-----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, PvarJTNx3hSkNd84SpFNxNkGzqvrBriyWezkzIOuyagW1+ONKn+0SfdfP+kseaWj G5dtjT8EWolZxTneZ3nbvg== 0000351145-98-000006.txt : 19980518 0000351145-98-000006.hdr.sgml : 19980518 ACCESSION NUMBER: 0000351145-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD 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: SEC FILE NUMBER: 000-09722 FILM NUMBER: 98625111 BUSINESS ADDRESS: STREET 1: THIGPEN HQ011 #9384 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2057302000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-9722 INTERGRAPH CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 63-0573222 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Intergraph Corporation Huntsville, Alabama 35894-0001 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (205) 730-2000 ------------------ (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common stock, par value $.10 per share: 48,276,498 shares outstanding as of March 31, 1998 INTERGRAPH CORPORATION FORM 10-Q * March 31, 1998 INDEX Page No. -------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 2 Consolidated Statements of Operations for the quarters ended March 31,1998 and 1997 3 Consolidated Statements of Cash Flows for the quarters ended March 31,1998 and 1997 4 Notes to Consolidated Financial Statements 5 - 8 Item 2. Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations 9 - 15 ----------------------------------- PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 16 ----------------- Item 6. Exhibits and Reports on Form 8-K 16 -------------------------------- SIGNATURES 17 * Information contained in this Form 10-Q includes statements that are forward looking as defined in Section 21-E of the Securities Exchange Act of 1934. Actual results may differ materially from those projected in the forward looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward looking statements is described in the Company's filings with the Securities Exchange Commission, including its most recent Annual Report on Form 10-K and this Form 10-Q. PART I. FINANCIAL INFORMATION --------------------- INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) - --------------------------------------------------------------------------- March 31, December 31, 1998 1997 - --------------------------------------------------------------------------- (In thousands except share and per share amounts) Assets Cash and cash equivalents $ 96,104 $ 46,645 Accounts receivable, net 292,283 324,654 Inventories 107,338 105,032 Other current assets 29,814 25,693 - --------------------------------------------------------------------------- Total current assets 525,539 502,024 Investments in affiliates 13,959 14,776 Other assets 67,302 53,566 Property, plant, and equipment, net 143,636 150,623 - --------------------------------------------------------------------------- Total Assets $750,436 $720,989 =========================================================================== Liabilities and Shareholders' Equity Trade accounts payable $ 49,493 $ 60,945 Accrued compensation 49,267 48,330 Other accrued expenses 74,436 71,126 Billings in excess of sales 68,316 66,680 Short-term debt and current maturities of long-term debt 36,035 50,409 - --------------------------------------------------------------------------- Total current liabilities 277,547 297,490 Deferred income taxes 411 460 Long-term debt 53,348 54,256 - --------------------------------------------------------------------------- Total liabilities 331,306 352,206 - --------------------------------------------------------------------------- Shareholders' equity: Common stock, par value $.10 per share - 100,000,000 shares authorized; 57,361,362 shares issued 5,736 5,736 Additional paid-in capital 225,680 226,362 Retained earnings 318,884 269,442 Accumulated other comprehensive income - cumulative translation adjustment 1,234 1,090 - --------------------------------------------------------------------------- 551,534 502,630 Less - cost of 9,084,864 treasury shares at March 31, 1998 and 9,183,845 treasury shares at December 31, 1997 (132,404) (133,847) - --------------------------------------------------------------------------- Total shareholders' equity 419,130 368,783 - --------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $750,436 $720,989 =========================================================================== The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------- Quarter Ended March 31, 1998 1997 - --------------------------------------------------------------------------- (In thousands except per share amounts) Revenues Systems $168,383 $169,043 Maintenance and services 77,435 83,715 - --------------------------------------------------------------------------- Total revenues 245,818 252,758 - --------------------------------------------------------------------------- Cost of revenues Systems 120,988 110,238 Maintenance and services 46,907 54,910 - --------------------------------------------------------------------------- Total cost of revenues 167,895 165,148 - --------------------------------------------------------------------------- Gross profit 77,923 87,610 Product development 23,700 25,959 Sales and marketing 59,938 59,703 General and administrative 26,534 25,057 Nonrecurring charges 14,761 1,095 - --------------------------------------------------------------------------- Loss from operations (47,010) (24,204) Gain on sale of assets 102,767 --- Interest expense ( 2,189) ( 1,235) Other income (expense) - net ( 626) ( 850) - --------------------------------------------------------------------------- Income (loss) before income taxes 52,942 (26,289) Income tax expense 3,500 --- - --------------------------------------------------------------------------- Net income (loss) $ 49,442 $(26,289) =========================================================================== Net income (loss) per share - basic $ 1.03 $( .55) - diluted $ 1.02 $( .55) =========================================================================== Weighted average shares outstanding - basic 48,219 47,758 - diluted 48,335 47,758 =========================================================================== The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------- Quarter Ended March 31, 1998 1997 - --------------------------------------------------------------------------- (In thousands) Cash Provided By (Used For): Operating Activities: Net income (loss) $ 49,442 $(26,289) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 13,964 15,962 Gain on sale of assets (102,767) --- Noncash portion of nonrecurring charges 13,978 --- Net changes in current assets and liabilities 20,373 12,515 - --------------------------------------------------------------------------- Net cash provided by (used for) operating activities ( 5,010) 2,188 - --------------------------------------------------------------------------- Investing Activities: Purchases of property, plant, and equipment ( 3,668) ( 4,995) Capitalized software development costs ( 2,465) ( 2,111) Proceeds from sale of assets 102,000 --- Purchase of Zydex software rights ( 26,292) --- Other 120 ( 168) - --------------------------------------------------------------------------- Net cash provided by (used for) investing activities 69,695 ( 7,274) - --------------------------------------------------------------------------- Financing Activities: Gross borrowings --- 28,396 Debt repayment ( 15,215) (21,214) Proceeds of employee stock purchases and exercise of stock options 761 841 - --------------------------------------------------------------------------- Net cash provided by (used for) financing activities ( 14,454) 8,023 - --------------------------------------------------------------------------- Effect of exchange rate changes on cash ( 772) 970 - --------------------------------------------------------------------------- Net increase in cash and cash equivalents 49,459 3,907 Cash and cash equivalents at beginning of period 46,645 50,674 - --------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 96,104 $ 54,581 =========================================================================== The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items) necessary for a fair