Five Year Financial Summary


--------------------------------------------------------------------------------
                               1998       1997       1996       1995       1994
--------------------------------------------------------------------------------
(In thousands except per share amounts)

Revenues                 $1,032,790 $1,124,305 $1,095,333 $1,097,978 $1,041,403
Nonrecurring
 operating charges
 (credit)                    15,843      1,095     10,545      6,040    ( 4,826)
Loss from operations       (114,206)   (54,916)   (68,724)   (54,145)   (72,642)
Gains on sales of 
 assets                     112,533      4,858     11,173      6,493      5,815
Net loss                   ( 19,634)   (70,237)   (69,112)   (45,348)   (70,220)
Net loss per share,
 basic and diluted         (    .41)   (  1.46)   (  1.46)   (   .98)   (  1.56)
Working capital             216,520    204,534    230,804    261,140    282,893
Total assets                695,974    720,989    756,347    826,045    839,618
Total debt                   83,213    104,665     65,644     69,541     61,114
Shareholders' equity        355,332    368,783    447,263    504,064    522,337
















Information  contained  in  this report may  include  statements  that  are
forward-looking as defined in Section 21E of the Securities Exchange Act of
1934.   Actual results could differ materially from those projected in  the
forward-looking statements.  Additional information concerning factors that
could  cause actual results to differ materially from those in the forward-
looking  statements  is  contained  in  the  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations" section of  this
Annual Report.



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Summary.  The following summarized financial data sets forth the
results of operations of the Company for the three years in the
period ended December 31, 1998.  The complete consolidated financial
statements of the Company, including footnote disclosures, are
presented on pages 34 to 54 of this annual report.

----------------------------------------------------------------------
                                         1998      1997      1996
----------------------------------------------------------------------
(In millions except per share amounts)

Revenues                                $1,033    $1,124    $1,095
Cost of revenues                           708       724       692
----------------------------------------------------------------------
Gross profit                               325       400       403

Operating expenses                         423       454       461
Nonrecurring operating charges              16         1        11
----------------------------------------------------------------------
Loss from operations                      (114)    (  55)    (  69)

Interest expense                          (  8)    (   7)    (   5)
Arbitration award                          ---     (   6)      ---
Gains on sales of assets                   113         5        11
All other income (expense) - net          (  5)    (   3)    (   3)
----------------------------------------------------------------------
Loss before income taxes                  ( 14)    (  66)    (  66)

Income tax expense                        (  6)    (   4)    (   3)
----------------------------------------------------------------------
Net loss                                $ ( 20)   $(  70)   $(  69)
======================================================================
Net loss per share, basic and diluted   $ (.41)   $(1.46)   $(1.46)
======================================================================

In 1993, the Company began the process of transformation of its
proprietary, closed-system product offerings to the open computing
environment of products based on Intel Corporation hardware and
Microsoft Corporation software.  The dedication of significant
Company resources to hardware, software, and system implementation
for this new environment contributed substantially to the Company's
operating losses for the years 1993 through 1996.

For hardware implementation, the Company chose to use only Intel
processors and to focus its efforts and image creation on its core
capabilities, specifically very high performance computational and
graphics capabilities.  This high-end market in the Windows NT
operating system environment is supported only by Intel-based
hardware products.  The Company expected that its four year hardware
development effort and investment in the high-end graphics market
would result in substantially increased revenues and profits in 1997,
but these benefits were not realized due primarily to actions of
Intel described separately in the "Intel Litigation" section of this
report.  In addition, demand for the Company's software products did
not meet expectations and gross margin on product sales continued to
decline due primarily to price competition in the industry.

In 1998, the Company's revenues and operating results continued to be
impacted by its dispute with Intel, as resulting delays in new
product releases eliminated the potential for revenue growth and
increased the Company's inventory obsolescence charges.  Price
competition in the industry has also continued to adversely affect
the Company's margins.  Operating expenses have been reduced in
reaction to lower sales volumes and through various restructuring
actions, but have been offset to a degree by increased legal expenses
related to Intel and other matters.

The Company expects that the industry will continue to be
characterized by higher performance and lower priced products,
intense competition, rapidly changing technologies, shorter product
cycles, and development and support of software standards that result
in less specific hardware and software dependencies by customers.
The Company believes that its operating system and hardware
architecture strategies are the correct choices.  However, competing
operating systems and products are available in the market, and
competitors of the Company offer or are adopting Windows NT and Intel
as the systems for their products.  Improvement in the Company's
operating results will depend on its ability to accurately anticipate
customer requirements and technological trends and to rapidly and
continuously develop and deliver new hardware and software products
that are competitively priced, offer enhanced performance, and meet
customers' requirements for standardization and interoperability, and
will further depend on its ability to successfully implement its
strategic direction.  In addition, the Company faces significant
operational and financial uncertainty of unknown duration due to its
dispute with Intel.  To achieve and maintain profitability, the
Company must substantially increase sales volume and/or continue to
align its operating expenses with the level of revenue and gross
margin being generated.

Nonrecurring Operating Charges.  In first quarter 1998, the Company
reorganized its European operations to reflect the organization of
the Company into four distinct business units and to align operating
expenses more closely with revenue levels in that region.  The cost
of this reorganization was originally estimated and recorded at $5.4
million, primarily for employee severance pay and related costs.
During the remainder of 1998, approximately $2.2 million of the
costs accrued in the first quarter were reversed as the result of
incurrence of lower severance costs than originally anticipated.  In
the fourth quarter, additional European reorganization costs of $2
million were recorded for further headcount reductions.  The net
year to date charge of $5.2 million is included in "Nonrecurring
operating charges" in the 1998 consolidated statement of operations.
Approximately 80 European positions have been eliminated in the
sales and marketing, general and administrative, and pre- and post-
sales support areas.  Cash outlays related to this charge
approximated $3.1 million in 1998, with the remaining costs to be
paid during 1999.  The Company estimates the European reorganization
will result in annual savings of approximately $7 million.

In fourth quarter 1998, the Company took further actions,
principally in the form of direct workforce reductions, to align the
operating expenses of its unprofitable businesses with their current
revenue levels.  Approximately 100 positions were eliminated,
primarily in the Company's VeriBest and Intergraph Computer Systems
business units.  The costs of this reduction in force (approximately
$1.3 million) are included in "Nonrecurring operating charges" in
the 1998 consolidated statement of operations.  Related cash outlays
approximated $.8 million in 1998, with the remainder to be paid in
1999.  The Company estimates that these headcount reductions will
result in annual savings of approximately $7 million.

The remainder of the 1998 nonrecurring operating charges consists
primarily of write-offs of a) certain intangible assets, primarily
capitalized business system software no longer in use, b) goodwill
recorded on a prior acquisition of a domestic subsidiary and
determined to be of no value, and c) a noncompete agreement with a
former third party consultant.  Prior to the write-off, amortization
of these intangibles accounted for approximately $3.4 million of the
Company's annual operating expenses.

In fourth quarter 1996, the Company recorded a nonrecurring
operating charge of $10.5 million, consisting of a $7.2 million
revaluation of the assets of two unprofitable business units held
for sale and an unrelated $3.3 million write-off of deferred
financing costs due to early termination of the Company's revolving
credit agreement with a group of lenders.  The $10.5 million charge
is included in "Nonrecurring operating charges" in the 1996
consolidated statement of operations.  In early 1997, the Company
sold the two unprofitable business units that were the subject of
the 1996 charge.  The total loss on these sales was $8.3 million, of
which $7.2 million had been included in the 1996 asset revaluation.
The remaining loss of $1.1 million is included in "Nonrecurring
operating charges" in the 1997 consolidated statement of operations.
Revenues and losses of these two business units totaled $24 million
and $16 million, respectively, for the full year 1996.  Assets of
the business units totaled $14 million at December 31, 1996.  The
two business units did not have a material effect on the Company's
results of operations for the period in 1997 prior to their
disposal.

Gains on Sales of Assets.  As part of the efforts of the Company to
focus on its core competencies, in 1998 the Company sold its Solid
Edge and Engineering Modeling system product lines at a gain of
$102.8 million and its printed circuit board manufacturing facility
at a gain of $8.3 million.  See "Nonoperating Income and Expense"
following for further detail.

SCI.  Reflecting the trend toward outsourcing in the industry, on
November 13, 1998, the Company completed a transaction with SCI
Technology Inc. (SCI), a wholly owned subsidiary of SCI Systems,
Inc., pursuant to which the Company sold substantially all of its
U.S. manufacturing inventory and assets to SCI, and SCI assumed
responsibility for manufacturing of substantially all of the
Company's hardware products.  In addition, the Company licensed
certain related intellectual property to SCI, and SCI employed
approximately 300 of the Company's manufacturing employees.  The
total purchase price for the assets was approximately $62.4 million,
$42.5 million of which was received during the fourth quarter of
1998.  The final purchase price installment of $19.9 million was
received on January 12, 1999.  Proceeds from the sale have been
utilized primarily to retire the Company's existing debt.  The
Company's gain on this transaction of $1.5 million is included in
"Gains on sales of assets" in the 1998 consolidated statement of
operations.

Significant contingencies related to the transaction include the
right of SCI to return to the Company any inventory included in the
initial sale that proves unusable in the manufacturing of current
products, the ability of the Company to obtain most favorable
pricing for products purchased from SCI through higher volumes, and
the ability of the Company to accurately forecast its requirements
of SCI.

The Company expects to benefit from lower employee headcount and
lower per unit costs for materials and overhead expenses, both of
which should improve earnings and cash flow.  The Company retains
the risk associated with inventory excess and obsolescence, defined
in the agreement as any component or material in SCI's inventory for
more than 60 days and which is in excess of demand as reflected in
the Company's six month forecast, if not mitigated by SCI with the
vendor.  The Company has the option to either purchase this
inventory from SCI or authorize SCI to obtain liquidation offers
from third parties.

In connection with this transaction, the Company's term loan and
security agreement was amended to incorporate the sale of the
Company's manufacturing inventory and assets to SCI and to modify
the borrowing base accordingly.  See "Liquidity and Capital
Resources" for a further discussion of the impact of this
transaction on the Company's cash flow.

Litigation and Other Risks and Uncertainties.  The Company has
extensive ongoing litigation, and its business is subject to certain
other risks and uncertainties, including those described below.

Intel Litigation.  The Company filed a legal action on November 17,
1997, in U.S. District Court, the Northern District of Alabama,
Northeastern Division (the "Alabama Court"), charging Intel
Corporation, the supplier of all of the Company's microprocessor
supply, with anticompetitive business practices.  In the lawsuit,
Intergraph alleges that Intel is attempting to coerce the Company
into relinquishing to Intel certain computer hardware patents through
a series of wrongful acts, including interference with business and
contractual relations, interference with technical assistance from
third party vendors, breach of contract, negligence, misappropriation
of trade secrets, and fraud based upon Intel's failure to promptly
notify the Company of defects in Intel's products and timely
correction of such defects, and further alleging that Intel has
infringed upon the Company's patents.  The Company's patents define
the architecture of the cache memory of an Intergraph developed
microprocessor.  The Company believes this architecture is at the
core of Intel's entire Pentium line of microprocessors and systems.
On December 3, 1997, the Company amended its complaint to include a
count charging Intel with violations of federal antitrust laws.
Intergraph asserts claims for compensatory and treble damages
resulting from Intel's wrongful conduct and infringing acts, and
punitive damages in an amount sufficient to punish and deter Intel's
wrongful conduct.  Additionally, the Company requested that Intel be
enjoined from continuing the alleged wrongful conduct which is
anticompetitive and/or violates federal antitrust laws, so as to
permit Intergraph uninterrupted development and sale of Intel-based
products.

On November 21, 1997, the Company filed a motion in the Alabama Court
to enjoin Intel from disrupting or delaying its supply of products
and product information pending resolution of Intergraph's legal
action.  On April 10, 1998, the Alabama Court ruled in favor of
Intergraph and ordered that Intel be preliminarily enjoined from
terminating Intergraph's rights as a strategic customer in current
and future Intel programs, and from otherwise taking any action
adversely affecting Intel's business relationship with Intergraph or
Intergraph's ability to design, develop, produce, manufacture, market
or sell products incorporating, or based upon, Intel products or
information.  The Court's ruling requires that Intel carry out
business with Intergraph under the same terms and conditions, with
the same rights, privileges, and opportunities as Intel makes
available to Intergraph's competitors who are also strategic
customers of Intel.  In response to the Alabama Court's decision, on
April 16, 1998, Intel appealed to the United States Court of Appeals
for the Federal Circuit (the "Appeals Court").  Intel and the Company
have each filed briefs with the Appeals Court, and oral arguments
were presented on December 9, 1998.  No decision has been entered.

Intel filed a retaliatory legal action on November 17, 1997, in the
U.S. District Court, the Northern District of California (the
"California Court"), requesting, among other things, i) that the
Court declare Intergraph's patents invalid and/or not infringed by
Intel, ii) that Intergraph be enjoined from making further assertions
that Intel's customers infringe Intergraph's patents through use of
Intel's microprocessors, iii) that the Court declare that Intel has
no obligation to disclose any of its trade secrets or other
confidential information to Intergraph, and iv) that the Court
declare that Intel's decision to discontinue the provision of trade
secrets and other confidential information to Intergraph does not
violate any doctrine of federal or state statutory or common law.
Intel filed a second legal action in the California Court on November
24, 1997, charging Intergraph with breach of contract related to
wrongful retention of and failure to return Intel information
supplied under nondisclosure agreements, and misappropriation of
trade secrets as a result of the same.  Intel asserted claims for
damages and awards and requested a preliminary and permanent
injunction under which Intergraph would return and make no further
use of Intel confidential information.  On December 8, 1997, the
Alabama Court directed the Company and Intel to file joint motions in
the California cases to stay the two legal actions brought by Intel,
pending the Court's consideration of a motion to transfer and
consolidate venue.  The joint motions were filed and stays were
granted by the California Court.  On January 15, 1998, Intel filed a
motion before the Alabama Court for a change in venue to California.
On May 18, 1998, the Alabama Court denied this motion, and Intel
subsequently dropped the two retaliatory lawsuits which Intel had
brought against the Company in California.

On June 17, 1998, Intel filed its answer in the Alabama case, which
included counterclaims against Intergraph, including claims that
Intergraph has infringed seven patents of Intel.  On July 8, 1998,
the Company filed its answer to the Intel counterclaims, among other
things denying any liability under the patent infringement asserted
by Intel.  On June 17, 1998, Intel filed a motion before the Alabama
Court seeking a summary judgment holding that Intel is licensed to
use the patents that the Company asserted against Intel in the
Company's original complaint.  This "license defense" is based on
Intel's interpretation of the facts surrounding the acquisition by
the Company of the Advanced Processor Division of Fairchild
Semiconductor Corporation in 1987.  The Company is vigorously
contesting Intel's motion for summary judgment on the license
defense, and filed a cross motion with the Alabama Court September
15, 1998 requesting summary adjudication in favor of the Company.  No
decision has been entered.

On November 13, 1998, the Company amended its complaint to include
two additional counts of patent infringement against Intel.  The
Company requested the court to issue a permanent injunction enjoining
Intel from further infringement, and to order that the financial
impact of the infringement be calculated and awarded in treble to
Intergraph.  No decision has been entered.

On January 29, 1999, Intergraph filed a motion requesting the Alabama
Court to require Intel to show cause why it should not be held in
contempt for its failure to comply with the Court's automated
discovery order and for improperly designating discovery materials as
protected by the attorney client privilege.  In its motion,
Intergraph requested the Court to set a status conference on
discovery and a hearing on its motion.  No decision has been entered.

In a scheduling order entered June 25, 1998, the Alabama Court set a
trial date of February 14, 2000.

Background.  The Company's patents relate to its RISC (reduced
instruction set computing)-based Clipper microprocessor, which was
the industry's first attempt to bring mainframe computing power to
compact, low cost, integrated circuit technology.  In 1992,
Intergraph began evaluation of a transition from Clipper to Intel's
microprocessor for use in its future workstation products.  At that
time, Intel had little experience with workstations or the
workstation market and had been unsuccessful in the development of
its own RISC-based microprocessor for the workstation market.  In
1993, Intergraph began discussions with Intel regarding this
transition.  Based on Intel's representations regarding its
microprocessor development plans for the workstation market,
Intergraph began the transition from Clipper to Intel-based design,
and the two companies cooperated in introduction to the market of the
Intel/Windows NT platform as an alternative to the RISC/UNIX
platform.  The Company ceased further design of its Clipper
microprocessor at the end of 1993, and made a substantial investment
in redesign of its hardware platform for utilization of Intel
microprocessors.  The Company relied on the assurances,
representations, and commitments of Intel that they would supply
Intergraph's microprocessor needs on fair and reasonable terms, and
would provide Intergraph with the essential technical information,
assistance, and advice necessary to utilize the microprocessors to be
developed and supplied by Intel.  As a result of the assurances of
Intel and its transition to Intel-based workstations, Intergraph is
technologically and economically bound to the use of Intel's
microprocessors.

