2nd Quarter & Interim Results

Unisys Corp 18 July 2000 Media Contact: Jay Grossman, Unisys, (215) 986-6948 jay.grossman@unisys.com Investor Contact: Jim Kerr, Unisys, (215) 986-5795 jim.kerr@unisys.com Unisys Reports Second Quarter 2000 Financial Results BLUE BELL, PA, JULY 18, 2000 -- Unisys Corporation (NYSE: UIS) today reported second-quarter 2000 net income of $56.3 million, or 18 cents per diluted common share, excluding an extraordinary charge for the repayment of debt. This compared to second-quarter 1999 net income of $118.0 million, or 37 cents per diluted common share. As previously announced, the company took an after-tax extraordinary charge of $19.8 million, or 6 cents per share, in the second quarter related to the early retirement of its remaining $399.5 million of 12% notes on April 15. Including this charge, the company's diluted earnings per share were 12 cents in the second quarter of 2000. Revenue in the quarter declined 16% to $1.6 billion from $1.9 billion in the year-ago period. Without the negative impact of foreign currency translation, revenue in the quarter declined 13% from a year ago. Comments from Chairman and CEO Larry Weinbach 'As announced in late June, we have experienced a slower-than-expected rebound in our business over the first half of the year,' said Unisys Chairman and Chief Executive Officer Lawrence A. Weinbach. 'While we continue to see high levels of proposal activity in our services business and strong interest in our new technology products, it is taking longer than anticipated to translate this activity into additional business as customers delay purchasing decisions on complex e-business initiatives while they finalize their strategies. In addition, several large technology contracts that we expected to receive late in the second quarter were deferred to later in the year. All of this adversely impacted our orders, revenue, and margins during the quarter. 'Nonetheless, there were important areas of progress during the quarter. In our services business, we established strategic partnerships with Siebel Systems, Intershop, ICG Commerce, and other leading e-business providers to integrate their solutions with our portfolio of industry-focused solutions. We also continue to invest heavily in training our key personnel to sell and deliver these new solutions and help customers succeed with their e-business initiatives. In our technology business, we continue to roll out shipments of our new ES7000 servers, based on our Cellular MultiProcessing (CMP) architecture, and expect shipments to ramp up in the fourth quarter and into 2001. We also finalized our OEM production contract with Compaq, adding to the OEM partners and resellers that have committed to taking our leading-edge CMP technology to the marketplace. 'These initiatives and partnerships are key to broadening our reach in the market and ensuring that we have the right set of solutions and service skills to meet the new requirements of the e-business marketplace,' Weinbach said. Overall Company Highlights On a geographic basis, Unisys reported double-digit declines in both U.S. and international revenue in the second quarter compared to the year-ago period. Internationally, revenue growth in Japan and Brazil was more than offset by declines in other geographic regions. On a constant currency basis, international revenue showed single-digit declines over the prior-year quarter. Total worldwide orders showed double-digit declines in the second quarter versus a year ago. Both U.S. and international orders declined. Internationally, strong order gains in Latin America were more than offset by declines in other geographic regions. On a segment basis, technology orders showed double-digit gains while services orders showed double-digit declines. Technology order gains were led by strong demand for the company's new CMP-based servers. Unisys said its profit margins in the quarter were impacted by lower revenue levels in its services business, which resulted in underutilization of resources, and the technology contract deferrals late in the quarter. Technology margins in the quarter also reflected a lower mix of ClearPath server content compared to the year-ago period. Due to these factors, the company's gross margin in the quarter declined to 30.1% while operating profit margins declined