Thursday January 14, 7:00 am Eastern Time
Company Press Release
SOURCE: Unisys Corporation
Unisys Fourth-Quarter 1998 Net Income Rises 59%; Full-Year Earnings Per Share More Than Doubles on 9% Revenue Growth; Cash Flow Remains Strong
BLUE BELL, Pa., Jan. 14 /PRNewswire/ -- Unisys Corporation (NYSE: UIS - news) today reported fourth-quarter 1998 net income of $138.6 million compared to net income of $86.9 million before charges in the fourth quarter of 1997. After payment of preferred dividends, the company earned 42 cents per common share on a diluted basis in the fourth quarter of 1998 compared to 25 cents per common share before charges in the year-ago period. Revenue in the fourth quarter grew 8 percent to $2.05 billion from $1.90 billion a year ago.
For the full year of 1998, the company's net income increased to $387.0 million compared to $199.0 million before charges in 1997. Diluted earnings per share in 1998 more than doubled to $1.06 per share compared to $.46 per share before charges in 1997. Including the charge of $1.1 billion taken in the fourth quarter of 1997, primarily for the writeoff of goodwill, the company reported a net loss of $853.6 million, or $5.30 per share, for the full year of 1997. Revenue for the full year of 1998 grew 9 percent to $7.21 billion from $6.64 billion in 1997.
Comments from Chairman and CEO Larry Weinbach
''We finished a great year with a very profitable fourth quarter,'' said Unisys Chairman and Chief Executive Officer Lawrence A. Weinbach. ''Our information services business continued its turnaround, improving its operating margin by 3.5 percentage points in the fourth quarter while generating double-digit revenue growth. We also achieved very strong profit margins in our computer systems business driven by continued strong demand for our high-end ClearPath enterprise servers. These performances and further progress in expense reduction helped us achieve a fourth-quarter operating margin of 13.2 percent -- an excellent performance and a testament to the work that Unisys employees have accomplished over the past two years.
''Strong cash flow enabled us to continue our aggressive financial improvement program during the quarter,'' Weinbach said. ''With an additional $310 million of long-term debt repayment in the fourth quarter, since September of 1997 we have cut our debt by $1.1 billion and our annual interest expense by more than $110 million. Last month we also took the next step in our financial improvement program by calling two million of the 28 million outstanding shares of our convertible preferred stock. We expect to continue this effort in 1999, subject to appropriate market conditions.
''In addition to our financial progress, we are gaining momentum in our strategic efforts to build recognition of Unisys as a services leader,'' Weinbach added. ''In recent months Unisys has been among the winning teams announced for a number of major services contracts, including the U.S. Internal Revenue Service modernization project and outsourcing contracts with the U.S. General Services Administration, the states of Pennsylvania and Connecticut, and Subaru. We have also won major networking and desktop services contracts with Unum Insurance and Harleysville Insurance, among others, and added Gateway and Micron to the growing list of companies whose products we support through our global services organization. These wins are all clear indications of our enhanced competitiveness and reputation in the marketplace.''
Business Unit Highlights
Customer revenue in the company's Information Services business increased 15 percent in the quarter. Orders showed very strong double-digit gains over year-ago levels. Gross margins in the Information Services business declined slightly from the fourth quarter of 1997 to 24.1 percent but improved sequentially from 23.4 percent in the third quarter of 1998. Operating margins increased sharply from the prior-year period to 6.2 percent of revenue, reflecting improved cost controls. Overall, the Information Services business recorded an operating profit of $104 million in 1998 compared to an operating loss of $60 million in 1997, a year-over-year improvement of $164 million.
Customer revenue in the Global Customer Services unit increased 6 percent in the quarter as double-digit growth in distributed computing support services (DCSS) more than offset a continued industry-wide decline in traditional proprietary maintenance revenue. Orders showed substantial double-digit gains over year-ago levels. Gross margins at 24 percent were about the same as year-ago levels while operating margins increased 1.1 percentage points to 9.3 percent of revenue, reflecting cost reductions. Overall, DCSS business now represents about 67 percent of revenue in this unit compared to about 61 percent in 1997 and 52 percent in 1996.
Customer revenue in the Computer Systems business increased 3 percent in the quarter as continued strong shipments of ClearPath enterprise servers more than offset declines, as expected, in the company's personal computer business. Earlier in 1998 Unisys outsourced the supply of notebooks, PCs, and entry-level servers to focus on its profitable enterprise server business. Computer systems orders declined from year-ago levels largely due to declines in PC orders during this transition period. Gross margins in the Computer Systems business were about the same as the prior-year period at 48 percent of revenue. Operating margins rose 4.2 percentage points to 22.1 percent due to improved cost controls.
Overall Company Highlights
The company's operating margins continue to benefit from its ongoing programs to reduce expenses including stringent controls placed over discretionary expenditures. Expense reduction programs underway include streamlining the company's finance, information technology, and procurement operations worldwide. Unisys fourth-quarter operating profit margin rose 1.7 percentage points from the prior-year quarter to 13.2 percent of revenue. Operating expenses in the quarter represented 21.4 percent of revenue, a decrease of 3.9 percentage points from the prior-year quarter.
