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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, 1997
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 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, 1998, there were 48,220,459 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 $400,159,000
based on the closing sale price of such stock as reported by
NASDAQ on January 31, 1998, 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
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Portions of the Annual Report to
Shareholders for the year ended
December 31, 1997 Part I, Part II, Part IV
Portions of the Proxy Statement
for the May 28, 1998 Annual
Shareholders' Meeting Part III
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PART I
ITEM 1. BUSINESS
Overview
Intergraph Corporation (the "Company" or "Intergraph"), founded
in 1969, is a vendor of automated business solutions including
hardware, software, consulting and support services for technical,
creative, and information technology (IT) professionals found in a
variety of industry sectors and government.
Effective for 1998 management and reporting purposes, the
Company's business organization is comprised of Intergraph
Corporation, the parent company (also referred to as
"Intergraph Industry Solutions"), Intergraph Computer Systems, Inc.,
Intergraph Public Safety, Inc., and VeriBest, Inc. The Company
believes that this business structure will provide greater focus
and provide clear accountability of each as a business
enterprise. Industry Solutions supplies automated
business solutions, including hardware, software, consulting and
support services, to three primary industries: process and
building, infrastructure (including transportation, utilities and
state and local governments), and federal government. Computer
Systems supplies high performance Windows NT-based graphics
workstations and personal computers (PCs), three dimensional (3D)
graphics subsystems, servers, and other hardware products. Public
Safety develops, markets, and implements systems for public safety
agencies. VeriBest serves the electronics design automation
market, providing software design tools, design processes, and
consulting services for developers of electronic systems.
Intergraph offers open, industry standard solutions, including
Microsoft Corporation's Windows-based software, Intel Corporation's
microprocessor-based hardware, and related services to meet engineering,
design, modeling, analysis, mapping, IT, and creative computing needs.
The Company's products are sold through direct and indirect channels
worldwide, with United States and European revenues representing
approximately 77% of total revenues for 1997.
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) workstations for the UNIX operating system.
These systems cost considerably more than the Intel
microprocessor/Windows-based PCs currently used widely 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, the Company concluded that systems with Intel
microprocessors and Windows operating systems would become capable
of supporting high end computing and other enterprise wide
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's and from the UNIX operating system to
Windows NT. The effect of this decision has been to expand the
availability of the Company's workstations and software
applications to Windows-based computing environments not
previously addressed by the Company, including the availability of
Intergraph software applications operating across a variety of
hardware architectures of other vendors that use the Windows NT
operating system. Prior to this decision, the Company's software
applications operated principally on Intergraph hardware
platforms. The Company has continued to maintain products in the
UNIX operating system environment, the foundation for its software
applications prior to Windows NT.
At the end of 1994, the Company completed a two year development
effort to port its technical software applications to the Windows
NT operating system, and to make Windows NT available on all
Intergraph workstations. Sales of Windows-based software grew to
represent 48% of software revenues in 1994, 70% in 1995, 78% in
1996, and 87% in 1997.
The Company ceased development of its microprocessor at the end
of 1993 and made a substantial investment in the redesign of its
hardware platform for utilization of Intel's microprocessor.
Intergraph chose to use only Intel microprocessors and to focus
its efforts and image creation toward its core capabilities, which
are very high performance computation and graphics. This high end
market place in the Windows NT environment is only supported by
Intel products. The transition from its proprietary hardware
architecture to that of Intel was substantially completed during
1994. Intel based systems grew to represent 74% of hardware unit
sales in 1994, 95% in 1995, and approximately 100% in 1996 and
1997. See "Manufacturing and Sources of Supply" and Item 3, Legal
Proceedings following for discussion regarding litigation between
the Company and Intel, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the
Company's 1997 annual report, portions of which are incorporated
by reference in this Form 10-K annual report, for discussion of
effects of the Intel dispute on operating results of the Company.
Currently, Intergraph markets and sells a complete line of
workstations and servers based on Intel's Pentium, Pentium Pro,
and Pentium II microprocessors and the Windows NT operating
system. The Company's Intel/Windows-based solutions include low
to high end workstations, servers, software applications,
peripherals, and consulting, networking, system migration,
training, and maintenance and support services. Depending on user
requirements, the Company's products and services can be provided
as point solutions or as integrated solutions that include all
necessary hardware, software, and support services.
The Company believes that its operating system and hardware
architecture strategies are the correct choices, that the industry
has accepted Windows NT, and that Windows NT is becoming the
dominant operating system in the majority of markets served by the
Company. Competing operating systems and products are available
in the market, and competitors of the Company offer or are
adopting Windows NT and Intel as the systems for their products.
Improvement in the Company's operating results will depend on its
ability to accurately anticipate customer requirements and
technological trends and to rapidly and continuously develop and
deliver new hardware and software products that are competitively
priced, offer enhanced performance, and meet customers'
requirements for standardization and interoperability.