Effects.  The Company's workstations are developed for and sold in
the high-end workstation market.  Successful participation in this
market requires involvement in Intel product development programs
that provide advance information for the development of new products
to be sold by Intergraph and others and permit formulation of
standards and specifications for those new products.  During 1997,
Intergraph's product design and release cycle was severely impacted
by Intel's refusal to provide Intergraph with advance technology and
product information and immediate information on Intel defects and
corrections.  Intel continues to provide that information to the
Company's competitors.  Intel's refusal to provide this vital
information has delayed the Company's new product releases by one to
six months.  These delays have resulted in lost sales for the
Company as well as increased discounting on available products,
severely impacting the Company's revenues and margins.  While the
April 1998 ruling of the Alabama Court requires Intel to provide
Intergraph with advance product samples and technical information,
the Company lost considerable sales momentum and continued to feel
residual effects from the dispute through the end of 1998, including
shipment problems resulting from a non-Intel chipset used in certain
of the Company's workstations.  In late 1997, when the dispute
looked as if it might jeopardize the Company's supply of Intel
components, an alternate chipset supplier was selected for some
designs.  In the third quarter of 1998, that vendor had difficulty
delivering enough parts to the Company, resulting in a significant
backlog that could not be shipped until the fourth quarter.
Additionally, the Company believes that while Intel is supplying it
with advance product samples and technical information, Intel's
responsiveness is not at the same level as prior to the dispute.
It was not until October 1998 that all of the Company's hardware
product offerings contained the latest Intel technology and were
technologically back in line with industry competition.

The Company believes it was necessary to take legal action against
Intel in order to defend its workstation business, its intellectual
property, and the investments of its shareholders.  The Company is
vigorously prosecuting its positions and defending against Intel's
claims and believes it will prevail in these matters, but at present
is unable to predict an outcome.  The Company does expect, however,
that adverse effects on its operations will continue in the near term
including, but not limited to, increased legal and administrative
expenses associated with the lawsuit.  Additionally, if the Company
were to lose the Intel appeal (which is not anticipated by the
Company), it would be forced to significantly alter its business
plans, and its computer hardware business would be placed at
significant risk.  The Company is actively considering alternative
strategies for its hardware business but has reached no conclusions
on those alternatives.  The costs of pursuit of any such strategies
would likely be prohibitive.

See "Other Risks and Uncertainties" below for additional information
regarding Intel's actions.

Bentley Litigation.  The Company is the owner of approximately 50% of
the outstanding stock of Bentley Systems, Inc. (Bentley), the
developer and owner of MicroStation, a software product utilized in
many of the Company's software applications and for which the Company
serves as a nonexclusive distributor.  In May 1997, the Company
received notice of the adverse determination of an arbitration
proceeding with Bentley in which the Company had alleged that Bentley
inappropriately and without cause terminated a contractual
arrangement with the Company, and in which Bentley had filed a
counterclaim against the Company seeking significant damages as the
result of the Company's alleged failure to use best efforts to sell
software support services pursuant to terms of the contractual
arrangement terminated by Bentley.  The arbitrator's award against
the Company was in the amount of $6.1 million and is included in
"Arbitration award" in the 1997 consolidated statement of operations.
Approximately $5.8 million in fees otherwise owed the Company by
Bentley were offset against the amount awarded Bentley.  In addition,
the contractual arrangement that was the subject of this arbitration
was terminated effective with the award and, as a result, the Company
no longer sells the related software support services under this
agreement.  The Company and Bentley have entered into a new agreement
which establishes single support services between the two companies.

In a second proceeding brought in March 1996, Bentley commenced
arbitration against the Company, alleging that the Company failed to
properly account for and pay to Bentley certain royalties on its
sales of Bentley software products, and seeking significant damages.
Hearings on this matter are in process and are scheduled to conclude
with a decision from the arbitration panel in second quarter of 1999.
The Company denies that it has breached any of its contractual
obligations to Bentley and is vigorously defending its position in
this proceeding, but at present is unable to predict an outcome.  A
decision by the arbitration panel in favor of Bentley could
immediately and significantly impact the results of operations and
cash position of the Company.

Other Risks and Uncertainties.  The Company develops its own
graphics, data management, and applications software as part of its
continuing product development activities.  The Company has standard
license agreements with Microsoft Corporation for use and
distribution of the Windows NT operating system and with UNIX Systems
Laboratories for use and distribution of the UNIX operating system.
The license agreements are perpetual and allow the Company to
sublicense the operating systems software upon payment of required
sublicensing fees.  The Company also has an extensive program for the
licensing of third-party application and general utility software for
use on systems and workstations.

The Company owns and maintains a number of registered patents and
registered and unregistered copyrights, trademarks, and service
marks.  The patents and copyrights held by the Company are the
principal means by which the Company preserves and protects the
intellectual property rights embodied in the Company's hardware and
software products.  Similarly, trademark rights held by the Company
are used to preserve and protect the goodwill represented by the
Company's registered and unregistered trademarks.

As industry standards proliferate, there is a possibility that the
patents of others may become a significant factor in the Company's
business.  Personal computer technology is widely available, and many
companies, including Intergraph, are attempting to develop patent
positions concerning technological improvements related to personal
computers and workstations.  With the possible exception of its
ongoing litigation with Intel (in which the Company expects to
prevail), it does not appear the Company will be prevented from using
the technology necessary to compete successfully, since patented
technology is typically available in the industry under royalty
bearing licenses or patent cross licenses, or the technology can be
purchased on the open market.  Any increase in royalty payments or
purchase costs would increase the Company's costs of manufacture,
however, and it is possible that some key improvement necessary to
compete successfully in markets served by the Company may not be
available.

An inability to retain significant third party license rights, in
particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain current technical
information or any required patent rights of others through licensing
or purchase, all of which are important to success in the industry in
which the Company competes, could significantly reduce the Company's
revenues and adversely affect its results of operations.

Technology significant to the Company is sometimes made available in
the form of proprietary information or trade secrets of others.
Prior to the dispute with Intel, Intel had made freely available
technical information used by the Company to design, market and
support its products that use Intel components.  Such information is
claimed by Intel to be proprietary and is made available by Intel
only under nondisclosure agreements.  Prior to the April 1998 ruling
of the Alabama Court, Intel was withholding such information,
attempting to cancel existing agreements and refusing to enter into
new nondisclosure agreements with the Company.  Intel's actions are
the subject matter of current litigation, and Intel has appealed the
April 1998 court ruling.  Intel's actions have damaged the Company by
slowing the introduction of new products using Intel components and
preventing proper maintenance and support of Company products using
Intel components.  The Company expects the Appeals Court to uphold
the April 1998 ruling.  However, if the ruling is overturned, the
Company will be materially affected and may be forced to alter its
future business plans or to accept unfavorable terms from Intel in
settlement of the lawsuit.

Until recently, most computer programs were written to store only
two digits of date-related information.  Such programs may be unable
to distinguish between the year 1900 and the year 2000.  Unless
corrected or replaced, programs with this inability could cause data
processing malfunctions and computer system failures.  The Company
has initiated a program to mitigate and/or prevent possible adverse
effects on operations of Year 2000 problems in its software and
hardware products sold to customers and in its internally used
software and hardware.

The Company's efforts to identify and resolve Year 2000 issues
related to its hardware and software product offerings are nearing
completion.  All products currently offered in the Company's standard
price list are Year 2000 compliant or will be so certified as new
versions and utilities are released.  In addition, the Company has
completed a significant effort to contact its customers and business
partners to ensure that customers are aware of how to acquire
detailed Year 2000 information regarding any Intergraph-produced
product.  The Company's Web site allows customers to request specific
product information related to the Year 2000 issue, and provides a
mechanism for requesting specific product upgrade paths.  Customers
under maintenance contract with the Company are being upgraded to
compliant versions of the Company's software, and selected hardware
remedies have been completed where appropriate.  Accordingly, the
Company does not believe that any Year 2000 problems in its installed
base of products or in its current product offerings present a
material exposure for the Company.  However, the Company could suffer
a loss of maintenance revenue should its customers discontinue any
noncompliant products and not replace them with other products of the
Company, and product sales could be lost should customers replace any
noncompliant products with products of other companies.  In addition,
any liability claims by customers would increase the Company's legal
expenses and, if successful, could have an adverse impact on the
results of operations and financial position of the Company.

The Company's product compliance costs have not had and are not
anticipated to have a material impact on its results of operations or
financial condition.

Year 2000 readiness of the Company's business critical internal
systems has been made a top priority by the Company's Year 2000
Program Team.  These efforts were primarily concentrated in the third
and fourth quarters of 1998, with significant efforts continuing
through the first half of 1999.  All business critical internal
systems upgrades and programming changes are scheduled to be tested
and implemented by the end of second quarter 1999.  The Company is
currently on target to meet this deadline.  In the fourth quarter of
1998, the Company selected several new financial and administrative
systems, in part a response to Year 2000 issues, which will be
implemented over the next two years.  Certain of these new systems
form a part of the Company's Year 2000 internal solution and will be
implemented in 1999.  The Company estimates that costs related to new
systems implementations, the majority of which will be capitalized as
internal use software and amortized to operations over the estimated
useful lives of the systems, will approximate $6 - 10 million in 1999
and 2000, a portion of which relates directly to Year 2000 issues.
If certain system replacements and changes are not completed timely,
the Year 2000 issue could have an adverse impact on the
administrative systems of the Company.  The Company believes that it
will successfully implement all internal systems changes and
replacements necessary to ensure the Year 2000 compliance of all
business critical internal systems, but has contingency plans to
further upgrade existing systems if implementation falls behind
schedule.

The Company is conducting a program of investigation with its
critical suppliers to ensure continuous and uninterrupted supply, and
includes Year 2000 provisions in its new supplier agreements.  This
program consists primarily of a major survey campaign and aggressive
follow-up with significant suppliers to monitor compliance.  The
Company has also initiated discussions with other entities with which
it interacts electronically, including customers and financial
institutions, to ensure those parties have appropriate plans to
remediate any Year 2000 issues.  To date, responses to third party
Year 2000 surveys do not provide assurance that these third parties
will achieve Year 2000 compliance, as most companies are reluctant to
make such representations.  However, most of these parties have Year
2000 programs in place and, to date, no significant risks have been
identified.  There cannot be complete assurance that the systems of
other companies on which the Company relies will be converted timely,
and the Company could be adversely impacted by any suppliers,
customers, and other businesses who do not successfully address this
issue.  The Company continues to assess these risks in order to
reduce any potential adverse impact.  The Company will develop
contingency plans by the end of second quarter 1999 to address
potential third party noncompliance issues, should any be present.

The costs of the Year 2000 project and the dates on which significant
phases will be completed are based on management's best estimates,
which have been derived utilizing numerous assumptions of future
events, including the continued availability of certain resources,
third party modification plans, and other factors.  There can be no
assurance that these estimates of costs and completion dates will be
achieved, and actual results could differ materially from those
anticipated.  Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes and implement new systems in a
timely manner, and similar uncertainties.

The Company believes it has an effective program in place to resolve
the Year 2000 issue with respect to its internal systems in a timely
manner; however, it has not yet completed all necessary phases of
this program.  In the event that the Company does not complete any
additional phases, which is not anticipated, the Company could
experience significant delays in sales order processing, shipping,
invoicing, and collections, among other areas.  In addition, the
Company's operations could be materially adversely affected if Year
2000 compliance is not achieved by significant vendors.

See Notes 1, 4, 6, 7, and 11 to Consolidated Financial Statements for
further discussion of risks and uncertainties related to the Company.

Orders.  Systems orders for 1998 were $794 million, a 3% increase
over the prior year after increases of 7% and 1% in 1997 and 1996,
respectively.  Order levels in 1996 and 1997 were adversely affected
by slower than anticipated customer and market acceptance of the
Windows NT/Intel strategy and, in 1997 and 1998, by the previously
described actions of Intel.  Orders in 1996 and 1997 were
characterized by less than anticipated demand for the Company's
hardware product offerings and by weakened demand for its software
products.  New software and certain of the new hardware products
released in 1996 did not generate significant orders or revenues
during the year.  Releases of the Company's software products based
on its Jupiter technology were delayed until late 1996 and initially
contained certain performance problems.  These problems were resolved
in subsequent releases of the products during fourth quarter 1996 and
first quarter 1997, and sales momentum began to increase during the
second quarter of 1997.  However, hardware orders in the last half of
1997 were adversely impacted by a two month delay in shipment of the
Company's TDZ 2000 line of workstations resulting from Intel's
wrongful conduct and delays.  Order levels in 1998 were further
reduced by the March sale of the Company's Solid Edge and Engineering
Modeling System product lines and by the continuing effects of the
dispute with Intel.  By the end of fourth quarter 1998, all of the
Company's hardware product offerings contained the latest Intel
technology and were technologically back in line with industry
competition.  Fourth quarter 1998 orders improved to $242 million,
leaving the Company with a year-end backlog of $237 million, the
highest level since 1992.

Geographic Regions.  U.S. orders, including federal government
orders, totaled $450 million for the year, up 11% after an increase
of 24% in 1997 and a decline of 7% in 1996.  The 1996 orders decline
resulted primarily from a decrease in orders in one of the Company's
unprofitable business units sold in early 1997.  Excluding this
business unit, U.S. orders for 1997 were up 29% and flat for 1996.
The increases in both 1997 and 1998 are attributable to growth in the
Company's hardware business and in orders received from the federal
government.  Federal orders were up 25% and 5%, respectively, in 1997
and 1998.  The 1998 orders growth, both federal and commercial, was
concentrated primarily in the fourth quarter as the U.S. hardware
business began to recover slightly from the effects of the Intel
dispute.  International orders for 1998 totaled $344 million for the
year, a 6% decline from the prior year after a decline of 7% in 1997
and an increase of 9% in 1996. Asia Pacific orders totaled $65
million in 1998, a decrease of 11% from 1997, after declining 35% in
1997 and increasing 45% in 1996.  Growth in that region in 1996 was
due to several individually significant orders for the Company's
public safety products and related consulting services.  Such orders
did not recur in 1997 or 1998.  Additionally, devaluation of Asian
currencies, most notably the Korean won, had a negative impact on
orders for the region during the fourth quarter of 1997 and
throughout 1998.  European orders totaled $210 million, down 5% from
the prior year level, after remaining flat in 1997 and declining 5%
in 1996.  European and Asian order levels in terms of U.S. dollars
were reduced by approximately 2% and 9%, respectively, in 1998 (10%
and 5%, respectively, in 1997) due to strengthening of the U.S.
dollar against the currencies of those regions.

New Products.  During 1996, the Company introduced a complete line of
workstations and servers for the high-end marketplace based on
Intel's Pentium Pro microprocessor.  In addition, the Company
introduced a new add-in 3D graphics card which provides workstation
class 3D graphics to the Pentium- or Pentium Pro- based personal
computer.  During 1997, the Company added a line of Intel/Windows-
based personal workstations priced to compete in the PC market.  The
workstations have features and performance required by professional
users and provide 3D graphics that the Company believes will be
required by users in the future.  The Company also introduced twelve
new workstations in its TD and TDZ lines, including the first Windows
NT-based workstations using dual Intel Pentium II processors.  Also
introduced were two new InterServe servers, the ImageStation Z
digital photogrammatic workstation, and the first 28-inch, high
resolution, wide-format monitor.  These new products commenced
shipping at various dates throughout 1997 but, as previously
described, the Company suffered delays in new product development and
shipping due to actions of Intel that placed the Company at a
competitive disadvantage.

Also during 1997, the Company introduced and began shipping GeoMedia
1.0, a Jupiter-based software product which allows users to access
data warehouses virtually anywhere in the world and simultaneously
perform analyses with varying data types and formats.

During 1998 the Company introduced its new Wildcat 3D graphics
technology, which increases the performance of Windows NT-based
workstations beyond current 3D graphics technology.  This technology
enables creative and technical professionals to work interactively in
real time with more realistic full-sized, fully textured 3D models.
The technology, which was originally scheduled to ship in December
1998, began delivering in late October in the Company's TDZ
workstations.  New products that are under development by the Company
leverage the existing Wildcat technology to deliver up to four times
more performance.  This new Wildcat series of 3D graphics
accelerators will be available in the Company's TDZ workstations as
well as in workstations of other computer vendors.

The success of new product introductions is dependent on a number of
factors, including market acceptance, the Company's management of
risk associated with product transition, the effective management of
inventory levels in line with anticipated demand, and the industry-
wide risk that new products may have defects in the introductory
stage.  Because of these uncertainties, the Company cannot determine
the ultimate effect that new products will have on its sales or
operating results.

Revenues.  Total revenues for 1998 were $1 billion, down 8% from the
prior year level after a 3% increase in 1997 and flat revenues in
1996.

Systems.  Sales of Intergraph systems in 1998 were $726 million, down
8% after increases of 8% and 2% in 1997 and 1996, respectively.
Factors previously cited as affecting systems orders in total and on
a geographic basis, including the actions of Intel in 1997 and 1998,
also affected systems revenues over the three-year period.
Competitive conditions manifested in declining per unit sales prices
continue to adversely affect the Company's systems revenues and
margin.

Geographic Regions. In total, the 1998 revenue decline was primarily
due to factors associated with the Intel lawsuit and the sale of the
Company's Solid Edge and Engineering Modeling System product lines
and, in Asia, to currency and economic problems affecting the region.
U.S. systems sales, including sales to the federal government,
decreased by 1% in 1998 after increasing by 17% and 2% in 1997 and
1996, respectively.  Growth in U.S. systems sales was depressed in
1996 by a revenue decline in one of the Company's unprofitable
business units sold in early 1997.  Excluding this business unit,
U.S. sales growth was 22% in 1997 and 7% in 1996.  The revenue
decline in 1998 was due primarily to a 7% decrease in sales to the
federal government, partially offset by growth in the Company's
public safety business.  During the second half of 1997 and the first
quarter of 1998, Intergraph Public Safety secured several large U.S.
installations, significantly increasing the subsidiary's revenue
base.  International sales totaled $339 million for the year, down
12% from the prior year after a slight increase in 1997 and a 3%
increase in 1996.  European sales were down 13%, after an increase of
3% in 1997 and a 6% decline in 1996 as the result of weak demand for
the Company's software products.  Asia Pacific systems sales were
down 25% after a 12% decline in 1997 and a 25% increase in 1996.

