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UNITED STATES SECURITIES AND EXCHANGE COMMISSION   FORM 10-Q/A Amendment 2
 (Mark One) [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 OR [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to Commission file number 0-9722 INTERGRAPH CORPORATION 
  Delaware
    
    63-0573222(State or other jurisdiction of incorporation
    
    I.R.S. Employeror organization)
    
    Identification No.
 Huntsville, Alabama 35894-0001 
 
 (256) 730-2000 
  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: 36,516,049 shares
outstanding as of March 31, 2004




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INTERGRAPH CORPORATION Explanatory Note The purpose of this Amendment No.2 on Form 10-Q/A to the Quarterly Report on
Form 10-Q of Intergraph Corporation (the Company) for the quarter ended March
31, 2004 is to restate the Companys consolidated financial statements and
related disclosures, including the selected financial data included herein for
the year ended December 31, 2003 and as of the quarter ended March 31, 2004. Generally, no attempt has been made in this Amendment No. 2 to modify or update
other disclosures presented in the original report on Form 10-Q except as
required to reflect the effects of the restatement. This Form 10-Q/A generally
does not reflect events occurring after the filing of the Form 10-Q or modify
or update those disclosures affected by subsequent events. Information not
affected by the restatement is unchanged and reflects the disclosures made at
the time of the original filing of the Form 10-Q on May 10, 2004. Accordingly,
this Form 10-Q/A should be read in conjunction with the Companys filings made
subsequent to the filing of the original Form 10-Q, including any amendments to
those filings. The following items have been amended as a result of the
restatement:  
    
    Part I  Item 1  Financial Statements;  
    
    Part I  Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations;  
    
    Part I  Item 4  Controls and Procedures; and  
    
    Part II  Item 6  Exhibits and Reports on Form 8-K. Additional detail regarding the restatement is included in Note 17 of the Notes
to Consolidated Financial Statements included in Part I  Item 1 of this
Amendment No. 2 on Form 10-Q/A.        i




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INTERGRAPH CORPORATION
FORM 10-Q/A*
March 31, 2004 INDEX Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at March 31, 2004, and December 31, 2003
    
    
    2Consolidated Statements of Income for the quarters ended March 31, 2004, and 2003
    
    
    3Consolidated Statements of Cash Flows for the quarters ended March 31, 2004, and 2003
    
    
    4Notes to Consolidated Financial Statements
    
    
    5-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19-20Item 4. Controls and Procedures
    
    
    20-21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21-22Item 6. Exhibits and Reports on Form 8-K
    
    
    23SIGNATURES
    
    
    24EX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1  SECTION 906 CEO CERTIFICATIONEX-32.2  SECTION 906 CFO CERTIFICATION
  * Information contained in this Form 10-Q/A 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/A and
this Form 10-Q/A.




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements INTERGRAPH CORPORATION
AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
 March 31,
    
    December 31,2004
    
    2003(In thousands, except share and per share amounts)
    
    (restated)
    
    (restated)AssetsCash and cash equivalents
    
    $
    250,504
    
    
    $
    265,782Accounts receivable, net
    
    
    146,340
    
    
    
    150,927Inventories, net
    
    
    15,459
    
    
    
    15,443Current receivable, intellectual property settlement
    
    
    200,000
    
    
    
    Other current assets
    
    
    37,599
    
    
    
    37,673Total current assets
    
    
    649,902
    
    
    
    469,825Investments in affiliates
    
    
    9,499
    
    
    
    9,499Capitalized software development costs, net
    
    
    28,839
    
    
    
    29,520Noncurrent receivable, intellectual property settlement
    
    
    25,000
    
    
    
    Other assets, net
    
    
    12,504
    
    
    
    12,500Property, plant, and equipment, net
    
    
    51,845
    
    
    
    51,099Total Assets
    
    $
    777,589
    
    
    $
    572,443Liabilities and Shareholders EquityTrade accounts payable
    
    $
    17,249
    
    
    $
    23,052Accrued compensation
    
    
    32,565
    
    
    
    38,726Other accrued expenses
    
    
    49,672
    
    
    
    40,835Billings in excess of sales
    
    
    51,475
    
    
    
    49,970Income taxes payable
    
    
    98,235
    
    
    
    26,912Total current liabilities
    
    
    249,196
    
    
    
    179,495Deferred income taxes
    
    
    12,982
    
    
    
    13,465Other noncurrent liabilities
    
    
    1,669
    
    
    
    548Total noncurrent liabilities
    
    
    14,651
    
    
    
    14,013Shareholders equity:Common stock, par value $0.10 per share - 100,000,000
shares authorized; 57,361,362 shares issued
    
    
    5,736
    
    
    
    5,736Additional paid-in capital
    
    
    199,183
    
    
    
    201,240Deferred compensation
    
    
    (6,622
    )
    
    
    (1,552
    )Retained earnings
    
    
    743,874
    
    
    
    608,308Accumulated other comprehensive income
    
    
    10,491
    
    
    
    12,790952,662
    
    
    
    826,522Less - cost of treasury shares (20,845,313 at March 31, 2004,
and 21,259,223 at December 31, 2003)
    
    
    (438,920
    )
    
    
    (447,587
    )Total shareholders equity
    
    
    513,742
    
    
    
    378,935Total Liabilities and Shareholders Equity
    
    $
    777,589
    
    
    $
    572,443
 The accompanying notes are an integral part of these consolidated financial
statements. 2




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INTERGRAPH CORPORATION
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Quarter Ended March 31,
    
    2004
    
    2003(In thousands, except per share amounts)
    
    (restated)RevenuesSystems
    
    $
    69,735
    
    
    $
    70,406Maintenance
    
    
    33,001
    
    
    
    30,057Services
    
    
    29,549
    
    
    
    20,090Total revenues
    
    
    132,285
    
    
    
    120,553Cost of revenuesSystems
    
    
    34,338
    
    
    
    36,460Maintenance
    
    
    10,478
    
    
    
    12,296Services
    
    
    21,027
    
    
    
    15,196Total cost of revenues
    
    
    65,843
    
    
    
    63,952Gross profit
    
    
    66,442
    
    
    
    56,601Operating expensesProduct development
    
    
    14,564
    
    
    
    11,872Sales and marketing
    
    
    26,038
    
    
    
    24,677General and administrative
    
    
    17,461
    
    
    
    15,817Restructuring charges
    
    
    826
    
    
    
    Total operating expenses
    
    
    58,889
    
    
    
    52,366Income from operations
    
    
    7,553
    
    
    
    4,235Intellectual property income, net
    
    
    203,060
    
    
    
    5,330Gain on sale of assets
    
    
    
    
    
    
    1,220Interest income
    
    
    881
    
    
    
    1,923Other income (expense), net
    
    
    1,072
    
    
    
    (43
    )Income before income taxes
    
    
    212,566
    
    
    
    12,665Income tax expense
    
    
    (77,000
    )
    