In terms of broad market segments, the Company's
mapping/geographic information systems (GIS), architectural,
engineering and construction (AEC), and mechanical design,
engineering, and manufacturing product applications continue to
dominate the Company's product mix at approximately 57%, 27%, and
14%, respectively, of total systems sales in 1997 (52%, 27%, and
13%, respectively, for 1996).
Business Entities
Intergraph Industry Solutions
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Intergraph Industry Solutions develops, markets, and supports
total solutions which offer technical professionals open,
interdisciplinary software applications, specialized industry
specific hardware, consulting, and support services. Industry
Solutions provides business solutions to three primary industries:
process and building, infrastructure (including transportation,
utilities, and state and local government), and federal
government.
The graphics software foundation for certain Industry Solutions'
software applications is MicroStation, graphics software owned by
Bentley Systems, Inc., an Intergraph affiliate. MicroStation
provides fundamental graphics element creation, maintenance, and
display functions for Industry Solutions' UNIX- and Intel-based
workstations. See Item 3, Legal Proceedings following and
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 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for discussion of the Company's
arbitration proceedings and business relationship with Bentley
Systems, Inc.
Process and Building. Industry Solutions' plant design software
addresses the needs of process and power plant design efforts.
The plant design system product supports process flow diagrams,
piping and instrumentation diagrams, instrumentation data
management, piping, equipment, heating/ventilation/air
conditioning, electrical, structural, and other design aspects of
a plant. Three dimensional modeling capabilities are also
provided. The system performs interference checking and provides
reports, materials lists, and drawings. A supporting product
provides "walk throughs" of three dimensional plant models.
Industry Solutions' architectural, facility management, and
engineering product line automates the project design and
management process. With this software, users can develop and
model building concepts, produce construction documents, and
manage space and assets in a finished facility. The system serves
the needs of architecture/engineering firms and corporate or
governmental facility management offices. Included are
capabilities for producing three dimensional models of design
concepts, architectural drawings, reports, engineering plans, and
construction drawings. Products are also offered for space
planning, facility layout, maintenance management, lease
management, and asset tracking.
Engineering software evaluates product designs for functional
and structural integrity, predicting behavior under service or
test conditions. Finite element modeling and analysis software
evaluates designs by simulating stresses encountered in end use.
Infrastructure. To help agencies strategically and efficiently
manage transportation networks, Industry Solutions' transportation
solutions integrate maps, photos, property records, survey and
engineering data, inspection reports, traffic safety, and
congestion statistics. Industry Solutions' mapping, civil
engineering, and photogrammetry products provide transportation
solutions including imaging, training, reprographics, plotting,
and integration and professional services.
The dominant mapping/GIS solution for transportation agencies is
Industry Solutions' GeoMedia and MGE, a high end software for base
map analysis. GeoMedia offers dynamic segmentation in a
client/server environment while accessing legacy data, providing
open access to spatial data and information, and distributing
spatial data and information across the World Wide Web. Industry
Solutions' ImageStation Z photogrammetric workstation, an end-to-
end digital photogrammetry production system on Windows NT, offers
tools for aerotriangulation, mapping, automatic digital terrain
model collection, and orthophoto generation. Industry Solutions'
InRoads suite of civil engineering software addresses
transportation engineering, site design, data reduction,
coordinate geometry, rail design, and water resources. InRoads
includes Windows-based standalone applications, as well as
software that can be used simultaneously for AutoCAD and
MicroStation.
For state and local governments, Industry Solutions develops and
implements mapping & geographic information systems and civil
engineering solutions for land records and mapping, asset
management, public works, public safety, transportation
engineering, infrastructure modeling, planning, and other
functions. Industry Solutions' mapping/GIS solutions 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.
Industry Solutions' civil engineering software helps governments
design and analyze projects from site design to water resources to
transportation. The easy to use software is based upon an
enterprise wide data warehouse for collection and dissemination of
information (including GIS data) to all participants in the
government organization.
For more than 25 years, Industry Solutions' Infrastructure
business unit has provided state of the art software to the
telecommunications, electric, gas, pipeline, and water industries.
The unit's full spectrum solutions integrate geo-based data
with core information technology systems, giving a broad base of
users access to spatial information.
Environmental and natural resource management applications
address monitoring, evaluating and managing, conservation and
remediation of the environment. Energy exploration and production
products assist geoscientists in geological analysis for energy
exploration and production and mineral extraction.
Industry Solutions also provides solutions for end-to-end
digital map and chart publishing, digital image processing,
orthophoto production, and digital photogrammetry.
Federal Systems. The Federal Systems business unit of Industry
Solutions markets and sells commercial off-the-shelf and specially
developed products and services to government agencies around the
world. Federal Systems' major offerings include mapping and
information systems and integrated ship design and production
software products. Industry Solutions has been a top provider of
computer graphics solutions to the U.S. government for a number of
years.
