Intergraph Reports Second Quarter 2005 Results

Second Quarter Results Exceeded Financial Guidance; Operating Margin Increased to 6.7%; Operating Margin Before Restructuring (a non-GAAP measure) Increased to 8.1%

HUNTSVILLE, Ala. July 27, 2005--Intergraph Corporation (NASDAQ:INGR): Second Quarter Results Exceeded Financial Guidance; Operating Margin Increased to 6.7%; Operating Margin Before Restructuring (a non-GAAP measure) Increased to 8.1%

Intergraph Corporation (NASDAQ: INGR), a leading global provider of Spatial Information Management (SIM) software, today announced financial results for its second quarter ended June 30, 2005. Revenue for the quarter was $145.4 million, an increase of 5.4% from $138.0 million reported in the second quarter of 2004. For the six months ended June 30, 2005, revenue was $281.8 million, an increase of 4.3% from $270.2 million reported in the same period of 2004.

Operating income for the quarter was $9.8 million, or 6.7% of revenue, compared to $9.2 million, or 6.6% of revenue, reported in the second quarter of 2004. For the six months ended June 30, 2005, operating income was $15.7 million, or 5.6% of revenue, compared to $16.7 million, or 6.2% of revenue, reported in the same period of 2004. The Company reported restructuring charges of $2.0 million and $1.7 million in the second and first quarter of 2005, respectively. Operating income before restructuring (a non-GAAP measure) for the quarter was $11.8 million, or 8.1% of revenue, compared to $9.2 million, or 6.6% of revenue, reported in the second quarter of 2004. For the six months ended June 30, 2005, operating income before restructuring (a non-GAAP measure) was $19.4 million, or 6.9% of revenue, compared to $17.5 million, or 6.5% of revenue, reported in the same period of 2004.

"We are very pleased with our second quarter financial results as we exceeded our guidance for both revenue and operating income," said Halsey Wise, Intergraph President & CEO. "We communicated an operating margin goal in the 8 to 12% range 15 months ago. I am pleased to report to our shareholders that by working together under a more focused strategy, the people of Intergraph produced operating margins before restructuring of 8.1% during the second quarter."

Net income for the quarter was $7.5 million, or $0.25 per diluted share, compared to $14.9 million, or $0.39 per diluted share, in the second quarter of 2004. Net income includes approximately ($0.4) million and $5.1 million of after-tax intellectual property (expense) income, net of all fees and expenses, in the second quarter of 2005 and 2004, respectively. For the six months ended June 30, 2005, net income was $89.5 million, or $2.79 per diluted share, compared to $150.5, or $3.96 per diluted share, for the same period of 2004. Net income includes $80.8 million and $134.0 million of after-tax intellectual property income, net of all fees and expenses, in the first six months of 2005 and 2004, respectively.



(dollars in millions)


                           Quarterly Results


                        -----------------------


                        Q2 2005 Q1 2005 Q2 2004


                        ------- ------- -------





Revenue                 $145.4  $136.5  $138.0


Year-over-year growth      5.4%    3.2%    8.3%





Operating income -


 before restructuring


 (b)                     $11.8    $7.6    $9.2


Operating margin -


 before restructuring


 (b)                       8.1%    5.6%    6.6%





Restructuring charges     $2.0    $1.7       -





Operating income          $9.8    $5.9    $9.2


Operating margin           6.7%    4.3%    6.6%





Net income                $7.5   $81.9   $14.9


Diluted earnings per


 share                   $0.25   $2.40   $0.39











(dollars in millions)     Six Months              Financial


                        Ended June 30,          Guidance (a)


                        --------------- -----------------------------


                          2005    2004     Q3 2005        CY 2005


                        ------- ------- -------------- --------------





Revenue                 $281.8  $270.2    $143 - $145    $570 - $580


Year-over-year growth      4.3%    9.0%





Operating income -


 before restructuring


 (b)                     $19.4   $17.5  $10.5 - $11.5  $43.0 - $45.0


Operating margin -


 before restructuring


 (b)                       6.9%    6.5%





Restructuring charges     $3.7    $0.8    $4.0 - $5.0    $8.0 - $9.0





Operating income         $15.7   $16.7    $5.5 - $7.5  $34.0 - $37.0


Operating margin           5.6%    6.2%





Net income               $89.5  $150.5


Diluted earnings per


 share                   $2.79   $3.96





-----------------------


(a)   Forward-looking statements.  See "Cautionary Note Regarding 


      Forward-Looking Statements."


(b)   See "Non-GAAP Financial Measures."