    
    (4,550
    )Net income
    
    $
    135,566
    
    
    $
    8,115Net income per share  basic
    
    $
    3.74
    
    
    $
    0.18 diluted
    
    $
    3.58
    
    
    $
    0.17Weighted average shares outstanding  basic
    
    
    36,268
    
    
    
    46,200 diluted
    
    
    37,843
    
    
    
    48,408
 The accompanying notes are an integral part of these consolidated financial
statements. 3




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INTERGRAPH CORPORATION
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Quarter Ended March 31,
    
    2004
    
    2003(In thousands)
    
    (restated)Cash Provided By (Used For):Operating Activities:Net income
    
    $
    135,566
    
    
    $
    8,115Adjustments to reconcile net income to net cash
used for operating activities:Depreciation
    
    
    2,228
    
    
    
    2,018Amortization
    
    
    5,038
    
    
    
    3,706Provisions for losses on accounts receivable
    
    
    829
    
    
    
    334Noncurrent portion of deferred taxes
    
    
    (477
    )
    
    
    157Income taxes payable
    
    
    71,368
    
    
    
    (31,813
    )Gain on sale of assets
    
    
    
    
    
    
    (1,220
    )Current receivable, intellectual property settlements
    
    
    (200,000
    )
    
    
    (5,000
    )Noncurrent receivable, intellectual property settlement
    
    
    (25,000
    )
    
    
    Net changes in other assets and liabilities
    
    
    4,399
    
    
    
    892Net cash used for operating activities
    
    
    (6,049
    )
    
    
    (22,811
    )Investing Activities:Net proceeds from sales of assets
    
    
    125
    
    
    
    3,243Purchases of property, plant, and equipment
    
    
    (2,210
    )
    
    
    (2,172
    )Purchases of short-term investments
    
    
    
    
    
    
    (902
    )Proceeds from maturities of short-term investments
    
    
    
    
    
    
    15,991Capitalized software development costs
    
    
    (2,595
    )
    
    
    (2,909
    )Business acquisitions, net of cash acquired
    
    
    (600
    )
    
    
    (1,940
    )Other
    
    
    (1,821
    )
    
    
    (472
    )Net cash provided by (used for) investing activities
    
    
    (7,101
    )
    
    
    10,839Financing Activities:Borrowings
    
    
    
    
    
    
    31Debt repayment
    
    
    
    
    
    
    (200
    )Treasury stock repurchase and payment of tender offer expenses
    
    
    (1,866
    )
    
    
    (4,617
    )Proceeds of employee stock purchases and exercises of
stock options
    
    
    1,324
    
    
    
    1,421Net cash used for financing activities
    
    
    (542
    )
    
    
    (3,365
    )Effect of exchange rate changes on cash
    
    
    (1,586
    )
    
    
    (237
    )Net decrease in cash and cash equivalents
    
    
    (15,278
    )
    
    
    (15,574
    )Cash and cash equivalents at beginning of period
    
    
    265,782
    
    
    
    490,097Cash and cash equivalents at end of period
    
    $
    250,504
    
    
    $
    474,523
 The accompanying notes are an integral part of these consolidated financial
statements. 4




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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/A for the year ended December 31,
2003 (2003 Annual Report). The operating results for the quarter ended March 31, 2004, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. 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 of Notes to
Consolidated Financial Statements contained in this Form 10-Q/A 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. 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 option plans. Accordingly,
the Company recognized no compensation expense for these plans during the
quarters ended March 31, 2004, and 2003. 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 quarters
ended March 31, 2004, and 2003, 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 it is anticipated that additional grants will be made
in future years. 5




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Quarter Ended March 31,
    
    
    
    2004
    
    2003(In thousands, except per share amounts)
    
    
    
    (restated)Net income
    
    As reported
    
    $
    135,566
    
    
    $
    8,115Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards (net of income tax)
    
    
    
    
    (358
    )
    
    
    (324
    )Pro forma
    
    $
    135,208
    
    
    $
    7,791Basic income per share
    
    As reported
    
    $
    3.74
    
    
    $
    0.18Pro forma
    
    $
    3.73
    
    
    $
    0.17Diluted income per share

    
    As reported
    
    $
    3.58
    
    
    $
    0.17Pro forma
    
    $
    3.57
    
    
    $
    0.16
 For the quarter ended March 31, 2004, the Company issued 258,000 shares of
restricted stock, which was recorded at the quoted market price at the date of
grant. The total of all restricted stock issued as of March 31, 2004, was
333,000 shares. The cost of the restricted stock is being amortized over a
period of 4 years. The amortization expense for the quarter ended March 31,
2004, was $217,000. NOTE 3  INVENTORIES Inventories at March 31, 2004, and December 31, 2003, are summarized as
follows: March 31,
    
    December 31,2004
    
    2003(In thousands)Raw materials
    
    $
    4,986
    
    
    $
    6,295Work-in-process
    
    
    4,411
    
    
    
    3,538Finished goods
    
    
    3,294
    
    
    
    2,939Service spares
    
    
    2,768
    
    
    
    2,671Totals
    
    $
    15,459
    
    
    $
    15,443
 Inventories on hand at March 31, 2004, and December 31, 2003, 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 $3.3 million in first quarter 2004 compared
to $2 million in first quarter 2003. Due to net realizable value concerns, the
Company did not capitalize product development expenses of $2.9 million in
first quarter 2003 for costs otherwise eligible for capitalization. See Note 5
of Notes to Consolidated Financial Statements contained in this Form 10-Q/A for
further information regarding capitalized software development costs and
accumulated amortization. 6




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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 March 31, 2004, and December 31, 2003, the Companys intangible assets and
related accumulated amortization consisted of the following: March 31, 2004
    
    December 31, 2003Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    Amortization
    
    Net
    
    Gross
    
    Amortization
    
    Net(In thousands)Capitalized software
development
    
    $
    57,018
    
    
    $
    (28,179
    )
    
    $
    28,839
    
    
    $
    54,423
    
    
    $
    (24,903
    )
    
    $
    29,520Other intangible assets
    
    
    48,866
    
    
    
    (41,456
    )
    
    
    7,410
    
    
    
    48,011
    
    
    
    (39,694
    )
    
    
    8,317Totals
    
    $
    105,884
    
    
    $
    (69,635
    )
    
    $
    36,249
    
    
    $
    102,434
    
    
    $
    (64,597
    )
    
    $
    37,837
 The Company recorded amortization expense of $5 million and $3.7 million for
first quarter 2004 and 2003, respectively. Based on the current intangible
assets subject to amortization, the estimated amortization expenses for the
remainder of 2004, each of the succeeding five years, and thereafter is as
follows: $15 million in 2004, $8 million in 2005, $3 million in 2006, $3
million in 2007, $3 million in 2008, $3 million in 2009, and $1 million
thereafter. The estimated amortization expenses do not include any amounts for
capitalized software development costs incurred or any intangible assets added
after March 31, 2004. NOTE 6  PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment, net includes accumulated depreciation of
approximately $103.5 million and $102.2 million at March 31, 2004, and December
31, 2003, 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
used for operations are as follows: Quarter Ended March 31,
    
