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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to________
Commission file number 0-9722
INTERGRAPH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (256) 730-2000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of January 31, 2000, there were 49,252,406 shares of
Intergraph Corporation Common Stock $0.10 par value outstanding.
The aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $252,402,000
based on the closing sale price of such stock as reported by The
Nasdaq Stock Market on January 31, 2000, assuming that all shares
beneficially held by executive officers and members of the
registrant's Board of Directors are shares owned by "affiliates,"
a status which each of the executive officers and directors
individually disclaims.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
--------- -------------------
Portions of the Annual Report to Shareholders
for the year ended December 31, 1999 Part I, Part II, Part IV
Portions of the Proxy Statement for the
May 18, 2000 Annual Meeting of Shareholders Part III
PART I
ITEM 1. BUSINESS
Overview
Intergraph Corporation (the "Company"), founded in 1969, is a
technical solutions and systems integration company, providing
customizable core computer software, consulting, services, and
computer hardware to governments and industries worldwide. Known
for its leadership, technology, and global service
infrastructure, the Company supports technical and creative
professionals in a range of sectors, including local and federal
government, transportation, mapping/geographic information
systems ("GIS"), utilities, communications, public safety, and
process and building.
The Company offers software solutions based on Microsoft
Corporation's Windows operating systems and hardware systems
based on Intel Corporation's Pentium-class microprocessors, as
well as related professional services to satisfy engineering,
design, modeling, analysis, mapping, information technology, and
creative computing needs. The Company's products and services are
sold through industry-focused direct and indirect channels
worldwide, with United States and European revenues representing
approximately 79% of total revenues for 1999.
Background
Until the mid 1990s, the unique demands of high end technical
computing required tremendous processing and graphics
capabilities that could only be performed using reduced
instruction set computing ("RISC") based workstations for the
UNIX operating system. These systems cost considerably more than
the Intel microprocessor-powered/Microsoft Windows-based personal
computers ("PCs") widely used at the time for word processing,
spreadsheets, and other less demanding applications.
In 1992, the Company began evaluation of a transition from its
own Clipper RISC microprocessor to the Intel microprocessor and
from the UNIX operating system to Microsoft's Windows NT, a 32-
bit operating system powerful enough to run both technical and
business applications on a less expensive hardware platform. In
late 1992, based on commitments from Intel, the Company concluded
that systems with Intel microprocessors and Windows operating
systems would become capable of supporting high-end computing and
other enterprisewide computing environments, while at the same
time maintaining interoperability with existing UNIX-based
systems. The Company therefore chose to migrate products from
its own Clipper microprocessor to Intel microprocessors and from
the UNIX operating system to Microsoft Windows NT. This decision,
in effect, expanded the availability of the Company's
workstations and software applications to Windows-based computing
environments not previously addressed by the Company. It also
allowed the Company's software applications to operate on a
variety of other hardware architectures provided by vendors using
the Windows NT operating system. Prior to this decision, the
Company's software applications operated principally on its
proprietary hardware platforms.
The Company ceased development of the Clipper RISC
microprocessor at the end of 1993 and made a substantial
investment in the redesign of its hardware platform for
utilization of Intel's microprocessor. The Company chose to use
only Intel microprocessors and to focus its efforts and image
creation toward its core capabilities, specifically very high
performance computational and 3D graphics capabilities. This
high-end market place in the Windows NT operating system
environment is supported only by Intel products. The transition
from its proprietary hardware architecture to that of Intel was
substantially completed during 1994, and since 1995,
substantially all of the Company's hardware sales have been
comprised of Intel-based systems.
At the end of 1994, the Company also completed the development
effort to port its technical software applications to the Windows
NT operating system, and to make Windows NT available on all of
its workstations. Sales of Windows-based software have grown
sequentially each year and currently represent over 90% of the
Company's total software revenues.
In 1996, a dispute with Intel over the use of Intergraph
patents key to the development of Intel Pentium processors
disrupted relations between the Company and Intel, causing
significant delays in the Company's hardware development and
manufacturing cycles. Unable to acquire Intel microprocessors
and technical information crucial to its product development, the
Company could not introduce new hardware lines on a timetable
competitive with other hardware vendors. As a consequence, the
Company was unable to compete favorably in the high-performance
Intel processor-powered workstation markets it pioneered.
In November 1997, in response to Intel's actions, the Company
filed a lawsuit against Intel, alleging that Intel was using its
dominant market position in an attempt to coerce Intergraph into
giving up certain key patent rights. These coercive tactics
included the withholding of essential design and defect
information for released Intel products and the intentional
interference with Intergraph customers and suppliers. See
"Manufacturing and Sources of Supply" and Item 3, Legal
Proceedings, following, and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the
Company's 1999 annual report, portions of which are incorporated
by reference in this Form 10-K annual report, for further
discussion of the Company's dispute with Intel and its effects on
the Company's business and consolidated operating results.
In efforts to reduce losses and return to profitability, the
Company took significant measures, including the outsourcing of
its manufacturing function to SCI Technology Inc. ("SCI"), a
wholly owned subsidiary of SCI Systems Inc., in 1998 (for further
information about the SCI transaction, see Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1999 annual report,
portions of which are incorporated by reference in this Form 10-K
annual report), extensive reductions to its workforce in 1998 and
1999, and sales of several non-core product lines. In third quarter
1999, the Company exited the PC and generic server businesses,
which had been irreparably damaged as a result of the dispute
with Intel. Currently, the Company, through its Intergraph
Computer Systems business unit, markets and sells Intel/Windows-
based high-end workstations and specialty servers, and digital
video products. In order to maximize profitability in its
remaining hardware businesses, the Company is actively seeking
partnerships with companies that offer complementary technologies
and sales channels.
In terms of broad market segments, the Company's mapping/GIS
and process and building applications continue to dominate the
Company's product mix at approximately 50% and 19% of total
systems sales in 1999, respectively, compared to 47% and 19%,
respectively, in 1998. Due to the sale of the Company's Solid
Edge and Engineering Modeling System product lines in March 1998,
mechanical design, engineering, and manufacturing applications no
longer represent a significant portion of the Company's product
mix. These applications represented 14% of total systems sales
in 1997.
The Company believes that its operating system, hardware
architecture, and software applications strategies are the
correct choices. However, competing operating systems, hardware
products, and software applications are available in the market,
and the Company competes with companies with greater financial
resources in each of the markets it serves. Improvement in the
Company's operating results will continue to depend on its
ability to accurately anticipate customer requirements and
technological trends and to rapidly and continuously develop and
deliver new products that are competitively priced, offer
enhanced performance, and meet customers' requirements for
standardization and interoperability, and will further depend on
its ability to successfully implement its strategic direction.
In addition, the Company faces significant operational and
financial uncertainty of unknown duration due to its dispute with
Intel.
Discontinued Operation
On October 31, 1999, the Company sold its VeriBest Inc.
operating segment to Mentor Graphics Corporation, a global
provider of electronic hardware and software design solutions and
consulting services. As a result, electronic design automation
software and services no longer represent a portion of the
Company's revenues. For further discussion regarding the sale of
VeriBest, see Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's
1999 annual report, portions of which are incorporated by
reference in this Form 10-K annual report.