Intergraph Computer Systems
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On January 1, 1998, Intergraph Computer Systems began operating
as an independent entity, with full transition to be
completed by the end of 1998. Intergraph plans to build Computer
Systems into the leading supplier of high performance,
Intel/Windows NT-based graphics workstations and PCs, servers, and
3D graphics subsystems. As a separate company with profit and
loss responsibility, the Company believes Intergraph Computer
Systems is positioned to respond and grow quickly in its rapidly
evolving target markets.
Computer Systems offers workstation products for a range of
users. The TD line of computer systems offers Intel Pentium,
Pentium Pro, and Pentium II microprocessors, Windows NT and
Windows 95 operating systems, leading edge graphics, and other
industry standard components. TD personal computers are intended
for 2D design and drafting users, as well as office automation and
business management tasks. TD personal workstations are for 3D
design, engineering analysis, image processing, and rendering.
TDZ 3D graphics workstations offer high end, industry standard
graphics and computing power on price competitive Pentium II-based
systems running Windows NT. All computer systems offer numerous
options that permit customers to select systems that meet their
unique needs, including a selection of display monitors,
upgradeable memory, and specialized peripherals.
Computer Systems also offers Intel/Windows-based InterServe
symmetric multiprocessing servers for work groups, departments, or
an entire enterprise. These systems come with fully integrated
optical disk products, backup solutions, and networking
capabilities, as well as with consultation, installation, and
other services to assure customer success.
Other systems are available for specialized needs. StudioZ
workstations are Pentium II/Windows NT-based systems for creating
computer generated images and digital betacam quality video for
the entertainment and broadcast markets. Intel/Windows NT-based
web servers are solutions for establishing and managing customers'
sites on the World Wide Web. ExtremeZ 2D graphics workstations
are Pentium II-based systems for prepress and publishing
professionals. Industry standard 3D graphics accelerators are
available, including RealiZm II 3D Graphics with DirectBurst
technology, a patented 3D graphics subsystem, Intense 3D Pro 1000,
an original professional OpenGL add-in card that is based on
RealiZm 3D graphics technology for Windows NT, and Intense 3D 100,
a mainstream graphics accelerator ideal for general purpose
Windows 95/Windows NT PC productivity.
Computer Systems also offers large format production scanners,
imaging systems for scanning and plotting images, and laser
imagesetters for electronic map publishing. Additional special
purpose peripherals such as disk and tape drives, printers, and
other devices may be manufactured in house or sold as original
equipment from third parties.
Intergraph Public Safety
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In January of 1997, Intergraph Public Safety became a
subsidiary corporation wholly owned by Intergraph.
Headquartered in Huntsville, Alabama with a staff of approximately
500 people worldwide, Public Safety is the only company providing
total public safety solutions on a global basis. Public Safety
solutions include computer hardware and software systems,
training, maintenance, customer support, and outsourcing services.
Public Safety develops, markets and implements computer-based
systems for public safety agencies such as emergency medical and
rescue units, fire departments and law enforcement organizations
around the world. The computer solutions offered by Public Safety
feature its proprietary technology and rely on the Windows NT
operating system, Intel-based workstations, and Oracle
Corporation's relational data bases. By incorporating industry
standard hardware and software with its products, Public Safety is
able to provide customers with the best price and performance
features available. Public Safety is aggressively expanding its
products and services to address other industries, such as
utilities, automobile club roadside assistance, airport security,
campus security and military base security.
The computer aided dispatch system is the foundation product for
Public Safety. 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.
All Public Safety products are designed to participate in a
comprehensive, integrated public safety information system. The
Public Safety product offering includes CAD 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. Public Safety's strategy is to provide
products representing a complete solution for public safety
agencies, with approximately 45 products currently offered.
VeriBest
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In January 1996, VeriBest became a subsidiary corporation
wholly owned by Intergraph. Formerly the Electronics division
of Intergraph, VeriBest employs approximately 300 people
worldwide with concentrations at its headquarters in Boulder,
Colorado and development centers in Huntsville, Alabama and
Mountain View, California.
The first electronic design automation (EDA) company to port its
tools to Windows NT and fully support computer-aided-
engineering/computer-aided-design/printed circuit board tools in
the Intel/Windows environment, VeriBest is a provider of
electronic system design solutions to the computer,
telecommunications, automotive, industrial control, and consumer
industries. Core competencies include simulation, signal
integrity, PCB implementation, and enterprise wide design process
management. This technology foundation leverages the Windows NT
platform, the fastest growing operating system within the
mainstream EDA industry segment, and provides users with excellent
price and performance. VeriBest has over 15,000 seats installed
worldwide.
In 1997, VeriBest made a strategic decision to pursue a
multichannel distribution strategy that leverages its core
technologies to create greater market access and market awareness
through the development of alternate channels such as telesales,
original equipment manufacturer (OEM), and value added reseller
relationships. This effort resulted in the signing of VeriBest's
first multi-year OEM agreement to resell the VeriBest VHSIC
hardware description language (VHDL) simulator, a high-
performance, high-capacity VHDL simulation system for application
specific integrated circuit, field programmable gate array (FPGA),
and board-level design.
