BLUE BELL, Pa., January 29, 2008 ? Unisys Corporation (NYSE: UIS) today reported $247 million in fourth-quarter operating cash flow and its highest full-year operating profit since 2003 as the company closed a year of significant progress in its multi-year repositioning program.
Unisys reported fourth-quarter 2007 operating income of $69.4 million, which included $55 million of net cost reduction charges and $11.6 million of retirement-related expense. These results compared with fourth-quarter 2006 operating income of $68.6 million, which included a $10 million benefit for changes in estimates for previously recorded cost reduction charges and $47.6 million of retirement-related expense. Fourth-quarter 2007 operating profit before the impact of these items improved by $30 million, or 29 percent, year over year.
For the full year of 2007, the company reported operating income of $85.9 million compared with a full-year 2006 operating loss of $326.8 million, a year-over-year improvement of $413 million. The 2007 results include $105 million of net cost reduction charges and $82.4 million of retirement-related expense, and the 2006 results include net cost reduction charges of $316 million and $153.8 million of retirement-related expense. Before the impact of these items in both years, full-year 2007 operating income improved by $130 million, or 91 percent, year over year.
Revenue for the fourth quarter of 2007 declined 1 percent to $1.54 billion from $1.55 billion in the year-ago quarter. Full-year 2007 revenue declined 2 percent to $5.65 billion compared with $5.76 billion in 2006. Foreign currency exchange rates had an approximately 5 percentage-point positive impact on revenue in the quarter and an approximately 4 percentage point positive impact on revenue for the full year.
Comments from President and CEO Joseph W. McGrath
"In 2007, we rebuilt our profitability to the highest level since 2003," said Joseph W. McGrath, Unisys president and chief executive officer. "By staying focused on implementing the many elements of a complex, multi-year repositioning plan, we closed 2007 with a strong fourth quarter and reported full-year operating profit of $85.9 million. Excluding cost reduction charges and retirement expense, our operating profit in 2007 increased 91 percent from 2006 levels. We also generated $247 million in operating cash flow in the fourth quarter, up 48 percent from year-ago levels. This is strong, tangible evidence that our repositioning is working and yielding results.
"Our revenue declined in 2007 as we de-emphasized low-margin, non-strategic areas of the business," McGrath said. "Within our overall revenue base, however, we are seeing a mix change as our strategic programs grow. Collectively, these strategic programs ? outsourcing, enterprise security, open source solutions, Microsoft solutions, and real-time infrastructure solutions ? now represent the majority of our overall revenue and grew about 10 percent in 2007. As we continue to build out these programs, while further streamlining our operations and reducing costs, we expect to continue our profit improvement in 2008."
Fourth-Quarter Company Results
After tax expense, the company reported fourth-quarter 2007 net income of $13.8 million, or diluted earnings per share of 4 cents, compared with net income of $21.3 million, or 6 cents per share in the year-ago quarter.
Services orders showed mid single-digit declines in the fourth quarter, driven by order declines for infrastructure services and systems integration and consulting. Outsourcing orders grew in the quarter. For the full year of 2007, services orders were flat compared with 2006. The company closed 2007 with $6.9 billion of firm services order backlog, up 4 percent from $6.6 billion of firm services backlog at year-end 2006.
Revenue in the United States declined 4 percent in the quarter to $629 million while revenue in international markets increased 1 percent to $907 million. On a constant currency basis, international revenue declined 8 percent in the quarter.
The company's gross profit margin and operating profit margin in the fourth quarter of 2007 improved to 27.4 percent and 4.5 percent, respectively. These compared with gross and operating profit margins of 24.9 percent and 4.4 percent, respectively, in the fourth quarter of 2006.
Fourth-Quarter Business Segment Results
Unisys has a long-standing policy of evaluating 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 2 percent in the fourth quarter of 2007 compared with the year-ago period. The company reported continued revenue growth in outsourcing, which was more than offset by revenue declines in other services businesses. Gross profit margin in the services business improved to 19.6 percent compared with 16.9 percent a year ago. Services operating margin improved to 4.5 percent compared with 1.2 percent a year ago.
Customer revenue in the company's technology segment increased 6 percent from the fourth quarter of 2006. Within technology, the company saw strong double-digit revenue growth for its ClearPath enterprise servers. Gross profit margin in the technology business increased to 53.9 percent from 49.0 percent a year ago while operating margin increased to 20.5 percent compared to 13.7 percent in the fourth quarter of 2006.
Cash Flow and Balance Sheet Highlights
Unisys generated $247 million of cash from operations in the fourth quarter of 2007 compared with $167 million in the year-ago quarter. The company used approximately $28 million of cash in the fourth quarter of 2007 for restructuring payments compared to approximately $88 million in the year-ago period.
Capital expenditures in the fourth quarter of 2007 were $71 million compared to $58 million in the year-ago quarter. The increase was due to investments in outsourcing assets related to new outsourcing engagements. After deducting for capital expenditures, Unisys generated $176 million of free cash in the quarter compared with $109 million in the fourth quarter of 2006.
The company ended 2007 with $830 million of cash, which included the proceeds of an offering of $210 million of 12.5% senior notes placed in the fourth quarter. The company offered the new notes to refinance $200 million of its 7 7/8% senior notes due 2008. The 7 7/8% senior notes were redeemed on January 11, 2008.
Full-Year 2007 Results
For the year ended December 31, 2007, Unisys reported revenue of $5.65 billion, a decline of 2 percent from revenue of $5.76 billion in 2006. Currency had an approximately 4 percentage point positive impact on full-year 2007 revenue.
For the year ended December 31, 2007, Unisys reported a net loss of $79.1 million, or 23 cents per share. These results included:
· net pre-tax cost reduction charges of approximately $105 million for workforce reductions and facility consolidations;
· a pre-tax gain of $24.7 million on the sale of the media solutions business;
· a $39.4 million tax benefit related to an income tax settlement; and
· $82.4 million of pre-tax retirement-related expense.
For the year ended December 31, 2006, Unisys reported a net loss of $278.7 million, or 81 cents per share. These results included:
· net pre-tax cost reduction charges of approximately $316 million;
· a pre-tax gain of $149.9 million on the sale of the company's shares in Nihon Unisys Limited; and
· $153.8 million of pre-tax retirement-related expense.
Unisys will hold a conference call today at 8:15 a.m. EST 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.