-----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, HwkrEVt3H4Y0bweLnchgjyokBrMJ1Z/viFlkzTHUGWO4Erbq+VeM8csgKhVVmPco ZC1kKDoLjJPCBYJs77q+og== 0000351145-02-000038.txt : 20021113 0000351145-02-000038.hdr.sgml : 20021113 20021113164942 ACCESSION NUMBER: 0000351145-02-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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: 02820590 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 tenq3_2002.txt Q3 10Q ======================================================================== 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 September 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: 46,132,166 shares outstanding as of September 30, 2002 INTERGRAPH CORPORATION FORM 10-Q* September 30, 2002 INDEX Page No. --------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- Consolidated Balance Sheets at September 30, 2002, and December 31, 2001 2 Consolidated Statements of Income for the quarters and nine months ended September 30, 2002, and 2001 3 Consolidated Statements of Cash Flows for the nine months ended September 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 ----------------- Item 4. Controls and Procedures 20 ----------------------- PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 21 ----------------- Item 6. Exhibits and Reports on Form 8-K 22 -------------------------------- SIGNATURES 23 CERTIFICATIONS 24 - 25 * 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) - ------------------------------------------------------------------------- September 30, December 31, 2002 2001 - ------------------------------------------------------------------------- (In thousands, except share and per share amounts) Assets Cash and cash equivalents $344,780 $99,773 Short-term investments --- 11,035 - ------------------------------------------------------------------------- Total cash and short-term investments 344,780 110,808 Accounts receivable, net 157,324 158,873 Inventories, net 20,652 24,125 Other current assets 48,206 32,687 - ------------------------------------------------------------------------- Total current assets 570,962 326,493 Investments in affiliates 19,857 20,654 Capitalized software development costs, net 29,411 24,209 Other assets 21,071 34,680 Property, plant, and equipment, net 51,986 51,974 - ------------------------------------------------------------------------- Total Assets $693,287 $458,010 ========================================================================= Liabilities and Shareholders' Equity Trade accounts payable $18,405 $22,897 Accrued compensation 31,292 31,693 Other accrued expenses 35,101 43,765 Billings in excess of sales 35,031 37,968 Income taxes payable 20,940 9,913 Short-term debt and current maturities of long-term debt 1,647 2,619 - ------------------------------------------------------------------------- Total current liabilities 142,416 148,855 - ------------------------------------------------------------------------- Deferred income taxes 19,027 2,573 Long-term debt --- 1,114 Other noncurrent liabilities 2,516 2,729 - ------------------------------------------------------------------------- Total noncurrent liabilities 21,543 6,416 - ------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 7,811 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 205,125 210,748 Retained earnings 495,906 208,268 Accumulated other comprehensive loss (9,076) (20,603) - ------------------------------------------------------------------------- 697,691 404,149 Less - cost of treasury shares (11,229,196 at September 30, 2002, and 7,539,419 at December 31, 2001) (176,174) (108,936) - ------------------------------------------------------------------------- Total shareholders' equity 521,517 295,213 - ------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $693,287 $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 Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------- (In thousands, except per share amounts) Revenues Systems $81,014 $70,547 $219,368 $225,135 Maintenance 31,174 28,804 89,503 93,519 Services 21,328 27,705 70,311 80,315 - ------------------------------------------------------------------------- Total revenues 133,516 127,056 379,182 398,969 - ------------------------------------------------------------------------- Cost of revenues Systems 43,501 35,652 112,897 113,845 Maintenance 14,664 15,512 42,396 52,110 Services 15,284 19,742 49,159 60,493 - ------------------------------------------------------------------------- Total cost of revenues 73,449 70,906 204,452 226,448 - ------------------------------------------------------------------------- Gross profit 60,067 56,150 174,730 172,521 Product development 14,593 13,230 39,310 40,318 Sales and marketing 24,103 22,244 71,606 70,065 General and administrative 18,139 18,512 55,991 56,080 Reorganization credit --- --- --- (384) - ------------------------------------------------------------------------- Income from operations 3,232 2,164 7,823 6,442 Patent litigation gain (loss) (1,186) --- 292,380 --- Gain (Loss) on sales of assets (1,331) 530 17,214 5,361 Interest income 2,262 1,253 4,923 5,052 Other income (expense), net 1,184 (665) 2,633 (2,116) - ------------------------------------------------------------------------- Income before income taxes and minority interest 4,161 3,282 324,973 14,739 Income tax expense (1,300) (2,500) (37,050) (6,500) - ------------------------------------------------------------------------- Income before minority interest 2,861 782 287,923 8,239 Minority interest in earnings of consolidated subsidiaries (188) 460 (285) (200) - ------------------------------------------------------------------------- Net income $ 2,673 $ 1,242 $287,638 $ 8,039 ========================================================================= Net income per share - basic $ .06 $ .03 $ 5.92 $ .16 - diluted $ .05 $ .02 $ 5.62 $ .16 ========================================================================= Weighted average shares outstanding - basic 46,311 49,655 48,579 49,516 - diluted 48,754 51,854 51,155 51,546 ========================================================================= The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - ------------------------------------------------------------------------- Nine Months Ended September 30, 2002 2001 - ------------------------------------------------------------------------- (In thousands) Cash Provided By (Used For): Operating Activities: Net income $287,638 $ 8,039 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,872 9,082 Amortization 11,616 10,782 Gains on sales of assets (17,214) (5,361) Net changes in current assets and liabilities 4,977 (2,770) - ------------------------------------------------------------------------- Net cash provided by operating activities 293,889 19,772 - ------------------------------------------------------------------------- Investing Activities: Net proceeds from sales of assets 30,749 4,297 Purchases of property, plant, and equipment (7,970) (6,503) Purchases of short-term investments (254,197) --- Proceeds from maturities of short-term investments 266,654 --- Capitalized software development costs (9,070) (3,510) Business acquisitions (981) (3,002) Other (1,984) 305 - ------------------------------------------------------------------------- Net cash provided by (used for) investing activities 23,201 (8,413) - ------------------------------------------------------------------------- Financing Activities: Gross borrowings 81 69 Debt repayment (2,172) (15,619) Purchase of treasury stock (78,818) (1,876) Proceeds of employee stock purchases and exercise of stock options 5,957 2,922 - ------------------------------------------------------------------------- Net cash used for financing activities (74,952) (14,504) - ------------------------------------------------------------------------- Effect of exchange rate changes on cash 2,869 (1,264) - ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 245,007 (4,409) Cash and cash equivalents at beginning of period 99,773 119,848 - ------------------------------------------------------------------------- Cash and cash equivalents at end of period $344,780 $115,439 ========================================================================= 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 its Annual Report on Form 10-K for the year ended December 31, 2001, Intergraph Corporation ("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: - ------------------------------------------------------------------------- September 30, December 31, 2002 2001 - ------------------------------------------------------------------------- (In