Intergraph Corporation 10-Q for quarter ended June 30, 2005

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 June 30, 2005

[ ] 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 (State or other jurisdiction of incorporation or organization)	63-0573222 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: 28,768,212 shares
outstanding as of July 31, 2005

INTERGRAPH CORPORATION
FORM 10-Q*
June 30, 2005

INDEX


			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Unaudited Financial Statements

	Consolidated Balance Sheets at June 30, 2005, and December 31, 2004		2

	Consolidated Statements of Income for the quarters and six months ended June 30, 2005, and 2004		3

	Consolidated Statements of Cash Flows for the six months ended June 30, 2005, and 2004		4

	Notes to Consolidated Financial Statements		5 - 15

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15 - 23

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23 - 24

	Item 4.	Controls and Procedures	24


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24 - 25

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25 - 26

	Item 4.	Submission of Matters to a Vote of Security Holders	26

	Item 6.	Exhibits	27


SIGNATURES			28

* 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.

Intergraph is a registered trademark of Intergraph Corporation. All other marks referenced herein are the property of referenced party.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30,
2005

December 31,
2004

(In thousands, except share and per share amounts)

Assets

Cash and cash equivalents

212,816

224,978

Short-term investments

73,035

67,457

Accounts receivable, net

146,257

155,160

Inventories, net

26,299

22,253

Receivables from IP-related litigation

551

50,409

Other current assets

33,356

33,641

Total current assets

492,314

553,898

Investments

9,499

9,499

Capitalized software development costs, net

24,314

26,201

Other assets, net

7,108

10,314

Property, plant, and equipment, net

49,320

50,628

Total Assets

582,555

650,540

Liabilities and Shareholders' Equity

Trade accounts payable

14,688

20,915

Accrued compensation

35,868

40,142

Other accrued expenses

36,250

42,495

Billings in excess of sales

49,075

58,263

Income taxes payable

47,964

22,680

Short-term debt

429

314

Total current liabilities

184,274

184,809

Deferred income taxes

14,475

15,320

Long-term debt

656

874

Other noncurrent liabilities

251

275

Total noncurrent liabilities

15,382

16,469

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

188,049

195,709

Deferred compensation

(13,193)

(6,054)

Retained earnings

856,749

767,280

Accumulated other comprehensive income

10,586

18,341

1,047,927

981,012

Less - cost of treasury shares (28,663,807 at June 30, 2005,
and 24,248,359 at December 31, 2004)

(665,028)

(531,750)

Total shareholders' equity

382,899

449,262

Total Liabilities and Shareholders' Equity

582,555

650,540

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

INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			*Quarter Ended June 30,*					*Six Months Ended June 30,*
			*2005*			2004		*2005*		2004

(In thousands, except per share amounts)

*Revenues*
	Systems		$	75,370	$	71,752	$	144,380	$	141,487
	Maintenance		38,087			34,587		74,587		67,588
	Services		31,898			31,624		62,876		61,173

		*Total revenues*	145,355			137,963		281,843		270,248


*Cost of revenues*
	Systems		37,144			35,888		70,215		70,226
	Maintenance		10,702			10,578		21,664		21,056
	Services		23,104			21,943		45,907		42,970

		*Total cost of revenues*	70,950			68,409		137,786		134,252


		*Gross profit*	74,405			69,554		144,057		135,996

*Operating expenses*
	Product development		15,201			14,483		30,200		29,047
	Sales and marketing		31,712			28,174		62,088		54,212
	General and administrative		15,717			17,746		32,403		35,207
	Restructuring charges		1,984			---		3,678		826

		*Total operating expenses*	64,614			60,403		128,369		119,292


		*Income from operations*	9,791			9,151		15,688		16,704

Intellectual property income (expense), net			(584)			7,981		127,256		211,041
Interest income			1,791			1,068		3,764		1,949
Other income (expense), net			(239)			(504)		(439)		568


		*Income before income taxes*	10,759			17,696		146,269		230,262

Income tax expense			(3,220)			(2,800)		(56,800)		(79,800)


		*Net income*	$	7,539	$	14,896	$	89,469	$	150,462




Net income per share - basic			$	0.27	$	0.41	$	2.93	$	4.13
		- diluted	$	0.25	$	0.39	$	2.79	$	3.96



Weighted average shares outstanding - basic			28,364			36,588		30,573		36,428
		- diluted	30,003			38,130		32,028		37,988

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

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


*Six Months Ended June 30,*				*2005*		2004

(In thousands)

Cash Provided By (Used For): Operating Activities:
	Net income		$	89,469	$	150,462
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		4,223		4,250
		Amortization		8,321		10,094
		Non-cash portion of restructuring charges		836		2
		Provisions for losses on accounts receivable		767		871
		Income taxes payable		25,198		34,063
		Noncurrent portion of deferred taxes		(832)		(1,099)
		Receivables from IP-related litigation		49,858		(105,165)
		Net changes in other assets and liabilities		(20,513)		2,203

		*Net cash provided by operating activities*		157,327		95,681


*Investing Activities:*
	Net proceeds from sales of assets			436		8,498
	Purchases of property, plant, and equipment			(3,851)		(3,955)
	Purchases of short-term investments			(87,750)		(176,625)
	Proceeds from maturities of short-term investments			82,172		108,920
	Capitalized software development costs			(4,744)		(5,331)
	Business acquisitions, net of cash acquired			(1,192)		(1,326)
	Other			951		(1,723)

		*Net cash used for investing activities*		(13,978)		(71,542)


*Financing Activities:*
	Debt repayment			(103)		---
	Treasury stock repurchases			(155,462)		(8,313)
	Proceeds of employee stock purchases and exercises of stock options			5,283		5,417

		*Net cash used for financing activities*		(150,282)		(2,896)

Effect of exchange rate changes on cash				(5,229)		(114)

Net increase (decrease) in cash and cash equivalents				(12,162)		21,129
Cash and cash equivalents at beginning of period				224,978		216,122

*Cash and cash equivalents at end of period*			$	212,816	$	237,251

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. All significant intercompany accounts and transactions have been eliminated in consolidation.

