Q3-03 10Q

0000351145-03-000029.txt : 20031114 0000351145-03-000029.hdr.sgml : 20031114 20031113194340 ACCESSION NUMBER: 0000351145-03-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGRAPH CORP CENTRAL INDEX KEY: 0000351145 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 630573222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09722 FILM NUMBER: 03999990 BUSINESS ADDRESS: STREET 1: 1 MADISON INDUSTRIAL PARK IW2000 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2567302000 MAIL ADDRESS: STREET 1: 290 DUNLOP BLVD CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 10-Q 1 ten-q3_tidied.htm Q3 03 10-Q Q3-03 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

[ ] 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 incorporation or organization)	I.R.S. Employer Identification No.
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: 45,837,980 shares
outstanding as of October 24, 2003

INTERGRAPH CORPORATION

FORM 10-Q*

September 30, 2003

INDEX


			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Consolidated Balance Sheets at September 30, 2003, and
		December 31, 2002	2

	Consolidated Statements of Income for the quarters and nine
		months ended September 30, 2003, and 2002	3

	Consolidated Statements of Cash Flows for the nine months
		ended September 30, 2003, and 2002	4

	Notes to Consolidated Financial Statements		5-12

	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	12-18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18-19

	Item 4.	Controls and Procedures	19


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	20-21

	Item 5.	Other	21

	Item 6.	Exhibits and Reports on Form 8-K	22


SIGNATURES			23

* 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)


			*September 30,*		December 31,
				*2003*		2002

(In thousands, except share and per share amounts)

*Assets*
	Cash and cash equivalents		$	465,526	$	490,097
	Short-term investments			24,157		15,927

		*Total cash and short-term investments*		489,683		506,024
	Accounts receivable, net			149,659		152,187
	Inventories, net			15,680		19,397
	Other current assets			58,119		39,795

		*Total current assets*		713,141		717,403
	Investments in affiliates			10,043		20,700
	Capitalized software development costs, net			30,524		29,830
	Other assets, net			13,772		16,889
	Property, plant, and equipment, net			50,504		50,818

		*Total Assets*	$	817,984	$	835,640




*Liabilities and Shareholders' Equity*
	Trade accounts payable		$	18,358	$	17,850
	Accrued compensation			36,104		31,541
	Other accrued expenses			39,626		35,730
	Billings in excess of sales			43,143		43,908
	Income taxes payable			32,296		67,477
	Short-term debt			---		169

		*Total current liabilities*		169,527		196,675

	Deferred income taxes			18,888		16,260
	Other noncurrent liabilities			631		995

		*Total noncurrent liabilities*		19,519		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			201,839		206,888
	Deferred compensation			(1,049)		---
	Retained earnings			607,863		586,020
	Accumulated other comprehensive income (loss)			6,120		(659)

				820,509		797,985
	Less - cost of treasury shares (11,632,707 at September 30,
	2003, and 11,198,767 at December 31, 2002)			(191,571)		(176,275)

		*Total shareholders' equity*		628,938		621,710

		*Total Liabilities and Shareholders' Equity*	$	817,984	$	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*				*Nine Months Ended*
					*September 30,*				*September 30,*
					*2003*		2002		*2003*		2002

(In thousands, except per share amounts)

*Revenues*
	Systems			$	75,357	$	80,914	$	218,582	$	219,268
	Maintenance				32,441		31,174		96,551		89,503
	Services				25,785		21,328		66,350		70,311

		*Total revenues*			133,583		133,416		381,483		379,082


*Cost of revenues*
	Systems				37,442		43,501		111,819		112,897
	Maintenance				12,295		14,664		37,370		42,396
	Services				17,877		15,284		48,139		49,159

		*Total cost of revenues*			67,614		73,449		197,328		204,452


		*Gross Profit*			65,969		59,967		184,155		174,630

Product development					16,465		14,593		42,942		39,310
Sales and marketing					24,049		24,103		74,338		71,606
General and administrative					19,970		18,010		54,296		52,462


		*Income from operations*			5,485		3,261		12,579		11,252

Intellectual property income (expense), net					11,594		(1,215)		12,589		288,951
Gains (losses) on sales of assets					1,796		(1,331)		2,951		17,214
Interest income					1,497		2,262		5,096		4,923
Other income (expense), net					(303)		1,184		(672)		2,633


		*Income before income taxes and*
		*minority interest*			20,069		4,161		32,543		324,973

Income tax expense					(7,135)		(1,300)		(10,700)		(37,050)


		*Income before minority interest*			12,934		2,861		21,843		287,923

Minority interest in earnings of consolidated
subsidiaries					---		(188)		---		(285)


		*Net income*		$	12,934	$	2,673	$	21,843	$	287,638




Net income per share - basic				$	0.28	$	0.06	$	0.47	$	5.92
			- diluted	$	0.27	$	0.05	$	0.45	$	5.62



Weighted average shares outstanding - basic					46,190		46,311		46,222		48,579
			- diluted		48,135		48,754		48,322		51,155

The accompanying notes are an integral part of these consolidated financial statements.

INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


*Nine Months Ended September 30,*				*2003*		2002

(In thousands)

*Cash Provided By (Used For):*
*Operating Activities:*
	Net income		$	21,843	$	287,638
	Adjustments to reconcile net income to net
	cash provided by operating activities
		Depreciation		6,081		6,872
		Amortization		12,769		11,616
		Provisions for losses on accounts receivable		1,922		2,069
		Noncurrent portion of deferred taxes		2,636		19,183
		Income taxes payable		(35,114)		11,198
		Gains on sales of assets		(2,951)		(17,214)
		Net changes in current assets and liabilities		(3,880)		(27,473)

		*Net cash provided by operating activities*		3,306		293,889


*Investing Activities:*
	Net proceeds from sales of assets			16,751		30,749
	Purchases of property, plant, and equipment			(5,985)		(7,970)
	Purchases of short-term investments			(34,166)		(254,197)
	Proceeds from maturities of short-term investments			25,857		266,654
	Capitalized software development costs			(8,034)		(9,070)
	Business acquisitions			(2,030)		(981)
	Other			(1,085)		(1,984)

		*Net cash provided by (used for) investing activities*		(8,692)		23,201


*Financing Activities:*
	Borrowings			31		81
	Debt repayment			(200)		(2,172)
	Purchase of treasury stock			(30,200)		(78,818)
	Proceeds of employee stock purchases and exercise of
		stock options		8,760		5,957

		*Net cash used for financing activities*		(21,609)		(74,952)

Effect of exchange rate changes on cash				2,424		2,869

Net increase (decrease) in cash and cash equivalents				(24,571)		245,007
Cash and cash equivalents at beginning of period				490,097		99,773

*Cash and cash equivalents at end of period*			$	465,526	$	344,780

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 quarter and nine months ended September 30, 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 13 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 Company's intellectual property portfolio, 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 quarter and nine-month periods ended September 30, 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 effect of applying SFAS 123 on a pro forma basis for the quarter and nine-month periods ended September 30, 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*				*Nine Months Ended*
			*September 30,*				*September 30,*
			*2003*		2002		*2003*		2002

(In thousands, except per share amounts)

Net income	As reported	$	12,934	$	2,673	$	21,843	$	287,638
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards (net of income tax)			(503)		(422)		(1,245)		(1,422)

	Pro forma	$	12,431	$	2,251	$	20,598	$	286,216




Basic income per share	As reported	$	0.28	$	0.06	$	0.47	$	5.92
	Pro forma	$	0.27	$	0.05	$	0.45	$	5.89

Diluted income per share	As reported	$	0.27	$	0.05	$	0.45	$	5.62
	Pro forma	$	0.26	$	0.05	$	0.43	$	5.60

NOTE 3 - INVENTORIES

Inventories are stated at the lower of average cost or market and are summarized as follows:


	*September 30,*		December 31,
		*2003*		2002

(In thousands)

Raw materials	$	6,508	$	7,011
Work-in-process		3,996		2,856
Finished goods		1,652		3,457
Service spares		3,524		6,073

Totals	$	15,680	$	19,397

Inventories on hand at September 30, 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 seven years. Amortization of these capitalized costs, included in "Cost of revenues - Systems" in the consolidated statements of income, amounted to $2.7 million in third quarter 2003 compared to $1.7 million in third quarter 2002, and $7.3 million and $4 million in the first nine months of 2003 and 2002, respectively. Due to net realizable value concerns, the Company did not capitalize product development expenses of $3.3 million and $2.7 million in third quarter 2003 and 2002, respectively, and $9.3 million and $7.8 million in the first nine months of 2003 and 2002, respectively, for costs otherwise eligible for capitalization. See Note 5 for further information regarding capitalized software development costs and accumulated amortization.