Software.  Sales of the Company's software applications declined by
16% in 1998 after a 1% decline in 1997 and a 9% decline in 1996.
Sales of MicroStation declined by 46%, 34% and 39% in 1998, 1997 and
1996, respectively (see "MicroStation" below for further discussion).
Additionally, 1996 revenues were adversely affected by the previously
discussed delays in new software releases.  In 1997 and 1998, sales
of the Company's plant design software applications increased by 21%
and 19%, respectively, partially offsetting the effect of the loss in
MicroStation sales.  However, 1998 revenues were further reduced by
an 82% decline in sales of mechanical software applications as a
result of the sale of the Company's Solid Edge and Engineering
Modeling System product lines. (See "Nonoperating Income and Expense"
below for further discussion.)

In terms of broad market segments, the Company's mapping/geographic
information systems and architecture/engineering/construction product
applications continue to dominate the Company's product mix at
approximately 47% and 19% of total systems sales in 1998,
respectively, (57% and 27%, respectively, in 1997).  Due to the sale
of the Company's Solid Edge and Engineering Modeling System product
lines in March 1998, mechanical design, engineering and manufacturing
applications no longer represent a significant portion of the
Company's product mix.  These applications represented 14% of total
systems sales in 1997.  Sales of Windows-based software represented
approximately 90% of total software sales in 1998, up from
approximately 87% in 1997 and 80% in 1996.  UNIX-based software
comprised approximately 10% of total 1998 software sales, down from
approximately 13% in 1997 and 20% in 1996.

Hardware.  Total hardware revenue decreased by 10% in 1998, after
increasing by 22% and 12% in 1997 and 1996, respectively.
Workstation and server unit volume increased 6% in 1998, 67% in 1997
and 42% in 1996, while workstation and server revenue declined by 9%
in 1998 after increasing by 6% and 18% in 1997 and 1996,
respectively.  Price competition continues to erode per unit selling
prices, and volumes in 1998 were suppressed by the aforementioned
factors associated with the Intel lawsuit.  Revenue from other
hardware products decreased by 11% in 1998, after increasing by 64%
in 1997 and decreasing by 1% in 1996. Both the 1997 increase and the
1998 decline relate primarily to sales of graphics cards and storage
devices.  Sales of the Company's first add-in 3D graphics cards,
which began shipping during the third quarter of 1996, were initially
strong and grew throughout 1997.  However, 1998 sales were below the
Company's expectations as the products approached the end of their
life cycle.  The Company expects the demand for graphics cards to
increase throughout 1999 with the availability of new products based
upon its Wildcat 3D graphics technology.  Intel-based systems
represented approximately 100% of hardware unit sales for the three
years ended December 31, 1998.

Federal Government Sales.  Total revenue from the United States
government was approximately $166 million in 1998, $177 million in
1997 and $161 million in 1996, representing approximately 16% of
total revenues in 1998 and 1997 and 15% in 1996.  In 1998, U.S.
government orders and revenues were characterized by weakened demand
for the Company's hardware product offerings, due partially to
increasing price competition within the industry.  The Company sells
to the U.S. government under long-term contractual arrangements,
primarily indefinite delivery, indefinite quantity and cost-plus
award fee contracts, and through commercial sales of products not
covered by long-term contracts.  Approximately 44% of total federal
government revenues are earned under long-term contracts.  The
Company believes its relationship with the federal government to be
good.  While it is fully anticipated that these contracts will remain
in effect through their expiration, the contracts are subject to
termination at the election of the government.  Any loss of a
significant government contract would have an adverse impact on the
results of operations of the Company.

MicroStation.  Through the end of 1994, the Company had an exclusive
license agreement with Bentley Systems, Inc., an approximately 50%-
owned affiliate of the Company, under which the Company distributed
MicroStation, a software product developed and maintained by Bentley
and utilized in many of the Company's software applications.  As a
result of settlement of a dispute between the companies relative to
the exclusivity of the Company's distribution license, effective
January 1, 1995, the Company has a nonexclusive license to sell
MicroStation via its direct sales force and to sell MicroStation via
its indirect sales channels if MicroStation is sold with other
Intergraph products.  See "Litigation and Other Risks and
Uncertainties" preceding for a description of arbitration proceedings
between the Company and Bentley.

The Company's sales of MicroStation have declined each year since the
1994 change in the license agreement, by approximately 39% in 1996,
34% in 1997, and 46% in 1998.  The Company estimates this revenue
decline, along with a per copy royalty increase in 1996, adversely
affected its results of operations by approximately $7 million or
$.14 per share in 1997 and by approximately $26 million or $.52 per
share in 1996.  In 1998, MicroStation sales represented 8% of total
software revenue.  The Company is unable to predict the level of
MicroStation sales that will occur in the future, but it is likely
that such sales will be further reduced.

Maintenance and Services.  Maintenance and services revenue consists
of revenues from maintenance of Company systems and from Company
provided services, primarily training and consulting.  These forms of
revenue totaled $307 million in 1998, down 9% after declines of 9%
and 5% in 1997 and 1996, respectively.  Maintenance revenues totaled
$213 million in 1998, down 13% after declines of 13% and 12% in 1997
and 1996, respectively.  The trend in the industry toward lower
priced products and longer warranty periods has resulted in reduced
levels of maintenance revenue, and the Company believes this trend
will continue in the future.  Services revenue represented 9% of
total revenues in 1998, an increase of one percentage point from the
previous year.  Growth in services revenue has partially offset the
decline in maintenance revenue.  The Company is endeavoring to grow
its services business and has redirected the efforts of its hardware
maintenance organization to focus increasingly on systems
integration.  Revenues on these services, however, typically produce
lower gross margins than maintenance revenues.

Gross Margin.  The Company's total gross margin was 31.5% in 1998,
down 4.1 points after declines of 1.2 points and 2.3 points in 1997
and 1996, respectively.

Margin on systems sales declined 5.4 points in 1998, 1.2 points in
1997 and 2.3 points in 1996.  Competitive pricing conditions in the
industry and an increasing hardware content in the product mix
reduced systems margin in all three years.   Margin was adversely
impacted in 1996 by the increase in MicroStation product cost and
further affected in 1997 by a decrease in the mix of international
systems revenues to total Company systems revenues, due in part to
strengthening of the U.S. dollar in international markets, primarily
Europe and Asia.  In 1998, margin was negatively impacted by
unfavorable volume related manufacturing variances and inventory
revaluations incurred prior to the outsourcing of the Company's
manufacturing to SCI in November.  Systems margins continue to be
negatively impacted by strengthening of the U.S. dollar in
international markets and by the previously discussed factors
associated with the Intel dispute.  In 1999, the Company expects to
realize slight improvement in its systems margin as a result of its
outsourcing agreement with SCI and associated reductions in
headcount and materials costs.

In general, the Company's systems margin may be lowered by price
competition, a higher hardware content in the product mix, a stronger
U.S. dollar in international markets, the effects of technological
changes on the value of existing inventories, and a higher mix of
federal government sales, which generally produce lower margins than
commercial sales.  Systems margins may be improved by higher software
content in the product, a weaker dollar in international markets, a
higher mix of international systems sales to total systems sales, and
reductions in prices of component parts, which generally tend to
decline over time in the industry.  The Company is unable to predict
the effects that many of these factors may have on its systems
margins.  While the Company expects to achieve cost savings through
its outsourcing agreement with SCI, it also continues to expect
pressure on its systems margin as a result of increasing industry
price competition.

Margin on maintenance and services revenue declined by 1.1 points in
1998 after declines of .8 points in 1997 and 2.2 points in 1996.  The
margin declines over the past three years have resulted primarily
from declining maintenance revenues.  The Company closely monitors
its maintenance and services costs and has taken certain measures,
including reductions in headcount, to align these costs with current
revenue levels.  The Company believes that the trend in the industry
toward lower priced products and longer warranty periods will
continue to reduce its maintenance revenue, which will pressure
maintenance margin in the absence of corresponding cost reductions.

The industry in which the Company competes is characterized by rapid
technological change.  This technological change is an important
consideration in the Company's overall manufacturing and inventory
management program, in which the Company endeavors to purchase only
parts and systems utilizable with the technology of its current
product offerings and as spares for the customer contracted
maintenance of systems in its installed customer base.  In November
1998 the Company sold substantially all of its U.S. manufacturing
assets, including inventories with a book value of approximately $60
million, to SCI, and SCI assumed responsibility for the manufacturing
of substantially all of the Company's hardware products.  (See "SCI"
preceding for a complete description of this transaction.)  Effective
inventory and purchasing management remains necessary in order for
the Company to provide SCI with accurate and timely information
regarding its needs.  Any unanticipated change in technology or an
inability of the Company to accurately forecast its manufacturing
needs could significantly and adversely affect gross margins and
reported results of operations.

Operating Expenses (exclusive of nonrecurring operating charges).
Operating expenses declined by 7% in 1998, 2% in 1997 and 3% in 1996.
In response to the level of its operating losses, the Company has
reduced the total number of its employees by 21% during the three-
year period ended December 31, 1998.

Product development expense declined by 15% in 1998 after declines of
5% and 7% in the two preceding years.  Employee headcount in the
development areas has been significantly reduced over the last three
years through reductions in force, attrition, and the sale of two
unprofitable business units in early 1997. Additionally, 1996 and
1998 expenses were reduced due to additional software development
projects qualifying for capitalization, in 1996 for the Company's
Jupiter technology and in 1998 for its Geomedia product line.

The Company capitalizes a portion of the cost of development of new
products and amortizes those costs against revenues later generated
by those products.  Though the Company regularly reviews its
capitalized development costs to ensure recognition of any decline in
value, it is possible that, for any given product, revenues will not
materialize in amounts anticipated due to industry conditions that
include intense price and performance competition, or that product
lives will be reduced due to shorter product cycles.  Should these
events occur, the carrying amount of capitalized development costs
would be reduced and would produce adverse effects on systems margin
and results of operations.

Sales and marketing expense decreased 6% in 1998, after declines of
2% in 1997 and 5% in 1996.  Expenses in all three years were reduced
by the strengthening of the U.S. dollar against international
currencies, primarily in Europe and Asia.  The expense decline in
1996 reflected the benefits of restructuring actions taken in 1995.
In 1997, expenses were significantly reduced due to the sale of two
unprofitable business units, but the resulting benefits were
partially offset by increased trade show activity and advertising
expenses for the Company's new products.  The 1998 decline is
primarily due to across the board expense reductions in Europe
resulting from restructuring actions taken in the first quarter (See
"Nonrecurring Operating Charges").

General and administrative expense for 1998 was flat with the prior
year level after increases of 3% and 4% in 1997 and 1996,
respectively.  In 1996, installation of new internal business
systems, increased legal expenses, and amortization of deferred
financing costs related to the Company's line of credit increased
general and administrative expense.  The 1997 expense increase
resulted primarily from increased legal expenses (see "Litigation and
Other Risks and Uncertainties"), partially offset by strengthening of
the U.S. dollar.  In 1998, legal expenses continued to increase, but
their impact was offset by benefits resulting from European headcount
reductions and the continued strengthening of the U.S. dollar.

Nonoperating Income and Expense.  Interest expense was $7.5 million
in 1998, $6.6 million in 1997 and  $5.1 million in 1996.  The
Company's average outstanding debt has increased over the three-year
period due to operating losses and resultant borrowings under the
Company's revolving credit facility and term loan.  However, the
average rate of interest paid on the debt has declined approximately
2 points from the 1996 level due to generally declining rates and a
change in lenders and terms under the Company's primary credit
facility.  See "Liquidity and Capital Resources" below for a
discussion of the Company's current financing arrangements.

In March 1998, the Company sold its Solid Edge and Engineering
Modeling System product lines to Electronic Data Systems Corporation
and its Unigraphics Solutions, Inc. subsidiary for $105 million in
cash.  The Company recorded a gain on this transaction of $102.8
million.  This gain is included in "Gains on sales of assets" in the
1998 consolidated statement of operations.  Full year 1997 revenues
and operating loss for these product lines were $35.2 million and
$4.1 million, respectively.  Based on 1997 performance, the Company
estimates that the sale of this business resulted in an improvement
in its 1998 operating results of approximately $5 million, excluding
the impact of the gain on the sale.

In April 1998, the Company sold the assets of its printed circuit
board manufacturing facility for $16 million in cash.  The Company
recorded a gain on this transaction of $8.3 million.  This gain is
included in "Gains on sales of assets" in the 1998 consolidated
statement of operations.  The Company is now outsourcing its printed
circuit board needs.  This operational change did not materially
impact the Company's results of operations in 1998.

In 1997, the Company incurred a $6.1 million or $.13 per share charge
for a contract arbitration award to Bentley Systems, Inc.  This
charge is included in "Arbitration award" in the 1997 consolidated
statement of operations.  See "Litigation and Other Risks and
Uncertainties" and "Revenues" preceding for further discussion of the
Company's business relationship with Bentley, its sales of
MicroStation, and the financial effects on the Company of changes in
this business relationship.

Also in 1997, the Company sold a stock investment in a publicly
traded affiliate, resulting in a gain of $4.9 million or $.10 per
share.  During 1996, the Company sold stock investments in affiliated
companies for a total gain of $11.2 million or $.23 per share.  These
gains are included in "Gains on sales of assets" in the consolidated
statements of operations.

"Other income (expense) - net" in the consolidated statements of
operations consists primarily of interest income, foreign exchange
gains (losses), equity in the earnings of investee companies, and
other miscellaneous items of nonoperating income and expense.
Significant items included in these amounts are foreign exchange
losses of $2.7 million in 1997 and $4.6 million in 1996.

Income Taxes.  The Company incurred losses before income taxes of
$13.6 million in 1998, $66.2 million in 1997 and $66.1 million in
1996.  Income tax expense for the three years ended December 31, 1998
resulted primarily from taxes on individually profitable subsidiaries
and from alternative minimum tax on gains from the sale of assets in
1998.

Note 8 of Notes to Consolidated Financial Statements contains a
reconciliation of statutory to actual income tax benefit or expense
and further details of the Company's tax position, including net
operating loss and tax credit carryforwards.

Results by Operating Segment.  Effective January 1, 1998, the Company
divided its business into four reporting segments for operational and
management purposes:  Intergraph Computer Systems (ICS), Intergraph
Public Safety, Inc. (IPS), VeriBest, Inc. and the Software and
Federal Systems (Federal) business (Intergraph).  ICS supplies
high performance Windows NT-based graphics workstations and PCs, 3D
graphic subsystems, servers, and other hardware products.  IPS
develops, markets, and implements systems for public safety agencies.
VeriBest serves the electronic design automation market, providing
software design tools, design processes, and consulting services for
developers of electronic systems.  Intergraph supplies software and
solutions, including hardware purchased from ICS, consulting, and
services to the federal government and to the process and building
and infrastructure industries.

The Company evaluates performance of its operating segments based on
revenue and income from operations.  Sales among the operating
segments, the most significant of which are sales of hardware
products from ICS to the other segments, are accounted for under a
transfer pricing policy.  Transfer prices approximate prices that
would be charged for the same or similar property to similarly
situated unrelated buyers.  In the U.S., intersegment sales of
products and services to be used for internal purposes are charged at
cost.  For international subsidiaries, transfer price is charged on
intersegment sales of products and services to be used for either
internal purposes or sale to customers.  Certain expenses, primarily
general and administrative expenses, not directly attributable to an
operating segment are considered corporate in nature and not charged
to any operating segment.  In addition, gains on sales of assets and
nonrecurring charges to operations (see "Summary" section above),
which were significant in 1998, are not credited or charged to the
operating segments.

The Company's current model for evaluation of the performance of its
operating segments was adopted in 1998 for that and future years.  In
prior years the Company utilized several variations of the current
model, depending on the Company's structure and its business
environment at the time.  Segment financial information for years
prior to 1998 has not been restated to conform to the 1998 model
because it is impractical to do so.  Since VeriBest and IPS have been
operating as separate subsidiaries since 1996 and 1997, respectively,
and since by nature of their businesses they are less affected by
changes from the model utilized before 1998, comparable information
is available.  See Note 11 of Notes to Consolidated Financial
Statements.

In 1998, ICS incurred an operating loss of $68.1 million on revenues
of $453.7 million.  This loss excludes the impact of certain
nonrecurring income and operating expense items associated with ICS's
operations, including gains totaling $9.8 million on the sales of its
printed circuit board and manufacturing inventory and assets, and
nonrecurring operating expenses of $.8 million, primarily for
employee terminations.  ICS's operating loss for the year resulted
primarily from a systems gross margin of 9%, which is insufficient to
cover the current level of operating expenses.  ICS was significantly
adversely impacted in 1998 by factors associated with the Company's
dispute with Intel, the effects of which included lost momentum, lost
revenue and margin as well as increased operating expenses, primarily
for marketing and public relations expenses.  Margins were severely
impacted by volume and inventory value related manufacturing
variances incurred prior to the outsourcing of its manufacturing to
SCI.  For 1999, ICS estimates that this outsourcing will slightly
improve its systems margins.  In addition, ICS expects its operating
results to improve due to headcount reductions taken during 1998.
During the year, ICS's headcount was reduced by approximately 33% due
to employee terminations, the outsourcing of manufacturing, and
normal attrition.  See "Litigation and Other Risks and Uncertainties"
for further discussion of significant uncertainties that may
adversely affect the results of operations of ICS and the Company.

In 1998, Intergraph Public Safety earned operating income of $3.5
million on revenues of $51.1 million, compared to an operating loss
in 1997 of $2.2 million on revenues of $50.4 million.  Systems margin
increased by 6.4 points from the 1997 level, due primarily to growth
in the subsidiary's U.S. revenue base.  In addition, sales and
marketing and general and administrative expenses declined by 29% and
26%, respectively, from the prior year level, primarily the result of
reduced compensation costs incurred by the IPS international
locations.