presentation of results for the interim periods presented. Certain reclassifications have been made to the previously reported consolidated statements of operations and cash flows for the quarter ended March 31, 1997 to provide comparability with the current period presentation. NOTE 2: Litigation. As further described in the Company's Form 10-K filing for its year ended December 31, 1997, the Company has risks related to certain litigation, in particular that with Intel Corporation and Bentley Systems, Inc. See Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q for a discussion of further developments in first quarter 1998. NOTE 3: Zydex. On January 15, 1998, the Company's litigation with Zydex, Inc. was settled, resulting in the Company's purchase of 100% of the common stock of Zydex for $26,300,000 with $16,000,000 paid at closing of the agreement and the remaining amount to be paid in 15 equal monthly installments, including interest. In March, the Company prepaid in full the remaining amount payable to Zydex. The former owner of Zydex retains certain rights to use, but not sell or sublicense, plant design system application software ("PDS") for a period of 15 years following the date of closing. In addition to the purchase price of common stock, the Company was required to pay additional royalties to Zydex in the amount of $1,000,000 at closing of the agreement. These royalties were included in the Company's 1997 results of operations and therefore did not affect first quarter 1998 results. The first quarter cash payments to Zydex were funded by the Company's primary lender and by proceeds from the sale of the Company's Solid Edge and Engineering Modeling System product lines. See Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q for a discussion of the Company's liquidity. The Company has capitalized the $26,300,000 cost of the PDS software rights and is amortizing it over its estimated useful life of seven years. This cost, approximately $25,400,000 at March 31, 1998, is included in "Other assets" in the March 31, 1998 consolidated balance sheet. NOTE 4: Inventories are stated at the lower of average cost or market and are summarized as follows: --------------------------------------------------------- March 31, December 31, 1998 1997 --------------------------------------------------------- (In thousands) Raw materials $ 29,180 $ 35,799 Work-in-process 38,806 37,357 Finished goods 19,564 11,760 Service spares 19,788 20,116 --------------------------------------------------------- Totals $107,338 $105,032 ========================================================= NOTE 5: Property, plant, and equipment - net includes allowances for depreciation of $277,307,000 and $289,775,000 at March 31, 1998 and December 31, 1997, respectively. NOTE 6: In first quarter 1998, the Company closed its transaction with Electronic Data Systems Corporation and its Unigraphics Solutions, Inc. subsidiary, in which the Company sold the assets of its Solid Edge and Engineering Modeling System product lines for $105,000,000 in cash. The Company recorded a gain on this transaction of $102,767,000 ($2.13 per share). This gain is included in "Gain on sale of assets" in the consolidated statement of operations for the quarter ended March 31, 1998. NOTE 7: In first quarter 1998, the Company reorganized its European operations to reflect the organization of the Company into four distinct operating units and to further align operating expense with revenue levels in that region. The cost of this reorganization was approximately $5,400,000, primarily for employee severance pay and related costs. This cost is included in "Nonrecurring charges" in the consolidated statement of operations for the quarter ended March 31, 1998. Approximately 70 positions were eliminated in the sales and marketing, general and administrative, and pre- and post-sales support areas. The cash outlay during the quarter related to this charge approximated $800,000. The remaining costs are expected to be paid over the remainder of the year and are included in "Other accrued expenses" in the March 31, 1998 consolidated balance sheet. The Company estimates the European reorganization will result in annual savings of approximately $5,200,000. The remainder of first quarter 1998 nonrecurring operating charges consists of write-offs of certain intangible assets, primarily capitalized business system software, goodwill recorded on a prior acquisition of a domestic subsidiary, and a noncompete agreement with a former third party consultant. Prior to the write-off, amortization of these intangibles accounted for approximately $3,400,000 of the Company's annual operating expenses. NOTE 8: In first quarter 1997, the Company sold an unprofitable business unit to a third party and discontinued the operations of a second unprofitable business unit. This second business unit was sold to a third party during second quarter 1997. The total loss on these sales was $8,300,000, of which $7,200,000 ($.15 per share) had been recorded as an asset revaluation in fourth quarter 1996. The remaining loss of $1,100,000 ($.02 per share) is included in "Nonrecurring charges" in the consolidated statement of operations for first quarter 1997. Revenues and losses of these two business units totaled $24,000,000 and $16,000,000, respectively, for the full year 1996. Assets of the business units totaled $14,000,000 at December 31, 1996. The two business units did not have a material effect on the Company's results of operations for the period in 1997 prior to their disposal. NOTE 9: Supplementary cash flow information is summarized as follows: Changes in current assets and liabilities, net of the effects of business divestitures, in reconciling net loss to net cash provided by operations are as follows: --------------------------------------------------------- Cash Provided By (Used For) Operations Quarter Ended March 31, 1998 1997 --------------------------------------------------------- (In thousands) (Increase) decrease in: Accounts receivable, net $32,790 $22,514 Inventories ( 1,835) (4,503) Other current assets ( 656) (1,758) Increase (decrease) in: Trade accounts payable (11,353) (1,755) Accrued compensation and other accrued expenses ( 373) ( 771) Billings in excess of sales 1,800 (1,212) --------------------------------------------------------- Net changes in current assets and liabilities $20,373 $12,515 ========================================================= Investing and financing transactions in first quarter 1997 that did not require cash included the sale of a noncore business unit of the Company in part for notes receivable and future royalties totaling $3,200,000, and a $3,590,000 unfavorable mark-to-market adjustment of an investment in an affiliated company. NOTE 10: Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of common and equivalent common shares outstanding. Employee stock options are the Company's only common stock equivalent. NOTE 11: Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This Statement establishes standards for reporting comprehensive income and its components. Under this Statement, all nonowner changes in equity during a period are to be reported as a component of comprehensive income. Such nonowner equity items include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. The Statement requires that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid in capital in the equity section of the Company's statement of financial position. During the first quarters of 1998 and 1997, total comprehensive income (loss) totaled $49,586,000 and ($35,284,000), respectively. Comprehensive income (loss) differs from net income (loss) due to foreign currency translation adjustments and, for 1997 only, an unrealized holding loss on securities of an affiliate. NOTE 12: Effective January 1, 1998, the Company adopted American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition. The Statement requires each element of a software sale arrangement to be separately identified and accounted for based on the relative fair value of each element. Revenue cannot be recognized on any element of the sale arrangement if undelivered elements are essential to functionality of the delivered elements. The Statement