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Unisys Announces Second-Quarter 2014 Financial Results

Companies mentioned in this article: Unisys Corporation

BLUE BELL, Pa., July 22, 2014 /PRNewswire/ -- Unisys Corporation (NYSE: UIS) today reported a second-quarter 2014 net loss of $12.1 million, or a loss of 24 cents per diluted share, which included $17.9 million of pension expense. In the second quarter of 2013, the company reported net income of $20.4 million, or 46 cents per diluted share, which included $21.9 million of pension expense. Excluding pension expense in both periods, non-GAAP earnings per diluted share((1)) in the second quarter of 2014 was 11 cents compared with 91 cents in the second quarter of 2013.

Second-quarter 2014 revenue declined 6 percent to $806 million from $859 million in the year-ago quarter. Foreign currency translations had a one percentage-point positive impact on year-over-year revenue comparisons in the quarter. On a sequential basis, second-quarter 2014 revenue was up 6 percent from $762 million in the first quarter of 2014.

"Our second-quarter 2014 results were impacted by lower sales of our flagship ClearPath family of enterprise software and servers, which can vary significantly from quarter to quarter based on the timing of client transactions," said Unisys Chairman and CEO Ed Coleman. "However, we were pleased to see sequential improvement in results over the first quarter of 2014 and we look for a strong second half of 2014 in our technology business driven by sales of ClearPath as well as increased traction in our Stealth cybersecurity and Forward! server products.

"In our services business, we saw strong order growth in the quarter and were pleased by recent wins such as a significant contract with the Commonwealth of Pennsylvania to deliver one of the largest secure, cloud-based, on-demand IT computing implementations by a U.S. state government," Coleman said. "This contract is one more example of Unisys providing innovative, modern mission-critical solutions in the marketplace."

Second-Quarter Company and Business Segment Highlights
Second-quarter 2014 North America revenue declined 10 percent while international revenue declined 3 percent from the second quarter of 2013. On a constant currency((2)) basis, international revenue declined 4 percent compared with the second quarter of 2013 as declines in Asia-Pacific offset growth in Europe and Latin America.

On lower revenue, second-quarter 2014 gross profit margin declined to 20.5 percent from 23.4 percent in the second quarter of 2013. Operating expenses (SG&A and R&D expenses) decreased 8 percent from the year-ago period. The company reported a second-quarter 2014 operating profit of $15.8 million, or 2.0 percent of revenue, compared with an operating profit of $38.0 million, or 4.4 percent of revenue, in the second quarter of 2013.

Second-quarter 2014 services revenue declined 4 percent from the second quarter of 2013 as growth in outsourcing and core maintenance was more than offset by declines in systems integration and infrastructure services. Reflecting the lower services revenue, second-quarter 2014 services gross profit margin declined to 16.8 percent from 18.2 percent a year ago. On reduced operating expenses, services operating profit margin was consistent year-over-year at 4.0 percent.

Second-quarter 2014 services orders showed substantial gains both sequentially and from year-ago levels driven by growth in outsourcing orders. Services backlog at June 30, 2014 was $4.7 billion, down 2 percent from December 31, 2013 levels.

Second-quarter 2014 technology revenue declined 21 percent from the second quarter of 2013 driven primarily by lower sales of ClearPath enterprise servers and software. Reflecting the lower ClearPath sales, second-quarter 2014 technology gross profit margin declined to 50.2 percent compared with 59.4 percent in the year-ago quarter and technology operating profit margin declined to 1.9 percent compared with 23.9 percent in the year-ago quarter.

Cash Flow and Balance Sheet Highlights
Unisys generated $3 million of cash from operations in the second quarter of 2014, including $48 million of pension contributions. In the second quarter of 2013, the company generated $16 million of cash from operations, which included $35 million of pension contributions. Capital expenditures in the second quarter of 2014 were $45 million compared with $38 million in the year-ago quarter. After capital expenditures, the company used $42 million of free cash((3)) compared with $22 million of free cash usage in the second quarter of 2013. Free cash flow before pension contributions was $6 million in the second quarter of 2014 compared with $13 million in the year-ago quarter.

During the second quarter of 2014 the company returned $13.1 million to shareholders through the repurchase of common shares. Overall, through June 30, 2014 the company has repurchased a total of $25.7 million of common shares under a $50 million share repurchase authorization that expires on December 31, 2014.

At June 30, 2014, the company reported a cash balance of $574 million and total debt of $210 million.