VeriBest incurred operating losses of $12.4 million, $16.4 million,
and $15.5 million in 1998, 1997, and 1996, respectively, on revenues
of $28.2 million, $29.3 million, and $31 million.  Systems revenues
declined by 13% and 19%, respectively, in 1997 and 1998, reflecting
weakening demand for the subsidiary's software products.  In 1998,
the decline in systems revenues was partially offset by a 25%
increase in maintenance revenues as the result of sales force focus
on increasing the subsidiary's maintenance revenue base.  Results for
1997 were negatively impacted by a 5 point decline in gross margin,
primarily the result of declining systems revenues, partially offset
by a 5% decline in operating expenses.  Losses for 1998 were reduced
by a 5 point improvement in gross margin as the result of declining
royalty costs, and by an additional 10% reduction in operating
expenses.  VeriBest's headcount has declined by approximately 28%
since the subsidiary's inception in January 1996.  In 1999, VeriBest
expects to realize improvements in its revenues, margins and
operating expenses as it directs its selling efforts toward a newly
developed line of proprietary products and realizes benefits of its
reduced headcount and revised selling strategy toward indirect
methods.

In 1998, the Software business earned operating income of $14.1
million on revenues of $534.2 million.  This income excludes the
impact of certain nonrecurring income and operating expense items
associated with Software operations, including the gain of $102.8
million on the sale of the business unit's Solid Edge and Engineering
Modeling System product lines and nonrecurring operating charges of
$14.6 million, primarily for asset write-offs and employee
terminations.  In 1998, Federal incurred an operating loss of $3.6
million on revenues of $158.6 million.  Revenues in 1998 were
adversely impacted by weakened demand for the Company's hardware
product offerings, due partially to increasing price competition
within the industry.

See Note 11 of Notes to Consolidated Financial Statements for further
details of results by operating segment.

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 1998, approximately 51% of the Company's revenues were derived
from customers outside the United States, primarily through
subsidiary operations.  Most subsidiaries sell to customers and incur
and pay operating expenses in local currency.  These local currency
revenues and expenses are translated to U.S. dollars for reporting
purposes.  A stronger U.S. dollar will decrease the level of reported
U.S. dollar orders and revenues, decrease the dollar gross margin,
and decrease reported dollar operating expenses of the international
subsidiaries.  During 1998, the U.S. dollar strengthened on average
from the prior year level, which decreased reported dollar revenues,
orders, and gross margin, but also decreased reported dollar
operating expenses in comparison to the prior year period.  The
Company estimates that strengthening of the U.S. dollar in 1998 and
1997 in its international markets, primarily Europe and Asia,
adversely impacted 1998 and 1997 results of operations by
approximately $.10 and $.30 per share, respectively.  Such currency
effects did not materially affect the Company's results of operations
in 1996.  To illustrate the sensitivity of the Company's results of
operations to changes in international currency exchange rates, the
Company estimates that the result of a uniform 10% strengthening in
the value of the dollar relative to the currencies in which the
Company's sales are denominated would result in a decrease in
earnings of approximately $9 million for the year ended December 31,
1999.  Likewise a uniform 10% weakening in the value of the dollar
would result in increased earnings of approximately $13 million for
the year ended December 31, 1999.  This calculation assumes that each
exchange rate would change in the same direction relative to the U.S.
dollar.  In addition to the direct effects of changes in exchange
rates, exchange rate fluctuations may also affect the volume of sales
and foreign currency sales prices.  The Company's estimation of the
effects of changes in foreign currency exchange rates does not
consider potential changes in sales levels or local currency prices.

The Company conducts business in all major markets outside the U.S.,
but the most significant of these operations with respect to currency
risk are located in Europe and Asia.  Local currencies are the
functional currencies for the Company's European subsidiaries.  The
U.S. dollar is the functional currency for all other international
subsidiaries.  With respect to the currency exposures in these
regions, the objective of the Company is to protect against financial
statement volatility arising from changes in exchange rates with
respect to amounts denominated for balance sheet purposes in a
currency other than the functional currency of the local entity.  The
Company will therefore enter into forward exchange contracts related
to certain balance sheet items, primarily intercompany receivables,
payables, and formalized intercompany debt, when a specific risk has
been identified.  Periodic changes in the value of these contracts
offset exchange rate related changes in the financial statement value
of these balance sheet items.  Forward exchange contracts, generally
less than three months in duration, are purchased with maturities
reflecting the expected settlement dates of the balance sheet items
being hedged, and only in amounts sufficient to offset possible
significant currency rate related changes in the recorded values of
these balance sheet items, which represent a calculable exposure for
the Company from period to period.  Since this risk is calculable,
and these contracts are purchased only in offsetting amounts, neither
the contracts themselves nor the exposed foreign currency denominated
balance sheet items are likely to have a significant effect on the
Company's financial position or results of operations.  The Company
does not generally hedge exposures related to foreign currency
denominated assets and liabilities that are not of an intercompany
nature, unless a significant risk has been identified.  It is
possible the Company could incur significant exchange gains or losses
in the case of significant, abnormal fluctuations in a particular
currency.  By policy, the Company is prohibited from market
speculation via forward exchange contracts and therefore does not
take currency positions exceeding its known financial statement
exposures, and does not otherwise trade in currencies.

At December 31, 1998, the Company had net outstanding forward
exchange contracts of approximately $7.6 million ($37.4 million at
December 31, 1997), maturing at various dates through March 31, 1999.
The fair values of these contracts approximated original contract
amounts based on the insignificant amounts the Company would pay or
receive to transfer the contracts to third parties at December 31,
1998.  Net cash flow from forward contract activity, consisting of
realized gains and losses from settlement of exposed assets and
liabilities at exchange rates in effect at the settlement date rather
than at the time of recording, settlement of the forward contracts
purchased to mitigate these exposures, and payment of bank fees on
the forward contracts was not significant for any year in the three
year period ended December 31, 1998.  Deferred gains and losses as of
December 31, 1998 and 1997 were not significant.

At December 31, 1998, the Company's only outstanding forward
contracts related to formalized intercompany loans between the
Company's European subsidiaries.  Contracts outstanding at December
31, 1997 included hedges relating to intercompany loans made between
the U.S. and Europe.  As of first quarter 1998, the Company is no
longer hedging its U.S. exposures related to foreign currency
denominated intercompany loans.  To illustrate the sensitivity of the
Company's result of operations to changes in exchange rates for
international currencies underlying its intercompany loans, the
Company estimates that a uniform 10% strengthening in the value of
the dollar relative to the currencies in which such intercompany
loans are denominated at December 31, 1998 would result in a loss in
earnings of an insignificant amount.  Conversely, assuming a 10%
weakening in the value of the dollar relative to these currencies,
the Company would recognize an insignificant exchange gain.  This
calculation assumes that each exchange rate would change in the same
direction relative to the U.S. dollar.

The Company is exposed to foreign currency risks related to certain
of its financial instruments, primarily debt securities held by its
European subsidiaries, long-term mortgages on certain of its European
facilities, and an Australian term loan.  The effect of a uniform 10%
change in exchange rates relative to the currencies in which these
financial instruments are denominated would not have a material
impact on the Company's results of operations.

Euro Conversion.  On January 1, 1999, eleven member countries of the
European Monetary Union (EMU) fixed the conversion rates of their
national currencies to a single common currency, the "Euro".  The
national currencies of the participating countries will continue to
exist through July 1, 2002.  Euro currency will begin to circulate on
January 1, 2002.  With respect to the Company, U.S. and European
business systems are being upgraded to accommodate the Euro.
Conversion of all financial systems will be completed at various
times through the remainder of 1999.  The Company is prepared to
conduct business in Euros during 1999 with those customers and
vendors who choose to do so.  The Company is continuing to evaluate
business implications resulting from full Euro conversion by 2002,
including the impact of cross-border price transparency within the
EMU and exposure to market risk with respect to financial
instruments.  While the Company has not yet completed its assessment
of these business implications on its results of operations or
financial condition, it does not anticipate this impact will be
material.

See Notes 1 and 4 of Notes to Consolidated Financial Statements for
further information related to management of currency risk.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, cash totaled $95.5 million, up $48.8 million
from year-end 1997.  Net cash consumed by operations in 1998 and 1997
was $31.1 million and $20.9 million, respectively, versus a net
generation of cash of $26 million in 1996.  The net consumption of
cash in 1998 reflects the negative cash flow effects of increased
operating losses.  In 1997, an inventory build-up consumed
approximately $16 million as a result of an anticipated increase in
hardware unit sales volume and customer demand for faster delivery of
products.  The net increase in cash of $48.8 million in 1998 is the
result of various sales of assets, as further described below.

Net cash provided by investing activities in 1998 was $99.6 million,
compared to net cash consumption of $30.7 million in 1997 and $31.7
million in 1996.  Investing activities in 1998 included $160.5
million in proceeds from sales of various assets, including the
Company's Solid Edge and Engineering Modeling System product lines,
its manufacturing inventory and assets, and its printed circuit board
manufacturing facility, and an investment of $26.3 million for the
purchase of Zydex software rights.  Other significant investing
activities included capital expenditures of $17.3 million in 1998
($24.8 million in 1997 and $30.6 million in 1996), primarily for
Intergraph products used in hardware and software development and
sales and marketing activities, expenditures for capitalizable
software development of $15.7 million in 1998 ($10.6 million in 1997
and $15.5 million in 1996), and proceeds of $5.7 million in 1997 and
$11.6 million in 1996 from sales of business units and investments in
affiliated companies.

Net cash used for financing activities totaled $19.3 million for
1998, versus a net cash generation of $48.4 million in 1997,
including net debt repayments of $22.3 million in 1998 and net
borrowings of $44.9 million in 1997.

The Company's collection period for accounts receivable was
approximately 81 days as of December 31, 1998, representing a slight
decline from the prior year.  Approximately 67% of the Company's 1998
revenues were derived from international customers and the U.S.
government, both of which traditionally carry longer collection
periods.  The Company is experiencing slow collections throughout the
Middle East region, particularly in Saudi Arabia. Total accounts
receivable from Middle Eastern customers was approximately $23
million at December 31, 1998 and $21 million at December 31, 1997.
Total U.S. government accounts receivable was $55 million at December
31, 1998 ($53 million at December 31, 1997).  The Company endeavors
to enforce its payment terms with these and other customers, and
grants extended payment terms only in very limited circumstances.

The Company expects that capital expenditures will require $20
million to $25 million in 1999, primarily for Intergraph products
used in product development and sales and marketing activities.  The
Company's revolving credit agreement, among other restrictions,
limits the level of the Company's capital expenditures.

Under the Company's January 1997 four year fixed term loan and
revolving credit agreement, available borrowings are determined by
the amounts of eligible assets of the Company (the "borrowing base"),
as defined in the agreement, including accounts receivable and
inventory, with maximum borrowings of $125 million.  The $25 million
term loan portion of the agreement is due at expiration of the
agreement.  Borrowings are secured by a pledge of substantially all
of the Company's assets in the U.S.  The rate of interest on all
borrowings under the agreement is the greater of 7% or the Norwest
Bank Minnesota National Association base rate of interest (7.75% at
December 31, 1998) plus .625%.  The average effective rate of
interest was 9.1% for the period of time in 1998 during which the
Company had outstanding borrowings under this agreement.  The
agreement requires the Company to pay a facility fee at an annual
rate of .15% of the maximum amount available under the credit line,
an unused credit line fee at an annual rate of .25% of the
average unused portion of the revolving credit line, and a monthly
agency fee.  At December 31, 1998, the Company had outstanding
borrowings of $39.5 million, the $25 million term-loan portion of
which was classified as long-term debt in the consolidated balance
sheet, and an additional $31.6 million of the available credit line
was allocated to support letters of credit issued by the Company and
the Company's forward exchange contracts.  As of this same date, the
borrowing base, representing the maximum available credit under the
line, was approximately $90 million ($78 million at February 26,
1999).

In October 1998, the term loan and security agreement was amended to
incorporate the sale of the Company's manufacturing assets to SCI and
to modify the borrowing base accordingly.  This transaction has
resulted in an approximate $15 million borrowing base reduction,
primarily for eligible inventories that were sold to SCI.

The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital expenditures.
In addition, the agreement includes restrictive covenants that limit
or prevent various business transactions (including repurchases of
the Company's stock, dividend payments, mergers, acquisitions of or
investments in other businesses, and disposal of assets including
individual businesses, subsidiaries, and divisions) and limit or
prevent certain other business changes.

At December 31, 1998, the Company had approximately $73 million in
debt on which interest is charged under various floating rate
arrangements, primarily its four year term loan and revolving credit
agreement, mortgages, and an Australian term loan (see Note 7 of
Notes to Consolidated Financial Statements).  The Company is exposed
to market risk of future increases in interest rates on these loans,
with the exception of the Australian term loan, on which the Company
has entered into an interest rate swap agreement.  To illustrate the
sensitivity of the Company's results of operations to changes in
interest rates on its debt, the Company estimates that its results of
operations would not be materially affected by a two point increase
or decrease in the average interest rates related to its floating
rate debt.  This hypothetical change in rates was determined based on
the trend of the Company's actual rates over the past three years.
The Company's estimation assumes a level of debt consistent with the
December 31, 1998 level and does not consider the effects that
further operating losses, if any, will have on the balance of debt
outstanding.

In 1997 and 1998, the Company did not generate adequate cash to fund
its operations and build cash reserves.  The Company expects
improvement in its operating cash flows in 1999 as a result of
improved earnings, the outsourcing of its manufacturing operations,
and other management actions, described further above, undertaken to
reduce operating costs.  The Company believes that the combination of
improved cash flow from operations, its existing cash balances, and
cash available under its revolving credit agreement will be adequate
to meet cash requirements for 1999.  In the near term, the Company
must increase sales volume and continue to align its operating
expenses with the level of revenue being generated if it is to fund
its operations and build cash reserves without reliance on funds
generated from asset sales and from external financing.

FOURTH QUARTER 1998

Revenues for the fourth quarter were $286.7 million, down 5% from
fourth quarter 1997.  The Company incurred a net loss of $20.9
million ($.43 per share) for the quarter, flat with the fourth
quarter 1997 loss.  Operating expenses declined by 11% from fourth
quarter 1997, due primarily to reductions in headcount and an
increase in software development costs qualifying for capitalization.
However, the positive impact of this operating expense decline was
offset by expenses of approximately $7 million ($.14 per share)
incurred in fourth quarter 1998 relating to the Company's transition
to outsourcing of its manufacturing operations, and by a $2.1 million
($.04 per share) nonrecurring operating charge for employee
terminations.  Exchange rate fluctuations did not have a significant
impact on fourth quarter 1998 results of operations.


INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


---------------------------------------------------------------------------
December 31,                                             1998         1997
---------------------------------------------------------------------------
(In thousands except share and per share amounts)

Assets
    Cash and cash equivalents                        $ 95,473     $ 46,645
    Accounts receivable, net                          312,123      324,654
    Inventories                                        38,001      105,032
    Other current assets                               48,928       25,693
---------------------------------------------------------------------------   
        Total current assets                          494,525      502,024
    Investments in affiliates                          12,841       14,776
    Other assets                                       61,240       53,566
    Property, plant, and equipment, net               127,368      150,623
---------------------------------------------------------------------------
        Total Assets                                 $695,974     $720,989
===========================================================================

Liabilities and Shareholders' Equity
    Trade accounts payable                           $ 64,545     $ 60,945
    Accrued compensation                               42,445       48,330
    Other accrued expenses                             79,160       71,126
    Billings in excess of sales                        68,137       66,680
    Short-term debt and current maturities
     of long-term debt                                 23,718       50,409
---------------------------------------------------------------------------
        Total current liabilities                     278,005      297,490
    Deferred income taxes                               3,142          460
    Long-term debt                                     59,495       54,256
---------------------------------------------------------------------------
        Total liabilities                             340,642      352,206
---------------------------------------------------------------------------
    Shareholders' equity:
        Common stock, par value $.10 per share --
         100,000,000 shares authorized;
         57,361,362 shares issued                       5,736        5,736
        Additional paid-in capital                    222,705      226,362
        Retained earnings                             249,808      269,442
        Accumulated other comprehensive income -
         cumulative translation adjustment              4,161        1,090
---------------------------------------------------------------------------
                                                      482,410      502,630
        Less -- cost of 8,719,612 treasury shares
         at December 31, 1998, and 9,183,845
         treasury shares at December 31, 1997        (127,078)    (133,847)
---------------------------------------------------------------------------
        Total shareholders' equity                    355,332      368,783
---------------------------------------------------------------------------
        Total Liabilities and Shareholders' Equity   $695,974     $720,989
===========================================================================

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

INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


------------------------------------------------------------------------------
Year Ended December 31,                       1998         1997         1996
------------------------------------------------------------------------------ 
(In thousands except per share amounts)

Revenues
   Systems                              $  726,135   $  786,278   $  725,828
   Maintenance and services                306,655      338,027      369,505
------------------------------------------------------------------------------
      Total revenues                     1,032,790    1,124,305    1,095,333
------------------------------------------------------------------------------
Cost of revenues
   Systems                                 513,822      514,416      465,645
   Maintenance and services                193,616      209,550      226,263
------------------------------------------------------------------------------
      Total cost of revenues               707,438      723,966      691,908
------------------------------------------------------------------------------
      Gross profit                         325,352      400,339      403,425

Product development                         83,786       98,073      103,397
Sales and marketing                        235,985      251,833      256,482
General and administrative                 103,944      104,254      101,725
Nonrecurring operating charges              15,843        1,095       10,545
------------------------------------------------------------------------------
      Loss from operations                (114,206)     (54,916)     (68,724)

