CIMdata PLM Industry Summary Online Archive
27 April 2005
Financial News
Intergraph Reports First Quarter 2005 Results
Intergraph Corporation announced financial results for its first quarter ended March 31, 2005. The Company also announced that, consistent with its Strategic Plan, it is realigning its organizational structure and streamlining its global operations from four to two divisions-Process, Power & Marine and the newly formed Security, Government & Infrastructure.
Revenue for the quarter was $136.5 million, an increase of 3.2% from the $132.3 million reported in the first quarter of 2004. Operating income for the quarter was $5.9 million, or 4.3% of revenue, compared to $7.6 million, or 5.7% of revenue, reported in the first quarter of 2004. The Company reported restructuring charges of $1.7 million in the first quarter of 2005 and $0.8 million in the first quarter of 2004. Operating income before restructuring (a non-GAAP measure) for the quarter was $7.6 million, or 5.6% of revenue, compared to $8.4 million, or 6.3% of revenue, reported in the first quarter of 2004.
Net income for the quarter was $81.9 million, or $2.40 per diluted share, compared to $135.6 million, or $3.58 per diluted share, in the first quarter of 2004. Net income includes $81.0 million and $128.7 million of after-tax intellectual property income, net of all fees and expenses, in the first quarter of 2005 and 2004, respectively.
"We are very pleased with our first quarter financial results as we exceeded guidance for both revenue and operating income," said Halsey Wise, Intergraph President & CEO. "Our financial results in the first quarter 2005 and calendar year 2004 validate the direction of our Strategic Plan and illustrate the operational progress we have made over the past year and a half to transform our Company. I attribute our success to the people of Intergraph and their hard work and support of our mission."
"While I am pleased with our recent progress and first quarter results, we remain committed to achieving our operating margin goal of eight to twelve percent over time. Accordingly, we must continue to transform our Company as established in our three phase 'NOW-NEXT-AFTER NEXT' program, while at the same time continuing to offer customers differentiated solutions," Mr. Wise added. "We are working to build shareholder value by focusing on operational execution and delivering the full range of Intergraph's capabilities."
Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on the Company's financial results. The Company estimates for the quarter that the weakening of the U.S. dollar in its international markets, primarily in Europe, positively impacted revenue by approximately 2.2%, negatively impacted operating expenses by approximately 1.8%, and improved its quarterly net income by approximately $0.02 per diluted share in comparison to the first quarter of 2004. The Company estimates that the weakening of the U.S. dollar in the first quarter of 2005 as compared with the fourth quarter of 2004 positively impacted revenue by approximately 0.6%, negatively impacted operating expenses by approximately 0.6%, and improved its quarterly net income by approximately $131,000.
Intergraph's overall effective tax rate for the quarter was 39.5%. Income tax expense for the quarter included a $6.2 million, or $0.18 per diluted share, charge related to repatriation of approximately $31.5 million in foreign earnings under the American Jobs Creation Act of 2004. Without this one-time charge, the Company's effective tax rate for the quarter would have been approximately 35%. For the remainder of 2005, the Company projects an effective tax rate of approximately 35%.
Organizational Realignment
The Company also announced today that it is realigning its organizational structure and streamlining its global operations from four to two divisions-Process, Power & Marine (PP&M) and the newly formed Security, Government & Infrastructure (SG&I). Intergraph's SG&I division will consist of core operations that previously existed in Intergraph Mapping and Geospatial Solutions, Intergraph Solutions Group and Intergraph Public Safety. The organizational realignment is intended to: (1) improve the customer focus and responsiveness of the Company; (2) facilitate revenue growth by better leveraging the Company's full range of technology and services; (3) enhance the Company's development capabilities and ability to deliver innovative solutions to its target markets; and (4) reduce the overall cost structure of the Company.
"The organizational realignment will provide our Company with a stronger platform to drive future growth initiatives," Mr. Wise said. "We believe our new organizational structure will allow us to build customer and shareholder value by more efficiently allocating people and resources to target specific markets where Intergraph has a clear, differentiated value proposition. The realignment is the next step in the execution of our transformation effort outlined in our Strategic Plan."
The organizational realignment will include several changes to Intergraph's senior management team. The Company has appointed Reid French, formerly Executive Vice President of Strategic Planning and Corporate Development, to the position of Chief Operating Officer of Intergraph Corporation. Reporting to Mr. French, will be Gerhard Sallinger, President of Intergraph's Process, Power & Marine (PP&M) division and Preetha Pulusani, formerly President of Intergraph Mapping and Geospatial Solutions. Ms. Pulusani has been appointed President of Intergraph's newly formed Security, Government & Infrastructure (SG&I) division. Ben Eazzetta, formerly President of Intergraph Public Safety, will report to Ms. Pulusani and has been appointed to the position of Chief Operating Officer of Intergraph's SG&I division.
Intergraph's SG&I division will be comprised of five industry-focused business units, including Public Safety & Local Government, Federal Solutions, Military & Intelligence, Utilities & Communications, and Transportation & Commercial Photogrammetry. In addition, the Company will be consolidating certain functions globally and across divisions, such as Human Resources, Marketing, Information Technology, and Finance & Accounting.
"Streamlining our business into two divisions is part of our effort to leverage more effectively our technology and to capitalize on the cross-selling opportunities that exist between our operations," Mr. Wise added. "We believe our new organizational structure will enhance our responsiveness to customer and market demands and increase our ability to deliver innovative solutions to the industries we serve. These efforts, while difficult and challenging, will better position our Company for future growth."