replaces the previous method of software revenue recognition, under which a distinction was made between significant and insignificant post- shipment obligations for revenue recognition purposes. Adoption of this new accounting standard did not significantly affect the Company's first quarter 1998 results of operations nor is it expected to have a significant impact on results for the remainder of the year since the Company's revenue recognition policies have historically been in substantial compliance with the practices required by the new pronouncement. NOTE 13: On April 3, 1998, the Company sold the assets of its printed circuit board fabrication facility for $16,000,000 in cash. The gain on this transaction is estimated at $8,000,000, and will be recorded in the second quarter. The Company has begun outsourcing its printed circuit board needs, and does not expect this operational change to materially impact its results of operations in the remainder of 1998. INTERGRAPH CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY - ------- Earnings. In first quarter 1998, the Company earned net income of $1.02 per share on revenues of $245.8 million, including a $102.8 million ($2.13 per share) gain on the sale of its Solid Edge and Engineering Modeling System product lines and a $14.8 million ($.31 per share) charge for nonrecurring operating expenses, primarily for employee termination costs and write-off of certain intangible assets. The first quarter 1997 loss was $.55 per share on revenues of $252.8 million. Excluding the nonrecurring expenses, the first quarter 1998 loss from operations was $.67 per share versus a loss of $.48 per share for the first quarter of 1997. This increased loss results primarily from a 6.7 point decline in systems gross margin, while the Company's recent operating losses in general are the result of stagnant revenues and declining margins, both of which are primarily the result of the Company's ongoing dispute with Intel Corporation, and operating expenses that are too high for the level of revenue being generated by the Company. The Company's dispute with Intel is fully described in its Form 10-K annual report for the year ended December 31, 1997 and updated in this report. Nonrecurring Charges. In first quarter 1998, the Company reorganized its European operations to reflect the organization of the Company into four distinct operating units and to further align operating expense with revenue levels in that region. The cost of this reorganization was approximately $5.4 million, primarily for employee severance pay and related costs. This cost is included in "Nonrecurring charges" in the consolidated statement of operations for the quarter ended March 31, 1998. Approximately 70 positions were eliminated in the sales and marketing, general and administrative, and pre- and post-sales support areas. The cash outlay during the quarter related to this charge approximated $.8 million. The remaining costs are expected to be paid over the remainder of the year and are included in "Other accrued expenses" in the March 31, 1998 consolidated balance sheet. The Company estimates the European reorganization will result in annual savings of approximately $5.2 million. The remainder of first quarter 1998 nonrecurring operating charges consists of write-offs of certain intangible assets, primarily capitalized business system software, goodwill recorded on a prior acquisition of a domestic subsidiary, and a noncompete agreement with a former third party consultant. Prior to the write-off, amortization of these intangibles accounted for approximately $3.4 million of the Company's annual operating expenses. In first quarter 1997, the Company sold an unprofitable business unit to a third party and discontinued the operations of a second unprofitable business unit. This second business unit was sold to a third party during second quarter 1997. The total loss on these sales was $8.3 million, of which $7.2 million ($.15 per share) had been recorded as an asset revaluation in fourth quarter 1996. The remaining loss of $1.1 million ($.02 per share) is included in "Nonrecurring charges" in the consolidated statement of operations for first quarter 1997. Revenues and losses of these two business units totaled $24 million and $16 million, respectively, for the full year 1996. Assets of the business units totaled $14 million at December 31, 1996. The two business units did not have a material effect on the Company's results of operations for the period in 1997 prior to their disposal. Litigation. As further described in the Company's Form 10-K filing for its year ended December 31, 1997, the Company has ongoing litigation, and its business is subject to certain risks and uncertainties. Significant litigation developments during first quarter 1998 are discussed below. Intel. On April 10, 1998, in response to Intergraph's legal action filed on November 21, 1997, the U.S. District Court, Northern District of Alabama, Northeastern Division (the "Alabama Court") ruled in favor of Intergraph and ordered that Intel, the supplier of all the Company's microprocessor supply, be preliminarily enjoined from terminating Intergraph's rights as a strategic customer in current and future Intel programs, or from otherwise taking any action adversely affecting Intel's business relationship with Intergraph or Intergraph's ability to design, develop, produce, manufacture, market or sell products incorporating, or based upon, Intel products or information. The Court's ruling requires that Intel carry out business with Intergraph under the same terms and conditions, with the same rights, privileges, and opportunities, as Intel makes available to Intergraph's competitors who are also strategic customers of Intel. In response to the Alabama Court's decision, on April 16, 1998, Intel filed a Notice of Appeal in the United States Court of Appeals for the Federal Circuit. The Court has not entered a ruling on this request. The Company has other ongoing legal actions with Intel, and Intel has filed retaliatory actions against the Company. Reference should be made to the Company's Form 10-K annual report for the year ended December 31, 1997 for a complete description of the background of and basis for these actions, and for a description of the effects of this dispute, which include lost revenues, uncertain supply, and legal expenses, on the operations of the Company in 1997 and continuing through the first quarter of 1998. The Company is vigorously prosecuting its positions and believes it will prevail in these matters, but at present is unable to predict the outcome of its dispute with Intel. The Company does expect, however, that adverse effects on its operations will continue at least through the second quarter of 1998. Zydex. On January 15, 1998, the Company's litigation with Zydex, Inc. was settled, resulting in the Company's purchase of 100% of the common stock of Zydex for $26.3 million, with $16 million paid at closing of the agreement and the remaining amount to be paid in 15 equal monthly installments, including interest. In March, the Company prepaid in full the remaining amount payable to Zydex. The former owner of Zydex retains certain rights to use, but not sell or sublicense, plant design system application software ("PDS") for a period of 15 years following the date of closing. In addition to the purchase price of the common stock, the Company was required to pay additional royalties to Zydex in the amount of $1 million at closing of the agreement. These royalties were included in the Company's 1997 results of operations and therefore did not affect first quarter 1998 results. The first quarter cash payments to Zydex were funded by the Company's primary lender and by proceeds from the sale of the Company's Solid Edge and Engineering Modeling System product lines. See "Liquidity and Capital Resources" section below for discussion in the Company's liquidity. PDS is currently the Company's highest volume software offering. Sales of PDS software and maintenance totaled $48 million for full year 1997. Total process and building solutions industry sales were $101 million for full year 1997, including PDS software and maintenance, horizontal products and maintenance, and