1st Quarter Results
Unisys Corporation
Unisys Corporation today reported a first-quarter 2005 net loss of $45.5
million, or a loss of 13 cents per share, compared with first-quarter 2004 net
income of $28.9 million, or 9 cents per share. The first-quarter 2005 results
included pre-tax pension expense of $46.8 million, or 9 cents per share,
compared with pension expense of $22.2 million, or 4 cents per share, in the
year-ago quarter. Excluding the impact of pension expense in both periods, the
first-quarter 2005 loss was $13.7 million, or a loss of 4 cents per share,
compared with net income of $44.0 million, or 13 cents per share, in the first
quarter of 2004. Revenue for the first quarter of 2005 declined 7% to $1.37
billion from $1.46 billion in the year-ago quarter. Currency had a 2
percentage-point positive impact on the company's revenue in the first quarter,
reflecting a weak U.S. dollar against most major currencies worldwide.
Comments from President and CEO Joseph W. McGrath
'This was a tough quarter for Unisys,' said Joseph W. McGrath, Unisys President
and Chief Executive Officer. 'Our results in the quarter, as expected, were
impacted by the continuing challenges of several transformational outsourcing
contracts and a substantial increase in pension expense, both of which affected
our services margins. We also saw lower-than-expected revenue in the quarter.
'We did make progress on several important fronts, however. After a slow year
for orders in 2004, we implemented aggressive sales and marketing programs to
drive stronger order and revenue trends going forward. We were pleased by good
services order growth in the quarter, driven by substantial double-digit order
gains for outsourcing services. Overall we signed multi-year annuity contracts
with an estimated total value of more than $400 million in the quarter.'
McGrath said that major services contracts signed in the quarter included:
-- a contract valued at $143 million ($105 million for the initial
five-year term and $38 million for an optional two-year extension) to
provide desktop support services on an outsourced basis to New York City
Transit;
-- a 10-year contract valued at $90 million to provide insurance processing
services for a new Resolution Life Group company in the United Kingdom;
-- a contract valued at $77 million over five years to provide
infrastructure outsourcing services to a leading U.S. financial
institution;
-- a contract valued at $22 million over five years to provide
infrastructure outsourcing services to a major U.S. city public entity.
In addition, in early April, Unisys signed a five-year, $68 million contract
with a group of U.S. telecommunications companies for IT infrastructure
outsourcing services.
'We are encouraged by these wins, since they show that our sales and marketing
efforts are starting to pay off,' McGrath said. 'More importantly, they show
that Unisys is providing the kind of value-added services and solutions that
clients need in the marketplace.'
First-Quarter Company Results
Overall orders were flat in the first quarter. Services orders showed
single-digit gains, while technology orders showed double-digit declines.
On a geographic basis, U.S. revenue declined 9% to $621 million. Revenue in
international markets declined 4% in the quarter to $746 million.
The company's gross profit margin and operating profit margin in the quarter
were 19.0% and (4.8%), respectively, compared with 26.8% and 4.0% in the first
quarter of 2004. The year-over-year margin declines for the company and the
services segment were principally due to the impact of the transformational
outsourcing contracts and higher pension expense.
SG&A expense and R&D expense represented 19.1% and 4.7% of revenue,
respectively, in the first quarter of 2005 compared with 17.9% and 4.9% of
revenue in the year-ago quarter. The principal reasons for the increase in SG&A
expenses as a percent of revenue were the decrease in revenue and the higher
pension expense.
The first-quarter 2005 results include a tax benefit of $7.8 million related to
a favorable decision in foreign tax litigation.
First-Quarter Business Segment Results
Customer revenue in the company's services segment declined 5% in the first
quarter of 2005 compared with the year-ago period. All services categories
showed revenue declines in the quarter. On a reported basis, gross profit margin
in the services business declined to 11.0% from 19.1% a year ago, while the
services operating margin was (6.8)% compared with 2.5% a year ago. Excluding
the impact of pension expense in both periods, services gross profit margin
declined to 13.8% from 20.4% a year ago, while services operating margin
declined to (3.2%) compared with 4.1% a year ago.
Customer revenue in the company's technology segment declined 13% in the first
quarter. Sales of specialized equipment declined by double digits, while
enterprise server sales showed slight declines. Within enterprise servers, sales
of ClearPath systems showed mid single-digit declines, while ES7000 revenue
showed a high single-digit increase. The technology margins declined in the
quarter, primarily reflecting lower sales of ClearPath and specialized
technology. On a reported basis, technology gross margin declined to 47.7% from
48.3% a year ago, and technology operating margin declined to 6.1% from 8.6% a
year ago. Excluding the impact of pension expense in both periods, the
technology gross margin decreased to 48.0% in the first quarter of 2005 from
48.4% in the year-ago quarter and the technology operating margin declined to
8.5% compared with 9.5% in the year-ago period.
