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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-9722
INTERGRAPH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0573222
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(256) 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: 48,780,369 shares
outstanding as of March 31, 1999
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INTERGRAPH CORPORATION
FORM 10-Q *
March 31, 1999
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 2
Consolidated Statements of Operations for the
quarters ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows for the
quarters ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
* 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 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,
1999 1998
- ------------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 91,267 $ 95,473
Accounts receivable, net 299,511 312,123
Inventories 40,768 38,001
Other current assets 37,867 48,928
- ------------------------------------------------------------------------------
Total current assets 469,413 494,525
Investments in affiliates 9,191 12,841
Other assets 67,395 61,240
Property, plant, and equipment, net 121,491 127,368
- ------------------------------------------------------------------------------
Total Assets $667,490 $695,974
==============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 59,208 $ 64,545
Accrued compensation 45,990 42,445
Other accrued expenses 88,615 79,160
Billings in excess of sales 64,882 68,137
Short-term debt and current maturities
of long-term debt 10,717 23,718
- ------------------------------------------------------------------------------
Total current liabilities 269,412 278,005
Deferred income taxes 3,165 3,142
Long-term debt 59,744 59,495
- ------------------------------------------------------------------------------
Total liabilities 332,321 340,642
- ------------------------------------------------------------------------------
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 221,337 222,705
Retained earnings 232,250 249,808
Accumulated other comprehensive income -
cumulative translation adjustment 903 4,161
- ------------------------------------------------------------------------------
460,226 482,410
Less - cost of 8,580,993 treasury shares
at March 31, 1999 and 8,719,612 treasury
shares at December 31, 1998 (125,057) (127,078)
- ------------------------------------------------------------------------------
Total shareholders' equity 335,169 355,332
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $667,490 $695,974
==============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- ------------------------------------------------------------------------------
Quarter Ended March 31, 1999 1998
- ------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $170,308 $168,383
Maintenance and services 81,769 77,435
- ------------------------------------------------------------------------------
Total revenues 252,077 245,818
- ------------------------------------------------------------------------------
Cost of revenues
Systems 119,959 120,988
Maintenance and services 48,774 46,907
- ------------------------------------------------------------------------------
Total cost of revenues 168,733 167,895
- ------------------------------------------------------------------------------
Gross profit 83,344 77,923
Product development 17,169 23,700
Sales and marketing 47,913 59,938
General and administrative 26,165 26,534
Nonrecurring operating charges --- 14,761
- ------------------------------------------------------------------------------
Loss from operations ( 7,903) (47,010)
Gain on sale of assets --- 102,767
Arbitration settlement ( 8,562) ---
Interest expense ( 1,418) ( 2,189)
Other income (expense) - net 325 ( 626)
- ------------------------------------------------------------------------------
Income (loss) before income taxes (17,558) 52,942
Income tax expense --- 3,500
- ------------------------------------------------------------------------------
Net income (loss) $(17,558) $ 49,442
==============================================================================
Net income (loss) per share - basic $ (0.36) $ 1.03
- diluted $ (0.36) $ 1.02
==============================================================================
Weighted average shares outstanding - basic 48,697 48,219
- diluted 48,697 48,335
==============================================================================
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, 1999 1998
- ------------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net income (loss) $(17,558) $49,442
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation and amortization 11,596 13,964
Gain on sale of assets --- (102,767)
Noncash portion of nonrecurring operating --- 13,978
charges
Arbitration settlement 8,562 ---
Net changes in current assets and liabilities 181 20,373
- ------------------------------------------------------------------------------
Net cash provided by (used for) operating
activities 2,781 ( 5,010)
- ------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of assets 19,919 102,000
Purchases of property, plant, and equipment ( 2,752) ( 3,668)
Capitalized software development costs ( 4,580) ( 2,465)
Business acquisition, net of cash acquired ( 1,742) ---
Purchase of software rights --- (26,292)
Other ( 935) 120
- ------------------------------------------------------------------------------
Net cash provided by investing activities 9,910 69,695
- ------------------------------------------------------------------------------
Financing Activities:
Gross borrowings 45 ---
Debt repayment (15,282) (15,215)
Proceeds of employee stock purchases and
exercises of stock options 653 761
- ------------------------------------------------------------------------------
Net cash used for financing activities (14,584) (14,454)
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash ( 2,313) ( 772)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ( 4,206) 49,459
Cash and cash equivalents at beginning of period 95,473 46,645
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $91,267 $96,104
==============================================================================
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, 1998 to provide
comparability with the current period presentation.
NOTE 2: Litigation. As further described in the Company's Form 10-K
filing for its year ended December 31, 1998, the Company
has ongoing litigation, in particular that with Intel
Corporation. For further background information, see the
Company's Form 10-K annual report for the year ended
December 31, 1998. Significant litigation developments
during 1999 are discussed below.
Bentley Litigation. The Company maintains an equity
ownership position in Bentley Systems, Incorporated
("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 March 1996, BSI commenced
arbitration against the Company with the American
Arbitration Association, Atlanta, Georgia, relating to the
respective rights of the companies under their April 1987
Software License Agreement and other matters, including
the Company's alleged failure to properly account for and
pay to BSI certain royalties on its sales of BSI software
products, and seeking significant damages.
On March 26, 1999, the Company and BSI executed a
Settlement Agreement and Mutual General Release ("the
Agreement") to settle this arbitration and mutually
release all claims related to the arbitration or
otherwise, except for a) certain litigation between the
companies that is the subject of a separate settlement
agreement and b) payment for products and services
obtained or provided in the normal course of business
since January 1, 1999. Both the Company and BSI expressly
deny any fault, liability, or wrongdoing concerning the
claims that were the subject matter of the arbitration and
have settled solely to avoid continuing litigation with
each other.
Under the terms of the Agreement, the Company on April 1,
1999 made payment to BSI of $12,000,000 and transferred to
BSI ownership of three million of the shares of BSI's
Class A common stock owned by the Company. The
transferred shares were valued at approximately $3,500,000
on the Company's books. As a result of the settlement,
Intergraph's equity ownership in BSI has been reduced to
approximately 33%. Additionally, the Company had a
$1,200,000 net receivable from BSI relating to business
conducted prior to January 1, 1999 which was written off
in connection with the settlement.