Business Entities
The Company's continuing operations are divided into three
separate business units for operational and management purposes:
the Software and Federal Systems ("Federal") business
(collectively, the Software and Federal businesses form what is
termed "Intergraph"), Intergraph Computer Systems ("ICS"), and
Intergraph Public Safety, Inc. ("IPS"). For further information
regarding the Company's operating segments, including financial
information for 1999 and 1998, see Management's Discussion and
Analysis of Financial Condition and Results of Operations and
Note 12 of Notes to Consolidated Financial Statements contained
in the Company's 1999 annual report, which are incorporated
herein by reference.
Intergraph
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Intergraph develops, markets, and supports technical solutions
for many industries as well as federal, state, and local
governments. Products include open, interdisciplinary software
applications, specialized industry specific hardware, consulting,
and support services. Intergraph provides business solutions to
three primary industries: process and building, federal
government, and mapping/GIS (including transportation and state
and local governments).
Intergraph's principal software applications are based on
Microsoft Windows, including operating systems, architecture
components, and development environments. This open technology
foundation enables Intergraph's software to interoperate with
thousands of third-party Windows-based technical and business
applications as well as with UNIX-based applications. An
additional graphics foundation used by the Company for certain
Intergraph software applications is MicroStation, software owned
by Bentley Systems Inc. ("BSI"), an approximately 33%-owned
affiliate of the Company. MicroStation provides fundamental
graphics element creation, maintenance, and display functions for
the Company's UNIX- and Intel-based workstations. In 1999,
MicroStation sales represented approximately 5% of the Company's
total software revenue. See Management's Discussion and Analysis
of Financial Condition and Results of Operations and Note 13 of
Notes to Consolidated Financial Statements contained in the
Company's 1999 annual report, portions of which are incorporated
by reference in this Form 10-K annual report, for discussion of
the Company's business relationship and past arbitration
proceedings with BSI.
Process and Building. Process & Building Solutions ("PBS") is
a global organization that supplies software and services to the
process, power, and marine industries. PBS focuses on integrated
life cycle engineering solutions for the design, construction,
and operation of plants and ships, with emphasis on engineering
information management and on linking the engineering systems
with business systems.
For more than 20 years, engineering/procurement/and
construction ("EPC") contractors, and process and power plant
owner/operators have used Intergraph solutions to design,
construct, operate and maintain facilities for petrochemical,
chemical, pharmaceutical, food and beverage, oil and gas, power
generation, and mining industries. Intergraph life cycle
engineering solutions increase the value of plant data by
facilitating capture and re-use of information throughout the
life cycle of a plant, resulting in significant productivity
gains, operational efficiencies, and higher profits.
According to industry analyst Daratech of Cambridge,
Massachusetts, in 1999 Intergraph held a 59% revenue share of the
3D plant design and visualization market. In the 2D plant design
market segment, Intergraph held a 24.5% revenue share.
The Company's Plant Design System ("PDS") is a comprehensive,
intelligent engineering application that creates and maintains an
accurate database of plant information. That information is a
valuable asset for regulatory compliance, streamlining
operations, maintenance, and downstream retrofit projects.
Integration features enable concurrent engineering, multiple
disciplines working on a project simultaneously, improving design
coordination, reducing errors, and increasing productivity. PDS
consists of integrated 2D and 3D modules which correspond to
basic tasks in the plant design workflow, including process flow
diagrams, piping and instrumentation diagrams, instrumentation
data management, piping, equipment, heating/ventilation/air
conditioning, electrical, structural, and other engineering
aspects of a plant.
In addition to PDS, Process & Building Solutions delivers its
SmartPlant family of products, including SmartPlant P&ID,
SmartSketch, SmartPlant Explorer, and SmartPlant Review, to
support life cycle engineering needs of the process and power
industries. Because plant data is populated in an open data
model, this data can be easily accessed and used by engineering,
procurement, construction, maintenance, management, and any other
relevant users who need it.
PBS's shipbuilding solutions provide software systems and
services for commercial and military ship design, construction,
and management. In cooperation with international industry
partners, PBS is developing the next generation solution that
will streamline shipbuilding processes, lower manpower and
material costs, and reduce the time to construct world-class
marine vessels. GSCAD is the next-generation naval and
shipbuilding solution for design, construction, and management.
GSCAD design, planning, and engineering analysis tools are built
on an enterprisewide, integrated infrastructure that accesses
real-time information. This software solution will provide the
capability to create a ship design that speeds product
development from conception to market delivery. It also provides
capabilities for performing risk analysis, design integrity and
functional engineering review of new and modified product
designs.
Federal Systems. The Federal Systems business unit markets and
sells specially developed hardware and software solutions,
commercial off-the-shelf products, and professional consulting
services to governments around the world. Products include
specialized hardware, mapping and information systems, logistics
and financial systems, environmental management solutions,
modeling and simulation systems and security systems. The
Federal business unit also supports U.S. state and local
governments with GIS solutions, and sells and supports civil
engineering and GIS-based transportation solutions. Effective
March 2000, the Federal Systems business was renamed Intergraph
Government Solutions.
For more than 20 years, Intergraph has been a top provider of
computer hardware, software, and professional services solutions
to federal, state, and local governments, enabling governments
worldwide to achieve maximum performance in military and civilian
computing environments. To better serve its government markets,
Intergraph's Federal business unit is divided into three primary
groups: the hardware solutions division, the government solutions
division, and the mapping and information systems division.
The hardware solutions division develops ruggedized
workstations for military and government engineering
applications. Its flagship product, the TD-R 2000 series
workstation, is an integral part of the U.S. Navy's Smart Ship
technology program, enabling the Navy to sustain high operational
workloads with reduced crews. Hardware solutions also develops
specialized turnkey systems for the military and surveillance
communities, including mission planning and video analysis
systems.
The government solutions division ("GSD") develops, implements,
and supports specialized software solutions and consulting
services to meet logistics systems, information management,
financial systems integration, and transportation engineering
needs of the Army, Navy, and Air Force branches of the U.S.
military. GSD also develops and implements civil engineering
solutions, and sells and supports U.S. state and local
governments with mapping/GIS solutions for land records and
mapping, asset management, public works, public safety,
transportation engineering, infrastructure modeling, planning,
and other functions.
Intergraph's suite of civil engineering solutions offers local
governments a full complement of solutions, from data collection
to site design to water resources. Intergraph civil design
products integrate with Intergraph GIS solutions to meet the
needs of state and city governments around the world. Both civil
and GIS product lines remove proprietary barriers by providing
automated mapping, spatial analysis, network modeling, and
integration with multimedia, satellite imagery, spreadsheets,
documents, and more. The software also provides seamless
integration with major vendor data formats.
To help government agencies strategically and efficiently
manage transportation networks, Intergraph transportation
software integrates maps, photos, property records, survey and
engineering data, inspection reports, traffic safety, and
congestion statistics. Intergraph photogrammetry, civil
engineering, and mapping products provide transportation
solutions that include imaging, design, modeling, reprographics,
plotting, training, integration, and professional services.
The mapping and information systems division ("IMIS") develops
and supports mapping systems, products, and services to the
world's major mapping and charting organizations. IMIS also
provides specialized systems, products, and services to military
agencies and national and local governments. Solutions include
map and chart production, security, identification, intelligence,
environmental, command and control, and geospatial data
exploitation systems.
Mapping/GIS. Mapping/GIS includes geospatial solutions and
imaging solutions. It develops, markets, and supports geospatial
solutions for business GIS, land records management, rail
transportation, environmental management, utilities and
communications companies, and commercial map production.
