The Company Table of Contents Intergraph Corporation is a worldwide provider of Intergraph Overview 1 technical software, systems integration, and professional services. Tools from Intergraph are used to acquire, analyze, share, reuse, and manage engineering and mapping data. This core data is linked to other workflow and business To Our Shareholders 2 information – a linkage which leads to more informed decision-making and more efficient business operations for the life of a project. Intergraph Process, Power 6 The company’s four core businesses address these markets: & Offshore • The design, construction, and operation of process and power plants, offshore rigs, and ships. Intergraph Mapping and • Computer-aided dispatching and records management for public safety 10 agencies and others. Geospatial Solutions • Information technology (IT) services and management consulting for government and commercial clients. Intergraph Solutions Group • Mapping, geographic information systems, map and chart production, 14 earth imaging, and utilities and communications. Founded in 1969 and headquartered in Huntsville, Alabama, Intergraph currently employs approximately 3,800 people. Intergraph products are Intergraph Public Safety 18 sold in more than 60 countries. Financial Review 21 Five-Year Financial Summary 2002 2001 2000 1999 1998 (in thousands except per share amounts) Revenues $501,177 $532,061 $690,454 $914,880 $1,005,007 Restructuring charges (credits) 2,106 (384) 8,498 15,596 15,343 Income (loss) from operations 8,279 8,087 (23,641) (67,440) (100,998) Patent litigation gain, net 440,623 --- --- --- --- Gain on sales of assets 17,214 11,243 49,546 13,223 112,533 Income (loss) from continuing operations 377,752 19,942 10,095 (78,561) (6,728) Discontinued operation (1) --- --- --- 6,984 (12,906) Net income (loss) 377,752 19,942 10,095 (71,577) (19,634) Net income (loss) from continuing operations per share: Basic 7.87 .40 .20 (1.60) (.14) Diluted 7.47 .39 .20 (1.60) (.14) Net income (loss) per share: Basic 7.87 .40 .20 (1.46) (.41) Diluted 7.47 .39 .20 (1.46) (.41) Working capital 520,728 177,638 184,051 168,307 216,520 Total assets 835,640 458,010 514,908 584,944 695,974 Total debt 169 3,733 31,030 62,926 83,213 Shareholders’ equity 621,710 295,213 278,000 276,700 355,332 (1) In 1999, the Company sold its VeriBest, Inc. business segment to Mentor Graphics Corporation. The 1999 amount includes the gain on the sale of discontinued operations. See Note 4 of Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, for a complete discussion of this transaction and its impact on the Company's results of operations and financial position. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report. Intergraph Corporation 2002 Intergraph Intergraph Mapping Intergraph Intergraph Process, Power and Geospatial Solutions Public & Offshore Solutions Group Safety Revenues $124.1 million $195.1 million $127 million $63.6 million Operating income/(loss) $19 million ($1 million) $5.9 million $14.7 million Markets • Power plants: • National/federal • National/federal • Law enforcement Nuclear government agencies, government agencies, Served • Fire departments Fossil Fuel including military including military • Emergency medical • Process plants: • State and local • State and local services Chemical governments governments Food and beverage • Airport security • Transportation and • Law enforcement and Mining mapping agencies security • Roadside Offshore assistance Onshore refining • Utilities and communi- • Transportation cations companies • Military base/campus Petrochemical • Shipbuilding security Pharmaceutical • Photogrammetry • Commercial IT Pulp and paper organizations markets • Commercial shipbuilding • Educational Utilities institutions Manufacturing Healthcare 2002 Signed reseller Z/I Imaging became a Chosen to develop Air IPS solution deployed at Highlights agreement with ARES wholly-owned Force Supply Chain Pittsburgh International Corporation to extend Intergraph subsidiary Common Operating Airport. material management and joined IMGS. Picture. City of Newport News, solutions. Utilities & Provided homeland Va., became the first Signed reseller agree- Communications security support to IPS customer to deploy ment with Design Data division consolidated military agencies. Wireless Phase II and Alias Ltd to with IMGS. Technology Developed wireless enhance plant design Introduced GeoMedia solutions for telemainte- Launched Police solutions. version 5.0. nance and automated