    2004
    
    2003(In thousands)
    
    (restated)(Increase) decrease in:Accounts receivable, net
    
    $
    2,080
    
    
    $
    2,988Inventories, net
    
    
    (943
    )
    
    
    1,290Other assets and liabilities
    
    
    2,103
    
    
    
    (791
    )Increase (decrease) in:Trade accounts payable
    
    
    (5,690
    )
    
    
    (1,393
    )Accrued compensation and other accrued expenses
    
    
    5,664
    
    
    
    (2,923
    )Refundable income taxes
    
    
    (874
    )
    
    
    (10
    )Billings in excess of sales
    
    
    2,059
    
    
    
    1,731Net changes in other assets and liabilities
    
    $
    4,399
    
    
    $
    892
 There were no significant non-cash investing and financing transactions in
first quarter 2004 or first quarter 2003. 7




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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 March 31, 2004,
and 2003, these dilutive common stock equivalents were 1,575,000 and 2,208,000,
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 March 31,
    
    2004
    
    2003(In thousands)
    
    (restated)Net income
    
    $
    135,566
    
    
    $
    8,115Unrealized holding gains (losses) arising
during the period
    
    
    27
    
    
    
    (1,026
    )Translation adjustment for financial statements
denominated in a foreign currency
    
    
    (2,328
    )
    
    
    293Comprehensive income
    
    $
    133,265
    
    
    $
    7,382
 There was no income tax effect related to the items included in other
comprehensive income for first quarter 2004. Unrealized holding gains (losses)
are shown net of $537,000 of income taxes for first quarter 2003. NOTE 10  RESTRUCTURING CHARGES In first quarter 2004, the Company recorded $826,000 in restructuring costs for
employee severance and operating lease terminations in an effort to realign
costs with revenues primarily in the Companys PPO business segment. These
expenses are reflected in Restructuring charges in the consolidated
statements of income. All restructuring activities were completed by March 31,
2004. One-time severance benefits totaled $819,000, of which $746,000 was paid
prior to March 31, 2004. Lease termination costs totaled $7,000, of which
$4,000 was paid prior to March 31, 2004. At March 31, 2004, the total
remaining accrued liability for 2004 restructuring was $73,000 and is reflected
in Other accrued expenses in the Companys consolidated balance sheets. In fourth quarter 2003, the Company recorded $4 million in restructuring
charges in an effort to realign costs with revenues in certain areas of the
Companys business. The Corporate business segment recorded $2.5 million in
restructuring expenses for employee severance and operating lease terminations.
The IMGS business segment recorded $1.5 million in restructuring expenses for
employee severance. All restructuring activities were completed by December
31, 2003. One-time severance benefits totaled $2.9 million, of which $432,000
was paid prior to December 31, 2003, and of which $1.7 million was paid in
first quarter 2004. Lease termination costs totaled $1 million, and other
associated costs were $23,000, of which $323,000 was paid in first quarter
2004. At March 31, 2004, the total remaining accrued liability for 2003
restructuring was $1.4 million compared to approximately $3.5 million at
December 31, 2003, and is reflected in Other accrued expenses in the
Companys consolidated balance sheets. In fourth quarter 2002, the Company record $2.1 million in restructuring
charges as a result of combining the Utilities and Communications business with
the IMGS division. Cash outlays related to these actions approximated $31,000
in first quarter 2004, and $1.1 million in first quarter 2003. At March 31,
2004, the total remaining accrued liability for restructuring was approximately
$90,000 compared to approximately $119,000 at December 31, 2003. These
liabilities are reflected in Other accrued expenses in the Companys
consolidated 8




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balance sheets. These accrued costs are expected to be paid during 2004 and
relate to liabilities for idle building space in Asia. For a complete discussion of the Companys restructuring activities in 2003 and
2002, see the Companys 2003 Annual Report. NOTE 11  INTELLECTUAL PROPERTY INCOME, NET In first quarter 2004, net intellectual property income of $203.1 million
included $225 million in income from the Companys settlement with Intel
Corporation (Intel) and Dell Inc. (Dell), offset by $21.9 million in
legal fees and other related expenses associated with patent litigation. A
payment of $125 million was received on April 5, 2004, and the balance will be
received in four quarterly installments over the following year. In first
quarter 2003, the Company recorded $10 million in income from International
Business Machines Corporation (IBM) as a balancing payment for future
royalties in a full cross-licensing agreement that also resolved all
outstanding patent infringement claims between IBM and the Company. A payment
of $5 million was received in first quarter 2003, and the remainder was
received in second quarter 2003. Netted against this income were $4.7 million
in legal fees and other related expenses associated with protecting and
licensing the Companys intellectual property. For a complete discussion of
litigation matters, see Note 16 of Notes to Consolidated Financial Statements
and Intellectual Property in the Managements Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) section contained in
this Form 10-Q/A. NOTE 12  GAIN ON SALE OF ASSETS In first quarter 2003, the Company reported a gain of $1.2 million from the
March 2003 sale of its aeronautical intellectual property assets to Ingegneria
Dei Sistemi S.p.A. in Rome, Italy. NOTE 13  SEGMENT REPORTING The Companys current operations are divided into four business segments along
with a Corporate oversight function. The four core business segments are PPO,
IMGS, ISG, and IPS. The Companys reportable segments are strategic business
units that are organized by the types of products sold and the specific markets
served. Each is discussed in further detail below. 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 operations, 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, Chief
Financial Officer, Treasurer, Strategic Planning, General Counsel, the Board of
Directors, internal and external audit, 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. 9




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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 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 2003
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 ended March 31, 2004, and 2003. Quarter Ended March 31,
    
    2004
    
    2003(In thousands)
    
    (restated)Revenues:PPO:Unaffiliated customers
    
    $
    32,668
    
    
    $
    29,795Intersegment revenues
    
    
    378
    
    
    
    71733,046
    
    
    
    30,512IMGS:Unaffiliated customers
    
    
    50,824
    
    
    
    45,120Intersegment revenues
    
    
    1,190
    
    
    
    1,64352,014
    
    
    
    46,763ISG:Unaffiliated customers
    
    
    29,620
    
    
    
    26,975Intersegment revenues
    
    
    475
    
    
    
    50230,095
    
    
    
    27,477IPS:Unaffiliated customers
    
    
    16,565
    
    
    
    15,983Intersegment revenues
    
    
    367
    
    
    
    54116,932
    
    
    
    16,524Corporate:Unaffiliated customers
    
    
    2,608
    
    
    
    2,680Intersegment revenues
    
    
    233
    
    
    
    7892,841
    
    
    
    3,469134,928
    
    
    
    124,745Eliminations
    
    
    (2,643
    )
    
    
    (4,192
    )Total Revenues
    
    $
    132,285
    
    
    $
    120,553Operating income (loss):PPO
    
    $
    2,687
    
    
    $
    4,169IMGS
    
    
    3,666
    
    
    
    186ISG
    
    
    3,831
    
    
    
    1,136IPS
    
    
    2,096
    
    
    