At March 31, 1999, the Company accrued a nonoperating
charge to earnings of $8,562,000 ($.18 per share) in
connection with the settlement, representing the portion
of settlement costs not previously accrued. This charge
is included in "Arbitration settlement" in the
consolidated statement of operations for the quarter ended
March 31, 1999. The $12,000,000 payable to BSI is
included in "Other accrued expenses" in the March 31, 1999
consolidated balance sheet, and the Company's investment
in BSI (reflected in "Investments in affiliates" in the
March 31, 1999 consolidated balance sheet) has been
reduced by $3,500,000.
The April 1 $12,000,000 payment to BSI was funded
primarily from existing cash balances. For further
discussion regarding the Company's liquidity, see
Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q.
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 1998,
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 first quarter 1998 results.
The first quarter 1998 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 an estimated
useful life of seven years. The unamortized balance,
approximately $21,600,000 at March 31, 1999, is included
in "Other assets" in the March 31, 1999 consolidated
balance sheet.
NOTE 4: Inventories are stated at the lower of average cost or
market and are summarized as follows:
-----------------------------------------------------------
March 31, December 31,
1999 1998
-----------------------------------------------------------
(In thousands)
Raw materials $ 1,129 $ 2,739
Work-in-process 3,443 3,594
Finished goods 20,135 15,597
Service spares 16,061 16,071
-----------------------------------------------------------
Totals $40,768 $38,001
===========================================================
NOTE 5: Property, plant, and equipment - net includes allowances
for depreciation of $256,649,000 and $259,074,000 at March
31, 1999 and December 31, 1998, respectively.
NOTE 6: In January 1999, the Company acquired the assets of PID,
an Israeli software development company, for $5,655,000.
At closing, the Company paid $2,180,000 in cash, with the
remainder due in varying installments through February
2002. The accounts and results of operations of PID have
been combined with those of the Company since the date of
acquisition using the purchase method of accounting. This
acquisition did not materially affect the Company's
revenues, net loss, or loss per share for the quarter
ended March 31, 1999, nor is it expected to have a
significant impact on results for the remainder of the
year.
NOTE 7: In November 1998, the Company sold substantially all of
its U.S. manufacturing assets to SCI Technology, Inc.
(SCI) a wholly-owned subsidiary of SCI Systems, Inc., and
SCI assumed responsibility for manufacturing of
substantially all of the Company's hardware products. The
total purchase price was $62,404,000, $42,485,000 of which
was received during fourth quarter 1998. The final
purchase price installment of $19,919,000 was received on
January 12, 1999. For a complete discussion of the SCI
transaction and its anticipated impact on future operating
results and cash flows, see the Company's Form 10-K annual
report for the year ended December 31, 1998.
NOTE 8: In first quarter 1998, the Company sold 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 "Gain on sale of
assets" in the consolidated statement of operations for
the quarter ended March 31, 1998.
NOTE 9: In first quarter 1998, the Company reorganized its
European operations to reflect the organization of the
Company into four distinct business units and to align
operating expenses more closely with revenue levels in
that region. The cost of this reorganization, primarily
for employee severance pay and related costs, was
originally estimated at $5,400,000 and recorded as a
nonrecurring operating charge in the first quarter 1998
consolidated statement of operations. During the
remainder of 1998, approximately $2,200,000 of the costs
accrued in the first quarter were reversed as the result
of the incurrence of lower severance costs than originally
anticipated. In fourth quarter 1998, additional European
reorganization costs of $2,000,000 were recorded for
further headcount reductions. Approximately 80 European
positions were eliminated in the sales and marketing,
general and administrative, and pre- and post-sales
support areas. Cash outlays to date related to this
charge approximate $3,700,000, with $800,000 and $600,000
expended in the first quarters of 1998 and 1999,
respectively. The remaining costs are expected to be paid
over the remainder of 1999 and are included in "Other
accrued expenses" in the March 31, 1999 consolidated
balance sheet. The Company estimates the European
reorganization will result in annual savings of
approximately $7,000,000.
The remainder of first quarter 1998 nonrecurring operating
charges consists primarily of write-offs of a) certain
intangible assets, primarily capitalized business system
software no longer in use, b) goodwill recorded on a prior
acquisition of a domestic subsidiary and determined to be
of no value, 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 10: Supplementary cash flow information is summarized as
follows:
Changes in current assets and liabilities, net of the
effects of business acquisitions, divestitures, and
nonrecurring operating charges, in reconciling net income
(loss) to net cash provided by (used for) operations are
as follows:
-----------------------------------------------------------
Cash Provided By (Used For) Operations
Quarter Ended March 31, 1999 1998
-----------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable, net $6,377 $32,790
Inventories (1,242) ( 1,835)
Other current assets (4,723) ( 656)
Increase (decrease) in:
Trade accounts payable (3,981) (11,353)
Accrued compensation and
other accrued expenses 5,851 ( 373)
Billings in excess of sales (2,101) 1,800
-----------------------------------------------------------
Net changes in current assets
and liabilities $ 181 $20,373
===========================================================
Investing and financing transactions in first quarter 1999
that did not require cash included the acquisition of a
business in part for future obligations totaling
approximately $3,475,000, the sale of fixed assets in part
for a $2,100,000 short-term note receivable, and the
financing of new financial and administrative systems with
a long-term note payable of approximately $2,000,000.
There were no significant noncash investing and financing
transactions in the first quarter of 1998.
NOTE 11: Basic income (loss) per share is computed using the
weighted average number of common shares outstanding.
Diluted income (loss) per share is computed using 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. 131,
"Disclosures about Segments of an Enterprise and Related
Information". This Statement replaces previous
requirements that segment information be reported along
industry lines with a new operating segment approach.
Operating segments are defined as components of a business
for which separate financial information is regularly
evaluated in determining resource allocation and operating
performance. The Company's operating segments are
Intergraph Computer Systems (ICS), Intergraph Public
Safety, Inc. (IPS), VeriBest, Inc. (VeriBest) and the
Software and Federal Systems ("Federal") business
(collectively, the Software and Federal businesses form
what is termed "Intergraph"), none of which were
considered to be reportable segments under previous
external reporting standards.