Cash Flow Results
Unisys generated $27 million of cash from operations in the quarter compared
with operational cash flow of $129 million in the year-ago quarter. The decline
in operational cash flow year-over-year was primarily driven by lower net
income.
Capital expenditures in the first quarter of 2005 were $97 million, including
$76 million invested in revenue-generating projects. On January 17, 2005, Unisys
repaid at maturity all outstanding $150 million of its 7 1/4% senior notes. The
repayment was made from cash on hand. Unisys ended the quarter with $442 million
of cash on hand.
Business Outlook
'We expect the second quarter to continue to be challenging as we work through
the issues in our transformational outsourcing business and soft demand in our
high-end enterprise server business,' McGrath said. 'We look for second-quarter
earnings per share, excluding the impact of pension expense, to be approximately
breakeven, with revenue relatively flat compared with the prior-year quarter.'
Conference Call
Unisys will hold a conference call today at 8:15 a.m. Eastern Time to discuss
its results. The listen-only Webcast, as well as the accompanying presentation
materials, can be accessed via a link 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 services and solutions company. Our
people combine expertise in consulting, systems integration, outsourcing,
infrastructure and server technology with precision thinking and relentless
execution to help clients, in more than 100 countries, quickly and efficiently
achieve competitive advantage. 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, contract values 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. Statements in this
release regarding the company's financial outlook are based in part on the
company's assumptions for the economy. Risks and uncertainties that could affect
the company's future results include general economic and business conditions;
the effects of aggressive competition in the information services and technology
markets on the company's revenues, pricing and margins and on the
competitiveness of its product and services offerings; the level of demand for
the company's products and services and the company's ability to anticipate and
respond to changes in technology and customer preferences; the company's ability
to grow outsourcing and infrastructure services and its ability to effectively
and timely complete the related solutions implementations, client transitions to
the new environment and work force and facilities rationalizations and to fully
recover the associated outsourcing assets; the company's ability to drive
profitable growth in consulting and systems integration; the degree of market
acceptance of the company's high-end enterprise servers; the company's ability
to maintain tight cost controls; the risks of doing business internationally and
the potential for infringement claims to be asserted against the company or its
clients. Statements in this release regarding contract values are based upon
various assumptions, which are subject to change, including the projected volume
of products and services to be provided by Unisys, the contracts continuing for
their full term, and possible price adjustment or gain-sharing price reduction
provisions. Accordingly, the contract values are not guaranteed. Additional
discussion of these and other factors that could affect Unisys future results is
contained in its periodic filings with the Securities and Exchange Commission.
Unisys assumes no obligation to update any forward-looking statements.
Presentation of Information in this Press Release
This release presents information that excludes pension expense. This financial
measure is considered non-GAAP. Generally, a non-GAAP financial measure is a
numerical measure of a company's performance, financial position, or cash flows
where amounts are either excluded or included not in accordance with generally
accepted accounting principles. A reconciliation of this non-GAAP measure to the
most directly comparable GAAP measure, as well as disclosure of the reasons why
the company uses this measure, is included in the financial information
accompanying this release.
