EX-99.1 2 q4earnings_release.htm Q4 EARNINGS RELEASE Intergraph Reports Fourth Quarter 2004 Results

PRESS RELEASE

 

 

FOR IMMEDIATE RELEASE

FOR FURTHER INFORMATION:

                                                                                                                                           Reid French
                                                                                                                EVP, Corporate Development
                                                                                                                                     1.256.730.2602
                                                                                                                   reid.french@intergraph.com

Intergraph Reports Fourth Quarter 2004 Results

Fourth Quarter Operating Margins Increase to 6.7%; 2004 Operating Income More than Doubles

HUNTSVILLE, Ala., January 26, 2005 -- Intergraph Corporation (NASDAQ: INGR), a leading global provider of Spatial Information Management (SIM) software, today announced financial results for its fourth quarter ended December 31, 2004.  Revenue for the quarter was $146.2 million, compared to $144.5 million reported in the fourth quarter of 2003.  For the year ended December 31, 2004, revenue was $551.1 million, an increase of 4.8% from $526.0 million reported in 2003.

Operating income for the quarter was $9.8 million, or 6.7% of revenue, compared to $0.8 million, or 0.5% of revenue, reported in the fourth quarter of 2003.  For the year ended December 31, 2004, operating income was $34.1 million, or 6.2% of revenue, compared to $13.4 million, or 2.5% of revenue, reported in 2003.

Net income for the quarter was $7.3 million, or $0.21 per diluted share, compared to $0.4 million, or $0.01 per diluted share, in the fourth quarter of 2003.  For the year ended December 31, 2004, net income was $159.0 million, or $4.37 per diluted share, compared to $22.3 million, or $0.47 per diluted share, reported in 2003.  Net income for 2004 includes $121.6 million of after-tax intellectual property income, net of all fees and expenses.

"We are very pleased with our fourth quarter and 2004 financial results as they illustrate the progress that Intergraph has made over the past 18 months in improving operating performance," said Halsey Wise, Intergraph President & CEO.  "Our results in both the fourth quarter and 2004 represent Intergraph's best financial performance in twelve years.  Our 2004 operating income more than doubled from 2003, and we continue to execute on our three-phase strategic plan ("NOW" - "NEXT" - "AFTER NEXT")."

  (dollars in millions)

Year Ended

Financial

Quarterly Results

December 31,

Guidance [a]

Q4 2004

   

Q3 2004

   

Q4 2003

     

2004

   

2003

     

Q1 2005

   

FY 2005
 

Revenue

$146.2

$134.7

$144.5

$551.1

$526.0

$134 - $136

$570 - $580

Year-over-year growth

1.1%

0.8%

18.5%

4.8%

5.0%
 

Operating income - before restructuring [b]

$9.8

$7.6

$4.7

$34.9

$17.3

$5.5 - $6.5

$40.0 - $43.0

Operating margin - before restructuring [b]

6.7%

5.6%

3.3%

6.3%

3.3%
 

Restructuring charges

-

-

$4.0

$0.8

$4.0

$1.5 - $2.0

$1.5 - $2.0
 

Operating income

$9.8

$7.6

$0.8

$34.1

$13.4

$3.5 - $5.0

$38.0 - $41.5

Operating margin

6.7%

5.6%

0.5%

6.2%

2.5%
 

Net income

$7.3

$1.2

$0.4

$159.0

$22.3

Earnings per share (EPS)

$0.21

$0.03

$0.01

$4.37

$0.47
 

[a] Forward-looking statements.  See "Cautionary Note Regarding Forward-Looking Statements."

[b] See "Non-GAAP Financial Measures."

Commenting on the financial results, Wise said, "While we made a great deal of progress in 2004, there is still much work to be done at Intergraph.  As we move into 2005, we are focused on capitalizing on the specific opportunities in our markets and executing on our strategic plan initiatives, which we believe will help us to continue to expand operating margins and generate additional revenue growth over time."