The Company's reportable segments are strategic business
units which are organized by the types of products sold
and the specific markets served. They are managed
separately due to unique technology and marketing strategy
resident in each of the Company's markets.
ICS supplies high performance Windows NT-based graphics
workstations and PCs, 3D graphics subsystems, servers, and
other hardware products. IPS develops, markets, and
implements systems for public safety agencies. VeriBest
serves the electronic design automation market, providing
software design tools, design processes, and consulting
services for developers of electronic systems. Intergraph
supplies software and solutions, including hardware
purchased from ICS, consulting, and services to the
process and building and infrastructure industries and
provides services and specialized engineering and
information technology to support Federal government
programs.
The Company evaluates performance of the operating
segments based on revenue and income from operations.
Sales among the operating segments, the most significant
of which are sales of hardware products from ICS to the
other segments, are accounted for under a transfer pricing
policy. Transfer prices approximate prices that would be
charged for the same or similar property to similarly
situated unrelated buyers. In the U.S., intersegment
sales of products and services to be used for internal
purposes are charged at cost. For international
subsidiaries, transfer price is charged on intersegment
sales of products and services to be used for either
internal purposes or sale to customers.
The following table sets forth revenues and operating
income (loss) by operating segment for the quarters ended
March 31, 1999 and 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Intergraph
----------------- Total
(In thousands) ICS IPS VeriBest Software Federal Corporate Eliminations Company
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter ended March 31, 1999:
Revenues
Unaffiliated customers $ 62,177 $20,334 $ 7,467 $120,715 $41,384 --- --- $252,077
Intersegment revenues 31,148 957 53 1,830 1,380 --- $(35,368) ---
- --------------------------------------------------------------------------------------------------------------
Total Revenues $ 93,325 $21,291 $ 7,520 $122,545 $42,764 --- $(35,368) $252,077
- --------------------------------------------------------------------------------------------------------------
Operating income (loss)
before nonrecurring
operating charges $ (6,667) $ 1,927 $(1,801) $ 3,393 $ 4,233 $(8,981) $ (7) $ (7,903)
- --------------------------------------------------------------------------------------------------------------
Quarter ended March 31, 1998:
Revenues
Unaffiliated customers $ 54,233 $12,375 $ 6,905 $139,484 $32,821 --- --- $245,818
Intersegment revenues 56,777 65 185 631 1,424 --- $(59,082) ---
- -------------------------------------------------------------------------------------------------------------
Total Revenues $111,010 $12,440 $ 7,090 $140,115 $34,245 --- $(59,082) $245,818
- -------------------------------------------------------------------------------------------------------------
Operating income (loss)
before nonrecurring
operating charges $(19,551) $ 857 $(4,698) $ 425 $(2,458) $(6,732) $ (92) $(32,249)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1999, the Utilities business of
Intergraph was merged into IPS, increasing the operating
segment's first quarter 1999 revenues and operating income
by $9,000,000 and $1,000,000, respectively, and reducing
the Intergraph Software operating segment figures by those
amounts.
Amounts included in the "Corporate" column consist of
general corporate expenses, primarily general and
administrative expenses (including legal fees of
$4,282,000 and $3,356,000 in first quarter 1999 and 1998,
respectively) remaining after charges to the operating
segments based on segment usage of those services.
Significant profit and loss items for first quarter 1999 that are
not allocated to the segments and not included in the
analysis above include an $8,562,000 charge for an
arbitration settlement agreement reached with Bentley
Systems, Inc. (see Note 2). Such items for first quarter
1998 include a gain on sale of assets of $102,767,000 (see
Note 8) and nonrecurring operating charges of $14,761,000
(see Note 9).
The Company does not evaluate performance or allocate
resources based on assets and, as such, it does not
prepare balance sheets for its operating segments, other
than those of its wholly-owned subsidiaries.
NOTE 13: Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". Under this Statement, all
nonowner changes in equity during a period are reported as
a component of comprehensive income (loss). During the
first quarters of 1999 and 1998, the Company's
comprehensive income (loss) totaled ($20,816,000) and
$49,586,000, respectively. Comprehensive income (loss)
differs from net income (loss) due to foreign currency
translation adjustments.
NOTE 14: Effective January 1, 1999, the Company adopted American
Institute of Certified Public Accountants Statement of
Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which
defines computer software costs to be capitalized or
expensed to operations. Implementation of this new
accounting standard did not significantly affect the
Company's first quarter 1999 results of operations, nor is
it expected to have a significant impact on results for
the remainder of the year, as the Company has historically
been in substantial compliance with the practice required
by the Statement.
NOTE 15: Subsequent Event. On April 15, 1999, the Company
completed the sale of InterCAP Graphics Systems, Inc., a
wholly owned subsidiary, to Micrografx, a global provider
of enterprise graphics software, for $12,150,000,
consisting of $3,853,000 in cash received at closing, a
deferred payment of $2,500,000 due in August 1999, and a
$5,797,000 convertible subordinated debenture due in March
2002. The resulting gain on this transaction, expected to
be in the range of $10,000,000 to $12,000,000, will be
included in the Company's second quarter 1999 operating
results. InterCAP's revenues and losses for 1998 were
$4,660,000 and $1,144,000, respectively, ($3,600,000 and
$1,853,000 for 1997). Assets of the subsidiary at
December 31, 1998 totaled $1,550,000. The subsidiary did
not have a material effect on the Company's results of
operations for first quarter 1999.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings. In first quarter 1999, the Company incurred a net loss
of $.36 per share on revenues of $252.1 million, including an $8.6
million ($.18 per share) charge for settlement of its arbitration
proceedings with Bentley Systems, Inc. (See "Litigation"
following.) In first quarter 1998, the Company earned net income
of $1.02 per share on revenues of $245.8 million, including a
$102.8 million ($2.13 per share) gain on the sale of its Solid
Edge and Engineering Modeling System product lines and a $14.8
million ($.31 per share) charge for nonrecurring operating
expenses, primarily for employee termination costs and write-off
of certain intangible assets. First quarter 1999 loss from
operations excluding nonrecurring operating expenses was $.16 per
share versus a $.67 per share loss for first quarter 1998. The
improvement is the result of a 17% decline in operating expenses
and a 1.4 point increase in gross margin.