"Our recent financial results underscore the progress of Intergraph's business transformation and value creation efforts. I attribute the significant operational improvement in this short period of time to the people of Intergraph, whose support of our mission and hard work made these results possible," Mr. Wise said. "We continue to believe that our Strategic Plan captures the increased relevance of Intergraph in the current environment of heightened global security concerns, high energy prices and the adoption of spatial/location-aware solutions. In addition, we believe our recent organizational realignment better positions our company to capitalize on these attractive market opportunities and to create shareholder value."

Fluctuations in the value of the U.S. dollar in international markets have had 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 2.3%, negatively impacted operating expenses by 2.1%, and improved its quarterly net income by approximately $0.02 per diluted share in comparison to the second quarter of 2004. The Company estimates that the strengthening of the U.S. dollar in the second quarter of 2005 as compared with the first quarter of 2005 negatively impacted revenue by 1.1%, positively impacted operating expenses by 1.1%, and reduced its quarterly net income by approximately $0.01 per diluted share. The Company estimates for the six months ended June 30, 2005 that the weakening of the U.S. dollar positively impacted revenue by 2.2%, negatively impacted operating expenses by 1.9%, and improved its net income by approximately $0.04 per diluted share in comparison to the same period of 2004.

Second Quarter Business Highlights

-- Security, Government & Infrastructure (SG&I) was awarded a contract with a large European Airport Authority for a security and infrastructure management solution. This project illustrates the rationale behind Intergraph's organizational realignment as it leverages our differentiated combination of geospatial management and incident command software.

-- SG&I's incident command software was implemented at two additional sites of the German Border Guards and a third undisclosed site of a U.S. Government Agency. The software solution includes new sensor and alarm fusion capabilities, providing a critical common operational picture to security and first-responder communities.

-- SG&I generated second quarter orders of $101.4 million, compared to $69.8 million in the second quarter of 2004 and $68.4 million in the first quarter of 2005. The orders growth drove a 12.8% increase in SG&I ending backlog to $183.4 million from the $162.6 million reported at the end of the first quarter of 2005.

-- SG&I second quarter customer wins included Napa County, California; Emergency Response Center, Rock Island; Penumboco Argentina; Hawaiian Telecom; Wisconsin Public Services Corporation; HIS Energy (France); Hydro Ottawa; and Realworld Engineering Consulting (Taiwan).

-- In April, SG&I held its GeoSpatial World 2005 international management and training conference in San Francisco, California and had record attendance with representation from more than 50 countries.

-- Process, Power & Marine (PP&M) executed a five-year contract with Dow Chemical for use of PP&M's suite of integrated engineering and design software. We believe the agreement further validates PP&M's long-term strategy of providing a differentiated portfolio of applications to its customers through the SmartPlant Enterprise suite.

-- PP&M signed a global purchase agreement with Alcoa for the Intergraph Plant Design System (PDS) and related software. The contract represents global standardization on PDS for all major projects within Alcoa's alumina process plants. Under the five-year agreement, PP&M will supply PDS and related software to Alcoa World Alumina for use by its engineering, procurement & construction contractors worldwide.

-- PP&M experienced strong demand during the second quarter for its newer products, SmartPlant 3D and IntelliShip. Specifically, PP&M won several new IntelliShip customers, including Technip Offshore, FKAB Sweden, and DF Marine China.

-- PP&M generated solid growth during the second quarter across a wide range of its products and geographies. The Asia-Pacific region was particularly strong with revenue growth of more than 30% over the second quarter of 2004.

Organizational Realignment

In April 2005, the Company announced that as part of its business transformation efforts it is realigning its organizational structure and streamlining its global operations from four to two divisions - Security, Government & Infrastructure (SG&I) and Process, Power & Marine (PP&M). 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.

Intergraph expects that the organizational realignment will be completed by the end of the second quarter of 2006. The Company eliminated approximately 80 positions during the second quarter of 2005 and reported a restructuring charge of $2.0 million related to the organizational realignment. The Company has identified another 60 to 80 positions, with a focus on Europe and Asia-Pacific, to eliminate in the third quarter of 2005. The Company estimates that it will report a restructuring charge of $4.0 - $5.0 million in the third quarter, primarily related to severance costs associated with the elimination of these positions. The sequential increase in restructuring charges relates to higher statutory severance costs in the European and Asia-Pacific regions as compared to the United States. The Company estimates that total restructuring charges for fiscal year 2005 will be in the range of $8.0 - $9.0 million, which includes the $3.7 million of restructuring charges reported for the six months ended June 30, 2005.