Non-GAAP Information
Unisys reports its results in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. However, in an effort to provide investors with additional perspective regarding the company's results as determined by GAAP, the company also discusses, in its earnings press release and/or earnings presentation materials, non-GAAP information which management believes provides useful information to investors. Our management uses supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and assess operational alternatives. These non-GAAP measures may include non-GAAP earnings per diluted share, free cash flow, free cash flow before pension contributions, and constant currency.

Our non-GAAP measures are not intended to be considered in isolation or as substitutes for results determined in accordance with GAAP and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. (See GAAP to non-GAAP reconciliations attached.)

((1) )Non-GAAP earnings per diluted share - The company recorded pension expense of $17.9 million and $21.9 million during the second quarters of 2014 and 2013, respectively. In an effort to provide investors with a perspective on the company's earnings without these expenses, they are excluded from the non-GAAP earnings per diluted share calculations.

( (2)) Constant currency - The company refers to growth rates at constant currency or adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates to facilitate comparisons of the company's business performance from one period to another. Constant currency for revenue is calculated by retranslating current and prior period results at a consistent rate. This approach is based on the pricing currency for each country which is typically the functional currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates will be higher or lower, respectively, than growth reported at actual exchange rates.

( (3)) Free cash flow - To better understand the trends in our business, we believe that it is helpful to present free cash flow, which we define as cash flow from operations less capital expenditures. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. Because of the significance of the company's pension funding obligations, free cash flow before pension funding is also provided.

Conference Call
Unisys will hold a conference call today at 5:30 p.m. Eastern Time to discuss its results. The listen-only Webcast, as well as the accompanying presentation materials, can be accessed 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.

About Unisys
Unisys is a worldwide information technology company. We provide a portfolio of IT services, software, and technology that solves critical problems for clients. We specialize in helping clients secure their operations, increase the efficiency and utilization of their data centers, enhance support to their end users and constituents, and modernize their enterprise applications. To provide these services and solutions, we bring together offerings and capabilities in outsourcing services, systems integration and consulting services, infrastructure services, maintenance services, and high-end server technology. With approximately 23,000 employees, Unisys serves commercial organizations and government agencies throughout the world. For more information, visit www.unisys.com.

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. Risks and uncertainties that could affect the company's future results include the company's ability to drive profitable growth in consulting and systems integration; the company's ability to take on, successfully implement and grow outsourcing operations; market demand for the company's high-end enterprise servers and maintenance on those servers; the potential adverse effects of aggressive competition in the information services and technology marketplace; the company's ability to retain significant clients; the company's ability to effectively anticipate and respond to volatility and rapid technological change in its industry; the adverse effects of global economic conditions; the company's significant pension obligations and potential requirements to make significant cash contributions to its defined benefit pension plans; the success of the company's program to reduce costs, focus its global resources and simplify its business structure; the risks 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 subject it 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 risk that breaches of data security could expose the company to legal liability and could harm its business and reputation; the performance and capabilities of third parties with whom the company has commercial relationships; the risks of doing business internationally when more than half of the company's revenue is derived from international operations; the company's ability to access capital and credit markets to address its liquidity needs; the potential for intellectual property infringement claims to be asserted against the company or its clients; the possibility that pending litigation could affect the company's results of operations or cash flow; the business and financial risk in implementing future dispositions or acquisitions; and the company's consideration of all available information following the end of the quarter and before the filing of the Form 10-Q and the possible impact of this subsequent event information on its financial statements for the reporting period. Additional discussion of factors that could affect the company's future results is contained in its periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

RELEASE NO.: 0722/9267

Unisys is a registered trademark of Unisys Corporation. Any other brand or product referenced herein is acknowledged to be a trademark or registered trademark of its respective holders.

                                                                       UNISYS CORPORATION

                                                               CONSOLIDATED STATEMENTS OF INCOME

                                                                          (Unaudited)

                                                               (Millions, except per share data)


                                                                                                   Three Months                 Six Months

                                                                                                 Ended June 30           Ended June 30
                                                                                                 -------------           -------------

                                                                                                    2014           2013                    2014        2013
                                                                                                    ----           ----                    ----        ----

    Revenue

      Services                                                                                   $712.9         $739.7                $1,403.8    $1,462.7

      Technology                                                                                   93.5          118.9                   164.3       205.8
                                                                                                   ----          -----                   -----       -----

                                                                                                   806.4          858.6                 1,568.1     1,668.5

    Costs and expenses

      Cost of revenue:

