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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-9722
INTERGRAPH CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 63-0573222
_______________________________ __________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Huntsville, Alabama 35894-0001
_______________________________________ __________
(Address of principal executive offices) (Zip Code)
(256) 730-2000
__________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
- -
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) . YES X NO
- -
Common stock, par value $0.10 per share: 46,093,560 shares
outstanding as of March 31, 2003
===============================================================================
INTERGRAPH CORPORATION
FORM 10-Q*
March 31, 2003
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets at March 31, 2003, and
December 31, 2002 2
Consolidated Statements of Income for the quarters
ended March 31, 2003, and 2002 3
Consolidated Statements of Cash Flows for the quarters
ended March 31, 2003, and 2002 4
Notes to Consolidated Financial Statements 5 - 11
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 12 - 17
-----------------------------------
Item 3. Quantitative and Qualitative Disclosures About
----------------------------------------------
Market Risk 17 - 18
-----------
Item 4. Controls and Procedures 18
-----------------------
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 18 - 19
-----------------
Item 6. Exhibits and Reports on Form 8-K 19
--------------------------------
SIGNATURES 20
CERTIFICATIONS 21 - 22
* Information contained in this Form 10-Q includes statements that are
forward-looking as defined in Section 21E of the Securities Exchange Act of
1934. Actual results may differ materially from those projected in the
forward-looking statements. Information concerning factors that could cause
actual results to differ materially from those in the forward-looking
statements is described in the Company's filings with the Securities and
Exchange Commission, including its most recent Annual Report on Form 10-K and
this Form 10-Q.
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- -------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- -------------------------------------------------------------------------------
(In thousands, except share and per share amounts)
Assets
Cash and cash equivalents $474,523 $490,097
Short-term investments 865 15,927
- -------------------------------------------------------------------------------
Total cash and short-term investments 475,388 506,024
Accounts receivable, net 149,965 152,187
Inventories, net 18,270 19,397
Other current assets 44,139 39,795
- -------------------------------------------------------------------------------
Total current assets 687,762 717,403
Investments in affiliates 19,152 20,700
Capitalized software development costs, net 30,764 29,830
Other assets, net 16,822 16,889
Property, plant, and equipment, net 50,891 50,818
- -------------------------------------------------------------------------------
Total Assets $805,391 $835,640
===============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 16,694 $ 17,850
Accrued compensation 30,384 31,541
Other accrued expenses 33,886 35,730
Billings in excess of sales 45,938 43,908
Income taxes payable 35,685 67,477
Short-term debt --- 169
- -------------------------------------------------------------------------------
Total current liabilities 162,587 196,675
- -------------------------------------------------------------------------------
Deferred income taxes 15,886 16,260
Other noncurrent liabilities 1,022 995
- -------------------------------------------------------------------------------
Total noncurrent liabilities 16,908 17,255
- -------------------------------------------------------------------------------
Shareholders' equity:
Common stock, par value $0.10 per share -
100,000,000 shares authorized;
57,361,362 shares issued 5,736 5,736
Additional paid-in capital 205,299 206,888
Retained earnings 594,135 586,020
Accumulated other comprehensive loss (1,392) (659)
- -------------------------------------------------------------------------------
803,778 797,985
Less - cost of treasury shares
(11,267,802 at March 31, 2003, and
11,198,767 at December 31, 2002) (177,882) (176,275)
- -------------------------------------------------------------------------------
Total shareholders' equity 625,896 621,710
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $805,391 $835,640
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -------------------------------------------------------------------------------
Quarter Ended March 31, 2003 2002
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Revenues
Systems $ 70,406 $ 70,894
Maintenance 30,057 28,162
Services 20,090 24,040
- -------------------------------------------------------------------------------
Total revenues 120,553 123,096
- -------------------------------------------------------------------------------
Cost of revenues
Systems 36,460 36,497
Maintenance 12,296 14,216
Services 15,196 16,563
- -------------------------------------------------------------------------------
Total cost of revenues 63,952 67,276
- -------------------------------------------------------------------------------
Gross profit 56,601 55,820
Product development 11,872 12,266
Sales and marketing 24,677 22,577
General and administrative 15,817 15,904
- -------------------------------------------------------------------------------
Income from operations 4,235 5,073
Intellectual property income (expense), net 5,330 (3,154)
Gains on sales of assets 1,220 1,530
Interest income 1,923 996
Other income (expense), net (43) 645
- -------------------------------------------------------------------------------
Income before income taxes and minority
interest 12,665 5,090
Income tax expense (4,550) (650)
- -------------------------------------------------------------------------------
Income before minority interest 8,115 4,440
Minority interest in earnings of
consolidated subsidiaries --- (62)
- -------------------------------------------------------------------------------
Net income $ 8,115 $ 4,378
===============================================================================
Net income per share - basic $ 0.18 $ 0.09
- diluted $ 0.17 $ 0.08
===============================================================================
Weighted average shares outstanding - basic 46,200 49,954
- diluted 48,408 52,503
===============================================================================
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, 2003 2002
- -------------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net income $ 8,115 $ 4,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,018 2,489
Amortization 3,706 3,514
Provision for losses on accounts receivable 334 482
Noncurrent portion of deferred income taxes 157 237
Gains on sales of assets (1,220) (1,530)
Net changes in current assets and liabilities (35,921) (15,309)
- -------------------------------------------------------------------------------
Net cash used for operating activities (22,811) (5,739)
- -------------------------------------------------------------------------------
Investing Activities:
Net proceeds from sales of assets 3,243 2,452
Purchases of property, plant, and equipment (2,172) (2,824)
Purchases of short-term investments (902) (1,986)
Proceeds from short-term investments 15,991 5,070
Capitalized software development costs (2,909) (2,178)
Business acquisitions (1,940) (981)
Other (472) (187)
- -------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 10,839 (634)
- -------------------------------------------------------------------------------
Financing Activities:
Gross borrowings 31 81
Debt repayment (200) (1,526)
Treasury stock repurchase (4,617) ---
Proceeds of employee stock purchases and exercise of
stock options 1,421 2,023
- -------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (3,365) 578
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash (237) 60
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (15,574) (5,735)
Cash and cash equivalents at beginning of period 490,097 99,773
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $474,523 $ 94,038
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of
Intergraph Corporation (the "Company" or "Intergraph") and its majority-
owned subsidiaries.
