Intergraph Reports Third Quarter 2005 Results
"While I am pleased with our recent operational progress and financial results, we remain committed to our business transformation efforts and achieving our operating margin goal of eight to twelve percent," Mr. Wise said. "As part of this commitment, we continue to evaluate opportunities to transform our Company as contemplated by our Strategic Plan. We remain focused on improving operational execution and offering customers differentiated solutions by delivering the full capabilities of Intergraph. In addition, we believe the recent organizational realignment will improve our ability to serve our customers and better position us to capitalize on our attractive market opportunities and Intergraph's increased relevance in the current global environment."
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 0.7%, negatively impacted operating expenses by 0.7%, and increased its quarterly net income by approximately $0.01 per diluted share in comparison to the third quarter of 2004. The Company estimates that the strengthening of the U.S. dollar in the third quarter of 2005 as compared with the second quarter of 2005 negatively impacted revenue by 0.9%, positively impacted operating expenses by 1.2%, and increased its quarterly net income by approximately $37,000. The Company estimates for the nine months ended September 30, 2005 that the weakening of the U.S. dollar positively impacted revenue by 1.7%, negatively impacted operating expenses by 1.6%, and increased its net income by approximately $0.05 per diluted share in comparison to the same period of 2004.
In April 2005, the Company announced, as part of its business transformation efforts, the realignment of its organizational structure and streamlining of 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.
The Company expects that the organizational realignment will be completed by the end of the second quarter of 2006. The Company eliminated approximately 95 positions during the third quarter of 2005 and reported a restructuring charge of $5.3 million related to the organizational realignment. In total, the Company has eliminated approximately 175 positions and reported restructuring charges of $7.3 million in the second and third quarters of 2005 as part of the organizational realignment efforts. Intergraph estimates that these actions will generate expense savings on an annual basis of approximately $13 million, which is within the estimated savings range of $12 - $15 million previously provided by the Company.
The Company has identified additional process improvements and expense savings opportunities related to the organizational realignment efforts. The Company believes the majority of these efficiency improvements and expense savings will be generated by streamlining internal processes around the world and eliminating redundant positions as part of consolidating divisions and functions. The Company estimates that total restructuring charges for the remainder of the organizational realignment will be an additional $9.0 - $11.0 million, which is expected to generate additional expense savings on an annual basis of approximately $10 - $15 million. As part of the Company's transformation effort and in conjunction with its Strategic Plan, Intergraph plans to invest some of the expense savings generated by the organizational realignment into R&D for core product upgrades, IT and system improvements, expansion of sales channels, and targeted growth opportunities where the Company believes it has differentiated capabilities.
Commenting on the organizational realignment, Mr. Wise said, "Due to solid execution and focus, we completed the initial phase of the restructuring actions more quickly than we had originally forecasted. We expect the actions taken to date will reduce our annual cost structure by approximately $13 million. Through the continued hard work of the people of Intergraph, we estimate additional annual savings of $10 - $15 million from restructuring activities that we anticipate completing by June 30, 2006. If we are successful in our continued restructuring efforts, our organizational realignment will produce total annual expense savings of approximately $23 - $28 million."
Third Quarter Business Highlights
-- Security, Government & Infrastructure (SG&I) was selected as part of the Lockheed Martin team providing a comprehensive upgrade to the New York Metropolitan Transportation Authority's (MTA) electronic security operations infrastructure. The MTA serves a population of 14.6 million people and oversees New York City Transit, Long Island Railroad, Metro North Railroad and MTA bridges and tunnels. As a subcontractor for the Integrated Electronic Security System and Command, Communications and Control (IESS/C3) program, Intergraph is providing its command and control solution.
-- SG&I generated third quarter orders of $97.2 million and had ending backlog of $197.0 million. The third quarter ending backlog represented a 7.4% increase from the $183.4 million reported at the end of the second quarter of 2005 and a 16.6% increase from the $168.9 million reported at the end of the 2004. SG&I ending backlog increases were primarily driven by new orders in the public safety business.
-- SG&I was selected by Louisville, Kentucky, MetroSafe Communications and Emergency Management to provide its multi-jurisdictional incident response and management system. The contract is valued at $6.4 million and includes computer-aided dispatch (CAD), mobile computing, and reporting and analysis software.
-- SG&I was awarded a four-year contract with the U.S. Air Force to deploy and manage operational excellence programs. The contract has a value up to $11.4 million.
-- SG&I was awarded several new Utilities & Communications projects including Anglian Water (UK), Duke Energy Gas Transmission, Tampa Electric, CLP Power (Hong Kong), Fujian Telecom (China), and KPN (Netherlands).
-- Process, Power & Marine (PP&M) generated quarterly revenue growth of 19.2% year-over-year and achieved operating margins of 21.3%. PP&M experienced revenue growth across a wide range of products and geographies, particularly in the Asia-Pacific region.
-- PP&M announced a long-term strategic relationship with China Petroleum and Chemical Corporation (SINOPEC), the largest petrochemical producer and crude oil refiner in Asia. The relationship allows SINOPEC engineering companies unlimited access to the majority of PP&M's engineering and design software including SmartPlant and PDS applications.
-- PP&M signed a Global Alliance Agreement (GAA) with Shaw, Stone & Webster as part of a three-year deal. The GAA will provide Shaw, Stone & Webster with access to PP&M's portfolio of plant design and engineering information management software.
-- PP&M held two international management and training conferences during the third quarter; one in Shanghai, China and another in New Orleans, Louisiana. The two conferences had total attendance of approximately 1,000 people representing more than 125 companies and over 25 countries.
-- Intergraph announced the hiring of Anthony Colaluca as the Company's Chief Financial Officer. Mr. Colaluca is responsible for global finance and accounting, investor relations, and information technology. In addition, Intergraph appointed Larry J. Laster to serve as the Company's Senior Vice President and Treasurer.
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