On a geographic basis, Unisys reported continued strong revenue growth both in the U.S. and internationally in the fourth quarter. The strongest revenue growth was in the United States, Latin America, and the Asia-Pacific regions.
Total worldwide orders showed strong gains over year-ago levels led by very substantial gains in U.S. orders. International orders declined slightly, primarily due to declines in PC orders, as gains in Pacific-Asia were offset by modest declines in European and Latin American orders. Businesses showing the strongest order gains included information services and distributed computing support services. At December 31, 1998, the company's estimated services backlog was $3.4 billion compared to $2.9 billion at the end of 1997.
Cash Flow and Balance Sheet Highlights
The company said it generated fourth-quarter operating cash flow of $210 million after absorbing a reduction of $120 million in operational cash flow due to the discontinuance of its U.S. revolving facility used to sell accounts receivable. As earlier announced, the company terminated this facility in October due to its improved financial condition. Even with this discontinuance and the repayment of $310 million of long-term debt in the quarter, Unisys ended the year with cash of more than $600 million. Overall, the company generated $650 million of cash from operations in 1998, an improvement of approximately $266 million over 1997.
Unisys made two major debt repayments during the quarter as planned. On October 1 the company repaid the remaining $130 million of its 10-5/8% notes due in 1999. In addition, on December 4 Unisys redeemed the remaining $160 million outstanding of its 9-3/4% senior sinking fund debentures originally due 2016. The company's total debt at the end of the year was $1.2 billion compared to $2.3 billion in September 1997 when it began its debt reduction program.
The company said that it is calling today for redemption on March 15, 1999 the remaining $27 million of its 8-1/4% convertible subordinated notes due 2006. The notes will be called at 105.775% of par, plus accrued interest. Each note is convertible into approximately 145.45 shares of Unisys common stock. The redemption is being carried out under the terms of an indenture with the trustee, The Bank of New York. Procedures for surrendering the notes for redemption or conversion will be mailed to noteholders by the trustee.
As the next step in its financial improvement program, in December Unisys announced the redemption of two million of the 28.4 million outstanding shares of its Series A Cumulative Convertible Preferred Stock, which pays an annual dividend of $3.75 per share. The shares will be redeemed on January 21, 1999 at the stated redemption price of $50 per share plus accrued dividends. This action will reduce the company's annual preferred dividend payments by $7.5 million. Holders of preferred shares have the option of converting their shares into Unisys common stock at a conversion price of $29.93, or for each preferred share that is converted. Holders of the 2 million shares to be redeemed on January 21 have until 5 p.m. EST on January 20 to convert their shares.
Business Outlook
''Our goals for 1999 are to build on our financial momentum and continue to enhance our capabilities as a services and solutions provider,'' Weinbach said. ''While there is no shortage of challenges in the global marketplace and we are planning conservatively as a result, we remain committed to our goal of growing our earnings at twice the rate of revenue growth. We enter 1999 with a healthy and growing backlog, a dramatically improved financial profile, and an enthusiastic workforce. All of this gives us confidence that we can meet our financial goals for 1999 and continue the excellent progress we have made in enhancing shareholder value.''
About the Company
Unisys is more than 33,000 employees helping customers in 100 countries apply information technology to solve their business problems. Unisys solutions are based on a broad portfolio of global information services including systems integration, outsourcing, ''repeatable'' application solutions, consulting, network integration, remote network management, and multivendor maintenance and support, coupled with enterprise-class servers and associated middleware, software and storage. Repeatable solutions are focused on key vertical markets including financial services, transportation, telecommunications, government, publishing, and other commercial markets. The company is headquartered in Blue Bell, Pennsylvania, in the Greater Philadelphia area. For more information on the company, access the Unisys home page on the World Wide Web at www.unisys.com. Investor information can be found at www.unisys.com/investor.
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. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future financial results are discussed more fully in the company's most recent Form 10-Q as filed with the Securities and Exchange Commission.
Unisys and ClearPath are registered trademarks of Unisys Corporation.
