-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AWnQhpo6IDjkFx0ZENHd4Zu7yLJ5NeXk1PZaLtE2JZIhU8SmGaOZ17XvJHJGrPgg j7EEYcZLejFHyWvOgekWaA== 0000351145-02-000026.txt : 20020813 0000351145-02-000026.hdr.sgml : 20020813 20020813155421 ACCESSION NUMBER: 0000351145-02-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGRAPH CORP CENTRAL INDEX KEY: 0000351145 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 630573222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09722 FILM NUMBER: 02729718 BUSINESS ADDRESS: STREET 1: 1 MADISON INDUSTRIAL PARK IW2000 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2567302000 MAIL ADDRESS: STREET 1: 290 DUNLOP BLVD CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 10-Q 1 tenq02.txt 10Q Q2 2002 ============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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) Huntsville, Alabama 35894-0001 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (256) 730-2000 ---------------------------------------------------- (Registrant's Telephone Number, including area code) 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: 46,734,105 shares outstanding as of July 31, 2002 INTERGRAPH CORPORATION FORM 10-Q* June 30, 2002 INDEX Page No. -------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- Consolidated Balance Sheets at June 30, 2002, and December 31, 2001 2 Consolidated Statements of Income for the quarters and six months ended June 30, 2002, and 2001 3 Consolidated Statements of Cash Flows for the six months ended June 30, 2002, and 2001 4 Notes to Consolidated Financial Statements 5 - 11 Item 2. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations 12 - 19 ------------------------- Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 - 20 ---------------------------------------------------------- PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 20 ----------------- Item 4. Submission of Matters to a Vote of Security Holders 21 --------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K 21 -------------------------------- SIGNATURES 22 * Information contained in this Form 10-Q includes statements that are forward-looking as defined in Section 21E of the Securities Exchange Act of 1934. Actual results may differ materially from those projected in the forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is described in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and this Form 10- Q. PART I. FINANCIAL INFORMATION --------------------- INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- June 30, December 31, 2002 2001 - -------------------------------------------------------------------------------- (In thousands, except share and per share amounts) Assets Cash and cash equivalents $101,035 $99,773 Short-term investments 254,777 11,035 - -------------------------------------------------------------------------------- Total cash and short-term investments 355,812 110,808 Accounts receivable, net 158,851 158,873 Inventories, net 22,485 24,125 Other current assets 46,153 32,687 - -------------------------------------------------------------------------------- Total current assets 583,301 326,493 Investments in affiliates 30,666 20,654 Capitalized software development costs, net 28,261 24,209 Other assets 25,678 34,680 Property, plant, and equipment, net 51,295 51,974 - -------------------------------------------------------------------------------- Total Assets $719,201 $458,010 ================================================================================ Liabilities and Shareholders' Equity Trade accounts payable $18,012 $22,897 Accrued compensation 28,562 31,693 Other accrued expenses 35,722 43,765 Billings in excess of sales 36,944 37,968 Income taxes payable 36,056 9,913 Short-term debt and current maturities of long-term debt 3,257 2,619 - -------------------------------------------------------------------------------- Total current liabilities 158,553 148,855 - -------------------------------------------------------------------------------- Deferred income taxes 19,577 2,573 Long-term debt --- 1,114 Other noncurrent liabilities 2,621 2,729 - -------------------------------------------------------------------------------- Total noncurrent liabilities 22,198 6,416 - -------------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 7,623 7,526 - -------------------------------------------------------------------------------- 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 206,642 210,748 Retained earnings 493,233 208,268 Accumulated other comprehensive loss (7,620) (20,603) - -------------------------------------------------------------------------------- 697,991 404,149 Less - cost of treasury shares (10,668,407 at June 30, 2002, and 7,539,419 at December 31, 2001) (167,164) (108,936) - -------------------------------------------------------------------------------- Total shareholders' equity 530,827 295,213 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $719,201 $458,010 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - -------------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2002 2001 2002 2001 - -------------------------------------------------------------------------------- (In thousands, except per share amounts) Revenues Systems $67,460 $72,405 $138,354 $154,588 Maintenance 30,167 30,497 58,329 64,715 Services 24,943 24,889 48,983 52,610 - -------------------------------------------------------------------------------- Total revenues 122,570 127,791 245,666 271,913 - -------------------------------------------------------------------------------- Cost of revenues Systems 32,899 33,331 69,396 78,193 Maintenance 13,516 17,218 27,732 36,598 Services 17,312 19,280 33,875 40,751 - -------------------------------------------------------------------------------- Total cost of revenues 63,727 69,829 131,003 155,542 - -------------------------------------------------------------------------------- Gross profit 58,843 57,962 114,663 116,371 Product development 12,451 13,983 24,717 27,088 Sales and marketing 24,926 25,636 47,503 47,821 General and administrative 18,794 16,962 37,852 37,568 Reorganization credit --- --- --- (384) Income from operations 2,672 1,381 4,591 4,278 Patent litigation gain 293,566 --- 293,566 --- Gains on sales of assets 17,015 --- 18,545 4,831 Interest expense (37) (582) (140) (1,143) Other income, net 2,506 3,128 4,250 3,491 - -------------------------------------------------------------------------------- Income before income taxes and minority interest 315,722 3,927 320,812 11,457 Income tax expense (35,100) (1,600) (35,750) (4,000) - -------------------------------------------------------------------------------- Income before minority interest 280,622 2,327 285,062 7,457 Minority interest in earnings of consolidated subsidiaries (35) (497) (97) (660) - -------------------------------------------------------------------------------- Net income $280,587 $1,830 $284,965 $6,797 ================================================================================ Net income per share - basic $5.67 $.04 $5.73 $.14 - diluted $5.37 $.04 $5.44 $.13 ================================================================================ Weighted average shares outstanding - basic 49,506 49,638 49,729 49,641 - diluted 52,204 52,018 52,375 51,577 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Six Months Ended June 30, 2002 2001 - -------------------------------------------------------------------------------- (In thousands) Cash Provided By (Used For): Operating Activities: Net income $284,965 $6,797 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,766 5,640 Amortization 7,303 6,961 Gains on sales of assets (18,545) (4,831) Net changes in current assets and liabilities 18,768 (16,275) - -------------------------------------------------------------------------------- Net cash provided by (used for) operating activities 297,257 (1,708) - -------------------------------------------------------------------------------- Investing Activities: Net proceeds from sales of assets 18,798 1,534 Purchases of property, plant, and equipment (4,656) (4,196) Purchases of short-term investments (254,197) --- Proceeds from maturities of short-term investments 11,035 --- Capitalized software development costs (6,265) (1,687) Business acquisitions (981) (3,002) Other (1,394) (36) - -------------------------------------------------------------------------------- Net cash used for investing activities (237,660) (7,387) - -------------------------------------------------------------------------------- Financing Activities: Gross borrowings 1,044 --- Debt repayment (1,520) (14,692) Purchase of treasury stock (66,819) --- Proceeds of employee stock purchases and exercise of stock options 4,485 2,053 - -------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (62,810) (12,639) - -------------------------------------------------------------------------------- Effect of exchange rate changes on cash 4,475 (2,175) - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,262 (23,909) Cash and cash equivalents at beginning of period 99,773 119,848 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $101,035 $95,939 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION 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 2001 amounts to provide comparability with the current period presentation. NOTE 2 - LITIGATION As further described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, the Company continues part of its ongoing litigation with Intel Corporation ("Intel"). See Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") in this Form 10-Q for a discussion of 2002 developments. NOTE 3 - INVENTORIES Inventories are stated at the lower of average cost or market and are summarized as follows: - ------------------------------------------------------------------ June 30, December 31, 2002 2001 - ------------------------------------------------------------------ (In thousands) Raw materials $6,623 $3,920 Work-in-process 632 1,952 Finished goods 6,410 8,716 Service spares 8,820 9,537 - ------------------------------------------------------------------ Totals $22,485 $24,125 ================================================================== Inventories on hand at June 30, 2002, and December 31, 2001, relate primarily to specialized hardware assembly activity in the Company's Intergraph Solutions Group ("ISG") and Z/I Imaging Corporation ("Z/I Imaging") business segments, and to the Company's continuing warranty and maintenance obligations on computer hardware previously sold. Amounts reflected as work-in- process relate primarily to sales contracts accounted for under the percentage-of-completion method. NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS Product development costs are charged to expense as incurred; however, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility of the product has been established. Such capitalized costs are amortized on a straight- line basis over a period of two