tax liability for the Company due to
the availability of net operating loss carryforwards to offset
current year earnings. After consideration of the sale, the
Company has net operating loss carryforwards for U.S. federal
purposes of approximately $130 million and international
carryforwards of approximately $100 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998, cash totaled $85.5 million compared to $46.6
million at December 31, 1997. Cash consumed by operations in
the first half of 1998 totaled $22.5 million, compared to a
consumption of $16.8 million in the first half of 1997, both
generally reflecting the negative cash flow effects of increased
operating losses.
Net cash generated from investing activities totaled $78.7
million in the first half of 1998, compared to a net use of
$17.2 million in first half of 1997. First half 1998 investing
activities included $102 million in proceeds from the sale of
the Company's Solid Edge and Engineering Modeling System product
lines, $16 million in proceeds from the sale of the Company's
printed circuit board manufacturing facility, and expenditure
of $26.3 million for the purchase of Zydex software rights.
Also included in investing activities were capital expenditures
of $8 million ($11.7 million in the first half of 1997),
primarily for Intergraph products used in hardware and software
development and sales and marketing activities. The Company
expects that capital expenditures will require $16 to $20
million for the full year 1998, 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.
Net cash used for financing activities totaled $16.6 million
versus net cash generation of $20.8 million in the first half of
1997. First half 1998 financing activities included a net
repayment of debt of $18 million compared with a net addition
to short and long term debt of $19.1 million in the first half
of 1997. Activity in both years relates primarily to borrowings
under the Company's revolving credit facility and term loan.
Under the Company's January 1997 four 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 $125 million. The $25 million term loan
portion of the agreement is 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 June 30, 1998) 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 June 30, 1998, the Company had outstanding
borrowings of $47.6 million ($49.2 million at August 10, 1998),
$25 million of which was classified as long term debt in the
consolidated balance sheet, and an additional $35.1 million
($32.5 million at August 10, 1998) of the available credit line
was allocated to support letters of credit issued by the Company
and the Company's forward exchange contracts. As of these same
dates, the borrowing base, representing the maximum available
credit under the line, was $102 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.
At June 30, 1998, the Company had approximately $75 million in
debt on which interest is charged under various floating rate
arrangements, primarily under its four year term loan and
revolving credit agreement, mortgages, and an Australian term
loan. 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 cash from its
operations, and believes this condition may extend through third
quarter 1998. The Company further believes that cash expected
to be generated from operations in the fourth quarter of 1998,
together with cash received from the sale of its Solid Edge and
Engineering Modeling System product lines, cash received from
sale of its printed circuit board facility, and cash available
under its term loan and revolving credit agreement will be
adequate to meet cash requirements for the remainder of 1998.
However, the Company in the near term must increase sales volume
and further align its operating expenses with the level of
revenue being generated in order to adequately fund its
operations and build its cash reserves without reliance on funds
generated from the sale of long term assets and third party
financing.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
As further described in the Company's Form 10-Q filing
for the quarter ended March 31, 1998, the U.S. District
Court, Northern District of Alabama, Northeastern
Division, (the "Alabama Court") ruled in favor of
Intergraph on April 10, 1998 and ordered that Intel, the
supplier of all the Company's microprocessor needs, be
preliminarily enjoined from terminating Intergraph's
rights as a strategic customer in current and future
Intel programs, and from otherwise taking any action
adversely affecting Intel's business relationship with
Intergraph or Intergraph's ability to design, develop,
produce, manufacture, market or sell products
incorporating, or based upon, Intel products or
information. In response to the Alabama Court's
decision, on April 16, 1998, Intel appealed to the
United States Court of Appeals for the Federal Circuit
(the "Appeals Court"). Intel and the Company have each
filed briefs with the Appeals Court. No decision has
been entered.