Also in 1997, to satisfy customer retooling needs driven by new
technologies and productivity requirements, VeriBest addressed two
of the fastest growing segments of the semiconductor industry:
the FPGA and signal integrity tools markets.
The FPGA marketplace is growing at an estimated rate of 30% per
year. To meet this demand, VeriBest teamed with EDA industry
leader Synopsys to provide the synthesis component for the FPGA
DeskTop Series. Powered by Synopsys FPGA Express, VeriBest FPGA
Synthesis provides the leading FPGA/complex programmable logic
device synthesis technology. Advanced architecture-specific
algorithms and state of the art simulation technology, coupled
with knowledge of the target place and route tools, minimize time
to market and maximize performance results.
To address the rapidly emerging market for signal integrity
tools, VeriBest introduced Signal Analyzer, Signal Vision, PCB
Planner and PCB Viewer, a tightly integrated, comprehensive design
solution that addresses the process of designing high speed
systems.
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, 1997, the Company spent $98.1 million
(8.7% of revenues) for product development activities compared to
$103.4 million (9.4% of revenues) in 1996, and $111.6 million
(10.2% of revenues) in 1995. See Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in the Company's 1997 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 continues to be
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 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
Intergraph Computer Systems is responsible for the Company's
manufacturing activities, which include the assembly and testing
of components and subassemblies manufactured by the Company and
others.
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 1997 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 its 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 systems 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 systems 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 22% of total Company
systems revenues in 1997 and 18% in 1996.
Each of the Company's four major entities maintains its own
sales force. Intergraph Industry Solutions' selling efforts are
organized along key industry lines (process and building, federal
government, and infrastructure, including transportation,
utilities, and state and local governments) for its major product
applications. Industry Solutions 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.
International Operations
International markets, particularly Europe, continue in
importance to the industry and to the Company. Sales outside the
U.S. represented approximately 53% of total revenues in 1997 and
55% in 1996. European and Asia Pacific revenues represented 31%
and 12%, respectively, of total revenues in 1997 (33% and 13%,
respectively, in 1996). 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,
Intergraph systems are sold and supported through a combination of
subsidiaries and distributorships. At December 31, 1997, the
Company had approximately 1,400 employees in Europe, 800 employees
in the Asia Pacific region, and 600 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. The Company has certain
currency related asset and liability exposures against which
certain measures, primarily hedging, are taken to reduce currency
risk. With respect to these exposures, the objective of the
Company is to protect against financial statement volatility
arising from changes in exchange rates with respect to amounts
denominated for balance sheet purposes in a currency other than
the functional currency of the local entity. The Company
therefore enters into forward exchange contracts related to
certain balance sheet items, primarily intercompany receivables,
payables, and formalized intercompany debt. Periodic changes in
the value of these contracts offset exchange rate related changes
in the financial statement value of these balance sheet items.
Forward exchange contracts are purchased with maturities
reflecting the expected settlement dates of these balance sheet
items (generally three months or less) and only in amounts
sufficient to offset possible significant currency rate related
changes in the recorded values of these balance sheet items, which
represent a calculable exposure for the Company from period to
period. Since this risk is calculable and these contracts are
purchased only in offsetting amounts, neither the contracts
themselves nor the exposed foreign currency denominated balance
sheet items are likely to have a significant effect on the
Company's financial position or results of operations. The
Company 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.
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 collection periods throughout the Middle East
region, particularly in Saudi Arabia. Total accounts receivable
from Middle Eastern customers was approximately $21 million at
December 31, 1997 and 1996.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1, 4, and 11 of Notes to
Consolidated Financial Statements contained in the Company's 1997
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 $177 million in 1997, $161 million in 1996, and $159
million in 1995, approximately 15% of total revenue in all three
years. 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 42% of total federal government revenues are
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 the Company.
The Company has historically experienced slower collection
periods for its U.S. government accounts receivable than for its
commercial customers. At December 31, 1997, accounts receivable
from the U.S. government was approximately $52.5 million.
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, 1997 and 1996 was $169
million and $181 million, respectively. Substantially all of the
December 1997 backlog of orders is expected to be shipped during
1998.
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 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.
Competition in the interactive computer graphics industry varies
among the different product application areas. The Company
considers its principal competitors in the interactive computer
graphics market to be IBM, Hewlett Packard Corporation, Digital
Equipment Corporation, Sun MicroSystems, Inc., Silicon Graphics,
Inc., and Mentor Graphics, Inc. In the low end graphics market,
Intergraph competes with the software products of Autodesk, Inc.,
Bentley Systems, Inc. (an approximately 50%-owned affiliate of the
Company), Softdesk, Inc., and several smaller companies. In the
hardware market, Intergraph also competes with personal computer
vendors, such as Compaq Computer Corporation and Dell Computer
Corporation. The primary competitors of Intergraph Public Safety
are American TriTech, PRC, Inc., Tiburon, Inc., and Printrack
International Incorporated. VeriBest's primary competitors are
Cadence Design Systems, Inc., Viewlogic Systems, Inc., and Mentor
Graphics, Inc. Several companies with greater financial resources
than the Company, including IBM, Hewlett Packard, Sun, and Compaq
are active in the industry.