thousands) Raw materials $ 6,507 $ 3,920 Work-in-process 833 1,952 Finished goods 5,404 8,716 Service spares 7,908 9,537 - ------------------------------------------------------------------------- Totals $20,652 $24,125 ========================================================================= Inventories on hand at September 30, 2002, and December 31, 2001, relate primarily to specialized hardware assembly activity in the Company's Intergraph Solutions Group ("ISG") and Intergraph Mapping and Geospatial Solutions ("IMGS") 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 $1.7 million in third quarter 2002 compared to $1.3 million in third quarter 2001, and $4 million and $3.5 million in the first nine months of 2002 and 2001, respectively. The Company increased product development expenses for costs normally eligible for capitalization by $2.7 million and $2.4 million in third quarter 2002 and 2001, respectively, and by $7.8 million and $6.6 million in the nine months ended September 30, 2002, and 2001, respectively, due to net realizable value concerns. Accumulated amortization (net of fully amortized projects) in the consolidated balance sheets at September 30, 2002, and December 31, 2001, was $12.8 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 discussed in Note 4) and other intangible assets (included in "Other assets" in the consolidated balance sheets). At September 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 September 30, 2002 As of December 31, 2001 Accumulated Accumulated Gross Amortization Net Gross Amortization Net - -------------------------------------------------------------------------- (In thousands) Capitalized software development $42,193 $(12,782) $29,411 $32,982 $ (8,773) $24,209 Other intangible assets 44,625 (30,408) 14,217 43,787 (23,174) 20,613 - -------------------------------------------------------------------------- Totals $86,818 $(43,190) $43,628 $76,769 $(31,947) $44,822 ========================================================================== The Company recorded amortization expense of $4.3 million and $3.8 million for third quarter 2002 and 2001, respectively, and $11.6 million and $10.8 million for the first nine months of 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: $4 million in 2002, $14 million in 2003, $9 million in 2004, $7 million in 2005, $5 million in 2006, and $5 million in 2007. NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment, net includes accumulated depreciation of approximately $128.5 million and $130.5 million at September 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 Nine Months Ended September 30, 2002 2001 - ------------------------------------------------------------------------- (In thousands) (Increase) decrease in: Accounts receivable, net $6,237 $11,381 Inventories, net 3,782 (3,592) Other current assets 2,169 5,718 Increase (decrease) in: Trade accounts payable (4,462) (735) Accrued compensation and other accrued expenses (9,833) (14,613) Income taxes payable 10,969 1,334 Billings in excess of sales (3,885) (2,263) - ------------------------------------------------------------------------- Net changes in current assets and liabilities $4,977 $(2,770) ========================================================================= There were no significant non-cash investing and financing transactions in third quarter 2002. Significant non-cash investing and financing transactions in the first nine months of 2002 include a $5.4 million favorable net mark-to-market adjustment on the Company's long-term investments. This amount consists primarily of a $5.1 million unfavorable mark-to-market adjustment on the Company's investment in Creative Technology Ltd. ("Creative") and a $27.3 million favorable mark-to-market adjustment on its investment in 3Dlabs Inc., Ltd. ("3Dlabs"), offset by a reclassification adjustment of $16.6 million upon the sale of its investment in 3Dlabs stock. See Note 9. There were no significant non-cash investing and financing transactions in third quarter 2001. Significant non-cash investing and financing transactions in the first nine months of 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, offset by a $5.8 million unfavorable mark-to-market adjustment. 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 September 30, 2002, and 2001, these dilutive common stock equivalents were 2,443,000 and 2,199,000, respectively. For the nine months ended September 30, 2002, and 2001, these dilutive shares were 2,576,000 and 2,030,000, respectively. NOTE 9 - COMPREHENSIVE INCOME 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 Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------- (In thousands) Net income $2,673 $1,242 $287,638 $8,039 Unrealized holding gains (losses) arising during the period (1,223) (4,151) 22,080 (5,783) Reclassification adjustment for gains included in net income --- --- (16,632) --- Translation adjustment for financial statements denominated in a foreign currency (233) 3,532 6,079 326 - ------------------------------------------------------------------------- Comprehensive income $1,217 $ 623 $299,165 $2,582 ========================================================================= NOTE 10 - PATENT LITIGATION GAIN (LOSS) In third quarter 2002, $1.2 million in costs associated with patent litigation were offset against gains from the patent litigation settlement. During the nine months ended September 30, 2002, the Company recognized a net gain of $292.4 million from the settlement of the patent infringement lawsuit. For a complete discussion, see "Patent Litigation Gain (Loss)" and "Litigation" in MD&A. NOTE 11 - GAIN (LOSS) ON SALES OF ASSETS For third quarter 2002, the Company recognized a loss on the sale of assets of $1.3 million compared to a gain of $530,000 in third quarter 2001. Gains on sales of assets were $17.2 million and $5.4 million for the nine months ended September 30, 2002, and 2001. For a complete discussion, see "Gain (Loss) on Sales of Assets" included in MD&A. NOTE 12 - ACQUISITIONS AND DIVESTITURES There were no acquisitions or divestitures during third quarter 2002. In second quarter 2002, the Company sold its ownership interest in 3Dlabs to Creative for approximately $40.2 million in cash and stock and recorded a gain of approximately $17 million. In March 2002, the Company completed the sale of its subsidiary in Greece 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. 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. The gain and loss on these transactions are included in "Gain (Loss) on sales of assets" in the consolidated statement of income for the nine months ended September 30, 2002. In third quarter 2001, the Company closed the sale of its Saudi Arabian operation and recorded a $680,000 gain offset by a $150,000 impairment reserve in anticipation of an expected loss on the fourth quarter sale of Intergraph Middle East, Ltd. ("IMEL"). The net gain of $530,000 is included in "Gain (Loss) on sales of assets" in the consolidated statements of income for the third quarter and nine months ended September 30, 2001. During the nine months ended September 30, 2001, the Company also acquired (in January 2001) 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 nine months ended September 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. On October 17, 2002, but effective as of October 1, 2002, the Company purchased the remaining 40% ownership interest of Z/I Imaging Corporation ("Z/I Imaging") from Carl Zeiss B.V. ("Zeiss"), a German company. The Company transferred certain reconnaissance camera assets and paid $6 million, net in cash. The film-based commercial mapping cameras and the newly introduced Digital Mapping Camera remain a part of Z/I Imaging. NOTE 13 - SEGMENT REPORTING The Company consists of four core business segments, along with an Intellectual Property division ("IP") and a corporate oversight function ("Corporate"). The four core business segments consist of ISG, IMGS, PP&O, and Intergraph Public Safety, Inc. ("IPS"). 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 professional services, specially developed software and ruggedized hardware, and commercial-off-the-shelf products to federal, state, and local governments, as well as to commercial customers. ISG also includes the U.S. hardware maintenance and network services businesses. Beginning in third quarter 2002, the IMGS segment results also include the results of Z/I Imaging. 