training and consulting revenues. The Company has capitalized the $26.3 million cost of the PDS software rights and is amortizing it over its estimated useful life of seven years. This cost is included in "Other assets" on the March 31, 1998 consolidated balance sheet. The Company believes its settlement with Zydex will improve its annual operating results by an estimated $5 million, derived primarily from savings in royalty costs paid to the former owner of Zydex. Remainder of the Year. The Company expects that the industry will continue to be characterized by higher performance and lower priced products, intense competition, rapidly changing technologies, shorter product cycles, and development and support of software standards that result in less specific hardware and software dependencies by customers. The Company believes that its operating system and hardware architecture strategies are the correct choices, that the industry has accepted Windows NT, and that Windows NT is becoming the dominant operating system in the majority of markets served by the Company. However, competing operating systems and products are available in the market, and competitors of the Company offer or are adopting Windows NT and Intel as the systems for their products. Improvement in the Company's operating results will depend on its ability to accurately anticipate customer requirements and technological trends and to rapidly and continuously develop and deliver new hardware and software products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability, and will further depend on its ability to successfully implement its strategic direction. To achieve and maintain profitability, the Company must substantially increase sales volume and/or further align its operating expenses with the level of revenue and gross margin being generated. ORDERS/REVENUES - --------------- Orders. First quarter systems orders totaled $156.0 million, a decline of 2% from first quarter 1997. Both U.S. and international orders declined by 2%. A 12% decline in European orders due to strengthening of the U.S. dollar from its prior year level was only partially offset by increases in all other international regions, most notably Asia. Order levels in all regions were adversely affected by the previously described dispute with Intel. Revenues. Total revenues for first quarter 1998 were $245.8 million, down approximately 3% from first quarter 1997. Sales outside the U.S. represented 52% of total revenues in first quarter 1998, down from 55% for first quarter 1997 and 53% for the full year 1997. Strengthening of the U.S. dollar in the Company's international markets, particularly Europe, reduced the reported level of U.S. dollar revenues for the period. European revenues were 31% of total revenues for first quarter 1998, compared to 35% for first quarter 1997 and 32% for the full year 1997. Systems. Systems revenue for first quarter was $168.4 million, flat with the prior year period. Growth in the Company's hardware business did not materialize due to effects of the ongoing litigation with Intel. Resulting delays in new product releases have resulted in lost sales for the Company as well as increased discounting on available products, severely impacting the Company's systems revenues and margins. U.S. revenues were up 10%, due primarily to growth in the Company's Public Safety business. During the second half of 1997 and the first quarter of 1998, Public Safety secured several large U.S. installations, resulting in a significant increase in the subsidiary's revenue base. Federal government and U.S. commercial revenues were both up slightly from prior year levels. International systems revenues were down approximately 10% from first quarter 1997. European revenues were down over 18% due to strengthening of the U.S. dollar from the prior year period and factors associated with the Intel lawsuit and the sale of the Company's Solid Edge and Engineering Modeling System product lines. Hardware revenues for first quarter 1998 were flat with the prior year period. Unit sales of workstations and servers were up 17% from first quarter 1997, while workstation and server revenues declined by 7% due to a 20% decline in the average per unit selling price. Price competition continues to erode per unit selling prices, and volumes have been held down by the actions of Intel. Sales of peripheral hardware products increased by 14% from the prior year period due primarily to increased storage device revenues and upgrades to Intel-based hardware. Software revenues declined 12% from the prior year level, due primarily to declines in MicroStation and infrastructure products, partially offset by a 17% increase in plant design revenues. Plant design is currently the Company's highest volume software offering, representing 26% of total software sales for the first quarter. Sales of Windows-based software represented approximately 89% of total software revenues in the first quarter of 1998, up from approximately 80% in the first quarter of 1997. Maintenance and Services. Maintenance and services revenue consists of revenues from maintenance of Company systems and from Company provided services, primarily training and consulting. These forms of revenue totaled $77.4 million for first quarter 1998, down 8% from the same prior year period. Maintenance revenues totaled $53.3 million for the quarter, down 15%. The trend in the industry toward lower priced products and longer warranty periods has resulted in reduced levels of maintenance revenue, and the Company believes this trend will continue in the future. Services revenue represents approximately 10% of total revenues and has increased 16% from the same prior year period. Growth in services revenue has acted to partially offset the decline in maintenance revenue. The Company is endeavoring to increase revenues from its services business. Such revenues, however, produce lower gross margins than maintenance revenues. GROSS MARGIN - ------------ The Company's total gross margin was 31.7% for first quarter 1998, down 3 points from first quarter 1997 and 3.9 points from the full year 1997 level. Systems margin was 28.1%, down 6.7 points from first quarter 1997 and down 6.5 points from the full year 1997 level due primarily to unfavorable manufacturing variances resulting from sales volume that was below Company expectations. In addition, systems margins continue to be negatively impacted by a higher hardware content in the product mix and strengthening of the U.S. dollar in international markets, primarily Europe. In general, the Company's systems margin may be lowered by price competition, a higher hardware content in the product mix, a stronger U.S. dollar in international markets, the effects of technological changes on the value of existing inventories, and a higher mix of federal government sales, which generally produce lower margins than commercial sales. Systems margins may be improved by higher software content in the product, a weaker dollar in international markets, a higher mix of international systems sales to total systems sales, and reductions in prices of component parts, which generally tend to decline over time in the industry. The Company is unable to predict the effects that many of these factors may have, but expects continuing pressure on its systems margin due primarily to industry price competition. Maintenance and services margin for first quarter 1998 was 39.4%, up 5 points from first quarter 1997 and 1.4 points from the full year 1997 level due to a decline in costs of maintenance without a proportional decline in maintenance revenue. The Company continues to closely monitor maintenance and services cost and has taken certain measures, including reductions in headcount, to align cost with the current revenue level. The Company believes that the trend in the industry toward lower priced products and longer warranty periods will continue to reduce its maintenance revenue, which will pressure maintenance margin in the absence of corresponding cost reductions. OPERATING EXPENSES - ------------------ Operating expenses for first quarter 1998 were flat with the comparable prior year period. Total employee headcount has declined 9% from that same