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. These unaudited interim financial statements
should be read in conjunction with the audited consolidated financial
statements and related notes contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002 ("2002 Annual Report").
The operating results for the three-month period ended March 31, 2003, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
The Company's operations are divided for operational and management
purposes into four separate business segments, along with a corporate
oversight function ("Corporate"): Intergraph Process, Power & Offshore
("PPO"), Intergraph Mapping and Geospatial Solutions ("IMGS"), Intergraph
Solutions Group ("ISG"), and Intergraph Public Safety, Inc. ("IPS"). See
Note 12 for a description of these business segments.
Certain reclassifications have been made to the prior year amounts to
provide comparability with the current year presentation. To provide
consistency of reported results, all income and expenses associated with
the intellectual property division, including related legal expenses, are
now classified as "Intellectual property income (expense), net" in the
consolidated statements of income.
NOTE 2 - STOCK-BASED COMPENSATION
In accordance with the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation," the Company has elected to apply Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its stock-based plans. Accordingly, the
Company recognized no compensation expense for these plans during the
quarters ended March 31, 2003, and 2002. Had the Company accounted for its
stock-based compensation plans based on the fair value of awards at grant
date consistent with the methodology of SFAS 123, the Company's reported
net income and income per share for these periods would have been impacted
as indicated below. The effects of applying SFAS 123 on a pro forma basis
for the quarters ended March 31, 2003, and 2002, are not likely to be
representative of the effects on reported pro forma net income for future
periods as options vest over several years and as it is anticipated that
additional grants will be made in future years.
- -------------------------------------------------------------------------------
Quarter Ended March 31, 2003 2002
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net income As reported $ 8,115 $4,378
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards (net of income tax) (324) (741)
-------- -------
Pro forma $ 7,791 $3,637
======== =======
Basic income per share As reported $ 0.18 $ 0.09
Pro forma $ 0.17 $ 0.07
Diluted income per share As reported $ 0.17 $ 0.08
Pro forma $ 0.16 $ 0.07
===============================================================================
NOTE 3 - INVENTORIES
Inventories are stated at the lower of average cost or market and are
summarized as follows:
- -------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- -------------------------------------------------------------------------------
(In thousands)
Raw materials $ 7,042 $ 7,011
Work-in-process 2,652 2,856
Finished goods 3,028 3,457
Service spares 5,548 6,073
- -------------------------------------------------------------------------------
Totals $18,270 $19,397
===============================================================================
Inventories on hand at March 31, 2003, and December 31, 2002, relate
primarily to continuing specialized hardware assembly activity in the
Company's IMGS and ISG business segments, and to the Company's continuing
warranty and maintenance obligations on computer hardware previously sold.
Amounts reflected as work-in-process relate to sales contracts accounted
for under the percentage-of-completion method.
NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development costs are charged to expense as incurred; however, the
costs incurred for the development of computer software that will be sold,
leased, or otherwise marketed are capitalized when technological
feasibility of the product has been established. Such capitalized costs
are amortized on a straight-line basis over a period of two to three years.
Amortization of these capitalized costs, included in "Cost of revenues -
Systems" in the consolidated statements of income, amounted to $2 million
in first quarter 2003 compared to $1 million in first quarter 2002. Due to
net realizable value concerns, the Company did not capitalize product
development expenses of $2.9 million and $2.5 million in first quarter 2003
and 2002, respectively, for costs normally eligible for capitalization.
Accumulated amortization (net of certain fully amortized projects) in the
consolidated balance sheets at March 31, 2003, and December 31, 2002, was
$16.5 million and $14.6 million, respectively.
NOTE 5 - INTANGIBLE ASSETS
The Company's intangible assets include capitalized software development
costs (included as a separate line in the consolidated balance sheets) and
other intangible assets (included in "Other assets" in the consolidated
balance sheets).
At March 31, 2003, and December 31, 2002, the Company's intangible assets
and related accumulated amortization consisted of the following:
- -------------------------------------------------------------------------------
March 31, 2003 December 31, 2002
--------------------- -------------------------
Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
- -------------------------------------------------------------------------------
(In thousands)
Capitalized software
development $47,300 $(16,536) $30,764 $44,417 $(14,587) $29,830
Other intangible
assets 46,304 (34,264) 12,040 44,988 (32,522) 12,466
- -------------------------------------------------------------------------------
Totals $93,604 $(50,800) $42,804 $89,405 $(47,109) $42,296
===============================================================================
The Company recorded amortization expense of $3.7 million and $3.5 million
for first quarter 2003 and 2002, respectively. Based on the current
intangible assets subject to amortization, the estimated amortization
expense for the remainder of 2003 and each of the succeeding five years is
as follows: $14 million in 2003, $12 million in 2004, $8 million in 2005,
$4 million in 2006, $4 million in 2007, and $1 million in 2008.
NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET
"Property, plant, and equipment, net" includes accumulated depreciation of
approximately $113.3 million and $114.4 million at March 31, 2003, and
December 31, 2002, respectively.
NOTE 7 - SUPPLEMENTARY CASH FLOW INFORMATION
Changes in current assets and liabilities, net of the effects of business
acquisitions and divestitures, in reconciling net income to net cash
provided by (used for) operations are as follows:
- -------------------------------------------------------------------------------
Quarter Ended March 31, 2003 2002
- -------------------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable, net $ 2,988 $ (6,562)
Inventories, net 1,290 2,641
Other current assets (5,791) (1,968)
Increase (decrease) in:
Trade accounts payable (1,393) (2,744)
Accrued compensation and other accrued
expenses (2,923) (5,328)
Income taxes payable (31,823) (883)
Billings in excess of sales 1,731 (465)
- -------------------------------------------------------------------------------
Net changes in current assets and
liabilities $(35,921) $(15,309)
===============================================================================
There were no significant non-cash investing and financing transactions in
first quarter 2003. In first quarter 2002, significant non-cash investing
and financing transactions included a favorable mark-to-market adjustment
of $25.9 million for the Company's long-term investment in 3Dlabs Inc. Ltd.
("3Dlabs"). This adjustment is included in "Accumulated other
comprehensive loss" in the March 31, 2002, consolidated balance sheet.
NOTE 8 - EARNINGS PER SHARE
Basic income per share is computed using the weighted average number of
common shares outstanding. Diluted income per share is computed using the
weighted average number of common and equivalent common shares outstanding.
Employee stock options are the Company's only common stock equivalent and
are included in the calculation only if dilutive. For the three months
ended March 31, 2003, and 2002, these dilutive shares were 2,208,000 and
2,549,000, respectively.
NOTE 9 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income differs from net income due to non-equity items that
include unrealized gains and losses on certain investments in debt and
equity securities and foreign currency translation adjustments.
Comprehensive income is as follows:
- -------------------------------------------------------------------------------
Quarter Ended March 31, 2003 2002
- -------------------------------------------------------------------------------
(In thousands)
Net income $ 8,115 $ 4,378
Unrealized holding gains (losses) arising
during the period (1,026) 26,045
Translation adjustment for financial statements
denominated in a foreign currency 293 202
- -------------------------------------------------------------------------------
Comprehensive income $ 7,382 $30,625
===============================================================================
First quarter 2003 unrealized holding losses are shown net of $537,000 of
income taxes. There was no income tax effect related to the items included
in other comprehensive income for first quarter 2002.
NOTE 10 - INTELLECTUAL PROPERTY INCOME (EXPENSE), NET
In first quarter 2003, the Company recorded $10 million in income from
International Business Machines Corporation ("IBM") as a balancing payment
for future royalties in a full cross-licensing agreement that also resolved
all outstanding patent infringement claims between IBM and the Company. A
payment of $5 million was received in first quarter 2003, and the remainder
was received in second quarter 2003. Netted against this income were $4.7
million in legal fees and other related expenses associated with protecting
and licensing the Company's intellectual property. First quarter 2002
results include $3.2 million in legal fees and other related expenses
associated with patent litigation, with no related income. For a complete
discussion, see "Intellectual Property" and "Litigation" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") section of this Form 10-Q.
NOTE 11 - GAINS ON SALES OF ASSETS
During first quarter 2003 and 2002, the Company recognized gains of $1.2
million and $1.5 million, respectively, from sales of various non-core
subsidiaries, divisions, and product lines. For a complete discussion,
see "Gains on Sales of Assets" included in MD&A.
NOTE 12 - SEGMENT REPORTING
The Company's reportable segments are strategic business units that are
organized by the types of products sold and the specific markets served.
PPO supplies integrated lifecycle software solutions for the design,
construction, and operation of process and power plants, offshore rigs, and
ships. This division offers applications that span shipbuilding, plant
design and visualization, materials procurement and management, plant
operation, and engineering information management.
IMGS is a leading geospatial solutions provider for the following markets:
local, state, federal, and national government (including military);
transportation; utilities; communications; remote sensing and
photogrammetry; mapping; and civil aviation.
ISG provides professional services, specially developed software and
hardware, and commercial off-the-shelf products to federal, state, and
local governments, as well as to commercial customers.
IPS develops computer graphics-based systems designed for public safety
agencies, commercial fleet operations, campus, military base, and airport
security. IPS systems are complete, integrated solutions for command and
control, deployment, tracking, information gathering, analysis, and records
management.
The Corporate segment includes revenues and costs for Teranetix (a provider
of computing support and hardware integration services), international
hardware maintenance, and general corporate functions. Operating expenses
for Corporate consist of general corporate expenses, primarily general and
administrative expenses remaining after charges to the business segments
based on usage of administrative services.
The Company evaluates the performance of its business segments based on
revenue and income from operations. The accounting policies of the
reportable segments are consistent across segments and are the same as
those used in preparation of the consolidated financial statements of the
Company (see Note 1 of Notes to Consolidated Financial Statements included
in the Company's 2002 Annual Report). Sales between the business segments
are accounted for under a transfer pricing policy. Transfer prices
approximate prices that would be charged for the same or similar products
and services to similarly situated unrelated buyers.
The following table sets forth revenues and operating income (loss) by
business segment for the quarters ended March 31, 2003, and 2002.