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, 2004 ("2004 Annual Report").

The operating results for the quarter ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The Company's operations are divided for operational and management purposes into two separate business units, Process, Power & Marine ("PP&M") and Security, Government & Infrastructure ("SG&I"), along with a Corporate oversight function ("Corporate"). See Note 13 of Notes to Consolidated Financial Statements contained in this Form 10-Q ("Notes to Consolidated Financial Statements") for a description of these business units.

Certain reclassifications have been made to the prior-year amounts to provide comparability with the current-year presentation.

NOTE 2 - STOCK-BASED COMPENSATION

The Company maintains a stock purchase plan and a fixed equity incentive plan for the benefit of its employees and directors. Under the stock purchase plan, employees may purchase the Company's stock at 85% of the closing market price as of the last pay date of each calendar month. No compensation expense is recognized for the difference in price paid by employees and the fair market value of the Company's stock at the date of purchase.

Under the fixed equity incentive plan, stock options, restricted stock awards, and restricted stock units ("RSUs") may be granted and issued to employees and directors. Stock options may be granted at exercise prices that are equal to or greater than the fair market value of the Company's stock on the date of grant, depending on the terms of the plan. Compensation expense for stock options, equal to the difference in exercise price and fair market value on the date of grant, would be recognized over the vesting period for options if granted at less than fair market value. Restricted stock awards are issued at the fair market value of the stock on the date of grant. Compensation expense for restricted stock awards and RSUs, equal to the fair market value of the stock on the date of grant, is recognized over the applicable vesting period.

For the quarters ended June 30, 2005, and 2004, the Company issued 18,813 and 23,678 shares of restricted stock, respectively. For the quarter ended June 30, 2004, the Company also issued 990 RSUs. The total of all restricted stock and RSUs issued as of June 30, 2005, was 712,591 shares and 990 RSUs. The value at issuance of the restricted stock and RSUs is being amortized over periods from one to four years. The amortization expense for the quarters ended June 30, 2005, and 2004, was $1.3 million and $463,000, respectively. The amortization expense for the year-to-date period ended June 30, 2005, and 2004, was $2.1 million and $679,000, respectively.

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 ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for its stock-based plans. Accordingly, the Company has recognized no compensation expense for these plans during the quarters ended June 30, 2005, and 2004. 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 No. 123, the Company's reported net income and income per share for these periods would have been impacted as indicated below. The effects of applying SFAS No. 123 on a pro forma basis for the quarters and year-to-date ended June 30, 2005, and 2004, are not likely to be representative of the effects on reported pro forma net income for future years as options vest over several years and it is possible that additional equity grants will be made in future years.


		*Quarter Ended June 30,*		*Six Months Ended June 30,*
		*2005*	2004	*2005*	2004

(In thousands, except per share amounts)

Net income	As reported	$7,539	$14,896	$89,469	$150,462
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards (net of income tax)		(298)	(359)	(650)	(718)

	Pro forma	$7,241	$14,537	$88,819	$149,744

Basic income per share	As reported	$ 0.27	$ 0.41	$ 2.93	$ 4.13
	Pro forma	$ 0.26	$ 0.40	$ 2.91	$ 4.11

Diluted income per share	As reported	$ 0.25	$ 0.39	$ 2.79	$ 3.96
	Pro forma	$ 0.24	$ 0.38	$ 2.77	$ 3.94

In December 2004, the Financial Accounting Standards Board ("FASB") revised SFAS No. 123 ("SFAS No. 123(R)"), which established the fair-value-based method of accounting as preferable for share-based compensation awarded to employees and encouraged, but did not require entities to adopt it until July 1, 2005. On April 14, 2005, the Securities and Exchange Commission ("SEC") announced that it would provide for a phased-in implementation process that allowed non-small business registrants with a fiscal year ended December 31, 2005, an extension until January 1, 2006, to adopt Statement 123(R). SFAS No. 123(R) eliminates the alternative to use APB Opinion No. 25, which allowed entities to account for share-based compensation arrangements with employees according to the intrinsic value method. SFAS No. 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. The Company plans to adopt SFAS No. 123(R) on January 1, 2006, requiring compensation cost to be recorded as expense for the portion of outstanding unvested awards, based on the grant date fair value of those awards. Based on unvested stock options currently outstanding and the expense that will be associated with the Employee Stock Purchase Plan, the effect of adopting SFAS No. 123(R) will reduce the Company's after tax earnings by approximately $618,000 in 2006.

NOTE 3 - INVENTORIES

Inventories at June 30, 2005, and December 31, 2004, are summarized as follows:


	June 30, 2005		December 31, 2004

(In thousands)

Raw materials	$	10,278	$	8,203
Work-in-process		8,408		6,027
Finished goods		4,896		3,941
Service spares		2,717		4,082

Totals	$	26,299	$	22,253

Inventories on hand at June 30, 2005, and December 31, 2004, relate primarily to continuing specialized hardware assembly activity in the Company's SG&I business unit, contracts accounted for under the percentage-of-completion method, and the Company's maintenance operations.

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 (which is greater than expected sales) 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 $3.3 million for both the second quarter of 2005 and 2004, and $6.6 million for both the first six months of 2005 and 2004. Amortization has remained essentially the same period to period as a result of the proportional activity in the development and expiration of capitalized software. See Note 5 of Notes to Consolidated Financial Statements 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, including patents and licenses (included in "Other assets, net" in the consolidated balance sheets).