In addition, Larry Laster has announced his intention to retire as Intergraph's Chief Financial Officer.  Laster will continue to serve as CFO until a successor is named.  He will also continue to serve as a member of the Company's Board of Directors and will remain with Intergraph to assist in the day-to-day operations until the transition to new leadership is complete.

"I deeply thank Larry for his years of service to Intergraph," said Halsey Wise.  "Through his leadership and efforts, Intergraph's turnaround story took hold.  His unwavering commitment to Intergraph is a testament to his character, and I appreciate all that he has done to help me in my first 18 months of leadership at Intergraph.  I look forward to working with Larry in another capacity after we find a new CFO."

"This is an exciting time for Intergraph," said Larry Laster.  "We have completed the transition to a profitable corporation and successfully defended our intellectual property.  We now have the financial strength to take our company to higher levels of success.  I am confident that Intergraph's strategy, combined with new financial leadership, will result in continued growth in shareholder value.  It has been an honor to serve as Intergraph's CFO, and I look forward to continued service to the Company."

Intergraph's overall effective tax rate in 2004 was 32.0%, while the Company's tax rate on its operations, which excludes intellectual property income (expense), was 11.9%.  This difference resulted from the usage of NOL's in many of the Company's international legal entities.  Intergraph has fully utilized all of its NOL's in the United States due to both improvements in its core business and the success of its intellectual property enforcement efforts over the past several years.  The Company still has NOL's of approximately $75 million available across certain of its international legal entities.  For 2005, we have projected an overall effective tax rate of approximately 35%. 

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 3.8%, negatively impacted operating expenses by approximately 3.9%, and improved its quarterly operating results by approximately $0.02 per diluted share in comparison to the fourth quarter of 2003.  The Company estimates that the weakening of the U.S. dollar in the fourth quarter as compared with the third quarter of 2004 positively impacted revenue by approximately 2.7%, negatively impacted operating expenses by approximately 2.2%, and improved its quarterly operating results by approximately $0.03 per diluted share.  The Company estimates for the year that the weakening of the U.S. dollar positively impacted revenue by approximately 3.8%, negatively impacted operating expenses by approximately 3.6%, and improved its quarterly operating results by approximately $0.10 per diluted share in comparison to 2003.

Fourth Quarter Business Highlights

-    Intergraph added its seventh outside Board director with the addition of Kevin M. Twomey, President, COO & CFO of The St. Joe Company.

-    Process, Power & Marine (PPM) acquired the EYECAD 3D plant design software from Asahi Kasei Engineering, expanding Intergraph's customer base within Japan and accelerating Japanese localization of the SmartPlant suite.

-    Intergraph Mapping and Geospatial Solutions (IMGS) signed a multi-year agreement to provide geospatial solutions for a major water authority in Poland, providing this customer with site wide access to all IMGS GIS products for management of infrastructure and decision support.

-    Intergraph Public Safety (IPS) achieved fourth quarter bookings of $13.7 million, compared to $5.7 million in the fourth quarter of last year and $14.9 million in the third quarter of 2004.  Total orders in 2004 increased 20.0% over 2003 while ending backlog for the year increased 11.7% from December 31, 2003.

-    Intergraph Solutions Group (ISG), in-line with our Force Protection strategy, was selected by the National Security Agency as part of a team led by Lockheed Martin to provide security systems for certain confidential sites in the Washington Metropolitan Area.

-    PPM delivered several significant software releases in the fourth quarter including SmartPlant3D 5.0, SmartPlant Electrical 3.0, SmartPlant Review 5.1, and MARIAN CCM.

-    Exxon Chemical and Honeywell standardized worldwide on PPM's SmartPlant Instrumentation offering and ABS, a leading ship classification society, standardized on PPM's IntelliShip offering.

-    IPS orders in the fourth quarter included Suffolk County Fire NY, Tennessee Highway Patrol, North Wales Police Integrated Communications System (UK), and additional sites for the German Border Guards.

