Unisys Announces Third-Quarter 2008 Financial Results

BLUE BELL, Pa. – Unisys Corporation (NYSE: UIS) today reported a net loss of $34.7 million, or 10 cents a share, on revenue of $1.31 billion for the third quarter of 2008. In the year-ago quarter, the company reported a net loss of $31.0 million, or 9 cents a share, on revenue of $1.39 billion. The third-quarter 2008 results include $3.7 million of pretax retirement-related income compared with $22.8 million of pretax retirement-related expense in the third quarter of 2007. Foreign currency exchange rates had an approximately 2 percentage-point favorable impact on revenue in the current quarter.

“We saw an impact on third-quarter demand from economic uncertainties in our key commercial markets, particularly in financial services,” said Unisys Chief Financial Officer Janet Haugen. “Clients reacted to tight credit conditions by reducing IT spending. We also saw a slowdown in our federal business due to slower government spending. However, we saw growth in our non-federal public sector business and strong sales of our ClearPath family of enterprise servers. We also generated free cash flow in the quarter – a key focus for the company. But we expect the environment to remain tough and we will reduce spending as we work through this challenging economic period.”

Unisys said the company continues to evaluate actions to unlock value in the business and drive shareholder value. Ed Coleman, who joined Unisys as chairman and CEO on October 7, is in the process of reviewing the company’s strategy, businesses and operations with the goal of building on Unisys strengths and creating a profitable, growing market leader in targeted areas of the IT industry.

“Although I’ve just recently joined Unisys, I believe there is significant unrealized value in this company,” Coleman said. “In speaking with our employees, I am extremely impressed with their skills, dedication, and commitment to clients. As I speak with clients and other stakeholders, I’m convinced that Unisys has tremendous assets to build on, including a great client base and strong capabilities in key segments of the IT industry. We need to better concentrate those assets and drive profitable growth by providing superior client service and solutions. That is my focus and priority. I look forward to working with the Unisys team to realize the potential of this company for the benefit of all stakeholders.”

Revenue in the United States declined 8 percent in the quarter to $560 million. Revenue in international markets declined 4 percent to $752 million. On a constant currency basis, international revenue declined 9 percent in the quarter.

The company reported an overall gross profit margin of 22.2 percent and operating profit margin of 2.9 percent in the third quarter of 2008. These compared to a gross margin of 22.2 percent and operating profit margin of 3.1 percent in the third quarter of 2007.

Third-Quarter Business Segment Results

Customer revenue in the company’s services segment declined 5 percent in the third quarter of 2008 compared with the year-ago period. Gross profit margin in the services business was 17.6 percent compared with 17.7 percent a year ago while services operating margin declined to 3.1 percent compared with 3.6 percent a year ago.

Services orders showed double-digit declines in the third quarter. Services order backlog at September 30, 2008 was $6.50 billion, down 9 percent from $7.17 billion at June 30, 2008, primarily reflecting changes in foreign currency rates.

Customer revenue in the company’s technology segment declined 9 percent from the third quarter of 2007. Excluding $18.8 million of quarterly royalty revenue in the year-ago period from a recently ended intellectual property agreement with Nihon Unisys Limited (NUL), technology customer revenue grew about 2 percent in the quarter. Double-digit growth in ClearPath mainframe revenue offset revenue declines in specialized technology. Gross profit margin in the technology business increased to 47.5 percent compared with 44.6 percent a year ago, while technology operating margin increased to 11.0 percent compared with 4.0 percent in the third quarter of 2007.

Cash Flow and Balance Sheet Highlights

Unisys generated $114 million of cash from operations in the third quarter of 2008 compared with $7 million of cash flow from operations in the year-ago quarter. The company used approximately $6 million of cash in the third quarter of 2008 for restructuring payments compared to approximately $37 million in the year-ago period.

Capital expenditures in the third quarter of 2008 were $78 million compared to $71 million in the year-ago quarter. After deducting for capital expenditures, Unisys generated $36 million of free cash in the quarter compared with free cash usage of $64 million in the third quarter of 2007.

Conference Call

Unisys will hold a conference call today at 8:15 a.m. Eastern Time 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.

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 general economic and business conditions; the company’s ability to successfully implement its repositioning strategy; 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 retain significant clients; the company’s ability to grow outsourcing and its ability to effectively and timely complete the related solutions implementations, client transitions to the new environment and work force and facilities rationalizations; the company’s ability to continue to effectively address its challenging outsourcing operations through negotiations or operationally and to fully recover the associated outsourcing assets; the company’s ability to drive profitable growth in consulting and systems integration; the level of demand for the company’s high-end enterprise servers and maintenance on those servers; the risk 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 be subject 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 performance and capabilities of third parties with whom the company has commercial relationships; the risks of doing business internationally; the potential business and financial risk in implementing future acquisitions or dispositions; the potential for infringement claims to be asserted against the company or its clients and the possibility that pending litigation could affect the company’s results of operations or cash flow. 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.