to three years. Amortization of these capitalized costs, included in "Cost of revenues - Systems" in the consolidated statements of income, amounted to $1.3 million in second quarter 2002 compared to $1 million in second quarter 2001, and $2.3 million and $2.2 million in the first six months of 2002 and 2001, respectively. The Company increased product development expenses for costs normally eligible for capitalization by $2.6 million and $2.2 million in second quarter 2002 and 2001, respectively, and $5.1 million and $4.2 million in the first six months of 2002 and 2001, respectively, due to net realizable value concerns. Accumulated amortization (net of fully amortized projects) in the consolidated balance sheets at June 30, 2002, and December 31, 2001, was $11.1 million and $8.8 million, respectively. NOTE 5 - INTANGIBLE ASSETS The Company adopted Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" in first quarter 2002. The Company currently reviews all intangible assets on a quarterly basis, and the adoption of this statement did not impact the Company's financial statements. The Company's intangible assets include capitalized software development costs (included as a separate line in the consolidated balance sheets) and other intangible assets (included in "Other assets" in the consolidated balance sheets). At June 30, 2002, and December 31, 2001, the Company's intangible assets and related accumulated amortization (net of fully amortized assets) consisted of the following: - -------------------------------------------------------------------------------- As of June 30, 2002 As of December 31, 2001 Accumulated Accumulated Gross Amortization Net Gross Amortization Net - -------------------------------------------------------------------------------- (In thousands) Capitalized software development $39,387 $(11,126) $28,261 $32,982 $(8,773) $24,209 Other intangible assets 43,855 (27,725) 16,130 43,787 (23,174) 20,613 - -------------------------------------------------------------------------------- Totals $83,242 $(38,851) $44,391 $76,769 $(31,947) $44,822 ================================================================================ The Company recorded amortization expense of $3.8 million for both second quarter 2002 and 2001, and $7.3 million and $7 million for first half 2002 and 2001, respectively. Based on the current intangible assets subject to amortization, the estimated amortization expense for the remainder of 2002 and each of the succeeding five years is as follows: $8 million in 2002, $12 million in 2003, $8 million in 2004, $7 million in 2005, $5 million in 2006, and $4 million in 2007. NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment, net includes accumulated depreciation of approximately $131.2 million and $130.5 million at June 30, 2002, and December 31, 2001, respectively. NOTE 7 - SUPPLEMENTARY CASH FLOW INFORMATION Changes in current assets and liabilities, net of the effects of business acquisitions and divestitures, in reconciling net income to net cash provided by (used for) operations are as follows: - --------------------------------------------------------------------------- Cash Provided By (Used For) Operations Six Months Ended June 30, 2002 2001 - --------------------------------------------------------------------------- (In thousands) (Increase) decrease in: Accounts receivable, net $5,566 $(3,131) Inventories, net 1,952 459 Other current assets 5,787 4,113 Increase (decrease) in: Trade accounts payable (4,893) (5,844) Accrued compensation and other accrued expenses (13,319) (8,712) Income taxes payable 25,744 917 Billings in excess of sales (2,069) (4,077) - --------------------------------------------------------------------------- Net changes in current assets and liabilities $18,768 $(16,275) =========================================================================== Significant non-cash investing and financing transactions in second quarter 2002 include a $4.1 million unfavorable mark-to- market adjustment on the Company's long-term investment in Creative Technology Ltd. ("Creative") and the elimination of a $15.3 million cumulative mark-to-market adjustment on its long- term investment in 3Dlabs Inc., Ltd. ("3Dlabs") stock. For first half 2002, the Company recognized a total favorable adjustment of $6.7 million on its long-term investments. See Note 9 for detailed information regarding the Company's unrealized gains and losses on its long-term investments. There were no significant non-cash investing and financing transactions in the second quarter of 2001. Significant non-cash investing and financing transactions in first half 2001 included the receipt of common stock with a value of approximately $10 million as additional consideration for the third quarter 2000 sale of the Company's Intense3D graphics accelerator division to 3Dlabs. Also included in 2001 is a $4.3 million increase to a note receivable as additional consideration for the fourth quarter 2000 sale of its civil, plotting, and raster product lines. NOTE 8 - EARNINGS PER SHARE Basic income per share is computed using the weighted average number of common shares outstanding. Diluted income 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. For the quarters ended June 30, 2002, and 2001, these dilutive common stock equivilents were 2,698,000 and 2,380,000, respectively. For the six months ended June 30, 2002, and 2001, these dilutive shares were 2,646,000 and 1,936,000, respectively. NOTE 9 - COMPREHENSIVE INCOME (LOSS) For the quarters ended June 30, 2002, and 2001, total comprehensive income (loss) was $267.3 million and ($166,000), respectively. For the six-month periods ending June 30, 2002, and 2001, total comprehensive income was $297.9 million and $2.8 million, respectively. Comprehensive income differs from net income due to non-equity items that include unrealized gains and losses on certain investments in debt and equity securities and foreign currency translation adjustments. Comprehensive income is as follows: - ----------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2002 2001 2002 2001 - ----------------------------------------------------------------------------- (In thousands) Net income $280,587 $1,830 $284,965 $6,797 Unrealized holding gains (losses) arising during the period (2,742) (1,065) 23,303 (743) Reclassification adjustment for gains included in net income (16,632) --- (16,632) --- Translation adjustment for financial statements denominated in a foreign currency 6,110 (931) 6,312 (3,205) - ----------------------------------------------------------------------------- Comprehensive income (loss) $267,323 $(166) $297,948 $2,849 ============================================================================= NOTE 10 - GAIN ON PATENT LITIGATION During the second quarter of 2002, the Company recognized a gain of $293.6 million from the settlement of a patent infringement lawsuit. For a complete discussion, see "Litigation" and "Patent Litigation Gain" included in MD&A. NOTE 11 - GAINS ON SALES OF ASSETS Gains on sales of assets were $17 million for second quarter 2002 and $18.5 million for first half 2002, compared to $4.8 million for first half 2001, all of which was recognized in the first quarter. For a complete discussion, see "Gains on Sales of Assets" included in MD&A. NOTE 12 - ACQUISITIONS AND DIVESTITURES In second quarter 2002, the Company sold its ownership interest in 3Dlabs to Creative for approximately $40.2 million in cash and stock. The Company recorded a gain on this transaction of approximately $17 million, which is included in "Gains on sales of assets" in the consolidated statement of income for the six months ended June 30, 2002. For a complete discussion, see "Gains on Sales of Assets" included in MD&A. In March 2002, the Company completed the sale of its Greece subsidiary for approximately $120,000, which was received in April 2002. The Company retained a 20% interest in the subsidiary, but the buyer has a right to purchase this interest for a fixed price of $30,000. This right will expire December 31, 2002. The Company recorded a loss on this transaction of $455,000, which is included in "Gains on sales of assets" in the consolidated statement of income for the six months ended June 30, 2002. The subsidiary did not have a material effect on the Company's results of operations or financial position for any periods prior to the sale. In January 2001, the Company acquired the MARIAN materials management business unit from debis Systemhaus Industry GmbH of Germany for a purchase price consisting of approximately $1.8 million paid at closing and additional payments due March 1, 2002, (paid in April 2002) and 2003, to be calculated as 15% of the annual revenues earned by the Company from the sale of MARIAN products in 2001 and 2002, respectively. The Company's payment at closing is included in "Business acquisitions" in the Company's consolidated statement of cash flows for the six months ended June 30, 2001. The accounts and results of operations of MARIAN have been combined with those of Intergraph Process, Power & Offshore ("PP&O") since the January 1, 2001, effective date of the acquisition using the purchase method of accounting. NOTE 13 - SEGMENT REPORTING The Company consists of five core business segments, along with an Intellectual Property division ("IP") and a corporate oversight function ("Corporate"). The five core business segments consist of ISG, Intergraph Mapping and GIS Solutions ("IMGS"), PP&O, Intergraph Public Safety, Inc. ("IPS"), and Z/I Imaging. The Company's reportable segments are strategic business units that are organized by the types of products sold and the specific markets served. ISG provides specially developed software and ruggedized hardware, commercial off-the-shelf products, and professional services to federal, state, and local governments worldwide, as well as to commercial customers. ISG also includes the U.S. hardware maintenance and network services businesses. To better reflect the industries it serves, the segment changed its name from Intergraph Government Solutions to Intergraph Solutions Group in May 2002. IMGS develops, markets, and supports geospatial infrastructure management (GIM), land information management (LIM), and map production and exploitation solutions for state and local governments, land records and use management, transportation, utilities and public works projects, military and national mapping agencies, and defense and intelligence communities. PP&O supplies software and services to the process, power, and offshore (petroleum and natural gas) industries. IPS develops, markets, and implements systems for the public safety, utilities, and communications markets. Z/I Imaging, a 60%-owned subsidiary of the Company, supplies end- to-end photogrammetry solutions for front-end data collection to mapping related and engineering markets. Intergraph has created an Intellectual Property division to maximize the value of the Company's portfolio