At June 30, 2005, and December 31, 2004, the Company's intangible assets and related accumulated amortization consisted of the following:


		*June 30, 2005*						December 31, 2004

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

(In thousands)

Capitalized software development	$	69,427	$	(45,113)	$	24,314	$	64,683	$	(38,482)	$	26,201
Other intangible assets		38,946		(34,734)		4,212		50,808		(46,613)		4,195

Totals	$	108,373	$	(79,847)	$	28,526	$	115,491	$	(85,095)	$	30,396

The Company recorded amortization expense of $4.1 million and $5.1 million for second quarter 2005 and 2004, respectively, and $8.3 million and $10.1 million for first half of 2005 and 2004, respectively. Based on the current intangible assets subject to amortization, the estimated amortization expenses for the remainder of 2005, each of the succeeding five years, and thereafter is as follows: $8.0 million in 2005, $9.0 million in 2006, $4.0 million in 2007, $3.0 million in 2008, $3.0 million in 2009, $2.0 million in 2010, and none thereafter. The estimated amortization expenses do not include any amounts for capitalized software development costs incurred or any intangible assets added after June 30, 2005.

NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET

Property, plant, and equipment, net includes accumulated depreciation of approximately $92.4 million and $99.5 million at June 30, 2005, and December 31, 2004, respectively.

NOTE 7 - SUPPLEMENTARY CASH FLOW INFORMATION

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


*Six Months Ended June 30,*			*2005*		2004

(In thousands)

(Increase) decrease in:
	Accounts receivable, net	$	1,414	$	6,470
	Inventories, net		(4,285)		(3,286)
	Deferred tax assets		1,042		(186)
	Other assets and liabilities		59		1,017
Increase (decrease) in:
	Trade accounts payable		(4,572)		(6,488)
	Accrued compensation and other accrued expenses		(7,838)		(261)
	Refundable income taxes		134		866
	Billings in excess of sales		(6,467)		4,071

Net changes in other assets and liabilities		$	(20,513)	$	2,203

There were no significant non-cash investing and financing transactions in the six-month periods ended June 30, 2005, and 2004.

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 and the incremental shares from the presumed settlement of the Accelerated Stock Buyback ("ASB") contracts are the Company's common stock equivalents and are included in the calculation only if dilutive. For the quarters ended June 30, 2005, and 2004, these dilutive common stock equivalents were 1,640,000 and 1,542,000, respectively. For the six months ended June 30, 2005, and 2004, these dilutive shares were 1,455,000 and 1,560,000, respectively. For the quarter and year-to-date period ended June 30, 2005, there were, respectively, 487,000 and 245,000 shares from the presumed settlement of the March 2005 ASB that were included in the dilutive common stock equivalents referenced above. This ASB has a settlement date of March 21, 2006.

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 June 30,*		*Six Months Ended June 30,*
	*2005*	2004	*2005*	2004

(In thousands)

Net income	$7,539	$14,896	$89,469	$150,462
Unrealized holding gains (losses) arising during the period	(33)	210	(40)	237
Translation adjustment for financial statements denominated in a foreign currency	(4,047)	(163)	(7,715)	(2,489)

Comprehensive income	$3,459	$14,943	$81,714	$148,210

There was no income tax effect related to the items included in other comprehensive income for second quarter and year-to-date periods ended June 30, 2005, and 2004, respectively.

NOTE 10 - RESTRUCTURING CHARGES

In April 2005, the Company announced that as part of its business transformation efforts it was realigning its organizational structure and streamlining its global operations. These restructuring activities are expected to be completed by the end of second quarter 2006. The Company currently estimates that total restructuring charges for the organizational realignment will be between $6.5 million and $8.0 million, with total estimated costs for SG&I to be between $5.3 million and $6.0 million, for PP&M to be between $600,000 and $1.0 million, and for Corporate to be between $600,000 and $1.0 million. Total severance benefits are estimated between $6.0 million and $7.0 million and other associated costs are estimated between $500,000 and $1.0 million. In second quarter 2005, the Company recorded $2.0 million in restructuring costs related to the organizational realignment. Total restructuring costs reported for SG&I, PP&M, and Corporate were $1.1 million, $600,000, and $249,000, respectively. These expenses are reflected in "Restructuring charges" in the consolidated statements of income. Severance benefits totaled $1.8 million, and other associated costs, consisting of consulting fees, totaled $175,000. The following table sets forth a reconciliation of the restructuring charges for severance and other associated costs to the ending severance liability for this restructuring plan which is reflected in "Accrued compensation" in the Company's consolidated balance sheet. The liability balance at June 30, 2005, represents the remaining liabilities on employment contracts payable at various dates throughout 2005.


	*Severance*		Other Associated Costs		Total Restructuring

(In thousands)

Restructuring charges	$	1,809	$	175	$	1,984
Costs paid or otherwise settled - Q2 2005		(1,060)		(175)		(1,235)

Accrual balance, June 30, 2005	$	749	$	---	$	749

In first quarter 2005, the Company recorded $1.7 million in restructuring costs in SG&I and Corporate, for $1.0 million and $690,000, respectively, in an effort to align costs with revenues. These expenses are reflected in "Restructuring charges" in the consolidated statements of income. All restructuring activities were completed by March 31, 2005. Severance benefits totaled $1.6 million, and other associated costs, including legal and relocation, totaled $65,000. The following table sets forth a reconciliation of the ending liabilities for severance and other associated costs related to this restructuring plan, which are reflected in "Accrued compensation" and "Other accrued expenses" in the Company's consolidated balance sheets. The liability balances at June 30, 2005, represent the remaining liabilities on employment contracts, accrued legal fees, and relocation payable at various dates throughout 2005.