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. Z/I Imaging, previously a 60%-owned segment of the Company, supplies end-to-end photogrammetry solutions for front-end data collection to mapping-related and engineering markets. On October 17, 2002, but effective as of October 1, 2002, the Company purchased the remaining 40% ownership interest of Z/I Imaging from Zeiss. 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. Intergraph has created an Intellectual Property division to maximize the value of the Company's portfolio of patents, copyrights, and trademarks. This division has 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 consulting firm to assist in the formulation and implementation of its licensing program, and has begun evaluating products that may benefit from the licensing of Intergraph technology. Amounts 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 the Company (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 are accounted for under a transfer pricing policy. Transfer prices approximate prices that would be charged for the same or similar property or services to similarly situated unrelated buyers. The following table sets forth revenues and operating income (loss) by business segment for the quarter and nine months ended September 30, 2002, and 2001. - ------------------------------------------------------------------------- Quarter Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------- (In thousands) Revenues: ISG: Unaffiliated customers $ 33,290 $ 32,673 $ 96,596 $ 98,391 Intersegment revenues 824 1,155 3,903 5,374 - ------------------------------------------------------------------------- 34,114 33,828 100,499 103,765 - ------------------------------------------------------------------------- IMGS: Unaffiliated customers 37,291 32,285 109,178 108,440 Intersegment revenues 1,699 4,203 6,093 9,415 - ------------------------------------------------------------------------- 38,990 36,488 115,271 117,855 - ------------------------------------------------------------------------- PP&O: Unaffiliated customers 31,635 27,204 89,517 82,369 Intersegment revenues 840 1,400 3,055 4,026 - ------------------------------------------------------------------------- 32,475 28,604 92,572 86,395 - ------------------------------------------------------------------------- IPS: Unaffiliated customers 28,344 29,028 75,955 88,735 Intersegment revenues 143 (78) 238 38 - ------------------------------------------------------------------------- 28,487 28,950 76,193 88,773 - ------------------------------------------------------------------------- IP: Unaffiliated customers 100 --- 100 --- Intersegment revenues --- --- --- --- - ------------------------------------------------------------------------- 100 --- 100 --- - ------------------------------------------------------------------------- Corporate: Unaffiliated customers 2,856 5,866 7,836 21,034 Intersegment revenues 1,266 2,260 2,373 9,649 - ------------------------------------------------------------------------- 4,122 8,126 10,209 30,683 - ------------------------------------------------------------------------- 138,288 135,996 394,844 427,471 - ------------------------------------------------------------------------- Eliminations (4,772) (8,940) (15,662) (28,502) - ------------------------------------------------------------------------- Total revenues $133,516 $127,056 $379,182 $398,969 ========================================================================= - ------------------------------------------------------------------------- Operating income (loss): ISG $ 188 $ 2,444 $ 4,626 $ 8,103 IMGS 751 1,847 4,291 7,437 PP&O 5,773 1,559 15,020 4,163 IPS 4,198 2,532 6,239 4,847 IP (33) (1,196) (3,568) (1,921) Corporate (7,645) (5,022) (18,785) (16,187) Eliminations --- --- --- --- - ------------------------------------------------------------------------- Total $ 3,232 $ 2,164 $ 7,823 $ 6,442 ========================================================================= Significant profit and loss items that were not allocated to the segments and not included in the analysis above include $1.2 million in expenses related to patent litigation and a loss on the sale of assets of $1.3 million for third quarter 2002 and a $530,000 gain on the sale of assets for third quarter 2001. Net gains on patent litigation were $292.4 million for the first nine months of 2002 and gains on sales of assets were $17.2 million and $5.4 million for the nine months ended September 30, 2002, and 2001, respectively. These were all considered non-recurring transactions and are included in the non-operating income (expense) section 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 - LETTERS OF CREDIT On September 4, 2002, in order to reduce the cost of issuing letters of credit, the Company established a credit line with Wells Fargo Bank to cover its outstanding letters of credit. This credit line is secured by $15 million of interest-bearing securities. Under this arrangement, the Company earns interest on the securities and withdrawal of securities is allowed, but restricted such that the Company must maintain a level of securities sufficient to cover total outstanding letters of credit which were $10.3 million at September 30, 2002. NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In first quarter 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. 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, 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 third quarter 2002, the Company earned net income of $2.7 million on revenues of $133.5 million compared to third quarter 2001 net income of $1.2 million on revenues of $127.1 million. Third quarter 2002 income from operations was $3.2 million compared to $2.2 million for third quarter 2001. For the first nine months of 2002, the Company earned net income of $287.6 million on revenues of $379.2 million compared to net income of $8 million on revenues of $399 million for the first nine months of 2001. Income from operations was $7.8 million and $6.4 million for the nine months ended September 30, 2002, and 2001, respectively. See "Non-Operating Income (Expense)" for discussions of non-operating items included in net income. Orders Third quarter 2002 systems and services orders totaled $85 million, up approximately 8% from third quarter 2001. For the nine months ended September 30, 2002, systems and services orders were $270 million, down approximately 6% from the comparable period in 2001. Revenues Total revenues for third quarter 2002 were $133.5 million, up 5% from the comparable prior-year period. For the first nine months of 2002, total revenues were $379.2 million, down 5% from the comparable period in 2001. Sales outside the United States represented approximately 42% of total revenues in the nine months ended September 30, 2002, down from 47% for the comparable period in 2001. European revenues were 25% of total revenues for the first nine months of 2002, down slightly from 27% for the comparable period in 2001. Systems. Systems revenues for third quarter 2002 were $81 million, up 14.8% from third quarter 2001. This increase is spread over several business units. ISG's increase is attributed to a one-time $4.8 million sale of third-party software. IPS also had a one-time increase of $2.3 million related to the completion of a large outsourcing contract in Australia and PP&O had a $2.2 million Shipbuilding Platform Technology sale. For the nine months ended September 30, 2002, systems revenues were $219.4 million, relatively flat compared to the comparable period in 2001. Maintenance. Revenues from maintenance and support of Company products totaled $31.2 million in third quarter 2002, up 8.2% from third quarter 2001. This increase was due primarily to IPS' growing maintenance base and PP&O's increase in Global Alliance Agreements revenue. For the first nine months of 2002, maintenance and support revenues totaled $89.5 million, down 4.3% from the comparable period in 2001. Maintenance revenue declined for the year primarily due to expired hardware contracts not being renewed. Services. Services revenues, consisting primarily of revenues from implementation and consulting services, totaled $21.3 million for third quarter 2002, down 23% from third quarter 2001. For the first nine months of 2002, services revenues were $70.3 million, down 12.5% from the comparable period in 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. 