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, net" in the consolidated balance sheets).

At September 30, 2003, and December 31, 2002, the Company's intangible assets and related accumulated amortization consisted of the following:


		*September 30, 2003*						December 31, 2002

			*Accumulated*						Accumulated
		*Gross*	*Amortization*			*Net*		Gross	Amortization			Net

(In thousands)

Capitalized software development	$	52,425	$	(21,901)	$	30,524	$	44,417	$	(14,587)	$	29,830
Other intangible assets		47,417		(37,962)		9,455		44,988		(32,522)		12,466

Totals	$	99,842	$	(59,863)	$	39,979	$	89,405	$	(47,109)	$	42,296

The Company recorded amortization expense of $4.6 million and $4.3 million for third quarter 2003 and 2002, respectively, and $12.8 million and $11.6 million for the first nine months of 2003 and 2002, respectively. Based on the current intangible assets subject to amortization, the estimated amortization expenses for the remainder of 2003, each of the succeeding five years, and thereafter is as follows: $6 million in 2003, $16 million in 2004, $5 million in 2005, $3 million in 2006, $3 million in 2007, $3 million in 2008, and $4 million thereafter.

NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET

Property, plant, and equipment, net includes accumulated depreciation of approximately $99.7 million and $114.4 million at September 30, 2003, and December 31, 2002, respectively.

NOTE 7 - SUPPLEMENTARY CASH FLOW INFORMATION

Changes in current assets and liabilities less cash, net of the effects of business acquisitions and divestitures, in reconciling net income to net cash provided by (used for) operations are as follows:


*Nine Months Ended September 30,*			*2003*		2002

(In thousands)

(Increase) decrease in:
	Accounts receivable, net	$	6,725	$	4,168
	Inventories, net		4,744		3,782
	Other current assets		(17,662)		(17,014)
Increase (decrease) in:
	Trade accounts payable		1,226		(4,462)
	Accrued compensation and other accrued expenses		5,561		(9,833)
	Refundable income taxes		(2,062)		(229)
	Billings in excess of sales		(2,412)		(3,885)

Net changes in current assets and liabilities		$	(3,880)	$	(27,473)

There were no significant non-cash investing and financing transactions in third quarter 2003 or the nine months ended September 30, 2003.

There were no significant non-cash investing and financing transactions in third quarter 2002. Significant non-cash investing and financing transactions in the first nine months of 2002 include a favorable mark-to-market adjustment of $5.4 million on the Company's long-term investments. See Note 9 for detailed information regarding the Company's unrealized gains and losses on its investments.

NOTE 8 - EARNINGS PER SHARE

Basic income per share is computed using the weighted average number of common shares outstanding. Diluted income per share is computed using the weighted average number of common and equivalent common shares outstanding. Employee stock options are the Company's only common stock equivalent and are included in the calculation only if dilutive. For the quarters ended September 30, 2003, and 2002, these dilutive common stock equivalents were 1,945,000 and 2,443,000, respectively. For the nine months ended September 30, 2003, and 2002, these dilutive shares were 2,100,000 and 2,576,000, respectively.

NOTE 9 - COMPREHENSIVE INCOME

Comprehensive income differs from net income due to non-equity items that include unrealized gains and losses on certain investments in debt and equity securities and foreign currency translation adjustments.

Comprehensive income is as follows:


	*Quarter Ended*				*Nine Months Ended*
	*September 30,*				*September 30,*
		*2003*		2002		*2003*		2002

(In thousands)

Net income	$	12,934	$	2,673	$	21,843	$	287,638
Unrealized holding gains (losses) arising
during the period		96		(1,198)		1,028		22,114
Reclassification adjustment for realized gains
included in net income		(812)		(25)		(812)		(16,666)
Translation adjustment for financial statements
denominated in a foreign currency		589		(233)		6,563		6,079

Comprehensive income	$	12,807	$	1,217	$	28,622	$	299,165

Year-to-date 2003 unrealized holding gains are shown net of $437,000 in income taxes. Third quarter and year-to-date 2002 unrealized holding gains (losses) are shown net of $541,000 and $2.7 million, respectively, in income taxes.

NOTE 10 - INTELLECTUAL PROPERTY INCOME (EXPENSE), NET

In third quarter 2003, the Company recorded $18 million in income from its settlement of all patent disputes with Texas Instruments Incorporated (“TI”). 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. Netted against this year-to-date income were $15.4 million in legal fees and other related expenses associated with protecting and licensing the Company's intellectual property. Net intellectual property income was $12.6 million for the nine months ended September 30, 2003.

For the nine-month period ended September 30, 2002, the net income is principally made up of $300 million from the settlement of the patent infringement lawsuit with Intel, offset by $11.1 million in expenses. 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 (LOSSES) ON SALES OF ASSETS

In third quarter 2003, the Company recognized a gain of $1.8 million for the sale of its Creative Technology Ltd. ("Creative") stock. During the nine months ended September 30, 2003, the Company also reported a net gain of approximately $1.1 million from the first quarter 2003 sale of IMGS' aeronautical intellectual property assets to Ingegneria Dei Sistemi S.p.a. in Rome, Italy ("Ingegneria"). The Company reported net gains on sales of assets of $17.2 million for the nine months ended September 30, 2002, including a loss of $1.3 million for third quarter 2002. For a complete discussion, see "Gains (Losses) on Sales of Assets" included in MD&A.

NOTE 12 - ACQUISITIONS AND DIVESTITURES

During third quarter 2003, the Company sold its holdings in Creative for $12.5 million. The Company recorded a gain on this transaction of approximately $1.8 million, which is included in "Gains (losses) on sales of assets" in the 2003 consolidated statement of income. There were no material acquisitions or divestitures in third quarter 2002. During the first nine months of 2002, the Company sold its ownership interest in 3Dlabs to Creative for approximately $40.2 million in cash and stock. The Company recorded a gain on this transaction of approximately $17 million, which is included in "Gains (losses) on sales of assets" in the 2002 consolidated statement of income. For a complete discussion, see the Company's 2002 Annual Report.

NOTE 13 - 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 geospatial solutions provider for the following markets: local, regional, federal, and national governments; transportation; utilities; communications; commercial remote sensing and photogrammetry; and military and intelligence.

ISG provides professional services, specially developed software and hardware, and commercial off-the-shelf products to federal, state, and local governments, and 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 commercial repair and logistics services), international hardware maintenance, and general corporate functions. Operating expenses for Corporate consist of oversight costs associated with the offices of Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), Treasurer, Strategic Planning, General Counsel, the Board of Directors, internal and external audit, and other costs that are directly the result of Intergraph being a publicly held company, and residual costs of exiting the hardware business, including management of warranty reserves and a repair depot.

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 unrelated buyers.

The following table sets forth revenues and operating income (loss) by business segment for the quarters and nine months ended September 30, 2003, and 2002.


			*Quarter Ended*				*Nine Months Ended*
			*September 30,*				*September 30,*
			*2003*		2002		*2003*		2002

(In thousands)

Revenues:
PPO:
	Unaffiliated customers	$	33,179	$	31,635	$	95,202	$	89,517
	Intersegment revenues		415		840		1,597		3,055

			33,594		32,475		96,799		92,572

IMGS:
	Unaffiliated customers		52,942		48,264		145,012		136,788
	Intersegment revenues		1,539		1,592		4,774		5,887

			54,481		49,856		149,786		142,675

ISG:
	Unaffiliated customers		30,042		33,290		86,699		96,596
	Intersegment revenues		424		824		1,322		3,903

			30,466		34,114		88,021		100,499

IPS:
	Unaffiliated customers		15,047		17,371		47,101		48,345
	Intersegment revenues		1,573		1,175		2,898		1,844

			16,620		18,546		49,999		50,189

Corporate:
	Unaffiliated customers		2,373		2,856		7,469		7,836
	Intersegment revenues		512		1,266		1,909		2,373

			2,885		4,122		9,378		10,209

			138,046		139,113		393,983		396,144

Eliminations			(4,463)		(5,697)		(12,500)		(17,062)

Total Revenues		$	133,583	$	133,416	$	381,483	$	379,082





Operating income (loss):
PPO		$	4,016	$	5,773	$	12,491	$	15,020
IMGS			2,768		(810)		1,722		(2,066)
ISG			2,021		188		6,001		4,626
IPS			3,527		5,859		10,558		12,282
Corporate			(6,847)		(7,649)		(18,193)		(18,924)
Eliminations			---		(100)		---		314

Total		$	5,485	$	3,261	$	12,579	$	11,252

Significant profit and loss items that were not allocated to the segments and not included in the analysis above include gains and losses on sales of assets and intellectual property income and expense. See Notes 10 and 11 for comparative details of these items.