	*Severance*		Other Associated Costs		Total Restructuring

(In thousands)

Restructuring charges	$	1,629	$	65	$	1,694
Costs paid or otherwise settled - Q1 2005		(1,506)		(13)		(1,519)
Foreign currency exchange - Q1 2005		(6)		(1)		(7)

Accrual balance, March 31, 2005		117		51		168
Costs paid or otherwise settled - Q2 2005		(70)		(3)		(73)
Foreign currency exchange - Q2 2005		(4)		(4)		(8)

Accrual balance, June 30, 2005	$	43	$	44	$	87

In first quarter 2004, the Company recorded $826,000 in restructuring costs for employee severance and operating lease terminations in an effort to align costs with revenues primarily in the Company's PP&M business unit. These expenses are reflected in "Restructuring charges" in the consolidated statements of income. All restructuring activities were completed by March 31, 2004. Severance benefits totaled $819,000, and lease termination costs totaled $7,000. No accrued liability remains for these costs.

In fourth quarter 2003, the Company recorded $4.0 million in restructuring charges in an effort to align costs with revenues in certain areas of the Company's business. Corporate recorded $2.5 million in restructuring expenses for employee severance and operating lease terminations. SG&I recorded $1.5 million in restructuring expenses for employee severance. All restructuring activities were completed by December 31, 2003. Severance benefits totaled $2.9 million, lease termination costs totaled $1.0 million, and other associated costs were $23,000. The severance benefits and other associated costs were paid as of December 31, 2004. As of December 31, 2004, a liability for lease termination costs of $105,000 was included in "Other accrued expenses" in the Company's consolidated balance sheets. Total payments and foreign currency exchange in 2005 totaled $79,000 and $2,000, respectively, and as of June 30, 2005, a liability for lease termination costs of $24,000 is reflected in "Other accrued expenses" in the Company's consolidated balance sheets. This amount represents the remaining liability related to idle buildings in the U.S. and two European countries, payable at various dates through September 2005.

For additional information regarding the Company's restructuring activities in 2004 and 2003, see the Company's 2004 Annual Report.

NOTE 11 - INTELLECTUAL PROPERTY INCOME (EXPENSE), NET

In second quarter 2005, net intellectual property ("IP") expense of $584,000 included $309,000 in royalty income from Gateway Inc. ("Gateway"), offset by $893,000 in legal fees and other related expenses associated with patent enforcement. In second quarter 2004, net IP income of $8.0 million included $20.0 million in income from the Company's settlements with Advanced Micro Devices ("AMD") and Gateway, as well as $165,000 in royalty income from Gateway. This was offset by $12.2 million in legal fees and other related expenses associated with patent litigation.

For the first six months of 2005, net IP income was $127.3 million. This included $141.1 million in income from a settlement agreement with Hewlett-Packard Co. ("HP") and $551,000 in royalties from Gateway. Year-to-date legal fees and patent litigation expenses were $14.4 million. For the first six months of 2004, net IP income was $211.0 million. This included $225.0 million in income from the Company's settlement with Intel Corporation ("Intel"), $10.0 million in income from the Company's settlement with AMD, $10.0 million from the Company's settlement with Gateway, and $165,000 in royalty income. Legal fees and patent litigation expenses were $34.1 million for the first half of 2004.

For additional information regarding litigation matters, see Note 16 of Notes to Consolidated Financial Statements and "Item I. Legal Proceedings" in Part II of this Form 10-Q.

NOTE 12 - SHORT-TERM INVESTMENTS

Short-term investments contain debt and marketable preferred equity securities classified as available-for-sale. The Company's short-term investments in certain market auction rate securities have maturity dates that can be several years away but have auction features that allow the holder to resell the securities on periodic auction dates that generally range from one to thirty-five days. The Company systematically and regularly sells these securities when the auction dates are reached and uses the proceeds of these investments in its operations within the operating cycle of one year. Therefore, the Company classifies these available-for-sale securities as current assets. The fair market value of debt and marketable preferred equity securities as of June 30, 2005, and December 31, 2004, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


*Available-for-sale securities*	*June 30, 2005*		December 31, 2004

(In thousands)

Due after one year through five years	$ 400	$ 400
Due after five years through ten years	5,295	300
Due after ten years	67,340	61,257

Total debt securities	73,035	61,957
Equity securities	---	5,500

Total short-term investments	$73,035	$67,457

NOTE 13 - SEGMENT REPORTING

The Company's current operations are divided into two business segments and a Corporate oversight function. The Company's reportable segments are strategic business units that are organized by the types of products sold and the specific markets served. The two segments are PP&M and SG&I. Each is discussed in further detail below.

PP&M provides integrated lifecycle software solutions for the design, construction, and operation of process and power plants, offshore rigs, and ships. This segment offers applications that span shipbuilding, plant design and visualization, materials procurement and management, plant operations, and engineering information management.

SG&I provides geospatial and location aware solutions focused primarily in the security, government, and infrastructure markets. SG&I solutions are deployed in: local, regional, federal, and national governments; transportation; utilities; communications; commercial remote sensing and photogrammetry; and military and intelligence. This segment provides professional services, specially developed software and hardware, and commercial off-the-shelf products to both government and commercial sectors.

The Corporate segment includes revenue and costs for Teranetix (an international 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, Corporate Marketing, the Board of Directors, internal and external audit, and other costs that are directly the result of Intergraph being a publicly held company.

The Company evaluates the performance of its business segments based on revenue and income (loss) from operations. The accounting policies of the reportable segments are consistent 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 2004 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 six months ended June 30, 2005, and 2004. The information in the table for 2004 has been reclassified to provide comparability with the current-year presentation.