Solutions provide geographic visualization and analysis tools
useful in many businesses, including real estate, retailing,
service networks, transportation networks, site assessment,
agriculture, insurance, and health care.
Mapping/GIS also develops and sells geospatial solutions that
help governments improve public service, respond more efficiently
to legislated and political mandates, implement successful GIS
systems quickly, and reduce the total cost of GIS ownership.
Mapping/GIS sells its geospatial solutions for government through
Federal Systems.
Mapping/GIS solutions include Intergraph's GeoMedia family of
products. The dominant mapping/GIS solution for business and
government, including transportation agencies, GeoMedia is a
complete Windows-based desktop GIS solution for all decision
support query and reporting activities.
Intergraph's MGE is also used by transportation agencies as a
high-end software for basemap analysis. MGE is the foundation
for Intergraph's Modular GIS Environment ("MGE") family of
mapping and GIS software products. MGE offers project
management, coordinate system operations, data query and access,
multiple configuration options, and a range of common tools
valuable to MGE modules. MGE is interoperable with the GeoMedia
product suite.
Mapping/GIS also provides solutions for end-to-end digital map
and cartographic production. These solutions help cartographers
manage the map production environment. From map scanning to map
printing, Intergraph's end-to-end cartographic production tools
provide the means to collect, process, and output data.
Z/I Imaging Corporation, a 60%-owned joint venture with Carl
Zeiss formed in October 1999, develops, markets, and sells
Windows NT-based imaging solutions for photogrammetry
professionals. Solutions include aerial cameras, stereo
softcopy, workstations, analytic stereo plotters, photogrammetric
scanners, and image management, processing, and distribution
software. Z/I Imaging systems are nonproprietary, enabling
industry and government professionals to use them as a front-end
to mapping, GIS, and civil engineering software from a variety of
leading vendors.
Intergraph Computer Systems
- ---------------------------
Intergraph Computer Systems, a wholly owned subsidiary of
Intergraph Corporation formed in 1998, develops high-performance
core hardware, including high-end workstations, add-in graphics
subsystems, specialty servers, and digital video products, for
use in numerous professional-level creative and technical
disciplines. Headquartered in Huntsville, Alabama, ICS employs a
staff of approximately 800 people worldwide.
ICS builds on the core hardware with the value add of extensive
market knowledge to create high-performance, leading-edge, and
highly reliable visual computing solutions for the digital media,
visual simulation, mechanical CAD and publishing/prepress
markets. ICS high-performance workstations and specialty servers
are embraced by an ever-growing number of customers in the
digital content creation markets.
The Information Technology ("IT") Services division of ICS
offers products and services including Intel/Windows-based PCs,
workstations, servers, fully integrated optical disk products,
backup solutions, firewalls, networking and system management
solutions, as well as consulting, installation packages, and
rapid application deployment solutions. Depending on user
requirements, IT Services' products and services can be provided
as point solutions or as integrated solutions that include all
necessary hardware, software, and support services for an
enterprise.
The Intense3D division of ICS develops and sells add-in
graphics subsystems for the Windows NT/Intel platform. Used in
high-performance workstations and PCs, the Intense3D family of
accelerators delivers performance at affordable prices in
graphics-intensive markets that include mechanical computer-aided
design ("CAD"), traditional CAD, animation, content creation,
visual simulation, scientific visualization, graphics arts, and
digital media. Intense3D's Wildcat graphics accelerators are
certified with the leading software vendors from across many
disciplines, and are used by researchers, engineers, designers,
and scientists who need to interact in real time with complex
visual data sets. Intense3D provides 3D graphics cards to
leading computer vendors such as Dell, IBM, Compaq, Fujitsu, and
Siemens.
Intergraph Public Safety, Inc.
- ------------------------------
In January 1997, Intergraph Public Safety, Inc. was established
as a wholly-owned subsidiary of the Company. IPS includes the
Public Safety, Utilities and Communication groups. IPS solutions
include computer hardware and software systems, systems
implementation, training, maintenance, customer support, and
outsourcing services for the public safety and utilities markets.
The subsidiary is headquartered in Huntsville, Alabama and has a
staff of approximately 780 people worldwide.
Public Safety develops, markets, and implements and supports
computer-based solutions for emergency medical and rescue units,
fire departments, law enforcement organizations, and other public
safety agencies around the world. Other industries utilizing
Public Safety solutions include automobile clubs for roadside
assistance, and airports, campuses, and military bases for
security systems.
Public Safety products represent a complete solution for public
safety agencies. Public Safety products are designed to
interoperate in a comprehensive, integrated public safety
information system. These products include computer-aided
dispatch, police, fire, and emergency management systems, records
management systems, jail management systems, civil process and
mug shot systems, mobile computer systems, integrated radio and
telephony solutions, interfaces to alarm systems, management
information reporting systems, personnel rostering systems, and
training management systems.
The foundation product for Public Safety is its computer-aided
dispatch system. This product fully integrates interactive,
intelligent mapping with dispatching, records management, and
state of the art communications capabilities. Designed
specifically to support command and control operations, the
system is composed of high performance graphics workstations and
software. Records management is enhanced by a database that
includes geographic map information as well as address, incident
history, and traffic pattern data.
On January 1, 1999, Intergraph's Utilities and Communications
business was formally merged into IPS. Public Safety's popular
dispatch technology is a complementary application to their
mainstream geospatial products, such as ActiveFRAMME. By linking
the two, the Company is responding to utilities' increased demand
for a total solution that integrates AM/FM/GIS, outage management
and computer-aided dispatch. The Utilities and Communications
business continues to develop the Company's core geospatial
offerings, while collaboration with Public Safety augments those
offerings by adding computer-aided dispatch and outage management
components.
This business focuses its expertise and resources in two
strategic industry sectors: Utilities and Communications. Sales,
marketing and project services efforts are vertically focused
along these sectors. Utilities and Communications solutions are
also sold through the Intergraph Corporation international
distribution channels. A leading supplier of Windows NT-based
geospatial resource management solutions, this business provides
software and services that help energy and communications companies
manage their geospatial data and respond to customer needs.
The Utilities solutions assist electric, gas, pipeline, and
water companies in the management of customer-centric GIS data,
which contains all the information necessary for distributing
electricity or gas, tracking distribution, and managing service
disruptions. Its geospatial resource management solution
spatially enables this data, integrating operational support
systems such as outage analysis, and provides real time
information for customer service, thereby increasing operational
efficiency enterprisewide. Solutions include engineering design
and facilities management, technical document workflow and
archiving, mobile computing and field support, outage management,
spatial data analysis and data warehouse, and real time display
facility analysis.
For Communications, geospatial network resource management
solutions are provided to help the international communications
industry automate its network facility mapping, planning, design,
and maintenance for outside and inside plant.
IPS's solutions are Intel processor/Windows NT-based and rely
on Oracle Corporation's relational databases. By incorporating
industry standard hardware and software with its products, IPS is
able to provide customers with the best price and performance
features available. IPS distributes its products worldwide
through direct and indirect sales channels.
Product Development
The Company believes a strong commitment to ongoing product
development is critical to success in the interactive computer
graphics industry.
Product development expenditures include all costs related to
designing new or improving existing hardware and software. During
the year ended December 31, 1999, the Company spent $62.6 million
(6.8% of revenues) for the product development activities of its
continuing operations compared to $76.8 million (7.6% of
revenues) in 1998 and $90.3 million (8.2% of revenues) in 1997.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's 1999 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for further discussion of product
development expenses, including portions capitalized and their
recoverability.