The Company does not evaluate performance or allocate resources based on assets. For further information, see "Results by Operating Segment" in MD&A.

NOTE 14 - 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 $10 million at September 30, 2003, and $10.9 million at December 31, 2002).

NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. ("FIN") 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. FIN 45 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 FIN 45 in first quarter 2003 did not have a significant impact on the Company's consolidated operating results or financial position. The Company has not incurred costs to settle claims or pay awards under the patent infringement indemnity provisions of some of our sales agreements with customers; therefore, the Company has recorded no liabilities for these agreements as of September 30, 2003.

In January 2003, FASB issued FIN 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin 51, "Consolidation of Financial Statements," which addresses consolidation of variable interest entities ("VIE") by business enterprises. FIN 46 requires immediate consolidation of VIEs created after January 31, 2003, and the compliance of older entities was established for the first fiscal year or interim period beginning after June 15, 2003. On October 8, 2003, the FASB agreed to defer the effective date for variable interests held by public companies in all entities that were acquired prior to February 2, 2003, until the end of the first interim or annual period ending after December 15, 2003, so long as the variable interest was created before February 1, 2003, and the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46, other than disclosures required by FIN 46. The Company is still evaluating the impact, if any, that adoption of FIN 46 may have on its consolidated results of operations or financial position.

On April 30, 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," in order to provide for more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a significant impact on the Company's consolidated results of operations or financial position.

On May 15, 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for classifying and measuring as liabilities certain freestanding financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The statement defines an obligation as "a conditional or unconditional duty or responsibility on the part of the issuer to transfer assets or to issue its equity shares." SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have a significant impact on the Company's consolidated results of operations or financial position.

NOTE 16 - LITIGATION

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 (all statements other than those made solely with respect to historical fact) within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, disclosures regarding the tender offer currently in effect; information regarding the Company's business outlook; projections about revenue, operating income levels, margins, cost savings, and market conditions and their anticipated impact on the Company and its vertical business segments; expectations regarding Intergraph's various ongoing litigation proceedings; expectations regarding future results and cash flows; information regarding the development, timing of introduction, and performance of new products; and any statements of the plans, strategies, and objectives of management for future operations. 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, the Company's ability to consummate the tender offer; potential adverse outcomes in our ongoing efforts to protect our intellectual property including, but not limited to, an overturn on appeal of the ruling in favor of us in our patent infringement action against Intel Corporation ("Intel"), an adverse ruling in our patent infringement action against various original equipment manufacturers ("OEMs"), and other ongoing and potential litigation and patent enforcement efforts, including uncertainties associated with potential patent infringement claims against non-domestic OEMs; material changes with respect to our business, litigation prospects, or the securities markets (including the market for Intergraph common stock); 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 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); and other risks detailed in our press releases or in annual, quarterly, or other filings with the Securities and Exchange Commission ("SEC").

RESULTS OF OPERATIONS

Revenues

Total revenues for third quarter and the first nine months of 2003 were $133.6 million and $381.5 million, respectively, a slight increase from the comparable prior-year periods.

Sales outside the United States represent approximately 47% of total revenues in the first nine months of 2003, up from 42% for the comparable period in 2002. European revenues were 30% of total revenues for the nine months ended September 30, 2003, up from 25% in the comparable prior-year period. These increases in international revenues are primarily due to the currency impact of a weaker U.S. dollar.

Systems. Systems revenues for the third quarter 2003 were $75.4 million, down 7% from the third quarter 2002. The ISG business segment reported a decline in revenues from third quarter 2002, which included a $4.8 million sale of third-party software. For the first nine months of 2003, systems revenues were $218.6 million, flat with the same period of 2002.

Maintenance. Maintenance revenues were $32.4 million for the third quarter 2003, up 4% from the third quarter 2003. Maintenance revenues for the first nine months of 2003 were $96.6 million, an increase of 8% over the first nine months of 2002. These increases are attributable to larger installed customer bases for the IPS and PPO business segments, offset by a decrease in the ISG business segment maintenance revenues as more hardware continued to be removed from maintenance contracts because of the Company's exit from the hardware business.

Services. Services revenues, consisting primarily of revenues from implementation and consulting services, totaled $25.8 million for the third quarter 2003, up 21% from third quarter 2002. The increase is due primarily to $4.8 million in revenues generated by the ISG business segment on a contract awarded by the U.S. Air Force in second quarter 2003. Services revenues for the first nine months of 2003 were $66.4 million, down 6% from the same period of 2002. The decrease is due to the completion of a large IPS project in late 2002, offset by the aforementioned ISG contract.

Gross Margin

Systems. Systems margin was 50% for third quarter 2003, up from 46% in third quarter 2002. The most significant factor for the improvement in margin relates to a low-margin sale of third-party products in 2002 for the ISG business segment. First nine months of 2003 systems margin was 49%, flat with the first nine months of 2002.

In general, the Company's systems margin may be lowered by price competition, a higher hardware content in the product mix, a stronger U.S. dollar in international markets, and a higher mix of federal government sales, which generally produce lower margins than commercial sales. Systems margins may be improved by higher software content in the product 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. Maintenance margin for third quarter 2003 was 62%, improving from 53% in third quarter 2002. For the first nine months of 2003, maintenance margin was 61%, up from 53% for the comparable prior-year period. The improvement in margins is mainly due to higher software content in new maintenance contracts, and Company-wide headcount reductions from 2002 to 2003 as a result of the Company's exit from the hardware business.

Services. Services margin was 31% for third quarter 2003, up from 28% in third quarter 2002. The improvement in the margin is due to the completion of a large, lower-margin contract for the IPS business segment in 2002. For the first nine months of 2003, services margin was 27%, down from 30% in the first nine months of 2002. The decline in services margin is the result of a new contract in 2003 for the ISG business segment, which carries a lower margin. Significant fluctuations in services revenues and margins from period to period are not unusual.

Operating Expenses

Operating expenses for the third quarter and first nine months of 2003 were $60.5 million and $171.6 million, respectively, up 7% from third quarter 2002 and up 5% from the first nine months of 2002.

Product development expenses were $16.5 million for third quarter 2003, up 13% from the third quarter 2002 level. This increase was primarily the result of shipbuilding product development costs of $1.4 million in the PPO business segment. Product development expenses were $42.9 million for the first nine months of 2003, up 9% from the first nine months of 2002. This increase was primarily the result of $2.8 million in year-to-date shipbuilding product development costs for the PPO business segment and a $1.3 million reduction in software development capitalization in the IMGS business segment, offset by a $700,000 reclassification to general and administrative expenses.

Sales and marketing expenses were $24 million for third quarter 2003, flat compared to third quarter 2002. Sales and marketing expenses were $74.3 million for the first nine months of 2003, up 4% from the first nine months of 2002. This increase was primarily due to an unfavorable currency impact of the U.S. dollar weakening against international currencies during the first nine months of 2003, compared to the first nine months of 2002, offset by a $1.2 million cost savings for the IMGS business segment associated with the consolidation of the utilities and communications business in the fourth quarter of 2002 and by an overall reduction of $1.8 million in the ISG business segment as they continue to align expenses with revenue levels.

General and administrative expenses were $20 million for third quarter 2003, up 11% from the third quarter 2002 level, primarily due to an $800,000 unfavorable currency impact, along with an increase in bad debt reserves of $500,000, and a $700,000 reclassification from product development expenses. General and administrative expenses were $54.3 million for the first nine months of 2003, an increase of 4% over the prior-year period. This increase is primarily the result of a $2.3 million unfavorable currency impact.

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 restructuring approximated $383,000 and $1.7 million for third quarter and the first nine months of 2003, respectively. At September 30, 2003, the total remaining accrued liability for restructuring was approximately $247,000 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 Asia. For additional information, see the Company's 2002 Annual Report.

The Company expects to incur charges of approximately $3.5 million in fourth quarter 2003 for cost reductions. See "Remainder of the Year."

Non-Operating Income and Expense

Intellectual Property. "Intellectual property income (expense), net" in the consolidated statements of income consists of income resulting from legal settlements 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 Company's intellectual property portfolio, including related legal expenses, are classified and reported in this section of the consolidated statements of income.