During the second quarter of 2005, the Company completed the reorganization of the operations of its three former divisions, Intergraph Mapping & GeoSpatial Solutions (IMGS), Intergraph Solutions Group (ISG), and Intergraph Public Safety (IPS), into the newly formed Security, Government & Infrastructure. In addition, the Company consolidated its Marketing departments on a global basis, consolidated its U.S. Human Resources departments into a single unit, and consolidated its U.S. Accounting departments into a single unit.

"We are pleased with the progress of our organizational realignment and margin improvement efforts during the second quarter," said Mr. Wise. "We remain committed to further reducing Intergraph's cost structure and improving our operational efficiency over the coming quarters. We remain convinced that the realignment will improve our ability to serve our customers and to target our attractive market opportunities."

Business Unit Performance

The Company believes that providing the operating performance of its two divisions is useful to investors. The following tables and explanations summarize the results of the two divisions for the second quarter and six months ended June 30, 2005.



Security, Government & Infrastructure(SG&I):





(dollars in millions)                           Six Months


                                                   Ended


                         Quarterly Results        June30,     Ending


                      ----------------------- ---------------


                                                              Backlog


                      Q2 2005 Q1 2005 Q2 2004  2005    2004


                      ------- ------- -------  ------  ------ -------





Revenue               $105.0  $ 97.7  $101.2  $202.7  $199.1  $183.4


Year-over-year growth    3.8%  (0.3%)    7.9%    1.8%    8.9%





Operating income -


 before restructuring $  8.1  $  6.8  $ 10.5  $ 14.9  $ 19.7


Operating margin -


 before restructuring    7.8%    7.0%   10.4%    7.4%    9.9%





Restructuring charges $  1.1  $  1.0       -  $  2.1       -





Operating income      $  7.0  $  5.8  $ 10.5  $ 12.8  $ 19.7


Operating margin         6.7%    5.9%   10.4%    6.3%    9.9%


SG&I revenue for the quarter was $105.0 million, an increase of 3.8% from the second quarter of 2004 and a sequential increase of 7.5% from the first quarter of 2005. Revenue for the six months ended June 30, 2005 was $202.7 million, an increase of 1.8% from the same period of 2004. The revenue increases were primarily driven by an increase in public safety maintenance contracts, sales of Digital Mapping Cameras and related geospatial solutions, an increase in distributor product sales, and work completed in support of long-term U.S. Federal Government contracts. Operating income for the quarter was $7.0 million, or 6.7% of revenue, compared to $10.5 million in the second quarter of 2004 and $5.8 million in the first quarter of 2005. SG&I reported restructuring charges of $1.1 million in the second quarter of 2005 due to the organizational realignment announced in April 2005. Operating income before restructuring (a non-GAAP measure) for the quarter was $8.1 million, or 7.8% of revenue, compared to $10.5 million in the second quarter of 2004 and $6.8 million in the first quarter of 2005. Operating income for the six months ended June 30, 2005 was $12.8 million, or 6.3% of revenue, compared to $19.7 million for the same period of 2004. The year-over-year declines in operating income were driven by a reduction in revenue and margin on a map production project, the anticipated reduction in certain other U.S. Federal Government contracts, and restructuring charges. The sequential increase in operating income from the first quarter of 2005 was primarily due to increased photogrammetric product sales and related geospatial solutions. SG&I generated second quarter orders of $101.4 million, compared to $69.8 million in the second quarter of 2004 and $68.4 million in the first quarter of 2005. The orders growth in the second quarter increased SG&I ending backlog to $183.4 million from the $162.6 million reported at the end of the first quarter of 2005.




Process, Power & Marine (PP&M):