of patent, copyrights, and trademarks. This division will have the responsibility of managing all aspects of the Company's intellectual property with the goal of identifying, protecting and profiting from its intellectual capital. The Company has retained a consultant to assist in the formulation and implementation of its licensing program, and has begun evaluating the technology sector, companies, and products that may benefit from the licensing of Intergraph technology. Amounts included in the "Corporate" category include revenues and costs for Teranetix (a provider of computing support and hardware integration services), international hardware maintenance, and general corporate functions. Operating expenses for the Corporate category consist of general corporate expenses, primarily general and administrative expenses remaining after charges to the business segments based on usage of administrative services. The Corporate category also includes the remainder of the Middle East operations, portions of which were sold in 2001 (with the sale of the remaining portion closing in April 2002, effective October 2001). The Company evaluates the performance of its business segments based on revenue and income from operations. The accounting policies of the reportable segments are consistent across segments and are the same as those used in preparation of the consolidated financial statements of Intergraph Corporation (see Note 1 of Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001). Sales between the business segments, the most significant of which are associated with hardware maintenance services provided by ISG and Corporate (international hardware maintenance) to the other business units, 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. Transfer price is charged on all intersegment sales of products and services. The following table sets forth revenues and operating income (loss) by business segment for the quarters and six months ended June 30, 2002, and 2001. - ---------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------- (In thousands) Revenues: ISG: Unaffiliated customers $28,494 $29,621 $63,306 $65,718 Intersegment revenues 2,028 2,064 3,079 4,219 - ---------------------------------------------------------------------------- 30,522 31,685 66,385 69,937 - ---------------------------------------------------------------------------- IMGS: Unaffiliated customers 29,038 26,263 61,033 58,835 Intersegment revenues 2,185 2,721 3,963 4,637 - --------------------------------------------------------------------------- 31,223 28,984 64,996 63,472 - --------------------------------------------------------------------------- PP&O: Unaffiliated customers 29,667 26,445 57,882 55,165 Intersegment revenues 1,215 1,492 2,215 2,626 - --------------------------------------------------------------------------- 30,882 27,937 60,097 57,791 - --------------------------------------------------------------------------- IPS: Unaffiliated customers 26,776 30,001 47,611 59,707 Intersegment revenues 42 119 95 116 - --------------------------------------------------------------------------- 26,818 30,120 47,706 59,823 - --------------------------------------------------------------------------- Z/I Imaging: Unaffiliated customers 5,675 8,489 10,854 17,320 Intersegment revenues 1,373 3,473 3,940 5,827 - --------------------------------------------------------------------------- 7,048 11,962 14,794 23,147 - --------------------------------------------------------------------------- IP: Unaffiliated customers --- --- --- --- Intersegment revenues --- --- --- --- - --------------------------------------------------------------------------- --- --- --- --- - --------------------------------------------------------------------------- Corporate: Unaffiliated customers 2,920 6,972 4,980 15,168 Intersegment revenues 657 3,846 1,107 7,389 - --------------------------------------------------------------------------- 3,577 10,818 6,087 22,557 - --------------------------------------------------------------------------- 130,070 141,506 260,065 296,727 - --------------------------------------------------------------------------- Eliminations (7,500) (13,715) (14,399) (24,814) - --------------------------------------------------------------------------- Total revenues $122,570 $127,791 $245,666 $271,913 =========================================================================== Operating income (loss): ISG $1,865 $2,392 $4,438 $5,659 IMGS 25 317 2,154 3,312 PP&O 5,012 1,328 9,247 2,604 IPS 1,918 1,216 2,041 2,315 Z/I Imaging 310 2,192 811 3,792 IP (381) (410) (3,535) (725) Corporate (6,431) (4,140) (11,140) (11,165) Eliminations 354 (1,514) 575 (1,514) - --------------------------------------------------------------------------- Total $2,672 $1,381 $4,591 $4,278 =========================================================================== Significant profit and loss items that were not allocated to the segments and not included in the analysis above for second quarter 2002 include the $293.6 million patent litigation gain and gains on sales of assets of $17 million (gains on sales of assets of $18.5 million and $4.8 million for the six-month comparison for 2002 and 2001, respectively). These were all considered non- recurring transactions and are included in other income in the consolidated statements of income. The Company does not evaluate performance or allocate resources based on assets and, as such, it does not prepare balance sheets for its business segments, other than those of its wholly owned subsidiaries. NOTE 14 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In the first quarter of 2002, the following accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") became effective for the Company: SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The adoption of these Statements did not have a significant impact on the Company's consolidated operating results or financial position for the quarter. In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections," which requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement 4 and requires certain modifications to capital leases. The provisions related to the rescission of Statement 4 become effective for the Company in 2003, the provisions related to Statement 13 became effective for the Company for transactions occurring after May 15, 2002, and all other provisions of this statement became effective for financial statements issued after May 15, 2002. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not expect the adoption of SFAS 145 and SFAS 146 to have a significant impact on its consolidated results of operations or financial position. INTERGRAPH CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, market conditions and their anticipated impact on the Company and its vertical business segments, expectations regarding future results and cash flows, information regarding the development, timing of introduction, and performance of new products, and expectations regarding the Company's various ongoing litigation proceedings, including those with Intel. These forward- looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, worldwide economic conditions, increased competition, rapid technological change, unanticipated changes in customer requirements, uncertainties with respect to the Company's installed customer base for discontinued hardware products, inability to protect the Company's intellectual property rights, inability to access the technology necessary to compete in the markets served, inability to complete certain sales and lease transactions as planned, risks associated with doing business internationally, risks associated with various ongoing litigation proceedings, and other risks detailed in our annual and quarterly filings with the Securities and Exchange Commission ("SEC"). RESULTS OF OPERATIONS Earnings In second quarter 2002, the Company earned net income of $280.6 million on revenues of $122.6 million, compared to second quarter 2001 net income of $1.8 million on revenues of $127.8 million. Second quarter 2002 income from operations was $2.7 million compared to $1.4 million for second quarter 2001. For the first half of 2002, the Company earned net income of $285 million on revenues of $245.7 million, compared to the first half of 2001, where the Company earned net income of $6.8 million on revenues of $271.9 million. Income from operations for the first half of 2002 was $4.6 million compared to $4.3 million for the first half of 2001. See "Patent Litigation Gain" and "Gains on Sales of Assets" for a discussion of non-operating items included in net income. Orders Second quarter and first half 2002 systems and services orders totaled $97.1 million and $185 million, respectively, down approximately 23.8% and 11.3%, from the comparable prior-year periods. The second quarter 2002 decrease is primarily attributable to the signing of large contracts in second quarter 2001 in the ISG and IPS business segments. Revenues Total revenues for second quarter and first half 2002 were $122.6 million and $245.7 million, respectively, down 4.1% and 9.7% from the comparable prior-year periods. Sales outside the United States represented approximately 42% of total revenues in first half 2002, down from 45.7% for the comparable period in 2001. European revenues were 25.7% of total revenues for first half 2002, down slightly from the first half 2001 level. Systems. Systems revenues for second quarter and first half 2002 were $67.5 million and $138.4 million, respectively, down 6.8% and 10.5% from the comparable prior-year periods. The decrease in systems revenue is spread over several business units. Decreases in Corporate sales are attributed to the completion of several hardware manufacturing contracts in 2001 and to less revenue from the sale of hardware spares inventory. IPS also contributed to the decline in revenue due to the economic slowdown in the Utilities and Communications industry in 2002. Z/I Imaging has encountered similar economic slow-downs in their market which has caused customers to delay capital investments in the first half of 2002. Maintenance. Revenues from maintenance and support of Company products totaled $30.2 million in second quarter 2002 and $58.3 million for first half 2002, nearly flat with second quarter 2001 and down 9.9% from first half 2001. Maintenance revenue declined as more hardware continued to be removed from maintenance contracts because of the Company's exit from the hardware business. Services. Services revenues, consisting primarily of revenues from Company-provided implementation and consulting services, totaled $24.9 million for the second quarter and $49 million for the first half of 2002, flat with second quarter 2001 and down 6.9% from the first half of 2001. The decrease in services revenues is primarily due to the completion of several large IPS projects and the sale of the Middle East operations in 2001. This decrease is partially offset by