- -------------------------------------------------------------------------------
Quarter Ended March 31, 2003 2002
- -------------------------------------------------------------------------------
(In thousands)
Revenues:
PPO:
Unaffiliated customers $ 29,795 $ 28,215
Intersegment revenues 717 1,000
- -------------------------------------------------------------------------------
30,512 29,215
- -------------------------------------------------------------------------------
IMGS:
Unaffiliated customers 45,120 44,425
Intersegment revenues 1,643 1,871
- -------------------------------------------------------------------------------
46,763 46,296
- -------------------------------------------------------------------------------
ISG:
Unaffiliated customers 26,975 34,812
Intersegment revenues 502 1,051
- -------------------------------------------------------------------------------
27,477 35,863
- -------------------------------------------------------------------------------
IPS:
Unaffiliated customers 15,983 13,584
Intersegment revenues 541 322
- -------------------------------------------------------------------------------
16,524 13,906
- -------------------------------------------------------------------------------
Corporate:
Unaffiliated customers 2,680 2,060
Intersegment revenues 789 450
- -------------------------------------------------------------------------------
3,469 2,510
- -------------------------------------------------------------------------------
124,745 127,790
- -------------------------------------------------------------------------------
Eliminations (4,192) (4,694)
- -------------------------------------------------------------------------------
Total revenues $120,553 $123,096
===============================================================================
- -------------------------------------------------------------------------------
Operating income (loss):
PPO $ 4,169 $ 4,235
IMGS 186 (35)
ISG 1,136 2,573
IPS 3,469 2,957
Corporate (4,725) (4,708)
Eliminations --- 51
- -------------------------------------------------------------------------------
Total $ 4,235 $ 5,073
===============================================================================
Significant profit and loss items that were not allocated to the segments
and not included in the analysis above include gains on sales of assets of
$1.2 million and $1.5 million in first quarter 2003 and 2002, respectively,
and net intellectual property income of $5.3 million and expense of $3.2
million in first quarter 2003 and 2002, respectively.
The Company does not evaluate performance or allocate resources based on
assets. For further information see "Results by Operating Segment" in the
MD&A section of this Form 10-Q.
NOTE 13 - LETTERS OF CREDIT
In September 2002, the Company established a credit line with Wells Fargo
Bank to cover its outstanding letters of credit. In order to reduce the
cost of issuing letters of credit, the Company secured the credit line with
$15 million of interest-bearing securities. Under this arrangement, the
Company earns interest on the securities and withdrawal of securities is
allowed, but the Company is required to maintain a level of securities
sufficient to cover total outstanding letters of credit (which totaled $9.5
million at March 31, 2003).
NOTE 14 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board issued
Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," which
is effective for guarantees issued or modified after December 31, 2002.
The Interpretation elaborates on the existing disclosure requirements for
most guarantees, including loan guarantees such as standby letters of
credit. It also clarifies that at the time a company issues a guarantee,
the company must recognize an initial liability for the fair value, or
market value, of the obligations it assumes under the guarantee and must
disclose that information in its interim and annual financial statements.
The provisions related to recognizing a liability at inception of the
guarantee for the fair value of the guarantor's obligations does not apply
to product warranties or to guarantees accounted for as derivatives. The
adoption of this statement did not have a significant impact on the
Company's consolidated operating results or financial position for the
quarter.
NOTE 15 - LITIGATION
As further described in the Company's 2002 Annual Report, the Company
continues to protect its intellectual property portfolio by engaging in
both licensing discussions and patent infringement litigation. See MD&A
for a discussion of 2003 developments.
INTERGRAPH CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
- ---------------------
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements including, but not limited to, projections about
revenue, operating income levels, margins, synergies, industry rankings,
capital spending, and market conditions and their anticipated impact on the
Company; expectations regarding future results and cash flows; information
regarding the development, timing of introduction, and performance of new
products; any statements of the plans, strategies, and objectives of
management for future operations; and expectations regarding the Company's
various ongoing litigation proceedings. These forward-looking statements
are subject to known or unknown risks and uncertainties (some of which are
beyond the Company's control) that could cause actual results to differ
materially from those anticipated in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, worldwide political and economic conditions and changes,
the ability to attract or retain key personnel, increased competition,
rapid technological change, unanticipated changes in customer requirements,
the ability to protect the Company's intellectual property rights, the
ability to access the technology necessary to compete in the markets
served, the ability to complete certain sales and lease transactions as
planned, risks associated with doing business internationally (including
foreign currency fluctuations), risks associated with various ongoing
litigation proceedings, including the timing and ultimate resolution of the
appeal by Intel Corporation ("Intel"), and other risks detailed in our
annual and quarterly filings with the Securities and Exchange Commission
("SEC").
RESULTS OF OPERATIONS
Earnings
In first quarter 2003, the Company earned net income of $8.1 million ($0.18
per share basic, $0.17 per share diluted) on revenues of $120.6 million,
compared to first quarter 2002 net income of $4.4 million ($0.09 per share
basic, $0.08 per share diluted) on revenues of $123.1 million. First
quarter 2003 income from operations was $4.2 million versus $5.1 million
for first quarter 2002.
Orders
First quarter 2003 systems and services orders totaled $104.2 million, a
19% increase from the first quarter 2002 level. This increase is primarily
attributable to higher orders in the PPO business segment, resulting from
an increase in renewals of existing contracts in 2003. IMGS also recorded
several new orders in 2003, as compared to 2002, mostly in Europe and
Canada.