Nonrecurring Operating Charges. In first quarter 1998, the
Company reorganized its European operations to reflect the
organization of the Company into four distinct business units and
to align operating expenses more closely with revenue levels in
that region. The cost of this reorganization, primarily for
employee severance pay and related costs, was originally estimated
at $5.4 million and recorded as a nonrecurring operating charge in
the first quarter 1998 consolidated statement of operations.
During the remainder of 1998, approximately $2.2 million of the
costs accrued in the first quarter were reversed as the result of
incurrence of lower severance costs than originally anticipated.
In fourth quarter 1998, additional European reorganization costs
of $2 million were recorded for further headcount reductions.
Approximately 80 European positions were eliminated in the sales
and marketing, general and administrative, and pre- and post-sales
support areas. Cash outlays to date related to this charge
approximate $3.7 million, with $.8 million and $.6 million
expended in the first quarters of 1998 and 1999, respectively.
The remaining costs are expected to be paid over the remainder of
1999 and are included in "Other accrued expenses" in the March 31,
1999 consolidated balance sheet. The Company estimates the
European reorganization will result in annual savings of
approximately $7 million.
The remainder of the first quarter 1998 nonrecurring operating
charges consists primarily of write-offs of a) certain intangible
assets, primarily capitalized business system software no longer
in use, b) goodwill recorded on a prior acquisition of a domestic
subsidiary and determined to be of no value, 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.
Litigation. As further described in the Company's Form 10-K
filing for its year ended December 31, 1998, the Company has
ongoing litigation, in particular that with Intel Corporation, and
its business is subject to certain risks and uncertainties. For
further background information see the Company's Form 10-K annual
report for the year ended December 31, 1998. Significant
litigation developments during 1999 are discussed below.
Bentley Litigation. The Company maintains an equity ownership
position in Bentley Systems, Incorporated ("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 March 1996, BSI
commenced arbitration against the Company with the American
Arbitration Association, Atlanta, Georgia, relating to the
respective rights of the companies under their April 1987 Software
License Agreement and other matters, including the Company's
alleged failure to properly account for and pay to BSI certain
royalties on its sales of BSI software products, and seeking
significant damages.
On March 26, 1999, the Company and BSI executed a Settlement
Agreement and Mutual General Release ("the Agreement") to settle
this arbitration and mutually release all claims related to the
arbitration or otherwise, except for a) certain litigation between
the companies that is the subject of a separate settlement
agreement and b) payment for products and services obtained or
provided in the normal course of business since January 1, 1999.
Both the Company and BSI expressly deny any fault, liability, or
wrongdoing concerning the claims that were the subject matter of
the arbitration and have settled solely to avoid continuing
litigation with each other.
Under the terms of the Agreement, the Company on April 1, 1999
made payment to BSI of $12 million and transferred to BSI
ownership of three million of the shares of BSI's Class A common
stock owned by the Company. The transferred shares were valued at
approximately $3.5 million on the Company's books. As a result of
the settlement, Intergraph's equity ownership in BSI has been
reduced to approximately 33%. Additionally, the Company had a
$1.2 million net receivable from BSI relating to business
conducted prior to January 1, 1999 which was written off in
connection with the settlement.
At March 31, 1999, the Company accrued a nonoperating charge to
earnings of approximately $8.6 million ($.18 per share) in
connection with the settlement, representing the portion of
settlement costs not previously accrued. This charge is included
in "Arbitration settlement" in the consolidated statement of
operations for the quarter ended March 31, 1999. The $12 million
payable to BSI is included in "Other accrued expenses" in the
March 31, 1999 consolidated balance sheet, and the Company's
investment in BSI (reflected in "Investments in affiliates" in the
March 31, 1999 consolidated balance sheet) has been reduced by
$3.5 million.
The $12 million payment to BSI was funded primarily from existing
cash balances. For further discussion regarding the Company's
liquidity, see "Liquidity and Capital Resources" following.
Year 2000 Issue. As further described in the Company's Form 10-K
annual report for the year ended December 31, 1998, 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 sold to customers and in 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 nearing
completion and should be substantially complete at the end of
second quarter 1999. 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
addition, the Company has completed a significant effort 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 Web site allows customers to request specific product
information related to the Year 2000 issue, and provides a
mechanism for requesting specific product upgrade paths.
Customers under maintenance contract with the Company are being
upgraded to compliant versions of the Company's software, and
selected hardware remedies have been completed where appropriate.
Accordingly, the Company does not believe that any Year 2000 problems
in its installed base of products or in its current product offerings
present a material exposure for the Company. However, the Company could
suffer a loss of maintenance revenue should its customers discontinue any
noncompliant products and not replace them with other products of
the Company, and product sales could be lost should customers
replace any noncompliant products with products of other
companies. In addition, any liability claims by customers would
increase the Company's legal expenses and, if successful, could
have an adverse impact on the results of operations and financial
position of the Company. 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.
Year 2000 readiness of the Company's business critical internal
systems has been made a top priority by the Company's Year 2000
program team. All business critical internal systems upgrades and
programming changes are scheduled to be tested and implemented by
the end of second quarter 1999. The Company completed the
majority of these implementations in first quarter 1999 and is
currently on target to meet this deadline. The Company believes
that it will successfully implement all internal systems changes
and replacements necessary to ensure the Year 2000 compliance of
all business critical internal systems, but has contingency plans
to further upgrade existing systems if implementation falls behind
schedule. Year 2000 compliance costs related to the Company's
internal systems have not had and are not anticipated to have a
material impact on its results of operations or financial
condition.
The Company is conducting a program of investigation with its
critical suppliers to ensure continuous and uninterrupted supply,
and includes Year 2000 provisions in its new supplier agreements.
This program consists primarily of a major survey campaign and
follow-up with significant suppliers to monitor compliance. The
Company has also initiated discussions with other entities with
which it interacts electronically, including customers and
financial institutions, to ensure those parties have appropriate
plans to remediate any Year 2000 issues. To date, responses to
third party Year 2000 surveys do not provide assurance that these
third parties will achieve Year 2000 compliance, as most companies
are reluctant to make such representations. However, most of
these parties have Year 2000 programs in place and, to date, no
significant risks have been identified. There cannot be complete
assurance that the systems of other companies on which the Company
relies will be converted timely, and the Company could be
adversely impacted by any suppliers, customers, and other
businesses who do not successfully address this issue. The
Company continues to assess these risks in order to reduce any
potential adverse impact. The Company will develop contingency
plans by the end of second quarter 1999 to address potential third
party noncompliance issues, should any be present.