period. Product development expense declined 9% from first quarter 1997 due primarily to a decline in labor and related overhead expenses and in materials cost. Headcount in the product development area has declined 7% from the prior year period. General and administrative expense increased 6% from the prior year period as the result of increased legal fees (see "Litigation" discussion preceding) and provisions for bad debts. Sales and marketing expense was flat with the prior year level. NONOPERATING INCOME AND EXPENSE - ------------------------------- Interest expense was $2.2 million for first quarter 1998, compared to $1.2 million for first quarter 1997. The Company's average outstanding debt has increased in comparison to the first quarter of 1997 due primarily to borrowings under the Company's revolving credit facility and term loan. See "Liquidity and Capital Resources" below for a discussion of the Company's current financing arrangements. On March 2, 1998, the Company closed its transaction with Electronic Data Systems Corporation and its Unigraphics Solutions, Inc. subsidiary, in which the Company sold the assets of its Solid Edge and Engineering Modeling System product lines for $105 million in cash. The Company recorded a gain on this transaction of $102.8 million. This gain is included in "Gain on sale of assets" in the consolidated statement of operations for the quarter ended March 31, 1998. Full year 1997 revenues and operating loss for the product lines were $35.2 million and $4.1 million, respectively. The Company estimates the sale of this business will result in an improvement in its 1998 operating results of approximately $5 million, excluding the impact of the gain on the sale. "Other income (expense) - net" in the consolidated statements of operations consists primarily of interest income, foreign exchange losses, equity in the earnings of investee companies, and other miscellaneous items of nonoperating income and expense. IMPACT OF CURRENCY FLUCTUATIONS AND CURRENCY RISK MANAGEMENT - ------------------------------------------------------------ Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on the Company's results of operations. For the first quarter of 1998 and the full year 1997, approximately 52% of the Company's revenues were derived from customers outside the United States, primarily through subsidiary operations. Most subsidiaries sell to customers and incur and pay operating expenses in local currency. These local currency revenues and expenses are translated to dollars for U.S. reporting purposes. A stronger U.S. dollar will decrease the level of reported U.S. dollar orders and revenues, decrease the dollar gross margin, and decrease reported dollar operating expenses of the international subsidiaries. For the first quarter of 1998, the U.S. dollar strengthened on average from its first quarter 1997 level, which decreased reported dollar revenues, orders, and gross margin, but also decreased reported dollar operating expenses in comparison to the prior year period. The Company estimates that this strengthening of the U.S. dollar in its international markets, primarily Europe, adversely affected its first quarter results of operations by approximately $.05 per share. Such currency effects did not materially affect the Company's results of operations for the first quarter of 1997. The Company conducts business in all major markets outside of the U.S., but the most significant of these operations with respect to currency risk are located in Europe and Asia. Primarily, but not exclusively in these locations, the Company has certain currency related asset and liability exposures against which certain measures, primarily hedging, are taken to reduce currency risk. With respect to these exposures, the objective of the Company is to protect against financial statement volatility arising from changes in exchange rates with respect to amounts denominated for balance sheet purposes in a currency other than the functional currency of the local entity. The Company therefore enters into forward exchange contracts related to certain balance sheet items, primarily intercompany receivables, payables, and formalized intercompany debt. Periodic changes in the value of these contracts offset exchange rate related changes in the financial statement value of these balance sheet items. These forward exchange contracts are purchased with maturities reflecting the expected settlement dates of the balance sheet items being hedged, which are generally less than three months, and only in amounts sufficient to offset possible significant currency rate related changes in the recorded values of these balance sheet items, which represent a calculable exposure for the Company from period to period. Since this risk is calculable, and these contracts are purchased only in offsetting amounts, neither the contracts themselves nor the exposed foreign currency denominated balance sheet items are likely to have a significant effect on the Company's financial position or results of operations. The Company's positions in these derivatives are continuously monitored to ensure protection against the known balance sheet exposures described above. By policy, the Company is prohibited from market speculation via forward exchange contracts and therefore does not take currency positions exceeding its known financial statement exposures, and does not otherwise trade in currencies. INCOME TAXES - ------------ The Company earned pretax income of $52.9 million in first quarter 1998 versus a pretax loss of $26.3 million in first quarter 1997. Income tax expense for the first quarter 1998 results primarily from taxes on individually profitable international subsidiaries. The sale of the Solid Edge and Engineering Modeling System product lines did not create a significant tax liability for the Company due to the availability of net operating loss carryforwards to offset current year earnings. After consideration of the sale, the Company has estimated net operating loss carryforwards for U.S. federal purposes of $80 million and international carryforwards of approximately $100 million. The first quarter 1997 loss generated minimal net financial statement tax benefit, as the majority of available tax benefits were offset by tax expenses in individually profitable international subsidiaries. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At March 31, 1998, cash totaled $96.1 million compared to $46.6 million at December 31, 1997. Cash consumed by operations in first quarter 1998 totaled $5.0 million, compared to cash generation of $2.2 million in first quarter 1997. Net cash generated from investing activities totaled $69.7 million in first quarter 1998, compared to a use of $7.3 million in first quarter 1997. First quarter 1998 investing activities included $102 million in proceeds from the sale of the Company's Solid Edge and Engineering Modeling System product lines and $26.3 million for the purchase of Zydex software rights. Also included in investing activities were capital expenditures of $3.7 million ($5.0 million in first quarter 1997), primarily for Intergraph products used in hardware and software development and sales and marketing activities. The Company expects that capital expenditures will require $20 to $25 million for the full year 1998, primarily for these same purposes. The Company's term loan and revolving credit agreement contains certain restrictions on the level of the Company's capital expenditures. Net cash used for financing activities totaled $14.5 million versus net cash generation of $8.0 million in first quarter 1997. First quarter 1998 financing activities included a net repayment of debt of $15.2 million compared with a net addition to short and long term debt of $7.2 million in the first quarter of 1997. Under the Company's January 1997 four year fixed term loan and revolving credit agreement, available borrowings are determined by the amounts of eligible assets of the Company (the "borrowing base"), as defined in the agreement, including accounts receivable, inventory, and property, plant, and equipment, with maximum borrowings of $125 million. The $25 million term loan portion of the agreement is due at expiration of the agreement. Borrowings