        Services                                                                                  600.2          614.0                 1,192.4     1,216.8

        Technology                                                                                 41.0           43.9                    77.5        90.2
                                                                                                   ----           ----                    ----        ----

                                                                                                   641.2          657.9                 1,269.9     1,307.0

    Selling, general and administrative                                                           133.6          144.9                   272.1       287.1

    Research and development                                                                       15.8           17.8                    30.2        34.8

                                                                                                   790.6          820.6                 1,572.2     1,628.9
                                                                                                   -----          -----                 -------     -------

    Operating profit (loss)                                                                        15.8           38.0                   (4.1)       39.6


    Interest expense                                                                                2.3            2.6                     4.3         5.3

    Other income (expense), net                                                                   (2.5)          14.1                  (12.3)        9.2
                                                                                                   ----           ----                   -----         ---

    Income (loss)  before income taxes                                                             11.0           49.5                  (20.7)       43.5


    Provision for income taxes                                                                     19.9           22.7                    35.9        44.1
                                                                                                   ----           ----                    ----        ----

    Consolidated net income (loss)                                                                (8.9)          26.8                  (56.6)      (0.6)

    Net income attributable to

                                                           noncontrolling interests                    3.2            2.3                     6.3         4.8


    Net Income (loss) attributable to Unisys

                                                           Corporation                              (12.1)          24.5                  (62.9)      (5.4)


    Preferred stock dividend                                                                   -       4.1            2.7                     8.1
                                                                                             ---       ---            ---                     ---

    Net income (loss) attributable to Unisys

                                                           Corporation common shareholders         ($12.1)         $20.4                 ($65.6)    ($13.5)



    Earnings (loss) per common share

                                                           attributable to Unisys Corporation

                                                             Basic                                  ($.24)          $.47                 ($1.35)     ($.31)


                                                             Diluted                                ($.24)          $.46                 ($1.35)     ($.31)



    Shares used in the per share computations (thousands):

      Basic                                                                                      50,843         43,780                  48,593      43,918

      Diluted                                                                                    50,843         44,195                  48,593      43,918

                                       UNISYS CORPORATION

                                        SEGMENT RESULTS

                                          (Unaudited)

                                           (Millions)


                        Total          Eliminations              Services           Technology
                       -----           ------------             --------            ----------

    Three Months Ended

    June 30, 2014
    -------------

    Customer revenue            $806.4                                      $712.9                $93.5

    Intersegment                                     ($13.8)                0.1                 13.7

    Total revenue               $806.4                  ($13.8)             $713.0               $107.2
                                ======                   ======              ======               ======


    Gross profit
     percent                     20.5%                                      16.8%               50.2%
                                  ====                                        ====                 ====

    Operating profit
     percent                      2.0%                                       4.0%                1.9%
                                   ===                                         ===                  ===


    Three Months Ended

    June 30, 2013
    -------------

    Customer revenue            $858.6                                      $739.7               $118.9

    Intersegment                                     ($16.9)                0.4                 16.5

    Total revenue               $858.6                  ($16.9)             $740.1               $135.4
                                ======                   ======              ======               ======


    Gross profit
     percent                     23.4%                                      18.2%               59.4%
                                  ====                                        ====                 ====

    Operating profit
     percent                      4.4%                                       4.0%               23.9%
                                   ===                                         ===                 ====


    Six Months Ended

    June 30, 2014
    -------------

    Customer revenue          $1,568.1                                    $1,403.8               $164.3

    Intersegment                                     ($23.4)                0.3                 23.1

    Total revenue             $1,568.1                  ($23.4)           $1,404.1               $187.4
                              ========                   ======            ========               ======


    Gross profit
     percent                     19.0%                                      16.3%               46.9%
                                  ====                                        ====                 ====

    Operating profit
     (loss) percent             (0.3%)                                       3.0%              (8.0%)
                                 =====                                         ===                =====


    Six Months Ended

    June 30, 2013
    -------------

    Customer revenue          $1,668.5                                    $1,462.7               $205.8

    Intersegment                                     ($34.2)                0.9                 33.3

    Total revenue             $1,668.5                  ($34.2)           $1,463.6               $239.1
                              ========                   ======            ========               ======


    Gross profit
     percent                     21.7%                                      17.8%               53.5%
                                  ====                                        ====                 ====

    Operating profit
     percent                      2.4%                                       3.5%               13.6%
                                   ===                                         ===                 ====