In third quarter 2003, the Company recorded $18 million in income from its settlement of all patent disputes with TI. In first quarter 2003, the Company recorded $10 million in income from 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. In the first nine months of 2003, $15.4 million in legal fees and other related expenses associated with protecting and licensing the Company's intellectual property were netted against this income, including $6.4 million in third quarter.

Gains (Losses) on Sales of Assets. In third quarter 2003, the Company recognized a gain of $1.8 million for the sale of its remaining Creative stock. In first quarter 2003, IMGS reported a gain of approximately $1.2 million from the March 2003 sale of its aeronautical intellectual property assets to Ingegneria.

In third quarter 2002, the Company recognized a loss of $1.3 million on the sale of some of its shares of Creative stock. For the nine months ended September 30, 2002, the Company also reported a gain of $17 million on the sale of 3Dlabs stock to Creative, a gain of approximately $2 million as escrowed shares of 3Dlabs were released, and a loss of approximately $455,000 on the sale of its Greek subsidiary. See the Company's 2002 Annual Report for further discussion of these transactions.

See Note 12 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further information regarding the 3Dlabs transactions.

Interest Income. Interest income was $1.5 million and $2.3 million in third quarter of 2003 and 2002, respectively. Interest income from short-term investments decreased in third quarter 2003 due to the decrease in principal balance of the Bentley note from 2002, lower interest rates, and a third quarter 2002 reclassification of year-to-date interest previously recorded as other income. For the first nine months of 2003, interest income was $5.1 million, compared to $4.9 million for the same period in 2002.

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. No significant items were included in these amounts for the periods presented.

Income Taxes

Income tax expenses for the first nine months of 2003 are attributable to both taxes on individually profitable majority-owned subsidiaries and patent litigation income partially offset by the second quarter tax benefit, which was primarily the result of a favorable resolution of a disputed issue with the Internal Revenue Service. Income tax expense for the quarter and nine months ended September 30, 2002, was largely a result of the patent litigation gain and the gains on sales of assets offset by the utilization of the Company's U.S. net operating loss and tax credit carryforwards. See the Company's 2002 Annual Report for details of the Company's tax position, including its net operating loss and tax credit carryforwards.

Results by Operating Segment

In third quarter 2003, PPO reported operating income of $4 million on revenues of $33.6 million, compared to third quarter 2002 operating income of $5.8 million on revenues of $32.5 million. The decrease in operating income is primarily the result of increased shipbuilding product development costs of $1.4 million in the third quarter of 2003 and a $524,000 systems margin decrease due to capitalized software amortization related to the release of new products. For the nine months ended September 30, 2003, operating income was $12.5 million on revenues of $96.8 million, compared to operating income of $15 million on revenues of $92.6 million for the first nine months of 2002. The 17% decrease in operating income is due primarily to $2.8 million in increased shipbuilding product development costs and an increase in sales and marketing expenses primarily related to the effect of the weakening of the U.S. dollar against the Euro. The increase in operating expenses is partially offset by a 3% increase in overall margins due to a change in product mix from third-party products to more Intergraph-developed software applications.

In third quarter 2003, IMGS reported operating income of $2.8 million on revenues of $54.5 million, compared to a third quarter 2002 operating loss of $810,000 on revenues of $49.9 million. The significant increase in operating income reflects improved revenues and margins (due primarily to the initial Digital Mapping Camera sales by Z/I Imaging) and reduced operating expenses (due primarily to a $618,000 decline in spending associated with the consolidation of the Mapping/GIS and Utilities & Communications sales and marketing infrastructure since third quarter 2002). For the nine months ended September 30, 2003, operating income was $1.7 million on revenues of $149.8 million, compared to the nine-month 2002 loss of $2.1 million on revenues of $142.7 million. This improvement in operating income was also due primarily to increased revenues and margins from the initial Digital Mapping Camera sales mentioned above and a $1.2 million decline in spending associated with the consolidation of the sales and marketing infrastructure, along with the positive currency impact of a weaker U.S. dollar.

In third quarter 2003, ISG earned operating income of $2 million on revenues of $30.5 million, compared to operating income of $188,000 on revenues of $34.1 million in third quarter 2002. The significant increase in operating income is primarily due to higher systems and maintenance gross margins due to product mix changes and headcount reductions, respectively. For the nine months ended September 30, 2003, ISG earned operating income of $6 million on revenues of $88 million, compared to operating income of $4.6 million on revenues of $100.5 million for the nine months ended September 30, 2002. The increase in operating income is due primarily to a reduction in labor and overhead costs related to headcount reductions in both periods offset somewhat by lower gross margin dollars.

In third quarter 2003, IPS earned operating income of $3.5 million on revenues of $16.6 million, compared to third quarter 2002 operating income of $5.9 million on revenues of $18.5 million. Third quarter 2002 results included one-time increases in revenues and operating income of $2.3 million and $2 million, respectively, as a result of the sale of software and systems associated with the completion of a large outsourcing contract in Australia. For the nine-month period ended September 30, IPS reported operating income of $10.6 million on revenues of $50 million for 2003, and operating income of $12.3 million on revenues of $50.2 million for 2002. Year-to-date revenues are flat with the same period last year, as new projects and more maintenance contracts have offset the loss of revenues from the Australian services contract. Operating income decreased 14% as higher total gross margins partially offset an increase in operating expenses.

In third quarter 2003, Corporate reported an operating loss of $6.8 million on revenues of $2.9 million, compared to a third quarter 2002 operating loss of $7.6 million on revenues of $4.1 million. For the nine months ended September 30, 2003, and 2002, Corporate reported an operating loss of $18.2 million on revenues of $9.4 million and an operating loss of $18.9 million on revenues of $10.2 million, respectively. Revenues are primarily associated with hardware repair, logistics, and international hardware 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 13 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further explanation of the Company's segment reporting.

Litigation

As further described in the Company's 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. Litigation is subject to known and unknown risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements."

Intel. The Company has had ongoing litigation with Intel since 1997. In July 2001, 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 obligated to pay an additional $100 million in damages to the Company if the trial court's decision is affirmed on appeal. The parties have completed the briefing process, and oral argument is scheduled for the first week of December 2003. The final decision from the appeal court is not expected until at least the first quarter of 2004.

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 (including the former Compaq Computer Corporation^TM) ("HP") in the U.S. District Court for the Eastern District of Texas ("the Texas court") claiming that products from these computer vendors infringe three computer system ("Clipper") patents (related to memory management technology) owned by the Company. The OEM action seeks an unspecified amount of damages for past infringement, plus a statutory patent injunction. Licensing discussions were not successful, and the defendants were served on April 1, 2003. Following the August 20, 2003, scheduling conference, the trial judge set the matter for trial on August 2, 2004.

On May 28, 2003, HP filed a patent countersuit against the Company in the Northern District of California. HP also filed a motion asking the Texas court to transfer the OEM case to the Northern District of California for consolidation with their countersuit. (This motion was denied by the Texas court on October 7, 2003.) The HP countersuit did not specify any accused infringing products or resulting damages, and the Company challenged the validity of HP's complaint. The California trial judge subsequently dismissed HP's complaint as legally defective, but HP has since re-filed a corrected complaint. The Company will vigorously defend against this countersuit, but has not yet determined what impact, if any, this countersuit may have on its results of operations and cash flows.

On June 21, 2003, Dell filed a counterclaim against Intel, adding them as a party to the OEM case. Intel filed a general denial to Dell's counterclaim. It is currently unclear what role Intel will play as a party in the OEM action. Dell also filed a motion to have their "Intel implied license" defense tried separately from the infringement case. Intergraph opposed Dell's motion to bifurcate its "implied license" defense, and Dell's motion was subsequently denied by the trial court on September 26, 2003.

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 filed a general response to the Company's allegations, and the PIC case was subsequently set for trial in October 2004.

In May 2003, TI filed two patent countersuits against the Company in the Texas court. The countersuits were assigned to two separate judges; however, both cases were filed in the Eastern District of Texas. The countersuits included a total of eight patents, which target a variety of products in each of the Company's business units. The Company responded to both countersuits, and began to vigorously defend both actions.

On September 10, 2003, the Company entered into a settlement agreement and patent license agreement with TI, which resolved all pending patent litigation between the parties. The settlement included a lump sum payment by TI to Intergraph in the amount of $18 million (which was received on November 5, 2003), dismissal of all TI patent claims, and certain other patent licensing and immunity terms.

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 BSI's Delaware action has effectively been stayed pending the Alabama action. In response, 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. The case is currently set for trial on January 24, 2004.