    3,469Corporate
    
    
    (4,727
    )
    
    
    (4,725
    )Eliminations
    
    
    
    
    
    
    Total
    
    $
    7,553
    
    
    $
    4,235
 Significant profit and loss items that were not allocated to the segments and
not included in the analysis above include intellectual property income and
expense and gains and losses on sales of assets. See Notes 11 and 12 of Notes
to Consolidated Financial Statements contained in this Form 10-Q/A for
comparative details of these items. 10




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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, in order to reduce the cost of issuing letters of credit,
the Company established a $12.5 million credit line with Wells Fargo Bank to
cover its outstanding letters of credit secured by $15 million of
interest-bearing securities. This credit line was reduced on January 20, 2004,
to $6 million secured by $8.2 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 $4.9 million at March 31, 2004, and December 31, 2003). NOTE 15  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities,
(revised December 2003), an interpretation of Accounting Research Bulletin 51,
Consolidation of Financial Statements, which addresses consolidation of
variable interest entities (VIEs) by business enterprises. This statement is
required in financial statements of public entities that have interests in VIEs
or potential VIEs commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities (other than
small business issuers) for all other types of entities is required in
financial statements for periods ending after March 15, 2004. Adoption of FIN
46 in first quarter 2004 did not result in the consolidation of any VIEs. In December 2003, FASB revised Statement of Financial Accounting Standards
(SFAS) No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits  an Amendment of FASB Statements No. 87, 88, and
106. This statement revises employers disclosures about pension plans and
other postretirement benefit plans to provide more information about pension
plan assets, obligations, benefit payments, contributions, and net benefit
cost. This statement retains the disclosures required by the originally issued
Statement 132 and requires further disclosures, including information
describing the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost
recognized during interim periods. SFAS No. 132 (revised 2003) is effective
for financial statements with fiscal years ending after December 15, 2003,
except for disclosure of information about foreign plans and disclosure of
estimated future benefit payments, which are effective for fiscal years ending
after June 15, 2004. NOTE 16  LITIGATION As further described in the Companys 2003 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 2004 developments for patent and other litigation. Litigation is
subject to known and unknown risks and uncertainties. See Cautionary Note
Regarding Forward-Looking Statements in MD&A for further discussion of these
risks and uncertainties. Intel Litigation:On July 29, 2001, the Company filed a patent infringement
case against Intel in the U.S. District Court for the Eastern District of Texas
(the Texas case). The Texas case pertained to the Companys parallel
instruction computing (PIC) patents and went to trial on July 2, 2002. On March 29, 2004, the Company resolved its dispute with Intel regarding its
PIC patents, and both parties agreed to dismiss all outstanding patent
infringement claims and lawsuits against each other. Per the terms of the
settlement agreement, Intel paid the Company $125 million on April 5, 2004, and
will pay an additional $100 million in four quarterly installments over the
following year. In addition, the Company will grant Dell certain licenses to
its patents and has agreed to dismiss its separate pending litigation against
Dell in the OEM case. OEM Litigation:On December 16, 2002, the Company filed a patent infringement
action against Dell, Gateway Inc. (Gateway) and Hewlett-Packard
Co./Compaq (HP) in the U.S. District Court for the Eastern District 11




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of Texas. The Companys complaint alleges that products from the
three computer vendors infringe U.S. Patent Numbers 4,899,275 and 4,933,835 and
5,091,846. These computer system-level patents relate to memory management
technology. The OEM action seeks an unspecified amount of damages for past
infringement from the OEM defendants. The OEMs have asserted various defenses,
pre-trial motions and countersuits against the Company. Per the terms of the March 29, 2004 settlement agreement with Intel, the
Company dismissed Dell and all related claims from the pending OEM litigation.
The Markman hearing was held on May 7, 2004 and the current scheduling has the
trial scheduled to begin on August 2, 2004. In addition to asserting affirmative defenses in the Texas Court, HP filed a
patent countersuit against the Company in the Northern District of California
on May 28, 2003. HP also asked the Texas court to transfer the OEM case to the
Northern District of California for consolidation with HPs countersuit. The
Texas court denied HPs motion to transfer the Texas OEM case to California.
HPs California countersuit alleges that a variety of Intergraph products,
including SmartPlant 3D, IntelliShip, SmartPlant, SmartSketch®, I/Mobile
TC, and IntelliWhere, infringe four separate HP patents. The Company filed
a motion to have HPs California countersuit transferred to the Northern
District of Alabama, which was subsequently denied. HP has also filed an amended answer and counterclaim in the Texas case, which
alleges that Intergraphs patent assertions are a violation of the Sherman
Antitrust Act. The Company has filed a motion to dismiss HPs antitrust
counterclaims as a matter of law. The Texas court has not yet ruled on
Intergraphs motion to dismiss. The Company believes HPs antitrust
counterclaim to be without merit, and will vigorously defend against the same. On April 1, 2004, HP filed a patent countersuit against the Company in
Mannheim, Germany. HPs German suit accuses the Companys SmartPlant 3D
products of infringing two foreign patents related to the automated
dimensioning technology asserted in HPs California countersuit. On April 19, 2004, HP filed three separate legal actions against the Company.
HP filed a patent infringement action in Delaware and in the Eastern District
of Texas. The Delaware action accuses the Companys ZI Imaging® digital
camera of infringing a patent related to scanning technology. The new Texas
case accuses the Companys SmartPlant 3D, IntelliShip, SmartPlant Offshore
and SmartSketch® products of infringing a patent related to dimensional
conversions in computer-aided design software. HP also filed an action in the
German patent office seeking to invalidate one of the foreign Clipper patents. The Company is evaluating HPs latest filings, but plans to vigorously defend
against the same. The Company has not determined what impact, if any, HPs
countersuits may have on the Companys operations and cash flows. On May 7, 2004, the Company filed a patent infringement action against HP in
the Eastern District of Texas, which alleges that certain HP server and chipset
products infringe U.S. Patent Number 6,374,329. The Companys High
Availability Super Server (HASS) patent pertains to interoperability and
coherency technology used in clustered server systems. The Companys complaint
alleges that its HASS technology is employed in HPs DNA Memory Subsystem
Technology, including HPs SX1000 chipset, and Superdome, HP9000, 8400 and
7410 families of servers. Advanced Micro Devices Litigation:On January 15, 2004, Advanced Micro Devices
(AMD) filed a Declaratory Judgment Act patent action against the Company in
the Northern District of California. AMD asserted that the Companys family of
Clipper patents (U.S. Patent Nos. 4,860,192, 4,884,197, 4,899,275, 4,933,835
and 5,091,846) are either invalid, or not infringed by AMDs microprocessor
products. On April 12, 2004, AMD agreed to settle its patent lawsuit against
the Company and to take a license to the Companys Clipper patents. Under the
terms of this license, AMD will pay the Company $10 million by May 7, 2004, and
will make additional cash payments equal to 2% of the AMD Computation Product
Groups pre-tax operating profits, if any, for the 2005 through 2007 calendar
years, subject to a limit of $5 million per year. The Company received the $10
million payment prior to the filing of this report. 12