The Company provides point solutions and solutions which are
Windows compliant and integrated -- workstations, servers,
peripherals, and software configured by the Company to work
together and satisfy customers' requirements. By delivering such
integration, 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 manufacturing facilities are subject to numerous
laws and regulations designed to protect the environment,
particularly from plant wastes and emissions. 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. (Bentley), an approximately 50%-owned affiliate of
the Company, under which the Company sells MicroStation, a
software product developed and maintained by Bentley 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 Item 3, Legal
Proceedings following and 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
1997 annual report, portions of which are incorporated by
reference in this Form 10-K annual report, for further discussion
of the Company's affiliation with Bentley.
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 is widely
available, and many companies, including Intergraph, are
attempting to develop patent positions concerning technological
improvements related to personal computers and workstations. 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 patented 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.
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. At
present, Intel is 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 (See Item 3, Legal
Proceedings, following), and the Company has applied to the Court
for relief in the short term, as well as at the conclusion of the
lawsuit. Intel's actions are damaging the Company by slowing the
introduction of new products using Intel components and preventing
proper maintenance and support of Company products using Intel
components. The Company expects that relief will be forthcoming
from the Court. However, if relief is denied, the Company will be
materially affected and may be forced to alter its future business
plans or to accept unfavorable terms from Intel in settlement of
the lawsuit.
Risks and Uncertainties
In addition to those described above and in Item 3, Legal
Proceedings following, 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 1997 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, 1997, the Company had approximately 7,700
employees. Of these, approximately 2,800 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 manufacturing
facility are located in Huntsville, Alabama. Sales and support
facilities are maintained throughout the world.
The Company owns over 1,900,000 square feet of space in
Huntsville that is utilized for manufacturing, product
development, sales and administration. The Huntsville facilities
also include over 500 acres of unoccupied land. The Company
maintains subsidiary company facilities and sales and support
locations in major U.S. cities outside of Huntsville, primarily
through operating leases.
Outside the U.S., the Company owns approximately 450,000 square
feet of space, primarily its Nijmegen distribution center and
European headquarters facility. 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
Intel Corporation
- -----------------
Intergraph filed a legal action on November 17, 1997 in U.S.
District Court, the Northern District of Alabama, Northeastern
Division, charging Intel Corporation, the supplier of all of the
Company's microprocessor needs, with anticompetitive business
practices. In the lawsuit, Intergraph alleges that Intel is
attempting 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 the 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 has 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. The Court has not entered a ruling on
this motion.
Intel filed a retaliatory legal action on November 17, 1997, in
the U.S. District Court, the Northern District of California,
requesting, among other things, i) that the Court declare
Intergraph's patents invalid and/or not infringed by Intel, ii)
that Intergraph be enjoined from making further assertions that
Intel's customers infringe Intergraph's patents through use of
Intel's microprocessors, iii) that the Court declare that Intel
has no obligation to disclose any of its trade secrets or other
confidential information to Intergraph, and iv) that the Court
declare that Intel's decision to discontinue the provision of
trade secrets and other confidential information to Intergraph
does not violate any doctrine of federal or state statutory or
common law. Intel filed a second legal action in the California
Court on November 24, 1997, charging Intergraph with breach of
contract related to wrongful retention of and failure to return
Intel information supplied under nondisclosure agreements, and
misappropriation of trade secrets as a result of the same. Intel
asserts claims for damages and awards of yet undetermined amounts
and requests a preliminary and permanent injunction under which
Intergraph would return and make no further use of Intel
confidential information.
On December 8, 1997, the Alabama Court directed the Company and
Intel to file joint motions in the California cases to stay the
two legal actions brought by Intel, pending the Court's
consideration of a motion to transfer and consolidate venue. The
joint motions were filed and stays were granted by the California
Court. On January 15, 1998, Intel filed a motion before the
Alabama Court for a change in venue to California. A decision to
transfer venue has not been reached.
The Company believes it was necessary to take legal action
against Intel in order to defend its growing workstation business,
its intellectual property, and the investments of its
shareholders. The Company is vigorously prosecuting its positions
and believes it will prevail in these matters, but at present is
unable to predict an outcome.
Bentley Systems, Inc.
- ---------------------
The Company is the owner of approximately 50% of the outstanding
stock of Bentley Systems, Inc. (Bentley), the developer and owner
of MicroStation, a software product utilized in many of the
Company's software applications and for which the Company serves
as a nonexclusive distributor. In December 1995, the Company
commenced an arbitration proceeding against Bentley with the
American Arbitration Association, Philadelphia, Pennsylvania,
alleging that Bentley inappropriately and without cause terminated
a contractual arrangement between Bentley and the Company. In
response, Bentley filed a counterclaim against the Company in
January 1996 seeking significant damages as the result of the
Company's alleged failure to use best efforts to sell software
support services pursuant to terms of the contractual arrangement
terminated by Bentley. In May 1997, the Company received notice
of the adverse determination of this arbitration proceeding with
Bentley. The arbitrator's award against the Company was in the
amount of $6.1 million. In addition, the contractual arrangement
that was the subject of this arbitration has been terminated
effective with this award, and, as a result, the Company will no
longer sell the related software support services under this
agreement. The Company and Bentley have entered into a new
agreement which establishes single support services between the
two companies.