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 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. The Company expects to incur charges of approximately $3.5 million for cost reductions in fourth quarter 2003. The Company continues to work on its forward business planning process. As the Company continues to evaluate its markets and operating performance, it may determine that there are other actions needed to seek increased profits. 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

On October 30, 2003, the Company announced its initiation of a modified Dutch auction tender offer to purchase up to 10,000,000 shares of its outstanding common stock at a price per share of not less than $26 or in excess of $28 per share. The tender offer commenced on November 3, 2003, and will expire (unless extended) on or about December 2, 2003. The Company intends to utilize available cash to fund the anticipated purchase of the shares and to pay related expenses.

At September 30, 2003, the Company had no debt. See Note 14 for a discussion of the Company's letters of credit.

In third quarter 2003, the Company spent approximately $20.9 million to repurchase 900,920 shares of its common stock under a stock repurchase program. As of September 30, 2003, the Company had repurchased approximately 6.3 million shares at a cost of $115.7 million since the program was initiated in late 2001. 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 of Directors 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. Rule 13e-4 under the Securities Exchange Act of 1934 prohibits the Company or its affiliates from purchasing any shares of the Company's common stock, other than in the tender offer, until at least ten business days after the expiration date of the offer. Accordingly, our Board of Directors has suspended the repurchase program until that time.

The Company believes that cash balances after the tender offer will exceed cash requirements for at least the next twelve months. For the near term, the Company anticipates that its cash position may benefit from sales of excess real estate and facilities. The Company does not anticipate any significant non-operating events that will require the use of cash other than the Company's patent litigation and enforcement program, the stock repurchase program, and the modified Dutch auction tender offer.

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, 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 September 30, 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. Approximately 47% and 42% of the Company's revenues for the nine months ended September 30, 2003, and 2002, respectively, were derived from customers outside the United States, primarily through subsidiary operations. Most subsidiaries sell to customers and incur and pay operating expenses in local currencies. These local currency revenues and expenses are translated into U.S. dollars for reporting purposes. A weaker U.S. dollar increases the level of reported U.S. dollar orders and revenues, increases the dollar gross margin, and increases 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 the results of operations for the nine months ended September 30, 2003, by approximately $0.11 per share (basic and diluted) in comparison to the nine months ended September 30, 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. The Company had no forward contracts outstanding at September 30, 2003, or December 31, 2002, and does not currently hedge any of its foreign currency risks.

Impact of Interest Rates on Investment Earnings

The Company's excess funds are generally invested in short-term, highly liquid, interest-bearing securities which may include short-term municipal bonds, time deposits, money market preferred stocks, commercial paper, and U.S. government securities. The Company limits the amount of credit exposure from any single issuer of securities. The Company is subject to earnings fluctuations due to market changes in interest rates. Should interest rates of invested funds change by 0.5%, the Company estimates that pre-tax earnings could be affected by approximately $0.05 per share (diluted) on an annualized basis.

Item 4. Controls and Procedures

The Company, under the direction of the CEO and the 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.

The CEO and the CFO have reviewed and evaluated the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on, and as of the effective 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 changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Intel. The Company has had ongoing litigation with Intel since 1997. In July 2001, 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 obligated to pay an additional $100 million in damages to the Company if the trial court's decision is affirmed on appeal. The parties have completed the briefing process, and oral argument is scheduled for the first week of December 2003. The final decision from the appeal court is not expected until at least the first quarter of 2004.

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 (related to memory management technology) owned by the Company. The OEM action seeks an unspecified amount of damages for past infringement, plus a statutory patent injunction. Licensing discussions were not successful, and the defendants were served on April 1, 2003. Following the August 20, 2003, scheduling conference, the trial judge set the matter for trial on August 2, 2004.

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, which employs the same PIC technology described by the Company's PIC patents. TI filed a general response to the Company's allegations, and the PIC case was subsequently set for trial in October 2004.

BSI. In December 2002, the Company filed a declaratory judgment action in 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 BSI's Delaware action has effectively been stayed pending the Alabama action. In response, 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. The case is currently set for trial on January 24, 2004.

Item 5. Other

Effective July 28, 2003, Mr. Halsey Wise was selected as the Company's President and Chief Executive Officer, and immediately joined the Intergraph Board of Directors. Mr. Wise succeeds Mr. Jim Taylor, who announced last fall his intention to retire. Mr. Taylor retired from the Company's Board of Directors and as an officer of the Company, but will continue to consult with management of the Company, primarily with respect to its intellectual property litigation.

Mr. Sid McDonald, a director since 1997, has been elected Chairman of the Intergraph Board of Directors. Mr. McDonald served previously as the lead outside director and Chairman of the Compensation Committee.

Effective July 30, 2003, the Board of Directors formed a Corporate Governance Committee, comprised solely of independent directors, and adopted Corporate Governance Guidelines.

Effective October 7, 2003, Mr. Michael D. Bills was elected to the Intergraph Board of Directors. Mr. Bills is the ninth director, and the seventh outside director, of the Company.

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits

	Exhibit
	Number	Description

	10(i)	Employment agreement with R. Reid French, Jr. dated September 16, 2003

	10(p)	Texas Instruments Patent Litigation Settlement and License Agreement
			dated September 9, 2003

	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
			2002 by R. Halsey Wise dated November 13, 2003

	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
			2002 by Larry J. Laster dated November 13, 2003

	32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
			2002 by R. Halsey Wise dated November 13, 2003

	32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
			2002 by Larry J. Laster dated November 13, 2003

(b)	Reports on Form 8-K
		Form 8-K dated October 30, 2003, reporting the Company's third 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/ R. Halsey Wise	By:	/s/ Larry J. Laster
	R. Halsey Wise		Larry J. Laster
	President and		Executive Vice President and
	Chief Executive Officer		Chief Financial Officer
			(Principal Financial and Accounting Officer)


Date:	November 13, 2003	Date:	November 13, 2003

EX-99 3 exhibit10i_french.htm EMPLOYMENT AGREEMENT, R. REID FRENCH JR. Employment Agreement - R Reid French Jr

September 16, 2003

Mr. R. Reid French, Jr.
3095 Dale Drive
Atlanta, Georgia 30305

Re: Offer of Employment

Dear Mr. French:

Intergraph Corporation is pleased to extend to you an offer of employment for the position of Executive Vice President, Strategic Planning and Corporate Development of Intergraph Corporation. The terms of the Company's offer of employment are as follows:

1. Position and Title

a. Executive Vice President, Strategic Planning and Corporate Development, reporting directly to the Chief Executive Officer of the Company.

b. Full Time, Exempt Employee (FLSA status).

2. Cash Compensation

a. Annual Base Salary - $250,000

b. Signing Bonus - $25,000, payable within ten (10) days of the Employee's first date of work. Other than for a termination due to death or Disability or a resignation for Good Reason or a termination by the Company other than for Cause, the Employee agrees that the signing bonus shall be refundable to the Company if the Employee terminates employment within 180 days of the first date of employment.

c. Targeted and Management by Objective ("MBO") Bonuses

i. An annual MBO cash bonus up to $150,000 per calendar year, awardable based upon attaining certain defined performance objectives. The 2004 performance objectives shall be agreed to in writing prior to December 31, 2003. Objectives and prorata cash award for the remainder of 2003 shall be agreed to in writing prior to the first date of employment.

ii. Calculation of the Employee's MBO shall be performed within ten (10) days of the public reporting of the year end financial statements, with all bonus payments based thereon during the next payroll cycle following approval by the Compensation Committee of the Board.

3. Stock Grants

The Employee shall receive a grant of 100,000 shares of Company stock, awardable as follows:

i. A 75,000 share stock option grant, made pursuant to the terms of the Intergraph Corporation 2002 Employee Stock Option Plan ("Plan"). The exercise price of said grant shall be set at the closing market price of the Company's stock on the date of the grant. The grant will be made on the Employee’s first date of employment, and to the extent possible under the terms of the Plan in the form of ISO qualified stock options. Pursuant to the terms of the Plan, said options will have a ten-year term and will vest ratably over a four-year period, 25% per year beginning on the first anniversary of the date of employmentor, if earlier, will vest 100% upon the occurrence of a Change in Control.

ii. A 25,000 share restricted stock grant (no exercise price)under the Plan. The restrictions shall lapse ratably over a four-year period consistent with the terms of the Plan, or if earlier, shall lapse 100% upon the occurrence of a Change in Control.

iii. A “Change in Control” for purposes of this agreement shall mean a change in control as defined in the employment agreement between the Company and R. Halsey Wise dated as of June 12, 2003, as such agreement may be amended from time to time, or any successor to such agreement, (the “Wise Agreement”).