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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. NOTE 17  RESTATEMENT OF FINANCIAL STATEMENTS Subsequent to filing the Form 10-Q for the quarter ended March 31, 2004,
management determined that it was appropriate to restate its financial
statements for the periods ended December 31, 2003, and March 31, 2004, to
defer previously recorded revenues to a later date. The Early Adopter Program (EAP) was a limited release of SmartPlant 3D
Version 4. PPOs internal accounting staff determined that the accounting for
the Early Adopter Program should be reviewed after becoming aware that certain
maintenance obligations and a specified upgrade to SmartPlant 3D Version 5 were
included in the program. Paragraph 10 of SOP 97-2 allows for the establishment of vender specific
objective evidence (VSOE) of fair value on new products based on managements
established price, that once established, will not change before the separate
introduction of the product into the marketplace. VSOE of the fair value of the
specified upgrade has to be established or the Company would be required to
defer all revenue on customer orders that included a purchase of SP3D Version 4
under the EAP until the SP3D Version 5 upgrade is delivered. In the case of
the EAP, management never intended to sell separately an upgrade to SP3D
Version 5. The Company concluded that VSOE of the fair value of the
upgrade could not be established according
to paragraph 12 of SOP 98-9 without this requisite intent to sell upgrades
separately. As a result, the accompanying consolidated financial statements have been
restated from the amounts previously reported. A summary of the significant
effects of the restatement is as follows: March 31, 2004AsReported

    
    Restated(in thousands except per share amounts)Consolidated Statement of Operations Data:Revenue
    
    $
    132,969
    
    
    $
    132,285Gross profit
    
    
    67,111
    
    
    
    66,442Operating income
    
    
    8,179
    
    
    
    7,553Net income
    
    
    135,992
    
    
    
    135,566Net income per shareBasic
    
    $
    3.75
    
    
    $
    3.74Diluted
    
    $
    3.59
    
    
    $
    3.58
 December 31, 2003
    
    March 31, 2004As
    
    
    
    
    
    AsReported
    
    Restated

    
    Reported

    
    Restated(in thousands)Consolidated Balance Sheet DataAccrued compensation
    
    $
    38,871
    
    
    $
    38,726
    
    
    $
    32,663
    
    
    $
    32,565Other accrued expenses
    
    
    40,855
    
    
    
    40,835
    
    
    
    49,707
    
    
    
    49,672Billings in excess of sales
    
    
    48,711
    
    
    
    49,970
    
    
    
    49,532
    
    
    
    51,475Income taxes payable
    
    
    27,177
    
    
    
    26,912
    
    
    
    98,700
    
    
    
    98,235Retained earnings
    
    
    609,227
    
    
    
    608,308
    
    
    
    745,219
    
    
    
    743,874
 13




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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,
the business outlook of Intergraph Corporation (the Company or Intergraph),
projections about revenue, operating income levels, margins, 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. 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, potential adverse outcomes or rulings in our ongoing efforts to protect our
intellectual property, including the Companys claims against certain original
equipment manufacturers, including Gateway Inc. and Hewlett-Packard Co.
or their countersuits against the Company, and other ongoing and potential
litigation and patent enforcement efforts; the ability of the Company to obtain
required product certifications and timely deliver SP3D Version 5; the ability,
timing, and costs (including the calculation of success and other fees) to
enforce and protect the Companys intellectual property 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); material changes with respect to our business, litigation
prospects, or the securities markets (including the market for Intergraph
common stock); risks associated with doing business internationally (including
foreign currency fluctuations); 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;
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 Securities and Exchange Commission (SEC). OVERVIEW 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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 our 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 six years, the Company has taken significant measures to reduce
its losses and return to profitability, including extensive reductions in its
workforce, the sale of several non-core business units and assets, and the exit
of the Companys hardware design and manufacturing operations in 2000. These
actions allowed the Company to return to profitability in 2001. The Company
was profitable again in 2002, 2003, and first quarter 2004. Management is focused on improving the Companys operating margins. The
overall strategic goal in the next two to three years is the expansion of
operating margin percentages (income from operations divided by revenue) to be
more in line with peer companies. 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. While first
quarter 2004 revenue grew 10% over first quarter 2003, the Company anticipates
modest annual revenue growth for 2004. Over half of the revenue growth in
first quarter 2004 was related to the impact of currency fluctuations,
primarily with respect to the Euro versus the U.S. dollar. The Company
believes any 14




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improvement in income from operations for 2004 will primarily be due to expense
reductions as a result of the recent restructuring initiatives and anticipated
slight improvements in gross margins. Income from operations was 5.7% of revenue for Q1 2004 compared to .5% for Q4
2003 and 3.5% for Q1 2003. The increase in operating income as a percentage of
revenue is primarily due to the Companys efforts to reduce costs in late 2003
and early 2004, higher gross margins as a result of more software content in
systems and maintenance revenues, and higher service margins in the ISG
business unit. Variations in quarterly results are expected; however, the
Company remains optimistic regarding its goal of bringing annual operating
margins more in line with those of its peer group over time. In addition, management is currently evaluating the strategic direction of the
Company and each of the Companys businesses to determine the size of the
markets served, growth prospects for each market, potential strategies to grow
each business, and the risks versus available risk-adjusted returns of each of
the businesses. This initial review should be completed in 2004. The Company has intellectual property that resulted from its hardware design
and manufacturing operations that the Company exited in 2000. This
intellectual property is used in a variety of industries, including computers,
consumer electronics, telecommunications, and electronics design. The Company
defends the value of its intellectual property portfolio through licensing and
litigation. The Company remains actively engaged in licensing discussions, as
well as patent litigation with several companies. In first quarter 2004, net
intellectual property income of $203.1 million included $225 million in income
from the Companys settlement with Intel and Dell, offset by $21.9 million in
legal fees and other related expenses associated with patent litigation. In
first quarter 2003, net intellectual property income of $5.3 million included
$10 million in income from a cross-licensing agreement with IBM that also
resolved all outstanding patent infringement claims between International
Business Machines Corporation (IBM) and the Company, offset by $4.7 million
in legal fees and other related expenses. The Companys current operations are divided into four business segments along
with a Corporate oversight function (Corporate). The Companys business
segments are Intergraph Process, Power & Offshore (PPO); Intergraph Mapping
and Geospatial Solutions (IMGS); Intergraph Solutions Group (ISG); and
Intergraph Public Safety, Inc. (IPS). For a complete discussion, see the
Companys Annual Report on Form 10-K/A for the year ended December 31, 2003
(2003 Annual Report). RESULTS OF OPERATIONS Revenues Total revenues for first quarter 2004 were $132.3 million, up approximately 10%
from first quarter 2003. Sales outside the United States represented approximately 49% of total revenues
in first quarter 2004, up slightly from the comparable period in 2003.
European revenues were 32% of total revenues for first quarter 2004, also up
slightly from the first quarter 2003 level. The Company reports revenue in three categories, consisting of systems,
maintenance, and services revenues. The following discussions detail each of
these revenue categories. Systems:Systems revenue for first quarter 2004 was $69.7 million, down
slightly compared to the corresponding prior-year period. Although revenues
increased in 2004 approximately 4% due to a weakening of the U.S. dollar
against foreign currencies, this increase was offset by decreases reported in
the ISG business segment, resulting from projects completed or near completion
in first quarter 2003. Maintenance:Maintenance revenues totaled $33.0 million in first quarter 2004,
up approximately 10% from the same period in 2003. Revenues increased $2.4
million as the result of a weaker U.S. dollar, $1.3 million in new shipbuilding
products offered by the PPO business segment, and approximately $570,000 for
continued growth of existing customer base in the IPS business segment. 15