The industry in which the Company competes is characterized
by rapid technological change, which results in shorter product
cycles, higher performance and lower priced product offerings,
intense price and performance competition, and development and
support of software standards that result in less specific
hardware and software dependencies by customers. The Company
believes the life cycle for most of its products to be less than
two years, and it is therefore engaged in continuous product
development activity. The operating results of the Company and
others in the industry will continue to depend on the 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.
Manufacturing and Sources of Supply
Reflecting the trend toward outsourcing in the hardware
industry, in fourth quarter 1998, the Company sold substantially
all of its U.S. manufacturing inventory and assets to SCI
Technology, Inc. ("SCI"), a wholly-owned subsidiary of SCI
Systems, Inc., and SCI assumed responsibility for manufacturing
of substantially all of the Company's hardware products. Prior
to the sale, this responsibility, which included the assembly and
testing of components and subassemblies manufactured by the
Company and others, was that of Intergraph Computer Systems
("ICS"), a wholly-owned subsidiary of the Company. ICS retains
certain risks, including its ability to accurately forecast its
manufacturing requirements of SCI and risks associated with
inventory excess and obsolescence as defined in the agreement.
For a complete description of the SCI transaction and its impact
on operating results and cash flows, see Management's Discussion
and Analysis of Financial Condition and Results of Operations
contained in the Company's 1999 annual report, portions of which
are incorporated by reference in this Form 10-K annual report.
Substantially all of the Company's microprocessor needs are
currently supplied by Intel Corporation. See Item 3, Legal
Proceedings, following and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the
Company's 1999 annual report, portions of which are incorporated
by reference in this Form 10-K annual report, for a discussion of
the Company's litigation proceedings with Intel and related
effects on the Company's microprocessor supply and results of
operations.
The Company is not required to carry extraordinary amounts of
inventory to meet customer demands or to ensure allotment of
parts from its suppliers.
Sales and Support
Sales. The Company's products are sold through a combination of
direct and indirect channels in approximately 65 countries
worldwide. Direct channel sales, which provide the majority of
the Company's product revenues, are generated by the Company's
direct sales force through sales offices in over 40 countries
worldwide. The efforts of the direct sales force are augmented
by sales through indirect channels, including dealers, value
added resellers, distributors, and system integrators. Sales
through indirect channels provided approximately 25% of total
Company systems revenues in 1999, compared to 22% in 1998 and
1997.
Each of the Company's major business entities maintains its own
sales force. Intergraph's selling efforts are organized along
key industry lines (process and building, federal, state and
local government, mapping/GIS, utilities and public safety) for
its major product applications. The Company believes an industry
focus better enables it to meet the specialized needs of
customers. In general, the direct sales forces are compensated
through a combination of base salary and commission. Sales
quotas are established along with certain incentives for
exceeding quota. Additional specific incentive programs may be
established periodically.
Customer Support. The Company believes that a high level of
customer support is important to the sale of interactive graphics
systems. Customer support includes preinstallation guidance,
customer training, onsite installation, hardware preventive
maintenance, repair service, software help desk and technical
support services in addition to consultative professional
services. The Company employs engineers and technical
specialists to provide customer assistance, maintenance, and
training. Maintenance and repair of systems are covered by
standard warranties and by maintenance agreements to which most
users subscribe. The trend in the industry toward lower priced
products and longer warranty periods has resulted in reduced
levels of maintenance revenue for the Company. The Company
believes this trend will continue in the future, though it may be
partially offset by growth in the Company's professional services
business. The Company is endeavoring to grow its services
business and has redirected the efforts of its hardware
maintenance organization to focus increasingly on systems
integration. Revenues from these services, however, typically
produce lower gross margins than maintenance revenues.
International Operations
International markets, particularly Europe and Asia, continue
in importance to the industry and to each of the Company's
operating segments. Sales outside the U.S. represented
approximately 52% of total revenues from continuing operations in
1999, compared to 51% in 1998. European and Asia Pacific
revenues represented 31% and 11%, respectively, of total revenues
from continuing operations in both 1999 and 1998. The Company's
operations are subject to and may be adversely affected by a
variety of risks inherent in doing business internationally, such
as government policies or restrictions, currency exchange
fluctuations, and other factors.
There are currently wholly-owned sales and support subsidiaries
of the Company located in every major European country. European
subsidiaries are supported by service and technical assistance
operations located in The Netherlands. Outside of Europe, the
Company's systems are sold and supported through a combination of
subsidiaries and distributorships. At December 31, 1999, the
Company had approximately 1,100 employees in Europe, 740
employees in the Asia Pacific region, and 640 employees in other
international locations.
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results of
operations. The Company conducts business in all major markets
outside the U.S., but the most significant of these operations
with respect to currency risk are located in Europe and Asia.
Local currencies are the functional currencies for the Company's
European subsidiaries. The U.S. dollar is the functional
currency for all other international subsidiaries. With respect
to the currency exposures in these regions, the objective of the
Company is to protect against financial statement volatility
arising from changes in exchange rates with respect to amounts
denominated for balance sheet purposes in a currency other than
the functional currency of the local entity. The Company will
therefore enter into forward exchange contracts related to
certain balance sheet items, primarily intercompany receivables,
payables, and formalized intercompany debt, when a specific risk
has been identified. Periodic changes in the value of these
contracts offset exchange rate related changes in the financial
statement value of these balance sheet items. Forward exchange
contracts, generally less than three months in duration, are
purchased with maturities reflecting the expected settlement
dates of the balance sheet items being hedged, and only in
amounts sufficient to offset possibly significant currency rate
related changes in the recorded values of these balance sheet
items, which represent a calculable exposure for the Company from
period to period. Since this risk is calculable and these
contracts are purchased only in offsetting amounts, neither the
contracts themselves nor the exposed foreign currency denominated
balance sheet items are likely to have a significant effect on
the Company's financial position or results of operations. The
Company does not generally hedge exposures related to foreign
currency denominated assets and liabilities that are not of an
intercompany nature, unless a significant risk has been
identified. It is possible the Company could incur significant
exchange gains or losses in the case of significant, abnormal
fluctuations in a particular currency. By policy, the Company is
prohibited from market speculation via forward exchange contracts
and therefore does not take currency positions exceeding its
known financial statement exposures, and does not otherwise trade
in currencies. At December 31, 1999 and 1998, the Company's
outstanding forward contracts related to formalized intercompany
loans between the Company's European subsidiaries and were
immaterial to the Company's financial position.
The Company has historically experienced slower collection
periods for its international accounts receivable than for
similar sales to customers in the United States. The Company is
experiencing slow collections throughout the Middle East region,
particularly in Saudi Arabia. Total accounts receivable from
Middle Eastern customers was approximately $20 million at
December 31, 1999 and $23 million at December 31, 1998.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1, 5, and 12 of Notes to
Consolidated Financial Statements contained in the Company's 1999
annual report, portions of which are incorporated by reference in
this Form 10-K annual report, for further discussion of the
Company's international operations.
U.S. Government Business
Total revenue from the United States government was
approximately $149 million in 1999, $166 million in 1998, and
$177 million in 1997, representing approximately 16% of total
revenues in all three years. The majority of these revenues are
attributed to the Federal unit of the Intergraph operating
segment.