Interest expense                          (  7,460)     ( 6,614)     ( 5,137)
Arbitration award                              ---      ( 6,126)         ---
Gains on sales of assets                   112,533        4,858       11,173
Other income (expense) -- net             (  4,501)     ( 3,439)     ( 3,424)
------------------------------------------------------------------------------
      Loss before income taxes            ( 13,634)     (66,237)     (66,112)

Income tax expense                        (  6,000)     ( 4,000)     ( 3,000)
------------------------------------------------------------------------------
      Net loss                          $ ( 19,634)   $ (70,237)   $ (69,112)
==============================================================================

      Net  loss  per  share
         -basic and diluted             $ (    .41)   $ (  1.46)   $ (  1.46)
==============================================================================

Weighted average shares outstanding
   -basic and diluted                       48,376       47,945       47,195
==============================================================================

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


INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


--------------------------------------------------------------------------------
Year Ended December 31,                              1998       1997       1996
--------------------------------------------------------------------------------
(In thousands)

Cash Provided By (Used For):
Operating Activities:
   Net loss                                     $( 19,634)  $(70,237)  $(69,112)
   Adjustments to reconcile net loss to 
   net cash provided by (used for) operating
   activities:
      Depreciation and amortization                54,720     60,332     75,820
      Noncash portion of arbitration award            ---      5,835        ---
      Noncash portion of nonrecurring 
         operating charges                         11,506        ---     10,545
      Deferred income tax expense                      95      1,555      2,496
      Gains on sales of assets                   (112,533)   ( 4,858)   (11,173)
      Net changes in current assets and
         liabilities                               34,738    (13,573)    17,437
--------------------------------------------------------------------------------
      Net cash provided by (used for) 
         operating activities                    ( 31,108)   (20,946)    26,013
--------------------------------------------------------------------------------

Investing Activities:
    Proceeds from sales of assets                 160,487      5,749     11,561
    Purchases of property, plant, and equipment  ( 17,264)   (24,785)   (30,563)
    Capitalized software development costs       ( 15,738)   (10,592)   (15,492)
    Purchase of software rights                  ( 26,292)       ---        ---
    Other                                        (  1,559)   ( 1,038)     2,816
--------------------------------------------------------------------------------
      Net cash provided by (used for)
         investing activities                      99,634    (30,666)   (31,678)
--------------------------------------------------------------------------------

Financing Activities:
    Gross borrowings                               10,689     75,896     18,366
    Debt repayment                               ( 32,949)   (30,950)   (22,764)
    Proceeds of employee stock purchases 
       and exercises of stock options               2,940      3,483      3,834
--------------------------------------------------------------------------------
       Net cash provided by (used for) 
         financing activities                    ( 19,320)    48,429    (   564)
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash          (    378)   (   846)       496
--------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
  equivalents                                      48,828    ( 4,029)   ( 5,733)
Cash and cash equivalents at beginning of year     46,645     50,674     56,407
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year        $  95,473  $  46,645  $  50,674
================================================================================

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

<TABLE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>
--------------------------------------------------------------------------------------------------------------------   
                                                                           Accumulated
                                                    Additional                 Other                      Total
                                            Common   Paid-in    Retained   Comprehensive   Treasury   Shareholders'
                                            Stock    Capital    Earnings   Income (loss)     Stock        Equity
--------------------------------------------------------------------------------------------------------------------
(In thousands except share amounts)
<S>                                         <C>      <C>        <C>              <C>      <C>          <C>                

  Balance at January 1, 1996                $5,736   $233,940   $408,791         $8,650   $(153,053)   $504,064
Comprehensive income (loss):
  Net loss                                     ---        ---    (69,112)           ---         ---     (69,112)
  Other comprehensive income (loss):
     Unrealized holding gain on 
      securities of affiliate                  ---        ---        ---          6,858         ---       6,858
     Foreign currency translation 
      adjustments                              ---        ---        ---        ( 2,601)        ---     ( 2,601)
                                                                                                        -------- 
Comprehensive loss                             ---        ---        ---            ---         ---     (64,855)
                                                                                                        ========

Issuance of 352,759 shares under 
  employee stock purchase plan                 ---     (1,594)       ---            ---       5,143       3,549
Issuance of 53,898 shares upon 
  exercise of stock options                    ---     (  501)       ---            ---         786         285
Issuance of 438,357 shares in 
  connection with a professional 
  services agreement                           ---     (2,390)       ---            ---       6,390       4,000
Other                                          ---        220        ---            ---         ---         220
--------------------------------------------------------------------------------------------------------------------
  Balance at December 31, 1996               5,736    229,675    339,679         12,907    (140,734)    447,263

Comprehensive income (loss):
  Net loss                                     ---        ---    (70,237)           ---         ---     (70,237)
  Other comprehensive income (loss):
     Net unrealized holding loss
      on securities of affiliate               ---        ---        ---        ( 6,858)        ---     ( 6,858)
     Foreign currency translation 
      adjustments                              ---        ---        ---        ( 4,959)        ---     ( 4,959)
                                                                                                        --------
Comprehensive loss                             ---        ---        ---            ---         ---     (82,054)
                                                                                                        ========

Issuance of 432,263 shares under 
  employee stock purchase plan                 ---     (3,149)       ---            ---       6,301       3,152
Issuance of 40,187 shares upon  
  exercise of stock options                    ---     (  255)       ---            ---         586         331
Other                                          ---         91        ---            ---         ---          91
--------------------------------------------------------------------------------------------------------------------
  Balance at December 31, 1997               5,736    226,362    269,442          1,090    (133,847)    368,783

Comprehensive income (loss):
  Net loss                                     ---        ---    (19,634)           ---         ---     (19,634)
  Other comprehensive income -
    foreign currency translation 
    adjustments                                ---        ---        ---          3,071         ---       3,071
                                                                                                        --------   
Comprehensive loss                             ---        ---        ---            ---         ---     (16,563)
                                                                                                        ========         
 
Issuance of 464,230 shares under 
  employee stock purchase plan                 ---     (3,829)       ---            ---       6,769       2,940
Other                                          ---        172        ---            ---         ---         172
---------------------------------------------------------------------------------------------------------------
  Balance at December 31, 1998              $5,736   $222,705   $249,808         $4,161   $(127,078)   $355,332
===============================================================================================================
</TABLE>

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

INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998


NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES.
Basis of Presentation:  The consolidated financial statements
include the accounts of Intergraph Corporation and its
subsidiaries.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with
generally accepted accounting principles requires that management
make estimates and assumptions that affect the amounts reported in
the financial statements and determine whether contingent assets
and liabilities, if any, are disclosed in the financial statements.
The ultimate resolution of issues requiring these estimates and
assumptions could differ significantly from the resolution
currently anticipated by management and on which the financial
statements are based.

Effective January 1, 1998, the Company divided its business into
four separate units for operational and management purposes:
Intergraph Computer Systems (ICS), Intergraph Public Safety, Inc.
(IPS), VeriBest, Inc., and the Software and Federal Systems
business (Intergraph).  ICS supplies high performance Windows NT-
based graphics workstations and PCs, 3D graphics subsystems,
servers, and other hardware products.  IPS develops, markets, and
implements systems for public safety agencies.  VeriBest serves the
electronics design automation market, providing software design
tools, design processes, and consulting services to developers of
electronic systems.  Intergraph supplies software and solutions,
including hardware, consulting, and services to the federal
government and to the process and building and infrastructure
industries.  The Company's products are sold worldwide, with United
States and European revenues representing approximately 80% of
total revenues for 1998.  See Note 11 for further information
regarding the Company's operating segments and the geographic
markets it serves.

The Company's hardware products and integrated software applications
are used for computer-aided design, manufacturing, and engineering,
mapping and geographic information services, public safety, and
technical information management in technical fields such as utilities,
facilities management, architecture, engineering, construction, 
mechanical, and electronics design, and mapping and geographic
information systems.

Cash Equivalents:  The Company's excess funds are generally
invested in short-term, highly liquid, interest-bearing securities,
which may include short-term municipal bonds, time deposits, money
market preferred stocks, commercial paper, and U.S. government
securities.  The Company's investment policy limits the amount of
credit exposure to any single issuer of securities.  All cash
equivalents are stated at fair market value based on quoted market
prices.  Investments with original maturities of three months or
less are considered to be cash equivalents for purposes of
financial statement presentation.

The Company's investments in debt securities are valued at fair
market value with any unrealized gains and losses reported as a
component of shareholders' equity, net of tax.  At December 31,
1998 and 1997, the Company held various debt securities, all within
three months of maturity at those dates, with fair market values of
$54,000,000 and $10,000,000, respectively.  Gross realized gains
and losses on debt securities sold during the years ended December
31, 1998 and 1997 were not significant, and there were no
unrealized holding gains or losses on debt securities at December
31, 1998 or 1997.

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

--------------------------------------------------------
December 31,                        1998        1997
--------------------------------------------------------
(In thousands)

Raw materials                    $ 2,739    $ 35,799
Work-in-process                    3,594      37,357
Finished goods                    15,597      11,760
Service spares                    16,071      20,116
--------------------------------------------------------
Totals                           $38,001    $105,032
========================================================

On November 13, 1998, the Company sold substantially all of its
U.S. manufacturing assets (including inventories with a book value
of approximately $60,000,000) to SCI Technology Inc. (SCI), a
wholly owned subsidiary of SCI Systems, Inc., and SCI assumed
responsibility for manufacturing of substantially all of the
Company's hardware products.  For a complete description of this
transaction, see "SCI" included in Management's Discussion and
Analysis of Financial Condition and Results of Operations on page
20 of this annual report.

The industry in which the Company competes is characterized by
rapid technological change.  This technological change is an
important consideration in the Company's overall inventory
management program, in which the Company endeavors to carry only
parts and systems utilizable with the technology of its current
product offerings and as spares for the contracted maintenance of
systems in its installed customer base.  The Company regularly
estimates the degree of technological obsolescence in its
inventories and provides inventory reserves on that basis.  Though
the Company believes it has adequately provided for any such
declines in inventory value to date, any unanticipated change in
technology could significantly affect the value of the Company's
inventories and thereby adversely affect gross margins and results
of operations.  In addition, an inability by the Company to
accurately forecast its manufacturing requirements of SCI could
adversely affect gross margin and results of operations.

Investments in Affiliates:  Investments in companies in which the
Company believes it has the ability to influence operations or
finances are accounted for by the equity method.  Investments in
companies in which the Company does not exert such influence are
accounted for at fair value if such values are readily determinable, 
and at cost if such values are not readily determinable.  Effective
January 1, 1998, the Company ceased accounting for its investment
in Bentley Systems, Inc., an approximately 50%-owned affiliate of
the Company, under the equity method due to a lack of significant
influence.  See Note 12 and "Litigation and Other Risks and
Uncertainties" included in Management's Discussion and Analysis
of Financial Condition and Results of Operations on pages 20 to 24 
of this annual report for further discussion of the Company's 
arbitration proceedings and business relationship with Bentley.  
The book value of the Company's investment in Bentley was 
approximately $12,700,000 at December 31, 1998.  The Company is 
unable to determine the fair value of that investment.

During 1997, the Company sold its stock investment in a publicly
traded affiliate at a gain of $4,858,000.  At December 31, 1996,
the unrealized gain on this investment resulting from periodic mark-
to-market adjustments totaled $6,858,000 and was included in
"Investments in affiliates" and "Unrealized holding gain on
securities of affiliate" in the consolidated balance sheet at that
date.  During 1996, the Company sold stock investments in
affiliated companies for a total gain of $11,173,000.  These gains
are included in "Gains on sales of assets" in the consolidated
statements of operations.

Internal Use Software:  In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, which defines computer software costs to be
capitalized or expensed to operations.  The Statement is effective
for fiscal year 1999 for the Company.  Implementation of this new
accounting standard is not expected to have a material impact on
the Company's consolidated operating results or financial position
as the Company has historically been in substantial compliance with
the practice required by the Statement.

Property, Plant, and Equipment:  Property, plant, and equipment,
summarized below, is stated at cost.  Depreciation is provided
using the straight line method over the estimated useful lives
described below.

--------------------------------------------------------------------------
December 31,                                            1998        1997
--------------------------------------------------------------------------
(In thousands)

Land and improvements (15-30 years)                 $ 13,948    $ 13,664
Buildings and improvements (30 years)                132,759     136,517
Equipment, furniture, and fixtures (3-8 years)       239,735     290,217
--------------------------------------------------------------------------
                                                     386,442     440,398
Allowances for depreciation                         (259,074)   (289,775)
--------------------------------------------------------------------------
Totals                                              $127,368    $150,623
==========================================================================

Treasury Stock:  Treasury stock is accounted for by the cost
method.  The Board of Directors of the Company has authorized the
purchase of up to 20,000,000 shares of the Company's common stock
in the open market.  As of December 31, 1998, the Company had
purchased approximately 18,800,000 shares for the treasury with the
last purchase occurring in 1994.  Further purchases of stock for
the treasury are restricted by terms of the Company's term loan and
revolving credit agreement.  See Note 7.  Treasury stock activity
is presented in the consolidated statements of shareholders' equity.

Revenue Recognition:  Revenues from systems sales with no
significant post-shipment obligations are recognized as equipment
and/or software are shipped, with any post-shipment costs accrued
at that time.  Revenues on systems sales with significant post-
shipment obligations, including the production, modification, or
customization of software, are recognized by the percentage-of-
completion method, with progress to completion measured on the
basis of completion of milestones, labor costs incurred currently
versus the total estimated cost of performing the contract over its
term, or other factors appropriate to the individual contract of
sale.  The total amount of revenues to be earned under these
contracts is generally fixed by contractual terms.  The Company
regularly reviews its progress on these contracts and revises the
estimated costs of fulfilling its obligations.  Due to
uncertainties inherent in the estimation process, it is possible
that completion costs will be further revised on some of the
Company's long-term contracts, which could delay revenue
recognition and decrease the gross margin to be earned on these
contracts.  Any losses identified in the review process are
recognized in full in the period in which determined.

Revenues from certain contracts with the U.S. government, primarily
cost-plus award fee contracts, are recognized monthly as costs are
incurred and fees are earned under the contracts.

Maintenance and services revenues are recognized ratably over the
lives of the maintenance contracts or as services are performed.

Effective January 1, 1998, the Company adopted American Institute
of Certified Public Accountants Statement of Position 97-2,
Software Revenue Recognition.  The Statement requires each element
of a software sale arrangement to be separately identified and
accounted for based on the relative fair value of each element.
Revenue cannot be recognized on any element of the sale arrangement
if undelivered elements are essential to functionality of the
delivered elements.  Adoption of this new accounting standard did
not significantly affect the Company's 1998 results of operations
since the Company's revenue recognition policies have historically
been in substantial compliance with the practices required by the
new pronouncement.

Billings may not coincide with the recognition of revenue.
Unbilled accounts receivable occur when revenue recognition
precedes billing to the customer, and arise primarily from
commercial sales with predetermined billing schedules, U.S.
government sales with billing at the end of a performance period,
and U.S. government cost-plus award fee contracts.  Billings in
excess of sales occur when billing to the customer precedes revenue
recognition, and arise primarily from maintenance revenue billed in
advance of performance of the maintenance activity and systems
revenue recognized on the percentage-of-completion method.

Product Development Costs:  The Company capitalizes certain costs
of computer software development incurred after the technological
feasibility of the product has been established.  Such capitalized
costs are amortized on a straight-line basis over a period of two
to five years.  Amortization of these capitalized costs, included
in "Cost of revenues - Systems" in the consolidated statements of
operations, amounted to $15,500,000 in 1998, $13,600,000 in 1997,
and $16,100,000 in 1996.  The unamortized balance of these
capitalized costs, included in "Other assets" in the consolidated
balance sheets, totaled $23,000,000 and $23,300,000 at December 31,
1998 and 1997, respectively.

Although the Company regularly reviews its capitalized development
costs to ensure recognition of any decline in value, it is possible
that, for any given product, revenues will not materialize in
amounts anticipated due to industry conditions that include intense
price and performance competition, or that product lives will be
reduced due to shorter product cycles.  Should either of these
events occur, the carrying amount of capitalized development costs
would be reduced, producing adverse effects on systems cost of
revenues and results of operations.

Foreign Currency Exchange and Translation:  Local currencies are
the functional currencies for the Company's European subsidiaries.
The U.S. dollar is the functional currency for all other
international subsidiaries.  Foreign currency gains and losses
resulting from remeasurement or settlement of receivables and
payables denominated in a currency other than the functional
currency, together with gains and losses and fees paid in
connection with the Company's forward exchange contracts, are
included in "Other income (expense) - net" in the consolidated
statements of operations.  Net exchange gains (losses) totaled
$800,000 in 1998, ($2,700,000) in 1997, and ($4,600,000) in 1996.
Translation gains and losses resulting from translation of
subsidiaries' financial statements from the functional currency
into dollars for U.S. reporting purposes and foreign currency gains
and losses resulting from remeasurement of intercompany advances of
a long-term investment nature are included in the "Accumulated
other comprehensive income - cumulative translation adjustment"
component of shareholders' equity.

Derivative Financial Instruments:  Derivatives utilized by the
Company consist of forward exchange contracts and interest rate
swap agreements.  The Company is prohibited by policy from taking
derivative positions exceeding its known balance sheet exposures
and from otherwise trading in derivative financial instruments.