                                       UNISYS CORPORATION

                                  CONSOLIDATED BALANCE SHEETS

                                          (Unaudited)

                                           (Millions)


                                               June 30,       December 31,

                                                                   2014        2013
                                                                   ----        ----

    Assets

    Current assets

    Cash and cash equivalents                                    $574.2      $639.8

    Accounts and notes receivable,
     net                                                          515.7       683.1

    Inventories

                                       Parts and finished
                                        equipment                     27.2        32.8

                                       Work in process and
                                        materials                     22.5        22.3

    Deferred income taxes                                          17.8        24.1

    Prepaid expense and other
     current assets                                               144.3       138.7

    Total                                                       1,301.7     1,540.8
                                                                -------     -------


    Properties                                                  1,136.5     1,095.5

    Less accumulated depreciation
     and amortization                                             956.9       920.8

    Properties, net                                               179.6       174.7
                                                                  -----       -----

    Outsourcing assets, net                                       107.2       115.5

    Marketable software, net                                      142.3       129.1

    Prepaid postretirement assets                                 120.5        83.7

    Deferred income taxes                                         121.6       112.3

    Goodwill                                                      190.1       188.7

    Other long-term assets                                        173.1       165.2

    Total                                                      $2,336.1    $2,510.0
                                                               ========    ========


    Liabilities and deficit

    Current liabilities

    Notes payable                                                  $0.1        $0.0

    Accounts payable                                              223.1       246.7

    Deferred revenue                                              351.9       402.4

    Other accrued liabilities                                     356.9       375.7

    Total                                                         932.0     1,024.8
                                                                  -----     -------


    Long-term debt                                                210.0       210.0

    Long-term postretirement
     liabilities                                                1,599.6     1,697.2

    Long-term deferred revenue                                    114.1       122.7

    Other long-term liabilities                                   108.9       119.2

    Commitments and contingencies

    Total deficit                                               (628.5)    (663.9)

    Total                                                      $2,336.1    $2,510.0
                                                               ========    ========

                                                    UNISYS CORPORATION

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        (Unaudited)

                                                        (Millions)


                                                                Six Months Ended

                                                                  June 30
                                                                 -------

                                                                             2014    2013 *
                                                                             ----    -----

    Cash flows from
     operating
     activities

    Consolidated net
     loss                                                                 ($56.6)           ($0.6)

    Add (deduct) items
     to reconcile
     consolidated net

                 loss to net cash provided by
                 operating activities:

    Foreign currency
     transaction loss                                                         6.3               6.5

    Employee stock
     compensation                                                             9.3               8.9

    Depreciation and
     amortization of
     properties                                                              25.0              23.7

    Depreciation and
     amortization of
     outsourcing
     assets                                                                  29.1              25.5

    Amortization of
     marketable
     software                                                                27.0              31.0

    Disposals of
     capital assets                                                           0.4               0.2

    Gain on sale of
     business                                                               (0.7)                -

    Pension
     contributions                                                        (103.1)           (61.3)

    Pension expense                                                          37.4              46.0

    Decrease in
     deferred income
     taxes, net                                                              10.5              18.7

    Decrease in
     receivables, net                                                       170.6              33.3

    Decrease in
     inventories                                                              5.8               1.0

    Decrease in
     accounts payable
     and other accrued
     liabilities                                                          (111.9)           (83.5)

    Decrease  in other
     liabilities                                                           (28.6)           (11.0)

    Decrease
     (increase) in
     other assets                                                             2.1             (8.7)

    Other                                                                     0.8               0.5

    Net cash provided
     by operating
     activities                                                              23.4              30.2
                                                                             ----              ----


    Cash flows from
     investing
     activities

                Proceeds from investments                                    2,909.1           2,450.2

                Purchases of investments                                   (2,899.0)        (2,452.9)

                 Investment in marketable
                 software                                                     (40.3)           (29.6)

                 Capital additions of
                 properties                                                   (29.0)           (16.2)

                 Capital additions of
                 outsourcing assets                                           (20.1)           (18.3)

                Other                                                            1.6             (0.6)

    Net cash used for
     investing
     activities                                                            (77.7)           (67.4)
                                                                            -----             -----


    Cash flows from
     financing
     activities

                Purchases of common stock                                     (14.0)           (11.5)

                 Dividends paid on preferred
                 shares                                                        (4.0)            (8.1)

                 Proceeds from exercise of
                 stock options                                                   2.8               1.2

                 Net proceeds from short-term
                 borrowings                                                      0.1               0.2