The Company sells to the U.S. government under long-term
contractual arrangements, primarily indefinite delivery,
indefinite quantity and cost plus award fee contracts, and
through commercial sales of products not covered by long-term
contracts. Approximately 52% of the Company's 1999 federal
government revenues were earned under long-term contracts. The
Company believes its relationship with the federal government to
be good. While it is fully anticipated that these contracts will
remain in effect through their expiration, the contracts are
subject to termination at the election of the government. Any
loss of a significant government contract would have an adverse
impact on the results of operations of Federal Systems and the
Company as a whole.
The Company has historically experienced slower collection
periods for its U.S. government accounts receivable than for its
commercial customers. At December 31, 1999, accounts receivable
from the U.S. government was approximately $33 million versus
approximately $55 million at December 31, 1998.
Backlog
An order is entered into backlog only when the Company receives
a firm purchase commitment from a customer. The Company's
backlog of unfilled systems orders at December 31, 1999 and 1998
was $209 million and $237 million, respectively. Substantially
all of the December 1999 backlog of orders is expected to be
shipped during 2000.
The Company does not consider its business to be seasonal,
though typically fourth quarter orders and revenues exceed those
of other quarters.
The Company does not ordinarily provide return of merchandise
or extended payment terms to its customers.
Competition
The industry in which the Company competes continues to be
characterized by intense price and performance competition. To
compete successfully, the Company and others in the industry must
accurately anticipate customer requirements and technological
trends and rapidly and continuously develop products with
enhanced performance that can be offered at competitive prices.
The Company, along with other companies in the industry, engages
in the practice of price discounting to meet competitive industry
conditions. Other important competitive factors include quality,
reliability, customer service and support, and training.
Management of the Company believes that competition will remain
intense, particularly in product pricing.
The Company's competition varies among its different product
application areas. The Company considers its principal
competitors in the hardware market to be IBM, Hewlett Packard
Corporation, Compaq Computer Corporation, Dell Computer
Corporation, and Silicon Graphics, Inc. In the process and
building industry, Intergraph competes with the software products
of Bentley Systems, Inc. (an approximately 33%- owned affiliate
of the Company), Cadcentre, Rebis Industrial Workgroup Software,
and several smaller companies. The Company's primary competitors
in the utilities and mapping/GIS markets are ESRI, Autodesk Inc.,
Smallworld, and MapInfo. The primary competitors of Intergraph
Public Safety are TriTech Software Systems, Litton PRC, Tiburon,
Inc., and Printrak International Inc. Several companies with
greater financial resources than the Company, including IBM,
Hewlett Packard, Dell, and Compaq are active in the industries
served by the Company.
The Company believes it has an advantage over other vendors who
provide only hardware or software, leaving system integration to
the customer. In addition, the Company believes that its
experience and extensive worldwide customer service and support
infrastructure represent a competitive advantage.
Environmental Affairs
The Company's facilities are subject to numerous laws and
regulations designed to protect the environment. In the opinion
of the Company, compliance with these laws and regulations has
not had, and should not have, a material effect on the capital
expenditures, earnings, or competitive position of the Company.
Licenses, Copyrights, Trademarks, Patents, and Proprietary Information
The Company develops its own graphics, data management, and
applications software as part of its continuing product
development activities. The Company has standard license
agreements with Microsoft Corporation for use and distribution of
the Windows NT operating system and with UNIX Systems
Laboratories for use and distribution of the UNIX operating
system. The license agreements are perpetual and allow the
Company to sublicense the operating systems software upon payment
of required sublicensing fees. The Company also has an extensive
program for the licensing of third party application and general
utility software for use on systems and workstations.
The Company has a non-exclusive license agreement with Bentley
Systems, Inc. ("BSI"), an approximately 33%-owned affiliate of
the Company, under which the Company sells MicroStation, a
software product developed and maintained by BSI and utilized in
many of the Company's software applications, via its direct sales
force, and via its indirect sales channels if MicroStation is
sold with other Intergraph products. See Management's Discussion
and Analysis of Financial Condition and Results of Operations and
Note 13 of Notes to Consolidated Financial Statements contained
in the Company's 1999 annual report, portions of which are
incorporated by reference in this Form 10-K annual report, for
further discussion of the Company's affiliation and past
arbitration proceedings with BSI.
The Company owns and maintains a number of registered patents
and registered and unregistered copyrights, trademarks, and
service marks. The patents and copyrights held by the Company
are the principal means by which the Company preserves and
protects the intellectual property rights embodied in the
Company's hardware and software products. Similarly, trademark
rights held by the Company are used to preserve and protect the
goodwill represented by the Company's registered and unregistered
trademarks.
As industry standards proliferate, there is a possibility that
the patents of others may become a significant factor in the
Company's business. Personal computer technology, which is used
in the Company's workstation and server products, is widely
available, and many companies, including Intergraph, are
attempting to develop patent positions concerning technological
improvements related to personal computers, workstations and
servers. With the possible exception of its ongoing litigation
with Intel (in which the Company expects to prevail), it does not
appear that the Company will be prevented from using the
technology necessary to compete successfully, since patented
technology is typically available in the industry under royalty
bearing licenses or patent cross licenses, or the technology can
be purchased on the open market. Any increase in royalty
payments or purchase costs would increase the Company's costs of
manufacture, however, and it is possible that some key
improvement necessary to compete successfully in markets served
by the Company may not be available.
In addition, computer software technology is increasingly being
protected by patents, and many companies, including Intergraph,
are developing patent positions for software innovations. It is
unknown at the present time whether patented software technology
will be made generally available under license or whether
specific innovations will be held by their inventors and not made
available to others. In many cases, it may be possible to employ
software techniques that avoid the patents of others, but the
possibility exists that some features needed to compete
successfully in a particular segment of the software market may
be unavailable or may demand unacceptable costs due to royalty
requirements. Patented software techniques that become de facto
industry standards are among those that are likely to raise costs
or prevent the Company from competing successfully in particular
markets.
An inability to retain significant third party license rights,
in particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain current
technical information or any required patent rights of others
through licensing or purchase, all of which are important to
success in the industry in which the Company competes, could
significantly reduce the Company's revenues and adversely affect
its results of operations.
Technology significant to the Company is sometimes made
available in the form of proprietary information or trade secrets
of others. Prior to the dispute with Intel, Intel had made
freely available technical information used by the Company to
design, market and support its products that use Intel
components. Such information is claimed by Intel to be
proprietary and is made available by Intel only under
nondisclosure agreements. Prior to the April 1998 ruling of the
Alabama Court (See Item 3, Legal Proceedings, following), Intel
was withholding such information, attempting to cancel existing
agreements and refusing to enter into new nondisclosure
agreements with the Company. Intel's actions are the subject
matter of current litigation. These actions have damaged the
Company by slowing the introduction of new products using Intel
components and preventing proper maintenance and support of
Company products using Intel components.
Risks and Uncertainties
In addition to those described above and in Item 3, Legal
Proceedings, the Company has risks and uncertainties related to
its business and operating environment. See Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Note 2 of Notes to Consolidated Financial
Statements contained in the Company's 1999 annual report,
portions of which are incorporated by reference in this Form 10-K
annual report, for further discussion of these risks and
uncertainties.
Employees
At December 31, 1999, the Company had approximately 5,700
employees. Of these, approximately 2,480 were employed outside
the United States. The Company's employees are not subject to
collective bargaining agreements, and there have been no work
stoppages due to labor difficulties. Management of the Company
believes its relations with employees to be good.