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Services:Services revenue, consisting of revenues from implementation and
consulting services, totaled $29.5 million for the quarter, up approximately
47% from the prior-year period. This increase is primarily due to the effect
of a large U.S. government project that began mid-2003 in the ISG business
segment and increased activity by IMGS, primarily in Europe and Asia. In
addition, services revenues increased approximately 9% due to a weakening of
the U.S. dollar. Gross Margin The Companys total gross margin for first quarter 2004 was 50%, compared to
47% for first quarter 2003. Systems:Systems margin was 51% for first quarter 2004, up from 48% for first
quarter 2003. The margin improvement is primarily due to the IMGS business
segment, for software delivery of photogrammetric and mapping software products
on a large, non-recurring order and increased product and services volume on
certain large products. These increases are offset by increased amortization
of capitalized software development costs of $1.3 million, mostly in the PPO
business segment. 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. Also, 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. Maintenance:Maintenance margin for first quarter 2004 was 68%, up from 59%
for first quarter 2003. Maintenance margins improved in all business units
from 2003 to 2004, partially the result of an increase in new software
maintenance contracts and fewer hardware maintenance contracts that produce
lower margins than software maintenance contracts. In addition, a new,
significant shipbuilding maintenance contract within the PPO business segment
contributed $1.3 million to the overall improvement of 2004 margin. Services:Services margin was 29% for first quarter 2004, up from 24% for
first quarter 2003. The improvement in services margin is due mainly to
increased activity on a large U.S. government project in the ISG business
segment, as well as higher employee utilization rates for ISG. Also, services
margin improved approximately 11% due to a weaker U.S. dollar in 2004.
Significant fluctuations in services revenues and margins from period to period
are not unusual and can be caused by new or completed large orders, delayed
progress on existing projects, and employee utilization rates. Operating Expenses Operating expenses, including restructuring charges of $826,000, were $58.9
million for first quarter 2004, up 12% from the comparable prior-year period. Product Development Expenses:Product development expenses were $14.6 million
for first quarter 2004, up 22.7% from the first quarter 2003 level. This
increase was primarily the result of the $1.4 million increase in shipbuilding
product development costs in the PPO business segment, combined with the
$938,000 decrease in software development costs qualifying for capitalization
in the IMGS business segment. Sales and Marketing Expenses:Sales and marketing expenses were $26.0 million
for first quarter 2004, up 5.5% from the first quarter 2003 level. This
increase was primarily due to the estimated $1.8 million unfavorable currency
impact, combined with the approximately $600,000 increase resulting from
expanding headcount in the IPS business segment in an effort to grow orders and
increase future revenues. These increases were partially offset by the
approximately $400,000 decrease due to increased billable activity in the PPO
business segment, and the approximately $300,000 decrease from trade show
related activities in IMGS. General and Administrative Expenses:General and administrative expenses were
$17.5 million, up 10.4% from the first quarter 2003 level. This increase was
primarily the result of the approximately $900,000 increase in legal fees, an
estimated $702,000 unfavorable currency impact, and an $842,000 increase in
allowance for doubtful accounts, partially offset by $640,000 of expense
reductions related to fourth quarter 2003 restructuring. 16




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Restructuring Charges:In first quarter 2004, the Company recorded $826,000 in
restructuring charges primarily in its PPO business segment in an effort to
realign costs with revenues. In fourth quarter 2003, the Company recorded $4
million in restructuring charges in an effort to realign costs with revenues in
the Corporate and IMGS business segments. 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 division. For a complete
discussion of restructuring charges, see the Companys 2003 Annual Report and
Note 10 of Notes to Consolidated Financial Statements contained in this Form
10-Q/A. Non-Operating Income and Expense Intellectual Property:Intellectual property income, net in the consolidated
statements of income consists of income resulting from 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. Income and expenses associated with the intellectual property
division, including related legal expenses, are classified and reported in this
section of the consolidated statements of income in order to more clearly show
the operating results of the Companys business units. In first quarter 2004, net intellectual property income of $203.1 million
included $225 million in income from the Companys settlement with Intel and
Dell, offset by $21.9 million in legal fees and other related expenses
associated with patent litigation. In first quarter 2003, net intellectual
property income of $5.3 million included $10 million in income from a
cross-licensing agreement with IBM that also resolved all outstanding patent
infringement claims between IBM and the Company, offset by $4.7 million in
legal fees and other related expenses. See Notes 11 and 16 of Notes to
Consolidated Financial Statements contained in this Form 10-Q/A and the
Companys 2003 Annual Report for complete details of these transactions. Gain on Sale of Assets:In first quarter 2003, IMGS reported a gain of $1.2
million from the March 2003 sale of its aeronautical intellectual property
assets to Ingegneria Dei Sistemi S.p.A. in Rome, Italy. Interest Income:Interest income was $881,000 in first quarter 2004 and $1.9
million in first quarter 2003. Interest income decreased during 2004 due to
declines in investments as a result of the Companys fourth quarter 2003
modified Dutch auction tender offer and lower interest rates. Other:Other income (expense), net in the consolidated statements of income
consists of interest expense, foreign exchange gains and losses, and other
miscellaneous items of non-operating income and expense. In first quarter
2004, net other income of $1.1 million included a $733,000 foreign exchange
gain. In first quarter 2003, net other expense of $43,000 included a $371,000
foreign exchange loss. Income Taxes Income tax expenses for the first quarters of 2004 and 2003 are attributable to
taxes on intellectual property income, U.S. operations, and individually
profitable majority-owned subsidiaries. See the Companys 2003 Annual Report
for details of the Companys tax position, including its net operating loss
carryforwards. Results by Operating Segment In first quarter 2004, PPO earned operating income of $2.7 million on revenues
of $33 million, compared to first quarter 2003 operating income of $4.2 million
on revenues of $30.5 million. The decrease in operating income despite
increased revenues resulted primarily from restructuring charges of $823,000,
combined with higher product development and sales and marketing expenses. The
increase in revenue was due primarily to shipbuilding maintenance revenue
associated with the Global Research and Development (GRAD) shipbuilding
contract signed in April 2003 and increasing services and maintenance revenue
from new products. In first quarter 2004, IMGS earned operating income of $3.7 million on revenues
of $52.0 million, compared to first quarter 2003 operating income of $186,000
on revenues of $46.8 million. The significant increase in 17




