Unisys Announces First-Quarter 2008 Financial Results

Company reports $28.0 million operating profit, double-digit services orders growth

Revenue for the first quarter of 2008 declined 3 percent to $1.30 billion from $1.35 billion in the year-ago quarter. Foreign currency exchange rates had an approximately 5 percentage-point positive impact on revenue in the quarter.

"We continued to improve our operating profit in the first quarter despite some weakness in our U.S. business," said Unisys President and Chief Executive Officer Joseph W. McGrath. "Our federal business was impacted by contracting delays at certain agencies, and we saw some impact in our U.S. technology sales as organizations tightened spending on IT projects due to economic concerns. Even with this, we were able to continue improving profit margins in our services business as a result of our repositioning actions over the past two years."

"We were also pleased with continued revenue growth in outsourcing and double-digit gains in services orders in the quarter," McGrath said. "Based on this order strength and a strong pipeline, we look for our federal business to recover in the second quarter and for our services business to return to growth as we move through the year."

Unisys reported pretax income of $0.4 million in the first quarter of 2008 compared with a pretax loss of $23.0 million in the first quarter of 2007. The company incurred $23.8 million of tax expense in the current quarter compared with a $26.6 million tax benefit in the year-ago period, which included a $39.4 million benefit for settlement of a tax audit. After taxes, the company reported a first-quarter 2008 net loss of $23.4 million, or diluted loss per share of 7 cents, compared with net income of $3.6 million, or diluted earnings of 1 cent per share, in the year-ago period. Unisys results in the year-ago period included a $32.7 million pre-tax restructuring charge and a $23.7 million pre-tax gain on the sale of a business. Pretax retirement-related expense in the first quarter of 2008 was $0.6 million compared with $23.5 million in the year-ago period.

First-Quarter Company Results

Services orders showed substantial double-digit gains in the first quarter, driven by order gains for outsourcing and systems integration and consulting. Services order backlog at March 31, 2008 was $6.97 billion, up 2 percent from $6.86 billion at year-end 2007.

Revenue in the United States declined 11 percent in the quarter to $537 million, reflecting declines in the company's technology and federal businesses. Revenue in international markets increased 3 percent to $764 million. On a constant currency basis, international revenue declined 6 percent in the quarter.

The company's gross profit margin and operating profit margin in the first quarter of 2008 improved to 22.5 percent and 2.2 percent, respectively. These compared with gross and operating profit margins of 19.1 percent and (2.2) percent, respectively, in the first quarter of 2007.

First-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 first quarter of 2008 compared with the year-ago period. The company reported revenue growth in outsourcing, which was more than offset by revenue declines in infrastructure services and core maintenance. Systems integration and consulting revenue was flat in the quarter. Gross profit margin in the services business improved to 18.5 percent compared with 15.0 percent a year ago. Services operating margin improved to 2.3 percent compared with (1.0) percent a year ago.

Customer revenue in the company's technology segment declined 16 percent from the first quarter of 2007, reflecting double-digit declines in both enterprise servers and specialized technologies. The technology revenue decline was centered in the company's U.S. and federal businesses; international technology revenue grew in the quarter. Gross profit margin in the technology business was 42.9 percent compared with 43.3 percent a year ago. Technology operating margin in the quarter was 0.8 percent compared with 3.5 percent in the first quarter of 2007.

Cash Flow and Balance Sheet Highlights

Unisys used $49 million of cash from operations in the first quarter of 2008 compared with operational cash usage of $104 million in the year-ago quarter. The company used approximately $21 million of cash in the first quarter of 2008 for restructuring payments compared to approximately $50 million in the year-ago period.

Capital expenditures in the first quarter of 2008 were $65 million compared to $83 million in the year-ago quarter. After deducting for capital expenditures, Unisys used $114 million of free cash in the quarter compared with free cash usage of $187 million in the first quarter of 2007.

During the quarter the company redeemed at par all $200 million of its 7 7/8% senior notes due 2008. The company ended the quarter with $490 million of cash on hand.

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