are secured by a pledge of substantially all of the Company's assets in the U.S. The rate of interest on all borrowings under the agreement is the greater of 7% or the Norwest Bank Minnesota National Association base rate of interest (8.5% at March 31, 1998) plus .625%. The agreement requires the Company to pay a facility fee at an annual rate of .15% of the maximum amount available under the credit line, an unused credit line fee at an annual rate of .25% of the average unused portion of the revolving credit line, and a monthly agency fee. At March 31, 1998, the Company had outstanding borrowings of $39.2 million ($50 million at May 8, 1998), $25 million of which was classified as long term debt in the consolidated balance sheet, and an additional $46.9 million ($36.5 million at May 8, 1998) of the available credit line was allocated to support letters of credit issued by the Company and the Company's forward exchange contracts. As of these same dates, the borrowing base, representing the maximum available credit under the line, was $104 million. The term loan and revolving credit agreement contains certain financial covenants of the Company, including minimum net worth, minimum current ratio, and maximum levels of capital expenditures. In addition, the agreement includes restrictive covenants that limit or prevent various business transactions (including repurchases of the Company's stock, dividend payments, mergers, acquisitions of or investments in other businesses, and disposal of assets including individual businesses, subsidiaries, and divisions) and limit or prevent certain other business changes. In March of 1997, the Company entered into an agreement for the sale and leaseback of one of its facilities. The amount borrowed totals $8.4 million and is included in "Long term debt" in the consolidated balance sheets at March 31, 1998 and December 31, 1997. The borrowing will be repaid over a period of 20 years at an implicit rate of interest of 10.7%. At March 31, 1998, the Company had approximately $79 million in debt on which interest is charged under various floating rate arrangements, primarily under its four year term loan and revolving credit agreement, mortgages, and an Australian term loan. The Company is exposed to market risk of future increases in interest rates on these loans, with the exception of the Australian term loan, on which the Company has entered into an interest rate swap agreement. The Company is not currently generating cash from its operations, and believes this condition may extend through second quarter 1998. The Company further believes that cash to be generated from operations in the second half of 1998, together with cash received from the sale of its Solid Edge and Engineering Modeling System product lines, cash received from sale of its printed circuit board facility (see section following), and cash available under its term loan and revolving credit agreement will be adequate to meet cash requirements for the remainder of 1998. However, the Company in the near term must increase sales volume and further align its operating expenses with the level of revenue being generated in order to adequately fund its operations and build its cash reserves without reliance on funds generated from the sale of long term assets and third party financing. SUBSEQUENT EVENTS - ----------------- On April 3, 1998, the Company sold the assets of its printed circuit board fabrication facility for $16 million in cash. The gain on this transaction is estimated at $8 million, and will be recorded in the second quarter. The Company has begun outsourcing its printed circuit board needs, and does not expect this operational change to materially impact its results of operations in the remainder of 1998. INTERGRAPH CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ----------------- Item 1: Legal Proceedings On April 10, 1998, in response to Intergraph's legal action filed on November 21, 1997, the U.S. District Court, Northern District of Alabama, Northeastern Division (the "Alabama Court") ruled in favor of Intergraph and ordered that Intel, the supplier of all the Company's microprocessor supply, be preliminarily enjoined from terminating Intergraph's rights as a strategic customer in current and future Intel programs, or from otherwise taking any action adversely affecting Intel's business relationship with Intergraph or Intergraph's ability to design, develop, produce, manufacture, market or sell products incorporating, or based upon, Intel products or information. The Court's ruling requires that Intel carry out business with Intergraph under the same terms and conditions, with the same rights, privileges, and opportunities, as Intel makes available to Intergraph's competitors who are also strategic customers of Intel. In response to the Alabama Court's decision, on April 16, 1998, Intel filed a Notice of Appeal in the United States Court of Appeals for the Federal Circuit. The Court has not entered a ruling on this request. The Company has other ongoing legal actions with Intel, and Intel has filed retaliatory actions against the Company. Reference should be made to the Company's Form 10-K annual report for the year ended December 31, 1997 for a complete description of the background of and basis for these actions, and for a description of the effects of this dispute, which include lost revenues, uncertain supply, and legal expenses, on the operations of the Company in 1997 and continuing through the first quarter of 1998. The Company is vigorously prosecuting its positions and believes it will prevail in these matters, but at present is unable to predict the outcome of its dispute with Intel. The Company does expect, however, that adverse effects on its operations will continue at least through the second quarter of 1998. Item 6: Exhibits and Reports on Form 8-K (a) Exhibit 10(a), agreement between Intergraph Corporation and Green Mountain, Inc., dated April 1, 1998. *(1) Exhibit 27, Financial Data Schedule *Denotes management contract or compensatory plan, contract, or arrangement required to be filed as an exhibit to this Form 10-Q. (b) Reports on Form 8-K - on March 17, 1998, the Company filed a Current Report on Form 8-K to report the sale of the assets of its Solid Edge and Engineering Modeling System product lines, as further described in Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q quarterly report. INTERGRAPH CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERGRAPH CORPORATION ---------------------- (Registrant) By: /s/ James W. Meadlock By: /s/ John W. Wilhoite ------------------------- ------------------------------ James W. Meadlock John W. Wilhoite Chairman of the Board and Executive Vice President and Chief Executive Officer Controller (Principal Accounting Officer) Date: May 15, 1998 Date: May 15, 1998 EX-10.A 2 AGREEMENT --------- This agreement is between Intergraph Corporation and Green Mountain, Inc. d.b.a. UNIGLOBE Green Mountain Travel ("UNIGLOBE"). GENERAL - ------- It is a primary objective of Intergraph to maximize its control over the procurement of its business-travel arrangements and minimize its cost of business travel. It is a primary objective of UNIGLOBE to maximize its revenue from handling the personal travel of Intergraph employees. SCOPE - ----- This agreement covers business and personal travel arrangements made by the employees and spouses of Intergraph Corporation or any of its subsidiaries. Intergraph has the exclusive right to include or exclude other companies, subsidiaries, divisions, affiliates, associates or employee groups. DEFINITIONS - ----------- "ARC" means the Airlines Reporting Corporation "IATA" means the International Air Transport Association and "IATAN" means the International Airlines Travel Agent Network. DEDICATED FACILITIES - -------------------- It is a primary objective of Intergraph to process as much of its travel arrangements as is practical, at its discretion, through facilities dedicated to Intergraph, including exclusive pseudo- city codes and ARC/IATA numbers. UNIGLOBE will cooperate fully in assisting Intergraph in achieving this objective. UNIGLOBE will maintain a fully- appointed (as defined herein), full-service (as defined by ARC) travel