ITEM 2. PROPERTIES
The Company's corporate offices and primary distribution center
are located in Huntsville, Alabama. All of the Company's
operating segments have corporate headquarters located within the
Huntsville facilities. The Company's operating segments also
maintain sales and support facilities throughout the world.
The Company owns over 1,900,000 square feet of space in
Huntsville that is utilized for product development,
distribution, sales and administration. The Huntsville
facilities also include over 500 acres of unoccupied land. The
Company maintains sales and support locations in major U.S.
cities outside of Huntsville through operating leases.
Outside the U.S., the Company owns approximately 280,000 square
feet of space, primarily its Nijmegen distribution center. Sales
and support facilities are leased in most major international
locations.
The Company considers its facilities to be adequate for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
The Company filed a legal action on November 17, 1997, in U.S.
District Court, the Northern District of Alabama, Northeastern
Division (the "Alabama Court"), charging Intel Corporation, the
supplier of all of the Company's microprocessor supply, with
anticompetitive business practices. In the lawsuit, Intergraph
alleges that Intel attempted to coerce the Company into
relinquishing to Intel certain computer hardware patents through
a series of wrongful acts, including interference with business
and contractual relations, interference with technical assistance
from third party vendors, breach of contract, negligence,
misappropriation of trade secrets, and fraud based upon Intel's
failure to promptly notify the Company of defects in Intel's
products and timely correction of such defects, and further
alleging that Intel has infringed upon the Company's patents.
The Company's patents define the architecture of the cache memory
of an Intergraph developed microprocessor. The Company believes
this architecture is at the core of Intel's entire Pentium line
of microprocessors and systems. On December 3, 1997, the Company
amended its complaint to include a count charging Intel with
violations of federal antitrust laws. Intergraph asserts claims
for compensatory and treble damages resulting from Intel's
wrongful conduct and infringing acts, and punitive damages in an
amount sufficient to punish and deter Intel's wrongful conduct.
Additionally, the Company requested that Intel be enjoined from
continuing the alleged wrongful conduct which is anticompetitive
and/or violates federal antitrust laws, so as to permit
Intergraph uninterrupted development and sale of Intel-based
products.
On November 21, 1997, the Company filed a motion in the
Alabama Court to enjoin Intel from disrupting or delaying its
supply of products and product information, pending resolution of
Intergraph's legal action. On April 10, 1998, the Alabama Court
ruled in favor of Intergraph and ordered that Intel be
preliminarily enjoined from terminating Intergraph's rights as a
strategic customer in current and future Intel programs, and from
otherwise taking any action adversely affecting Intel's business
relationship with Intergraph or Intergraph's ability to design,
develop, produce, manufacture, market or sell products
incorporating, or based upon, Intel products or information. The
Court's ruling required 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 appealed to the United States Court of Appeals for
the Federal Circuit (the "Appeals Court"). On November 5, 1999,
the Appeals Court vacated the preliminary injunction that had
been entered by the Alabama Court. This ruling by the Appeals
Court is not expected to impact Company operations as Intel is
bound by an Agreement and Consent Order with the Federal Trade
Commission entered March 17, 1999 not to restrict microprocessor
sales to the Company and not to take coercive actions that were
identified by the Company in its legal action against Intel.
On June 17, 1998, Intel filed its answer in the Alabama case,
which included counterclaims against Intergraph, including claims
that Intergraph has infringed seven patents of Intel. On July 8,
1998, the Company filed its answer to the Intel counterclaims,
among other things denying any liability under the patent
infringement asserted by Intel. On June 17, 1998, Intel filed a
motion before the Alabama Court seeking a summary judgment
holding that Intel is licensed to use the patents that the
Company asserted against Intel in the Company's original
complaint. This "license defense" was based on Intel's
interpretation of the facts surrounding the acquisition by the
Company of the Advanced Processor Division of Fairchild
Semiconductor Corporation in 1987. On September 15, 1998, the
Company filed a cross motion with the Alabama Court requesting
summary adjudication in favor of the Company. On November 13,
1998, the Company amended its complaint to include two additional
counts of patent infringement against Intel. The Company
requested the court to issue a permanent injunction enjoining
Intel from further infringement and to order that the financial
impact of the infringement be calculated and awarded in treble to
Intergraph. On June 4, 1999, the Alabama Court granted the
Company's September 15, 1998 motion and ruled that Intel has no
license to use the Company's Clipper patents as Intel had claimed
in its motion for summary judgment. On October 12, 1999, the
Alabama Court reversed its June 4, 1999 order and dismissed the
Company's patent claims against Intel. The Company is confident
that Intel has no license to use the Clipper patents and believes
that the court's original decision on this issue was correct. On
October 15, 1999, the Company appealed the Alabama Court's
October 12, 1999 order. No decision has been entered.
The Company believes that Intel's counterclaims, including the
alleged infringement of seven Intel patents, will not result in
material adverse consequences for the Company.
At an oral hearing held February 25, 2000, the Alabama Court
indicated that the trial date for this case, previously scheduled
for June, 2000, will be continued. A formal schedule has not
been entered, but the Company believes it likely that trial will
be re-scheduled for the Summer of 2001.
On March 10, 2000 the Alabama Court entered an order dismissing
the antitrust claims of the Company against Intel, based in part
upon a February 17, 2000 decision by the Appeals Court in another
case (CSU v. Xerox). The Company considers this dismissal to be
in error and intends to vigorously pursue its antitrust case
against Intel. At present, the Company is considering a number
of possible options which may include bringing an immediate
appeal of the order of the Alabama Court or an appeal following
the end of trial and judgment on the merits of the Company's case
in chief. At the present time, the Company is unable to
determine the effect, if any, of this dismissal on the Company's
overall case against Intel.
During the course of the Intel litigation, the Company has
employed a variety of experts to prepare estimates of the damages
suffered by the Company under various claims of injury brought by
the Company. The following damage estimates were provided to
Intel in the August/September 1999 time frame in due course of
the litigation process: estimated damages for injury covered
under non-patent claims through June 1999 - $100 million;
estimated additional damages for injury covered under non-patent
claims through December 2003 - $400 million, subject to present-
value reduction. These numbers are estimates only and any
recovery of damages in this litigation could be substantially
less than these estimates or substantially greater than these
estimates depending on a variety of factors that cannot be
determined at this time. Factors that could lead to recovery of
substantially less that these estimates include, but are not
limited to, the failure of the Alabama Court or the Appeals Court
to sustain the legal basis for one or more of the Company's
claims, the failure of the jury to award amounts consistent with
these estimates, the failure of the Alabama Court or the Appeals
Court to sustain any jury award in amounts consistent with these
estimates, the settlement by the Company of the Intel litigation
in an amount inconsistent with these estimates, and the failure
of the Company to successfully defend itself from Intel's patent
counterclaims in the Alabama Court and in the Appeals Court and a
consequential recovery by Intel for damages and/or a permanent
injunction against the Company. Factors that could lead to
recovery substantially greater than these estimates include, but
are not limited to, success by the Company in recovering punitive
damages on one or more of its non-patent claims.
The Company believes it was necessary to take legal action
against Intel in order to defend its workstation business, its
intellectual property, and the investments of its shareholders.