		*Quarter Ended June 30,*		*Six Months Ended June 30,*
		*2005*	2004	*2005*	2004

(In thousands)

Revenues:
PP&M:
	Unaffiliated customers	$ 40,108	$ 34,838	$ 78,453	$ 67,506
	Intersegment revenues	368	322	740	700

		40,476	35,160	79,193	68,206

SG&I:
	Unaffiliated customers	103,936	100,281	200,509	197,290
	Intersegment revenues	1,069	922	2,151	1,848

		105,005	101,203	202,660	199,138

Corporate:
	Unaffiliated customers	1,311	2,844	2,881	5,452
	Intersegment revenues	75	304	148	537

		1,386	3,148	3,029	5,989

		146,867	139,511	284,882	273,333

Eliminations		(1,512)	(1,548)	(3,039)	(3,085)

Total Revenues		$145,355	$137,963	$281,843	$270,248




Operating income (loss):
PP&M		$ 7,390	$ 5,405	$ 13,733	$ 8,092
SG&I		7,009	10,514	12,807	19,748
Corporate		(4,608)	(6,768)	(10,852)	(11,136)
Eliminations		---	---	---	---

Total		$ 9,791	$ 9,151	$ 15,688	$ 16,704

Significant profit and loss items that were not allocated to the segments and not included in the analysis above include IP income and expense, interest income, and other income and expense, net. See Note 11 of Notes to Consolidated Financial Statements and Non-Operating Income and Expense in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for comparative detail 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.

On June 15, 2005, the Company increased its line of credit with Wells Fargo Bank from $6.0 million to $7.5 million. This line of credit is secured by 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. These letters of credit totaled $5.9 million at July 31, 2005, and $4.3 million at December 31, 2004, secured by $8.1 million and $5.9 million in securities, respectively.

In December 2004, FASB revised SFAS No. 123, "Accounting for Stock-Based Compensation," which established the fair-value-based method of accounting as preferable for share-based compensation awarded to employees and encouraged, but did not require entities to adopt it. SFAS No. 123(R) eliminates the alternative to use APB Opinion No. 25, "Accounting for Stock Issued to Employees," which allowed entities to account for share-based compensation arrangements with employees according to the intrinsic value method. SFAS No. 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. On April 14, 2005, the SEC announced that it would provide for a phased-in implementation process that allowed non-small business registrants with a fiscal year ended December 31, 2005, an extension until January 1, 2006, to adopt SFAS 123(R). The Company plans to adopt SFAS No. 123(R) as of January 1, 2006, requiring compensation cost to be recorded as expense for the portion of outstanding unvested awards, based on the grant date fair value of those awards. Based on unvested stock options currently outstanding and the expense that will be associated with the Employee Stock Purchase Plan, the effect of adopting SFAS No. 123(R) will reduce the Company's after tax earnings by approximately $618,000 in 2006.

In March 2005, FASB issued Interpretation ("FIN") No. 47 "Accounting for Conditional Asset Retirement Obligations," an interpretation of FASB Statement No. 143. FIN No. 47 clarifies that a conditional asset retirement obligation, as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005, with early adoption allowed. The Company does not expect the adoption of FIN No. 47 to have a material impact on the Company's consolidated results of operations or financial position.

In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which replaces APB Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS No. 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principal unless it is not practicable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Although the Company will continue to evaluate the application of SFAS No. 154, management does not currently believe adoption will have a material impact on the Company's consolidated results of operations or financial position.

The Company owns and maintains a number of registered patents and registered and unregistered copyrights, trademarks, and service marks. The patents and copyrights held by the Company are the principal means by which the Company preserves and protects the IP rights embodied in the Company's products. Similarly, trademark rights held by the Company are used to preserve and protect the reputation of the Company's registered and unregistered trademarks. The Company continuously evaluates various strategies for the protection of its IP. Such strategies are subject to known and unknown risks and uncertainties. Adverse developments with respect to the development of the Company's IP could materially adversely affect the Company's financial condition, results of operations, or prospects. The Company has sought to protect its IP by engaging in both licensing and litigation. The following is a discussion of developments related to the Company's IP enforcement activities.

Clipper System Patents "OEM" Litigation: On December 16, 2002, the Company filed a patent infringement action on the Company's Clipper system patents against Dell Inc. ("Dell"), Gateway, and HP in the U.S. District Court for the Eastern District of Texas. The Clipper system patents relate to memory management technology.

As previously reported, the Company reached settlements with all three OEM defendants (Dell and Gateway in 2004 and HP in first quarter 2005). Pursuant to the terms of each settlement, Dell, Gateway, and HP received a license to the Company's Clipper patents, and the patent infringement action against each of them was dismissed with prejudice.

In the first quarter of 2005, the Company announced that it had entered into a global settlement agreement covering all pending patent litigation with HP. Under the terms of the agreement, HP paid Intergraph $141.1 million. The terms provide for the dismissal of all pending legal actions between Intergraph and HP as well as cross-licenses to the other party's patent portfolio. The Company recorded $13.5 million of legal expenses against this settlement in first quarter 2005. At this time the Company has no pending patent litigation.

BSI Litigation: In December 2002, the Company filed an action in Madison County, Alabama, against Bentley Systems, Inc. ("BSI"), seeking the enforcement of an agreement and promissory note executed in conjunction with the sale of certain software product lines to BSI in 2000. Thereafter, BSI asserted counterclaims against the Company which alleged that the Company breached the parties' asset purchase agreement. The Alabama case was submitted to the trial court in April 2004. In early May 2004, the trial court ruled in favor of Intergraph on both Intergraph's claims as well as BSI's counterclaims. However, the judgment entered against BSI was less than the balance that the Company had carried on its books with regard to the BSI note. As a result, the Company took a charge of $354,000 for 2004. Thereafter, BSI appealed the court decision.