to 5.0%. The company's selling, general, and administrative expenses in the second quarter declined from year-ago levels, but increased as a percentage of revenue due to lower revenue levels. SG&A as a percentage of revenue increased to 20.2% of revenue from 18.2% of revenue in the year-ago quarter. Other income in the quarter principally reflected higher equity income. Overall, Unisys said that, given the slower-than-expected ramp-up in its business this year, it is implementing tighter controls over discretionary spending and has implemented a freeze on additional growth in personnel. Business Segment Highlights Customer revenue in the company's services business declined 18% in the second quarter versus the year-ago-period due to continued weakness in systems integration and repeatable solutions and in proprietary maintenance. Reflecting the revenue declines in these higher-margin areas, gross profit margins in the services business decreased 5 percentage points while operating margins decreased 8 percentage points. In the technology business, customer revenue declined 9% in the second quarter compared to strong revenue levels in the year-ago quarter. Reflecting the lower mix of higher-margin ClearPath systems, gross margins in the technology business declined about 3 percentage points and operating margins declined 5 percentage points from year-ago levels. Cash Flow and Balance Sheet Highlights Unisys used $67 million of operating cash in the second quarter compared to *cash generated of $83 million in the year-ago period. The company said the change in operational cash flow in the quarter was primarily driven by the decline in profitability and by higher receivable levels due in part to a higher percentage of sales received late in the quarter. Unisys said it is placing a strong focus on asset management and looks for significant improvement in receivables and operational cash flow later in the year. During the quarter, the company repaid all $399.5 million outstanding of its 12% notes due in 2003. Including the 6% call premium, the repayment required a cash payment of $424 million. The company used approximately $300 million of short-term borrowings and $124 million of cash to fund this redemption. Year-to-Date Results For the first six months ended June 30, 2000, Unisys reported net income of $162.8 million, or 52 cents per diluted common share excluding the second-quarter extraordinary charge for the retirement of debt. This compares to net income of $227.9 million, or 69 cents per share, in the first half of 1999. Revenue through six months of 2000 was $3.3 billion compared to revenue of $3.7 billion over the first half of 1999. Business Outlook 'This is a challenging period for Unisys and many other established systems integrators and services companies as we realign our portfolio of solutions and services to meet clients' e-business requirements,' Weinbach said. 'We remain cautious about our results over the near term, particularly in the third quarter, as we work through this transition in our business and conduct the necessary training to enhance the skills set of our employees. Based on the continued slow recovery in our business and the movement of some technology contracts into the fourth quarter, we expect our third-quarter revenue to be down from a year ago and our earnings per share to be below the second quarter 2000 level. We look for a pick-up in revenue in the fourth quarter, particularly in our technology business, with earnings per share relatively flat from year-ago levels. 'Over the longer term, we remain optimistic about our opportunities,' Weinbach said. 'We are building upon a formidable base of assets - a large, worldwide client base, global presence, a highly talented and skilled workforce, in-depth understanding of specific industries and solutions, powerful high-end server technologies, and deep expertise in transaction processing environments. As we evolve our portfolio to an e-business focused model, we believe we will benefit as our large clients begin spending more on large-scale implementation and integration of their e-business transaction infrastructure. We believe the work we are doing now, combined with the improvements we have made in our financial structure, will position us for improved results as we head into 2001.' About Unisys Unisys