RELEASE NO: 0414/8533 (See accompanying financial information)
http://www.unisys.com/about__unisys/news_a_events/04148533.htm
Unisys is a registered 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 STATEMENTS OF INCOME
(Millions, except per share data)
Three Months
Ended March 31
------------------
2005 2004
-------- --------
Revenue
Services $1,107.7 $1,165.0
Technology 258.9 297.9
-------- --------
1,366.6 1,462.9
Costs and expenses
Cost of revenue:
Services 981.4 925.7
Technology 124.9 145.7
-------- --------
1,106.3 1,071.4
Selling, general and
administrative 261.6 261.2
Research and development 64.9 71.5
-------- --------
1,432.8 1,404.1
-------- --------
Operating income (loss) (66.2) 58.8
Interest expense 12.6 17.0
Other income
(expense), net 0.5 0.6
-------- --------
Income (loss) before
income taxes (78.3) 42.4
Provision (benefit) for
income taxes (32.8) 13.5
-------- --------
Net income (loss) ($45.5) $28.9
======== ========
Earnings (loss) per share
Basic ($ .13) $ .09
======== ========
Diluted ($ .13) $ .09
======== ========
Shares used in the per share
computations (thousands):
Basic 338,248 332,722
======== ========
Diluted 338,248 338,048
======== ========
UNISYS CORPORATION
SEGMENT RESULTS
(Millions)
Elimi-
Total nations Services Technology
-------- -------- -------- ----------
Three Months Ended
March 31, 2005
------------------
Customer revenue $1,366.6 $1,107.7 $258.9
Intersegment ($59.9) 4.8 55.1
-------- -------- -------- --------
Total revenue $1,366.6 ($59.9) $1,112.5 $314.0
======== ======== ======== ========
Gross profit percent 19.0% 11.0% 47.7%
======== ======== ========
Operating profit
(loss) percent (4.8%) (6.8%) 6.1%
======== ======== ========
Three Months Ended
March 31, 2004
------------------
Customer revenue $1,462.9 $1,165.0 $297.9
Intersegment ($45.7) 4.8 40.9
-------- -------- -------- --------
Total revenue $1,462.9 ($45.7) $1,169.8 $338.8
======== ======== ======== ========
Gross profit percent 26.8% 19.1% 48.3%
======== ======== ========
Operating profit
percent 4.0% 2.5% 8.6%
======== ======== ========
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions)
March 31, December 31,
2005 2004
---------- ----------
Assets
Current assets
Cash and cash equivalents $441.6 $660.5
Accounts and notes receivable, net 1,050.1 1,136.8
Inventories
Parts and finished equipment 92.2 93.7
Work in process and materials 130.4 122.4
Deferred income taxes 292.1 291.8
Prepaid expense and other
current assets 139.5 112.4
---------- ----------
Total 2,145.9 2,417.6
---------- ----------
Properties 1,271.3 1,305.5
Less accumulated depreciation
and amortization 863.8 881.4
---------- ----------
Properties, net 407.5 424.1
---------- ----------
Outsourcing assets, net 433.3 431.9
Marketable software, net 340.5 336.8
Investments at equity 210.4 197.1
Prepaid pension cost 49.4 52.5
Deferred income taxes 1,394.6 1,394.6
Goodwill 188.4 189.9
Other long-term assets 164.3 176.4
---------- ----------
Total $5,334.3 $5,620.9
========== ==========
Liabilities and stockholders' equity
Current liabilities
Notes payable $2.7 $1.0
Current maturities of long-term debt 1.5 151.7
Accounts payable 365.6 487.4
Other accrued liabilities 1,291.5 1,316.1
Income taxes payable 0.0 66.6
---------- ----------
Total 1,661.3 2,022.8
---------- ----------
Long-term debt 898.6 898.4
Accrued pension liabilities 573.3 537.9
Other long-term liabilities 708.6 655.3
Stockholders' equity
Common stock 3.4 3.4
Accumulated deficit (421.7) (376.2)
Other capital 3,895.8 3,883.8
Accumulated other comprehensive loss (1,985.0) (2,004.5)
---------- ----------
Stockholders' equity 1,492.5 1,506.5
---------- ----------
Total $5,334.3 $5,620.9
========== ==========
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
Three Months Ended
March 31
------------------
2005 2004
------- -------
Cash flows from operating activities
Net income (loss) ($45.5) $28.9
Add (deduct) items to reconcile
net income (loss) to net cash
provided by operating activities:
Equity loss (income) 4.3 (5.3)
Depreciation and amortization of properties 30.0 35.8
Depreciation and amortization of
outsourcing assets 34.7 26.6
Amortization of marketable software 28.5 29.3
Increase in deferred income taxes, net (.3) (1.4)
Decrease in receivables, net 90.5 54.2
Increase in inventories (6.5) (19.1)
(Decrease) increase in accounts payable
and other accrued liabilities (158.5) 8.2
Decrease in income taxes payable (66.6) (8.0)
Increase in other liabilities 97.7
Increase in other assets (16.4) (25.4)
Other 34.9 5.4
------- -------
Net cash provided by operating activities 26.8 129.2
------- -------
Cash flows from investing activities
Proceeds from investments 1,779.9 1,408.3
Purchases of investments (1,776.8) (1,413.7)
Investment in marketable software (33.0) (29.0)
Capital additions of properties (22.4) (36.5)
Capital additions of outsourcing assets (41.9) (47.6)
------- -------
Net cash used for investing activities (94.2) (118.5)
------- -------
Cash flows from financing activities
Net proceeds from short-term borrowings 1.7 10.6
Proceeds from employee stock plans 6.6 11.1
Payments of long-term debt (150.3) (1.0)
------- -------
Net cash (used for) provided by
financing activities (142.0) 20.7
------- -------
Effect of exchange rate changes on cash
and cash equivalents (9.5) 4.1
------- -------
(Decrease) increase in cash and cash
equivalents (218.9) 35.5
Cash and cash equivalents, beginning of
period 660.5 635.9
------- -------
Cash and cash equivalents, end of period $441.6 $671.4
======= =======
Reconciliation of GAAP to Non-GAAP Financial Information
The preceding release presents information with and without pension
expense. Unisys believes that this information will enhance an overall
understanding of its financial performance due to the significant
change in pension expense from period to period and the
non-operational nature of pension expense. The presentation of
non-GAAP information is not meant to be considered in isolation or as
a substitute for results prepared in accordance with accounting
principles generally accepted in the United States.