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 third quarter 2002 was 45% compared to 44.2% for third quarter 2001. For the first nine months of 2002, total gross margin was 46.1%, up from 43.2% for the comparable period in 2001. Systems margin was 46.3% for third quarter 2002, down from 49.5% in third quarter 2001. Systems revenue for third quarter 2002 includes a significant, non-recurring government purchase of third- party software with very low profit margin. Excluding this transaction, systems margin for third quarter would be 49.1%. The first nine months of 2002 systems margin was 48.5%, down from 49.4% in the first nine months 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. Maintenance margin for third quarter 2002 was 53%, increasing from 46.1% in third quarter 2001. For the first nine months of 2002, maintenance margin was 52.6%, up from 44.3% 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, reduced third-party expenses, and higher software content of maintenance contracts. Services margin was 28.3% for third quarter 2002, flat compared to 28.7% in third quarter 2001. For the first nine months of 2002, services margin was 30.1%, up from 24.7% in the first nine months of 2001. Although revenues for the first nine months of 2002 declined, as noted above, the higher services margin is attributed to considerably 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 in the period in which revenues are recognized. Operating Expenses Total operating expenses for the third quarter and first nine months of 2002 were $56.8 million and $166.9 million, respectively, up 5.3% from $54 million in third quarter 2001 and relatively flat with $166.1 million in the first nine months of 2001. Product development expense was $14.6 million for third quarter 2002 and $39.3 million for the first nine months of 2002, up 10.3% from third quarter 2001 and down 2.5% from the first nine months of 2001. Third quarter product development expense is slightly higher across most segments. The year-to-date decrease is primarily due to decreased headcount in IPS and increased costs qualifying for capitalization in the first half of 2002. Sales and marketing expense was $24.1 million for third quarter 2002 and $71.6 million for the first nine months of 2002, up 8.4% from the $22.2 million third quarter 2001 amount and relatively flat compared to $70.1 million for the first nine months of 2001. The increase in the third-quarter comparison is due primarily to increased headcount and travel for PP&O. In addition, ISG incurred higher sales and marketing expenses in 2002 in order to increase revenue. Year-to-date expenses remain relatively flat due to reduced headcount and the absence of expenses from the Middle Eastern subsidiaries, which were sold in 2001. General and administrative expense was $18.1 million for third quarter 2002, relatively flat compared to third quarter 2001 expense of $18.5 million. During the first nine months of 2002, general and administrative expense was $56 million, relatively flat compared to $55.7 million in the comparable period in 2001. Non-Operating Income (Expense) Patent Litigation Gain (Loss). 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 $292.4 million on this transaction, which is included in "Patent litigation gain (loss)" in the consolidated statement of income for the nine months ended September 30, 2002. During third quarter 2002, the Company received concurrence from SEC staff of its financial statement presentation of the patent settlement. (See "Litigation" for further discussion on this transaction.) Gain (Loss) on Sales of Assets. In July 2000, Intergraph sold its Intense3D graphics accelerator division to 3Dlabs for approximately 11.2 million shares of 3Dlabs common stock. In first quarter 2002, the Company reported an additional gain of $2 million from that sale 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. In July 2002, Intergraph sold approximately 789,000 shares of Creative stock for a net loss of $1.3 million. These transactions are included in "Gain (Loss) on sales of assets" in the consolidated statement of income for the nine months ended September 30, 2002. At September 30, 2002, the Company owned approximately 1.5 million shares of Creative common stock with a market value at that date of $9.8 million. The Company recognized gains of $17.2 million and $5.4 million for the first nine months of 2002 and 2001, respectively. In addition to the gains and losses related to 3Dlabs and Creative discussed above, the Company also recognized a loss of $455,000 on the March 2002 sale of its Greek subsidiary in first quarter 2002. In first quarter 2001, the Company reported an additional gain of approximately $4.3 million from the BSI transaction 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 $581,000 additional gain from the 3Dlabs transaction. This gain was the result of the final calculation and settlement of the earn-out provisions with 3Dlabs. In third quarter 2001, the Company recognized a gain of $680,000 from the sale of its Saudi Arabian subsidiary and an impairment reserve of $150,000 for its anticipated sale of IMEL. The sale closed in April 2002, effective October 2001. (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 and losses on sales of assets and divestitures. Interest Income. Interest income was $2.3 million for third quarter 2002 compared to $1.3 million for third quarter 2001. The Company increased its short-term investing beginning May 2002 using funds from the Intel settlement. Interest income was $4.9 million for the first nine months of 2002, relatively flat with $5.1 million for the comparable period in 2001. Although interest from short-term investments increased during 2002, there was also a decline in interest rates and a decrease in the amount of interest received on the Bentley note. Also, the 2001 amount included interest received due to settlement of the Micrografx, Inc. convertible subordinated debenture. Other Income (Expense), Net. "Other income (expense), net" in the consolidated statements of income consists primarily of foreign exchange gains and losses, interest expense, and other miscellaneous items of non-operating income and expense. In third quarter 2002, other income (expense), net was $1.2 million, which included a $770,000 foreign exchange loss, interest expense of $32,000, rental income of $617,000, and a gain of $977,000 for the return of real estate assets previously donated. In third quarter 2001, other income (expense), net was a loss of $665,000, which included a $939,000 foreign exchange loss, interest expense of $246,000, and rental income of $995,000. In the first nine months of 2002, other income (expense), net was $2.6 million, which included a $102,000 foreign exchange gain, interest expense of $172,000, a gain of $977,000 for the return of real estate assets previously donated, and rental income of $1.4 million. In the first nine months of 2001, other income (expense), net was a loss of $2.1 million, which included a $797,000 write-off of the value of a convertible debenture, a $1.4 million foreign exchange loss, interest expense of $1.4 million, and rental income of $2.1 million. Income Taxes Income tax expense was $1.3 million for third quarter 2002 and $37.1 million for the first nine months of 2002, compared to $2.5 million for third quarter 2001 and $6.5 million for the first nine months of 2001. The Company earned income before taxes and minority interest of $4.2 million and $325 million in the third quarter and the first nine months of 2002, respectively, compared to $3.3 million in the third quarter of 2001 and $14.7 million for the first nine months of 2001. Income tax expense for 2002 is 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 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 third quarter 2002, ISG earned operating income of $188,000 on revenues of $34.1 million compared to third quarter 2001 operating income of $2.4 million on revenues of $33.8 million. For the first nine months of 2002, ISG earned operating income of $4.6 million on revenues of $100.5 million compared to operating income of $8.1 million on revenues of $103.8 million in the first nine months of 2001. The third-quarter and year-to-date decreases in operating income compared to the prior-year periods are due to lower revenues, increased sales and marketing expenses, and competitive pricing pressure in both the commercial and government sectors. Beginning in third quarter 2002, IMGS segment results will also include the results of Z/I Imaging. In third quarter 2002, IMGS earned operating income of $751,000 on revenues of $39 million compared to third quarter 2001 operating income of $1.8 million on revenues of $36.5 million. For the first nine months of 2002, operating income was $4.3 million, down from $7.4 million in 2001. Revenues were $115.3 million for the first nine months of 2002, down from $117.9 million for the prior-year period. The reduction in operating income is primarily due to lower gross margins on systems sales and higher overall operating expenses and lower-than- planned revenue due to the downturn in the economy, predominantly in the commercial, state and local government businesses. The Company believes local and state governments will continue to spend less on Information Technology ("IT") in the near future. In third quarter 2002, PP&O reported operating income of $5.8 million on revenues of $32.5 million, compared to third quarter 2001 operating income of $1.6 million on revenues of $28.6 million. For the first nine months of 2002, operating income was $15 million on revenues of $92.6 million, a substantial increase over $4.2 million on revenues of $86.4 million for the first nine months of 2001. The increase in operating income is due to higher revenues, cost reductions, improved product mix (growth in higher- margin products), and several non-recurring transactions that positively impacted operating income. In third quarter 2002, IPS earned operating income of $4.2 million on revenues of $28.5 million, compared to third quarter 2001 operating income of $2.5 million on revenues of $29 million. IPS reported operating income of $6.2 million on revenues of $76.2 million for the first nine months of 2002 compared to operating income of $4.8 million on revenues of $88.8 million for the same period in 2001. The increase in revenue and operating income over third quarter 2001 is primarily the result of continued strong performance from the Public Safety division and better performance from the Utilities and Communications ("UC") division. In addition, Public Safety had one-time increases in revenue and income from operations of $2.3 million and $2 million, respectively, as a result of the sale of software and systems associated with the completion of a large outsourcing contract in Australia. In September 2002, the operation of the Bureau of Emergency Services Telecommunications system in Victoria, Australia, reverted to the government at the conclusion of a seven- year outsourcing arrangement. This action will reduce 2003 revenue by $11 million per year but should not have a significant impact on profitability, with the exception of the one-time sale in third quarter 2002. For the first nine months of 2002, revenue declined 14% from the same period in 2001. This decline was in the UC business. Income from operations increased by 29% during the same period, due to better gross margins, the one-time sale mentioned above from the Public Safety business, and cost reductions in the UC business. The industry-wide slowdown in IT spending continues for both the utilities and communications markets. Each quarter, expenses and staffing have been reduced to bring them in line with expected revenues. The Company anticipates that revenues will continue to be depressed in the foreseeable future. In October, the decision was made to merge the UC division with the IMGS division. There are business synergies and opportunities for cost savings between the UC and IMGS businesses because of overlaps in sales, marketing, and development. The UC industry solutions are built on the IMGS GeoMedia core technology, and GeoMedia is frequently used by UC customers for their general geographic information systems (GIS) needs. The transfer will be completed during fourth quarter 2002 and will become effective for the full year 2003. In third quarter 2002, the Intellectual Properties division reported an operating loss of $33,000 compared to an operating loss of $1.2 million in third quarter 2001. For the first nine months of 2002, IP reported an operating loss of $3.6 million compared to $1.9 million for the first nine months of 2001. The Company has recently announced that Fujitsu Ltd. of Japan has licensed Intergraph's PIC technology for use in consumer electronics and embedded applications. The license established a 1% running royalty on current and future Fujitsu products utilizing the PIC technology. The license provided an initial fee in the amount of $100,000 in revenue for the Intellectual Properties division. Costs are primarily outside legal expenses related to patent litigation that increased substantially in 2002. The 2002 legal expenses related to the patent litigation were offset against the settlement proceeds recorded in other income (expense) in the consolidated statements of income for the three and nine months ended September 30, 2002. See "Litigation" below. In third quarter 2002, Corporate reported an operating loss of $7.6 million on revenues of $4.1 million, compared to a third quarter 2001 operating loss of $5 million on revenues of $8.1 million. For the first nine months of 2002, Corporate reported an operating loss of $18.8 million on revenues of $10.2 million compared to an operating loss of $16.2 million on revenues of $30.7 million in the first nine months 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. 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 settlement did not subject the Company to any prospective obligations or cash flows. Any patents issued in the future will automatically be licensed to Intel but will not result in any obligations to the Company. 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. Any costs associated with any future obligations of the Company are inconsequential. The settlement also established a range of damages for the then pending patent infringement suit in Texas. This settlement agreement was filed on Form 8-K/A 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. The Texas trial was held in early July 2002 with final closing arguments on August 29, 2002. On October 10, 2002, the Judge ruled that Intergraph's PIC patents were valid, enforceable, and infringed by Intel's Itanium and Itanium 2 products. The Judge also ruled that Intergraph was entitled to an injunction on Intel's Itanium and Itanium 2 processors. On October 18, 2002, Intel filed a combined Motion to Reconsider and Motion for a New Trial, which was denied. On October 30, 2002, the Court entered a "Final Judgment and Permanent Injunction" against Intel. Based on this Final Judgment, Intel must pay $150 million to the Company no later than November 29, 2002, or face the imposition of a permanent injunction. The $150 million payment is non-refundable, regardless of any outcome on appeal, and will stay the injunction, pending appeal. Upon payment of the $150 million, Intel has three options: (1) Intel can pay an additional $100 million to immediately license the PIC patents, (2) Intel can appeal the decision and will have to pay an additional $100 million only if they fail to prevail on appeal, or (3) Intel may design around the infringement. Any design-around, however, must be approved by the Texas Court and implemented in the next release of Itanium. Any appeal will be filed with the Federal Circuit Court of Appeals in Washington, D.C. 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." The Company also continues to pursue real estate sales and facilities consolidation. If successful, these sales should provide additional cash to the Company. LIQUIDITY AND CAPITAL RESOURCES On August 31, 2002, the Company terminated its secured credit agreement. (See the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for complete details of this credit agreement.) Due to its current cash position, the Company believes a general line of credit is unnecessary at this time. On September 4, 2002, in order to reduce the cost of issuing letters of credit, the Company established a credit line with Wells Fargo Bank to cover its outstanding letters of credit. This credit line is secured by $15 million of interest-bearing securities. Under this arrangement, the Company earns interest on the securities and withdrawal of securities is allowed, but restricted such that the Company must maintain a level of securities sufficient to cover total outstanding letters of credit which were $10.3 million at September 30, 2002. At September 30, 2002, the Company had approximately $1.6 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. In third quarter 2002, the Company spent approximately $12 million to repurchase 752,000 shares of its common stock under a stock repurchase program. During the first nine months of 2002, the Company spent approximately $78.8 million to repurchase 4.5 million shares. The Company believes that existing cash balances will substantially exceed cash requirements for operations for 2002. The Company does not anticipate significant non-operating events that will require