News Release
Investor Contact:
Jim Kerr, 215-986-5795
Jim.Kerr@unisys.com
Media Contacts:
John Schneidawind, 215-986-2472
John.Schneidawind@unisys.com
Gail Ferrari Marold, 919-342-5376
Gail.Ferrari@unisys.com
UNISYS ANNOUNCES SECOND-QUARTER 2006 FINANCIAL RESULTS; COMPANY MAKES
SIGNIFICANT PROGRESS IN COST-REDUCTION EFFORTS
BLUE BELL, Pa., July 19, 2006 - Unisys Corporation (NYSE: UIS) today announced
its second-quarter 2006 financial results and reported significant progress in
its previously announced cost-reduction efforts as part of its plan to
reposition the company for long-term profitable growth.
Unisys reported a second-quarter 2006 net loss of $194.6 million, or 57 cents
per share. The results included a pre-tax charge of $141.2 million to cover a
planned workforce reduction of approximately 1,900 people. These second-
quarter 2006 results compared with a second-quarter 2005 net loss of $27.1
million, or 8 cents per share. Pre-tax pension expense in the second quarter
of 2006 was $40.5 million compared with pre-tax pension expense of $45.8 million
in the year-ago quarter.
Revenue for the second quarter of 2006 declined 2% to $1.41 billion from $1.44
billion in the year-ago quarter.
COMMENTS FROM PRESIDENT AND CEO JOSEPH W. MCGRATH
"This was a mixed quarter for Unisys," said Joseph W. McGrath, Unisys president
and chief executive officer. "We moved aggressively in the quarter to implement
planned headcount reductions as part of our global cost-reduction program.
Based on a continuing analysis of the business and efforts to reengineer
processes, we also identified opportunities to reduce our global headcount by an
additional approximately 1,900 people. These reductions, along with those we
announced in the first quarter of 2006, bring the total number of planned
worldwide headcount reductions to approximately 5,500. We expect these
reductions to yield net annualized cost savings of more than $325 million by
the second half of 2007.
"As we implemented these reductions and other elements of our repositioning
program, we saw short-term disruptions in our operations, which impacted our
financial results for the quarter," McGrath said. "We remain confident,
however, that the repositioning effort will significantly enhance our
profitability and competitiveness over the long term."
McGrath said that of the total 5,500 planned workforce reductions, the company
completed approximately 2,200 reductions in the second quarter, and expects to
complete another 1,300 reductions in the third quarter of 2006. By the end of
2006, Unisys expects to complete approximately 90% of the total planned
headcount reductions, with the remaining reductions targeted for the first half
of 2007. The company plans to reinvest some of these cost savings into
increased investments in its growth initiatives, global sourcing, and employee
development programs. Net of these reinvestments, the company expects the
headcount actions to yield annualized cost savings in excess of $325 million by
the second half of 2007.
"We continue to see 2006 as a transitional year as we work through our
repositioning actions," McGrath said. "As these initiatives take hold, we
expect to realize significant benefits in our profitability in 2007 and 2008."
SECOND-QUARTER COMPANY RESULTS
The company reported a double-digit decline in overall orders in the second
quarter. Services orders showed a double-digit decrease, while Technology
orders declined by a single-digit percentage compared to the year-ago quarter.
Revenue in the U.S. declined 6% in the quarter to $628 million. Revenue in
international markets increased 2% in the quarter to $779 million.
The company's gross profit margin and operating profit margin in the second
quarter of 2006 were 11.6% and (13.1%), respectively, which include the cost-
reduction charge. These compared with gross and operating profit margins of
19.3% and (3.9%), respectively, in the second quarter of 2005.
SECOND-QUARTER BUSINESS SEGMENT RESULTS
Unisys has a long-standing policy to evaluate business segment performance on
operating income exclusive of restructuring charges and unusual and non-
recurring items. Therefore, the comparisons below exclude the second-quarter
2006 cost-reduction charge discussed above.