On June 24, 2005, the Alabama Supreme Court issued an opinion reversing the trial court decision and remanding the case for a retrial on the merits. Thereafter, BSI filed an Application for Rehearing with the Alabama Supreme Court, requesting the Court reconsider its opinion. BSI's request to the Alabama Supreme Court will likely take between 2-3 months to decide. Should the Supreme Court refuse to reconsider its prior opinion, the case will be remanded to the Circuit Court for Madison County, Alabama, which will likely result in a retrial in 8-12 months. The Company intends to vigorously pursue its claims against BSI and defend the claims asserted by BSI.

Other Litigation: 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 adverse developments in any of these proceedings could materially adversely affect the Company's results of operations, financial condition, or cash flows.

As industry standards proliferate, there is a possibility that the patents of others may become a significant factor in the Company's business. Technology is increasingly being patent-protected, and many companies, including Intergraph, are developing patents for technological innovations. It is unknown at the present time whether various patented software technology will be made generally available under licenses, or whether specific innovations will be held by their inventors and not made available to others. In many cases, it may be possible to employ software techniques that avoid the patents of others, but the possibility exists that some features needed to compete successfully in a particular segment of the software market may be unavailable or may require an unacceptably high cost via royalty arrangements. Patented techniques that become de facto industry standards are among those that may raise costs or may prevent the Company from competing successfully in particular markets.

An inability to protect the Company's copyrights, trademarks, and patents, or to obtain current technical information or any required patent rights of others through licensing or purchase, all of which are important to success in the markets in which the Company competes, could significantly reduce the Company's revenues and adversely affect its results of operations. See "Cautionary Note Regarding Forward-Looking Statements" in MD&A.

The Company recorded income tax expense of $3.2 million for the second quarter of 2005, compared to expense of $2.8 million for the second quarter of 2004. The Company had income before taxes of $10.8 million in the second quarter of 2005, compared to $17.7 million in the second quarter of 2004.

The Company recorded income tax expense of $56.8 million for the first six months of 2005, compared to expense of $79.8 million for the first six months of 2004. The Company had income before taxes of $146.3 million in the first six months of 2005, compared to $230.3 million in the first six months of 2004.

Income tax expense for the first six months of 2005 is attributable to taxes on IP income, U.S. operations, and individually profitable majority-owned subsidiaries, partially offset by net operating loss utilization and a one-time charge of $6.2 million of tax expense, on an estimated $31.5 million of foreign earnings to be repatriated under the American Jobs Creation Act of 2004 (the "Act").

Income tax expense for the first six months of 2004 is attributable to taxes on IP income, U.S. operations, and individually profitable majority-owned subsidiaries partially offset by net operating loss utilization. See "Income Taxes" in MD&A for further discussion of the Company's tax position.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q 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 and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act") including, but not limited to, the business outlook of Intergraph, financial guidance, including any projections about revenues, operating income levels, margins, market conditions, and the Company's organizational realignment and cost reduction efforts, and their anticipated impact on the Company and its business units or divisions; expectations regarding Intergraph's IP; expectations regarding future results and cash flows; settlement costs associated with the Company's ASB; information regarding the development, timing of introduction, and performance of new products; the Company's ability to win new orders and any statements of the plans, strategies, expectations and objectives of management for future operations. These forward-looking statements are subject to known and unknown risks and uncertainties (some of which are beyond the Company's control) that could cause actual results to differ materially and adversely from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the ability to attract or retain key personnel; adverse effects from our effort to protect our IP, or other potential litigation or patent enforcement efforts; the ability, timing, and costs (including the calculation of success and other fees) to enforce and protect the Company's IP rights; potential adverse outcomes in our efforts to improve our operating performance (including uncertainties with respect to the timing and magnitude of any expected improvements); potential adverse outcomes or consequences associated with the Company's organizational realignment; reductions in force; material changes with respect to our business, litigation, or the securities markets (including the market for Intergraph common stock and any adjustments relating to the ASB); risks associated with doing business internationally (including foreign currency fluctuations); worldwide political and economic conditions and changes; increased competition; rapid technological change; unanticipated changes in customer requirements; the ability to access the technology necessary to compete in the markets served; risks associated with various ongoing litigation proceedings; and other risks detailed in our press releases or in our annual, quarterly, or other filings with the SEC. Accordingly, you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, including this MD&A.

Intergraph is a pioneer of computer graphics software and services in the commercial and government sectors. Founded in 1969, the Company has delivered numerous innovations in interactive graphics solutions. Today, Intergraph is a leading global supplier of spatial information management software. Intergraph's core mission is to enable businesses and governments to make better and faster operational decisions, and through software and services, help its customers organize vast amounts of complex data into understandable visual representations. Intergraph's technology enables customers to create intelligent maps, manage assets and infrastructure, build and operate better plants and ships, and dispatch emergency services to those in need.

Over the past several years, the Company has taken significant measures to transform itself from a hardware provider to a company focused on software and services. These measures included extensive reductions in its workforce and the sale of several non-core business units and assets. In fourth quarter 1999, the Company exited the personal computer and generic server businesses, and in third quarter 2000 it ceased the development and design of most of its remaining hardware products. These actions contributed to the Company's return to profitability in 2001. The Company's profitability continued in 2002 and 2003 although income from operations as a percentage of revenues was less than 3% in each of these years. In 2004 operating income increased as a percentage of revenue to 6.2% as a result of a slight increase in revenue, higher gross margins, and expense reductions from restructuring initiatives.