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 have been 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 assurance that these estimates of costs
and completion dates 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
implement new systems in a timely manner, and similar
uncertainties.
The Company believes it has an effective program in place to
resolve the Year 2000 issue with respect to its internal systems
in a timely manner; however, it has not yet completed all
necessary phases of this program. In the event that the Company
does not complete any additional phases, which is not anticipated,
the Company could experience significant delays in sales order
processing, shipping, invoicing, and collections, among other
areas. In addition, the Company's operations could be materially
adversely affected if Year 2000 compliance is not achieved by
significant vendors.
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. However, competing operating systems and
products are available in the market, and competitors of the
Company offer 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. In addition, the
Company faces significant operational and financial uncertainty of
unknown duration due to its dispute with Intel. (See the
Company's Form 10-K annual report for the year ended December 31,
1998 for a complete description of the Company's dispute with
Intel and for a discussion of the effects of this dispute on the
Company's operations.) To achieve and maintain profitability, the
Company must increase its sales volume and/or continue to align
its operating expenses with the level of revenue and gross margin
currently being generated.
ORDERS/REVENUES
- ---------------
Orders. First quarter systems orders totaled $144.1 million, a
decline of 8% from first quarter 1998. U.S. orders declined by
15% while international orders were flat with the prior year
period. The U.S. decline is primarily attributable to weakness in
the Company's U.S. commercial product sector.
New Products. In February 1999, the Company announced the
availability of Intel's new Pentium III processor at 500 MHz in
its line of TDZ 2000 ViZual Workstations. These products include
the TDZ 2000 GL2 for the technical and creative markets and the
StudioZ RenderRAX III, first in the family of rackmount TDZ 2000
workstations, for the broadcast/video and entertainment markets.
The StudioZ RenderRAX III is the first Pentium III processor-based
rackmount rendering engine for animation and computer-generated
imagery applications.
In March 1999, the Company announced the availability of its TDZ
2000 GX1 ViZual Workstations using Intel's new Pentium III Xeon
processors at 500 MHz. Other TDZ 2000 GX1 models with Pentium III
Xeon processors at 550 MHz will be available simultaneously with
Intel's shipment of the new processors. The Company also provides
an affordable upgrade path to these faster processors for
customers using Intergraph's Pentium II Xeon processor-based TDZ
2000 workstations.
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 industry-wide risk that new products may have defects in
the introductory stage. Because of these uncertainties, the
Company cannot determine the ultimate effect that new products
will have on its sales or operating results.
Revenues. Total revenues for first quarter 1999 were $252.1
million, up approximately 3% from first quarter 1998. Sales
outside the U.S. represented 51% of total revenues in first
quarter 1999, relatively flat with the first quarter and full year
1998 levels. European revenues were 32% of total revenues for
first quarter 1999, unchanged from first quarter and full year
1998.
Systems. Systems revenue for first quarter was $170.3 million,
relatively flat with the prior year period. Competitive
conditions manifested in declining per unit sales prices continue
to adversely affect the Company's systems revenues and margin.
U.S. revenues were up 2%, due primarily to growth in the Company's
federal government business. European revenues improved by 5%,
while Asia Pacific and Canadian revenues declined by 2% and 23%,
respectively. Excluding the impact of a weaker dollar, European
revenues improved by only 2% and Asia Pacific revenues declined by
7%. The Canadian revenue decline was due primarily to
strengthening of the U.S. dollar against Canadian currency.
First quarter 1998 revenues were severely impacted by delays in
new product releases, primarily the effect of the Intel lawsuit,
resulting in lost sales for the Company as well as increased
discounting on available products. A slight recovery from these
effects in first quarter 1999 was offset by the decline in
revenues resulting from the sale of the Company's Solid Edge and
Engineering Modeling System product lines in March 1998.
Hardware revenues for first quarter 1999 were down 8% from the
prior year period. Unit sales of workstations and servers were up
12%, while workstation and server revenues declined by 3% due to a
14% decline in the average per unit selling price. Price
competition in the industry continues to erode per unit selling
prices. Sales of peripheral hardware products decreased by 16%
from the prior year period due primarily to a 36% decline in sales
of storage devices and memory as well as the loss of revenue
resulting from the April 1998 sale of the Company's printed
circuit board manufacturing facility. Software revenues declined
4% from first quarter 1998. Significant increases in sales of
Geomedia, photogrammetry, ICS and Federal software were offset by
across the board declines in revenues from other software
products, with the exception of plant design software application
revenues which remained flat with the prior year period. Plant
design is currently the Company's highest volume software
offering, representing 28% of total software sales for first
quarter 1999. Sales of Windows-based software represented
approximately 90% of total software revenues in both first quarter
1999 and 1998.
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 $81.8 million in first quarter
1999, up 6% from the same prior year period. Maintenance revenues
totaled $52.7 million for the quarter, down 1% from the prior year
period. The trend in the industry toward lower priced products
and longer warranty periods has limited the growth potential for
maintenance revenue, and the Company believes this trend will
continue into the future. Services revenue represents
approximately 12% of total revenues and has increased 20% from the
same prior year period. Growth in services revenue has acted to
offset the decline in maintenance revenue. The Company is
endeavoring to grow its services business and has redirected the
efforts of its hardware maintenance organization to focus
increasingly on systems integration. Revenues from these
services, however, typically produce lower gross margins than
maintenance revenues.
GROSS MARGIN
- ------------
The Company's total gross margin for first quarter 1999 was 33.1%,
up 1.4 points and 1.6 points from the first quarter 1998 and full
year 1998 levels, respectively.
Systems margin was 29.6%, up 1.5 points from first quarter 1998
and flat with the full year 1998 level due primarily to a decline
in unfavorable manufacturing variances as the result of
outsourcing the Company's manufacturing operations in fourth
quarter 1998. Additionally, systems margins were positively
impacted by weakening of the U.S. dollar in international markets,
primarily Europe and Asia, in comparison to the prior year period.