is an electronic business solutions company whose 36,000 employees help customers in 100 countries apply information technology to seize opportunities and overcome challenges of the Internet economy. Unisys people integrate and deliver the solutions, services, platforms and network infrastructure required by business and government to transform their organizations for success in this new era. The company offers a rich portfolio of Unisys e-@ction Solutions for electronic business based on its expertise in vertical industry solutions, network services, outsourcing, systems integration and multivendor support, coupled with enterprise-class server and related technologies. The primary vertical markets Unisys serves worldwide include financial services, transportation, communications, publishing and commercial sectors, as well as the public sector, including federal government customers. Unisys is headquartered in Blue Bell, Pennsylvania, in the Greater Philadelphia area. For more information on the company, access the Unisys home page on the World Wide Web at www.unisys.com. Investor information can be found at www.unisys.com/investor. 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. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future financial results are discussed more fully in the company's latest Form 10-Q as filed with the Securities and Exchange Commission. RELEASE NO.: 0700/6948 (See accompanying financial information) http://www.unisys.com/news/releases/2000/jul/07186948.asp Unisys is a registered trademark and e-@ction is a trademark of Unisys Corporation. All other brands and products referenced herein are acknowledged to be trademarks or registered trademarks of their respective holders. UNISYS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Millions, except per share data) Three Months Six Months Ended June 30 Ended June 30 ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Revenue $1,597.1 $1,896.5 $3,265.8 $3,719.3 -------- -------- -------- -------- Costs and expenses Cost of revenue 1,116.3 1,232.4 2,245.7 2,386.6 Selling, general and administrative 322.5 345.2 604.0 680.1 Research and development 78.2 84.7 160.3 165.2 -------- -------- -------- -------- 1,517.0 1,662.3 3,010.0 3,231.9 -------- -------- -------- -------- Operating income 80.1 234.2 255.8 487.4 Interest expense 18.7 34.7 39.2 68.9 Other income (expense), net 23.9 (17.0) 30.1 (66.3) -------- -------- -------- -------- Income before income taxes 85.3 182.5 246.7 352.2 Estimated income taxes 29.0 64.5 83.9 124.3 -------- -------- -------- -------- Income before extraordinary item 56.3 118.0 162.8 227.9 Extraordinary item (19.8) - (19.8) - -------- -------- -------- -------- Net income 36.5 118.0 143.0 227.9 Dividends on preferred shares - 12.0 - 34.8 -------- -------- -------- -------- Earnings on common shares $36.5 $106.0 $143.0 $193.1 ======== ======== ======== ======== Earnings per common share Basic Before extraordinary item $ .18 $ .39 $ .52 $ .72 Extraordinary item (.06) (.06) -------- -------- -------- -------- Total $ .12 $ .39 $ .46 $ .72 ======== ======== ======== ======== Diluted Before extraordinary item $ .18 $ .37 $ .51 $ .69 Extraordinary item (.06) (.06) -------- -------- -------- -------- Total $ .12 $ .37 $ .45 $ .69 ======== ======== ======== ======== Shares used in the per share computations (thousands): Basic 312,515 274,146 311,838 268,425 ======== ======== ======== ======== Diluted 317,021 285,828 317,050 281,830 ======== ======== ======== ======== UNISYS CORPORATION SUPPLEMENTAL SUMMARY (Millions) Elimi- Total nations Services Technology -------- -------- -------- ---------- Three Months Ended June 30, 2000 ------------------ Customer revenue $1,597.1 $1,128.9 $468.2 Intersegment ($109.8) 13.6 96.2 -------- -------- -------- -------- Total revenue $1,597.1 ($109.8) $1,142.5 $564.4 ======== ======== ======== ======== Gross profit percent 30.1% 20.5% 44.1% ======== ======== ======== Operating income percent 5.0% 0.0% 13.4% ======== ======== ======== Three Months Ended June 30, 1999 ------------------ Customer revenue $1,896.5 $1,380.1 $516.4 Intersegment ($154.8) 16.7 138.1 -------- -------- -------- -------- Total revenue $1,896.5 ($154.8) $1,396.8 $654.5 ======== ======== ======== ======== Gross profit percent 35.0% 25.1% 46.8% ======== ======== ======== Operating