increased revenues on several projects in the PP&O business segment. The Company is endeavoring to grow its services business; however, revenues from these services by nature typically fluctuate significantly from quarter to quarter and produce lower gross margins than systems or maintenance revenues. Gross Margin The Company's total gross margin for second quarter 2002 was 48% compared to 45.4% for the second quarter 2001. For the first half of 2002, total gross margin was 46.7% compared to 42.8% for the first half of 2001. Systems margin was 51.2% for second quarter 2002, down from 54% in second quarter 2001. First half 2002 systems margin was 49.8%, up slightly from 49.4% in the first half of 2001. Although revenues declined as discussed above, gross margin percentages for the year have remained relatively flat due to higher software content and cost reductions. In general, the Company's systems margin may be improved by higher software content in the product mix, a weaker U.S. dollar in international markets, and a higher mix of international systems sales to total systems sales when the dollar is weaker in international markets. Systems margins may be lowered by price competition, a higher hardware content in the product mix, a stronger U.S. dollar in international markets, and a higher mix of federal government sales, which generally produce lower margins than commercial sales. While unable to predict the effects that many of these factors may have on its systems margins, the Company expects to maintain the improvements resulting from the Company's exit from the hardware business. Maintenance margin for second quarter 2002 was 55.2%, increasing from 43.5% in the second quarter 2001. For the first half of 2002, maintenance margin was 52.5%, up from 43.4% for the comparable prior-year period. Although the Company's revenues have declined due to the exit from the hardware business, costs have also declined, primarily due to overall headcount reductions and reduced third-party expenses in PP&O. The higher software content of maintenance contracts has also improved margins. Services margin was 30.6% for second quarter 2002, up from 22.5% in second quarter 2001. For the first half of 2002, services margin was 30.8%, up from 22.5% in the first half of 2001. Although revenues for the first half of 2002 declined, as noted above, the higher services margin is attributed to significantly lower costs in 2002. Significant fluctuations in services revenues and margins from period to period are not unusual. For contracts other than those accounted for under the percentage-of- completion method, costs are expensed as incurred, with revenues recognized either at the end of the performance period or based on milestones specified in the contract. Operating Expenses Operating expenses for the second quarter and first half of 2002 were $56.2 million and $110.1 million, respectfully, relatively flat with second quarter 2001 and down 2.1% from the first half of 2001. Product development expense was $12.5 million for second quarter 2002 and $24.7 million for the first half of 2002, down 11% from the second quarter 2001 level and down 8.8% from the first half 2001 level. The decrease in product development expense is primarily due to increased software development costs qualifying for capitalization, principally from the Company's PP&O and IMGS segments. Sales and marketing expense was $24.9 million for second quarter 2002 and $47.5 million for first half of 2002, down 2.8% from the $25.6 million second quarter 2001 amount and flat compared to the $47.8 million first half 2001 level. General and administrative expense was $18.8 million for second quarter 2002, up 10.8% from the second quarter 2001 level due primarily to increased medical benefits and additional bad debt reserves. Additionally, legal expenses in the second quarter of 2002, along with other costs associated with the patent litigation, were offset against the gain from the patent settlement that is shown in other income in the consolidated statements of income. During the first half of 2002, general and administrative expense was $37.9 million, relatively flat compared to the first half 2001 level. Patent Litigation Gain In April 2002, Intergraph and Intel settled a patent infringement lawsuit filed in Alabama Federal Court in 1997 for $300 million, which the Company received in May. The Company recognized a net gain of $293.6 million on this transaction, which is included in "Patent litigation gain" in the consolidated statement of income for the six months ended June 30, 2002. The Company has requested that the SEC staff concur with this financial statement presentation of the patent settlement. (See "Litigation" for further discussion on this transaction.) Gains on Sales of Assets In July 2000, Intergraph sold its Intense3D graphics division to 3Dlabs for approximately 11.2 million shares of 3Dlabs common stock. In first quarter 2002, the Company reported an additional gain of approximately $2 million from the 2000 sale of its Intense3D graphics accelerator division to 3Dlabs as the shares originally placed in escrow were released in March 2002. (See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for further discussion of the 3Dlabs transactions). In May 2002, Creative purchased all of the outstanding shares of 3Dlabs for $3.60 per share, paying one-third in cash and two- thirds in Creative common stock. The Company recognized a gain of $17 million on the sale of its shares of 3Dlabs to Creative, which is included in "Gains on sale of assets" in the consolidated statement of income for the six months ended June 30, 2002. At June 30, 2002, the Company owned approximately 2.3 million shares of Creative common stock with a market value of approximately $20.6 million. The Company also recognized a loss of approximately $455,000 on the March 2002 sale of its Greece subsidiary in first quarter 2002. There were no asset sales in second quarter 2001. In first quarter 2001, the Company reported an additional gain of approximately $4.3 million from the BSI transaction as the initial consideration for the sale (along with the Company's note receivable from BSI) was increased based upon a revised calculation of transferred maintenance revenues for the products sold to BSI, as provided for in the original sale agreement. The Company also reported a $580,000 additional gain from the 3Dlabs transaction. This gain was the result of the final calculation and settlement of the earn-out provisions with 3Dlabs. (See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for complete details of these transactions.) See Notes 11 and 12 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further information regarding gains on sales of assets and divestitures. Non-Operating Income and Expense Interest expense was $37,000 for second quarter 2002 and $140,000 for first half 2002, compared to $582,000 for second quarter 2001 and $1.1 million for first half 2001. The Company's average outstanding debt declined from the first half 2001 level due to repayment of borrowings (utilizing the proceeds from sales of various non-core businesses and assets) and lower interest rates. See "Liquidity and Capital Resources" for a discussion of the Company's current financing arrangements. "Other income, net" in the consolidated statements of income consists primarily of interest income, foreign exchange gains and losses, and other miscellaneous items of non-operating income and expense. In second quarter 2002, other income, net was $2.5 million, which included a $652,000 foreign exchange gain and interest income of $1.7 million. In second quarter 2001, other income, net was $3.1 million, which included a $441,000 foreign exchange gain and interest income of $1.7 million. In the first six months of 2002, other income, net was almost $4.3 million, which included an $872,000 foreign exchange gain and interest income of $2.7 million. In first half of 2001, other income, net was $3.5 million, which included a $797,000 write-off of the value of a convertible debenture held by the Company, a $489,000 foreign exchange loss, and interest income of $3.8 million. See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for complete details of these transactions. Income Taxes Income tax expense was $35.1 million for second quarter 2002 and $35.8 million for first half 2002, compared to $1.6 million for second quarter 2001 and $4 million for first half 2001. The Company earned income before taxes and minority interest of $315.7 million and $320.8 million in the second quarter and first half of 2002, respectively, compared to $3.9 million in the second quarter of 2001 and $11.5 million for the first half of 2001. Income tax expense for both periods of 2002 was largely a result of the patent litigation gain and the gains on sales of assets offset by the utilization of the Company's U.S. net operating loss and tax credit carryforwards. Income tax expense for both periods of 2001 resulted primarily from taxes on individually profitable majority- owned subsidiaries, including the Company's 60% ownership interest in Z/I Imaging. See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for details of the Company's tax position, including its net operating loss and tax credit carryforwards. Results By Operating Segment In second quarter 2002, ISG earned operating income of $1.9 million on revenues of $30.5 million, compared to second quarter 2001 operating income of $2.4 million on revenues of $31.7 million. For the first half of 2002, ISG earned operating income of $4.4 million on revenues of $66.4 million compared to the first half of 2001 operating income of $5.7 million on revenues of $69.9 million. The decrease in operating income is a direct result of lower revenues. The impact of lower revenues on operating income was mitigated by the fact that revenue reductions were largely in third-party products where gross margins are smaller than in the core services business. In addition, overhead rates in the services business were lower than planned, lessening the impact of the decline in revenue on operating income. In second quarter 2002, IMGS earned operating income of $25,000 on revenues of $31.2 million compared to second quarter 2001 operating income of $317,000 on revenues of $29 million. For the first six months of 2002, operating income was $2.2 million, down 35% from the 2001 level of $3.3 million. Revenues were $65 million for first half 2002, up slightly from $63.5 million for first half 2001. The reduction in operating income is the effect of a downturn in the economy, predominantly in the commercial, state and local government businesses. The Company believes the reduced purchasing of Information Technology by local and state governments will continue in the near future. In second quarter 2002, PP&O reported operating income of $5 million on revenues of $30.9 million, compared to second quarter 2001 operating income of $1.3 million on revenues of $27.9 