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Unisys reports strong earnings in 2003 and generates more than US$130 million of free cash flow

  • 21 January, 2004 17:02

<p>Please note, a full statement of income is available on request.</p>
<p>SYDNEY, 21 January 2004 - Unisys Corporation (NYSE: UIS) has reported a strong fourth quarter of 2003, meeting its earnings per share target for both the quarter and the year and generating US$134 million of free cash flow (cash from operations reduced by capital expenditures) in 2003.</p>
<p>For the fourth quarter of 2003, Unisys’ net income rose to US$111.5 million, or 33 US cents per diluted share, compared to fourth-quarter 2002 net income of US$89.1 million, or 27 US cents per share. The fourth-quarter 2003 results include a tax benefit of US$3.8 million, or 1 cent per share, from the positive resolution of a tax matter. Revenue for the fourth quarter of 2003 grew 5% to US$1.64 billion from revenue of US$1.55 billion in the year-ago period. Currency had a 6 percentage-point positive impact on the company's revenue in the fourth quarter, reflecting a weak US dollar against most major currencies worldwide.</p>
<p>For the full year of 2003, Unisys reported net income of US$258.7 million, or 78 US cents per diluted share, compared to full-year 2002 net income of US$223.0 million, or 69 US cents per share. Included in these results is the US$3.8 million tax benefit as noted above. Revenue for the full year of 2003 rose 5% to US$5.91 billion from US$5.61 billion for the full year of 2002. Revenue grew 1% on a constant currency basis in 2003. At 31 December 2003, the company had approximately US$9 billion of services backlog, which included US$2.6 billion of unfunded US government orders.</p>
<p>Included in the results for the fourth quarter and full year 2003 and 2002 is the impact of pension accounting. For the fourth quarter, pretax pension income declined from US$34.8 million in 2002 to US$0.2 million expense in 2003, a decrease of US$35 million. For the full year, pretax pension income decreased from US$143.5 million in 2002 to US$22.6 million in 2003, a decrease of US$121 million. Earnings per share excluding pension accounting increased from 39 US cents in 2002 to 73 US cents in 2003 and from 20 US cents in the fourth quarter of 2002 to 33 US cents in the fourth quarter of 2003.</p>
<p>"This was a very good year for Unisys, delivering consistent results in a volatile industry environment," said Unisys Chairman and CEO Lawrence A. Weinbach. "We significantly increased our operating cash flow, generated US$134 million in free cash flow, and met our earnings per share target for the year. Our earnings per share in 2003 increased 13% on a reported basis and 87% after eliminating the impact of pension accounting in both 2003 and 2002. We also continued to enhance our value-added strategy with new services and product offerings."</p>
<p>Weinbach said that in 2003 Unisys met each of its strategic objectives for the year. These accomplishments included:</p>
<p>* double-digit growth in business process outsourcing;
* double-digit growth in enterprise security revenue with a growing base of security clients;
* a 110-basis point improvement in services operating margins, excluding the impact of pension accounting;
* double-digit growth in ES7000 server sales;
* a reduction in selling, general and administrative (SG&amp;A) expenses as a percentage of revenue from 17.7% in 2002 to 17.0% in 2003.</p>
<p>"The talent, commitment, dedication, and teamwork of our more than 37,000 employees worldwide enabled us to achieve these outstanding results in 2003," Weinbach said.</p>
<p>Fourth-quarter company highlights
US revenue grew 3% to US$741 million, driven by continued growth in the company's US Federal government business. Revenue in international markets increased 7% to US$897 million.</p>
<p>Due to a decline in outsourcing orders, services orders declined in the fourth quarter. Services orders, excluding outsourcing, showed double-digit growth in the fourth quarter. The timing of outsourcing deal closures can vary significantly from quarter to quarter because of the large size and extended closing process. Although outsourcing orders declined from a strong year-ago period, the company's pipeline of large deals remains strong.</p>
<p>The company's margins continued to improve in 2003 excluding the impact of pension accounting. On a reported basis Unisys reported an overall fourth-quarter 2003 gross profit margin of 31.2% compared to 31.7% in the year-ago period, and a fourth-quarter operating profit margin of 9.7% in both years. Excluding the impact of pension accounting in both years, fourth-quarter gross profit margins improved 90 basis points over the prior year to 31.5%, while fourth-quarter operating margins improved 220 basis points to 9.7%.</p>
<p>SG&amp;A expenses as a percentage of revenue declined to 16.5% in the fourth quarter of 2003 compared to 16.7% of revenue in the year-ago quarter.</p>
<p>Fourth-quarter business segment highlights
Customer revenue in the company’s services segment grew 10% in the fourth quarter, driven by strong growth in outsourcing and systems integration and consulting. On a reported basis, gross profit margins in the services business declined slightly from year-ago levels to 22.1%, while services operating margins improved slightly from a year ago to 7.2%. Excluding the impact of pension accounting in both years, services gross profit margins improved to 22.6% in the fourth quarter of 2003 compared to 21.3% in the year-ago period, while services operating margins increased to 7.5% in the fourth quarter of 2003 from 5.3% in the year-ago quarter.</p>