In a second proceeding, Bentley commenced arbitration against
the Company with the American Arbitration Association, Atlanta,
Georgia in March 1996, alleging that the Company failed to
properly account for and pay to Bentley certain royalties on its
sales of Bentley software products, and seeking significant
damages. Hearings on this matter are in process and may continue
through the end of the Company's third quarter of 1998. The
Company denies that it has breached any of its contractual
obligations to Bentley and is vigorously defending its position in
this proceeding, but at present is unable to predict an outcome.
Zydex, Inc.
- -----------
The Company filed a legal action in August 1995, in the U.S.
district court of Alabama, Northeast Division, seeking to dissolve
and wind up its business arrangement with Zydex, Inc. (Zydex), a
company with which it jointly developed its plant design software
application ("PDS"), and seeking an order allowing the Company to
continue the business of that arrangement without further
responsibility or obligation to Zydex. In November 1995, Zydex
filed a counterclaim against the Company alleging wrongful
dissolution of the business relationship and seeking both sole
ownership of PDS and significant compensatory and punitive
damages. In September 1997, the Court issued an order resolving
the disputed issues and requiring the parties to settle, and
dismissed the case. In November 1997, a hearing was held during
which the judge ordered both parties to sign the closing
documents. A closing of the final settlement agreement occurred
on January 15, 1998.
The final settlement included the purchase by Intergraph of 100%
of the common stock of Zydex for $26,292,000, with $15,979,000
paid at closing of the agreement and the remaining amount payable
in 15 equal monthly installments, including interest. The
deferred payment portion of the total purchase price is secured by
a subordinate interest in the PDS intellectual property and by an
irrevocable letter of credit in favor of the former owner of
Zydex. Interest on the unpaid amount accrues at a rate 1% less
than the rate charged by Intergraph's primary lender. The former
owner of Zydex will retain certain rights to use, but not sell or
sublicense, PDS products for a period of 15 years following the
date of closing. In addition to the purchase price of the common
stock, Intergraph was required to pay additional royalties to
Zydex in the amount of $1,027,000 at closing of the agreement.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the company's 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for further discussion of the Company's
business relationship with Intel and Bentley and effects of
litigation and arbitration proceedings on the Company's financial
position and results of operations.
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.
Officer
Name Age Position Since
- ---- --- -------- -----
James W. Meadlock 64 Chairman of the Board and
Chief Executive Officer 1969
James F. Taylor Jr. 53 Executive Vice President and
Director, Intergraph Corporation,
and Chief Executive Officer,
Intergraph Public Safety, Inc. 1977
Robert E. Thurber 57 Executive Vice President and
Director 1977
Lawrence F. Ayers Jr. 65 Executive Vice President 1987
Klaas Borgers 53 Executive Vice President 1994
Edward F. Boyle 49 Executive Vice President 1986
Penman R. Gilliam 60 Executive Vice President 1994
Richard H. Lussier 52 Executive Vice President 1996
Nancy B. Meadlock 59 Executive Vice President 1969
Wade C. Patterson 36 Executive Vice President,
Intergraph Corporation, and
Chief Executive Officer and
President, Intergraph Computer
Systems, Inc. 1994
Stephen J. Phillips 56 Executive Vice President 1987
Charles E. Robertson Jr. 44 Chief Executive Officer and
President, VeriBest, Inc. 1992
William E. Salter 56 Executive Vice President 1984
K. David Stinson Jr. 44 Executive Vice President 1996
Edward A. Wilkinson 64 Executive Vice President 1987
Allan B. Wilson 49 Executive Vice President 1982
Manfred Wittler 57 Executive Vice President 1989
James W. Meadlock, a founder of the Company, has served as
Chairman of the Board of Directors since the Company's inception
in 1969 and is Chief Executive Officer. Mr. Meadlock received a
degree in electrical engineering from North Carolina State
University in 1956. Mr. Meadlock and Nancy B. Meadlock are
husband and wife.
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.
Mr. Taylor was elected Vice President in 1977. He is currently an
Executive Vice President of the Company and Chief Executive
Officer of Intergraph Public Safety, Inc. Mr. Taylor holds a
bachelor's degree in mathematics.
Robert E. Thurber, a founder of the Company, has been a Director
since 1972. In June 1977, Mr. Thurber was elected Vice President
and is currently Executive Vice President and Chief Engineer. He
is responsible for development of requirements and strategic
direction for application solutions. Mr. Thurber holds a master's
degree in engineering.