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. While the Company is unable to predict the effects that
many of these factors may have on its systems margins, it expects
continuing pressure on its systems margin as the result of
increasing industry price competition.
Maintenance and services margin for first quarter 1999 was 40.4%,
up 1 point from first quarter 1998 and 3.5 points from the full
year 1998 level primarily due to a significant improvement in
services revenues without a corresponding increase in cost. The
Company continues to monitor maintenance and services cost closely
and has taken certain measures, including reductions in headcount,
to align these costs 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 curtail its
maintenance revenue, which will pressure maintenance margin in the
absence of corresponding cost reductions.
OPERATING EXPENSES
- ------------------
Operating expenses for first quarter 1999 were $91.2 million, down
17% from the comparable prior year period. In response to the
level of its operating losses, the Company has taken various
actions, including employee terminations and sales of unprofitable
business operations, to reduce its average employee headcount by
approximately 13% from first quarter 1998. Product development
expense declined 28% from first quarter 1998 due primarily to
decreases in labor and overhead expenses resulting from the
headcount decline and from an increase in software development
projects qualifying for capitalization, primarily related to the
Company's federal shipbuilding effort. Sales and marketing
expense declined 20% from the prior year period due to reductions
in advertising and in salaries and commissions from the decline in
average headcount. The Company's sales and marketing expenses are
inherently activity based and can be expected to increase in
quarters of higher activity levels. General and administrative
expense was flat with the prior year period. A moderate increase
in legal fees related to the Intel litigation was offset by an
across the board decline in other expenditures.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $1.4 million for first quarter 1999, compared
to $2.2 million for first quarter 1998. The Company's average
outstanding debt has declined in comparison to first quarter 1998
due primarily to repayment of borrowings under the Company's
revolving credit facility using proceeds from sales of assets.
See "Liquidity and Capital Resources" below for a discussion of
the Company's current financing arrangements.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of interest income, foreign exchange
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 quarter of 1999 and the full year 1998,
approximately 51% 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 U.S. dollars for 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 1999,
the U.S. dollar weakened on average from its first quarter 1998
level, which increased reported dollar revenues, orders, and gross
margin, but also increased reported dollar operating expenses in
comparison to the prior year period. The Company estimates that
this weakening of the U.S. dollar in its international markets,
primarily Europe and Asia, improved its first quarter 1999 results
of operations by approximately $.03 per share in comparison to
first quarter 1998.
The Company conducts business in all major markets outside the
U.S., but the most significant of these operations with respect to
currency risk are located in Europe and Asia. Local currencies
are the functional currencies for the Company's European
subsidiaries. The U.S. dollar is the functional currency for all
other international subsidiaries. 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 specific 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,
generally less than three months in duration, are purchased with
maturities reflecting the expected settlement dates of the balance
sheet items being hedged, 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 does not generally
hedge exposures related to foreign currency denominated assets and
liabilities that are not of an intercompany nature, unless a
significant risk has been identified. It is possible the Company
could incur significant exchange gains or losses in the case of
significant, abnormal fluctuations in a particular currency. 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 March 31, 1999, the Company's only outstanding forward
contracts related to formalized intercompany loans between the
Company's European subsidiaries and are immaterial to the
Company's current financial position. The Company is not
currently hedging any of its foreign currency risks in the Asia
Pacific region or its U.S. exposures related to foreign currency
denominated intercompany loans.
Euro Conversion. On January 1, 1999, eleven member countries of
the European Monetary Union (EMU) fixed the conversion rates of
their national currencies to a single common currency, the "Euro".
The national currencies of the participating countries will
continue to exist through July 1, 2002. Euro currency will begin
to circulate on January 1, 2002. With respect to the Company,
U.S. and European business systems are being upgraded to
accommodate the Euro. Conversion of all financial systems will be
completed at various times through the remainder of 1999. The
Company is prepared to conduct business in Euros during 1999 with
those customers and vendors who choose to do so. The Company is
continuing to evaluate business implications resulting from full Euro
conversion by 2002, including the impact of cross-border price
transparency within the EMU and exposure to market risk with
respect to financial instruments. While the Company has not yet
completed its assessment of these business implications on its
results of operations or financial condition, it does not
anticipate this impact will be material. The Euro did not have a
significant impact on the Company's results of operations or cash
flows in first quarter 1999.
INCOME TAXES
- ------------
The Company incurred a pretax loss of $17.6 million in first
quarter 1999 versus pretax income of $52.9 million in first
quarter 1998. The first quarter 1999 loss generated no net
financial statement tax benefit, as tax expenses in individually
profitable international subsidiaries offset available tax
benefits. Income tax expense for first quarter 1998 resulted
primarily from taxes on individually profitable international
subsidiaries and U.S. federal alternative minimum tax. The sale
of the Solid Edge and Engineering Modeling System product lines
did not create a significant regular tax liability for the Company
due to the availability of net operating loss carryforwards to
offset earnings.
RESULTS BY OPERATING SEGMENT
- ----------------------------
In first quarter 1999, Intergraph Computer Systems incurred an
operating loss of $6.7 million on revenues of $93.3 million,
compared to a first quarter 1998 operating loss of $19.6 million
on revenues of $111 million. ICS's operating loss improvement
resulted primarily from an increase in systems gross margin.
Additionally, operating expenses declined by approximately 24%
from the prior year period, primarily the result of headcount
reductions in 1998. During 1998, ICS's headcount was reduced by
approximately 33% as the result of employee terminations, the
outsourcing of manufacturing, and normal attrition. ICS's first
quarter 1998 results of operations were significantly adversely
impacted by factors associated with the Company's dispute with
Intel, the effects of which included lost momentum, lost revenue
and margin as well as increased operating expenses, primarily for
marketing and public relations expenses. (See the Company's Form
10-K annual report for the year ended December 31, 1998 for a
complete description of the Company's dispute with Intel and its
effects on the operations of ICS and the Company.) ICS's first
quarter 1998 margins were also severely impacted by volume and
inventory value related manufacturing variances incurred prior to
the outsourcing of its manufacturing to SCI in fourth quarter
1998. For first quarter 1999, this outsourcing contributed to the
improvement in ICS's systems margins. However, systems gross
margin remains insufficient to cover the operating segment's
current level of operating expenses.