The overall strategic goal in the next 6-18 months is the expansion of operating margin percentages (income from operations divided by revenue) to be more in line with its peers. While primarily focused on operating margins, management also monitors revenue, gross margins, and operating expenses for each business unit and the Company as a whole. The Company anticipates modest revenue growth for 2005. The Company believes any improvement in income from operations for 2005 will be due to slightly higher revenue, expense reductions as a result of the recent restructuring initiatives, and anticipated slight improvements in gross margins. The Company believes that its cost structure is still too high compared to its peers. The Company recorded restructuring charges of $2.0 million in second quarter 2005 as part of its business transformation efforts to realign its organizational structure and streamline its global operations. Year-to-date restructuring charges of $3.7 million also include $1.7 million from first quarter in an effort to further align costs with revenues in certain areas of the Company.

Revenue for the quarter was $145.4 million, an increase of 5.4% from the $138.0 million reported in the second quarter of 2004. The Company reported revenue of $281.8 million in the first half of 2005, a 4.3% increase from the $270.2 million reported in the first half of 2004. Operating income for the quarter was $9.8 million, or 6.7% of revenue, compared to $9.2 million, or 6.6% of revenue, reported in the second quarter of 2004. For the six months ended June 30, 2005, operating income was $15.7 million, or 5.6% of revenue, compared to $16.7 million, or 6.2% of revenue, reported in the same period of 2004. The Company reported restructuring charges of $2.0 million and $3.7 million in the second quarter and first half of 2005, respectively.

Net income for the quarter was $7.5 million, or $0.25 per diluted share, compared to $14.9 million, or $0.39 per diluted share, in the second quarter of 2004. Net income includes approximately ($400,000) and $5.1 million of after-tax IP (expense) income, net of all fees and expenses, in the second quarter of 2005 and 2004, respectively. For the six months ended June 30, 2005, net income was $89.5 million, or $2.79 per diluted share, compared to $150.5 million, or $3.96 per diluted share, for the same period of 2004. Net income includes $80.8 million and $134.0 million of after-tax IP income, net of all fees and expenses, in the first six months of 2005 and 2004, respectively.

The Company owns various IP as a result of its research and design efforts, much of which was retained from operations previously exited by the Company. The IP is used in a variety of industries, including computers, consumer electronics, telecommunications, and electronics design. The Company has defended the value of its IP portfolio through licensing and litigation.

In the first quarter of 2005, the Company announced that it had entered into a global settlement agreement covering all pending patent litigation with HP. Under the terms of the agreement, HP paid Intergraph $141.1 million. The terms provide for the dismissal of all pending legal actions between Intergraph and HP as well as cross-licenses to the other party's patent portfolio. The settlement with HP resolved all of the Company's outstanding patent litigation for the first time in over seven years. While IP enforcement is inherently uncertain, Intergraph will continue to consider various strategies to protect and defend the Company's IP.

The Company completed a strategic planning process in late July 2004. The results of the process are intended to serve as the foundation for the Company's strategy as it pursues growth. The Company's strategy emphasizes leveraging its existing assets and capabilities, identifying and capitalizing on attractive market opportunities, exiting non-core businesses, and making prudent investments in new products and acquisitions. As a result of this planning process, the Company identified three positive themes in the business that the Company intends to leverage over the coming years and identified several challenges it must address.

First, the Company believes that Intergraph is more relevant today in the world than it was five years ago. The current global environment is characterized by heightened security concerns relating to terrorist activity. Intergraph can help its customers address these threats with its public safety first responder software solution, its location-based GeoSpatial software applications, and its integration capabilities and government contacts.

Second, the Company believes its core addressable market opportunities are growing and present the Company with opportunities to seek growth. The Company's strategy is to pursue opportunities in its markets through organic growth and investments in research and development. Also, the Company will consider acquiring companies or technologies, particularly within the public safety and plant design markets.

Third, the Company believes its customers recognize the commitment that the Company has made to the markets that its serves. As a result, the Company has customer relationships that in many cases span decades. The Company intends to leverage these durable customer relationships over the coming years by bringing additional products to market organically, as well as seeking to acquire companies and/or product offerings that have appeal to the Company's customer base.

The Company has also identified some areas for improvement. First, the Company believes it sells too little software for its current level of development spending. The Company believes the combination of this revenue mix and the difference in gross margins between software sales and services projects contributes to the Company's relatively lower operating performance. As part of its efforts to improve performance, the Company is seeking to increase the software related components of its revenue and to improve the efficiency of its research and development efforts by emphasizing expected returns, strategic importance, and innovation.

Second, the Company believes its former organizational structure of four separate business units impeded intercompany synergies and cross-selling. The Company believes that certain of its sales and marketing efforts were too business-unit focused and failed to take advantage of the complete set of capabilities that Intergraph has to offer to the marketplace. The Company is seeking to emphasize teamwork, productivity, and cross-selling among business units.

Third, the Company believes its general and administrative costs are too high given its goal to improve operating performance. As a result, the Company is reviewing its general and administrative processes in an effort to reduce costs. The Company's ability to execute its strategies and improve its operating results is subject to known and unknown risks and uncertainties.

On April 27, 2005, Intergraph committed to a plan realigning its organizational structure and streamlining its global operations from four to two business units - PP&M and the newly formed SG&I. During the second quarter of 2005, the Company consolidated its Marketing departments on a global basis, consolidated its U.S. Human Resources departments into a single unit, and consolidated its U.S. Accounting departments into a single unit.

SG&I consists of core operations that previously existed in Intergraph Mapping & Geospatial Solutions, Intergraph Solutions Group, and Intergraph Public Safety, Inc. The organizational realignment is intended to (1) improve the customer focus and responsiveness of the Company; (2) facilitate revenue growth by leveraging the Company's full range of technology and services; (3) enhance the Company's development capabilities and ability to deliver innovative solutions to its target markets; and (4) reduce the overall cost structure of the Company.