the use of cash, with the exception of its stock repurchase program and its October purchase of the remaining 40% ownership interest of Z/I Imaging. In October 2002, the stock repurchase program was extended to December 31, 2004, and funding was increased from $100 million to $175 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 received concurrence from SEC staff 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 nine months of 2002, approximately 42% of the Company's revenues were derived from customers outside the United States, primarily through subsidiary operations, compared to 47% for the first nine months of 2001. Most international 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 and Asia, improved its results of operations for the first nine months of 2002 by $.02 per share in comparison to the first nine months of 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 September 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. The full Euro conversion in 2002 did not have a material impact on the Company's results of operations or financial condition, and to date, the conversion to one common currency has not impacted the Company's pricing in European markets. Item 4. Controls and Procedures ----------------------- The Company, under the direction of the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to the Company's management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosures. Within ninety days of the filing of this Report, the CEO and the CFO have reviewed and evaluated the Company's disclosure controls and procedures. Based on, and as of the date of, that review and evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures are effectively serving the stated purposes. In addition, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation. No significant deficiencies or material weaknesses in the internal controls were identified during the evaluation and, therefore, no corrective action is required to be taken. 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 settlement did not subject the Company to any prospective obligations or cash flows. Any patents issued in the future will automatically be licensed to Intel but will not result in any obligations to the Company. 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. Any costs associated with any future obligations of the Company are inconsequential. The settlement also established a range of damages for the then pending patent infringement suit in Texas. This settlement agreement was filed on Form 8-K/A 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. The Texas trial was held in early July 2002 with final closing arguments on August 29, 2002. On October 10, 2002, the Judge ruled that Intergraph's PIC patents were valid, enforceable, and infringed by Intel's Itanium and Itanium 2 products. The Judge also ruled that Intergraph was entitled to an injunction on Intel's Itanium and Itanium 2 processors. On October 18, 2002, Intel filed a combined Motion to Reconsider and Motion for a New Trial, which was denied. On October 30, 2002, the Court entered a "Final Judgment and Permanent Injunction" against Intel. Based on this Final Judgment, Intel must pay $150 million to the Company no later than November 29, 2002, or face the imposition of a permanent injunction. The $150 million payment is non-refundable, regardless of any outcome on appeal, and will stay the injunction, pending appeal. Upon payment of the $150 million, Intel has three options: (1) Intel can pay an additional $100 million to immediately license the PIC patents, (2) Intel can appeal the decision and will have to pay an additional $100 million only if they fail to prevail on appeal, or (3) Intel may design around the infringement. Any design-around, however, must be approved by the Texas Court and implemented in the next release of Itanium. Any appeal will be filed with the Federal Circuit Court of Appeals in Washington, D.C. 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 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit Number Description ------ ----------- 10(b)(i) Termination Agreement and Release, by and between Intergraph Corporation and Foothill Capital Corporation, dated August 31, 2002 10(n) Employment Agreement of Dr. Terry Keating dated October 1, 2002 99.1 Certification pursuant to 18 U.S.C. Section 1350 by James F. Taylor, Jr. dated November 12, 2002 99.2 Certification pursuant to 18 U.S.C. Section 1350 by Larry J. Laster dated November 12, 2002 (b) Reports on Form 8-K: On October 10, 2002, the Company filed a Current Report on Form 8-K, reporting a favorable ruling on its PIC patent infringement lawsuit against Intel Corporation in the Texas District Court trial On October 15, 2002, the Company filed a Current Report on Form 8-K reporting Jim Taylor's intention to retire as the Company's Chief Executive Officer 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: November 12, 2002 Date: November 12, 2002 CERTIFICATIONS I, James F. Taylor, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Intergraph Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ James F. Taylor, Jr. ------------------------ James F. Taylor, Jr. Chief Executive Officer I, Larry J. Laster, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Intergraph Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Larry J. Laster --------------------- Larry J. Laster Chief Financial Officer EX-10 4 term_agrmnt-foothill.txt TERMINATION AGREEMENT, FOOTHILL CAPITAL Exhibit 10 (b)(i) Termination Agreement and Release This Termination Agreement and Release (this "Agreement") is dated as of August 31, 2002, by and between, on the one hand, FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and, on the other hand, INTERGRAPH CORPORATION, a Delaware corporation ("Borrower"), M&S COMPUTING INVESTMENTS, INC., a Delaware corporation ("M&S") and INTERGRAPH PUBLIC SAFETY, INC., a Delaware corporation ("IPS"; together with M&S, each a "Guarantor" and individually and collectively, jointly and severally, the "Guarantors"; Borrower and the Guarantors, each an "Obligor" and individually and collectively, jointly and severally, the "Obligors"). This Agreement is entered into with reference to the following: A.On or about November 30, 1999, Foothill and Borrower entered into that certain Amended and Restated Loan and Security Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement") and other related Loan Documents (as that term is defined in the Loan Agreement, and all other capitalized terms not defined in this Agreement shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which Foothill extended certain financial accommodations to Borrower, and Borrower granted in favor of Foothill a security interest in and liens on substantially all of Borrower's assets. B.Each Guarantor executed in favor of and delivered to Foothill certain guaranties, guarantor security agreements, and other pledges of collateral in connection with the financial accommodations to Borrower under the Loan Documents. C.The Obligors, in the exercise of their independent business judgment,wish to repay in full in cash all Obligations under the Loan Agreement and to exercise their option to terminate the Loan Agreement prior to the stated maturity date of January 7, 2004, pursuant to the provisions of Section 3.6 of the Loan Agreement subject to and in accordance with the terms and conditions set forth in this Agreement, including the releases contemplated hereby. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties hereto acknowledges and agrees as follows. 