Revenues
Total revenues for first quarter 2003 were $120.6 million, down
approximately 2% from first quarter 2002.
Sales outside the United States represented approximately 48% of total
revenues in first quarter 2003, up from the comparable period in 2002.
European revenues were 31% of total revenues for first quarter 2003, up
slightly from the first quarter 2002 level.
Systems. Systems revenue for first quarter 2003 was $70.4 million, down 1%
from the corresponding prior-year period. The decline in revenues occurred
mainly in ISG, where several significant contracts were completed in third
quarter 2002. These declines were partially offset by increased revenues
reported by IPS due to several large projects (won in late 2002) that began
revenue recognition in 2003.
Maintenance. Maintenance revenues totaled $30.1 million in first quarter
2003, up approximately 7% from the same period in 2002. The increase is
primarily attributable to new contracts for IPS and PPO due to a larger
installed customer base. Increases in revenues were partially offset by a
decrease in ISG maintenance revenue as more hardware continued to be
removed from maintenance contracts because of the Company's exit from the
hardware business.
Services. Services revenue, consisting of revenues from implementation and
consulting services, totaled $20.1 million for the quarter, down
approximately 16% from the prior-year period. This decrease is primarily
due to the completion of a large IPS contract in late 2002.
Gross Margin
The Company's total gross margin for first quarter 2003 was 47%, compared
to 45.3% for first quarter 2002.
Systems margin was 48.2% for first quarter 2003, down slightly from 48.5%
for first quarter 2002. In general, the Company's systems margins may be
lowered by price competition, a higher hardware content in the product mix,
a stronger U.S. dollar in international markets, and a higher mix of
federal government sales, which generally produce lower margins than
commercial sales. Systems margin may be improved by higher software
content in the product mix, a weaker U.S. dollar in international markets,
and a higher mix of international systems sales to total systems sales when
the dollar is weaker in international markets.
Maintenance margin for first quarter 2003 was 59.1%, increasing from 49.5%
for first quarter 2002. The increase is predominately due to lower costs
and higher software content in maintenance contracts.
Services margin was 24.4% for first quarter 2003, down from 31.1% for first
quarter 2002. The lower services margin is attributed to lower revenues in
2003 as described above. Fluctuations in services revenues and margins
from period to period are not unusual. For contracts other than those
accounted for under the percentage-of-completion method, costs are expensed
as incurred, with revenues recognized either at the end of the performance
period or based on milestones specified in the contract.
Operating Expenses
Operating expenses for first quarter 2003 were $52.4 million, up 3.2% from
the comparable prior-year period.
Product development expense was $11.9 million for first quarter 2003, down
3.2% from the first quarter 2002 level. The decrease in product
development expense is primarily the result of increased software
development costs qualifying for capitalization and cost savings associated
with past restructuring efforts.
Sales and marketing expense of $24.7 million was up 9.3% from the
corresponding prior-year period expense of $22.6 million. The increase in
sales and marketing expense is due primarily to an estimated $1.9 million
currency impact of a weaker U.S. dollar in first quarter 2003 compared to
first quarter 2002.
General and administrative expense was $15.8 million, flat with the
corresponding prior-year period. To provide consistency of reported
results, all income and expenses associated with the intellectual property
division, including related legal expenses, are classified and reported in
the other income section of the income statement. Prior period amounts
have been reclassified to conform to the current period presentation.
Restructuring Charges
In fourth quarter 2002, the Company recorded $2.1 million in restructuring
charges as a result of combining the Utilities and Communications business
with the IMGS business segment. Cash outlays related to this action
approximated $1.1 million in first quarter 2003. At March 31, 2003, the
total remaining accrued liability for restructuring was approximately
$920,000 compared to approximately $2.1 million at December 31, 2002.
These liabilities are reflected in "Other accrued expenses" in the
Company's consolidated balance sheets. The related costs are expected to
be paid during 2003 and relate to severance liabilities in European
countries (where typically several months are required for settlement) and
to liabilities for idle building space in Europe and Asia. For a complete
discussion, see the Company's 2002 Annual Report.
Non-Operating Income and Expense
Intellectual Property. "Intellectual property income (expense), net" in
the consolidated statements of income consists of income resulting from
protection and licensing of the Company's intellectual property, net of
legal fees and other expenses associated with maintaining and defending the
Company's intellectual property. To provide better consistency of reported
results, all income and expenses associated with the intellectual property
division, including related legal expenses, are classified and reported in
this section of the income statement. In first quarter 2003, net
intellectual property income of $5.3 million includes $10 million in income
from a cross-licensing agreement with IBM that also resolved all
outstanding patent infringement claims between IBM and the Company, offset
by $4.7 million in legal and related expenses. In first quarter 2002,
total intellectual property expense of $3.2 million was due to legal fees
associated with patent litigation, with no related income. See
"Litigation," Note 10 of Notes to Consolidated Financial Statements
contained in this Form 10-Q, and the Company's 2002 Annual Report for
complete details of these transactions.
Gains on Sales of Assets. In first quarter 2003, IMGS reported a gain of
$1.2 million from the March 2003 sale of its aeronautical intellectual
property assets to Ingegneria Dei Sistemi S.p.a. in Rome, Italy.
In first quarter 2002, the Company reported an additional gain of
approximately $2 million from the 2000 sale of its Intense3D graphics
accelerator division to 3Dlabs as the shares originally placed in escrow
were released in March 2002. (See the Company's 2002 Annual Report for
further discussion of the 3Dlabs transactions.) The Company also
recognized a loss of approximately $455,000 on the March 2002 sale of its
Greece subsidiary.
