Half-yearly Report
Unisys Announces Second-Quarter 2014 Financial Results
BLUE BELL, Pa., July 22, 2014 -- Unisys Corporation (NYSE: UIS)
today reported a second-quarter 2014 net loss of $12.1 million, or a loss of 24
cents per diluted share, which included $17.9 million of pension expense. In
the second quarter of 2013, the company reported net income of $20.4 million,
or 46 cents per diluted share, which included $21.9 million of pension expense.
Excluding pension expense in both periods, non-GAAP earnings per diluted share
(1) in the second quarter of 2014 was 11 cents compared with 91 cents in the
second quarter of 2013.
Second-quarter 2014 revenue declined 6 percent to $806 million from $859
million in the year-ago quarter. Foreign currency translations had a one
percentage-point positive impact on year-over-year revenue comparisons in the
quarter. On a sequential basis, second-quarter 2014 revenue was up 6 percent
from $762 million in the first quarter of 2014.
"Our second-quarter 2014 results were impacted by lower sales of our flagship
ClearPath family of enterprise software and servers, which can vary
significantly from quarter to quarter based on the timing of client
transactions," said Unisys Chairman and CEO Ed Coleman. "However, we were
pleased to see sequential improvement in results over the first quarter of 2014
and we look for a strong second half of 2014 in our technology business driven
by sales of ClearPath as well as increased traction in our Stealth
cybersecurity and Forward! server products.
"In our services business, we saw strong order growth in the quarter and were
pleased by recent wins such as a significant contract with the Commonwealth of
Pennsylvania to deliver one of the largest secure, cloud-based, on-demand IT
computing implementations by a U.S. state government," Coleman said. "This
contract is one more example of Unisys providing innovative, modern
mission-critical solutions in the marketplace."
Second-Quarter Company and Business Segment Highlights
Second-quarter 2014 North America revenue declined 10 percent while
international revenue declined 3 percent from the second quarter of 2013. On a
constant currency(2) basis, international revenue declined 4 percent compared
with the second quarter of 2013 as declines in Asia-Pacific offset growth in
Europe and Latin America.
On lower revenue, second-quarter 2014 gross profit margin declined to 20.5
percent from 23.4 percent in the second quarter of 2013. Operating expenses (SG
&A and R&D expenses) decreased 8 percent from the year-ago period. The company
reported a second-quarter 2014 operating profit of $15.8 million, or 2.0
percent of revenue, compared with an operating profit of $38.0 million, or 4.4
percent of revenue, in the second quarter of 2013.
Second-quarter 2014 services revenue declined 4 percent from the second quarter
of 2013 as growth in outsourcing and core maintenance was more than offset by
declines in systems integration and infrastructure services. Reflecting the
lower services revenue, second-quarter 2014 services gross profit margin
declined to 16.8 percent from 18.2 percent a year ago. On reduced operating
expenses, services operating profit margin was consistent year-over-year at 4.0
percent.
Second-quarter 2014 services orders showed substantial gains both sequentially
and from year-ago levels driven by growth in outsourcing orders. Services
backlog at June 30, 2014 was $4.7 billion, down 2 percent from December 31,
2013 levels.
Second-quarter 2014 technology revenue declined 21 percent from the second
quarter of 2013 driven primarily by lower sales of ClearPath enterprise servers
and software. Reflecting the lower ClearPath sales, second-quarter 2014
technology gross profit margin declined to 50.2 percent compared with 59.4
percent in the year-ago quarter and technology operating profit margin declined
to 1.9 percent compared with 23.9 percent in the year-ago quarter.
Cash Flow and Balance Sheet Highlights
Unisys generated $3 million of cash from operations in the second quarter of
2014, including $48 million of pension contributions. In the second quarter of
2013, the company generated $16 million of cash from operations, which included
$35 million of pension contributions. Capital expenditures in the second
quarter of 2014 were $45 million compared with $38 million in the year-ago
quarter. After capital expenditures, the company used $42 million of free cash
(3) compared with $22 million of free cash usage in the second quarter of 2013.
Free cash flow before pension contributions was $6 million in the second
quarter of 2014 compared with $13 million in the year-ago quarter.
During the second quarter of 2014 the company returned $13.1 million to
shareholders through the repurchase of common shares. Overall, through June 30,
2014 the company has repurchased a total of $25.7 million of common shares
under a $50 million share repurchase authorization that expires on December 31,
2014.
At June 30, 2014, the company reported a cash balance of $574 million and total
debt of $210 million.