1. Payoff Amount and Payoff Reserve. On September 5, 2002 (the "Payoff Date"), the Obligors shall pay to Foothill in cash the aggregate amount of $110,000.00 (the "Payoff Amount"), consisting of: (a) $100,000.00 in respect of (and in full satisfaction of) the amount payable for the Early Termination Premium; and (b) $10,000.00 in respect of reasonably anticipated Foothill Expenses to be incurred by Foothill from and after the Payoff Date (the "Payoff Reserve"). Within sixty (60) days of the date of this Agreement, Foothill shall transfer to Borrower the unused portion, if any, of the Payoff Reserve together with an itemized list of the Foothill Expenses deducted from said Payoff Reserve. The Obligors and Foothill agree that the Payoff Amount shall be satisfied by a wire transfer of immediately available funds for receipt on the Payoff Date from Obligors to Foothill as follows: JPMorgan Chase Bank 4 New York Plaza New York, NY 10004 ABA 021000021 Credit: Foothill Capital Corporation Account: 323-266193 Reference: Intergraph Corporation Payoff 2.Termination of Obligations Other Than Indemnity. Foothill, and each Obligor acknowledge and agree that upon Foothill's receipt of (a) a fully executed counterpart of this Agreement signed by Foothill and each Obligor, (b) the Payoff Amount, and (c) a release by Wells Fargo Bank, National Association, a national banking association ("Wells Fargo"), in favor of Foothill, with respect to any and all obligations of Foothill to Wells Fargo on account of the outstanding Letters of Credit, which is in form and substance reasonably satisfactory to Foothill, duly executed by each party thereto (the "Wells Fargo Release"), all of the Obligations under the Loan Documents shall be terminated and satisfied in full and Foothill's Liens in and to the Collateral shall be released and terminated; provided, however, that (A) all Obligations to indemnify each Indemnified Person under Section 11.3 of the Loan Agreement and to reimburse Foothill for Foothill Expenses shall remain in full force and effect, and (B) to the extent that any payments or proceeds (or any portion thereof) received by Foothill shall be subsequently invalidated, declared to be fraudulent or a fraudulent conveyance or preferential, set aside or required to be repaid to a trustee, receiver, debtor-in-possession or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent that the payment or proceeds is rescinded or must otherwise be restored by Foothill, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, the Obligations or part thereof which were intended to be satisfied by any such payment or proceeds shall be revived and continue to be in full force and effect, as if the payment or proceeds had never been received by Foothill, and this Agreement shall in no way impair the claims of Foothill with respect to the revived Obligations. For the avoidance of doubt, it is expressly acknowledged and agreed that the Wells Fargo Release shall be in satisfaction of, and in lieu of, the obligation of Obligors to pay to Foothill 102% of the undrawn amount of the Letters of Credit plus the Foreign Currency Reserve referenced in Section 3.6 of the Loan Agreement. 3. Termination of Loan Documents. Each Obligor hereby confirms and agrees that (i) the commitment of Foothill to extend credit under the Loan Agreement and the other Loan Documents is terminated as of the Payoff Date, and, as of the Payoff Date, Foothill has no further obligation to extend credit to any Obligor, and (ii) upon Foothill's receipt of (a) a fully executed counterpart of this Agreement signed by Foothill and each Obligor, (b) the Payoff Amount,and (c) the Wells Fargo Release, duly executed by each party thereto, each of the Loan Agreement and the other Loan Documents is terminated and released except as specifically set forth in this Agreement. 4. Release of Collateral. Upon Foothill's receipt of (A) a fully executed counterpart of this Agreement signed by Foothill and each Obligor, (B) the Payoff Amount, and (C) the Wells Fargo Release, duly executed by each party thereto, Foothill will, as promptly as practicable: (a) Authorize any Uniform Commercial Code ("UCC") termination statements that (i) the Obligors reasonably may request to release,as of record,the financing statements previously filed by Foothill, with respect to the Obligations, and (ii) at Foothill's election, the Obligors prepare, it being expressly understood and agreed that the Obligors may file any such UCC termination statements without the signature of a Foothill representative; (b) Execute and deliver any and all other lien releases and other similar discharge or release documents and if applicable, in recordable form) that (i)the Obligors reasonably may request to release, as of record and without any recourse, representation, or warranty, the security interests and all other notices of security interests and liens previously filed by Foothill with respect to the Obligations, and (ii) at Foothill's election, the Obligors prepare; and (c) Return (without recourse, representation or warranty) to the Obligors (or any one of them that Foothill selects),within 10 Business Days after Foothill's receipt of (A) a fully executed counterpart of this Agreement signed by Foothill and each Obligor, (B) the Payoff Amount, and (C) the Wells Fargo Release, duly executed by each party thereto, any and all pledged stock certificates and related stock powers, pledged notes and related endorsements, and any other pledged instruments and related endorsements previously delivered to Foothill in connection with the Loan Documents. 5. Representations or Warranties. Foothill does not make any representation or warranty with respect to the state of title to any collateral securing the Obligations or any other matter respecting the Loan Documents. Foothill and each Obligor represent and warrant to each other party to this Agreement that it has the power and authority to enter into this Agreement. 6. Additional Documents. Foothill shall execute and deliver to or for the Obligors, at the Obligors' sole expense, such additional documents (that, at Foothill's election, the Obligors prepare) and shall provide additional information as the Obligors may reasonably require to carry out the terms of this Agreement. 7. Acknowledgments of Borrower and Guarantors. Each Obligor (a) acknowledges and agrees that the release in paragraph 11 hereof shall not release any Obligor of the Obligations arising from the indemnity provisions under Section 11.3 of the Loan Agreement and from their obligation to reimburse Foothill for Foothill Expenses under the Loan Agreement, and (b) confirms its agreement to the terms and provisions of this Agreement by returning to Foothill a signed counterpart of this Agreement. 8. Conditions. The obligations of Foothill under this Agreement are subject to the fulfillment, to the satisfaction of Foothill, of the following conditions precedent: (a) Foothill shall have received a counterpart of this Agreement duly executed by each of the parties hereto; (b) Foothill shall have received the Payoff Amount on the Payoff Date, and (c) Foothill shall have received the Wells Fargo Release,duly executed by each party thereto. 9. Released Matters. The claims released pursuant to this Agreement(the "Released Claims") include all claims between Foothill, on the one hand, and any Obligor, on the other hand, including but not limited to principal, interest, charges, fees, together with any and all other claims, demands, obligations, liabilities, indebtedness, responsibilities, disputes, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes of action (whether at law or in equity), debts, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, rights of offset, losses and expenses, of every type, kind, nature, description or character, known and unknown, whensoever arising and occurring at any time up to and through the date hereof, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, matured or unmatured, fixed or contingent, which in any way arise out of, are connected with or relate to the Loan Documents. 10. Release by the Obligors. Each Obligor, and their respective predecessors, successors and assigns,hereby fully,finally,irrevocably, forever and unconditionally release, discharge and acquit Foothill and Foothill's officers, employees and agents, from all Released Claims, except with respect to the rights and obligations under this Agreement. 11. Release by Foothill of the Obligors. Foothill hereby fully, finally,irrevocably, forever and unconditionally release, discharge and acquit each Obligor from all Released Claims, except with respect to the rights and obligations under this Agreement, under the indemnity provisions in Section 11.3 of the Loan Agreement, and under the Loan Agreement to reimburse Foothill for Foothill Expenses. 