agency on the premises of Intergraph in Huntsville, Alabama. This location will serve as the primary point of contact for all Intergraph employees wishing to make business-travel arrangements. UNIGLOBE must be kept separate and distinct from any other Green Mountain Inc. travel agencies and must be dedicated to serving Intergraph and others specifically authorized by Intergraph. This will not prohibit service by UNIGLOBE to the general public. UNIGLOBE may be required, at the request of Intergraph, to establish certain Remote Ticketing Branch locations as needed to meet the travel document distribution requirements noted herein. Unless otherwise agreed, all Remote Ticketing Branches will be satellite ticket printer (STP) locations (as classified by ARC) and to be used exclusively for Intergraph. ARC/IATA APPOINTMENTS - --------------------- UNIGLOBE must maintain in good standing all ARC and IATA appointments at each location servicing Intergraph throughout the term of the agreement and Intergraph will cooperate fully in these efforts. Intergraph will permit reasonable access to its premises by authorized representatives of ARC, IATAN, and the airlines for the purposes of verifying that UNIGLOBE and Intergraph are in full compliance with all applicable rules and regulations of these entitles. If this agreement is terminated for any reason, and Intergraph so requests, UNIGLOBE will use its best efforts to assist in transferring the ARC and IATA appointments to Intergraph or its designee. UNIGLOBE will use its best efforts to secure and maintain approval from all major domestic and international airlines and Amtrak to issue their rickets, with full commissions (unless otherwise negotiated by Intergraph), at all UNIGLOBE locations servicing Intergraph. ARC ADMINISTRATION - ------------------ Intergraph will be responsible for the weekly processing of all ARC coupons and ARC Sales reports as well as the timely reconciliation of ARC Area Settlement Bank reports for all transactions at UNIGLOBE. AUTOMATION - ---------- UNIGLOBE will provide Intergraph with a computerized reservations system ("CRS") acceptable to Intergraph to facilitate the booking of airline, ground transportation, lodging and related travel arrangements and the generation of necessary travel documents. UNIGLOBE will also provide a comprehensive, automated accounting and travel-information management system ("Back-Office System") acceptable to Intergraph to facilitate ARC administration and the generation of the management-information reports defined by Intergraph. The CRS and Back-Office System must be compatible, and fully interfaced with each other. Intergraph reserves the right to request a conversion of the primary CRS used by UNIGLOBE in support of the Intergraph account if, in its sole discretion, such a conversion would result in a substantial material benefit to Intergraph. UNIGLOBE will cooperate fully in such a conversion, including using its best efforts to minimize any costs assessed by the outgoing CRS vendor and, at the request of Intergraph Travel Services, negotiating favorable terms and conditions with the incoming CRS vendor. All discounts, credits or incentives received by UNIGLOBE from the CRS vendor(s) for CRS equipment, software, maintenance, and services must be disclosed to Intergraph Travel Services and will be used to offset the costs associated with servicing the Intergraph account. In the event that this agreement is terminated by either party, Intergraph reserves the right, with the concurrence of the CRS vendor(s), to retain the reservations system(s) equipment, and all Intergraph data associated with the system, and to assume responsibility for any payments for the remaining lease term. OWNERSHIP OF DATA - ----------------- UNIGLOBE agrees that Intergraph owns all data from reservations, ticketing, and billing of Intergraph travel arrangements and that Intergraph, or its authorized third party, will be given complete and unrestricted access to such data. In the event that this agreement is terminated by either party, UNIGLOBE will immediately provide to Intergraph all detail and summary data relative to Intergraph's travel activity stored in computer system(s) provided by UNIGLOBE. STAFFING/PERSONNEL - ------------------ UNIGLOBE will designate a single, qualified employee, acceptable to Intergraph, to act as the manager of UNIGLOBE. Intergraph will be responsible for staffing UNIGLOBE with qualified personnel in sufficient numbers to handle all reservations, ticketing, support and accounting functions required in support of the Intergraph account. INDEPENDENT CONTRACTOR - ---------------------- Intergraph and UNIGLOBE agree that all work performed by either under this agreement will be performed by each as an independent contractor and not as the employee, agent, or representative of the other. Neither party will be represent itself as an employee, agent or representative of the other when dealing with any third party. Neither party will have the authority to bind the other to any agreement with any third party without the prior written authorization of the other party. VENDOR NEGOTIATIONS - ------------------- Intergraph has the primary responsibility for the negotiation of discount and value-added products and services for its travelers. UNIGLOBE and Intergraph will advise each other whenever their combined purchase volumes might be leveraged to produce significant savings to Intergraph. UNIGLOBE will not pledge, or otherwise commit, any of Intergraph's travel activity for the purpose of obtaining volume discounts from travel vendors without the prior, written approval of Intergraph. Intergraph retains the right to negotiate discounts, reduced fares, credits, restriction waivers, and the like directly with airline carriers, and UNIGLOBE will cooperate fully with Intergraph and airline(s) in the negotiation and implementation of such discounts. RIGHTS TO REVENUE - ----------------- UNIGLOBE and Intergraph agree that all revenue, including overrides, generated as a result of Intergraph's business travel and travel-related activities belongs to Intergraph and will be retained by Intergraph to offset its direct and indirect costs associated with managing its business travel. Revenue generated by international travel will be used exclusively to offset Intergraph's costs and reimbursements to UNIGLOBE as outlined herein. Revenue generated as a result of the leisure or personal travel of Intergraph employees or others booked directly with UNIGLOBE will be retained by UNIGLOBE to offset its direct and indirect costs associated with providing these services. OVERRIDES/REVENUE ENHANCEMENTS - ------------------------------ Intergraph and UNIGLOBE acknowledge that certain revenue will accrue to UNIGLOBE in the form of overrides, bonuses, credits, tickets or other revenue enhancements from the travel suppliers used by Intergraph and its business travelers. As noted above, all such revenue, regardless of form, belongs to Intergraph and will be retained by Intergraph to offset its direct and indirect costs associated with managing its business travel. From time to time, Intergraph may not be able to utilize certain non-cash revenue enhancements, including tickets. At the sole discretion of Intergraph Travel Services, unused tickets, credits, vouchers or similar non-cash benefits may be made available to UNIGLOBE. Such situations will be dealt with by Intergraph and UNIGLOBE on a case-by -case basis. FULL DISCLOSURE - --------------- UNIGLOBE will make full disclosure of all revenue, regardless of its source, and operating costs associated with Intergraph's travel activity. FIDUCIARY RELATIONSHIP - ---------------------- UNIGLOBE agrees that it has entered into a fiduciary relationship with Intergraph with respect to all financial obligations and responsibilities assumed by UNIGLOBE under the agreement. UNIGLOBE will maintain separate, complete and accurate records relating solely to Intergraph's business. These records must be available for inspection in Huntsville, Alabama by Intergraph or its representative(s). FINANCIAL AUDITS - ----------------- Intergraph, or its authorized representative, will have the right to perform periodic financial/accounting audits, and to