The Company is vigorously prosecuting its positions and defending
against Intel's claims and believes it will prevail in these
matters, but at present is unable to predict an outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to the executive officers of
the Company is set forth below. Officers serve at the discretion
of the Board of Directors.
Name Age Position Officer Since
- ---- --- -------- -------------
James F. Taylor Jr. 55 Chief Executive Officer and Director 1977
Robert E. Thurber 59 Executive Vice President and Director 1977
Graeme J. Farrell 57 Executive Vice President 1994
Penman R. Gilliam 62 Executive Vice President 1994
Lewis N. Graham Jr. 45 Executive Vice President 1997
Stephen J. Phillips 58 Executive Vice President 1987
Preetha R. Pulusani 39 Executive Vice President 1997
William E. Salter 58 Executive Vice President 1984
K. David Stinson Jr. 46 Executive Vice President 1996
John W. Wilhoite 48 Executive Vice President 1988
and Chief Financial Officer
Edward A. Wilkinson 66 Executive Vice President 1987
Manfred Wittler 59 Executive Vice President 1989
James F. Taylor Jr. joined the Company in July 1969, shortly
after its formation, and is considered a founder. He has served
as a Director since 1973. Mr. Taylor was responsible for the
design and development of the Company's first commercial computer-
aided-design products and for many application specific products.
He was elected Vice President in 1977 and Executive Vice
President in 1982. He assumed management responsibility for the
Company's public safety division in 1995. Effective March 2,
2000, he was elected Chief Executive Officer of Intergraph
Corporation. Mr. Taylor holds degrees in mathematics and
physics.
Robert E. Thurber, a founder of the Company, has been a
Director since 1972. Mr. Thurber was elected Vice President in
June 1997 and is currently serving as Executive Vice President
and Chief Engineer. Mr. Thurber holds a master's degree in
engineering.
Graeme J. Farrell joined the Company in February 1986 as the
Financial Controller for Intergraph's subsidiaries in Australia
and New Zealand. In 1987, the Company appointed him Finance
Director for its Asia-Pacific region. He was elected Vice
President of Business Operations for Asia-Pacific in 1994, and in
August 1999 he was elected Executive Vice President. Prior to
joining the Company, Mr. Farrell was involved in accounting
software development for five years, and prior to that he was
Finance director of Dennison Manufacturing's (USA) Australian
operations for five years. Mr. Farrell is a Chartered Secretary
and qualified accountant holding a public practice certificate.
Penman R. Gilliam joined the Company in April 1994 as Executive
Vice President responsible for federal programs. Mr. Gilliam is
currently responsible for the federal mapping and information
systems organization. Mr. Gilliam came to Intergraph from Hughes
Aircraft Company where he was Vice President of Hughes
Communications and Data Systems Division. From late 1987 through
early 1993, Mr. Gilliam served as Deputy Director of the Defense
Mapping Agency, the senior civilian responsible for overall
production, operations, and research. Mr. Gilliam holds a
bachelor's degree in mathematics and geology.
Lewis N. Graham Jr. joined the Company in 1985 and has been
involved in the design and delivery of imaging and mapping
systems during most of his career with the Company. He was
elected Vice President in 1997 and Executive Vice President in
1998, with responsibility for the mapping and geoengineering
divisions of Intergraph. He is currently the Chief Executive
Officer of Z/I Imaging, Inc., a 60%-owned photogrammetry company
formed in October 1999. Mr. Graham holds a bachelor's degree in
physics and a master's degree in electrical engineering.
Stephen J. Phillips joined the Company as Vice President and
General Counsel in November 1987 when Intergraph purchased the
Advanced Processor Division of Fairchild Semiconductor, where Mr.
Phillips was General Patent Counsel. He was elected Executive
Vice President in August 1992. Mr. Phillips holds a master's
degree in electrical engineering and a juris doctor in law.
Preetha R. Pulusani joined the Company in 1980 as a software
engineer, and since that time has held several positions in the
areas of marketing and development of mapping technology for the
Company. She was elected Vice President in 1997 and has served
as Executive Vice President, with responsibility for the mapping
and geographic information systems business of Intergraph, since
August 1998. Ms. Pulusani holds a master's degree in computer
science.
William E. Salter joined the Company in April 1973. Since that
time, he has served in several managerial positions in the
Company's federal systems business and as Director of Marketing
Communications. Dr. Salter was elected Vice President in August
1984 and is currently an Executive Vice President of the Company
and President of Intergraph Government Solutions. He holds a
doctorate in electrical engineering.
K. David Stinson Jr. joined the Company in 1996. Prior to
joining the Company, Mr. Stinson acted as Vice President of
Engineering and Nuclear Projects for the Tennessee Valley
Authority ("TVA"), the nation's largest government owned electric
power utility. Before joining TVA, he was founder and Chief
Executive Officer of Digital Engineering, with responsibility for
developing software to assist with the operations, maintenance,
and environmental qualification of nuclear facilities and other
process plants. Mr. Stinson was elected Executive Vice President
in 1996 and is currently responsible for the process and building
business of Intergraph. He is a graduate of the U.S. Air Force
Academy and holds a masters degree in management administration
science.
John W. Wilhoite joined the Company in July 1985 after eleven
years with Price Waterhouse & Co. He has been Controller of the
Company since 1986 and was elected Vice President in 1988. In
May 1998, he was elected Executive Vice President of Finance and
was named Chief Financial Officer in December 1998. Mr. Wilhoite
holds a bachelor's degree in business administration and is a
certified public accountant.
Edward A. Wilkinson joined the Company in 1985 as Director of
Government Relations. He was elected Vice President of Federal
Systems in 1987 and Executive Vice President in 1994. Prior to
joining the Company, Mr. Wilkinson served 34 years in the U.S.
Navy, retiring with the rank of Rear Admiral. He holds a
master's degree in mechanical engineering.
Manfred Wittler joined the Company in 1989 as Vice President.
In 1991, he was elected Executive Vice President, with
responsibility for sales and support in Europe, Canada, and Latin
America. He has served as Chairman of the Board of Intergraph
Computer Systems ("ICS") since November 1999 and was appointed
Chief Executive Officer of ICS in January 2000. From 1983
through 1989, Mr. Wittler held several positions with Data
General Corporation in Europe, including Division Vice President.
He holds a doctorate in engineering.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information appearing under "Dividend Policy" and "Price
Range of Common Stock" on page 58 of the Intergraph Corporation
1999 annual report to shareholders is incorporated by reference
in this Form 10-K annual report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31,
1999 appearing under "Five Year Financial Summary" on the inside
front page of the Intergraph Corporation 1999 annual report to
shareholders is incorporated by reference in this Form 10-K
annual report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 16 to 32 of the
Intergraph Corporation 1999 annual report to shareholders is
incorporated by reference in this Form 10-K annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information relating to the Company's market risks appearing
under "Impact of Currency Fluctuations and Currency Risk
Management" and "Liquidity and Capital Resources" in Management's
Discussion and Analysis of Financial Condition and Results of
Operations appearing on pages 27 to 32 of the Intergraph
Corporation 1999 annual report to shareholders is incorporated by
reference in this Form 10-K annual report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent
auditors appearing on pages 33 to 57 of the Intergraph
Corporation 1999 annual report to shareholders are incorporated
by reference in this Form 10-K annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing under "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of
1934" on pages 4 to 6 of the Intergraph Corporation proxy
statement relative to the annual meeting of shareholders to be
held May 18, 2000, is incorporated by reference in this Form 10-K
annual report. Directors are elected for terms of one year at
the annual meeting of the Company's shareholders.