The Company conducts business in all major markets outside the
U.S., but the most significant of these operations with respect to
currency risk are located in Europe and Asia.  With respect to the
currency exposures in these regions, the objective of the Company
is to protect against financial statement volatility arising from
changes in exchange rates with respect to amounts denominated for
balance sheet purposes in a currency other than the functional
currency of the local entity.  The Company will therefore enter
into forward exchange contracts related to certain balance sheet
items, primarily intercompany receivables, payables, and formalized
intercompany debt, when a significant risk has been identified.
Periodic changes in the value of these contracts offset exchange
rate related changes in the financial statement value of these
balance sheet items.  Forward exchange contracts are purchased with
maturities reflecting the expected settlement dates of the balance
sheet items being hedged, which are generally less than three
months, and only in amounts sufficient to offset possible
significant currency rate related changes in the recorded values of
these balance sheet items.  The Company does not generally hedge
the exposures related to other foreign currency denominated assets
and liabilities, unless a significant risk has been identified.
Forward exchange contracts are accounted for under the fair value
method.  Under this method, realized and unrealized gains and
losses on forward exchange contracts are recognized as offsets to
gains and losses resulting from the underlying hedged transactions
in the period in which exchange rates change and are included in
"Other income (expense) - net" in the consolidated statements of
operations.  Bank fees charged on the contracts are amortized over
the period of the contract.  Gain or loss on termination of a
forward exchange contract is recognized in the period in which the
contract is terminated.  In the event of early settlement of a
hedged intercompany asset or liability, the related forward
exchange contract gains or losses are recognized in the period in
which exchange rates change.

The Company enters into interest rate swap agreements to reduce the
risk of increases in interest rates on certain of its outstanding
floating rate debt.  The Company enters into agreements in which
the principal and term of the interest rate swap match those of the
specific debt obligation being hedged.  The Company pays a fixed
rate of interest and receives payment based on a variable rate of
interest, and is thus exposed to market risk of potential decreases
in interest rates.  Interest rate swap agreements are accounted for
under the accrual method.  Under this method, the differences in
amounts paid and received under interest rate swap agreements are
recognized in the period in which the payments and receipts occur
and are included in "Interest expense" in the consolidated
statements of operations.  Gain or loss on termination of an
interest rate swap agreement is deferred and amortized as an
adjustment to interest expense over the remaining term of the
original contract life of the terminated swap agreement.  In the
event of early extinguishment of a debt obligation, any realized or
unrealized gain or loss on the related swap agreement is recognized
in income coincident with the extinguishment gain or loss.

Amounts payable to or receivable from counterparties related to
derivative financial instruments are included in "Other accrued
expenses" or "Other current assets" in the consolidated balance
sheets.  These amounts were not significant at December 31, 1998 or
1997.

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, requiring companies
to recognize all derivatives as either assets or liabilities on the
balance sheet and to measure the instruments at fair value.  This
statement is effective for fiscal year 2000 for the Company.
Implementation of this new accounting standard is not expected to
have a material impact on the Company's consolidated operating
results or financial position.

See Note 4 for further details of the Company's derivative
financial instruments.

Stock-Based Compensation Plans:  The Company maintains a stock
purchase plan and two fixed stock option plans for the benefit of
its employees.

Under the stock purchase plan, employees purchase stock of the
Company at 85% of the closing market price of the Company's stock
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 stock option plans, stock options may be granted to
directors and other employees at fair market value or at a price
less than fair market value at the date of grant.  No compensation
expense is recognized for options granted at fair market value.
Expense associated with grants at less than fair market value,
equal to the difference in exercise price and fair market value at
the date of grant, is recognized over the vesting period of the
options.

In accordance with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company has provided pro forma basis information
to reflect results of operations and earnings per share had
compensation expense been recognized for employee stock purchases
and for stock options granted at market value at date of grant.
See Note 9.

Income Taxes:  The provision for income taxes includes federal,
international, and state income taxes currently payable or
refundable and income taxes deferred because of temporary
differences between the financial statement and tax bases of assets
and liabilities.  See Note 8.

Net Loss Per Share:  Basic loss per share is computed using the
weighted average number of common shares outstanding.  Diluted loss
per share is computed using the weighted average 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 (see Note 9).  Weighted average common
and equivalent common shares outstanding for both the basic and
diluted loss per share calculations for the years ended December
31, 1998, 1997, and 1996, were 48,376,000, 47,945,000, and
47,195,000, respectively.

Comprehensive Income:  Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income.  Under this Statement, all nonowner
changes in equity during a period are reported as a component of
comprehensive income (loss).  With respect to the Company, such
nonowner equity items include foreign currency translation
adjustments and unrealized gains and losses on certain investments
in debt and equity securities.  The Company's comprehensive losses
for the three years ended December 31, 1998 are displayed in the
Consolidated Statements of Shareholders' Equity.  Accumulated other
comprehensive income at the end of each of these three years
consisted of foreign currency translation adjustments, with the
exception of the December 31, 1996 balance which also included a
$6,858,000 unrealized holding gain on securities of an affiliate.
There was no income tax effect related to any of the items included
in other comprehensive income for any of the three years in the
period ended December 31, 1998.  See Note 8 for details of the
Company's tax position, including net operating loss carryforwards,
and its policy for reinvestment of subsidiary earnings.

Reclassifications:  Certain reclassifications have been made to the
previously reported consolidated statements of operations and cash
flows for the years ended December 31, 1997 and 1996 to provide
comparability with the current year presentation.

NOTE 2 -- LITIGATION AND OTHER RISKS AND UNCERTAINTIES.
In addition to those described in Notes 1, 4, 6, 7, and 11, the
Company has certain risks related to its business and economic
environment, and has extensive ongoing litigation as described in
"Litigation and Other Risks and Uncertainties" included in
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 20 to 24 of this annual report.

NOTE 3 -- NONRECURRING OPERATING CHARGES.
The Company recorded nonrecurring operating charges totaling
$15,843,000 in 1998, $1,095,000 in 1997, and $10,545,000 in 1996.
For a complete description of these charges, see "Nonrecurring
Operating Charges" included in Management's Discussion and Analysis
of Financial Condition and Results of Operations on page 19 of 
this annual report.

NOTE 4 -- FINANCIAL INSTRUMENTS.
Information related to the Company's financial instruments, other
than cash equivalents and stock investments in less than 50%-owned
companies, is summarized below.

Short- and Long-Term Debt:  The balance sheet carrying amounts of
the Company's floating rate debt (approximately $73,000,000 at
December 31, 1998), consisting primarily of loans under a revolving
credit agreement, mortgages, and a term loan (see Note 7),
approximate fair market values since interest rates on the debt
adjust periodically to reflect changes in market rates of interest.
With the exception of the Australian term loan (see Note 7), the
Company is exposed to market risk of future increases in interest
rates on these loans.  The carrying amounts of fixed rate debt
approximate fair market values based on current interest rates for
debt of the same remaining maturities and character.

Forward exchange contracts:  Outstanding notional amounts for the
Company's forward exchange contracts were $7,586,000 and
$37,357,000 at December 31, 1998 and 1997, respectively.  The table
below summarizes in U.S. dollars the face amounts of these
contracts by major currency.  For purposes of presentation, foreign
currency amounts are translated to dollars at the rates in effect
at each balance sheet date.  "Sell" amounts represent the U.S.
dollar equivalent of commitments to sell currencies, and "buy"
amounts represent the U.S. dollar equivalent of commitments to
purchase currencies.

-------------------------------------------------------------------------------
December 31,                  1998                           1997
                    ----------------------------  ---------------------------
                                  Net Forward                    Net Forward
                                    Contract                       Contract
                    Sell      Buy   Position      Sell     Buy     Position
-------------------------------------------------------------------------------
(In thousands)

German mark          $---   $  ---   $   ---     $22,536  $ 5,217   $17,319
Italian lira          ---      ---       ---      12,271      814    11,457
British pound         ---    2,690    (2,690)      7,573    8,827    (1,254)
French franc          ---      ---       ---       4,362    1,836     2,526
Swiss franc           ---    3,986    (3,986)      1,564    5,386    (3,822)
Spanish peseta        ---      ---       ---       1,407    1,296       111
Belgian franc         362      ---       362       1,254      230     1,024
Other currencies      ---    1,272    (1,272)     14,354    4,358     9,996
-------------------------------------------------------------------------------
Totals               $362   $7,948   $(7,586)    $65,321  $27,964   $37,357
===============================================================================

These notional amounts do not necessarily represent amounts to be
exchanged between the Company and the counterparties to the forward
exchange contracts, and as such, they do not represent the amount
of the Company's currency related exposures at those dates.  The
amounts potentially subject to risk, arising from the possible
inability of the counterparties to meet the terms of the contracts,
are generally limited to the amounts, if any, by which the
counterparties' obligations exceed those of the Company.  Net
receivables from/payables to counterparties related to forward
exchange contracts were not significant at December 31, 1998 or
1997.  These carrying amounts approximated fair value at those
dates due to the short duration (generally three months or less) of
the contracts.

Forward exchange contracts outstanding at December 31, 1998 relate
solely to formalized intercompany loans between the Company's
European subsidiaries.  Contracts outstanding at December 31, 1997
included hedges relating to intercompany loans between the U.S. and
Europe.  As of first quarter 1998, the Company is no longer hedging
its U.S. exposures related to foreign currency denominated
intercompany loans.

Based on the terms of outstanding forward exchange contracts and
the amount of the related balance sheet exposures at December 31,
1998 and 1997, the Company's results of operations would not be
materially affected by a 10% increase or decrease in exchange rates
underlying the contracts and the exposures hedged.  Cash
requirements of forward exchange contracts are limited to receipt
of an amount equal to the exchange gain or payment of an amount
equal to the exchange loss at the contract settlement date, and
payment of bank fees related to the contracts.  Net cash flow from
forward contract activity, consisting of realized gains and losses
from settlement of exposed assets and liabilities at exchange rates
in effect at the settlement date rather than at the time of
recording, settlement of the forward contracts purchased to
mitigate the exposures, and payment of bank fees on the forward
contracts, was not significant for any year in the three year
period ended December 31, 1998.

Interest rate swap agreements:  In 1996, the Company entered into
an interest rate swap agreement in the principal amount of its
Australian term loan agreement (approximately $10,000,000 at
December 31, 1998).  The agreement is for a period of approximately
six years, and its expiration date coincides with that of the term
loan.  Under the agreement, the Company pays a 9.58% fixed rate of
interest and receives payment based on a variable rate of interest.
The weighted average receive rate of the agreement at December 31,
1998 and 1997 was 6.54% and 6.49%, respectively.  The fair market
value of this interest rate swap agreement at December 31, 1998 was
approximately $600,000.  Fair market value was determined by
obtaining a bank quote and represents the amount the Company would
pay should the Company's obligation under the instrument be
transferred to a third party at the reporting date.  Cash
requirements of the Company's interest rate swap agreement are
limited to the differential between the fixed rate paid and the
variable rate received.

NOTE 5 -- SUPPLEMENTARY CASH FLOW INFORMATION.
Changes in current assets and liabilities, net of the effects of
business divestitures and nonrecurring operating charges, in
reconciling net loss to net cash provided by (used for) operations
are as follows:

-------------------------------------------------------------------------------
                                          Cash Provided By (Used For) Operations
Year Ended December 31,                            1998      1997       1996
-------------------------------------------------------------------------------
(In thousands)

(Increase) decrease in:
   Accounts receivable                          $16,939  $(25,624)   $(8,547)
   Inventories                                    7,580   (21,296)    21,299
   Other current assets                           8,706     9,905     11,810
Increase (decrease) in:
   Trade accounts payable                         2,600    11,449     (1,513)
   Accrued compensation and other
    accrued expenses                             (1,649)    4,123     (5,344)
   Billings in excess of sales                      562     7,870     (  268)
-------------------------------------------------------------------------------
Net changes in current assets and liabilities   $34,738  $(13,573)   $17,437
===============================================================================

Cash payments for income taxes totaled $5,200,000, $6,100,000, and
$4,900,000 in 1998, 1997, and 1996, respectively.  Cash payments
for interest in those years totaled $7,700,000, $6,400,000, and
$5,000,000, respectively.

Significant noncash investing and financing transactions in 1998
included the sale of assets in part for a deferred installment
payment of approximately $20,000,000.  (See Note 14.)  Investing
and financing transactions in 1997 that did not require cash
included the sale of two noncore business units of the Company in
part for notes receivable and future royalties totaling $3,950,000.
Investing and financing transactions in 1996 that did not require
cash included the issuance of 438,357 shares of the Company's
common stock with a fair market value of $4,000,000 in connection
with a professional services agreement related to the Company's
efforts to build its public safety business in the Asia Pacific
region and a $6,858,000 favorable mark-to-market adjustment of an
investment in an affiliated company.

NOTE 6 -- ACCOUNTS RECEIVABLE.
Concentrations of credit risk with respect to accounts receivable
are limited due to the diversity of the Company's customer base.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
Historically, the Company has not experienced significant losses
related to trade receivables from individual customers or from
groups of customers in any geographic area, with the exception of
the 1994 write-off of a $5,500,000 receivable from a Middle Eastern
customer.  The Company's total accounts receivable from Middle
Eastern customers approximated $22,900,000 at December 31, 1998,
and $20,700,000 at December 31, 1997.

Revenues from the U.S. government were $166,100,000 in 1998,
$177,100,000 in 1997, and $160,800,000 in 1996, representing
approximately 16% of total revenue in 1998 and 1997, and 15% in
1996.  Accounts receivable from the U.S. government was
approximately $55,200,000 and $52,500,000 at December 31, 1998 and
1997, respectively.  The Company sells to the U.S. government under
long-term contractual arrangements, primarily indefinite delivery,
indefinite quantity and cost-plus award fee contracts, and through
commercial sales of products not covered by long-term contracts.
Approximately 44% of total federal government revenues are earned
under long-term contracts.  The Company believes its relationship
with the federal government to be good.  While it is fully
anticipated that these contracts will remain in effect through
their expiration, the contracts are subject to termination at the
election of the government.  Any loss of a significant government
contract would have an adverse impact on the results of operations
of the Company.

Accounts receivable includes unbilled amounts of $77,400,000 and
$80,900,000 at December 31, 1998 and 1997, respectively.  These
amounts include amounts due under long-term contracts of
approximately $25,000,000 and $35,000,000, at December 31, 1998 and
1997, respectively.

The Company maintained reserves for uncollectible accounts,
included in "Accounts receivable" in the consolidated balance
sheets at December 31, 1998 and 1997, of $13,800,000 and
$14,500,000, respectively.

NOTE 7 -- DEBT AND LEASES.
Short- and long-term debt is summarized as follows:

----------------------------------------------------------------------
December 31,                                        1998       1997
----------------------------------------------------------------------
(In thousands)

Revolving credit agreement and term loan         $39,461   $ 64,640
Australian term loan                               9,963     13,237
Long-term mortgages                               20,712     10,323
Other secured debt                                 9,210     10,187
Short-term credit facilities                       3,312      5,153
Other                                                555      1,125
----------------------------------------------------------------------
Total debt                                        83,213    104,665
Less amounts payable within one year              23,718     50,409
----------------------------------------------------------------------
Total long-term debt                             $59,495   $ 54,256
======================================================================

Under the Company's January 1997 four year fixed term loan and
revolving credit agreement, available borrowings are determined by
the amounts of eligible assets of the Company (the "borrowing
base"), as defined in the agreement, including accounts receivable
and inventory, with maximum borrowings of $125,000,000.  The
$25,000,000 term loan portion of the agreement is due at expiration
of the agreement.  Borrowings are secured by a pledge of
substantially all of the Company's assets in the U.S.  The rate of
interest on all borrowings under the agreement is the greater of 7%
or the Norwest Bank Minnesota National Association base rate of
interest (7.75% at December 31, 1998) plus .625%.  The average
effective rate of interest was 9.1% for the period of time in 1998
during which the Company had outstanding borrowings under this
agreement.  The agreement requires the Company to pay a facility
fee at an annual rate of .15% of the amount available under the
credit line, an unused credit line fee at an annual rate of .25% of
the average unused portion of the revolving credit line, and a
monthly agency fee.  At December 31, 1998, the Company had
outstanding borrowings of $39,461,000, the $25,000,000 term loan
portion of which was classified as long-term debt in the
consolidated balance sheet, and an additional $31,600,000 of the
available credit line was allocated to support letters of credit
issued by the Company and the Company's forward exchange contracts.
As of this same date, the borrowing base, representing the maximum
available credit under the line, was approximately $90,000,000
($78,000,000 at February 26, 1999).

The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital expenditures.
In addition, the agreement includes restrictive covenants that
limit or prevent various business transactions (including
repurchases of the Company's stock, dividend payments, mergers,
acquisitions of or investments in other businesses, and disposal of
assets including individual businesses, subsidiaries, and
divisions) and limit or prevent certain other business changes.

In October 1998, the term loan and security agreement was amended
to incorporate the sale of the Company's manufacturing assets to
SCI and to modify the borrowing base accordingly.  This transaction
has resulted in an approximate $15,000,000 borrowing base
reduction, primarily for eligible inventories that were sold to
SCI.

In August 1995, the Company entered into a term loan agreement with
an Australian bank totaling 35,000,000 Australian dollars
(approximately $23,000,000).  The loan is payable in varying
installments through August 2002 and bears interest at the bank's
variable short-term lending rate, which ranged from 4.9% to 5.36%
in 1998 (5.8% to 7.1% in 1997).  Letters of credit totaling
approximately $10,000,000 are pledged as security under the loan
agreement.  During 1996, the Company entered into a six-year
interest rate swap agreement in the amount of the term loan to
reduce the risk of increases in interest rates, effectively
converting the interest rate on this loan to a fixed rate of 9.58%.

The Company has three long-term mortgages on certain of its
European facilities, payable in varying installments through the
year 2010.  Two of the mortgages bear interest at the floating
Amsterdam Interbank Offering Rate, which ranged from 3.3% to 3.7%
in 1998 (3.1% to 3.8% in 1997), plus 1%.  The third mortgage, which
was entered into in December 1998, bears interest at the United
Kingdom base rate (6.25% at December 31, 1998) plus 1%.  The amount
borrowed under this mortgage totals approximately $10,500,000.