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share data)
Three Months Ended
March 31, 2005
----------------------------
US GAAP Less Without
as Pension Pension
Reported Expense Expense
-------- -------- --------
Revenue $1,366.6 $1,366.6
Costs and expenses
Cost of revenue 1,106.3 ($32.8) 1,073.5
Selling, general and
administrative 261.6 (9.1) 252.5
Research and development 64.9 (4.9) 60.0
-------- -------- --------
1,432.8 (46.8) 1,386.0
-------- -------- --------
Operating income (loss) (66.2) 46.8 (19.4)
Interest expense 12.6 12.6
Other income
(expense), net 0.5 0.5
-------- -------- --------
Income (loss) before
income taxes (78.3) 46.8 (31.5)
Provision (benefit) for
income taxes (32.8) 15.0 (17.8)
-------- -------- --------
Net income (loss) ($45.5) $31.8 ($13.7)
======== ======== ========
Earnings (loss) per share ($ .13) $ .09 ($ .04)
======== ======== ========
Three Months Ended
March 31, 2004
----------------------------
US GAAP Less Without
as Pension Pension
Reported Expense Expense
-------- -------- --------
Revenue $1,462.9 $1,462.9
Costs and expenses
Cost of revenue 1,071.4 ($15.5) 1,055.9
Selling, general and
administrative 261.2 (4.9) 256.3
Research and development 71.5 (1.8) 69.7
-------- -------- --------
1,404.1 (22.2) 1,381.9
-------- -------- --------
Operating income 58.8 22.2 81.0
Interest expense 17.0 17.0
Other income
(expense), net 0.6 0.6
-------- -------- --------
Income before income taxes 42.4 22.2 64.6
Provision for income taxes 13.5 7.1 20.6
-------- -------- --------
Net income $28.9 $15.1 $44.0
======== ======== ========
Earnings per share $ .09 $ .04 $ .13
======== ======== ========
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
SEGMENT RESULTS OF OPERATIONS
(Millions)
Three Months Ended
March 31, 2005
---------------------------
Less Without
As Pension Pension
Reported Expense Expense
-------- -------- --------
Services Segment
Total revenue $1,112.5 $1,112.5
Gross profit 122.2 ($31.8) 154.0
% of revenue 11.0% 13.8%
Operating income (loss) (75.1) (39.4) (35.7)
% of revenue -6.8% -3.2%
Technology Segment
Total revenue 314.0 314.0
Gross profit 149.7 (1.0) 150.7
% of revenue 47.7% 48.0%
Operating income 19.3 (7.4) 26.7
% of revenue 6.1% 8.5%
Total Company
Total revenue 1,366.6 1,366.6
Gross profit 260.3 (32.8) 293.1
% of revenue 19.0% 21.4%
Operating income (loss) (66.2) (46.8) (19.4)
% of revenue -4.8% -1.4%
Three Months Ended
March 31, 2004
---------------------------
Less Without
As Pension Pension
Reported Expense Expense
-------- -------- --------
Services Segment
Total revenue $1,169.8 $1,169.8
Gross profit 222.9 ($15.2) 238.1
% of revenue 19.1% 20.4%
Operating income 29.2 (19.3) 48.5
% of revenue 2.5% 4.1%
Technology Segment
Total revenue 338.8 338.8
Gross profit 163.8 (0.3) 164.1
% of revenue 48.3% 48.4%
Operating income 29.2 (2.9) 32.1
% of revenue 8.6% 9.5%
Total Company
Total revenue 1,462.9 1,462.9
Gross profit 391.5 (15.5) 407.0
% of revenue 26.8% 27.8%
Operating income 58.8 (22.2) 81.0
% of revenue 4.0% 5.5%
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
FORWARD-LOOKING ESTIMATED EARNINGS (LOSS) PER SHARE
Three
Months
Ending
6/30/2005
----------
Earnings (loss) per share-
on a GAAP basis (.11)-(.07)
Add back estimated pension expense,
net of tax .09
---------
Earnings (loss) per share-
on a NON-GAAP basis
(excluding pension expense) (.02)-.02
=========
NOTE: See section in press release entitled 'Forward-Looking
Statements'.
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