Records Management Signed reseller agree- utility meter reading. System in the United Introduced IntelliWhere ment with Det Norske Kingdom. OnDemand for Helped healthcare and Veritas Software to personal digital assis- financial institutions City of Norfolk, Va., develop shipbuilding tants. meet federal privacy became the first to and offshore solutions. mandates. select IPS’ new products Digital Mapping Announced SmartPlant based on Microsoft Camera has successful Electrical and SQL Server. global test flights. SmartPlant 3D products. Enhanced support for Enterprise Applications Announced IntelliShip. Integration in G/Technology and InService. Website www.intergraph.com/ppo/ www.intergraph.com/imgs/ www.intergraph.com/ www.intergraph.com/ solutions/ pubsafety/ Intergraph Corporation 2002 1 A Challenging Environment Last year presented what one industry observer called a “challenging environment” for our businesses. Our restruc- turing happened to coincide with a time of economic weakness in several markets. The U.S. federal government shifted spending to the war on terror. Many state and local governments were experiencing lower tax revenues. Parts of the plant design market were weak. And the utilities and communications industries were distracted by mergers and acquisitions, overcapacity, and financial uncertainty. Despite these circumstances, for a second year our refocused Company produced an operating profit. Revenue declined 6%, while income from operations before restructuring charges increased 35%. Operating income after restructuring charges remained relatively flat with the prior year. Gross margins for the year rose to 46.7%, reflecting higher software content in our product mix. (We ended our hardware business in 2000. Revenue from multi-year hardware maintenance contracts contin- ues to decline, as planned.) Our balance sheet is in excellent shape. Our cash and short-term investments exceeded $500 million at year’s I am pleased with the course of events at Intergraph in end, primarily as a result of the proceeds from the Intel 2002. It was the second full year to operate as a patent lawsuits. In addition to reducing debt, cash was restructured organization, and for the second year, we used to repurchase $83.6 million, or 4.7 million shares, reported a profit. of the Company’s common stock. The sizeable cash balance increases the value of our stock and gives the Our research and development continued turning out company more competitive flexibility with respect to the products that equip our customers, challenge our R&D, acquisitions, or other needs. competitors, and secure our ongoing strength. Given our continued profitability, cash from the Intel Two legal victories were of special note, both for their lawsuits, the outlook for our businesses, and the potential immediate financial impact and for what they say about for additional revenue derived from intellectual property, the value of our intellectual property assets. the Company’s common stock continued to appreciate last year. Revenues (millions) Income (Loss) from Operations (millions) The revenue trend reflects our exit from the hardware business, divestiture of 11 peripheral operations, other Despite economic conditions, our restructuring and cost downsizing, and sluggish economies in the markets we serve. controls have led to renewed profits. 2 Intergraph Corporation 2002 Letter to the Shareholders Four Focused Businesses For 2002, the PPO division produced revenue of $124.1 million and operating income of $19 million. We further settled in to our new corporate structure last year. In the fourth quarter, we fine-tuned the business model by consolidating our mapping/GIS, earth Intergraph Mapping and imaging, utilities, and communications businesses. As Geospatial Solutions a result, we now have four core businesses, instead Our oldest and largest business is Intergraph Mapping of five. I encourage you to read about them in more and Geospatial Solutions (IMGS). IMGS provides software detail on the following pages. along with project implementation and production services for a host of mapping, geographic information system Reflecting a key objective of our restructuring, in each (GIS), and map and chart production needs. In this market we’re a leader or have the potential to move market, data sharing and reuse is important, as a digital into a leadership position. map may form the background for viewing and manipu- lating many types of information by many parties. Throughout