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operating income is primarily the result of the delivery of a large
photogrammetric and mapping software order that drove higher gross margins, as
well as increased product and services revenue volume on certain large
projects. The revenue and margin improvements were partially offset by higher
operating expenses, primarily as a result of fewer product development projects
qualifying for capitalization. In first quarter 2004, ISG earned operating income of $3.8 million on revenues
of $30.1 million, compared to first quarter 2003 operating income of $1.1
million on revenues of $27.5 million. The significant increase in operating
income is primarily due to higher gross margins attributable to increased
billable hours on the U.S. Air Force Enhanced Technical Information Management
System (ETIMS) contract required to meet customer schedule requirements,
higher utilization rates as labor resources transitioned from unbillable to
billable work, and reduced sales and marketing expenses. In first quarter 2004, IPS earned operating income of $2.1 million on revenues
of $16.9 million, compared to first quarter 2003 operating income of $3.5
million on revenues of $16.5 million. Operating income decreased primarily due
to increased sales and marketing and research and development expenses
resulting from headcount additions in an effort to increase orders and future
revenues combined with increased general and administrative expenses resulting
from higher allowance for doubtful accounts. In first quarter 2004, Corporate reported an operating loss of $4.7 million on
revenues of $2.8 million, compared to a first quarter 2003 operating loss of
$4.7 million on revenues of $3.5 million. 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/A for further explanation of the Companys segment reporting. Litigation As further described in the Companys 2003 Annual Report, the Company continues
to protect its intellectual property portfolio by engaging in both licensing
discussions and patent infringement litigation. Litigation is subject to known
and unknown risks and uncertainties. See Cautionary Note Regarding
Forward-Looking Statements in MD&A. See Note 16 of Notes to Consolidated
Financial Statements contained in this Form 10-Q/A for a discussion of the 2004
developments for patent and other litigation. 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 annual 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
annual 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 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 improved performance. 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 and defends related countersuits. The ultimate impact of these
initiatives is subject to known and unknown risks and uncertainties. See
Cautionary Note Regarding Forward-Looking Statements in MD&A. 18




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LIQUIDITY AND CAPITAL RESOURCES At March 31, 2004, cash and cash equivalents totaled $250.5 million compared to
$265.8 million at December 31, 2003. The Company had no debt at March 31,
2004, or December 31, 2003. Non-operating events that may require the use of
cash include the Companys patent litigation and enforcement program, including
defending related countersuits, and its stock repurchase program. During first quarter 2004, the Company did not purchase any of its common stock
under its stock repurchase program. As of March 31, 2004, the Company had
repurchased approximately 16.3 million shares (including 10 million shares in a
modified Dutch auction in December 2003) at a cost of $378 million since the
program was initiated in late 2001. The Company has a $250 million open market
repurchase plan with $135 million remaining that can be used to repurchase
stock in the future. The termination date for the current stock repurchase
program is December 31, 2005. In September 2002, in order to reduce the cost of issuing letters of credit,
the Company established a $12.5 million credit line with Wells Fargo Bank to
cover its outstanding letters of credit secured by $15 million of
interest-bearing securities. This credit line was reduced on January 20, 2004,
to $6 million secured by $8.2 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 $4.9 million at March 31, 2004, and December 31, 2003). 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 March 31, 2004, to the items disclosed as Critical Accounting
Policies in MD&A in the Companys 2003 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
2003 Annual Report. Impact of Currency Fluctuations and Currency Risk Management Fluctuations in the value of the U.S. dollar in international markets can have
a significant impact on the Companys results of operations. For first quarter
2004, approximately 49% of the Companys revenues were derived from customers
outside the United States, primarily through subsidiary operations, compared to
48% for first quarter 2003. 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 its first quarter 2004 results of operations by approximately $0.05
per share (diluted) in comparison to first quarter 2003. 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 Canadian subsidiaries, a Japanese subsidiary, and all but one of
the Companys European subsidiaries. The U.S. dollar is the functional
currency for all other international subsidiaries. The 19




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Company had no forward contracts outstanding at March 31, 2004, or December 31,
2003, and does not currently hedge any of its foreign currency risks. Impact of Interest Rates on Investment Earnings The Companys cash and cash equivalents are generally invested in short-term,
highly liquid, interest-bearing securities which may include short-term
municipal bonds, time deposits, money market funds, 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. The Company estimates
that pre-tax earnings could be affected by approximately $0.03 per share
(diluted) on an annualized basis, should interest rates of invested funds
change by 0.5%. 
 ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended, (the Exchange Act), that are designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to the Companys management, including its CEO
and CFO, as appropriate, to allow timely decisions regarding required
disclosure. R. Halsey Wise, CEO, and Larry J. Laster, CFO, conducted an
evaluation of the effectiveness of Intergraphs disclosure controls and
procedures as of March 31, 2004. Based upon their evaluation, they each found
the Companys disclosure controls and procedures were adequate to ensure that
information required to be disclosed in the reports that Intergraph files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required, and that information required to be disclosed is
accumulated and communicated to them as appropriate to allow timely decisions
regarding required disclosure. As described in Note 17 of the Notes to Consolidated Financial Statements,
subsequent to the issuance of Intergraphs consolidated financial statements
for the quarter ended March 31, 2004, management determined that it was
appropriate to restate the consolidated financial statements for the periods
ended December 31, 2003, and March 31, 2004, to defer recorded revenues and to
recognize them at a later date. Due to the matters identified, the CEO and CFO, with the participation of other
management, re-evaluated the effectiveness of disclosure controls and
procedures as of the end of the period covered by this report. As
part of the controls and procedures over the selection and application of
accounting principles, in particular software revenue recognition under SOP
97-2, the Companys accounting officers independently reviewed SOP 97-2
together with other accounting literature and consulted with the Companys
Independent Registered Public Accounting Firm regarding certain revenue recognition and accounting
developments. Based on the re-evaluation of the effectiveness of the disclosure controls and
procedures by our CEO and CFO, they concluded that, as of the end of the period
covered by this report, there was a material weakness in the controls and
procedures used to identify and determine the appropriate accounting for the
matter that was the subject of the restatement. Specifically, the controls and
procedures did not result in the proper recognition of revenue related to the EAP
program on a timely basis. The Company has taken steps to strengthen further control processes and
procedures to identify, rectify and prevent the recurrence of the circumstances
that resulted in the determination that it was appropriate to restate certain
prior period financial statements. The Company is taking the following steps,
among others:  
    
    Establishing procedures to perform an on-going analysis of the
appropriate accounting for new products, marketing programs and
promotions to ensure proper revenue recognition with respect to such
matters;
    
    Establishing procedures to document the review of transactions
involving maintenance, discounts, and specified upgrades prior to
recognizing revenue with respect to such transactions, and requiring
that this 20




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documentation be reviewed and approved by one or more
specified accounting personnel prior to recording revenue;  
    
    Establishing procedures requiring certain documentation, together with
Corporate Controller written approval, of all programs involving any
no-cost product or service or specified product upgrade; and  
    