Intergraph expects the organizational realignment to be completed by the end of the second quarter of 2006. The Company plans to report restructuring charges over this time period for severance primarily due to eliminating redundant positions as part of the consolidation of divisions and functions. The Company now estimates that total restructuring charges will be in the range of $6.5 - $8.0 million. The Company estimates that substantially all of the restructuring charges will require the outlay of cash.

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 six months ended June 30, 2005, to the items disclosed as "Critical Accounting Policies" in MD&A in the Company's 2004 Annual Report.

Total revenues for second quarter 2005 were $145.4 million, 5.4% higher than second quarter 2004. Total revenues for first half 2005 were $281.8 million, an increase of 4.3% over 2004 levels.

Sales outside the United States represented approximately 51% of total revenues in first half 2005, up from 48% for first half 2004. European revenues were 32% of total revenues for first half 2005, up from 31% of total revenues for first half 2004. Asia Pacific revenues were 11% of total revenues for first half 2005, up from 9% of total revenues for first half 2004.

The Company reports revenues in three categories, consisting of systems, maintenance, and services revenues. The following discussions detail each of these revenue categories.

Systems: Systems revenues in second quarter 2005 were $75.4 million, up 5.0% from second quarter 2004. The increase in revenues for 2005 includes a weakening of the U.S. dollar for approximately $1.1 million and an increase of $1.4 million for the PP&M business unit from growth in its core plant design business. Systems revenues for first half 2005 were $144.4 million, up 2.0% from 2004 levels. The year-to-year increase in systems revenues includes an increase in sales of digital mapping cameras of $10.1 million, higher software and lease sales in the PP&M business unit of $3.9 million, and a weaker U.S. dollar for $2.4 million, offset by the completion of several large SG&I contracts of $15.7 million.

Maintenance: Maintenance revenues totaled $38.1 million in second quarter 2005, up 10.1% from second quarter 2004. The increase in revenues for 2005 includes contracts with new customers in the SG&I business unit of $1.6 million, an increase resulting from a weaker U.S. dollar of $1.3 million, and increases in the PP&M business unit of $1.1 million for new and renewed contracts, primarily in the PP&M international locations. Maintenance revenues for first half 2005 were $74.6 million, an increase of 10.4% from 2004 levels. The increase in revenues for 2005 includes an increase of $2.8 million from a weaker U.S. dollar against foreign currencies, an increase of $2.1 million on new product offerings in the SG&I business unit, increases of $1.5 million and $1.3 million for new contracts and contract renewals in the PP&M and SG&I business units, respectively.

Services: Services revenues, consisting of revenues from implementation, consulting, and training services, totaled $31.9 million for second quarter 2005, flat with second quarter 2004. Services revenues for first half 2005 were $62.9 million, up 2.8% from 2004 levels. The increase in year-to-date revenues for 2005 resulted from progress on and additions to existing contracts of $1.8 million, favorable currency impact from a weakening of the U.S. dollar of $1.5 million, and new international business resulting from a business acquisition in the PP&M business unit of $515,000, offset by a decline of $2.3 million in Corporate from the 2004 sale of the U.S. operations of Teranetix.

The Company's total gross margin for second quarter 2005 was 51.2%, up slightly from second quarter 2004 margin of 50.4%. Total gross margin for the first half 2005 was 51.1%, compared to 50.3% for the first half 2004.

Systems: Systems margin was 50.7% for second quarter 2005, relatively flat with second quarter 2004 margin of 50.0%. Systems margin for first half 2005 was 51.4%, up slightly from 50.4% for first half 2004. The improvement in year-to-date margins in 2005 includes less amortization expense in the PP&M business unit for fully amortized purchased software and higher leases and software sales in the PP&M business unit. In general, the Company believes its systems margins are improved by higher software content in the product mix, a weaker U.S. dollar in international markets, and less discounting. Conversely, systems margins are lowered by price competition, a higher services and third-party 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.


ISSUER PURCHASES OF EQUITY SECURITIES

*Period*	Total Number of Shares Purchased	Average Price Paid per Share (1)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($000)(3)

04/1/05 - 04/30/05	---	$ ---	---	$	100,000
05/1/05 - 05/31/05	---	---	---		95,461
06/1/05 - 06/30/05	1,297	29.72	1,297		95,422

Total second quarter	1,297	$29.72	1,297	$	95,422

	Votes

	For	Against/Withheld

Sidney L. McDonald	30,427,614	42,717
Michael D. Bills	30,431,890	38,441
Richard W. Cardin	30,431,849	38,482
Linda L. Green	30,435,158	35,173
Lawrence R. Greenwood	30,419,788	50,542
Larry J. Laster	30,000,067	470,263
Thomas J. Lee	30,434,310	36,021
Kevin M. Twomey	30,430,457	39,874
R. Halsey Wise	30,425,802	44,528

(a)	Exhibits

	Exhibit Number	Description

	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by R. Halsey Wise dated August 9, 2005

	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Larry J. Laster dated August 9, 2005

	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by R. Halsey Wise and Larry J. Laster dated August 9, 2005

INTERGRAPH CORPORATION (Registrant)



By:	/s/ R. Halsey Wise	By:	/s/ Larry J. Laster
	R. Halsey Wise President and Chief Executive Officer		Larry J. Laster Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date:	August 9, 2005	Date:	August 9, 2005

By:	/s/ Larry T. Miles
	Larry T. Miles Vice President and Corporate Controller (Chief Accounting Officer)

Date:	August 9, 2005