On May 18, 1998, the Alabama Court denied Intel's
January 15, 1998 motion for a change of venue from
Alabama to California, and Intel subsequently dropped
two retaliatory lawsuits which Intel had brought against
the Company in California. On June 17, 1998, Intel
filed its answer in the Alabama case, which included
counterclaims against Intergraph, including claims that
Intergraph has infringed seven patents of Intel. On
July 8, 1998, the Company filed its answer to the Intel
counterclaims, among other things denying any liability
under the patent infringement asserted by Intel. On
June 17, 1998, Intel filed a motion before the Alabama
Court seeking a summary judgment holding that Intel is
licensed to use the patents that the Company asserted
against Intel in the Company's original complaint. This
"license defense" is based on Intel's interpretation of
the facts surrounding the acquisition by the Company of
the Advanced Processor Division of Fairchild
Semiconductor Corporation in 1987. The Company is
vigorously contesting Intel's motion for summary
judgment on the license defense, and currently plans to
file a brief on this matter with the Alabama Court
September 15, 1998.
In a scheduling order entered June 25, 1998, the Alabama
Court has set a trial date of February 14, 2000.
Reference should be made to the Company's Form 10-K
annual report for the year ended December 31, 1997 for a
complete description of the background of and basis for
these actions, and for a description of the effects of
this dispute on the operations of the Company, which
include lost revenues, uncertain supply, and increased
microprocessor costs and legal expenses. The Company is
vigorously prosecuting its positions and believes it
will prevail in these matters, but at present is unable
to predict the outcome of its dispute with Intel. The
Company does expect, however, that adverse effects on
its operations will continue at least through the third
quarter of 1998.
Item 4: Submission of Matters to a Vote of Security Holders
Intergraph Corporation's Annual Meeting of
Shareholders was held on May 28, 1998. The results of
the meeting follow.
(1) Seven directors were elected to the Board of
Directors to serve for the ensuing year and until
their successors are duly elected and qualified.
All nominees were serving as Directors of the
Company at the time of their nomination.
Votes
-------------------------------
For Against/Withheld
---------- ----------------
Larry J. Laster 41,486,895 1,079,646
Thomas J. Lee 41,599,825 966,716
Sydney L. McDonald 41,596,696 969,845
James W. Meadlock 41,473,706 1,092,835
Keith H. Schonrock Jr. 41,473,703 1,092,838
James F. Taylor Jr. 41,509,662 1,056,879
Robert E. Thurber 41,507,898 1,058,643
(2) Ratification of the appointment by the Board of
Directors of Ernst & Young LLP as the Company's
independent auditors for the current year was
approved by a vote of 42,444,157 for, 74,576
against, and 47,808 abstentions.
(3) The Intergraph Corporation Nonemployee Director
Stock Option Plan was approved by a vote of
41,389,735 for, 993,713 against, and 183,093
abstentions.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10(a), agreement between Intergraph
Corporation and Green Mountain, Inc., dated April 1,
1998. *(1)
Exhibit 27, Financial Data Schedule
*Denotes management contract or compensatory plan,
contract, or arrangement required to be filed as an
exhibit to this Form 10-Q.
(1) Incorporated by reference to exhibit filed with
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, under the Securities
Exchange Act of 1934, File No. 0-9722.
(b) There were no reports on Form 8-K filed during the
quarter ended June 30, 1998.
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/ James W. Meadlock By: /s/ John W. Wilhoite
------------------------- ------------------------
James W. Meadlock John W. Wilhoite
Chairman of the Board and Executive Vice President and
Chief Executive Officer Controller
(Principal Accounting Officer)
Date: August 13, 1998 Date: August 13, 1998
<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 June 30, 1998,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 85,456
<SECURITIES> 0
<RECEIVABLES> 291,635
<ALLOWANCES> 0
<INVENTORY> 107,338
<CURRENT-ASSETS> 515,869
<PP&E> 406,411
<DEPRECIATION> 271,009
<TOTAL-ASSETS> 727,933
<CURRENT-LIABILITIES> 277,420
<BONDS> 51,561
0
0
<COMMON> 5,736
<OTHER-SE> 392,840
<TOTAL-LIABILITY-AND-EQUITY> 727,933
<SALES> 336,697
<TOTAL-REVENUES> 492,431
<CGS> 242,346
<TOTAL-COSTS> 338,038
<OTHER-EXPENSES> 230,065<F2>
<LOSS-PROVISION> 0
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<F1>Other expenses include Product Development expenses, Sales and marketing
expenses, General and administrative expenses, and Nonrecurring charges.
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