 (dollars in millions)                               Six Months Ended


                             Quarterly Results           June 30,


                       ----------------------------- ----------------


                        Q2 2005   Q1 2005   Q2 2004     2005    2004


                       --------- --------- --------- -------- -------





Revenue                   $40.5     $38.7     $35.2    $79.2   $68.2


Year-over-year growth      15.1%     17.2%      7.5%    16.1%    7.9%





Operating income -


 before restructuring      $8.0      $6.3      $5.4    $14.3    $8.9


Operating margin -


 before restructuring      19.7%     16.4%     15.4%    18.1%   13.1%





Restructuring charges      $0.6         -         -     $0.6    $0.8





Operating income           $7.4      $6.3      $5.4    $13.7    $8.1


Operating margin           18.3%     16.4%     15.4%    17.3%   11.9%


PP&M revenue for the quarter was $40.5 million, an increase of 15.1% from the second quarter of 2004 and a sequential increase of 4.5% from the first quarter of 2005. Revenue for the six months ended June 30, 2005 was $79.2 million, an increase of 16.1% from the same period of 2004. The year-over-year revenue increases were primarily due to strong growth in our core plant design business, the adoption of our new SmartPlant Enterprise technology, and the increasing maintenance and services revenue generated by these new products. The sequential revenue increase from the first quarter of 2005 was primarily the result of an increase in services revenue on several major ongoing projects. Operating income for the quarter was $7.4 million, or 18.3% of revenue, compared to $5.4 million in the second quarter of 2004 and $6.3 million in the first quarter of 2005. PP&M reported a restructuring charge of $0.6 million in the second quarter of 2005 due to the organizational realignment announced in April 2005. Operating income before restructuring (a non-GAAP measure) for the quarter was $8.0 million, or 19.7% of revenue. Operating income for the six months ended June 30, 2005 was $13.7 million, or 17.3% of revenue, compared to $8.1 million for the same period of 2004. The year-over-year and sequential increases in operating income were primarily due to higher software revenue and gross margins, partially offset by higher operating expenses.

Intellectual Property

The Company possesses an intellectual property (IP) portfolio, which it protects through licensing and litigation. All income and expenses associated with the IP portfolio, including legal expenses, are classified and reported in the Other Income (Expense), net section of the income statement. For the six months ended June 30, 2005, Intergraph reported $127.3 million of pre-tax intellectual property income, net of all fees and expenses.

Non-GAAP Financial Measures

To supplement its financial statements, which are prepared on a GAAP basis, Intergraph reports operating income before restructuring charges and operating margin before restructuring charges. The Company believes these non-GAAP financial measures provide investors and management with additional information to evaluate the Company's past financial results and ongoing operational performance. The Company believes these non-GAAP financial measures facilitate making period-to-period comparisons and is an indication of its operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not necessarily be comparable to that of other companies.

Conference Call and Webcast

Intergraph will provide an online, real-time Webcast and rebroadcast of its second quarter conference call to be held Thursday, July 28, 2005, at 11:00 a.m. EST. The live broadcast will be available online at http://www.intergraph.com/investors. Listeners will be asked to pre-register and should plan to visit the Website a few minutes before the broadcast begins. The replay will be available shortly after the conference call ends and will remain available online until July 28, 2006. In addition, the replay can be heard by telephone any time before the close of business on August 28, 2005 by calling 1-800-879-6405 and referring to the reservation #9413880.

###

About Intergraph

Intergraph Corporation (NASDAQ: INGR) is a leading global provider of spatial information management (SIM) software. Security organizations, businesses and governments in more than 60 countries rely on the Company's spatial technology and services to make better and faster operational decisions. Intergraph's customers organize vast amounts of complex data into understandable visual representations, creating intelligent maps, managing assets, building and operating better plants and ships, and protecting critical infrastructure and millions of people around the world. For more information, visit www.intergraph.com.

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward-looking statements (all statements other than those made solely with respect to historical fact) within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, the business outlook of Intergraph Corporation (the "Company"), financial guidance, including any projections about revenues, operating income levels, margins, market conditions, and the Company's organizational realignment and cost reduction efforts, and their anticipated impact on the Company and its vertical business segments or divisions; expectations regarding Intergraph's intellectual property; expectations regarding future results and cash flows; settlement costs associated with the Company's Accelerated Stock Buyback; information regarding the development, timing of introduction, and performance of new products; the Company's ability to win new orders and any statements of the plans, strategies, expectations and objectives of management for future operations. These forward-looking statements are subject to known and unknown risks and uncertainties (some of which are beyond the Company's control) that could cause actual results to differ materially and adversely from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the ability to attract or retain key personnel; adverse effects from our effort to protect our intellectual property, or other potential litigation or patent enforcement efforts; the ability, timing, and costs (including the calculation of success and other fees) to enforce and protect the Company's intellectual property rights; potential adverse outcomes in our efforts to improve our operating performance (including uncertainties with respect to the timing and magnitude of any expected improvements); potential adverse outcomes or consequences associated with the Company's organizational realignment; material changes with respect to our business, litigation, or the securities markets (including the market for Intergraph common stock and any adjustments relating to the Accelerated Stock Buyback); risks associated with doing business internationally (including foreign currency fluctuations); worldwide political and economic conditions and changes; increased competition; rapid technological change; unanticipated changes in customer requirements; the ability to access the technology necessary to compete in the markets served; risks associated with various ongoing litigation proceedings; and other risks detailed in our press releases or in our annual, quarterly, or other filings with the Securities and Exchange Commission.