Lawrence F. Ayers Jr. joined the Company in September 1987 after
32 years in federal government mapping where he became the
Civilian Director of the Defense Mapping Agency. He served as
Vice President for International Federal Marketing until February
1993. From 1993 to October 1995, he served as Executive Vice
President for the Utility and Mapping Sciences application group.
At present, he serves on the Intergraph Industry Solutions staff
as Executive Vice President. Mr. Ayers holds a bachelor's degree
in civil engineering and a master's degree in public
administration. Mr. Ayers has served on a number of national
policy committees for the National Academy of Science and the
National Academy of Public Administration, including the
Transportation Research and Highway Research committees.
Klaas Borgers joined the Company in 1991. He was elected Vice
President in 1994 and has served as Executive Vice President of
Intergraph Corporation and Chief Operating Officer for Intergraph
Computer Systems since 1997. A key person in the development and
growth of Intergraph Computer Systems worldwide operations, Mr.
Borgers directs the subsidiary's sales, services, manufacturing
and distribution operations.
Edward F. Boyle joined the Company in June 1981 and has been
responsible for several of the Company's software products. Prior
to joining Intergraph, he spent nine years in the steel industry
where he developed graphic software applications. He was elected
Vice President in 1986 and became Vice President of Intergraph's
utilities business in May 1987. From 1993 through the fall of
1995, he was Vice President for the Company's solutions
engineering business. He was then given charge of enterprise
support systems, comprised of utilities products and professional
services. He was elected Executive Vice President in July 1996
and is currently responsible for the infrastructure and utilities
business for Intergraph Industry Solutions. Dr. Boyle holds
bachelor and doctoral degrees in civil engineering.
Penman R. Gilliam joined the Company in April 1994 as Executive
Vice President responsible for federal programs. Mr. Gilliam is
the manager responsible for the federal mapping and information
systems organization and Intergraph's Midworld operations. 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 (DMA), the senior
civilian responsible for overall production, operations, and
research. Mr. Gilliam also held a number of other positions with
DMA, including production management positions in St. Louis and
Washington D.C. and a program director's position for DMA's
digital production system. Mr. Gilliam holds a bachelor's degree
in mathematics and geology.
Richard H. Lussier joined the Company in 1979. He was promoted
to Vice President of Sales in 1981 and was later promoted to
Executive Vice President of Worldwide Sales and Support. Mr.
Lussier left Intergraph in 1990 to pursue personal business
interests. He rejoined the Company in 1996 as Executive Vice
President of U.S. Sales. In addition, he is currently responsible
for InterCAP, a wholly owned Intergraph subsidiary, which develops
and markets world-leading technical illustration software as well
as WEB enabling technology. Mr. Lussier holds a master's degree
in business administration.
Nancy B. Meadlock, a founder of the Company, served as a
Director from 1969 until May 1996, excluding the period from
February 1970 to February 1972. Mrs. Meadlock served as Secretary
for 10 years, was elected Vice President in 1979, and is currently
Executive Vice President. She holds a master's degree in business
administration. Mrs. Meadlock and James W. Meadlock are wife and
husband.
Wade C. Patterson joined the Company in 1984 as a design
engineer developing UNIX and central processing unit (CPU)
subsystems for Intergraph workstation products. In 1992, Mr.
Patterson managed Windows NT workstation projects as the Company
made the transition from reduced instruction set computing CPUs to
Intel microprocessor-based CPUs. Mr. Patterson has been
responsible for hardware development and marketing for Intergraph
Computer Systems, Inc., the Company's hardware subsidiary, since August
1994. He was elected Vice President at that same time and is
currently an Executive Vice President of the Company and Chief
Executive Officer and President of Intergraph Computer Systems,
Inc. He holds a bachelor'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.
Charles E. Robertson Jr. joined the Company in 1992. He has
served as Chief Executive Officer and President of VeriBest, Inc.
since its inception in January 1996. Prior to his current
position, Mr. Robertson held executive positions within Intergraph
and at Mentor Graphics, Daisy Systems, and Cadnetix. He holds a
bachelor's degree in electrical engineering and 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.
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, responsible 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, responsible for the process and building business of
Intergraph Industry Solutions. He is a graduate of the U.S. Air
Force Academy and holds a masters degree in management
administration science.
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 Intergraph, Mr. Wilkinson served for 34 years in the U.S.
Navy, retiring with the rank of Rear Admiral. He holds a master's
degree in mechanical engineering.
Allan B. Wilson joined the Company in 1980 and was responsible
for the development of international operations outside of Europe
and North America. He was elected Vice President in May 1982 and
Executive Vice President in November 1982. Mr. Wilson is
currently responsible for sales and support for the Company's Asia
Pacific region. He holds bachelor's and master's degrees in
electrical engineering.
Manfred Wittler joined the Company in 1989 as Vice President.