million. For the first half of 2002, operating income was $9.2 million on revenues of $60.1 million, a substantial increase over $2.6 million on revenues of $57.8 million for the first half of 2001. The increase in operating income was due to increased total revenues, cost reductions (primarily a 16.1% decrease in the segment's research and development expenses, due to an increase in costs qualifying for capitalization, and lower third-party maintenance costs) and improved product mix (growth in higher- margin products). In second quarter 2002, IPS earned operating income of $1.9 million on revenues of $26.8 million, compared to second quarter 2001 operating income of $1.2 million on revenues of $30.1 million. IPS reported operating income of $2 million on revenues of $47.7 million for the first half of 2002 compared to operating income of $2.3 million on revenues of $59.8 million for the same period in 2001. Revenues and gross margin dollars decreased mainly due to the difficult economic environment in the utilities and communications markets, but were partially offset by lower operating costs. Competition in this market is fierce and very price competitive. The financial uncertainty and overcapacity in the communications market has resulted in few large technology purchases; however, the utilities and communications sector of IPS is seeing some demand of its Workforce Management solution as utilities companies are focused on customer satisfaction and improved utilization of its work force. Operating income for second quarter 2002 increased 57.7% from the 2001 level and was positively impacted by a reduction in operating expenses, largely due to headcount reductions, causing an increase in operating income even though revenues were down. In second quarter 2002, Z/I Imaging earned operating income of $310,000 on revenues of $7 million, compared to second quarter 2001 operating income of $2.2 million on revenues of $12 million. For the first half of 2002, operating income was $811,000 on revenues of $14.8 million compared to operating income of $3.8 million on revenues of $23.1 million. The economic slow-down has caused some delay in customers' capital investments. Shortfalls in state sales tax revenues continue to negatively impact spending within the state Departments of Transportation, who represent a significant customer segment within Z/I Imaging's U.S. customer base. The Company has remained profitable by controlling expenses and slowing down the rate of growth in international operations. Z/I Imaging has continued to pursue a strategy of new product development and has successfully completed three test flights of the new Digital Mapping Camera ("DMC"). The first production system of DMC is expected to ship in the third quarter of 2002. In the second quarter of 2002, the Intellectual Properties division reported an operating loss of $381,000 compared to an operating loss of $410,000 in the second quarter of 2001. No revenues were reported in either quarter. For the first six months of 2002, IP reported an operating loss of $3.5 million compared to $725,000 for the first half of 2001, both with no revenues. Costs are primarily outside legal expenses related to patent litigation that increased substantially in 2002. The second quarter 2002 legal expenses related to the patent litigation were offset against the settlement proceeds. See "Litigation" below. In second quarter 2002, Corporate reported an operating loss of $6.4 million on revenues of $3.6 million, compared to a second quarter 2001 operating loss of $4.1 million on revenues of $10.8 million. For the first six months of 2002, Corporate reported an operating loss of $11.1 million on revenues of $6.1 million compared to an operating loss of $11.2 million on revenues of $22.6 million in the first half of 2001. Current revenues are primarily associated with the sale of spare parts and spare part repair fees from hardware maintenance organizations worldwide. Revenues will continue to decline as a result of the exit from the hardware business. Operating expenses were slightly higher because of higher medical benefits and additional bad debt reserves. See Note 13 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further explanation of the Company's segment reporting. Litigation As further described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, the Company has had ongoing litigation with Intel since 1997. On April 14, 2002, but effective as of April 4, 2002, the Company and Intel reached an agreement during the course of court-ordered mediation that settles the litigation involving the Company's Clipper patents. Under the terms of the settlement agreement, Intel agreed to pay $300 million to the Company (proceeds of which were received May 1, 2002), the lawsuit pending in Alabama was dismissed, the companies signed a cross license agreement, and the Company assigned certain unrelated patents to Intel. The Company recorded the $300 million settlement (net of applicable legal fees and other associated litigation costs) as a separate line item in the other income (expense) section of its 2002 consolidated income statement. The settlement also established a range of damages for the pending patent infringement suit in Texas. This settlement agreement was previously filed as a Form 8-K/A of the Company on April 30, 2002, and is available for public review. Subject to the specific terms of the settlement, the parties established an award of $150 million to the Company depending upon the outcome of the Texas district court trial, and an additional $100 million to the Company depending upon the outcome of an appeal unless Intel can implement an approved workaround to the infringement. Pursuant to the terms of the settlement agreement, Intel will pay nothing if they are found in the Texas district court not to have infringed. The Texas trial was held in early July 2002. The parties have provided the court with written briefs summarizing the issues at trial, and the court has scheduled final closing arguments for August 29, 2002. The Company does not anticipate a verdict before mid-September. The Company has other ongoing litigation, none of which is considered to represent a material contingency for the Company at this time; however, any unanticipated unfavorable ruling in any of these proceedings could have an adverse impact on the Company's results of operations and cash flow. Remainder of the Year The Company expects that the markets in which it competes will continue to be characterized by intense competition, rapidly changing technologies, and shorter product cycles. Further improvement in the Company's operating results will depend on further market penetration achieved by accurately anticipating customer requirements and technological trends, and rapidly and continuously developing and delivering new products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability. Better operating results will also depend on worldwide economic improvement and the Company's ability to successfully implement its strategic direction, which includes the operation and growth of independent vertical business segments. These matters are subject to known and unknown risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." During the remainder of 2002, the Company could engage in additional transactions affecting its investments in affiliates. Creative acquired all outstanding shares of 3Dlabs for $3.60 per share. The transaction closed in May 2002 with the Company receiving approximately $13.4 million in cash and approximately 2.3 million shares of Creative stock. In July 2002, the Company sold approximately 800,000 shares of Creative for $7.9 million. As of July 31, 2002, the Company owns around 1.5 million shares of Creative. A portion of the Company's remaining shares in Creative could be sold in the fourth quarter of 2002. On April 22, 2002, Bentley Systems, Inc. ("BSI") filed documents with the SEC for an initial public offering ("IPO"). Because of the uncertainly in the equity markets, however, BSI has decided not to file an amendment to its registration statement until the IPO market improves. When BSI's IPO is completed, the Company expects to sell some portion of its holdings in BSI. The Company also continues to pursue real estate sales and facilities consolidation. If successful, these sales should provide additional cash to the Company as well as reductions in operating costs. LIQUIDITY AND CAPITAL RESOURCES Under the Company's January 1997 seven-year fixed term loan and revolving credit agreement (as amended), 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 availability of $50 million. At June 30, 2002, the borrowing base, representing the maximum available credit under the line, was approximately $49.8 million, of which $10.7 million was allocated to support the Company's letters of credit. At June 30, 2002, the Company had outstanding borrowings of $1.3 million under this agreement, all of which is classified as short-term debt in the consolidated balance sheet. Borrowings are secured by a pledge of substantially all of the Company's U.S. assets and certain international receivables. The rate of interest on all borrowings under the agreement is the greater of 6.5% or the Wells Fargo base rate of interest (4.75% at June 30, 2002) plus .125%. There are provisions in the agreement which lower the interest rate upon achievement of sustained profitability by the Company, but only to the minimum interest rate of 6.5%. The agreement requires the Company to pay a facility fee at an annual rate of .15% of the amount available under the credit line, an unused credit line fee at an annual rate of .20% of the average unused portion of the revolving credit line, a letter of credit fee at an annual rate of .75% of the undrawn amount of all outstanding letters of credit, and a monthly agency fee. An amendment was executed on August 1, 2001, that extends the current agreement until January 2004 with no cancellation penalty to the Company after January 2003, allows pay- down of the term loan portion of the line, and lowers the facility to $50 million. The term loan and revolving credit agreement contains certain financial covenants of the Company, including minimum net worth, minimum current ratio, and maximum levels of capital expenditures, and restrictive covenants that limit or prevent various business transactions (including purchases 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 without approval. The Company's net worth covenant was increased to $250 million, effective August 1, 2001. The Company is beginning negotiations to terminate its existing secured credit agreement and expects to have this facility terminated by the end of this year. At June 30, 2002, the Company had approximately $3.3 million in debt on which interest is charged under various floating rate arrangements. The Company is exposed to market risk of future increases in interest rates on these loans. The Company believes that existing cash balances will substantially exceed cash requirements for operations for 2002. The Company anticipates no significant non-operating events that will require the use of cash, with the exception of its stock repurchase program. In July 2002, this program was extended from $75 million to $100 million (see the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for further discussion). CRITICAL ACCOUNTING POLICIES AND ISSUES The preparation of financial statements in conformity with generally accepted accounting principles requires that management use judgments to make estimates and assumptions that affect the amounts reported in the financial statements. As a result, there is some risk that reported financial results could have been materially different had other methods, assumptions, and estimates been used. The Company believes that of its significant accounting policies, those related to revenue recognition, capitalized software, deferred taxes, investment in debt and equity securities, bad debt reserves, and inventory valuation may involve a higher degree of judgment and complexity as used in the preparation of its consolidated financial statements. (See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for complete descriptions of these significant policies.) The Company accounted for the Intel settlement as a one-time event, net of applicable costs, and has requested that the SEC staff concur with this financial statement presentation. 