-    IMGS was selected by the Canadian Department of National Defense for mapping solutions to enable the Canadian Government to participate in a worldwide cooperative initiative for mapping production that encompasses over 20 different countries globally.

Business Unit Performance
The Company believes that providing the operating performance of each of its four core business units is useful to investors.  The following tables summarize the results of the business units for the fourth quarter and the year ended December 31, 2004.

  (dollars in millions)

Quarter Ended December 31, 2004

Corporate &

Total

IMGS

   

PPM

   

ISG

   

IPS

   

Eliminations

   

Intergraph
 

Revenue

$55.3

$43.5

$30.8

$18.5

($2.0)

$146.2

Year-over-year growth

(5.4%)

25.3%

(16.1%)

6.2%

1.1%
 

Operating income

$2.5

$9.9

$2.0

$2.2

($6.7)

$9.8

Operating margin

4.5%

22.6%

6.3%

12.1%

6.7%
 
 

(dollars in millions)

Year Ended December 31, 2004
 

Corporate &

Total

IMGS

PPM

ISG

IPS

Eliminations

Intergraph
 

Revenue

$206.5

$147.0

$135.3

$70.1

($7.8)

$551.1

Year-over-year growth

(0.1%)

11.7%

(1.5%)

1.9%

4.8%
 

Operating income - before restructuring

$7.0

$22.7

$18.7

$8.8

($22.2)

$34.9

Operating margin - before restructuring

3.4%

15.5%

13.8%

12.5%

6.3%
 

Restructuring charges

-

$0.8

-

-

-

$0.8
 

Operating income

$7.0

$21.9

$18.7

$8.8

($22.2)

$34.1

Operating margin

3.4%

14.9%

13.8%

12.5%

6.2%
 

Intergraph Mapping and Geospatial Solutions (IMGS):

  (dollars in millions)

Year Ended

Quarterly Results

December 31,

Ending

Q4 2004

   

Q3 2004

   

Q4 2003

     

2004

   

2003

     

Backlog
 

Revenue

$55.3 

$49.6 

$58.5

$206.5 

$206.8

$68.6

Year-over-year growth

(5.4%)

(10.0%)

(0.1%)
 

Operating income - before restructuring

$2.5

$1.5

$2.6

$7.0

$1.6

Operating margin - before restructuring

4.5%

3.1%

4.4%

3.4%

0.8%
 

Restructuring charges

-

-

$1.5

-

$1.5
 

Operating income

$2.5

$1.5

$1.1

$7.0

$0.0

Operating margin

4.5%

3.1%

1.8%

3.4%

0.0%

IMGS revenue for the quarter was $55.3 million, a decrease of 5.4% from the fourth quarter of the prior year and a sequential increase of 11.6% from the third quarter of 2004.  Revenue for the year was $206.5 million, relatively flat with 2003.  The most significant negative influence on revenue for IMGS in 2004 was the expected ramping down of a large U.S. map production contract that was essentially completed during the year.  This contract resulted in revenue declines of 6.5% for the year compared to 2003, 3.5% for the fourth quarter of 2004 compared to the same quarter of 2003, and 1.2% for the fourth quarter compared to the third quarter of 2004.  Operating income for the quarter was $2.5 million, compared to operating income of $1.1 million in the fourth quarter of the prior year and operating income of $1.5 million in the third quarter of 2004.  Operating income for the year was $7.0 million, or 3.4% of revenue, compared to $0.0 million in 2003.  The improvements in operating income were a result of higher gross margins due to favorable revenue mix changes and lower operating expenses in 2004 due to cost reductions made in the fourth quarter of 2003.  IMGS has made significant improvements in operating margins over the last three years, rising from (2.0%) in 2002 to 3.4% in 2004.  While IMGS backlog declined $9.3 million in the fourth quarter, the reduction was primarily the result of the delivery of Digital Mapping Cameras and progress made on international long-term mapping and utility contracts.  Ending backlog for the year increased $6.5 million from December 31, 2003.