Other secured debt consists of debt to various financial
institutions payable in varying installments through 2017 and
secured by certain assets of the Company, including facilities and
internally used computer equipment.  In March of 1997, the Company
entered into an agreement for the sale and leaseback of one of its
facilities.  The amount borrowed totals approximately $8,400,000
and is payable over a period of 20 years at an implicit rate of
interest of 10.7%.  The weighted average interest rate on this and
all other secured debt was approximately 11.0% for 1998 and 11.2%
for 1997.

See Note 4 for discussion of fair values of the Company's debt and
interest rate swap agreements.

The Company leases various property, plant, and equipment under
operating leases as lessee.  Rental expense for operating leases
was $26,600,000 in 1998, $30,400,000 in 1997, and $34,200,000 in
1996.  Subleases and contingent rentals are not significant.
Future minimum lease payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms of
one year or more are as follows:

------------------------------------------------------
                                         Operating
                                    Lease Commitments
------------------------------------------------------
(In thousands)

1999                                        $20,600
2000                                         14,600
2001                                          8,900
2002                                          5,500
2003                                          3,600
Thereafter                                   23,100
------------------------------------------------------
Total future minimum lease payments         $76,300
======================================================

NOTE 8 -- INCOME TAXES.
The components of loss before income taxes are as follows:

-------------------------------------------------------------------
Year Ended December 31,              1998        1997        1996
-------------------------------------------------------------------
(In thousands)

U.S.                             $( 4,008)   $(57,527)   $(42,381)
International                     ( 9,626)    ( 8,710)    (23,731)
-------------------------------------------------------------------
Total loss before income taxes   $(13,634)   $(66,237)   $(66,112)
===================================================================

Income tax expense consists of the following:

-------------------------------------------------------------------
Year Ended December 31,              1998        1997        1996
-------------------------------------------------------------------
(In thousands)

Current benefit (expense):
  Federal                         $(3,353)    $ 1,400     $ 3,351
  International                    (2,552)     (3,845)     (3,855)
-------------------------------------------------------------------
   Total current                   (5,905)     (2,445)     (  504)
-------------------------------------------------------------------
Deferred benefit (expense):
  Federal                             ---      (1,726)     (2,447)
  International                    (   95)        171      (   49)
-------------------------------------------------------------------  
   Total deferred                  (   95)     (1,555)     (2,496)
-------------------------------------------------------------------
Total income tax expense          $(6,000)    $(4,000)    $(3,000)
===================================================================

Deferred income taxes included in the Company's balance sheet
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts for income tax return purposes.
Significant components of the Company's deferred tax assets and
liabilities are as follows:

------------------------------------------------------------------------------
December 31,                                             1998         1997
------------------------------------------------------------------------------
(In thousands)

Current Deferred Tax Assets (Liabilities):
  Inventory reserves                                  $13,348     $ 15,235
  Vacation pay and other employee benefit accruals      5,705        5,617
  Other financial statement reserves, primarily
    allowances for doubtful accounts and warranty      10,333        9,226
  Profit on uncompleted sales contracts                 3,074      ( 1,759)
  Other current tax assets and liabilities, net       ( 1,298)     ( 5,916)
-----------------------------------------------------------------------------
                                                       31,162       22,403
  Less asset valuation allowance                      (28,344)     (22,275)
-----------------------------------------------------------------------------
  Total net current asset  (1)                          2,818          128
-----------------------------------------------------------------------------

Noncurrent Deferred Tax Assets (Liabilities):
  Net operating loss and tax credit carryforwards:
    U.S. federal and state                             56,636       78,559
    International operations                           43,555       40,316
  Depreciation                                        ( 8,116)     ( 9,907)
  Capitalized software development costs              ( 7,281)     ( 7,604)
  Other noncurrent tax assets and liabilities, net      3,194      ( 7,051)
-----------------------------------------------------------------------------
                                                       87,988       94,313
  Less asset valuation allowance                      (91,130)     (94,773)
-----------------------------------------------------------------------------
  Total net noncurrent liability                      ( 3,142)     (   460)
-----------------------------------------------------------------------------
Net deferred tax liability                           $(   324)    $(   332)
=============================================================================
(1) Included in "Other current assets" in the consolidated balance sheets.

The valuation allowance for deferred tax assets, which consists
primarily of reserves against the tax benefit of net operating loss
carryforwards, increased by $2,426,000 in 1998 due to increases in
deferred tax assets of $21,118,000 arising from changes in
deductible temporary differences, offset by related reductions in
the benefit from net operating loss carryforwards of $18,684,000.
If realized these reserved tax benefits will be applied to reduce
income tax expense in the year of realization.

Net operating loss carryforwards are available to offset future
earnings within the time periods specified by law.  At December 31,
1998, the Company had a U.S. federal net operating loss
carryforward of approximately $119,000,000 expiring from the year
2010 through 2012.  International net operating loss carryforwards
total approximately $113,000,000 and expire as follows:

-------------------------------------------------------
                                  International
                                Net Operating Loss
December 31, 1998                 Carryforwards
-------------------------------------------------------
(In thousands)

Expiration:
3 years or less                      $ 20,000
4 to 5 years                           18,000
6 to 10 years                           5,000
Unlimited carryforward                 70,000
-------------------------------------------------------
Total                                $113,000
=======================================================

Additionally, the Company has $4,100,000 of U.S. alternative
minimum tax credit carryforward which has no expiration date.  U.S.
research and development tax credit carryforwards of $7,800,000 are
available to offset regular tax liability through 2012.

A reconciliation from income tax benefit at the U.S. federal
statutory tax rate of 35% to the Company's income tax expense is as
follows:

-------------------------------------------------------------------------------
Year Ended December 31,                            1998       1997       1996
-------------------------------------------------------------------------------
(In thousands)

Income tax benefit at federal statutory rate    $ 4,772   $ 23,183   $ 23,139
Benefit from Foreign Sales Corp. (FSC)               44        150      1,963
Alternative minimum tax                          (  453)       ---        ---
Tax effects of international operations, net     (7,672)   ( 5,617)   ( 8,657)
Tax effect of U.S. tax loss carried forward       1,670    (23,205)   (23,752)
Prior year taxes                                 (2,482)     1,165      4,712
Other - net                                      (1,879)       324    (   405)
-------------------------------------------------------------------------------
Income tax expense                              $(6,000)  $( 4,000)  $( 3,000)
===============================================================================

The Company does not provide for federal income taxes or tax
benefits on the undistributed earnings or losses of its
international subsidiaries, because earnings are reinvested and, in
the opinion of management, will continue to be reinvested
indefinitely.  At December 31, 1998, the Company had not provided
federal income taxes on earnings of individual international
subsidiaries of approximately $41,000,000.  Should these earnings
be distributed in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes and withholding taxes 
in the various international jurisdictions.  Determination of the 
related amount of unrecognized deferred U.S. income tax liability 
is not practicable because of the complexities associated with its
hypothetical calculation.  Withholding of approximately $2,000,000
would be payable if all previously unremitted earnings as of
December 31, 1998, were remitted to the U.S. company.

NOTE 9 -- STOCK-BASED COMPENSATION PLANS.
The Intergraph Corporation 1997 Stock Option Plan was approved by
shareholders in May 1997.  Under this plan, the Company reserved a
total of 3,000,000 shares of common stock to grant as options to
key employees.  Options may be granted at fair market value or at a
price less than fair market value on the date of grant.  Options
are not exercisable prior to twenty four months from the date of
grant or later than ten years after the date of grant.  At December
31, 1998, 741,250 shares were available for future grants.

The Intergraph Corporation Nonemployee Director Stock Option Plan
was approved by shareholders in May 1998.  The Company has reserved
a total of 250,000 shares of common stock to grant as options under
this plan.  The exercise price of each option granted is the fair
market value on the date of grant.  Options are not exercisable
prior to one year from the date of grant or later than ten years
after the date of grant.  Upon approval of this plan, members of
the Company's Board of Directors who were not otherwise employed by
the Company were granted options to purchase 3,000 shares of the
Company's common stock.  Any new nonemployee director will be
granted an option to purchase 3,000 shares of common stock upon his
or her first election to the Board.  At each annual meeting of
shareholders thereafter, each nonemployee director elected to the
Board will also be granted an option to purchase 1,500 shares of
the Company's common stock. At December 31, 1998, 238,000 shares
were available for future grants.

Under the 1995 Employee Stock Purchase Plan, 3,200,000 shares of
common stock were made available for purchase through a series of
five consecutive annual offerings each June beginning June 1, 1995.
In order to purchase stock, each participant may have up to 10% of
his or her pay, not to exceed $25,000 in any offering period,
withheld through payroll deductions.  All full time employees,
except members of the Administrative Committee of the Plan, are
eligible to participate.  The purchase price of each share is 85%
of the closing market price of the Company's common stock on the
last pay date of each calendar month.  Employees purchased 464,230,
432,263, and 352,759, shares of stock in 1998, 1997, and 1996,
respectively, under the 1995 and predecessor Plans.  At December
31, 1998, 1,759,234 shares were available for future purchases.

As allowed under the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), 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.  Had the
Company accounted for its stock-based compensation plans based on
fair value of awards at grant date consistent with the methodology
of SFAS 123, the Company's net loss and loss per share would have
been increased as indicated below.  The effects of applying SFAS
123 on a pro forma basis for the three years in the period ended
December 31, 1998 are not likely to be representative of the
effects on reported pro forma net income (loss) for future years as
the estimated compensation costs reflect only options granted
subsequent to December 31, 1994.

--------------------------------------------------------------------------------
Year Ended December 31,                            1998       1997       1996
--------------------------------------------------------------------------------
(In thousands except per share amounts)

Net loss                          As reported   $(19,634)  $(70,237)  $(69,112)
                                  Pro forma     $(21,496)  $(72,497)  $(71,447)

Basic and diluted loss per share  As reported   $(   .41)  $(  1.46)  $(  1.46)
                                  Pro forma     $(   .44)  $(  1.51)  $(  1.51)
================================================================================

Under the methodology of SFAS 123, the fair value of the Company's
fixed stock options was estimated at the date of grant using the
Black Scholes option pricing model.  The multiple option approach
was used, with assumptions for expected option life of 1.38 years
after vest date in 1998 (1.38 years in 1997 and 1.39 years in 1996)
and 45% expected volatility for the market price of the Company's
stock in 1998 (43% in 1997 and 40% in 1996).  Dividend yield is
excluded from the calculation since it is the present policy of the
Company to retain all earnings to finance operations.  Risk free
interest rates were determined separately for each grant and are as
follows:

--------------------------------------------------------------------------------
           1998                        1997                       1996
-------------------------- -------------------------- --------------------------
Expected Life  Risk Free   Expected Life   Risk Free  Expected Life   Risk Free
(in years)   Interest Rate (in years)   Interest Rate  (in years)  Interest Rate
-------------------------- -------------------------- --------------------------
   3.38         4.19%         3.38          6.28%          3.39         6.55%
   4.38         4.28%         4.38          6.38%          4.39         6.67%
   5.38         4.40%         5.38          6.34%          5.39         6.74%
   6.38         4.53%         6.38          6.46%          6.39         6.79%
================================================================================

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable.  In addition, option
valuation models require the input of highly subjective
assumptions, including expected stock price volatility.  Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
the subjectivity of assumptions can materially affect estimates of
fair value, the Company believes the Black-Scholes model does not
necessarily provide a reliable single measure of the fair value of
its employee stock options.

Shares issued under the Company's stock purchase plan were valued
at the difference between the market value of the stock and the
discounted purchase price of the shares on the date of purchase.
The date of grant and the date of purchase coincide for this plan.

The weighted average grant date fair values of options granted to
employees during 1998, 1997, and 1996 were $2.37, $3.66, and $3.92,
respectively, under the 1997 and Nonemployee Director stock option
plans and $1.12, $1.29, and $1.78, respectively, under the 1995
stock purchase plan.

Activity in the Company's fixed stock option plans for the years
ended December 31, 1998, 1997, and 1996 is summarized as follows:

--------------------------------------------------------------------------------
                             1998              1997                 1996
                      ------------------  -----------------  -------------------
                                Weighted          Weighted             Weighted
                                 Average           Average              Average
                                Exercise          Exercise             Exercise
                       Shares     Price    Shares   Price     Shares     Price
--------------------------------------------------------------------------------
Outstanding at 
 beginning of year    2,259,923 $ 9.61   1,831,417  $10.38   1,778,304  $10.42
Granted at fair 
 value                1,733,000   5.41     672,250    7.99     290,018    9.47
Exercised                   ---    ---    ( 40,187)   8.23    ( 53,898)   5.28
Expired                     ---    ---    ( 30,000)  16.00    ( 14,982)   9.23
Forfeited              (405,750)  9.21    (173,557)  10.65    (168,025)  11.02
--------------------------------------------------------------------------------
Outstanding at end 
 of year              3,587,173 $ 7.63   2,259,923  $ 9.61   1,831,417  $10.38
================================================================================

Exercisable at end
 of year                728,171 $10.22     540,922  $ 9.62     247,874  $ 9.12
================================================================================

Further information relating to stock options outstanding at
December  31, 1998 is as follows:

--------------------------------------------------------------------------------
                               Options Outstanding           Options Exercisable
                   -----------------------------------    ----------------------
                                 Weighted 
                                  Average     Weighted                Weighted  
Range of                         Remaining     Average                 Average
Exercise                        Contractual   Exercise                Exercise
Prices                Number       Life        Price         Number    Price
--------------------------------------------------------------------------------
$ .90  to $ 3.75       17,690     5.88 years   $ 1.30         17,690   $ 1.30
$5.375 to $ 7.938   2,231,750     9.50           5.96            ---      ---
$8.875 to $12.25    1,337,733     6.48          10.49        710,481    10.44
--------------------------------------------------------------------------------
                    3,587,173     8.36         $ 7.63        728,171   $10.22
================================================================================

Options shown above with a weighted average exercise price of $1.30
per share and a range of exercise prices of $.90 to $3.75 were
granted in 1995 as the result of a business acquisition in which
the Company assumed the total shares and price obligations under
the acquired company's stock option plans.  All other option grants
during the three-year period ended December 31, 1998 were at the
fair market value of the Company's stock at date of grant.

NOTE 10 -- EMPLOYEE BENEFIT PLANS.
The Intergraph Corporation Stock Bonus Plan was established in 1975
to provide retirement benefits to substantially all U.S. employees.
Effective January 1, 1987, the Company amended the Plan to qualify
it as an employee stock ownership plan (ESOP).  The Company made
contributions to the Plan in amounts determined at the discretion
of the Board of Directors, and the contributions were funded with
Company stock.  Amounts were allocated to the accounts of
participants based on compensation.  Benefits are payable to
participants subject to the vesting provisions of the Plan.  The
Company has not made a contribution to the Plan since 1991.

In 1990, the Company established the Intergraph Corporation
SavingsPlus Plan, an employee savings plan qualified under Section
401(k) of the Internal Revenue Code, covering substantially all
U.S. employees.  Employees can elect to contribute up to 15% of
their compensation  to the Plan.  The Company matches 50% of
employee contributions up to 6% of each employee's compensation.
Cash contributions by the Company to the Plan were $5,082,000,
$5,148,000, and $5,687,000, in 1998, 1997, and 1996, respectively.

The Company maintains various retirement benefit plans for employees
of its international subsidiaries, primarily defined contribution
plans that cover substantially all employees.  Contributions to the
plans are made in cash and are allocated to the accounts of
participants based on compensation.  Benefits are payable based on
vesting provisions contained in each plan.  Contributions to the
plans were $3,110,000, $3,244,000, and $3,678,000, in 1998, 1997,
and 1996, respectively.

NOTE 11 -- SEGMENT INFORMATION.
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information.  This Statement replaces
previous requirements that segment information be reported along
industry lines with a new operating segment approach.  Operating
segments are defined as components of a business for which separate
financial information is regularly evaluated in determining
resource allocation and operating performance.  The Company's
operating segments are Intergraph Computer Systems (ICS),
Intergraph Public Safety, Inc. (IPS), VeriBest, Inc. (VeriBest) and
the Software and Federal Systems (Federal) business (the Software
and Federal businesses form what is termed Intergraph), none of
which were considered to be reportable segments under previous
external reporting standards.

The Company's reportable segments are strategic business units
which are organized by the types of products sold and the specific
markets served.  They are managed separately due to unique
technology and marketing strategy resident in each of the Company's
markets.

ICS supplies high performance Windows NT-based graphics
workstations and PCs, 3D graphics subsystems, servers, and other
hardware products. IPS develops, markets, and implements systems
for public safety agencies.  VeriBest serves the electronic design
automation market, providing software design tools, design
processes, and consulting services for developers of electronic
systems.  Intergraph supplies software and solutions, including
hardware purchased from ICS, consulting, and services to the
process and building and infrastructure industries and provides
services and specialized engineering and information technology to
support Federal government programs.

The Company evaluates performance of the operating segments based
on revenue and income from operations.  The accounting policies of
the reportable segments are the same as those described in Note 1.
Sales among the operating segments, the most significant of which
are sales of hardware products from ICS to the other segments, are
accounted for under a transfer pricing policy.  Transfer prices
approximate prices that would be charged for the same or similar
property to similarly situated unrelated buyers.  In the U.S.,
intersegment sales of products and services to be used for internal
purposes are charged at cost.  For international subsidiaries,
transfer price is charged on intersegment sales of products and
services to be used for either internal purposes or sale to
customers.