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 the year ended December 31, 2001. 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 six months of 2002, approximately 42% of the Company's revenues were derived from customers outside the United States, primarily through subsidiary operations, compared to 46% for the first six months of 2001. Most subsidiaries sell to customers and incur and pay operating expenses in local currencies. These local currency revenues and expenses are translated into 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. A weaker U.S. dollar will increase the level of reported U.S. dollar orders and revenues, increase the dollar gross margin, and increase the reported dollar operating expenses of the international subsidiaries. The Company estimates that the weakening of the U.S. dollar in its international markets, primarily in Europe, did not have a significant impact on its results of operations in comparison to first half 2001. The Company conducts business in many markets outside the United States, 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 and Canadian subsidiaries. The U.S. dollar is the functional currency for all other international subsidiaries. Effective first quarter 2000, the Company ceased hedging any of its foreign currency risks. The Company had no forward contracts outstanding at June 30, 2002, or December 31, 2001. 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." In September 2000, and with effect from January 1, 2001, Greece became the twelfth member of the EMU to adopt the Euro. Euro currency began to circulate on January 1, 2002, and the individual national currencies of the participating countries were withdrawn from circulation by February 28, 2002. All of the Company's financial systems currently accommodate the Euro, and since 1999, the Company has conducted business in Euros with its customers and vendors who chose to do so without encountering significant administrative problems. While the Company continues to evaluate the potential impacts of the common currency, at present it has not identified significant risks related to the Euro and does not anticipate that full Euro conversion in 2002 will have a material impact on its results of operations or financial condition. To date, the conversion to one common currency has not impacted the Company's pricing in European markets. PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings ----------------- As further described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, the Company has had ongoing litigation with Intel since 1997. On April 14, 2002, but effective as of April 4, 2002, the Company and Intel reached an agreement during the course of court-ordered mediation that settles the litigation involving the Company's Clipper patents. Under the terms of the settlement agreement, Intel agreed to pay $300 million to the Company (proceeds of which were received May 1, 2002), the lawsuit pending in Alabama was dismissed, the companies signed a cross license agreement, and the Company assigned certain unrelated patents to Intel. The Company recorded the $300 million settlement (net of applicable legal fees and other associated litigation costs) as a separate line item in the other income (expense) section of its 2002 consolidated income statement. The settlement also established a range of damages for the pending patent infringement suit in Texas. This settlement agreement was previously filed as a Form 8-K/A of the Company on April 30, 2002, and is available for public review. Subject to the specific terms of the settlement, the parties established an award of $150 million to the Company depending upon the outcome of the Texas district court trial, and an additional $100 million to the Company depending upon the outcome of an appeal unless Intel can implement an approved workaround to the infringement. Pursuant to the terms of the settlement agreement, Intel will pay nothing if they are found in the Texas district court not to have infringed. The Texas trial was held in early July 2002. The parties have provided the court with written briefs summarizing the issues at trial, and the court has scheduled final closing arguments for August 29, 2002. The Company does not anticipate a verdict before mid-September. The Company has other ongoing litigation, none of which is considered to represent a material contingency for the Company at this time; however, any unanticipated unfavorable ruling in any of these proceedings could have an adverse impact on the Company's results of operations and cash flow. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Intergraph Corporation's Annual Meeting of Shareholders was held May 16, 2002. The results of the meeting follow. (1) Seven directors were elected to the Board of Directors to serve for the ensuing year and until their successors are duly elected and qualified. All nominees were serving as Directors of the Company at the time of their nomination for the current year. Votes ----------------------------- For Against/Withheld ---------- ---------------- James F. Taylor, Jr. 43,417,886 2,181,617 Larry J. Laster 43,394,728 2,204,775 Sidney L. McDonald 43,369,051 2,230,452 Thomas J. Lee 43,172,388 2,427,115 Lawrence R. Greenwood 35,054,986 10,544,517 Joseph C. Moquin 43,403,556 2,195,947 Linda L. Green 43,395,474 2,204,029 (2) Proposal to approve and adopt an amendment to the Company's certificate of incorporation to eliminate the ability of shareholders to act by written consent in lieu of a meeting was defeated by a vote of 13,208,238 for, 21,630,538 against, 364,099 abstentions, and 10,396,628 broker non-votes. (3) Proposal to approve the Intergraph Corporation 2002 Stock Option Plan was approved by a vote of 42,276,982 for, 2,827,138 against, and 495,383 abstentions. (4) Ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the current fiscal year was approved by a vote of 43,187,782 for, 2,360,012 against, and 51,709 abstentions. (5) Approval of any proposal which might be submitted by the Company to adjourn the Meeting to a later date to solicit additional proxies in favor of any of Proposals 1 through 4 above in the event that there were not sufficient votes for approval of any of Proposals 1 through 4 at the Meeting was approved by a vote of 29,282,319 for, 14,244,479 against, and 2,072,705 abstentions. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit Number Description ------- ----------- 10(l) Intergraph Corporation Amended and Restated 2002 Stock Option Plan 99.1 Certification pursuant to 18 U.S.C. Section 1350 by James F. Taylor, Jr. dated August 13, 2002 99.2 Certification pursuant to 18 U.S.C. Section 1350 by Larry J. Laster dated August 13, 2002 (b) Reports on Form 8-K: None 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 F. Taylor, Jr. By: /s/ Larry J. Laster -------------------------- ---------------------- James F. Taylor, Jr. Larry J. Laster Chief Executive Officer Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 13, 2002 Date: August 13, 2002 EX-10.L 4 optionplan.txt AMENDED STOCK OPTION PLAN INTERGRAPH CORPORATION AMENDED AND RESTATED 2002 STOCK OPTION PLAN 1. PURPOSE This Amended and Restated 2002 Stock Option Plan of Intergraph Corporation (the "Plan") is intended as an incentive for key employees (including officers) which will foster increased productivity, encourage them to remain in the employ of Intergraph Corporation (the "Corporation"), and enable them to acquire or increase their proprietary interest in the Corporation. At the discretion of the Committee (as defined below), options issued pursuant to this Plan may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Options"), or options which are not Incentive Options ("Non-Statutory Options") (Incentive Options and Non-Statutory Options are collectively referred to as "Options"). The Committee shall also be entitled to make awards of restricted stock ("Restricted Stock") in accordance with the terms of the Plan. For the purposes of the Plan, Incentive Options, Non-Statutory Options and awards of Restricted Stock, whether singly or in combination, shall sometimes be referred to as "Awards." 2. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") composed of the entire Board of Directors or a committee of the Board of Directors that is composed solely of two or more "Non-Employee Directors." For this purpose, the term "Non-Employee Director" shall mean a person who is a member of the Corporation's Board of Directors who (a) is not currently an employee and is not, nor has ever been, an officer of the Corporation or any parent or subsidiary of the Corporation, (b) does not directly or indirectly receive compensation for serving as a consultant or in any other non-director capacity from the Corporation or any parent or subsidiary of the Corporation that exceeds the dollar amount for which disclosure would be required pursuant to Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended ("Regulation S-K"), (c) does not possess any interest in any other transaction with the Corporation or any parent or subsidiary of the Corporation for which disclosure would be required pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged in a business relationship with the Corporation or any parent or subsidiary of the Corporation which would be disclosable under Item 404 (b) of Regulation S-K. In the event the Committee is a committee composed of two or more Non- Employee Directors, the Board of Directors may from time to time remove members from, add members to, and fill vacancies on, the Committee. A member of the Committee shall be eligible to participate in the Plan and receive Awards under the Plan. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Action taken by a majority of the Committee at which a quorum is present, or action reduced to writing or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. The Committee may from time to time and at its discretion, grant Awards to eligible employees. Subject to the terms of this Plan, the Committee shall exercise its sole discretion in determining which eligible employees shall receive Awards, and the number of shares subject to each Award granted; provided that not more than 200,000 Options shall be granted to any 162(m) Employee in any calendar year. For the purposes of this Plan, a "162(m) Employee" shall mean the Chief Executive Officer of the Corporation and the other four (4) most highly compensated officers, within the meaning of U.S. Treasury Regulation Section 1.162-27(c)(2). The Committee's interpretation and construction of any provision of the Plan, or any Award granted under it, shall be final. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the Plan. 3. ELIGIBILITY Persons eligible to receive Awards shall be such key employees (including officers) of the Corporation and its subsidiaries as the Committee shall from time to time select. The determination of whether a company is a subsidiary of the Corporation shall be made in accordance with Section 424(f) of the Internal Revenue Code, as amended. An Award recipient may, subject to the terms and restrictions set forth in the Plan, hold more than one type of Award. No person shall be eligible to receive an Award for a larger number of shares than is granted to him or her by the Committee. In selecting the individuals to whom Awards shall be granted, as well as determining the number of shares subject to each Award, the Committee shall weigh the position and responsibility of the individual being considered, the nature of his or her services, his or her present and potential contributions to the Corporation, and such other factors as the Committee deems relevant to accomplish the purposes of the Plan. 4. STOCK The stock subject to Awards issued under the Plan shall be shares of the Corporation's authorized but unissued, or reacquired, ten cent ($.10) par value common stock (hereafter sometimes called "Capital Stock" or "Common Stock"). The aggregate number of shares which may be issued pursuant to Awards under the Plan shall not exceed 2,000,000 shares of Capital Stock, of which no more than 400,000 shall be shares of Capital Stock with respect to which Restricted Stock awards may be granted. The limitations established by each of the preceding sentences shall be subject to adjustment as provided in Article 6(g) of the Plan. Notwithstanding the foregoing and subject to Article 6(g) of the Plan, no Award recipient may receive Awards under the Plan in any calendar year that relate to more than 200,000 shares of Capital Stock. In the event that any outstanding Award under the Plan for any reason expires or is terminated, the shares of Capital Stock allocable to the unexercised portion of such Award may again be subjected to an Award under the Plan. 5. RESTRICTED SHARES (a) Grant (i) Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the participants to whom Restricted Shares shall be granted, the number of Restricted Shares to each participant, the duration of the period during which, and the conditions under which, the Restricted Shares may be forfeited to the Corporation, and the other terms and conditions of such Restricted Share awards. The Restricted Share awards shall be evidenced by agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the terms and conditions provided hereunder and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan. (ii) Subject to Section 4, each Restricted Share award made under the Plan shall be for such number of shares of Capital Stock as shall be determined by the Committee and set forth in the award agreement containing the terms of such Restricted Share award. Such agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Corporation in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the shares of Capital Stock covered by the Restricted Share award. The award agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the shares of Capital Stock to forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding Restricted Share awards. (b) Delivery of Shares and Transfer Restrictions At the time of a Restricted Share award, a certificate representing the number of shares of Capital Stock awarded thereunder shall be registered in the name of the grantee. Such certificate shall be held by the Corporation or any custodian appointed by the Corporation for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. The grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such shares of Capital Stock, subject to the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the award agreement with respect to such shares of Capital Stock; (ii) none of the shares of Capital Stock may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee at or after grant, all of the shares of Capital Stock shall be forfeited and all rights of the grantee to such shares of Capital Stock shall terminate, without further obligation on the part of the Corporation, unless the grantee remains in the continuous employment of the Corporation for the entire restricted period in relation to which such shares of Capital Stock were granted and unless any other restrictive conditions relating to the Restricted Share award are met. Any shares of Capital Stock, any other securities of the Corporation and any other property (except for cash dividends) distributed with respect to the shares of Capital Stock subject to Restricted Share awards shall be subject to the same restrictions, terms and conditions as such Restricted Shares. (c) Termination of Restrictions At the end of the restricted period and provided that any other restrictive conditions of the Restricted Share award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the award agreement relating to the Restricted Share award or in the Plan shall lapse as to the restricted shares of Capital Stock subject thereto, and a stock certificate for the appropriate number of shares of Capital Stock, free of the restrictions and restricted stock legend, shall be delivered to the grantee or the grantee's beneficiary or estate, as the case may be. 6. TERMS AND CONDITIONS OF THE PLAN No obligation to retain an Award recipient as an employee of the Corporation or its subsidiaries, or to provide or continue providing the Award recipient with, or to permit the Award recipient to retain, any incident associated with or arising out of employment with the Corporation or its subsidiaries, including, but not limited to, tenure, salary, benefits, title or position, shall be imposed on the Corporation or its subsidiaries by virtue of the adoption of the Plan, the grant or acceptance of an Award granted pursuant to the Plan, or the exercise of an Option under the Plan. Awards granted under the Plan shall be authorized by the Committee and shall be evidenced by agreements in such form as the Committee shall from time to time approve. Such agreements shall conform with, and be subject to, the following terms and conditions: (a) Number of Shares and Form of Award Each Award agreement shall state the number of shares to which it pertains, whether the Award granted is an Incentive Option, a Non-Statutory Option (and, in the case of Non-Statutory Options, the vesting period relating to such Options) or an award of Restricted Stock. (b) Option Price Each Option agreement shall state the Option exercise price. The per share exercise price for shares obtainable pursuant to any Option, including any Option granted to a 162(m) Employee, shall not be less than 100% of the Fair Market Value, as defined below, of the shares of Capital Stock of the Corporation on the date the Option is granted. For all purposes under the Plan, "Fair Market Value" shall mean, unless otherwise determined by the Committee in good faith, the closing sale price of the Common Stock as reported on the Nasdaq National Market (or the mean between the highest and lowest per share sales price should the Common Stock be listed on an exchange) on a given day, or if the Common Stock is not traded on that day, then on the next preceding day on which such stock was traded (the "Fair Market Value"). Subject to the foregoing, the Committee shall have full authority and discretion, and shall be fully protected, with respect to the price fixed for shares obtainable pursuant to the exercise of Options. The aggregate Fair Market Value (determined at the time the Incentive Option is granted) of the Common Stock with respect to which Incentive Options are exercisable for the first time by the Option recipient during any calendar year (under all such plans of the Corporation and its subsidiary corporations) shall not exceed $100,000. If an Option recipient is granted Incentive Options which exceed this limitation, the Incentive Options shall be considered a Non-Statutory Option to the extent such limitation is exceeded. Notwithstanding the foregoing, no Incentive Option shall be granted to an employee who, immediately after such option is granted, owns or has rights to stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation, unless such Option is granted at a price which is at least 10% greater than the Fair Market Value of the stock subject to the Incentive Option and such Option by its terms is not exercisable after the expiration of five (5) years from the date such Option is granted. (c) Medium and Time of Payment Subject to any other exercise restrictions contained in the Plan, the Option recipient may pay the Option exercise price in cash, by means of unrestricted shares of the Corporation's Common Stock (subject to the provisions of this Section 6(c)), or in any combination thereof. As determined by the Committee, in its sole discretion, at or (except in the case of an Incentive Option) after grant, payment in full or in part may be made in the form of shares of Common Stock already owned by the optionee and held by the Option recipient for at least six months (in each case valued at the Fair Market Value of the Common Stock on the date the Option is exercised). The Option recipient must pay for shares received pursuant to an Option exercise on or before the date of delivery of the shares to the Option recipient. Subject to the requirements of rules promulgated by the Securities and Exchange Commission and Regulation T promulgated by the Federal Reserve Board, the Committee, in its sole discretion, may establish procedures whereby an Option recipient may exercise an Option or a portion thereof without making a direct payment of the Option price to the Corporation. If the Committee so elects to establish