In 1991, he was elected Executive Vice President and is currently
responsible for sales and support for Europe, Canada, and Latin
America. 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 47 of the Intergraph Corporation
1997 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,
1997, appearing under "Five Year Financial Summary" on the inside
front cover page of the Intergraph Corporation 1997 annual report
to shareholders are 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 14 to 26 of the
Intergraph Corporation 1997 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 27 to 46 of the Intergraph Corporation
1997 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 3 to 5 of the Intergraph Corporation proxy
statement relative to the annual meeting of shareholders to be
held May 28, 1998, 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 12 to
14 in this Form 10-K annual report is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on
pages 5 to 11 of the Intergraph Corporation proxy statement
relative to the annual meeting of shareholders to be held May 28,
1998, 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 3 of the Intergraph
Corporation proxy statement relative to the annual meeting of
shareholders to be held May 28, 1998, is incorporated by reference
in this Form 10-K annual report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Certain Relationships and
Related Transactions" on page 5 of the Intergraph Corporation
proxy statement relative to the annual meeting of shareholders to
be held May 28, 1998, is incorporated by reference in this Form 10-K
annual report.
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 1997
annual report to shareholders:
Consolidated Balance Sheets at December 31, 1997 and 1996 27
Consolidated Statements of Operations for the three years 28
ended December 31, 1997
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997 29
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1997 30
Notes to Consolidated Financial Statements 31 - 45
Report of Independent Auditors 46
* Incorporated by reference from the indicated pages of the
1997 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, 1997 20
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 20%- to 50%-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)
10(a)* Employment Contract of Manfred Wittler dated
November 1, 1989 (5) and amendment dated
February 18, 1998.
10(b)* Loan program for executive officers of the Company
as amended, dated May 1, 1996. (6)
10(c) Loan and Security Agreement, by and between
Intergraph Corporation and Foothill Capital
Corporation, dated December 20, 1996 and amendments
dated January 14, 1997 (6) and November 25, 1997.
10(d)* Intergraph Corporation 1997 Stock Option Plan. (6)
10(e)* Agreement between Intergraph Corporation and
Green Mountain, Inc. dated April 1, 1997. (7)
10(f) Indemnification Agreement between Intergraph
Corporation and each member of the Board of Directors
of the Company dated June 3, 1997. (8)
10(g)* Employment Contract of Wade Patterson dated
May 30, 1997. (8)
10(h)* Intergraph Corporation Nonemployee Director
Stock Option Plan.
10(i) Amended and Restated First Mortgage and Security
Agreement, by and between Intergraph Corporation
and Foothill Capital Corporation, dated
November 25, 1997.
13 Portions of the Intergraph Corporation 1997 Annual
Report to Shareholders incorporated by reference
in this Form 10-K Annual Report
21 Subsidiaries of the Company 21
23 Consent of Independent Auditors 22
27 Financial Data Schedule
* 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 March 31,
1997, under the Securities Exchange Act of 1934, File No. 0-9722.
(8) 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.
- -----------------
(b) Reports on Form 8-K - on November 24, 1997, the Company filed a Current
Report on Form 8-K which reported the filing of a lawsuit against Intel
Corporation as described in Item 3, Legal Proceedings, of this Form 10-K
annual report.
(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 may include
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.
Additional 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 1997 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 W. Meadlock Date: March 30, 1998
---------------------
James W. Meadlock
Chief Executive Officer and
Chairman of the Board
(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 Chief Executive Officer and March 30, 1998
- -------------------------- Chairman of the Board
James W. Meadlock (Principal Executive Officer)
/s/ James F. Taylor Jr. Executive Vice President and March 30, 1998
- -------------------------- Director, Intergraph
James F. Taylor Jr. Corporation, and Chief
Executive Officer, Intergraph
Public Safety, Inc.
/s/ Robert E. Thurber Executive Vice President and March 30, 1998
- -------------------------- Director
Robert E. Thurber
/s/ Keith H. Schonrock Jr. Director March 30, 1998
- --------------------------
Keith H. Schonrock Jr.
Director March 30, 1998
- --------------------------
Larry J. Laster
Director March 30, 1998
- --------------------------
Thomas J. Lee
Director March 30, 1998
- --------------------------
Sidney L. McDonald
/s/ John W. Wilhoite Vice President and Controller March 30, 1998
- -------------------------- (Principal Accounting Officer)
John W. Wihoite
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 1997 $16,703,000 2,844,000 5,059,000 (1) $14,488,000
1996 $20,399,000 (2,049,000) (3) 1,647,000 (1) $16,703,000
1995 $20,309,000 4,945,000 4,855,000 (1) $20,399,000
Allowance for obsolete
inventory deducted
from inventories
in the balance
sheet 1997 $43,223,000 15,582,000 22,297,000 (2) $36,508,000
1996 $34,441,000 24,189,000 15,407,000 (2) $43,223,000
1995 $31,033,000 17,455,000 14,047,000 (2) $34,441,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory reduced to net realizable value.
(3) The Company provides its allowance for doubtful accounts on a
specific identification basis. In 1996, significant improvement
in collection prospects on several large accounts occurred,
resulting in reversal of amounts previously provided in the
allowance for doubtful accounts.