The following table sets forth revenues and operating income (loss)
by operating segment for the year ended December 31, 1998, together
with supplementary information related to depreciation and
amortization expense attributable to the operating segments.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
(In thousands)                                                  Intergraph
                                                            -----------------                                 Total
                             ICS        IPS     VeriBest    Software  Federal     Corporate   Eliminations   Company    
------------------------------------------------------------------------------------------------------------------------ 
<S>    
                           <C>        <C>       <C>        <C>        <C>         <C>         <C>          <C>   
Revenues
 Unaffiliated customers    $268,447   $50,412   $ 27,783   $532,394   $153,754         ---         ---     $1,032,790
 Intersegment revenues      185,234       712        460      1,815      4,863         ---    $(193,084)          ---
------------------------------------------------------------------------------------------------------------------------
Total Revenues             $453,681   $51,124   $ 28,243   $534,209   $158,617         ---    $(193,084)   $1,032,790
------------------------------------------------------------------------------------------------------------------------
Operating income (loss)
 before nonrecurring
 operating charges         $(68,144)  $ 3,486   $(12,433)  $ 14,126   $( 3,559)   $(30,944)   $(    895)   $(  98,363)
------------------------------------------------------------------------------------------------------------------------
Depreciation and 
 amortization expense      $ 10,314   $ 5,099   $  3,839   $ 30,171   $  3,003    $  2,294          ---    $   54,720
------------------------------------------------------------------------------------------------------------------------
</TABLE>

Amounts included in the "Corporate" column consist of general
corporate expenses, primarily general and administrative expenses
(including legal fees of $10,650,000) remaining after charges to
the operating segments based on segment usage of those services.
Significant profit and loss items for 1998 that are not allocated
to the segments and not included in the analysis above include
gains on sales of assets of $112,533,000 (see Note 14) and
nonrecurring operating charges of $15,843,000 (see Note 3).

The Company does not evaluate performance or allocate resources
based on assets and, as such, it does not prepare balance sheets
for its operating segments, other than those of its wholly-owned
subsidiaries.

The operating segment information presented above represents the
internal evaluation model adopted by the Company for 1998 and
future years.  The Company has in prior years utilized several
variations of this model depending on the Company's structure and
its business environment at the particular time, but believes the
1998 model best reflects the operations and business structure of
the various segments and the Company for 1998 and the future.

The 1998 model differs significantly from those utilized in prior
years, specifically in the institution of a transfer pricing system
in 1998 and in the attribution of revenues to its ICS and Software
operating segments in sales transactions where both hardware and
software, and perhaps attendant services, are sold to a single
customer.  The Company has found it impractical to restate prior
years' segment information to reflect the current reporting model,
since such a restatement would involve a transaction-by-transaction
analysis.  Since VeriBest and IPS have been operating as separate
subsidiaries since 1996 and 1997, respectively, and since by nature
of their businesses they are less affected by changes from the
model utilized before 1998, comparable information is available.
VeriBest incurred operating losses of $16,381,000 in 1997 and
$15,463,000 in 1996 on revenues of $29,290,000 and $31,031,000,
respectively.  IPS incurred an operating loss of $2,165,000 in 1997
on revenues of $50,418,000.

Revenues from the U.S. government were $166,100,000 in 1998,
$177,100,000 in 1997, and $160,800,000 in 1996, representing
approximately 16% of total revenue in 1998 and 1997, and 15% in
1996.  The majority of these revenues are attributed to the Federal
unit of the Intergraph operating segment.  The U.S. government was
the only customer accounting for more than 10% of consolidated
revenue in each of the three years in the period ended December 31,
1998.

International markets, particularly Europe and Asia, continue in
importance to the industry and to the Company.  The Company's
operations are subject to and may be adversely affected by a
variety of risks inherent in doing business internationally, such
as government policies or restrictions, currency exchange
fluctuations, and other factors.  Following is a summary of
external revenues and long-lived assets by principal geographic
area.  For purposes of this presentation, revenues are attributed
to geographic areas based on customer location.  Long-lived assets
include property, plant and equipment, investments in affiliates
and other noncurrent assets.  Assets have been allocated to
geographic areas based on their physical location.

--------------------------------------------------------------------------------
                            Revenues                     Long-lived Assets
--------------------------------------------------------------------------------
                   1998       1997        1996        1998      1997       1996
--------------------------------------------------------------------------------
(In thousands)

United States $  505,317  $  528,411  $  488,759    $139,128  $152,184  $174,842
Europe           317,840     355,179     365,349      40,878    41,467    50,346
Asia Pacific     107,512     133,864     146,240      17,975    21,304    23,069
Other 
 International   102,121     106,851      94,985       3,468     4,010     4,170
--------------------------------------------------------------------------------
Total         $1,032,790  $1,124,305  $1,095,333    $201,449  $218,965  $252,427
--------------------------------------------------------------------------------

NOTE 12 -- RELATED PARTY TRANSACTIONS.
Bentley Systems, Inc.:  The Company owns approximately 50% of
Bentley Systems, Inc., the developer and owner of MicroStation, a
software product utilized in many of the Company's software
applications and for which the Company serves as a nonexclusive
distributor.  Under the Company's distributor agreement with
Bentley, the Company purchases MicroStation products for resale to
third parties.

The Company's purchases from Bentley totaled $1,339,000 in 1998,
$5,656,000 in 1997, and $14,244,000 in 1996.  Amounts due from
Bentley or for which the Company holds the right to delivery of
Bentley products totaled $1,224,000 and $1,076,000 at December 31,
1998 and 1997, respectively.  During the second quarter of 1997,
the Company offset receivables from Bentley of $5,835,000 against a
$6,126,000 obligation to Bentley resulting from an adverse contract
arbitration award.  See "Litigation and Other Risks and
Uncertainties" included in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 20 to 24
of this annual report for further discussion of the Company's
arbitration proceedings and business relationship with Bentley.

Loan Program for Executive Officers:  In order to encourage
retention of Company stock by executive officers, the Company
adopted a loan program effective January 1993, under which
executive officers could borrow from the Company, on an unsecured
basis, an amount not exceeding (1) the market value of the common
stock of the Company owned by any such executive officer, and/or
(2) the net value (market price less exercise price) of exercisable
stock options owned by any such executive officer.  Interest was
charged on these loans at the prevailing prime rate.  Prior to the
April 30, 1998 expiration of the loan program, James W. Meadlock,
Chief Executive Officer and Chairman of the Board of the Company,
was indebted to the Company in the maximum amount of $6,129,000
under the program.  Mr. Meadlock repaid his loan in full on
November 21, 1997.

NOTE 13 -- SHAREHOLDER RIGHTS PLAN.
On August 25, 1993, the Company's Board of Directors adopted a
Shareholder Rights Plan.  As part of this plan, the Board of
Directors declared a distribution of one common stock purchase
right (a "Right") for each share of the Company's common stock
outstanding on September 7, 1993.  Each Right entitles the holder
to purchase from the Company one common share at a price of $50,
subject to adjustment.  The Rights are not exercisable until the
occurrence of certain events related to a person or a group of
affiliated or associated persons acquiring, obtaining the right to
acquire, or commencing a tender offer or exchange offer, the
consummation of which would result in beneficial ownership by such
a person or group of 15% or more of the outstanding common shares
of the Company.  Rights will also become exercisable in the event
of certain mergers or an asset sale involving more than 50% of the
Company's assets or earnings power.  Upon becoming exercisable,
each Right will allow the holder, except the person or group whose
action has triggered the exercisability of the Rights, to either
buy securities of Intergraph or securities of the acquiring
company, depending on the form of the transaction, having a value
of twice the exercise price of the Rights.  The Rights trade with
the Company's common stock.  The Rights are subject to redemption
at the option of the Board of Directors at a price of $.01 per
Right until the occurrence of certain events, and are exchangeable
for the Company's common stock at the discretion of the Board of
Directors under certain circumstances.  The Rights expire on
September 7, 2003.

NOTE 14 -- ACQUISITIONS AND DIVESTITURES.
The Company filed a legal action in August 1995 seeking to
dissolve and wind up its business arrangement with Zydex, Inc., a
company with which it jointly developed its plant design software
application (PDS), and seeking an order allowing the Company to
continue the business of that arrangement without further
responsibility or obligation to Zydex.  In November 1995, Zydex
filed a counterclaim against the Company alleging wrongful
dissolution of the business relationship and seeking both sole
ownership of PDS and significant compensatory and punitive
damages.  In September 1997, the Court issued an order resolving
all disputed issues and requiring the parties to settle, and
dismissed the case.  A closing of the final settlement agreement
occurred on January 15, 1998.  The final settlement included the
purchase by Intergraph of 100% of the common stock of Zydex for
$26,300,000, with $16,000,000 paid at closing of the agreement and
the remaining amount payable in 15 equal monthly installments,
including interest.  In March 1998, the Company prepaid in full
the remaining amount payable to Zydex.  The former owner of Zydex
retains certain rights to use, but not sell or sublicense, PDS
products for a period of 15 years following the date of closing.
In addition to the purchase price of the common stock, the Company
was required to pay additional royalties to Zydex in the amount of
$1,000,000 at closing of the agreement.  These royalties were
included in the Company's 1997 results of operations.  The first
quarter 1998 cash payments to Zydex were funded by the Company's
primary lender and by proceeds from the sale of the Company's
Solid Edge and Engineering Modeling System product lines.  The
Company accounted for the acquisition as the purchase of PDS
software rights and is amortizing those rights over an estimated
useful life of seven years.  The unamortized balance,
approximately $22,500,000 at December 31, 1998, is included in
"Other assets" in the consolidated balance sheet.  PDS is
currently the Company's highest volume software offering,
representing approximately 28% of total software sales for 1998.

In March 1998, the Company sold its Solid Edge and Engineering
Modeling System product lines to Electronic Data Systems
Corporation and its Unigraphics Solutions, Inc. subsidiary for
$105,000,000 in cash.  The Company's gain on this transaction of
$102,767,000 is included in "Gains on sales of assets" in the 1998
consolidated statement of operations.  Full year 1997 revenues and
operating losses for these product lines were $35,200,000 and
$4,100,000, respectively.  Based on 1997 performance, the Company
estimates that the sale of this business resulted in an improvement
in its 1998 operating results of approximately $5,000,000,
excluding the impact of the gain on the sale.

In April 1998, the Company sold its printed circuit board
manufacturing facility for $16,002,000 in cash.  The Company's gain
on this transaction of $8,275,000 is included in "Gains on sales of
assets" in the 1998 consolidated statement of operations.  The
Company is now outsourcing its printed circuit board needs.  This
operational change did not materially impact the Company's results
of operations in 1998.

In November 1998, the Company sold substantially all of its U.S.
manufacturing inventory and assets to SCI Technology Inc. (SCI), a
wholly-owned subsidiary of SCI Systems, Inc., and SCI assumed
responsibility for manufacturing of substantially all of the
Company's hardware products.  The total purchase price was
$62,404,000, $42,485,000 of which was received during the fourth
quarter of 1998.  The final purchase price installment of
$19,919,000 was received on January 12, 1999.  The Company's gain
on this transaction of $1,491,000 is included in "Gains on sales of
assets" in the 1998 consolidated statement of operations.  For a
complete description of the SCI transaction and its anticipated
impact on future operating results and cash flows, see "SCI"
included in Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 20 of this annual 
report.

NOTE 15 - SUMMARY OF QUARTERLY INFORMATION - UNAUDITED

--------------------------------------------------------------------------------
Quarter Ended                    March 31     June 30    Sept. 30     Dec. 31
--------------------------------------------------------------------------------
(In thousands except per 
 share amounts)

Year ended December 31, 1998:
Revenues                         $245,818    $246,613    $253,624    $286,735
Gross profit                       77,923      76,470      78,100      92,859
Net income (loss)                  49,442     (20,988)    (27,173)    (20,915)
Net income (loss) per share
          - basic                    1.03     (   .43)    (   .56)    (   .43)
          - diluted                  1.02     (   .43)    (   .56)    (   .43)
Weighted average shares 
  outstanding  
          - basic                  48,219      48,311      48,416      48,547
          - diluted                48,335      48,311      48,416      48,547

Year ended December 31, 1997:
Revenues                         $252,758    $288,609    $282,067    $300,871
Gross profit                       87,610     109,115     101,177     102,437
Net loss                          (26,289)    (16,027)    ( 7,186)    (20,735)
Net loss per share,
 basic and diluted                (   .55)    (   .33)    (   .15)    (   .43)
Weighted average shares 
 outstanding, basic and diluted    47,758      47,888      48,006      48,121

================================================================================

First quarter 1998 earnings included a $2.13 per share gain on the
sale of the Company's Solid Edge and Engineering Modeling System
product lines and a $.31 per share charge for nonrecurring
operating expenses, primarily for employee termination costs and
write-off of certain intangible assets.  Second quarter 1998 losses
were reduced by a $.17 per share gain on the sale of the Company's
printed circuit board manufacturing facility.  Fourth quarter 1998
losses included expenses of approximately $.14 per share relating
to the Company's transition to outsourcing of its manufacturing
operation and a $.04 per share charge for nonrecurring operating
expenses, primarily for employee terminations.

Second quarter 1997 losses were increased by a $.13 per share
charge for an adverse contract arbitration award to Bentley
Systems, Inc.  Third quarter 1997 losses were reduced by a $.10 per
share gain on the sale of an investment in an affiliated company.
The Company estimates that the strength of the U.S. dollar in the
fourth quarter of 1997 adversely impacted fourth quarter results of
operations by approximately $.15 per share in comparison to fourth
quarter 1996.


REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
Intergraph Corporation


We have audited the accompanying consolidated balance
sheets of Intergraph Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended
December 31, 1998.  These financial statements are the
responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally
accepted auditing standards.  Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Intergraph Corporation and
subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.


                                   /s/ Ernst & Young LLP
Birmingham, Alabama
February 1, 1999


DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its common
stock.  It is the present policy of the Company's Board of Directors
to retain all earnings to finance the Company's operations.  In
addition, payment of dividends is restricted by the Company's term 
loan and revolving credit agreement.

PRICE RANGE OF COMMON STOCK

Since April 1981, Intergraph common stock has traded on The NASDAQ
Stock Market under the symbol INGR.  As of January 31, 1999, there
were 48,690,820 shares of common stock outstanding, held by  4,447
shareholders of record.  The following table sets forth, for the
periods indicated, the high and low sale prices of the Company's
common stock as reported on The NASDAQ Stock Market.

-------------------------------------------------------------------
                           1998                     1997
Period               High        Low         High          Low
-------------------------------------------------------------------

First Quarter     $10  3/16    $8  1/4      $11  1/4    $7  3/8
Second Quarter     10  9/16     7  3/16       8 13/16    6  1/4
Third Quarter       8  5/8      5  1/2       12          7  5/8
Fourth Quarter      7           4 11/16      14  3/16    8 15/16
===================================================================

TRANSFER AGENT AND REGISTRAR

Harris Trust and Savings Bank
Shareholder Services Division
311 W. Monroe Street
P. O. Box A-3504
Chicago, IL  60690-3504
(312) 360-5116

CORPORATE COUNSEL

Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
Huntsville, AL  35801

INDEPENDENT AUDITORS

Ernst & Young LLP
AmSouth/Harbert Plaza, Suite 1900
Birmingham, AL  35203

FORM 10-K

A copy of the Company's Form 10-K filed with the Securities and
Exchange Commission is available without charge upon written
request to Shareholder Relations, Intergraph Corporation, Huntsville,
AL  35894-0001.

ANNUAL MEETING

The annual meeting of Intergraph Corporation will be held May 13,
1999, at the Corporate offices in Huntsville, Alabama.


BOARD MEMBERS AND OFFICERS
                                
BOARD OF DIRECTORS          EXECUTIVE VICE PRESIDENTS   VICE PRESIDENTS
                                                 
James W. Meadlock           Wade C. Patterson           Theron E. Anders
Chief Executive Officer     Chief Executive Officer 
and Chairman of the         and President, Intergraph   Michael Bezzant
Board                       Computer Systems                           
                                                        Henry J. Dipietro
James F. Taylor Jr.         Lawrence F. Ayers Jr.             
Executive Vice President                                Thomas J. Doran
Intergraph Corporation      Klaas Borgers                      
and Chief Executive                                     George H. Dudley
Officer, Intergraph         Penman R. Gilliam
Public Safety, Inc.                                     Jeffrey H. Edson
                            Lewis N. Graham Jr.
Robert E. Thurber                                       Graeme J. Farrell
Executive Vice President    Richard H. Lussier 
                                                        Milford B. French
Keith H. Schonrock Jr.      Nancy B. Meadlock   
                                                        Aggie L. Frizzell
Larry J. Laster             Stephen J. Phillips          
                                                        Jeffrey P. Heath
Thomas J. Lee               Preetha R. Pulusani
                                                        Fred D. Heddens
Sidney L. McDonald          William E. Salter        
                                                        Rune Kahlbom
                            K. David Stinson Jr.     
                                                        Robert L. Kuehlthau
                            John W. Wilhoite         
                                                        Milton H. Legg
                            Edward A. Wilkinson      
                                                        Winston P. Newton
                            Allan B. Wilson           
                                                        John R. Owens
                            Manfred Wittler          
                                                        Robert Patience
                                                 
                                                        Carl N. Reed
                                                             
                                                        Charles E. Robertson Jr.
                                                        Chief Executive Officer
                                                        and President, VeriBest,
                                                        Inc.
                                                 
                                                        Stephen B. Rowles
                                                 
                                                        Gerhard Sallinger
                                                  
                                                        James H. Slate
                                                 
                                                        Richard L. Watson
                                                 
                                                        Eugene H.Wrobel
                                                 
                                                 
                                                        SECRETARY
                                                 
                                                        John R. Wynn