    Supplementing the Companys existing revenue recognition policies and
procedures to clarify certain complex areas, including software
revenue recognition, to promote a broader understanding of the
applicable policies among Company personnel. The Company believes these changes to internal controls and disclosure controls
and procedures will be adequate to provide reasonable assurance that the
objectives of these control systems will be met. However, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues, if any, within the Company
have been detected. 
 PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS As further described in the Companys 2003 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 2004 developments for patent and other litigation. Litigation is
subject to known and unknown risks and uncertainties. See Cautionary Note
Regarding Forward-Looking Statements in MD&A for further discussion of these
risks and uncertainties. Intel Litigation:On July 29, 2001, the Company filed a patent infringement
case against Intel in the U.S. District Court for the Eastern District of Texas
(the Texas case). The Texas case pertained to the Companys parallel
instruction computing (PIC) patents and went to trial on July 2, 2002. On March 29, 2004, the Company resolved its dispute with Intel regarding its
PIC patents, and both parties agreed to dismiss all outstanding patent
infringement claims and lawsuits against each other. Per the terms of the
settlement agreement, Intel paid the Company $125 million on April 5, 2004, and
will pay an additional $100 million in four quarterly installments over the
following year. In addition, the Company will grant Dell certain licenses to
its patents and has agreed to dismiss its separate pending litigation against
Dell in the OEM case. OEM Litigation:On December 16, 2002, the Company filed a patent infringement
action against Dell, Gateway Inc. (Gateway) and Hewlett-Packard
Co./Compaq (HP) in the U.S. District Court for the Eastern District of
Texas. The Companys complaint alleges that products from the three computer
vendors infringe U.S. Patent Numbers 4,899,275 and 4,933,835 and 5,091,846.
These computer system-level patents relate to memory management technology.
The OEM action seeks an unspecified amount of damages for past infringement
from the OEM defendants. The OEMs have asserted various defenses, pre-trial
motions and countersuits against the Company. Per the terms of the March 29, 2004 settlement agreement with Intel, the
Company dismissed Dell and all related claims from the pending OEM litigation.
The Markman hearing was held on May 7, 2004 and the current scheduling has the
trial scheduled to begin on August 2, 2004. In addition to asserting affirmative defenses in the Texas Court, HP filed a
patent countersuit against the Company in the Northern District of California
on May 28, 2003. HP also asked the Texas court to transfer the OEM case to the
Northern District of California for consolidation with HPs countersuit. The
Texas court denied HPs motion to transfer the Texas OEM case to California.
HPs California countersuit alleges that a variety of Intergraph products,
including SmartPlant 3D, IntelliShip, SmartPlant, SmartSketch®, I/Mobile
TC, 21




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and IntelliWhere, infringe four separate HP patents. The Company filed
a motion to have HPs California countersuit transferred to the Northern
District of Alabama, which was subsequently denied. HP has also filed an amended answer and counterclaim in the Texas case, which
alleges that Intergraphs patent assertions are a violation of the Sherman
Antitrust Act. The Company has filed a motion to dismiss HPs antitrust
counterclaims as a matter of law. The Texas court has not yet ruled on
Intergraphs motion to dismiss. The Company believes HPs antitrust
counterclaim to be without merit, and will vigorously defend against the same. On April 1, 2004, HP filed a patent countersuit against the Company in
Mannheim, Germany. HPs German suit accuses the Companys SmartPlant 3D
products of infringing two foreign patents related to the automated
dimensioning technology asserted in HPs California countersuit. On April 19, 2004, HP filed three separate legal actions against the Company.
HP filed a patent infringement action in Delaware and in the Eastern District
of Texas. The Delaware action accuses the Companys ZI Imaging® digital
camera of infringing a patent related to scanning technology. The new Texas
case accuses the Companys SmartPlant 3D, IntelliShip, SmartPlant Offshore
and SmartSketch® products of infringing a patent related to dimensional
conversions in computer-aided design software. HP also filed an action in the
German patent office seeking to invalidate one of the foreign Clipper patents. The Company is evaluating HPs latest filings, but plans to vigorously defend
against the same. The Company has not determined what impact, if any, HPs
countersuits may have on the Companys operations and cash flows. On May 7, 2004, the Company filed a patent infringement action against HP in
the Eastern District of Texas, which alleges that certain HP server and chipset
products infringe U.S. Patent Number 6,374,329. The Companys High
Availability Super Server (HASS) patent pertains to interoperability and
coherency technology used in clustered server systems. The Companys complaint
alleges that its HASS technology is employed in HPs DNA Memory Subsystem
Technology, including HPs SX1000 chipset, and Superdome, HP9000, 8400 and
7410 families of servers. Advanced Micro Devices Litigation:On January 15, 2004, Advanced Micro Devices
(AMD) filed a Declaratory Judgment Act patent action against the Company in
the Northern District of California. AMD asserted that the Companys family of
Clipper patents (U.S. Patent Nos. 4,860,192, 4,884,197, 4,899,275, 4,933,835
and 5,091,846) are either invalid, or not infringed by AMDs microprocessor
products. On April 12, 2004, AMD agreed to settle its patent lawsuit against
the Company and to take a license to the Companys Clipper patents. Under the
terms of this license, AMD will pay the Company $10 million by May 7, 2004, and
will make additional cash payments equal to 2% of the AMD Computation Product
Groups pre-tax operating profits, if any, for the 2005 through 2007 calendar
years, subject to a limit of $5 million per year. The Company received the $10
million payment prior to the filing of this report. 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,
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits ExhibitNumber
    
    Description31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of2002 by R. Halsey Wise dated November 8, 200431.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of2002 by Larry J. Laster dated November 8, 200432.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of2002 by R. Halsey Wise dated November 8, 200432.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of2002 by Larry J. Laster dated November 8, 2004
 (b) Reports on Form 8-K  Form 8-K dated January 29, 2004, reporting the Companys 2003 earningsForm 8-K dated March 30, 2004, furnished pursuant to Item 9, reporting a patent
settlement with Intel Corporation and resolution of patent infringement claims against
Dell Inc.*Form 8-K dated March 30, 2004, filed pursuant to Item 5, reporting the settlement
agreement between Intergraph Corporation and Intel Corporation and license to Dell
Inc.  * Information in a Form 8-K furnished pursuant to Item 9 is not deemed to be filed for the
purposes of Section 18 of the Exchange Act of 1934. 23




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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 
  By:
    
    /s/ R. Halsey Wise
    
    By:
    
    /s/ Larry J. LasterR. Halsey Wise
    
    
    
    Larry J. LasterPresident and
    
    
    
    Executive Vice President andChief Executive Officer
    
    
    
    Chief Financial Officer(Principal Financial Officer)Date:
    
    November 8, 2004
    
    Date:
    
    November 8, 2004By:
    
    /s/ Larry T. MilesLarry T. MilesVice President andCorporate Controller(Chief Accounting Officer)Date:
    
    November 8, 2004
 24