4. Reimbursement of Relocation Expenses

a. The Company will reimburse the Employee for relocation costs incurred as a result any relocation of the Employee to Huntsville/Madison County, Alabama, as specified in Intergraph Policy #603, including but not limited to statutory allowable moving costs, temporary housing, reasonable storage expenses and sale commissions on the sale of a primary home. A copy of Intergraph Policy #603 is attached.

b. Reimbursement of all relocation expenses are subject to applicable statutory and regulatory restrictions.

5. Benefits -- The Employee shall be entitled to participate in all applicable Company employee benefits. A copy of the Employee Benefits Plan Summary is attached hereto.

6. Vacation -- The Employee shall be entitled to three (3) weeks paid vacation per year, or as otherwise provided for by the Company's vacation accrual policy, a copy of which is attached.

7. Term of Agreement -- The term of employment under this offer shall be for one (1) year from the first date of employment. The terms of this offer shall be extended after the first anniversary date, on a year-to-year basis, unless otherwise terminated in writing by the Company or the Employee prior to the next anniversary date of the Employee’s first date of employment. However, with varying consequences described in Section 8 below, employment under this offer is subject to early termination under the following circumstances:

a. Employee may resign with or without Good Reason. “Good Reason” for resignation will include (i) a material reduction in Employee's position, authority, duties or responsibilities, (ii) a reduction in salary, (iii) failure to require a successor to honor the terms of employment, or (iv) a resignation by R. Halsey Wise for good reason under the Wise Agreement. Good Reason does not include death or Disability.

b. The Company may terminate Employee with or without Cause. “Cause” means (i) the willful and continued failure by Employee to substantially perform his duties after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes he has not substantially performed his duties, or (ii) the willful engaging in misconduct which is materially injurious to the Company, monetarily or otherwise.

c. The term of employment will terminate upon Employee’s death or Disability. “Disability” means a physical or mental disability entitling Employee to long-term disability benefits under the Company’s long-term disability plan, if any. Absent such a plan, Disability shall mean the inability of Employee, as determined by the Board, to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of 180 days.

8. Separation Payments -- Should the Employee be terminated by the Company other than for Cause or Disability, or should the Employee resign for Good Reason, during the term of employment under this offer (as such term may be extended in accordance with Section 7 above), the Employee shall receive the following separation benefits:

a. The Employee shall be paid accrued base salary through the date of termination plus a separation payment of one (1) times his base salary for the year in which the termination occurs, as well as a pro rata bonus for the year in which the date of termination occurs, and any other unpaid benefits to which Employee is otherwise entitled. The Employee shall also receive fully paid-up medical, dental and prescription drug health insurance benefits commensurate with the Company's standard health insurance benefits for one year after the Employee's last date of employment.

b. Termination for cause -- No separation payment is due or payable should the Employee be terminated for Cause or Employee resigns without Good Reason. In that event, all awards pursuant to the 2002 Stock Option Plan shall be treated according to the terms of the Plan and the applicable award agreement.

c. Death or Disability -- No separation payment is due or payable should the Employee die or become Disabled, but any applicable death or disability benefits shall be paid in accordance with any applicable plan or policy. All awards pursuant to the 2002 Stock Option Plan shall be treated according to the terms of the Plan and the applicable award agreement.

9. Release of Claims -- As a condition to receiving the severance payment and post-employment health insurance benefits, Employee agrees to sign a release of any employment-law related claims. The release would be signed at the time of termination of employment.

As noted above, I have enclosed a copy of the Employee Benefits Plan Summary, Intergraph's (Relocation) Policy #603 and a Company Proprietary Rights Agreement. Please be advised that due to Federal tax laws, certain relocation expenses will be subject to applicable income tax withholdings when the relocation expenses are incurred and/or reimbursed. Further, please be advised that pursuant to the Sarbanes-Oxley Act, the Company may be prohibited from advancing certain relocation expenses otherwise reimbursable pursuant to this offer of employment.

Also attached to this letter is a listing of documents required for compliance with the Immigration Reform and Control Act. Please note that you will be obligated to provide executed originals of these documents on your first day of employment at Intergraph Corporation.

This offer of employment is valid until September 20, 2003, and is contingent upon the execution of this offer letter and the Company's Proprietary Rights Agreement prior to your first day of work.

Please keep this original letter for your records, and return the signed copy in the enclosed prepaid envelope as an expression of your intent to accept the offer of employment with Intergraph Corporation.

If you have any questions or desire additional information regarding this offer of employment, please contact Mr. Halsey Wise at (256)730-8993, or me at (256)730-2032.

Best regards,

David Vance Lucas
General Counsel, Vice President, Human Resources

Offer of Employment to R. Reid French, September 16, 2003

I accept your offer as stated above. I intend for my first date of employment to be October 13, 2003.

Applicant Signature Date

Social Security Number

EX-99 4 exhibit10p_ti.htm TEXAS INSTRUMENTS SETTLEMENT/LICENSING PATENT LICENSE AGREEMENT

PATENT LICENSE AGREEMENT

THIS PATENT LICENSE AGREEMENT ("Agreement"), effective September 1, 2003 ("Effective Date"), is between INTERGRAPH HARDWARE TECHNOLOGIES COMPANY, a Nevada Corporation (hereinafter "IHTC") and Texas Instruments Incorporated, a Delaware corporation (hereinafter "TI").

WHEREAS, IHTC has patented technology that it wishes to promote, and whereas in recognition of TI's early desire to use such technology, IHTC is willing to grant to TI a license under these patents for a discounted rate;

NOW, THEREFORE in consideration of the premises and mutual covenants herein contained, IHTC and TI agree as follows.

Section 1. Definitions

1.1 "TI's Selling Price" means:

(a) for each Licensed Product sold by TI, its Subsidiaries or its affiliates to third parties who are not affiliates or Subsidiaries, the bona fide selling price at which TI, its Subsidiaries or its affiliates sold the Licensed Product.

(b) for each Licensed Product which is installed with or within some other product, the fair market value such Licensed Product would have if sold separately as a stand-alone product.

For purposes of this Agreement, "affiliate" shall mean any company or entity that is more than 50% owned by a party or by a Subsidiary of a party, or that owns more than 50% of either party.

1.2 "Digital Signal Processor" or "DSP" means a type of microprocessor (i) which manipulates digital signals in real time, which are typically representative of analog voice, data or video signals, or (ii) which TI markets as a Digital Signal Processor or DSP.

1.3 "Licensed Patents" means U.S. Patents 5,560,028; 5,794,003; and 6,360,313, together with all divisional applications, continuation applications, continuations-in-part, and extensions in the United States, and all counterparts outside the United States, as well as any patent reissuing or granted on reexamination on any of the aforesaid patents.

1.4 "Licensed Products" means (i) TI Digital Signal Processors utilizing TI's TMS320C6000 architecture or structure or any derivative thereof, (ii) other TI products incorporating the same core architecture as TI's TMS320C6000 architecture or any derivative thereof, and (iii) any other TI DSP or other TI product (including combinations), any part of which is within the scope of any claim of any Licensed Patent. Licensed Products specifically includes any general purpose microprocessor (other than a DSP), that is within the scope of any claim of any Licensed Patent, and which is used as the primary processor within a general purpose personal computer system, computer workstation system, or computer server system where such primary processor itself executes all the operating system software for the operation of computer software applications by an operator of the computer system ("General Purpose Microprocessor").

1.5 "Subsidiary" means any corporation, partnership or other entity with regard to which (a) greater than fifty percent (50%) of whose outstanding shares or securities entitled to vote for the election of directors or similar managing authority is, now or hereafter during the term of this Agreement, directly or indirectly owned or controlled by a party hereto, or (b) which does not have outstanding shares or securities but greater than fifty percent (50%) of whose ownership interest representing the right to make the decisions for such entity is, now or hereafter during the term of this Agreement, owned or controlled, directly or indirectly, by a party hereto; provided, however, that in each case such corporation, partnership or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists and exceeds fifty percent (50%).

Section 2. License

2.1 Subject to the terms and conditions of this Agreement, IHTC grants to TI a nonexclusive, worldwide, royalty-bearing license under the Licensed Patents:

(a) to make, use, lease, sell, offer to sell, import, export, and otherwise transfer Licensed Products, and to practice any method or process and use any product involved in the manufacture or use thereof; and

(b) to have made Licensed Products by another manufacturer for the use, lease, sale, offer for sale, import, export or other transfer by TI.