Interest Income. Interest income was $1.9 million in first quarter 2003
and $1 million in first quarter 2002. Interest income from short-term
investments increased during 2003 due to proceeds from patent litigation,
but was offset by a decline in interest rates and a decrease in the amount
of interest received on notes receivable.
Other. "Other income (expense), net" in the consolidated statements of
income consists of interest expense, foreign exchange gains and losses, and
other miscellaneous items of non-operating income and expense. In first
quarter 2003, net other expense of $43,000 included a $371,000 foreign
exchange loss. In first quarter 2002, net other income of $645,000
included a foreign exchange gain of $220,000.
Income Taxes
The Company earned pretax income before minority interest of $12.7 million
and $5.1 million in first quarter 2003 and 2002, respectively. In 2003,
income tax expense is attributable to taxes on patent litigation income,
U.S. operations, and individually profitable majority-owned international
subsidiaries. Income tax expense for 2002 is attributable to taxes on
individually profitable majority-owned subsidiaries, including the
Company's 60% ownership interest in Z/I Imaging. The Company's effective
tax rate will fluctuate from quarter to quarter, depending on the countries
in which taxable income is earned. See the Company's 2002 Annual Report
for details of the Company's tax position, including its net operating
income and tax credit carryforwards.
Results By Operating Segment
In first quarter 2003, PPO reported operating income of $4.2 million on
revenues of $30.5 million, compared to first quarter 2002 operating income
of $4.2 million on revenues of $29.2 million. Gross margins improved from
approximately 63% in first quarter 2002 to approximately 69% in first
quarter 2003 primarily due to a reduction of royalty and maintenance costs.
This reduction in cost of sales was offset by an increase in operating
expense, predominantly sales and marketing, due to the currency impact of a
weaker U.S. dollar.
In first quarter 2003, IMGS earned operating income of $186,000 on revenues
of $46.8 million, relatively flat when compared to first quarter 2002
operating loss of $35,000 on revenues of $46.3 million. Product
development expense decreased primarily as the result of cost savings
associated with restructuring efforts and increased software development
costs qualifying for capitalization. This improvement was partially offset
by slightly lower gross margins due to lower software content in the
product mix.
In first quarter 2003, ISG earned operating income of $1.1 million on
revenues of $27.5 million, compared to first quarter 2002 operating income
of $2.6 million on revenues of $35.9 million. Both ISG's operating income
and revenues decreased from the prior-year period because of the adverse
business climate and delays in government funding, primarily due to the war
in Iraq.
In first quarter 2003, IPS earned operating income of $3.5 million on
revenues of $16.5 million, compared to first quarter 2002 operating income
of $3 million on revenues of $13.9 million. Revenues and gross margin
dollars increased mainly due to revenue beginning to be recognized on
higher-margin projects that were won in late 2002 in Europe and Asia and
more maintenance revenue from a larger installed base of customers.
In first quarter 2003, Corporate reported an operating loss of $4.7 million
on revenues of $3.5 million, compared to a first quarter 2002 operating
loss of $4.7 million on revenues of $2.5 million. Revenues are primarily
associated with hardware repair, logistics, and maintenance services.
Operating expenses include costs associated with worldwide corporate
oversight functions, including those related to being a publicly held
company, and management of residual hardware functions.
See Note 12 of Notes to Consolidated Financial Statements contained in this
Form 10-Q for further explanation of the Company's segment reporting.
Litigation
As further described in the Company's 2002 Annual Report, the Company
continues to protect its intellectual property portfolio by engaging in
both licensing discussions and patent infringement litigation. The
following is a discussion of the 2003 developments for patent and other
litigation.
Intel. The Company has had ongoing litigation with Intel since 1997. In
July 2002, the Company filed a patent infringement case against Intel
pertaining to the Company's parallel instruction computing ("PIC") patents
and went to trial in July 2002. In October 2002, the judge ruled that the
PIC patents were valid, enforceable, and infringed by Intel's Itanium and
Itanium 2 products. Based upon the trial court's decision and the parties'
prior settlement agreement, Intel paid $150 million to the Company in
November 2002. Although Intel appealed this ruling in November 2002, the
$150 million payment is non-refundable, regardless of the outcome on
appeal. Intel will be required to pay an additional $100 million in
damages to the Company if the trial court's decision is affirmed on appeal.
The appeal process is expected to take between ten to twelve months.
Original Equipment Manufacturers ("OEM"). On December 16, 2002, the
Company filed a patent infringement action against Dell Computer
Corporation (TM) ("Dell"), Gateway Inc.(TM) ("Gateway"), and Hewlett-Packard
Co.(TM)("HP") (including the former Compaq Computer Corporation(TM)) in the U.S.
District Court for the Eastern District of Texas ("the Texas court")
claiming that products from these computer vendors infringe three Clipper
patents owned by the Company. These patents relate to memory management
technology. The OEM action seeks an unspecified amount of damages for past
infringement, plus a statutory patent injunction. The Company delayed
serving the defendants with the lawsuit and engaged each defendant in
licensing discussions. These licensing discussions were not successful,
and the defendants were served on April 1, 2003. The trial judge has not
yet set a scheduling conference or trial schedule, and the Company cannot
speculate as to the timing of such.