Intergraph expects the organizational realignment to be completed by the end of the second quarter of 2006. The Company plans to report restructuring charges over this time period primarily due to eliminating redundant positions as part of the consolidation of divisions and functions. The Company estimates that total restructuring charges for the organizational realignment will be in the range of $4.5-$6.0 million, which are expected to generate expense savings on an annual basis of approximately $12.0-$15.0 million. The Company estimates that total restructuring charges for fiscal year 2005 will be in the range of $6.0-$7.5 million, which includes the $1.7 million restructuring charge reported in the first quarter of 2005.
The Company has raised its guidance for 2005 operating income before restructuring (a non-GAAP measure) from $40.0-$43.0 million to $42.0-$44.0 million due to reduced expenses derived from the organizational realignment. The Company does not expect to realize the full benefits of the annual expense savings in 2005 due to the phased approach of the organizational realignment over the next five quarters. The Company has lowered its guidance for 2005 operating income from $38.0-$41.5 million to $34.5-$38.0 million due to the restructuring charges that it now expects to report over the remainder of the year. Intergraph expects to begin reporting financial results by its two divisions, PP&M and SG&I, in the second quarter of 2005.
First Quarter Business Highlights
• Intergraph repurchased 5.4 million shares for approximately $150 million via an Accelerated Stock Buyback (ASB) on March 22, 2005. The Company has repurchased more than 25 million shares for approximately $635 million since 2001, reducing its total shares outstanding by more than 40%.
• In January 2005, Intergraph resolved all pending patent litigation by entering into a global settlement with Hewlett-Packard Company (HP). Per the terms of the settlement, HP tendered a payment of $141.1 million and each company granted a cross-license to each others' patent portfolio.
• Intergraph Mapping and Geospatial Solutions (IMGS) deployed its geospatial data management solution for the Hungarian Border Guard Command and Control System (BOGCOS). The new geospatial intelligence system protects 10 million people by supporting control operations along the national boundary of Hungary.
• IMGS installed an enterprise Web mapping system at San Ramon Valley, CA Fire Protection District (SRVFPD). The new Web-based system links the department's Computer Aided Dispatch (CAD) system, Records Management System (RMS) and geospatial databases. Geospatial data from the new system will be linked into emergency response units via onboard mobile data computers.
• Process, Power & Marine (PP&M) executed a three-year contract with Bechtel for global use of PP&M's suite of enterprise software applications, signed a global agreement with Sinopec (China's largest chemical and oil & gas company), and announced a new IntelliShip customer, Korea's Daewoo, one of the top three shipyards in the world.
• Intergraph Solutions Group (ISG), in-line with our Force Protection and Homeland Security strategy, was selected by Fort Jackson as a key partner on a team led by General Dynamics. The project includes the implementation of Intergraph's Incident Command software and an Enhanced 911 System that will be implemented in the newly built Public Safety Center.
• ISG, in partnership with Naval Air Systems Command (NAVAIR), opened the Logistics Information Technology and Maintenance Integration Solutions (LITMIS) Laboratory. The LITMIS Laboratory is capable of emulating near real life conditions encountered in warfighter performance and improves weapon system readiness support through timely software and process delivery.
• Intergraph Public Safety (IPS) generated first quarter orders of $11.9 million and increased backlog to $40.8 million. IPS orders in the first quarter included Raleigh-Durham Airport, Lauderdale County, Alabama, Geneva, Switzerland, Gentofte Fire Brigade, which represents the first IPS sale into Denmark, and follow-on orders from the German Border Guards.
Business Unit Performance
For the convenience of those interested in the Process, Power & Marine division of Intergraph, a brief summary of their financials appears below. For full financials for all the divisions of Intergraph visit http://www.intergraph.com/investors/documents/20050427_EarningsReleaseQ12005_Results.pdf .
PP&M revenue for the quarter was $38.7 million, an increase of 17.2% from the first quarter of the prior year and a decrease of 11.1% from the fourth quarter of 2004. The revenue increase from the first quarter of 2004 was primarily the result of growth in global accounts, several new customer wins and continued growth in maintenance revenue. The sequential revenue decline was typical as the fourth quarter is normally the strongest quarter for PP&M. In addition, revenue of $2.6 million was recognized in the fourth quarter of 2004 due to the delivery of SmartPlant 3D Version 5.0. Operating income for the quarter was $6.3 million, or 16.4% of revenue, compared to $2.7 million, or 8.1% of revenue, in the first quarter of the prior year and $9.9 million, or 22.6% of revenue, in the fourth quarter of 2004. The year-over-year operating income increase was primarily due to higher software revenue producing higher gross margins, partially offset by higher operating expenses. The operating income decrease from the fourth quarter of 2004 was primarily due to lower revenue in the first quarter.
Intergraph will provide an online, real-time Webcast and rebroadcast of its first quarter conference call to be held Thursday, April 28, 2005, at 11:00 a.m. EST. The live broadcast will be available online at http://www.intergraph.com/investors . The replay will be available shortly after the conference call ends and will remain available online until April 28, 2006. In addition, the replay can be heard by telephone any time before the close of business on May 28, 2005 by calling 1-866-489-2878 and referring to the reservation number 5486854.
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