a cashless exercise program, the Committee shall determine, in its sole discretion, and from time to time, such administrative procedures and policies as it deems appropriate and such procedures and policies shall be binding on any Option recipient utilizing the cashless exercise program. Payment in currency or by check, bank draft, cashier's check, or postal money order shall be considered payment in cash. In the event of payment in the Corporation's Common Stock, the shares used in payment of the purchase price shall be taken at the Fair Market Value of such shares on the date they are tendered to the Corporation. (d) Term and Exercise of Options The vesting period for all Non-Statutory Options shall be determined by the Committee in its sole discretion. No Incentive Options shall be exercisable either in whole or in part prior to twelve (12) months from the date that they are granted. Subject to the right of accretion provided for below, each Incentive Option shall be exercisable in four (4) installments, as follows: (1) up to one-fourth of the total shares covered by the Option may be purchased after twelve (12) months from the date the Option is granted; (2) one-fourth of the total shares covered by the Option may be purchased after twenty-four (24) months from the date the Option is granted; (3) up to one-fourth of the total shares covered by the Option may be purchased after thirty-six (36) months from the date the Option is granted; and (4) up to one-fourth of the total shares covered by the Option may be purchased after forty-eight (48) months from the date the Option is granted. The Committee may provide, however, for the exercise of an Option after the initial twelve (12) month period, either as an increased percentage of shares per year or as to all remaining shares, if the Option recipient dies, is or becomes disabled or retires. During the Option recipient's lifetime, the Option shall be exercisable only by the Option recipient, or the Option recipient's guardian or legal representative if one has been appointed, and shall not be assignable or transferable other than by will or the laws of descent and distribution. To the extent not exercised, Option installments shall accumulate and be exercisable, in whole or in part, in any subsequent period but not later than ten (10) years from the date the Option is granted. No Option is exercisable after the expiration of ten (10) years from the date it is granted. (e) Termination of Employment Except Death If an Option recipient's employment with the Corporation or its subsidiaries ceases for any reason other than the Option recipient's death, all Options held by him pursuant to the Plan and not previously exercised as of the date of such termination shall terminate and become void and of no effect three (3) months from the date the Option recipient's employment is terminated, provided that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted. Authorized leaves of absence or absence for military service shall not constitute termination of employment for the purposes of the Plan. (f) Death of Option Recipient and Transfer of Option If an Option recipient dies while employed by the Corporation or its subsidiaries and has not fully exercised all of his or her exercisable Options, such Options may be exercised, at any time within one (1) year after death, by the Option recipient's executors or administrators, or by any person or persons who shall have acquired the Option directly from the Option recipient by bequest or inheritance. In no event, however, shall the Option be exercisable more than ten (10) years after the date such Option is granted. An Option transferred to an Option recipient's estate or to a person to whom such right devolves by reason of the Option recipient's death shall be nontransferable by the Option recipient's executor or administrator or by such person, except that the Option may be distributed by the Option recipient's executors or administrators to the distributees of the Option recipient's estate entitled thereto. (g) Recapitalization Subject to any required action by the shareholders, the aggregate number of shares which may be issued pursuant to Awards, the number of shares of Capital Stock covered by each outstanding Award, and the price per share applicable to shares under such Awards, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Capital Stock of the Corporation resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Capital Stock), or any other increase or decrease in the number of such shares effected without receipt of consideration by the Corporation. If the Corporation is merged with or consolidated into any other corporation, or if all or substantially all of the business or property of the Corporation is sold, or if the Corporation is liquidated or dissolved, or if a tender or exchange offer is made for all or any part of the Corporation's voting securities, or if any other actual or threatened change in control of the Corporation occurs, the Committee, with or without the consent of the Option recipient, may (but shall not be obligated to), either at the time of or in anticipation of any such transaction, take any of the following actions that the Committee may deem appropriate in its sole and absolute discretion: (i) cancel any Option by providing for the payment to the Award recipient of the excess of the Fair Market Value of the shares subject to the Award over the exercise price of the Option, (ii) substitute a new Option of substantially equivalent value for any Option, (iii) accelerate the exercise terms of any Award, or (iv) make such other adjustments in the terms and conditions of any Option as it deems appropriate. In the event of a change in Capital Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be the Capital Stock within the meaning of the Plan. To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final. Except as otherwise expressly provided in this Article 6(g), the Option recipient shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation. Any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Capital Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or assets. (h) Rights as a Stockholder An Option recipient or a transferee of an Option shall have no rights as a stockholder with respect to any shares subject to his Option until a stock certificate is issued to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Article 6(g) of the Plan. (i) Modification, Extension, and Renewal of Awards Subject to the terms of the Plan, the Committee may modify, extend, or renew outstanding Options granted under the Plan, or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). The Committee shall not, however, modify any outstanding Options so as to specify a lower price, or accept the surrender of outstanding Options and authorize the granting of new Options in substitution therefor specifying a lower price. Notwithstanding the foregoing, however, no modification of an Option shall, without the consent of the Option recipient, alter or impair any rights or obligations under any Option theretofore granted under the Plan. (j) Withholding Whenever the Corporation proposes or is required to issue or transfer shares of Capital Stock under the Plan, the Corporation shall have the right to require the Option recipient, prior to the issuance or delivery of any certificates for such shares, to remit to the Corporation, or provide indemnification satisfactory to the Corporation for, an amount sufficient to satisfy any federal, state, local, and foreign withholding tax requirements incurred as a result of an Award under the Plan by such Award recipient. The Corporation shall have the right to withhold such amounts from any other source owed to the recipient, including regular wages or salary. (k) Other Provisions The Award agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the Award, as the Committee shall deem advisable. Limitations and restrictions shall be placed upon the exercise of Incentive Options, in the Incentive Option agreement, so that such Options will be "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986. 7. TERM OF PLAN Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years commencing on June 1, 2002, and continuing through May 31, 2012. 8. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against the reasonable expenses, including, attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit, or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit, or proceeding, that such Committee member is liable for willful misconduct in the performance of his duties; provided, that within sixty (60) days after institution of any such action, suit, or proceeding a Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. 9. AMENDMENT OF THE PLAN The Board of Directors, insofar as permitted by law, shall have the right from time to time with respect to any shares at the time not subject to Awards, to suspend or discontinue the Plan or revise or amend it in any respect whatsoever, except that without approval of the shareholders of the Company, no such revision or amendment shall: (a) change the number of shares for which Awards may be granted under the Plan either in the aggregate or to any individual employee, (b) change the provisions relating to the determination of employees to whom Awards shall be granted, (c) remove the administration of the Plan from the Committee, or (d) decrease the price at which Incentive Options may be granted. 10. APPLICATION OF FUNDS The proceeds received by the Corporation from the sale of Capital Stock pursuant to the exercise of Options will be used for general corporate purposes. 11. NO OBLIGATION TO EXERCISE OPTION The granting of an Option shall impose no obligation upon the Option recipient to exercise such option. 12. APPROVAL OF STOCKHOLDERS This Plan shall take effect on June 1, 2002, subject to approval by the affirmative vote of the holders of the majority of the outstanding shares of Capital Stock of the Corporation present, or represented, and entitled to vote at a meeting of the shareholders, which approval must occur within the period beginning twelve (12) months before and ending twelve (12) months after the date the Plan is adopted by the Board of Directors. EX-99.1 5 ex991.txt EX 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Intergraph Corporation (the "Company") on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James F. Taylor, Jr., Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James F. Taylor, Jr. - ------------------------ James F. Taylor, Jr. Chief Executive Officer August 13, 2002 EX-99.2 6 ex992.txt EX 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Intergraph Corporation (the "Company") on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Larry J. Laster, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Larry J. Laster - ----------------------- Larry J. Laster Chief Financial Officer August 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----