Unisys Corp. 10-Q Summary: Period Ended September 30, 2001
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Unisys Corporation for the period ended September 30, 2001. The company operates in the information technology services and technology hardware sectors. Management notes a challenging economic environment compounded by the events of September 11, 2001, which caused customers in airlines, travel, financial services, and communications to delay IT decisions.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 |
|---|---|---|
| Revenue | $1,376.0 million | $4,461.2 million |
| Net Income | $20.9 million | $102.3 million |
| Operating Income | $43.8 million | $195.9 million |
| Operating Margin | 3.2% | 4.4% |
| Gross Profit Margin | 27.6% | 27.0% |
| Cash and Equivalents | $219.7 million (Balance Sheet) | N/A |
| Net Cash Used in Operating Activities | N/A | ($64.7) million |
| Total Debt | $894.6 million (Current + Long-term) | N/A |
| Earnings Per Share (Diluted) | $0.07 | $0.32 |
Material Changes vs. Prior Period
- Revenue Decline: Revenue for the three months ended September 30, 2001, decreased 19% to $1.38 billion compared to $1.69 billion in the prior year. On a constant currency basis, the decline was 15%. Compared to pro forma revenue (excluding low-margin commodity hardware), revenue decreased 6%.
- Profitability: Net income dropped 51% to $20.9 million from $42.9 million in the prior year quarter. Operating income fell 43% to $43.8 million from $77.1 million.
- Segment Performance:
- Services: Customer revenue declined 12% to $1.05 billion, driven by lower proprietary maintenance and commodity product sales. Operating margin improved to 2.2% from 1.5% due to expense controls.
- Technology: Customer revenue plummeted 34% to $325 million due to declines in enterprise server revenue. However, gross profit margin improved to 42.1% from 38.9% due to a lower mix of low-margin commodity hardware.
- Cash Flow: Net cash used for operating activities was $64.7 million for the nine months ended September 30, 2001, an improvement from $72.7 million used in the prior year period, largely due to better working capital management.
Guidance, Outlook, and Risks
- Restructuring Charge: Management expects to take an estimated pre-tax charge of $200 million in the fourth quarter of 2001. This covers a workforce reduction of approximately 3,000 people and other cost-reduction actions, including early retirement incentives.
- Debt Management: The company issued $400 million in senior notes in 2001 and completed a tender offer for $319.2 million of older notes, resulting in a $17.2 million extraordinary charge in the second quarter. Total debt increased to $894.6 million.
- Accounting Changes: The company adopted SFAS No. 133 regarding derivatives. It anticipates adopting SFAS No. 142 (Goodwill) in 2002, which will eliminate the annual amortization of goodwill (approx. $17 million yearly) but requires annual impairment testing.
- Risks: Key risks include the global economic uncertainty, the impact of the September 11 attacks on demand, foreign currency fluctuations (57% of revenue is international), and the ability to successfully shift the technology business to higher-growth standards-based servers.
Investor Verification Checklist
- Verify the magnitude and timing of the anticipated $200 million fourth-quarter restructuring charge and its impact on full-year 2001 earnings.
- Monitor the execution of the 3,000-person workforce reduction and associated cost savings.
- Assess the impact of the September 11 events on the backlog of systems integration projects and high-end server demand.
- Review the company's ability to realize its $1.3 billion in net deferred tax assets, which requires approximately $3.0 billion in future taxable income.
- Track the transition of the Technology segment away from commodity hardware and toward higher-margin CMP-based servers.