Information relating to the executive officers of the Company
appearing under "Executive Officers of the Company" on pages 14
to 15 in this Form 10-K annual report is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on
pages 6 to 13 of the Intergraph Corporation proxy statement
relative to the annual meeting of shareholders to be held May 18,
2000, is incorporated by reference in this Form 10-K annual
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Common Stock Outstanding and
Principal Shareholders" on pages 1 to 4 of the Intergraph
Corporation proxy statement relative to the annual meeting of
shareholders to be held May 18, 2000, is incorporated by
reference in this Form 10-K annual report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
Page in
Annual Report *
---------------
(a) 1) The following consolidated financial
statements of Intergraph Corporation
and subsidiaries and the report of
independent auditors thereon are
incorporated by reference from the
Intergraph Corporation 1999 annual
report to shareholders:
Consolidated Balance Sheets at December
31, 1999 and 1998 33
Consolidated Statements of Operations for
the three years ended December 31, 1999 34
Consolidated Statements of Cash Flows for
the three years ended December 31, 1999 35
Consolidated Statements of Shareholders'
Equity for the three years ended December 31, 1999 36
Notes to Consolidated Financial Statements 37-56
Report of Independent Auditors 57
* Incorporated by reference from the indicated pages of the
1999 annual report to shareholders.
Page in
Form 10-K
---------
2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
and Reserves for the three years ended
December 31, 1999 22
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
Financial statements of 50%-or-less-owned companies have been
omitted because the registrant's proportionate share of income
before income taxes of the companies is less than 20% of
consolidated loss before income taxes, and the investments in and
advances to the companies are less than 20% of consolidated total
assets.
3) Exhibits
Page in
Number Description Form 10-K
------ ----------- ---------
3(a) Certificate of Incorporation, Bylaws, and
Certificate of Merger (1).
3(b) Amendment to Certificate of Incorporation (2).
3(c) Restatement of Bylaws (3).
4 Shareholder Rights Plan, dated August 25,
1993 (4) and amendment dated March 16,
1999. (10)
10(a) * Employment Contract of Manfred Wittler
dated November 1, 1989 (5) and amendments
dated February 18, 1998 (8) and June 7, 1999.
10(b) Amended and Restated Loan and Security
Agreement, by and between Intergraph
Corporation and Foothill Capital Corporation,
dated November 30, 1999
10(c) * Intergraph Corporation 1997 Stock Option Plan
(6) and amendment dated January 11, 1999. (11)
10(d) Indemnification Agreement between Intergraph
Corporation and each member of the Board of
Directors of the Company dated June 3, 1997 (7).
10(e) * Employment Contract of Wade Patterson dated
May 30, 1997 (7) and amendment dated November
2, 1998. (10)
10(f) * Intergraph Corporation Nonemployee Director
Stock Option Plan (8).
10(g) * Employment Contract of Klaas Borgers dated
September 1, 1997. (10)
10(h) Asset Purchase Agreement by and among SCI
Technology, Inc. as Buyer and Intergraph
Corporation as Seller dated November 13,
1998, with Exhibits and Schedule 1 (9).
10(i) * Intergraph Computer Systems Holding, Inc.
1998 Stock Option Plan. (10)
13 Portions of the Intergraph Corporation
1999 Annual Report to Shareholders
incorporated by reference in this Form
10-K Annual Report
21 Subsidiaries of the Company 23
23 Consent of Independent Auditors 24
27 Financial Data Schedule
99(a) Consent of Lawrence R. Greenwood
99(b) Consent of Joseph C. Moquin
* Denotes management contract or compensatory plan, contract,
or arrangement required to be filed as an Exhibit to this
Form 10-K
- ------------------
(1) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1984, under the Securities Exchange Act
of 1934, File No. 0-9722.
(2) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1987, under the Securities Exchange Act
of 1934, File No. 0-9722.
(3) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, under the Securities Exchange Act
of 1934, File No. 0-9722.
(4) Incorporated by reference to exhibits filed with the
Company's Current Report on Form 8-K dated August 25,
1993, under the Securities Exchange Act of 1934, File
No. 0-9722.
(5) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the year
ended December 31, 1992, under the Securities Exchange
Act of 1934, File No. 0-9722.
(6) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, under the Securities Exchange Act of
1934, File No. 0-9722.
(7) Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, under the Securities Exchange Act
of 1934, File No. 0-9722.
(8) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, under the Securities Exchange Act of
1934, File No. 0-9722.
(9) Incorporated by reference to exhibits filed with the
Company's Current Report on Form 8-K dated November 13,
1998, under the Securities Exchange Act of 1934, File
No. 0-9722.
(10) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998, under the Securities Exchange Act of
1934, File No. 0-9722.
(11) Incorporated by reference to exhibit filed with the
Company's Registration Statement on Form S-8 dated May
24, 1999, under the Securities Exchange Act of 1933,
File No. 333-79137.
- ------------------
(b) No reports on Form 8-K were filed during the fourth quarter
of the fiscal year ended December 31, 1999.
(c) Exhibits - the response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial statement schedules - the response to this portion
of Item 14 is submitted as a separate section of this report.
- ------------------
Information contained in this Form 10-K annual report includes
statements that are forward looking as defined in Section 21E of
the Securities Exchange Act of 1934. Actual results could 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 contained in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
section of the Company's 1999 annual report, portions of which
are incorporated by reference in this Form 10-K annual report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ James F. Taylor Jr. Date: March 21, 2000
-----------------------
James F. Taylor Jr.
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date
----
/s/ James W. Meadlock Chairman of the Board March 21, 2000
- ----------------------------
James W. Meadlock
/s/ James F. Taylor Jr. Chief Executive Officer
- ---------------------------- and Director March 21, 2000
James F. Taylor Jr.
/s/ Robert E. Thurber Executive Vice President
- ---------------------------- and Director March 21, 2000
Robert E. Thurber
/s/ Larry J. Laster
- ---------------------------- Director March 21, 2000
Larry J. Laster
- ---------------------------- Director March 21, 2000
Thomas J. Lee
- ---------------------------- Director March 21, 2000
Sidney L. McDonald
/s/ John W. Wilhoite Executive Vice President
- ---------------------------- and Chief Financial Officer
John W. Wilhoite (Principal Financial and
Accounting Officer) March 21, 2000
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- ----------------- ----------- ---------- ------------ -------------
Additions
Balance at charged to
beginning costs and Balance at
Description of period expenses Deductions end of period
- ----------------- ----------- ---------- ------------ -------------
Allowance for
doubtful
accounts deducted
from accounts
receivable in
the balance
sheet 1999 $13,814,000 6,900,000 4,648,000 (1) $16,066,000
1998 $14,488,000 3,168,000 3,842,000 (1) $13,814,000
1997 $16,703,000 2,844,000 5,059,000 (1) $14,488,000
Allowance for
obsolete inventory
deducted from
inventories in
the balance
sheet 1999 $31,249,000 23,187,000 (3) 20,540,000 (2) $33,896,000
1998 $36,508,000 19,346,000 24,605,000 (2) $31,249,000
1997 $43,223,000 15,582,000 22,297,000 (2) $36,508,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory reduced to net realizable value.
(3) Includes a $7 million inventory write-down resulting from the
Company's exit from the personal computer and generic server
businesses in third quarter 1999.