2.2 No license is granted by IHTC either directly or by implication, estoppel, or otherwise other than under the Licensed Patents; or with respect to any item other than Licensed Products. A license is granted hereunder by IHTC to parties acquiring directly or indirectly Licensed Products from TI, for the TI Licensed Product only, except that such license shall also include combinations, by a direct or downstream (e.g., distributors and repurchasers) customer of TI, of the Licensed Product acquired directly or downstream from TI, with other products, in any instance where the claims of the Licensed Patents would not be infringed by the combination but for the inclusion of the TI Licensed Product. In the event that both the TI Licensed Product and the portion added, by a direct or indirect TI customer, to a combination, separately infringe one or more claims of the Licensed Patents, then only the portion of the combination contributed by TI shall be licensed under this Agreement. No license is granted by IHTC for TI to manufacture or fabricate Licensed Products for third parties in any instance where TI does not supply any non-trivial or significant drawings, specifications, electrical design or software for such Licensed Product, or where TI does not retain any intellectual property to such Licensed Products.

Except as set forth in this Section 2 and Section 3 below, and except as may occur by operation of law (e.g., patent exhaustion), nothing in this Agreement shall either expressly or impliedly give TI the right to grant licenses under the Licensed Patents to others. Nor shall the sale of any Licensed Products provide or give rise to an implied license in favor of third parties, by estoppel or otherwise, to IHTC patents other than under the Licensed Patents and covering combinations of such Licensed Products with any other products or methods of using such combinations, provided that nothing in this Section 2.3 shall be construed to abridge (i) the licenses and immunities granted in any other provision of this Agreement, nor (ii) any patent exhaustion rights flowing therefrom.

2.4 Nothing contained in this Agreement shall be construed as conferring or granting, to any party hereunder or to any third party, by implication, estoppel or otherwise, any license or other right under any patent or utility model, copyright, mask work right, trade secret, trademark, service mark, trade name or trade dress, or any other intellectual property right, except the licenses, covenants and rights expressly granted hereunder or which operate by patent exhaustion.

Section 3. Extension of License to Subsidiaries

3.1 The license grant herein includes all TI SUBSIDIARIES and TI affiliates. The license grant herein also includes the right of TI to sublicense its Subsidiaries and affiliates in any instance where required by local law to perfect the license provided in the foregoing of this Article 3.1. Any license or sublicense granted to a Subsidiary shall terminate on the date such Subsidiary ceases to be a Subsidiary or upon termination of the licenses granted in this Agreement, whichever occurs earlier. TI shall be liable for any breach of this Agreement by any of its affiliates or Subsidiaries, to the same extent that TI would be liable if TI committed the breach.

Section 4. Immunities

Provided that there has been no uncured material breach of this Agreement, including without limitation the licenses granted hereunder, IHTC on behalf of its respective Subsidiaries and affiliates and TI on behalf of its respective Subsidiaries and affiliates ("parties hereunder"), each hereby covenant not to sue and agree not to assert any patent, US or foreign for the term of this Agreement, and/or any extensions or renewals thereof, against another party hereunder, or its Subsidiaries or affiliates, or against any party acquiring product directly or indirectly from a party hereunder for any claim of patent infringement.

Section 5. Royalty

5.1 TI shall pay to IHTC royalties of (i) 1% of TI's Selling Price of each Licensed Product which is not a General Purpose Microprocessor, and (ii) 3% of TI's Selling Price of each Licensed Product which is a General Purpose Microprocessor. The royalties specified in (i) and (ii) shall be due for sales and installations of Licensed Products occurring (a) prior to the Effective Date and (b) during the Term of this Agreement.

5.2 TI may elect to extend the term of this Agreement through June 30, 2013 by the payment of the royalties specified in Section 5.1 to IHTC in one lump sum payment made on or before November 1, 2003. In consideration of the mutual covenants specified in Section 4.1, Section 5.1 and Section 8, the parties agree that the net present value of royalties for projected future sales of Licensed Product through June 30, 2013 to be paid by TI under Section 5.1 shall be $18 Million. IHTC agrees that TI's entire royalty obligation to IHTC under this Agreement shall be completely discharged upon said lump sum payment of $18 Million being received by IHTC on or before November 1, 2003.

5.3 All amounts paid in accordance with this Agreement are nonrefundable, even if the validity, scope, or enforceability of any IHTC or TI patent is subsequently challenged and deemed to be held invalid, of narrower scope, or unenforceable.

Section 6. Accruals, Records and Reports

6.1 Royalties shall accrue when a Licensed Product with respect to which royalty payments are required by this Agreement is first sold or otherwise transferred.

6.2 A quarterly accounting period shall end on the last day of each calendar quarter during the term of this Agreement. Within thirty (30) days after the end of each such period TI shall furnish to IHTC a written report containing the information specified in Section 6.4 and pay to IHTC all unpaid royalties accrued hereunder to the end of each such period.

6.3 TI shall pay all royalties and other payments due hereunder in United States dollars. All royalties for an accounting period computed in other currencies shall be converted into United States dollars at the TTS (telegraphic transfer selling) rate of Citibank N.A., New York, at the close of banking on the last day of such accounting period (or the first business day thereafter if such last day shall be a non‑business day).

6.4 TI's quarterly report shall be certified by an officer of TI or a designee of such person and shall contain the following information:

(a) identification by model number (or any combination of numbers, letters or words utilized by TI to identify a particular type or model of Licensed Product), quantity and description of each Licensed Product upon which royalty has accrued pursuant to Section 6.1; and

(b) in the event that Subsection (a) does not apply, TI shall so state. In the event no royalties are due, TI's report shall so state.

For IHTC's review in order to confirm TI's compliance with this Section 6, upon written request by IHTC, TI agrees to promptly provide to IHTC a copy of each publicly available manual (including, but not limited to, service, use and other technical manuals) relevant to Licensed Products. For IHTC's review in order to confirm TI's compliance with this Section 6, upon written request by IHTC, TI will sell, lease or license, as applicable under its standard terms and conditions and provided no restriction on such sales exists in its agreement with its customers, and promptly deliver to IHTC a sample of any Licensed Product which is offered for sale, lease or license by TI and identified by IHTC in its request.

6.5 TI shall keep records in sufficient detail to permit the determination of royalties and other amounts payable hereunder and at the request and expense of IHTC will permit an independent auditor selected by IHTC and approved by TI (such approval shall not be unreasonably withheld), or any other person acceptable to both IHTC and TI, to examine, during ordinary business hours once in each calendar year, such records and other materials as may be required by the auditor to verify or determine royalties paid or payable under this Agreement. Such auditor or other person shall be instructed to report to IHTC only the amount of royalties and other amounts due and payable. The obligation to keep such records for the above examination shall terminate after three (3) years from TI's submission of corresponding report.

6.6 All taxes imposed as a result of the existence of this Agreement, or the performance hereunder, shall be paid by the party required to do so by applicable law.

6.7 In the event that TI has elected to extend the term of this Agreement, pursuant to Section 5.2, upon the payment of the royalty payment as provided by Section 5.2, TI shall be relieved of any and all obligations otherwise created by this Agreement to keep any records or make any reports concerning the determination of royalties payable hereunder.

Section 7. Term of Agreement and Termination

7.1 Unless otherwise extended pursuant to Section 5.2, the term of this Agreement shall be from the Effective Date hereof until the five (5) year anniversary of the Effective Date ("Term").

7.2 If TI shall fail to pay royalties, as required, and such failure is not cured, and any interest due paid, within sixty (60) days after written notice from IHTC to TI specifying the nature of such failure, IHTC shall have the right to terminate this Agreement, and the licenses and immunities granted to both parties hereunder, by giving written notice to TI, and such termination shall be effective on the fifteenth day after the giving of such notice.

7.3 In the event this Agreement or the licenses and immunities granted hereunder, in whole or as to any specified patent or claim, shall be terminated pursuant to this Section 7, the corresponding licenses and sublicenses granted to Subsidiaries and affiliates of TI pursuant to Section 3 shall likewise terminate, but no notices need be given by IHTC to such Subsidiaries or affiliates.

7.4 No termination pursuant to this Section 7, or any other provisions of this Agreement shall relieve TI of any obligation or liability accrued hereunder prior to such termination, or rescind or give rise to any right to rescind anything done by TI or any payments made or other consideration given to IHTC hereunder prior to the time such termination becomes effective, and such termination shall not affect in any manner any rights of IHTC arising under this Agreement prior to such termination.