<p>Customer revenue in the company’s technology segment declined 9% in the fourth quarter, primarily driven by declines in specialised equipment sales. On a reported basis, gross margins in the technology business increased 2 percentage points from year-ago levels to 51.6%, while technology operating margins declined 1 percentage point from a year ago to 14.6%. Excluding the impact of pension accounting in both years, technology gross margins improved to 51.4% in the fourth quarter of 2003 compared to 49.2% in the year-ago quarter, while technology operating margins increased to 13.6% in the fourth quarter of 2003 compared to 12.9% in the year-ago period.</p>
<p>Cash flow highlights
Unisys generated US$367 million of cash flow from operations in the fourth quarter. Capital expenditures in the fourth quarter of 2003 were US$108 million, including US$79 million invested in revenue-generating projects.</p>
<p>For the full year of 2003, Unisys generated US$529 million of cash flow from operations. Capital expenditures were US$395 million, including US$286 million invested in revenue-generating projects. After deducting capital expenditures, Unisys generated US$134 million of free cash flow and ended 2003 with US$636 million of cash on hand.</p>
<p>Pension plans and accounting
Unisys assumed an 8.75% expected long-term rate of return and a 6.75% discount rate for its US pension plan in 2003. The company's US pension plan assets returned 25% in 2003. For its US pension plan in 2004, Unisys will again assume an 8.75% expected long-term rate of return. However, given the current interest rate environment, the US discount rate will be reduced to 6.25%. Based on these and other assumptions, the company expects approximately US$85 million of pretax pension expense in 2004 compared to pretax pension income of US$22.6 million in 2003. The company paid approximately US$63 million into its pension plans in 2003 and expects cash contributions of about US$66 million in 2004. No cash payments were made in 2003 or are required in 2004 for the company's US qualified defined benefit pension plan.</p>
<p>Business outlook
"We look for continued strong progress in 2004 as the market continues to improve," Weinbach said. "We have five strategic objectives for the new year: to continue double-digit growth in our annuity-based outsourcing business; to drive continued growth in our services operating margin; to accelerate growth in enterprise security; to achieve double-digit growth in our ES7000 server sales; and to continue enhancing market brand awareness of Unisys. Financially, we continue to look for mid single-digit revenue growth in 2004, with earnings per share, excluding the impact of pension accounting, of about 83 - 87 US cents. In the first quarter of 2004, we expect earnings per share of about 11 - 13 US cents, excluding the impact of pension accounting, on single-digit revenue growth."</p>
<p>Conference call replay
Unisys held a conference call today at 8:15 a.m. Eastern Time to discuss its results. An audio replay of the call, as well as the accompanying presentation materials, can be accessed via a link on the Unisys Investor Web site at <http:>.</http:></p>
<p>About Unisys
Unisys is a worldwide information technology services and solutions company. Our people combine expertise in systems integration, outsourcing, infrastructure, server technology and consulting with precision thinking and relentless execution to help clients, in more than 100 countries, quickly and efficiently achieve competitive advantage. For more information, visit &gt;.</p>
<p>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 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 regarding the company’s financial outlook are based in part on the company’s assumptions for the economy. 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 continue to accelerate growth in outsourcing and infrastructure services, the company’s ability to drive profitable growth in systems integration and consulting, the degree of market acceptance of the company’s high-end enterprise servers, the company’s ability to maintain tight cost controls, 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.</p>
<p>Presentation of information in this press release
This release presents information that excludes pension income and also provides disclosure of free cash flow. These financial measures are considered non-GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows where amounts are either excluded or included not in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, as well as disclosure of the reasons why the company uses these measures, is included in the financial information accompanying this release.</p>
RELEASE NO: 01208372 (See accompanying financial information)</p>
<p>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.</p>
<p>For more information, please contact:</p>
<p>Alan Smith
Tel: (02) 9931 6637
Email: <alan.smith></alan.smith></p>
<p>Edwina Priest
Porter Novelli
Tel: (02) 9463 7600
Email: <epriest></epriest></p>

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