Process, Power & Marine (PPM):

  (dollars in millions)

Year Ended

Quarterly Results

     

December 31,

Q4 2004

   

Q3 2004

   

Q4 2003

2004

   

2003
 

Revenue

$43.5

$35.2

$34.8

$147.0

$131.6

Year-over-year growth

25.3%

4.8%

11.7%
 

Operating income - before restructuring

$9.9

$4.0

$2.3

$22.7

$14.8

Operating margin - before restructuring

22.6%

11.3%

6.6%

15.5%

11.2%
 

Restructuring charges

-

-

-

$0.8

-
 

Operating income

$9.9

$4.0

$2.3

$21.9

$14.8

Operating margin

22.6%

11.3%

6.6%

14.9%

11.2%

PPM revenue for the quarter was $43.5 million, an increase of 25.3% from the fourth quarter of the prior year and an increase of 23.7% from the third quarter of 2004.  Revenue for the year was $147.0 million, an increase of 11.7% from 2003.  The revenue growth was primarily the result of the adoption of SmartPlant and information management technology and the increasing maintenance and services revenue on these new products.  PPM had $2.6 million of revenue in the fourth quarter due to the delivery of SmartPlant 3D Version 5.0 in conjunction with the third quarter restatement related to the Early Adopter Program.  Operating income for the quarter was $9.9 million, or 22.6% of revenue, compared to $2.3 million in the fourth quarter of the prior year and $4.0 million in the third quarter of 2004.  The increase in operating income over the previous quarter and prior year quarter was mainly due to higher software revenues, particularly in our SmartPlant suite and information management product offerings.  Operating income for the year increased 48.2% from 2003 to $21.9 million, or 14.9% of revenue.

Intergraph Solutions Group (ISG):

  (dollars in millions)

Year Ended

Quarterly Results

     

December 31,

     

Ending

Q4 2004

   

Q3 2004

   

Q4 2003

2004

   

2003

Backlog
 

Revenue

$30.8

$33.8

$36.7

$135.3

$137.4

$60.7

Year-over-year growth

(16.1%)

1.3%

(1.5%)
 

Operating income

$2.0

$4.7

$3.1

$18.7

$11.7

Operating margin

6.3%

13.9%

8.4%

13.8%

8.5%

ISG revenue for the quarter was $30.8 million, a decrease of 16.1% from the fourth quarter of the prior year and a decline of 8.7% from the third quarter of 2004.  The year over year quarterly revenue decrease resulted from reduced third-party product revenue.  The revenue decrease compared to the third quarter reflected a seasonal decline in services utilization due to increased holidays and vacation time in the fourth quarter.  Revenue for the year was $135.3 million, relatively flat with 2003, due to the planned decrease in legacy maintenance revenue of $4.0 million in 2004.  Core services revenue, which excludes third-party product sales and maintenance revenue, increased 6.1% in 2004.  Operating income for the quarter was $2.0 million, compared to $3.1 million in the fourth quarter of the prior year and $4.7 million in the third quarter of 2004.  The decrease in operating income from the fourth quarter of 2003 was the result of the previously mentioned reduced third-party product revenue.  The sequential decrease in operating income was due to the seasonal decline in utilization.  Operating income for the year increased 60.0% from 2003 to $18.7 million, or 13.8% of revenue.  ISG backlog decreased from $70.7 million to $60.7 million during the fourth quarter, reflecting the cyclical nature of orders from the U.S. Department of Defense.