Non-GAAP Information
Unisys reports its results in accordance with Generally Accepted Accounting
Principles (GAAP) in the United States. However, in an effort to provide
investors with additional perspective regarding the company's results as
determined by GAAP, the company also discusses, in its earnings press release
and/or earnings presentation materials, non-GAAP information which management
believes provides useful information to investors. Our management uses
supplemental non-GAAP financial measures internally to understand, manage and
evaluate our business and assess operational alternatives. These non-GAAP
measures may include non-GAAP earnings per diluted share, free cash flow, free
cash flow before pension contributions, and constant currency.
Our non-GAAP measures are not intended to be considered in isolation or as
substitutes for results determined in accordance with GAAP and should be read
only in conjunction with our consolidated financial statements prepared in
accordance with GAAP. (See GAAP to non-GAAP reconciliations attached.)
(1) Non-GAAP earnings per diluted share - The company recorded pension expense
of $17.9 million and $21.9 million during the second quarters of 2014 and 2013,
respectively. In an effort to provide investors with a perspective on the
company's earnings without these expenses, they are excluded from the non-GAAP
earnings per diluted share calculations.
(2) Constant currency - The company refers to growth rates at constant currency
or adjusting for currency so that the business results can be viewed without
the impact of fluctuations in foreign currency exchange rates to facilitate
comparisons of the company's business performance from one period to another.
Constant currency for revenue is calculated by retranslating current and prior
period results at a consistent rate. This approach is based on the pricing
currency for each country which is typically the functional currency.
Generally, when the dollar either strengthens or weakens against other
currencies, the growth at constant currency rates will be higher or lower,
respectively, than growth reported at actual exchange rates.
(3) Free cash flow - To better understand the trends in our business, we
believe that it is helpful to present free cash flow, which we define as cash
flow from operations less capital expenditures. Management believes this
measure gives investors an additional perspective on cash flow from operating
activities in excess of amounts required for reinvestment. Because of the
significance of the company's pension funding obligations, free cash flow
before pension funding is also provided.
Conference Call
Unisys will hold a conference call today at 5:30 p.m. Eastern Time to discuss
its results. The listen-only Webcast, as well as the accompanying presentation
materials, can be accessed on the Unisys Investor Web site at www.unisys.com/
investor. Following the call, an audio replay of the Webcast, and accompanying
presentation materials, can be accessed through the same link.
About Unisys
Unisys is a worldwide information technology company. We provide a portfolio of
IT services, software, and technology that solves critical problems for
clients. We specialize in helping clients secure their operations, increase the
efficiency and utilization of their data centers, enhance support to their end
users and constituents, and modernize their enterprise applications. To provide
these services and solutions, we bring together offerings and capabilities in
outsourcing services, systems integration and consulting services,
infrastructure services, maintenance services, and high-end server technology.
With approximately 23,000 employees, Unisys serves commercial organizations and
government agencies throughout the world. For more information, visit
www.unisys.com.
Forward-Looking Statements
Any statements contained in this release that are not historical facts are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include, but are not limited to,
any projections of earnings, revenues, or other financial items; any statements
of the company's plans, strategies or objectives for future operations;
statements regarding future economic conditions or performance; and any
statements of belief or expectation. All forward-looking statements rely on
assumptions and are subject to various risks and uncertainties that could cause
actual results to differ materially from expectations. Risks and uncertainties
that could affect the company's future results include the company's ability to
drive profitable growth in consulting and systems integration; the company's
ability to take on, successfully implement and grow outsourcing operations;
market demand for the company's high-end enterprise servers and maintenance on
those servers; the potential adverse effects of aggressive competition in the
information services and technology marketplace; the company's ability to
retain significant clients; the company's ability to effectively anticipate and
respond to volatility and rapid technological change in its industry; the
adverse effects of global economic conditions; the company's significant
pension obligations and potential requirements to make significant cash
contributions to its defined benefit pension plans; the success of the
company's program to reduce costs, focus its global resources and simplify its
business structure; the risks that the company's contracts may not be as
profitable as expected or provide the expected level of revenues and that
contracts with U.S. governmental agencies may subject it to audits, criminal
penalties, sanctions and other expenses and fines; the risk that the company
may face damage to its reputation or legal liability if its clients are not
satisfied with its services or products; the risk that breaches of data
security could expose the company to legal liability and could harm its
business and reputation; the performance and capabilities of third parties with
whom the company has commercial relationships; the risks of doing business
internationally when more than half of the company's revenue is derived from
international operations; the company's ability to access capital and credit
markets to address its liquidity needs; the potential for intellectual property
infringement claims to be asserted against the company or its clients; the
possibility that pending litigation could affect the company's results of
operations or cash flow; the business and financial risk in implementing future
dispositions or acquisitions; and the company's consideration of all available
information following the end of the quarter and before the filing of the Form
10-Q and the possible impact of this subsequent event information on its
financial statements for the reporting period. Additional discussion of factors
that could affect the company's future results is contained in its periodic
filings with the Securities and Exchange Commission. The company assumes no
obligation to update any forward-looking statements.