Texas Instruments(TM) ("TI"). On January 30, 2003, the Company filed a patent
infringement action against TI in the Texas court. This action is directed
at the TI family of Digital Signal Processors (marketed under the name
TMS320C6000(TM)), which employs the same PIC technology described by the
Company's PIC patents. TI was served on March 3, 2003, and the parties are
now waiting for the judge to set a scheduling conference and/or a trial
schedule. In May 2003, TI filed a countersuit against the Company. The
complaint did not specify any accused infringing products or resulting
damages. The Company has not determined what impact, if any, this lawsuit
may have on the Company's results of operations and cash flows.
Bentley Systems, Inc. ("BSI"). In December 2002, the Company filed a
declaratory judgment action in Madison County, Alabama ("the Alabama
court"), against BSI. The action requests the Alabama court to interpret
the parties' asset purchase agreement and promissory note, and require BSI
to specifically perform the repayment of the same. The asset purchase
agreement and note were executed in conjunction with the sale of the
Company's civil, plotting, and raster software product lines to BSI in
2000. BSI subsequently filed an initial action against the Company in
Philadelphia, Pennsylvania, and thereafter filed a second action in
Delaware alleging that the Company breached certain terms of the asset
purchase agreement. BSI's Pennsylvania action was dismissed in March 2003,
and a Motion to Dismiss BSI's Delaware action is currently pending. In
response to these dismissals, BSI has now asserted certain counterclaims
against the Company in the pending Alabama action. These counterclaims are
substantially the same as those claims asserted in its Delaware action. As
with its prior actions, BSI did not specify an amount of damages in its
Alabama counterclaims. The Company does not believe that BSI's claims are
likely to be of a size or nature that would impact the operations of the
Company. The Company intends to vigorously pursue its claims against BSI
and defend the claims asserted by BSI.
Other. The Company has other ongoing litigation, none of which is
considered to represent a material contingency for the Company at this
time; however, any unanticipated unfavorable ruling in any of these
proceedings could have an adverse impact on the Company's results of
operations and cash flows.
Remainder of the Year
The Company expects that the markets in which it competes will continue to
be characterized by intense competition, rapidly changing technologies, and
shorter product cycles. Further improvement in the Company's operating
results will depend on further market penetration achieved by accurately
anticipating customer requirements and technological trends, and rapidly
and continuously developing and delivering new products that are
competitively priced, offer enhanced performance, and meet customers'
requirements for standardization and interoperability. Better operating
results will also depend on global political events and worldwide economic
improvement in the markets served. To increase operating profitability,
the Company must achieve revenue growth and continue to align operating
expenses with the projected level of revenue. In addition, the Company
continues to face legal expenses of unknown duration and amount as it
licenses its intellectual property and otherwise asserts its intellectual
property rights. The ultimate impact of these initiatives is subject to
known and unknown risks and uncertainties. See "Cautionary Note Regarding
Forward-Looking Statements."
LIQUIDITY AND CAPITAL RESOURCES
In September 2002, the Company established a credit line with Wells Fargo
Bank to cover its outstanding letters of credit. In order to reduce the
cost of issuing the letters of credit, the Company secured the credit line
with $15 million of interest-bearing securities. Under this arrangement,
the Company earns interest on the securities and withdrawal of securities
is allowed, but the Company is required to maintain a level of securities
sufficient to cover total outstanding letters of credit (which totaled $9.5
million at March 31, 2003).
At March 31, 2003, the Company had no debt on which interest is charged.
In first quarter 2003, the Company spent approximately $4.6 million to
repurchase 260,000 shares of its common stock under a stock repurchase
program. As of March 31, 2003, the Company had repurchased approximately
5.2 million shares since the program was initiated in late 2001, and total
expenditures were $90.1 million.
The Company believes that existing cash balances will substantially exceed
cash requirements for operations for 2003. The Company does not anticipate
significant non-operating events that will require the use of cash, with
the exception of its stock repurchase program. In first quarter 2003, the
Company's board of directors authorized an increase in the funding for the
stock repurchase program from $175 million to $250 million. The board also
extended the termination date for the program from December 31, 2004, to
December 31, 2005, and approved privately negotiated transactions in
addition to open market purchases of the Company's stock.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires that management
use judgments to make estimates and assumptions that affect the amounts
reported in the financial statements. As a result, there is some risk that
reported financial results could have been materially different had
different methods, assumptions, and estimates been used. The Company
believes that of its significant accounting policies, those related to
revenue recognition, capitalized software, deferred taxes, investment in
debt and equity securities, bad debt reserves, and inventory may involve a
higher degree of judgment and complexity as used in the preparation of its
consolidated financial statements.
Management believes there have been no significant changes during the three
months ended March 31, 2003, to the items disclosed as "Critical Accounting
Policies" in MD&A in the Company's 2002 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company has experienced no material changes in market risk exposures
that affect the quantitative and qualitative disclosures presented in the
Company's 2002 Annual Report.
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
first quarter 2003, approximately 48% of the Company's revenues were
derived from customers outside the United States, primarily through
subsidiary operations, compared to 46% for first quarter 2002. Most
subsidiaries sell to customers and incur and pay operating expenses in
local currencies. These local currency revenues and expenses are
translated into U.S. dollars for reporting purposes. A stronger U.S.
dollar will decrease the level of reported U.S. dollar orders and revenues,
decrease the dollar gross margin, and decrease reported dollar operating
expenses of the international subsidiaries. The Company estimates that the
weakening of the U.S. dollar in its international markets, primarily in
Europe, improved its first quarter 2003 results of operations by
approximately $0.05 per share (basic and diluted) in comparison to first
quarter 2002.
The Company conducts business in all major markets outside the United
States, but the most significant of these operations with respect to
currency risk are located in Europe and Asia. Local currencies are the
functional currencies for the Company's European and Canadian subsidiaries.