Intergraph Public Safety (IPS):

  (dollars in millions)

Year Ended

Quarterly Results

December 31,

Ending

Q4 2004

     

Q3 2004

     

Q4 2003

       

2004

     

2003

       

Backlog
 

Revenue

$18.5

$16.6

$17.4

$70.1

$68.8

$39.6

Year-over-year growth

6.2%

(4.2%)

1.9%
 

Operating income

$2.2

$1.7

$3.9

$8.8

$14.5

Operating margin

12.1%

10.5%

22.3%

12.5%

21.1%

IPS revenue for the quarter was $18.5 million, an increase of 6.2% from the fourth quarter of the prior year and 11.6% from the third quarter of 2004.  Operating income was $2.2 million, compared to $3.9 million in the fourth quarter of the prior year and $1.7 million in the third quarter of 2004.  The sequential increase in operating income from the third quarter of 2004 was due to higher maintenance revenue and slightly lower operating expenses.  Operating income for the year was $8.8 million, compared to $14.5 million in 2003.  The quarterly and annual decline in operating income from 2003 was primarily due to fewer software sales to utility customers, lower gross margins and higher operating expenses relating to the Company's efforts to grow orders.  To generate additional business in 2004, IPS added sales, implementation and R&D resources that increased operating costs.  As a result of these investments, total orders for the year increased approximately 20.0% from 2003.  IPS orders for the quarter were $13.7 million, compared to $5.7 million in the fourth quarter of last year and $14.9 million in the third quarter of 2004.   Orders for the quarter included Suffolk County Fire NY, Tennessee Highway Patrol, North Wales Police Integrated Communications System (UK), and additional sites for the German Border Guards.  The growth in orders resulted in backlog increasing from $37.2 million at September 30, 2004 to $39.6 million at December 31, 2004.  Ending backlog for the year increased 11.7% from December 31, 2003.   IPS also completed a reorganization of sales, implementation and customer support in the fourth quarter.  This reorganization is expected to improve focus on sales into core public safety markets, take advantage of Intergraph's solid position in key transportation accounts, expand coverage in Eastern Europe, shorten implementation time and provide improved customer support.  

Intellectual Property
The Company possesses an intellectual property (IP) portfolio, which it defends through ongoing licensing and patent 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.  In 2004, Intergraph was successful in producing $191.5 million of pre-tax intellectual property income, net of fees and expenses. 

On January 21, 2005, Intergraph and HP entered into a global settlement of all pending patent litigation.  The terms of the settlement provide for HP to tender a payment of $141 million to the Company by January 28, 2005 and for the granting of a cross license to each others patent portfolio.  A copy of the Settlement Agreement is available on the Company's website.

Further information on the Company's IP licensing and litigation activities, including a full copy of all referenced orders, is available for viewing on Intergraph's Website at www.intergraph.com/ip.

Non-GAAP Financial Measures
To supplement our financial statements on a GAAP basis, Intergraph reports operating income excluding restructuring charges.  The Company believes this non-GAAP financial measure provides investors and management with additional information to evaluate the Company's past financial results and ongoing operational performance.  The Company believes this non-GAAP financial measure facilitates making period-to-period comparisons and is an indication of our baseline 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.

Conference Call and Webcast
Intergraph will provide an online, real-time Webcast and rebroadcast of the fourth quarter conference call to be held Thursday, January 27, 2005, at 11:00 a.m. EST.  The live broadcast will be available online at 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 January 27, 2006.  In addition, the replay can be heard by telephone any time before the close of business on February 27, 2005 by calling 1-866-357-1431 and referring to the reservation number 2330944.

About Intergraph
Intergraph is a leading global provider of Spatial Information Management (SIM) software.  Governments and businesses in over 60 countries around the world rely on our spatial technology and services to support better and faster operational decisions.  Our commitment to the customers and markets we serve, history of innovation and proven solutions span 35 years.  Intergraph's stock trades on the NASDAQ stock market under the symbol INGR and the Company can be found on the Web at 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, and market conditions and their anticipated impact on the Company and its vertical business segments; expectations regarding Intergraph's intellectual property; expectations regarding future results and cash flows; 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, potential adverse outcomes or rulings in our ongoing efforts 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); material changes with respect to our business, litigation, or the securities markets (including the market for Intergraph common stock and any adjustment relating to the Accelerated Stock Buyback); risks associated with doing business internationally (including foreign currency fluctuations); worldwide political and economic conditions and changes; the ability to attract or retain key personnel; increased competition; rapid technological change; unanticipated changes in customer requirements; the ability to access the technology necessary to compete in the markets served; risks associated with various ongoing litigation proceedings; and other risks detailed in our press releases or in our annual, quarterly, or other filings with the Securities and Exchange Commission.