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per share data)
Three Months Year
Ended December 31 Ended December 31
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenue $2,048.8 $1,898.6 $7,208.4 $6,636.0
-------- -------- -------- --------
Costs and expenses
Cost of revenue 1,341.3 1,294.1 4,758.6 4,402.4
Selling, general and
administrative 357.7 416.6 1,343.0 1,427.2
Research and development 79.8 80.1 296.6 302.3
Goodwill impairment 883.6 883.6
-------- -------- -------- --------
1,778.8 2,674.4 6,398.2 7,015.5
-------- -------- -------- --------
Operating income (loss) 270.0 (775.8) 810.2 (379.5)
Interest expense 39.9 53.8 171.7 233.2
Other income (expense),
net (13.6) (107.1) (33.8) (146.1)
-------- -------- -------- --------
Income (loss) before
income taxes 216.5 (936.7) 604.7 (758.8)
Estimated income taxes 77.9 29.0 217.7 94.8
-------- -------- -------- --------
Net income (loss) 138.6 (965.7) 387.0 (853.6)
Dividends on preferred
shares 26.6 26.6 106.5 111.1
-------- -------- -------- --------
Earnings (loss) on
common shares $112.0 $(992.3) $280.5 $(964.7)
======== ======== ======== ========
Earnings (loss) per
common share
Basic $.44 $(4.75) $1.11 $(5.30)
======== ======== ======== ========
Diluted $.42 $(4.75) $1.06 $(5.30)
======== ======== ======== ========
Shares used in the per share
computations (thousands):
Basic 254,415 208,703 251,786 182,016
======== ======== ======== ========
Diluted 269,945 208,703 266,944 182,016
======== ======== ======== ========
UNISYS CORPORATION
SUPPLEMENTAL SCHEDULE - CONSOLIDATED STATEMENT OF INCOME
(EXCLUDES EFFECT OF ONE-TIME CHARGES)
(Millions, except per share data)
Three Months Year
Ended December 31 Ended December 31
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenue $2,048.8 $1,898.6 $7,208.4 $6,636.0
-------- -------- -------- --------
Costs and expenses
Cost of revenue 1,341.3 1,201.6 4,758.6 4,309.9
Selling, general and
administrative 357.7 404.3 1,343.0 1,414.9
Research and development 79.8 75.2 296.6 297.4
-------- -------- -------- --------
1,778.8 1,681.1 6,398.2 6,022.2
-------- -------- -------- --------
Operating income 270.0 217.5 810.2 613.8
Interest expense 39.9 53.8 171.7 233.2
Other income (expense), net (13.6) (25.8) (33.8) (64.8)
-------- -------- -------- --------
Income before income taxes 216.5 137.9 604.7 315.8
Estimated income taxes 77.9 51.0 217.7 116.8
-------- -------- -------- --------
Net income 138.6 86.9 387.0 199.0
Dividends on preferred
shares 26.6 26.6 106.5 111.1
-------- -------- -------- --------
Earnings on common shares $112.0 $60.3 $280.5 $87.9
======== ======== ======== ========
Diluted earnings per
common share $.42 $.25 $1.06 $.46
======== ======== ======== ========
Note: Excluding the effect of one-time charges in 1997, the company would
have been required to report its earnings per share on a diluted
basis as shown above.
UNISYS CORPORATION
SUPPLEMENTAL SUMMARY
(EXCLUDES EFFECTS OF ONE-TIME CHARGES)
(Millions)
Global
Elim- Info. Customer Computer
Total nations Services Services Systems
-------- -------- -------- -------- --------
Three Months
Ended
31Dec98
---------------
Cust. Rev. $2,048.8 $722.7 $625.8 $700.3
Intercompany $(148.5) 12.0 18.5 118.0
-------- -------- -------- -------- --------
Tot.
Revenue $2,048.8 $(148.5) $734.7 $644.3 $818.3
======== ======== ======== ======== ========
Gross Profit
Percent 34.5% 24.1% 24.0% 48.0%
======== ======== ======== ========
Operating
Income
Percent 13.2% 6.2% 9.3% 22.1%
======== ======== ======== ========
Three Months
Ended
31Dec97
---------------
Cust. Rev. $1,898.6 $627.8 $591.6 $679.2
Intercompany $(149.3) 7.7 16.5 125.1
-------- -------- -------- -------- --------
Tot.
Revenue $1,898.6 $(149.3) $635.5 $608.1 $804.3
======== ======== ======== ======== ========
Gross Profit
Percent 36.7% 24.8% 24.1% 48.1%
======== ======== ======== ========
Operating
Income
Percent 11.5% 2.7% 8.2% 17.9%
======== ======== ======== ========
Year
Ended
31Dec98
---------------
Cust. Rev. $7,208.4 $2,496.6 $2,329.6 $2,382.2
Intercompany $(532.1) 18.6 76.0 437.5
-------- -------- -------- -------- --------
Tot.
Revenue $7,208.4 $(532.1) $2,515.2 $2,405.6 $2,819.7
======== ======== ======== ======== ========
Gross Profit
Percent 34.0% 23.9% 24.4% 46.2%
======== ======== ======== ========
Operating
Income
Percent 11.2% 4.1% 9.3% 18.8%
======== ======== ======== ========
Year
Ended
31Dec97
---------------
Cust. Rev. $6,636.0 $2,056.0 $2,148.1 $2,431.9
Intercompany $(497.9) 19.4 64.7 413.8
-------- -------- -------- -------- --------
Tot.
Revenue $6,636.0 $(497.9) $2,075.4 $2,212.8 $2,845.7
======== ======== ======== ======== ========
Gross Profit
Percent 35.1% 20.8% 27.3% 45.5%
======== ======== ======== ========
Operating
Income
Percent 9.2% (2.9%) 9.6% 16.1%
======== ======== ======== |