In first quarter 1999, Intergraph Public Safety earned operating
income of $1.9 million on revenues of $21.3 million, compared to
operating income in first quarter 1998 of $.9 million on revenues
of $12.4 million. Effective January 1, 1999, the Utilities
business of Intergraph was formally merged into IPS, increasing
the operating segment's first quarter revenues and operating
income by $9 million and $1 million, respectively. First quarter
1998 operating results for the Utilities business are reflected in
the Intergraph Software operating segment.
VeriBest incurred operating losses of $1.8 million and $4.7
million in the first quarters of 1999 and 1998, respectively, on
revenues of $7.5 million and $7.1 million. Maintenance revenues
improved by 31% from first quarter 1998, reflecting growth in the
subsidiary's installed software base, and total gross margin
increased by approximately 18 points as the result of declining
royalty costs. Operating expenses declined by 18% from the prior
year period due primarily to restructuring actions taken in fourth
quarter 1998. Average employee headcount has declined by
approximately 9% from the first quarter 1998 level. VeriBest
expects to realize further improvements in its revenues, margins
and operating expenses throughout the remainder of 1999 as it
continues to direct its selling efforts toward a newly developed
line of proprietary products and realizes the benefits of its
reduced headcount and revised selling strategy toward indirect
methods.
In first quarter 1999, the Software business earned operating
income of $3.4 million on revenues of $122.5 million, compared to
first quarter 1998 operating income of $.4 million on revenues of
$140.1 million. Operating income excludes the impact of certain
nonrecurring income and operating expense items associated with
Software operations, including the first quarter 1999 arbitration
settlement accrual of $8.6 million, and in first quarter 1998, the
$102.8 million gain on the sale of the business unit's Solid Edge
and Engineering Modeling System product lines and nonrecurring
operating charges of $14.8 million, primarily for asset write-offs
and employee terminations. Operating expenses declined by 21%
from the prior year period due to reductions in headcount,
particularly in the sales and marketing area as the operating
segment has reorganized its sales force to align expenses with the
volume of revenue generated. The positive impact of this
operating expense decline was partially offset by a 2.3 point
decline in systems gross margin, primarily the result of the low
sales volume for the quarter.
In first quarter 1999, Federal earned operating income of $4.2
million on revenues of $42.8 million, compared to a first quarter
1998 operating loss of $2.5 million on revenues of $34.2 million.
The improvement from the prior year period resulted primarily from
a 44% decline in operating expenses, due in part to headcount
decline and to an increase in shipbuilding software development
costs qualifying for capitalization. Systems revenues increased
by 21% from the prior year period, resulting in a 6.3 point
improvement in systems gross margin. First quarter 1998 revenues
and margins were adversely impacted by weakened demand for the
Company's hardware product offerings as a result of the Intel
dispute and increasing price competition in the industry.
See Note 12 of Notes to Consolidated Financial Statements for
further explanation of the Company's segment reporting.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1999, cash totaled $91.3 million compared to $95.5
million at December 31, 1998. Cash provided by operations in
first quarter 1999 totaled $2.8 million, compared to a cash
consumption of $5 million in first quarter 1998.
Net cash generated from investing activities totaled $9.9 million
in first quarter 1999, compared to a $69.7 million generation in
first quarter 1998. First quarter 1999 investing activities
included $19.9 million in proceeds from the fourth quarter 1998
sale of the Company's manufacturing assets. (See Note 7 of Notes
to Consolidated Financial Statements.) First quarter 1998
investing activities included $102 million in proceeds from the
sale of the Company's Solid Edge and Engineering Modeling System
product lines and $26.3 million for the purchase of Zydex software
rights. Other significant investing activities included
expenditures for capitalizable software development costs of $4.6
million in first quarter 1999 ($2.5 million in first quarter 1998)
and capital expenditures of $2.8 million in first quarter 1999
($3.7 million in first quarter 1998), primarily for Intergraph
products used in hardware and software development and sales and
marketing activities. The Company expects that capital
expenditures will require $20 to $25 million for the full year
1999, 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 $14.6 million in
first quarter 1999 and $14.5 million in first quarter 1998. Both
quarters included a net repayment of debt of approximately $15.2
million.
Under the Company's January 1997 four year fixed term loan and
revolving credit agreement (as amended in October 1998), available
borrowings are determined by the amounts of eligible assets
of the Company (the "borrowing base"), as defined in the
agreement, primarily accounts receivable, 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 (7.75% at March 31,
1999) 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, 1999, the
Company had outstanding borrowings of $25 million (the term loan),
which was classified as long-term debt in the consolidated balance
sheet, and an additional $34.7 million 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 this
same date, the borrowing base, representing the maximum available
credit under the line, was approximately $81 million (unchanged at
April 30, 1999).
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 March 31, 1999, the Company had approximately $58 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.
After several quarters of generating insufficient cash to fund its
operations, the Company has generated positive operating cash flow
for its second consecutive quarter. The Company expects continued
improvement in its operating cash flows throughout 1999 as a
result of improved earnings, the outsourcing of its manufacturing
operations, and other management actions taken in 1998 and 1999 to
reduce operating costs. The Company is managing its cash very
closely and believes that the combination of improved cash flow
from operations, its existing cash balances, and cash available
under its revolving credit agreement will be adequate to meet cash
requirements for 1999, including the $12 million payment made to
BSI on April 1, 1999. (See "Litigation" preceding.) In the near
term, however, the Company must continue to increase its sales
volume and/or align its operating expenses more closely with the
level of revenue being generated if it is to fund its operations
and build cash reserves without reliance on funds generated from
asset sales and from external financing.
SUBSEQUENT EVENT
- ----------------
On April 15, 1999, the Company completed the sale of InterCAP
Graphics Systems, Inc., a wholly owned subsidiary, to Micrografx,
a global provider of enterprise graphics software, for $12.2
million, consisting of $3.9 million in cash received at closing, a
deferred payment of $2.5 million due in August 1999, and a $5.8
million convertible subordinated debenture due in March 2002. The
resulting gain on this transaction, expected to be in the range of
$10 to $12 million, will be included in the Company's second
quarter 1999 operating results. InterCAP's revenues and losses
for 1998 were $4.7 million and $1.1 million, respectively ($3.6
million and $1.9 million for 1997). Assets of the subsidiary at
December 31, 1998 totaled $1.6 million. The subsidiary did not
have a material effect on the Company's results of operations for
first quarter 1999.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced no material changes in
market risk exposures that affect the quantitative and
qualitative disclosures presented in the Company's Form 10-K
filing for its year ending December 31, 1998.