Customer revenue in the company's services segment declined 1% in the second
quarter of 2006 compared with the year-ago period. The company reported growth
in infrastructure services and outsourcing, which was offset by revenue
declines in consulting and systems integration and in core maintenance. Gross
profit margin in the services business improved to 14.3% from 12.2% a year ago,
while the services operating margin improved to (0.9%) compared with (3.7%) a
year ago.
Customer revenue in the company's technology segment declined 8% in the second
quarter of 2006 driven by double-digit declines in enterprise servers.
Reflecting lower sales volume of high-margin enterprise server products,
technology gross profit margin declined to 37.6% from 44.6% a year ago while
operating margins declined to (12.2%) from (4.8%) a year ago.
In late June, Unisys made major announcements regarding its enterprise server
family aimed at improving demand for these products. The company announced a
next-generation architecture that will allow multiple operating systems and
applications, including proprietary ClearPath systems and Microsoft and Linux,
to run simultaneously on the same platform using Intel processor technology.
Innovative Unisys software will enable these systems to share application
workloads dynamically based on business requirements. Unisys also announced
new high-end ClearPath models and software tools that provide up to a 40%
performance increase over previous models.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Unisys used $193 million of cash from operations in the current quarter. The
cash usage in the quarter reflected a reduction of approximately $73 million in
the amount of receivables sold through the company's securitization program.
The company also used $34 million of cash in the second quarter of 2006 for
restructuring payments. In the second quarter of 2005, the company generated
$64 million of cash from operations, including a tax refund of approximately
$39 million. The year-ago period included $20 million of cash used for
restructuring payments. Capital expenditures in the second quarter of 2006
were $65 million compared to $112 million in the year-ago quarter. After
deducting for capital expenditures, Unisys used $258 million of free cash in
the quarter compared with usage of $48 million in the second quarter of 2005.
During the second quarter Unisys repaid all of its outstanding $57.9 million
8.125% notes due June 1, 2006.
The company ended the second quarter of 2006 with $655 million of cash on hand.
YEAR-TO-DATE RESULTS
For the six months ended June 30, 2006, Unisys reported a net loss of $222.5
million, or 65 cents per share. These results included pre-tax charges of
$287.1 million for headcount reductions in the first and second quarters of
2006, a first-quarter 2006 pre-tax gain of $149.9 million on the sale of the
company's shares in Nihon Unisys Limited, and a first-quarter 2006 pre-tax
curtailment gain of $45.0 million related to changes in the company's U.S.
defined benefit pension plans. Pre-tax pension expense in the first half of
2006, including the first-quarter curtailment gain, was $48.4 million compared
with pre-tax pension expense of $92.6 million in the first half of 2005. In
the first half of 2005, the company reported a net loss of $72.6 million, or 21
cents per share. Revenue for the first six months of 2006 was $2.8 billion
compared to revenue of $2.8 billion in the first half of 2005.
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 technology services and solutions company. Our
consultants apply Unisys expertise in consulting, systems integration,
outsourcing, infrastructure, and server technology to help our clients achieve
secure business operations. We build more secure organizations by creating
visibility into clients' business operations. Leveraging Unisys 3D Visible
Enterprise, we make visible the impact of their decisions-ahead of investments,
opportunities and risks. 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 concerning the company's cost
reduction plan are subject to the risk that the company may not implement the
planned headcount reductions as quickly as currently planned, which could
affect the timing of anticipated cost savings. The amount of anticipated cost
savings is also subject to currency exchange rate fluctuations with regard to
actions taken outside the U.S. Other 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; the company's ability to effectively address its challenging
outsourcing operations through negotiations or operationally and to fully
recover the associated outsourcing assets; the company's ability to drive
profitable growth in consulting and systems integration; the level of demand
for the company's high-end enterprise servers; the company's ability to
effectively rightsize its cost structure; the risks of doing business
internationally and the potential for infringement claims to be asserted
against the company or its clients. 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.