7.5 A party hereto may terminate this Agreement upon sixty (60) days written notice of termination to the other party given at any time upon or after:

(a) the filing by the other party of a petition in bankruptcy or insolvency;

(b) any adjudication that the other party is bankrupt or insolvent;

(c) the filing by the other party of any petition or answer seeking reorganization, readjustment or arrangement of its business under any law relating to bankruptcy or insolvency;

(d) the appointment of a receiver for all or substantially all of the property of the other party;

(e) the making by the other party of any assignment for the benefit of creditors;

(f) the institution of any proceedings for the liquidation or winding up of the other party's business or for the termination of its corporate charter;

(g) (i) the sale, assignment or other transfer to any third party of majority ownership in such other party or of all or substantially all of the assets or business of such other party, or (ii) any change in control of such other party; or

(h) the other party's consolidating with or merging with or into a third party in a transaction where the other party is not the surviving entity.

In the event of such termination, the rights, licenses and immunities granted to the terminated party shall immediately terminate, but the rights, licenses and immunities granted to the other shall survive such termination of this Agreement subject to its continued compliance with the terms and conditions of this Agreement.

7.6 If a party or its affiliate acquire another entity ("Acquired Entity") wherein more than fifty percent of the outstanding shares or securities, representing the right to vote for the election of directors or other managing authority becomes owned or controlled directly or indirectly by such party, the grants granted to such party shall be no broader than that which exists just prior to such acquisition and no licenses or rights shall extend to the Acquired Entity, except that in any instance where either party acquires another entity, the rights and licenses hereunder shall be extended to such Acquired Entity and its assets but only as to activities and products sold by the Acquired Entity or its assets occurring after the date of the acquisition.

Section 8. Additional Releases and Immunity Rights

8.1 IHTC Release. In further consideration of the payment hereunder from TI, IHTC, on behalf of itself, its affiliates and its Subsidiaries, hereby releases, acquits and forever discharges TI, and its Subsidiaries and affiliates from any and all claims or liability with respect to performance of acts by TI, its affiliates and its SUBSIDIARIES, prior to the Effective Date which, had they been performed on or after the Effective Date, would have been licensed or subject to the immunities hereunder.

8.2 TI Release. TI, on behalf of itself and its Subsidiaries, hereby releases, acquits and forever discharges IHTC, its affiliates, and its Subsidiaries, from any and all claims or liability with respect to performance of acts by IHTC, its affiliates and its SUBSIDIARIES prior to the Effective Date which, had they been performed on or after the Effective Date, would have been licensed or subject to the immunities hereunder.

8.3 The parties further agree to prepare, execute and file appropriate Motions to Dismiss in each of the parties' current patent litigation matters pending in the U.S. District Court for the Eastern District of Texas, styled Civil Action No. 2-03CV-115-TJW, Civil Action No. 3:03CV21-LD, and Civil Action No. 2-03-CV-034-Folsom.

Section 9. Warranty

9.1 IHTC and TI each represent and warrant that each has the full right and power to grant the license and immunities respectively set forth in this Agreement and that there are no outstanding agreements, assignments, or encumbrances inconsistent with the provisions of the license and immunities or with any other provisions of this Agreement.

Section 10. Communications

10.1 Payment shall be made by electronic funds transfer. Payment(s) shall be deemed to be made on the date of electronic funds transfer. The addresses are as follows:

Unless otherwise directed, for electronic funds transfers of payments:

                        Intergraph Hardware Technologies Company
                        Wells Fargo Bank
                        420 Montgomery St.
                        San Francisco, CA 94104
                        Account of: Intergraph Hardware Technologies Company Acct #: [redacted]
                        ABA (routing) #: [redacted]

10.2 All notices, including notices changing addresses, required or permitted to be given hereunder shall be in writing and shall be delivered by hand, or dispatched by prepaid air courier or by registered or certified airmail, postage prepaid, addressed as follows:

If to IHTC:

                        Intergraph Hardware Technologies Company
                        2325-B Renaissance Drive, Suite 16
                        Las Vegas, Nevada 89119

with a copy to:

                        Intergraph Corporation
                        Legal Department, MS/IW2008
                        Huntsville, Alabama 35894-0001
                        Attn: General Counsel

If to TI:

                        Texas Instruments Incorporated
                        Attention:  General Patent Counsel
                        7839 Churchill Way, MS 3999
                        Dallas, Texas 75251

with a copy to:

                        General Counsel
                        Texas Instruments Incorporated
                        12500 TI Boulevard
                        Dallas, Texas 75243

Such notices shall be deemed to have been served when received by addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery. Either party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party as above provided as such changed address.

Section 11. Assignments

11.1 IHTC shall not assign or grant any right under any of its Licensed Patents unless such assignment or grant is made subject to the terms and conditions of this Agreement. TI shall not assign or grant any right under this Agreement to a third party, and any attempted assignment or grant in derogation of the foregoing shall be null and void. IHTC shall have the right to assign this Agreement to Intergraph Corporation.

Section 12. Applicable Law

12.1 This Agreement shall be construed, and the legal relations between the parties hereto shall be determined, in accordance with the law of the State of Delaware.

Section 13. Miscellaneous

13.1 Nothing contained in this Agreement shall be construed as conferring on either party any license or other right to copy the exterior design of the products of the other party.

13.2 Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity, or other promotional activities any name, trade name, trademark or other designation of either party hereto (including any contraction, abbreviation or simulation of any of the foregoing).

13.3 Nothing contained in this Agreement shall be construed as limiting the rights which the parties have outside the scope of this Agreement.

13.4 Neither party nor any of its Subsidiaries shall be required hereunder to file any patent application, or to secure any patent or patent rights, or to maintain any patent in force, or to provide copies of patent applications to the other party or its Subsidiaries, or to disclose any inventions described or claimed in such patent applications.

13.5 IHTC shall not have any obligation hereunder to institute any action or suit against third parties for infringement of any Licensed Patents or to defend any action or suit brought by a third party which challenges or concerns the validity of any Licensed Patents. TI shall not have any right to institute any action or suit against third parties for infringement of any Licensed Patents.

13.6 This Agreement will not be binding upon the parties until it has been signed below by or on behalf of each party, in which event it shall be effective as of the Effective Date first above written. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed. This Agreement embodies the entire understanding of the parties with respect to the subject matter hereof and merges all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to the subject matter hereof other than as expressly provided herein.

13.7 The headings of the several Sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

13.8 If any provision of this Agreement is found by competent authority to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remainder of this Agreement shall continue in effect unless to do so would substantially frustrate the purposes of this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly signed as of the date written below.

TEXAS INSTRUMENTS INTERGRAPH HARDWARE
INCORPORATED TECHNOLOGIES COMPANY

By__/s/ Jay C. Johnson_____________ ___/s/_David R. Hancock_________

____Jay C. Johnson______________ ______David R. Hancock________
Name Printed Name Printed

Date__September 9, 2003__________ ___ September 9, 2003 ______

EX-31 5 exhibit31-1_wise.htm SEC 302 CERTIFICATION - WISE Wise 302 Certification Exhibit 31.1

CERTIFICATIONS

I, R. Halsey Wise, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Intergraph Corporation;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2003
			/s/ R. Halsey Wise
			R. Halsey Wise
			Chief Executive Officer

EX-31 6 exhibit31-2_laster.htm SEC 302 CERTIFICATION - LASTER Laster 302 Certification Exhibit 31.2

CERTIFICATIONS

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 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 report;
3.	Based on my knowledge, the financial statements and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2003
			/s/ Larry J. Laster
			Larry J. Laster
			Executive Vice President and Chief Financial Officer

EX-32 7 exhibit32-1_wise.htm SEC 906 CERTIFICATION - WISE Wise 906 Certification - Exhibit 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Intergraph Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Halsey Wise, Chief Executive Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

                                                                                                          By: /s/ R. Halsey Wise
                                                                                                          Name: R. Halsey Wise
                                                                                                          Title: Chief Executive Officer
                                                                                                          Date: November 13, 2003

EX-32 8 exhibit32-2_laster.htm SEC 906 CERTIFICATION - LASTER Wise 906 Certification - Exhibit 32.1

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Intergraph Corporation (the "Company") on Form 10-Q for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Larry J. Laster, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

                                                                                                          By: /s/ Larry J. Laster
                                                                                                          Name: Larry J. Laster
                                                                                                          Title: Executive Vice President and Chief Financial Officer
                                                                                                          Date: November 13, 2003