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
The Company maintains an equity ownership position in
Bentley Systems, Incorporated ("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 March
1996, BSI commenced arbitration against the Company with
the American Arbitration Association, Atlanta, Georgia,
relating to the respective rights of the companies under
their April 1987 Software License Agreement and other
matters, including the Company's alleged failure to
properly account for and pay to BSI certain royalties on
its sales of BSI software products, and seeking
significant damages. For further background information,
see the Company's Form 10-K annual report for the year
ended December 31, 1998.
On March 26, 1999, the Company and BSI executed a
Settlement Agreement and Mutual General Release ("the
Agreement") to settle this arbitration and mutually
release all claims related to the arbitration or
otherwise, except for a) certain litigation between the
companies that is the subject of a separate settlement
agreement and b) payment for products and services
obtained or provided in the normal course of business
since January 1, 1999. Both the Company and BSI expressly
deny any fault, liability, or wrongdoing concerning the
claims that were the subject matter of the arbitration and
have settled solely to avoid continuing litigation with
each other.
Under the terms of the Agreement, the Company on April 1,
1999 made payment to BSI of $12 million and transferred to
BSI ownership of three million of the shares of BSI's
Class A common stock owned by the Company. The
transferred shares were valued at approximately $3.5
million on the Company's books. As a result of the
settlement, Intergraph's equity ownership in BSI has been
reduced to approximately 33%. Additionally, the Company
had a $1.2 million net receivable from BSI relating to
business conducted prior to January 1, 1999 which was
written off in connection with the settlement. See
Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 2 of Notes to
Consolidated Financial Statements contained in this Form
10-Q for further discussion of the effects of this
settlement on the Company's financial position, results of
operations, and cash flow.
INTERGRAPH CORPORATION AND SUBSIDIARIES
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10(a), agreement between Intergraph Corporation
and Green Mountain, Inc., dated April 1, 1999. *(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.
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1999.
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
Chief Executive Officer and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 14, 1999 Date: May 14, 1999
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 tickets, with full commissions (unless
otherwise negotiated by Intergraph), at all UNIGLOBE locations
servicing Intergraph.
ARC ADMINISTRATION
- ------------------
Intergraph will be responsible for the weekly processing of all
ARC coupons and ARC Sales reports as well as the timely
reconciliation of ARC Area Settlement Bank reports for all
transactions at UNIGLOBE.
AUTOMATION
- ----------
UNIGLOBE will provide Intergraph with a computerized reservations
system ("CRS") acceptable to Intergraph to facilitate the booking
of airline, ground transportation, lodging and related travel
arrangements and the generation of necessary travel documents.
UNIGLOBE will also provide a comprehensive, automated
accounting and travel-information management system ("Back-Office
System") acceptable to Intergraph to facilitate ARC
administration and the generation of the management-information
reports defined by Intergraph. The CRS and Back-Office System
must be compatible, and fully interfaced with each other.
Intergraph reserves the right to request a conversion of the
primary CRS used by UNIGLOBE in support of the Intergraph
account if, in its sole discretion, such a conversion would
result in a substantial material benefit to Intergraph. UNIGLOBE
will cooperate fully in such a conversion, including using its
best efforts to minimize any costs assessed by the outgoing CRS
vendor and, at the request of Intergraph Travel Services,
negotiating favorable terms and conditions with the incoming CRS
vendor.
All discounts, credits or incentives received by UNIGLOBE from
the CRS vendor(s) for CRS equipment, software, maintenance, and
services must be disclosed to Intergraph Travel Services and will
be used to offset the costs associated with servicing the
Intergraph account.
In the event that this agreement is terminated by either party,
Intergraph reserves the right, with the concurrence of the CRS
vendor(s), to retain the reservations system(s) equipment, and
all Intergraph data associated with the system, and to assume
responsibility for any payments for the remaining lease term.
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
purpose of soliciting leisure, personal or vacation travel from
Intergraph employees.
RENT AND UTILITIES
- ------------------
Intergraph will provide UNIGLOBE with sufficient office space on
Intergraph's premises in Huntsville, Alabama. All costs
associated with the ongoing use of the space will be the
responsibility of Intergraph. All furnishings and office
equipment will be the responsibility of UNIGLOBE.
TELECOMMUNICATIONS
- ------------------
Intergraph will provide UNIGLOBE with a single telephone line for
access to 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, 1999 and will continue
until April 1, 2000. 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: 256-730-1029 Fax: 256-536-5942
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 $25,393.00 of gross income, ten percent (10%)
(II) On the next $15,236.00 of gross income, five percent (5%)
(III) On the balance over $40,629.00 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 Manager, Travel Services
Date: 5/7/99 Date: 5/5/99
______ ______
For: Intergraph Corporation
/s/ Milton Legg
_____________________________
Milton Legg
Vice President
<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,
1999, 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 91,267
<SECURITIES> 0
<RECEIVABLES> 299,511<F1>
<ALLOWANCES> 0
<INVENTORY> 40,768
<CURRENT-ASSETS> 469,413
<PP&E> 378,140
<DEPRECIATION> 256,649
<TOTAL-ASSETS> 667,490
<CURRENT-LIABILITIES> 269,412
<BONDS> 59,744
0
0
<COMMON> 5,736
<OTHER-SE> 329,433
<TOTAL-LIABILITY-AND-EQUITY> 667,490
<SALES> 170,308
<TOTAL-REVENUES> 252,077
<CGS> 119,959
<TOTAL-COSTS> 168,733
<OTHER-EXPENSES> 91,247<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,418
<INCOME-PRETAX> (17,558)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,558)
<EPS-PRIMARY> ( .36)
<EPS-DILUTED> ( .36)
<FN>
<F1>Accounts receivable in the Consolidated Balance Sheet is shown net of
allowances for doubtful accounts.
<F2>Other expenses include Product development expenses, Sales and marketing
expenses, and General and administrative expenses.
</FN>
</TABLE>
