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Unisys Announces Second-Quarter 2008 Financial Results
Company reports $22.6 million operating profit, services orders growth; cash flow from operations more than doubles from year ago
"We continued to make important progress in the second quarter despite a difficult economic environment," said Unisys President and CEO Joseph W. McGrath. "Our cash flow from operations more than doubled from the year-ago quarter. Services orders continued to grow, although at a slower rate than in recent quarters. While our revenue was down in the quarter, primarily due to weakness in the financial services industry, we continued to grow and expand our strategic services programs, such as outsourcing, enterprise security, and open source services.
"Given the weak economic environment and the declining revenue in our non-strategic businesses, we will be placing additional focus on reducing costs in order to enhance our margins," McGrath said. "We also continue to explore portfolio rationalization and other actions to unlock value in the business and drive shareholder value."
Unisys reported a pretax loss of $10.4 million in the second quarter of 2008 compared with a pretax loss of $24.9 million in the second quarter of 2007. After taxes, the company reported a second-quarter 2008 net loss of $14.0 million, or diluted loss per share of 4 cents, compared with a net loss of $65.5 million, or a loss of 19 cents per share, in the year-ago period. The company's year-ago results included a net $24 million pre-tax cost reduction charge. The current year includes $8 million in pre-tax cost reduction-related charges. Pretax retirement-related expense in the second quarter of 2008 was $5.8 million compared with $24.5 million in the year-ago period.
Second-Quarter Company Results
Services orders showed single-digit gains in the second quarter, driven by order gains for outsourcing. Services order backlog at June 30, 2008 was $7.17 billion, up 3 percent from $6.97 billion at March 31, 2008.
Revenue in the United States declined 3 percent in the quarter to $572 million. Revenue in international markets declined 2 percent to $768 million. The revenue declines in both regions primarily reflected sales declines in financial services. On a constant currency basis, international revenue declined 10 percent in the quarter.
The company's gross profit margin and operating profit margin in the second quarter of 2008 increased to 22.7 percent and 1.7 percent, respectively. These compared with gross and operating profit margins of 21.8 percent and 0.2 percent, respectively, in the second quarter of 2007.
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 these items.
Customer revenue in the company's services segment declined 1 percent in the second quarter of 2008 compared with the year-ago period. The company reported revenue growth in outsourcing and in systems integration and consulting. Growth in these areas was offset by revenue declines in infrastructure services and core maintenance. Gross profit margin in the services business improved to 19.2 percent compared with 17.3 percent a year ago. Services operating margin improved to 3.3 percent compared with 2.5 percent a year ago.
Unisys said its technology revenue and margins in the quarter were negatively impacted, as expected, by the ending of $18.8 million of quarterly royalty revenue from a 2005 intellectual property agreement with Nihon Unisys Limited (NUL) that ended on March 31. Customer revenue in the company's technology segment declined 14 percent from the second quarter of 2007. Excluding the NUL royalty revenue in the year-ago period, technology revenue declined about 3 percent in the quarter. Gross profit margin in the technology business declined to 39.2 percent compared with 43.3 percent a year ago, while technology operating margin declined to (3.7) percent compared with (0.6) percent in the second quarter of 2007.
Cash Flow and Balance Sheet Highlights
Unisys generated $52 million of cash from operations in the second quarter of 2008. In the year-ago quarter, the company generated $23 million of cash from operations, which included a tax refund of approximately $58 million. The company used approximately $22 million of cash in the second quarter of 2008 for restructuring payments compared to approximately $37 million in the year-ago period.
Capital expenditures in the second quarter of 2008 were $71 million compared to $84 million in the year-ago quarter. After deducting for capital expenditures, Unisys used $19 million of free cash in the quarter compared with free cash usage of $61 million in the second quarter of 2007.
Unisys will hold a conference call today at 8:15 a.m. EDT 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.
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 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 successfully implement its repositioning strategy; the company's ability to retain significant clients; the company's ability to grow outsourcing 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 continue 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 and maintenance on those servers; the risk 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 be subject 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 performance and capabilities of third parties with whom the company has commercial relationships; the risks of doing business internationally; the potential business and financial risk in implementing future acquisitions or dispositions; the potential for infringement claims to be asserted against the company or its clients and the possibility that pending litigation could affect the company's results of operations or cash flow. 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.
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