Intergraph, the Intergraph logo, SmartPlant, PDS and IntelliShip are registered trademarks of Intergraph Corporation. Other brands and product names are trademarks of their respective owners.



Intergraph Corporation


Consolidated Balance Sheets (Unaudited)


(amounts in thousands)





                                                   June 30, December


                                                               31,


                                                    2005      2004


                                                  --------- ---------


Assets:


  Cash and short-term investments                 $285,851  $292,435


  Accounts receivable, net                         146,257   155,160


  Inventories, net                                  26,299    22,253


  Other current assets                              33,907    84,050


                                                   --------  --------


     Total Current Assets                          492,314   553,898





  Investments in affiliates                          9,499     9,499


  Capitalized software development costs, net       24,314    26,201


  Other assets, net                                  7,108    10,314


  Property, plant and equipment, net                49,320    50,628





                                                  --------- ---------


        Total Assets                              $582,555  $650,540


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





Liabilities and Shareholders' Equity:


  Trade accounts payable                          $ 14,688  $ 20,915


  Accrued compensation                              35,868    40,142


  Other accrued expenses                            36,250    42,495


  Billings in excess of sales                       49,075    58,263


  Income taxes payable                              47,964    22,680


  Current portion of long-term debt                    429       314


                                                   --------  --------


     Total Current Liabilities                     184,274   184,809





  Long-term debt                                       656       874


  Deferred income taxes and other noncurrent


   liabilities                                      14,726    15,595





     Total Shareholders' Equity                    382,899   449,262





                                                  --------- ---------


        Total Liabilities and Shareholders'


         Equity                                   $582,555  $650,540


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








Intergraph Corporation


Consolidated Statements of Operations (Unaudited)


(amounts in thousands, except per share data)





                              Quarter Ended June   Six Months Ended


                                      30,               June 30,


                              ------------------- -------------------


                                2005      2004      2005      2004


                              --------- --------- --------- ---------


Revenue:


   Systems                     $75,370   $71,752  $144,380  $141,487


   Maintenance                  38,087    34,587    74,587    67,588


   Services                     31,898    31,624    62,876    61,173


                              --------- --------- --------- ---------


       Total Revenue           145,355   137,963   281,843   270,248





Cost of Revenue:


   Systems                      37,144    35,888    70,215    70,226


   Maintenance                  10,702    10,578    21,664    21,056


   Services                     23,104    21,943    45,907    42,970


                              --------- --------- --------- ---------


       Total Cost of Revenue    70,950    68,409   137,786   134,252





          Gross Profit          74,405    69,554   144,057   135,996





Operating Expenses:


   Product development          15,201    14,483    30,200    29,047


   Sales and marketing          31,712    28,174    62,088    54,212


   General and administrative   15,717    17,746    32,403    35,207


   Restructuring charges         1,984         -     3,678       826


                              --------- --------- --------- ---------


       Total Operating


        Expenses                64,614    60,403   128,369   119,292





          Operating Income       9,791     9,151    15,688    16,704





Other Income (Expense):


   Intellectual property


    income (expense), net         (584)    7,981   127,256   211,041


   Interest income               1,791     1,068     3,764     1,949


   Other income (expense),


    net                           (239)     (504)     (439)      568


                              --------- --------- --------- ---------


       Total Other Income


        (Expense)                  968     8,545   130,581   213,558





          Income Before


           Income Taxes         10,759    17,696   146,269   230,262





   Income Tax Benefit


    (Expense)                   (3,220)   (2,800)  (56,800)  (79,800)





                              --------- --------- --------- ---------


          Net Income            $7,539   $14,896   $89,469  $150,462


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





Earnings Per Share:


   Basic                         $0.27     $0.41     $2.93     $4.13


   Diluted                       $0.25     $0.39     $2.79     $3.96





Weighted Average Shares


 Outstanding:


   Basic                        28,364    36,588    30,573    36,428


   Diluted                      30,003    38,130    32,028    37,988





Orders:


   Systems orders              $90,500   $70,300  $160,400  $143,300


   Services orders              34,200    21,100    68,600    64,400


                              --------- --------- --------- ---------


       Total Systems and


        Services Orders       $124,700   $91,400  $229,000  $207,700


Contact

Ryan Hobbs,
Director, Investor Relations

+1.256.730.2701
ryan.hobbs@intergraph.com

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