income percent 12.3% 8.2% 18.4% ======== ======== ======== Six Months Ended June 30, 2000 ------------------ Customer revenue $3,265.8 $2,253.9 $1,011.9 Intersegment ($233.9) 24.6 209.3 -------- -------- -------- -------- Total revenue $3,265.8 ($233.9) $2,278.5 $1,221.2 ======== ======== ======== ======== Gross profit percent 31.2% 20.8% 45.3% ======== ======== ======== Operating income percent 7.8% 0.9% 17.9% ======== ======== ======== Six Months Ended June 30, 1999 ------------------ Customer revenue $3,719.3 $2,582.8 $1,136.5 Intersegment ($263.9) 31.3 232.6 -------- -------- -------- -------- Total revenue $3,719.3 ($263.9) $2,614.1 $1,369.1 ======== ======== ======== ======== Gross profit percent 35.8% 24.7% 50.2% ======== ======== ======== Operating income percent 13.1% 7.0% 22.8% ======== ======== ======== UNISYS CORPORATION CONSOLIDATED BALANCE SHEET (Millions) June 30, December 31, 2000 1999 ---------- ---------- Assets Current assets Cash and cash equivalents $182.5 $464.0 Accounts and notes receivable, net 1,314.0 1,430.5 Inventories Parts and finished equipment 236.7 236.8 Work in process and materials 162.7 136.1 Deferred income taxes 481.4 472.7 Other current assets 91.7 105.6 ---------- ---------- Total 2,469.0 2,845.7 ---------- ---------- Properties 1,654.1 1,723.0 Less accumulated depreciation 1,043.8 1,102.2 ---------- ---------- Properties, net 610.3 620.8 ---------- ---------- Investments at equity 231.0 225.5 Software, net of accumulated amortization 268.5 259.8 Prepaid pension cost 1,042.6 975.9 Deferred income taxes 655.6 655.6 Other assets 337.1 306.4 ---------- ---------- Total $5,614.1 $5,889.7 ========== ========== Liabilities and stockholders' equity Current liabilities Notes payable $381.2 $26.9 Current maturities of long-term debt 21.2 22.9 Accounts payable 876.6 1,036.7 Other accrued liabilities 987.3 1,183.1 Estimated income taxes 353.1 348.9 ---------- ---------- Total 2,619.4 2,618.5 ---------- ---------- Long-term debt 535.8 950.2 Other liabilities 342.4 367.7 Stockholders' equity Common stock 3.1 3.1 Accumulated deficit (911.3) (1,054.4) Other capital 3,627.2 3,575.0 Accumulated other comprehensive loss (602.5) (570.4) ---------- ---------- Stockholders' equity 2,116.5 1,953.3 ---------- ---------- Total $5,614.1 $5,889.7 ========== ========== UNISYS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Millions) Six Months Ended June 30 ------------------ 2000 1999 ------- ------- Cash flows from operating activities Income before extraordinary item $162.8 $227.9 Add (deduct) items to reconcile income before extraordinary item to net cash (used for) provided by operating activities: Extraordinary item (19.8) Depreciation 71.6 73.7 Amortization: Marketable software 59.0 58.2 Goodwill 5.4 8.0 (Increase) in deferred income taxes, net (8.7) (31.0) Decrease (increase) in receivables, net 94.4 (6.2) (Increase) decrease in inventories (26.5) 79.8 (Decrease) in accounts payable and other accrued liabilities (397.4) (251.3) Increase in estimated income taxes 4.2 37.6 (Decrease) in other liabilities (2.6) (10.1) (Increase) in other assets (60.6) (74.7) Other 8.3 19.8 ------- ------- Net cash (used for) provided by operating activities (109.9) 131.7 ------- ------- Cash flows from investing activities Proceeds from investments 343.5 639.3 Purchases of investments (296.8) (618.9) Proceeds from sales of properties 11.3 11.0 Investment in marketable software (67.6) (49.6) Capital additions of properties (83.1) (78.8) Purchases of businesses (10.9) (51.9) ------- ------- Net cash used for investing activities (103.6) (148.9) ------- ------- Cash flows from financing activities Redemption of preferred stock (181.9) Proceeds from issuance of long-term debt 30.3 Payments of long-term debt (444.6) (2.8) Net proceeds from short-term borrowings 354.3 12.6 Dividends paid on preferred shares (47.0) Proceeds from employee stock plans 33.7 46.1 ------- ------- Net cash used for financing activities (56.6) (142.7) ------- ------- Effect of exchange rate changes on cash and cash equivalents (11.4) (9.9) ------- ------- (Decrease) in cash and cash equivalents (281.5) (169.8) Cash and cash equivalents, beginning of period 464.0 616.4 ------- ------- Cash and cash equivalents, end of period $182.5 $446.6 ======= =======

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