RELEASE NO.: 0722/9267
Unisys is a registered trademark of Unisys Corporation. Any other brand or
product referenced herein is acknowledged to be a trademark or registered
trademark of its respective holders.
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
2014 2013 2014 2013
Revenue
Services $712.9 $739.7 $1,403.8 $1,462.7
Technology 93.5 118.9 164.3 205.8
806.4 858.6 1,568.1 1,668.5
Costs and expenses
Cost of revenue:
Services 600.2 614.0 1,192.4 1,216.8
Technology 41.0 43.9 77.5 90.2
641.2 657.9 1,269.9 1,307.0
Selling, general and administrative 133.6 144.9 272.1 287.1
Research and development 15.8 17.8 30.2 34.8
790.6 820.6 1,572.2 1,628.9
Operating profit (loss) 15.8 38.0 (4.1) 39.6
Interest expense 2.3 2.6 4.3 5.3
Other income (expense), net (2.5) 14.1 (12.3) 9.2
Income (loss) before income taxes 11.0 49.5 (20.7) 43.5
Provision for income taxes 19.9 22.7 35.9 44.1
Consolidated net income (loss) (8.9) 26.8 (56.6) (0.6)
Net income attributable to
noncontrolling interests 3.2 2.3 6.3 4.8
Net Income (loss) attributable to
Unisys
Corporation (12.1) 24.5 (62.9) (5.4)
Preferred stock dividend - 4.1 2.7 8.1
Net income (loss) attributable to
Unisys
Corporation common shareholders ($12.1) $20.4 ($65.6) ($13.5)
Earnings (loss) per common share
attributable to Unisys Corporation
Basic ($ .24) $ .47 ($ 1.35) ($ .31)
Diluted ($ .24) $ .46 ($ 1.35) ($ .31)
Shares used in the per share computations
(thousands):
Basic 50,843 43,780 48,593 43,918
Diluted 50,843 44,195 48,593 43,918
UNISYS CORPORATION
SEGMENT RESULTS
(Unaudited)
(Millions)
Total Eliminations Services Technology
Three Months Ended
June 30, 2014
Customer revenue $806.4 $712.9 $93.5
Intersegment ($13.8) 0.1 13.7
Total revenue $806.4 ($13.8) $713.0 $107.2
Gross profit percent 20.5% 16.8% 50.2%
Operating profit percent 2.0% 4.0% 1.9%
Three Months Ended
June 30, 2013
Customer revenue $858.6 $739.7 $118.9
Intersegment ($16.9) 0.4 16.5
Total revenue $858.6 ($16.9) $740.1 $135.4
Gross profit percent 23.4% 18.2% 59.4%
Operating profit percent 4.4% 4.0% 23.9%
Six Months Ended
June 30, 2014
Customer revenue $1,568.1 $1,403.8 $164.3
Intersegment ($23.4) 0.3 23.1
Total revenue $1,568.1 ($23.4) $1,404.1 $187.4
Gross profit percent 19.0% 16.3% 46.9%
Operating profit (loss) percent (0.3%) 3.0% (8.0%)
Six Months Ended
June 30, 2013
Customer revenue $1,668.5 $1,462.7 $205.8
Intersegment ($34.2) 0.9 33.3
Total revenue $1,668.5 ($34.2) $1,463.6 $239.1
Gross profit percent 21.7% 17.8% 53.5%
Operating profit percent 2.4% 3.5% 13.6%
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions)
June 30, December 31,
2014 2013
Assets
Current assets
Cash and cash equivalents $574.2 $639.8
Accounts and notes receivable, net 515.7 683.1
Inventories
Parts and finished equipment 27.2 32.8
Work in process and materials 22.5 22.3
Deferred income taxes 17.8 24.1
Prepaid expense and other current assets 144.3 138.7
Total 1,301.7 1,540.8
Properties 1,136.5 1,095.5
Less accumulated depreciation and amortization 956.9 920.8
Properties, net 179.6 174.7
Outsourcing assets, net 107.2 115.5
Marketable software, net 142.3 129.1
Prepaid postretirement assets 120.5 83.7
Deferred income taxes 121.6 112.3
Goodwill 190.1 188.7
Other long-term assets 173.1 165.2
Total $2,336.1 $2,510.0
Liabilities and deficit
Current liabilities
Notes payable $0.1 $0.0
Accounts payable 223.1 246.7
Deferred revenue 351.9 402.4
Other accrued liabilities 356.9 375.7
Total 932.0 1,024.8
Long-term debt 210.0 210.0
Long-term postretirement liabilities 1,599.6 1,697.2
Long-term deferred revenue 114.1 122.7
Other long-term liabilities 108.9 119.2
Commitments and contingencies
Total deficit (628.5) (663.9)
Total $2,336.1 $2,510.0
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Six Months Ended
June 30
2014 2013 *
Cash flows from operating activities
Consolidated net loss ($56.6) ($0.6)
Add (deduct) items to reconcile consolidated net
loss to net cash provided by operating activities:
Foreign currency transaction loss 6.3 6.5
Employee stock compensation 9.3 8.9
Depreciation and amortization of properties 25.0 23.7
Depreciation and amortization of outsourcing assets 29.1 25.5
Amortization of marketable software 27.0 31.0
Disposals of capital assets 0.4 0.2
Gain on sale of business (0.7) -
Pension contributions (103.1) (61.3)
Pension expense 37.4 46.0
Decrease in deferred income taxes, net 10.5 18.7
Decrease in receivables, net 170.6 33.3
Decrease in inventories 5.8 1.0
Decrease in accounts payable and other accrued (111.9) (83.5)
liabilities
Decrease in other liabilities (28.6) (11.0)
Decrease (increase) in other assets 2.1 (8.7)
Other 0.8 0.5
Net cash provided by operating activities 23.4 30.2
Cash flows from investing activities
Proceeds from investments 2,909.1 2,450.2
Purchases of investments (2,899.0) (2,452.9)
Investment in marketable software (40.3) (29.6)
Capital additions of properties (29.0) (16.2)
Capital additions of outsourcing assets (20.1) (18.3)
Other 1.6 (0.6)
Net cash used for investing activities (77.7) (67.4)
Cash flows from financing activities
Purchases of common stock (14.0) (11.5)
Dividends paid on preferred shares (4.0) (8.1)
Proceeds from exercise of stock options 2.8 1.2
Net proceeds from short-term borrowings 0.1 0.2
Net cash used for financing activities (15.1) (18.2)
Effect of exchange rate changes on cash and cash 3.8 24.6)
equivalents
Decrease in cash and cash equivalents (65.6) (80.0)
Cash and cash equivalents, beginning of period 639.8 655.6
Cash and cash equivalents, end of period $574.2 $575.6
* Certain components of net cash provided by operating activities were changed
to present pension expense separately, consistent with the 2014 presentation.
( 1 )
UNISYS CORPORATION
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited)
(Millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
2014 2013 2014 2013
GAAP net income (loss)
attributable to Unisys Corporation
common shareholders ($12.1) $20.4 ($65.6) ($13.5)
Pension expense, net of tax 17.9 21.9 37.2 44.2
Non-GAAP net income (loss)
attributable to Unisys Corporation
common shareholders 5.8 42.3 (28.4) 30.7
Add preferred stock dividend 0.0 4.1 0.0 8.1
Non-GAAP net income (loss)
attributable to Unisys Corporation
for diluted earnings per share $5.8 $46.4 ($28.4) $38.8
Weighted average shares (thousands) 50,843 43,780 48,593 43,918
Plus incremental shares from assumed
conversion:
Employee stock plans 260 415 0 449
Preferred stock 0 6,913 0 0
GAAP adjusted weighted average shares 51,103 51,108 48,593 44,367
Diluted earnings (loss) per share
GAAP basis
GAAP net income (loss)
attributable to Unisys Corporation
for diluted earnings per share ($12.1) $20.4 ($65.6) ($13.5)
Divided by adjusted weighted average 50,843 44,195 48,593 43,918
shares
GAAP earnings (loss) per diluted share ($ .24) $ .46 ($ 1.35) ($ .31)
Non-GAAP basis
Non-GAAP net income (loss)
attributable to Unisys Corporation
for diluted earnings per share $5.8 $46.4 ($28.4) $30.7
Divided by Non-GAAP adjusted weighted 51,103 51,108 48,593 44,367
average shares
Non-GAAP earnings (loss) per diluted $ .11 $ .91 ($ .58) $ .69
share
( 2 )
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(Unaudited)
(Millions)
FREE CASH FLOW
Three Months Six Months
Ended June 30 Ended June 30
2014 2013 2014 2013
Cash provided by operations $3.3 $16.1 $23.4 $30.2
Additions to marketable software (19.6) (14.8) (40.3) (29.6)
Additions to properties (13.8) (12.6) (29.0) (16.2)
Additions to outsourcing assets (11.4) (10.8) (20.1) (18.3)
Free cash flow (41.5) (22.1) (66.0) (33.9)
Pension funding 47.6 34.7 103.1 61.3
Free cash flow before pension funding $6.1 $12.6 $37.1 $27.4
SOURCE Unisys Corporation
CONTACT: Investor Contact: Niels Christensen, 215-986-6651,
Niels.Christensen@unisys.com; Media Contact: Jim Kerr, 215-986-5795,
Jim.Kerr@unisys.com
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