The U.S. dollar is the functional currency for all other international
subsidiaries. Effective first quarter 2000, the Company ceased hedging any
of its foreign currency risks. The Company had no forward contracts
outstanding at March 31, 2003, or December 31, 2002.
Item 4. Controls and Procedures
-----------------------
The Company, under the direction of the Chief Executive Officer ("CEO") and
the Chief Financial Officer ("CFO"), has established disclosure controls
and procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms.
The disclosure controls and procedures are also intended to ensure that
such information is accumulated and communicated to the Company's
management, including the CEO and the CFO, as appropriate to allow timely
decisions regarding required disclosures.
Within ninety days of the filing of this Report, the CEO and the CFO have
reviewed and evaluated the Company's disclosure controls and procedures.
Based on, and as of the date of, that review and evaluation, the CEO and
the CFO have concluded that the Company's disclosure controls and
procedures are effectively serving the stated purposes.
In addition, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation. No
significant deficiencies or material weaknesses in the internal controls
were identified during the evaluation and, therefore, no corrective action
is required to be taken.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
As further described in the Company's 2002 Annual Report, the Company
continues to protect its intellectual property portfolio by engaging in
both licensing discussions and patent infringement litigation. The
following is a discussion of the 2003 developments of patent and other
litigation.
Intel. The Company has had ongoing litigation with Intel since 1997. In
July 2002, the Company filed a patent infringement case against Intel
pertaining to the Company's PIC patents and went to trial in July 2002. In
October 2002, the judge ruled that the PIC patents were valid, enforceable,
and infringed by Intel's Itanium and Itanium 2 products. Based upon the
trial court's decision and the parties' prior settlement agreement, Intel
paid $150 million to the Company in November 2002. Although Intel appealed
this ruling in November 2002, the $150 million payment is non-refundable,
regardless of the outcome on appeal. Intel will be required to pay an
additional $100 million in damages to the Company if the trial court's
decision is affirmed on appeal. The appeal process is expected to take
between ten to twelve months.
OEM. On December 16, 2002, the Company filed a patent infringement action
against Dell, Gateway, and HP in the Texas court claiming that products
from these computer vendors infringe three Clipper patents owned by the
Company. These patents relate to memory management technology. The OEM
action seeks an unspecified amount of damages for past infringement, plus a
statutory patent injunction. The Company delayed serving the defendants
with the lawsuit and engaged each defendant in licensing discussions.
These licensing discussions were not successful, and the defendants were
served on April 1, 2003. The trial judge has not yet set a scheduling
conference or trial schedule, and the Company cannot speculate as to the
timing of such.
TI. On January 30, 2003, the Company filed a patent infringement action
against TI in the Texas court. This action is directed at the TI family of
Digital Signal Processors (marketed under the name TMS320C6000(TM)), which
employs the same PIC technology described by the Company's PIC patents. TI
was served on March 3, 2003, and the parties are now waiting for the judge
to set a scheduling conference and/or a trial schedule. In May 2003, TI
filed a countersuit against the Company. The complaint did not specify any
accused infringing products or resulting damages. The Company has not
determined what impact, if any, this lawsuit may have on the Company's
results of operations and cash flows.
BSI. In December 2002, the Company filed a declaratory judgment action in
Madison County, Alabama, against BSI. The action requests the Alabama
court to interpret the parties' asset purchase agreement and promissory
note, and require BSI to specifically perform the repayment of the same.
The asset purchase agreement and note were executed in conjunction with the
sale of the Company's civil, plotting, and raster software product lines to
BSI in 2000. BSI subsequently filed an initial action against the Company
in Philadelphia, Pennsylvania, and thereafter filed a second action in
Delaware alleging that the Company breached certain terms of the asset
purchase agreement. BSI's Pennsylvania action was dismissed in March 2003,
and a Motion to Dismiss BSI's Delaware action is currently pending. In
response to these dismissals, BSI has now asserted certain counterclaims
against the Company in the pending Alabama action. These counterclaims are
substantially the same as those claims asserted in its Delaware action. As
with its prior actions, BSI did not specify an amount of damages in its
Alabama counterclaims. The Company does not believe that BSI's claims are
likely to be a size or nature that would impact the operations of the
Company. The Company intends to vigorously pursue its claims against BSI
and defend the claims asserted by BSI.
Other. The Company has other ongoing litigation, none of which is
considered to represent a material contingency for the Company at this
time; however, any unanticipated unfavorable ruling in any of these
proceedings could have an adverse impact on the Company's results of
operations and cash flow.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description
------- -----------
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by James F. Taylor, Jr. dated May 12, 2003
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Larry J. Laster dated May 12, 2003
(b) Reports on Form 8-K:
o Form 8-K dated April 30, 2003, reporting the Company's first
quarter earnings
INTERGRAPH CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERGRAPH CORPORATION
----------------------
(Registrant)
By: /s/ James F. Taylor, Jr. By:/s/ Larry J. Laster
------------------------ -------------------
James F. Taylor, Jr. Larry J. Laster
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: May 12, 2003 Date: May 12, 2003
CERTIFICATION
I, James F. Taylor, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intergraph
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/ James F. Taylor, Jr.
------------------------
James F. Taylor, Jr.
Chairman of the Board and
Chief Executive Officer
CERTIFICATION
I, Larry J. Laster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intergraph
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/ Larry J. Laster
-------------------
Larry J. Laster
Executive Vice President and
Chief Financial Officer