###
RELEASE NO.: 0719/8693
http://www.unisys.com/about_unisys/news_a_events/07198693
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 Six Months
Ended June 30 Ended June 30
------------------ ------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue
Services $1,224.5 $1,236.0 $2,400.9 $2,343.7
Technology 182.8 199.5 394.2 458.4
-------- -------- -------- --------
1,407.3 1,435.5 2,795.1 2,802.1
Costs and expenses
Cost of revenue:
Services 1,136.3 1,063.4 2,212.8 2,044.8
Technology 108.1 94.7 217.5 219.6
-------- -------- -------- --------
1,244.4 1,158.1 2,430.3 2,264.4
Selling, general and
administrative 282.7 267.4 578.1 529.0
Research and development 63.9 66.6 139.2 131.5
-------- -------- -------- --------
1,591.0 1,492.1 3,147.6 2,924.9
-------- -------- -------- --------
Operating loss (183.7) (56.6) (352.5) (122.8)
Interest expense 19.1 15.2 38.9 27.8
Other income
(expense), net (0.7) 32.0 152.7 32.5
-------- -------- -------- --------
Loss before income taxes (203.5) (39.8) (238.7) (118.1)
Benefit for income taxes (8.9) (12.7) (16.2) (45.5)
-------- -------- -------- --------
Net loss ($194.6) ($27.1) ($222.5) ($72.6)
======== ======== ======== ========
Loss per share
Basic ($ .57) ($ .08) ($ .65) ($ .21)
======== ======== ======== ========
Diluted ($ .57) ($ .08) ($ .65) ($ .21)
======== ======== ======== ========
Shares used in the per share
computations (thousands):
Basic 343,414 340,047 342,936 339,147
======== ======== ======== ========
Diluted 343,414 340,047 342,936 339,147
======== ======== ======== ========
UNISYS CORPORATION
SEGMENT RESULTS
(Millions)
Elimi-
Total nations Services* Technology*
-------- -------- -------- ----------
Three Months Ended
June 30, 2006
- ------------------
Customer revenue $1,407.3 $1,224.5 $182.8
Intersegment ($53.2) 3.8 49.4
-------- -------- -------- --------
Total revenue $1,407.3 ($53.2) $1,228.3 $232.2
======== ======== ======== ========
Gross profit percent 11.6% 14.3% 37.6%
======== ======== ========
Operating loss
percent (13.1%) (0.9%) (12.2%)
======== ======== ========
Three Months Ended
June 30, 2005
- ------------------
Customer revenue $1,435.5 $1,236.0 $199.5
Intersegment ($75.7) 4.9 70.8
-------- -------- -------- --------
Total revenue $1,435.5 ($75.7) $1,240.9 $270.3
======== ======== ======== ========
Gross profit percent 19.3% 12.2% 44.6%
======== ======== ========
Operating loss
percent (3.9%) (3.7%) (4.8%)
======== ======== ========
Six Months Ended
June 30, 2006
- ------------------
Customer revenue $2,795.1 $2,400.9 $394.2
Intersegment ($95.8) 7.2 88.6
-------- -------- -------- --------
Total revenue $2,795.1 ($95.8) $2,408.1 $482.8
======== ======== ======== ========
Gross profit percent 13.1% 14.7% 39.8%
======== ======== ========
Operating loss
percent (12.6%) (0.9%) (8.7%)
======== ======== ========
Six Months Ended
June 30, 2005
- ------------------
Customer revenue $2,802.1 $2,343.7 $458.4
Intersegment ($135.6) 9.7 125.9
-------- -------- -------- --------
Total revenue $2,802.1 ($135.6) $2,353.4 $584.3
======== ======== ======== ========
Gross profit percent 19.2% 11.6% 46.2%
======== ======== ========
Operating profit
(loss) percent (4.4%) (5.2%) 1.1%
======== ======== ========
* 2006 results exclude charges for cost reductions and
related actions booked in March 2006 and June 2006
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions)
June 30, December 31,
2006 2005
------------ ------------
Assets
Current assets
Cash and cash equivalents $655.1 $642.5