12. Transitional Wires. It is acknowledged that, generally, pursuant to the terms of the Loan Agreement, each Business Day wires of Borrower's collected funds have been sent from Bank One (Account No. 5932203) and Wells Fargo Bank Minnesota (Account Nos. 6355042493, 6355065679, 6355065628, and 6355065791) (collectively, the "Enumerated Accounts") to the Foothill Account and that Borrower typically requests that Foothill, in turn, wire to Borrower's Designated Account the corresponding amount which Foothill has received from the Enumerated Accounts. The parties hereto acknowledge and agree that following the Payoff Date and before the appropriate modifications of the Enumerated Accounts can be processed by Bank One and Wells Fargo Bank Minnesota, Foothill will continue to accommodate Borrower by implementing the appropriate wire transfer of funds into Borrower's Designated Account, provided, that Borrower shall reimburse Foothill promptly upon request for any fees, expenses or other charges reasonably incurred by Foothill in connection therewith, and shall work diligently,after the Payoff Date, to effect the modifications to the Enumerated Accounts which are required to terminate the transfer of funds from such Enumerated Accounts to the Foothill Account, which transfers shall terminate in any event no later than thirty (30) days after the Payoff Date. 13. Waiver of Statutory Benefits. The parties intend that the foregoing releases shall be effective as a full and final accord and satisfaction of Released Claims, and each of the parties hereby agrees, represents and warrants that the matters released herein are not limited to matters which are known or disclosed. In this connection, each of the parties hereby agrees, represents and warrants that it realizes and acknowledges that (a) factual matters now existing and unknown to it may have given or may hereafter give rise to Released Claims which are presently unknown, unsuspected, unliquidated, unmatured and/or contingent, (b) such Released Claims may be unknown, unsuspected, unliquidated, unmatured and/or contingent due to ignorance,oversight, error, negligence or otherwise, and (c) if such Released Claims had been known, suspected, liquidated, matured and/or unconditional, such party's decision to enter into this release may have been materially affected. Each party further agrees, represents and warrants that this release has been negotiated and agreed upon in view of these realizations.Nevertheless,each party granting a release hereby intends to release, discharge, and acquit the parties receiving a release of and from any such unknown, unsuspected, unliquidated, unmatured and/or contingent Released Claims which are in any way set forth in or related to the matters identified hereinabove. EACH PARTY HEREBY EXPLICITLY WAIVES ALL RIGHTS UNDER AND ANY BENEFITS OF ANY COMMON LAW OR STATUTORY RULE OR PRINCIPLE WITH RESPECT TO THE RELEASE OF SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, SECTION 1542 OF THE CALIFORNIA CIVIL CODE, WHICH PROVIDES AS FOLLOWS: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. EACH PARTY AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE, INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, SHALL AFFECT THE VALIDITY OR SCOPE OR ANY OTHER ASPECT OF THIS RELEASE. 14. No Assignment. Each of the parties hereto agrees, represents, and warrants that such party has not voluntarily, by operation of law or otherwise, assigned, conveyed, transferred or encumbered, either directly or indirectly, in whole or in part, any right to or interest in any of the Released Claims. 15. Choice of Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of California as applied to agreements among parties resident therein. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 16. Advice of Counsel. Each party has had advice of independent counsel of its own choosing in negotiations for and the preparation of this Agreement, has read this Agreement in full and final form, and has had this Agreement fully explained to it to its satisfaction. 17. No Third Party Beneficiaries. This Agreement is executed for the parties hereto, and no other person, corporation, partnership, individual or other entity not a party to this Agreement shall have any rights herein as a third party beneficiary or otherwise, except to the extent expressly and specifically provided herein. 18. Counterparts. This Agreement may be executed in duplicates and counterparts, which,taken together, will be deemed and serve as an original. In addition, the parties agree that their authorized representatives may bind them to the terms of this Agreement with signatures exchanged by fax, and each duplicate faxed signature copy shall be deemed to be an original of this Agreement. 19. Entire Agreement. This is the entire Agreement between the parties with respect to this matter. There are no other agreements or understandings, written or oral, express or implied. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the date first written above. FOOTHILL CAPITAL CORPORATION, a California corporation By: /s/ Robert Bernier -------------------------- Name: ROBERT BERNIER -------------------------- Its: VP -------------------------- INTERGRAPH CORPORATION, a Delaware corporation By: /s/ Larry J. Laster -------------------------- Name: LARRY J. LASTER -------------------------- Its: E.V.P. & CFO -------------------------- M&S COMPUTING INVESTMENTS, INC., a Delaware corporation By: /s/ Eugene H. Wrobel -------------------------- Name: EUGENE H. WROBEL -------------------------- Its: SECRETARY -------------------------- INTERGRAPH PUBLIC SAFETY, INC., a Delaware corporation By: /s/ Larry J. Laster -------------------------- Name: LARRY J. LASTER -------------------------- Its: V.P. & CFO -------------------------- EX-10 5 exhibit_10-n.txt EMPLOYMENT AGREEMENT, DR. TERRY KEATING EXHIBIT 10(n) September 25, 2002 Dr. Terry Keating Lucerne International 6 State Street, Suite 100 Bangor, ME 04401 Dear Terry: This letter constitutes an offer of full time employment with Intergraph Mapping and GIS Solutions and is valid until the date given below. Your start date will be October 1, 2002, recognizing that at first you would commute, then relocate to Huntsville later in the year. A copy of the Employee Benefits Summary has been enclosed for your review. Details of the offer are as follows: Position: Executive Vice President - IMGS Salary: $250,000 per year paid bi-weekly Performance Bonus: $100,000 Car Allowance: $400 per month Manager: Preetha Pulusani, President This exempt position is eligible for participation in the Intergraph benefits program. In addition to the standard benefits offered to Intergraph employees your annual vacation accrual will be four (4) weeks. Payment of your Performance Bonus will be based on achievement of objectives to be determined by you and Preetha Pulusani. IMGS will assist in your relocation to Alabama. Attached you will find a copy of the relocation benefits being provided to you. If your employment is involuntarily terminated other than for cause prior to the completion of three years of service you will receive eighteen (18) months of salary following termination. At Intergraph's option this may be paid as salary continuation or as a lump sum within 30 days following termination. For purposes of this paragraph, "cause" shall be defined as any willful act or failure to: act involving: dishonesty towards Intergraph; unethical business practices; embezzlement or misappropriation of corporate funds, property or proprietary information; unreasonable and willful refusal to perform the duties required by Intergraph; willful breach of this Agreement or habitual neglect of duties and responsibilities, other than due to illness or disability; aiding and abetting a competitor; or participation in any fraud or any criminal activities. "Salary" is defined as base salary only. This would not include any bonus or benefits component. IMGS will use direct deposit as the method of payment of your compensation. Please complete the enclosed Authorization Agreement for Automatic Deposit and return with a voided check or deposit slip on your start date. Your offer of employment is contingent upon signing the enclosed Proprietary Agreement. Please return this Agreement with the copy of this letter to acknowledge your acceptance of this offer. A listing of documents required for compliance with the Immigration Reform and Control Act is also included. A prepaid envelope has been provided for your convenience. Please respond to this offer by close of business Friday, October 11, 2002. If you have any questions or require additional information, please contact me in Huntsville at (256) 730-6084. Sincerely, /s/ Betsy Mosgrove Betsy Mosgrove Human Resources Intergraph Mapping & GIS Solutions Enclosures I accept your offer and plan to begin work on October 1, 2002. --------------- /s/ Terrence Keating October 1, 2002 - ---------------------- --------------- Applicant Signature Date EX-99 6 ex_99-1.txt CERTIFICATION, JAMES F. TAYLOR JR., CEO 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 September 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 November 12, 2002 EX-99 7 ex_99-2.txt CERTIFICATION, LARRY J. LASTER, CFO 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 September 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 November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----