    Net cash used for
     financing
     activities                                                            (15.1)           (18.2)
                                                                            -----             -----


    Effect of exchange
     rate changes on
     cash and cash
     equivalents                                                              3.8            (24.6)
                                                                              ---             -----


    Decrease in cash
     and cash
     equivalents                                                           (65.6)           (80.0)

    Cash and cash
     equivalents,
     beginning of
     period                                                                 639.8             655.6

    Cash and cash
     equivalents, end
     of period                                                             $574.2            $575.6
                                                                           ======            ======


    *            Certain components of net cash provided
                 by operating activities were changed
                 to present pension

                 expense separately, consistent with the
                 2014 presentation.

                                                                       ( 1 )

                                                                 UNISYS CORPORATION

                                           RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

                                                                    (Unaudited)

                                                         (Millions, except per share data)


                                                                                                  Three Months            Six Months

                                                                                                  Ended June 30          Ended June 30
                                                                                                  -------------          -------------

                                                                                                     2014          2013                   2014          2013
                                                                                                     ----          ----                   ----          ----

    GAAP net income (loss)

      attributable to Unisys
       Corporation

      common shareholders                                                                        ($12.1)        $20.4                ($65.6)      ($13.5)


    Pension expense, net of tax                                                                     17.9          21.9                   37.2          44.2
                                                                                                    ----          ----                   ----          ----


    Non-GAAP net income (loss)

      attributable to Unisys
       Corporation

      common shareholders                                                                            5.8          42.3                 (28.4)         30.7


    Add preferred stock dividend                                                                     0.0           4.1                    0.0           8.1
                                                                                                     ---           ---                    ---           ---


    Non-GAAP net income (loss)

      attributable to Unisys
       Corporation

      for diluted earnings per share                                                                $5.8         $46.4                ($28.4)        $38.8
                                                                                                    ====         =====                 ======         =====


    Weighted average shares
     (thousands)                                                                                  50,843        43,780                 48,593        43,918


    Plus incremental shares from assumed conversion:

                                                        Employee stock plans                            260           415                      0           449

                                                        Preferred stock                                   0         6,913                      0             0



    GAAP adjusted weighted average
     shares                                                                                       51,103        51,108                 48,593        44,367
                                                                                                  ======        ======                 ======        ======



    Diluted earnings (loss) per
     share


    GAAP basis
    ----------

    GAAP net income (loss)

      attributable to Unisys
       Corporation

      for diluted earnings per share                                                             ($12.1)        $20.4                ($65.6)      ($13.5)


    Divided by adjusted weighted
     average shares                                                                               50,843        44,195                 48,593        43,918


    GAAP earnings (loss) per
     diluted share                                                             ($.24)                  $.46       ($1.35)                ($.31)
                                                                                =====                   ====        ======                  =====


    Non-GAAP basis
    --------------

    Non-GAAP net income (loss)

      attributable to Unisys
       Corporation

      for diluted earnings per share                                                                $5.8         $46.4                ($28.4)        $30.7


    Divided by Non-GAAP adjusted
     weighted average shares                                                                      51,103        51,108                 48,593        44,367


    Non-GAAP earnings (loss) per
     diluted share                                                               $.11                   $.91        ($.58)                  $.69
                                                                                 ====                   ====         =====                   ====

                                                   ( 2 )

                                                 UNISYS CORPORATION

                                         RECONCILIATION OF GAAP TO NON-GAAP

                                                     (Unaudited)

                                                     (Millions)


    FREE CASH FLOW
    --------------


                            Three Months                      Six Months

                            Ended June 30                    Ended June 30
                            -------------                    -------------

                                        2014                              2013       2014        2013
                                        ----                              ----       ----        ----

    Cash provided by
     operations                       $3.3                             $16.1      $23.4       $30.2

    Additions to marketable
     software                       (19.6)                           (14.8)    (40.3)     (29.6)

    Additions to properties         (13.8)                           (12.6)    (29.0)     (16.2)

    Additions to
     outsourcing assets             (11.4)                           (10.8)    (20.1)     (18.3)
                                     -----                             -----      -----       -----

    Free cash flow                  (41.5)                           (22.1)    (66.0)     (33.9)

    Pension funding                   47.6                              34.7      103.1        61.3
                                      ----                                       -----

    Free cash flow before
     pension funding                  $6.1                             $12.6      $37.1       $27.4
                                      ====                             =====      =====       =====

SOURCE Unisys Corporation