Intergraph, the Intergraph logo, SmartPlant, 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)

December 31,

        

December 31,

2004

2003

Assets:

      Cash and cash equivalents

$292,435

$265,782

      Accounts receivable, net

155,160

150,927

      Inventories, net

22,253

15,443

      Other current assets

84,050

37,673

            Total Current Assets

553,898

469,825

      Investments in affiliates

9,499

9,499

      Capitalized software development costs, net

26,201

29,520

      Other assets, net

10,314

12,500

      Property, plant and equipment, net

50,628

51,099

                  Total Assets

$650,540

$572,443

Liabilities and Shareholders' Equity:

      Trade accounts payable

$20,915

$23,052

      Accrued compensation

40,142

38,726

      Other accrued expenses

42,495

40,835

      Billings in excess of sales

58,263

49,970

      Income taxes payable and other current liabilities

22,680

26,912

      Current portion of long-term debt

361

-

            Total Current Liabilities

184,856

179,495

      Deferred income taxes and other noncurrent liabilities

16,422

14,013

            Total Shareholders' Equity

449,262

378,935

                  Total Liabilities and Shareholders' Equity

$650,540

$572,443

 

Intergraph Corporation

Consolidated Statements of Operations (Unaudited)

(amounts in thousands, except per share data)

Quarter Ended December 31,

      

Year Ended December 31,

 

2004

   

2003

2004

   

2003

 

Revenue:

 

    Systems

$76,522

$78,304

$287,228

$296,886

 

    Maintenance

36,030

34,548

138,777

131,099

 

    Services

33,620

31,668

125,093

98,018

 

        Total Revenue

146,172

144,520

551,098

526,003

 

 

Cost of Revenue:

 

    Systems

36,637

39,018

141,727

150,837

 

    Maintenance

11,063

11,803

43,170

49,173

 

    Services

25,477

25,908

90,437

74,047

 

        Total Cost of Revenue

73,177

76,729

275,334

274,057

 

 

            Gross Profit

72,995

67,791

275,764

251,946

 

Operating Expenses:

 

    Product development

14,935

16,016

58,816

58,958

 

    Sales and marketing

30,325

27,000

113,265

101,338

 

    General and administrative

17,895

20,034

68,763

74,330

 

    Restructuring charges

-

3,952

826

3,952

 

        Total Operating Expenses

63,155

67,002

241,670

238,578

 

 

            Operating Income

9,840

789

34,094

13,368

 

Other Income (Expense):

 

    Intellectual property income (expense), net

(10,661)

(6,805)

191,469

5,784

 

    Gains on sales of assets

-

470

-

3,421

 

    Interest income

1,285

1,492

4,325

6,588

 

    Other income (expense), net

3,227

(1,456)

4,034

(2,128)

 

        Total Other Income (Expense)

(6,149)

(6,299)

199,828

13,665

 

 

            Income (Loss) Before Taxes

3,691

(5,510)

233,922

27,033

 

 

    Income Tax Benefit (Expense)

3,650

5,955

(74,950)

(4,745)

 

 

            Net Income

$7,341

$445

$158,972

$22,288

 

 

Earnings Per Share:

 

    Basic

$0.22

$0.01

$4.54

$0.49

 

    Diluted

$0.21

$0.01

$4.37

$0.47

 

Weighted Average Shares Outstanding:

 

    Basic

33,070

43,553

34,981

45,549

 

    Diluted

34,374

45,382

36,417

47,583

 

 

Systems Orders

$70,000

$62,300

$286,800

$299,700

 

Services Orders

27,500

28,600

134,400

94,700

 

    Total Systems and Services Orders

$97,500

$90,900

$421,200

$394,400