Accounts and notes receivable, net 1,082.2 1,111.5
Inventories
Parts and finished equipment 103.4 103.4
Work in process and materials 80.2 90.7
Deferred income taxes 110.2 68.2
Prepaid expense and other
current assets 155.7 137.0
---------- ----------
Total 2,186.8 2,153.3
---------- ----------
Properties 1,346.6 1,320.8
Less accumulated depreciation
and amortization 984.9 934.4
---------- ----------
Properties, net 361.7 386.4
---------- ----------
Outsourcing assets, net 420.6 416.0
Marketable software, net 317.0 327.6
Investments at equity 1.1 207.8
Prepaid pension cost 1,318.3 66.1
Deferred income taxes 138.4 138.4
Goodwill 192.1 192.0
Other long-term assets 138.7 141.3
---------- ----------
Total $5,074.7 $4,028.9
========== ==========
Liabilities and stockholders' equity (deficit)
Current liabilities
Notes payable $10.7 $18.1
Current maturities of long-term debt 0.8 58.8
Accounts payable 390.0 444.6
Other accrued liabilities 1,393.9 1,293.3
---------- ----------
Total 1,795.4 1,814.8
---------- ----------
Long-term debt 1,049.2 1,049.0
Accrued pension liabilities 352.4 506.9
Other long-term liabilities 684.5 690.8
Stockholders' equity (deficit)
Common stock 3.5 3.4
Accumulated deficit (2,330.6) (2,108.1)
Other capital 3,931.6 3,917.0
Accumulated other comprehensive loss (411.3) (1,844.9)
---------- ----------
Stockholders' equity (deficit) 1,193.2 (32.6)
---------- ----------
Total $5,074.7 $4,028.9
========== ==========
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
Six Months Ended
June 30
------------------
2006 2005
------- -------
Cash flows from operating activities
Net loss ($222.5) ($72.6)
Add (deduct) items to reconcile
net loss to net cash (used for)
provided by operating activities:
Equity loss (income) 4.3 (11.6)
Employee stock compensation
expense 3.2
Depreciation and amortization
of properties 58.5 61.8
Depreciation and amortization of
outsourcing assets 66.7 65.6
Amortization of marketable software 66.2 59.2
Gain on sale of NUL shares
and other investments (153.2)
Increase in deferred income taxes, net (41.9) (.6)
Decrease in receivables, net 66.7 73.6
Decrease in inventories 10.2 10.4
Increase (decrease) in accounts payable
and other accrued liabilities 8.0 (249.3)
(Decrease) increase in other
liabilities (44.5) 122.6
Decrease (increase) in other assets 1.2 (24.8)
Other 11.1 56.4
------- -------
Net cash (used for) provided by
operating activities (166.0) 90.7
------- -------
Cash flows from investing activities
Proceeds from investments 3,729.3 3,709.4
Purchases of investments (3,731.3) (3,698.8)
Investment in marketable software (55.3) (63.3)
Capital additions of properties (32.7) (59.4)
Capital additions of outsourcing assets (50.1) (86.3)
Purchases of businesses (.5)
Proceeds from sale of NUL shares
and other investments 380.6
------- -------
Net cash provided by (used for)
investing activities 240.5 (198.9)
------- -------
Cash flows from financing activities
Net (reduction in) proceeds from
short-term borrowings (7.4) .5
Proceeds from employee stock plans .9 12.8
Payments of long-term debt (57.9) (150.7)
Costs of credit agreement (4.6)
------- -------
Net cash used for financing
activities (69.0) (137.4)
------- -------
Effect of exchange rate changes on cash
and cash equivalents 7.1 (16.0)
------- -------
Increase (decrease) in cash
and cash equivalents 12.6 (261.6)
Cash and cash equivalents, beginning of
period 642.5 660.5
------- -------
Cash and cash equivalents, end of period $655.1 $398.9
======= =======