review, in the course of any such audit, any of UNIGLOBE's data, documents, records, worksheets, systems, standards, procedures, or practices related to the agreement. UNIGLOBE must provide Intergraph its full cooperation and any assistance reasonably required to facilitate said audit. RECEIPT OF REVENUE - ------------------ All receipts from the cash sales of airline tickets, or other services, and all airline, ground services, and other commissions or revenue earned as a result of Intergraph's travel activity booked through UNIGLOBE will be distributed to Intergraph. ALLOWABLE EXPENSES - ------------------ The only expenses reimbursable by Intergraph under this agreement are as follows: (a) Direct labor by UNIGLOBE employees at the rate mutually agreed upon by the parties, provided the work was requested by Intergraph's Manager, Travel Services. (b) The monthly UNIGLOBE franchise fee to be calculated in accordance to the attached Exhibit A. (c) Changes for any authorized supplemental services outside the scope of the agreement and requested by Intergraph's Manager, Travel Services, in writing, during the period. (d) Costs of business insurance, operating licenses and taxes, including property taxes, paid by UNIGLOBE and directly attributable to the support of the Intergraph account. UNIGLOBE will use its best efforts to minimize all such costs. (e) All costs for CRS equipment used by UNIGLOBE in support of the Intergraph account, including all hardware, software, data lines, modifications and interface charges, as provided in the CRS agreements in place at the time of this agreement. (f) All fees associated with the off-site storage of ARC/IATA accountable documents. PAYMENTS - -------- UNIGLOBE and Intergraph will mutually agree on the administrative details of handling the accounting and distribution of all revenue, including the establishment of procedures to insure that UNIGLOBE is funded in a timely manner for all authorized operating expenses associated with servicing the Intergraph account. UNIGLOBE will provide Intergraph with sufficient information to reconcile invoices submitted for reimbursement. LEISURE/PERSONAL TRAVEL - ----------------------- UNIGLOBE will establish and maintain a leisure-travel office, staffed by UNIGLOBE personnel, on Intergraph's premises in Huntsville, Alabama. All requests received by Intergraph Travel Services from Intergraph employees to handle vacation/leisure- travel arrangements will be referred to this office. No major corporate or group accounts are to be serviced from this office without the prior authorization of Intergraph Travel Services. UNIGLOBE will be responsible for developing various discounted leisure-travel and vacation packages for Intergraph employees. Intergraph agrees to cooperate fully with UNIGLOBE Madison Travel in promoting these packages to Intergraph employees, provided that all such promotion efforts are in compliance with Intergraph policy. The leisure-travel office at Intergraph will use its best efforts to assist Intergraph customers and consultants visiting Huntsville with any changes or new reservations that they may require. Such assistance will be provided even if it does not generate any revenue to UNIGLOBE. During the term of this agreement, no other travel agency will be granted access to Intergraph offices in Huntsville for the propose of soliciting leisure, personal or vacation travel from Intergraph employees. RENT AND UTILITIES - ------------------ Intergraph will provide UNIGLOBE with sufficient office space on Intergraph's premises in Huntsville, Alabama. All costs associated with the ongoing use of the space will be the responsibility of Intergraph. All furnishings and office equipment will be the responsibility of UNIGLOBE. TELECOMMUNICATIONS - ------------------ Intergraph will provide UNIGLOBE with a single telephone line for access to Intergraph telephone network. This line must be used exclusively for communication with Intergraph employees. Unless otherwise agreed, all telephone instruments and related hardware and any external telephone lines will be responsibility of UNIGLOBE. NON-DISCLOSURE - -------------- This agreement is confidential. Neither party will disclose the existence of this agreement or any of its terms or conditions without the other's prior written consent. PUBLICITY - --------- UNIGLOBE agrees to submit to Intergraph all advertising, sales promotion, press releases and other publicity matters relating to the services performed by UNIGLOBE under this agreement wherein Intergraph's names or marks are mentioned or language from which the connection of said names or marks there with may be inferred or implied and UNIGLOBE further agrees not to publish or use such advertising, sales promotion, press releases, or publicity matters without Intergraph's written approval. TERM AND TERMINATION - -------------------- This agreement is effective as of April 1, 1998 and will continue until April 1, 1999. Either party may terminate this agreement upon ninety days written notice to the other. Any termination of this agreement will be without prejudice to any outstanding rights or obligations. CONTINUITY OF SERVICE - --------------------- UNIGLOBE recognizes that the services provided under this agreement are vital to Intergraph's overall effort, that continuity must be maintained without interruption, that upon expiration of this agreement a successor--either Intergraph or another vendor -- may continue these services, and that UNIGLOBE must give its best efforts and cooperation to effect an orderly and efficient transition to a successor. UNIGLOBE will be reimbursed for all reasonable transition costs provided those costs are incurred within an agreed transition period after expiration of the agreement and authorized, in writing, by Intergraph. NOTICES - ------- Notices and other correspondence related to the agreement should be directed to the parties by facsimile, telegraph, first-class mail (postage), or personal delivery, as follows: TO THE COMPANY TO THE AGENCY -------------- ------------- Manager, Travel Services President Mail Stop IW2002 Green Mountain, Inc. Intergraph Corporation Suite 114 Huntsville, Alabama 35894-0004 900 Bob Wallace Avenue Huntsville, Alabama 35801 Fax: 256-730-1029 Fax: 256-536-5942 EXHIBIT A UNIGLOBE SERVICE-FEE CALCULATION For the term of this agreement, the UNIGLOBE Service Fee paid by Intergraph to UNIGLOBE will be calculated as follows: (I) On the first $25,000.00 of gross income, ten percent (10%) (II) On the next $15,000.00 of gross income, five percent (5%) (III) On the balance over $40,000.00 of gross income, two percent (2%) For the purpose of calculating this Service Fee, "gross income" is defined as all commissions or other cash revenue received by UNIGLOBE as a result of Intergraph's travel activity booked through UNIGLOBE. Bonuses, credits, discounts, incentives, or reimbursements paid directly to Intergraph by service providers will not be included in the calculation of gross income. ENTIRE AGREEMENT - ---------------- The agreement constitutes the entire understanding between Intergraph and Green Mountain, Inc. relating to the subject hereof and supersedes all prior communications on the subject. Any further modification of the agreement must be in writing and executed by both parties. For: Green Mountain, Inc. For: Intergraph Corporation /s/ Gerald F Donovan /s/ Pam Kilby --------------------------- --------------------------- Gerald F Donovan Pam Kilby President Senior Staff Supervisor, Travel Services Date: May 7, 1998 Date: 5/7/98 ---------------------- --------------------------- For: Intergraph Corporation /s/ Milton Legg -------------------------------- Milton Legg Vice President EX-27 3
5 This schedule contains summary financial information extracted from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 MAR-31-1998 96,104 0 292,283 0 107,338 525,539 420,943 277,307 750,436 277,547 53,348 0 0 5,736 413,394 750,436 168,383 245,818 120,988 167,895 124,933 0 2,189 52,942 3,500 49,442 0 0 0 49,442 1.03 1.02 Other expenses include Product development expenses, Sales and marketing expenses, General and administrative expenses, and Nonrecurring charges.
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