Unisys Corp. 10-Q Summary: Period Ended June 30, 1998
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Unisys Corporation for the period ended June 30, 1998. Unisys operates in the information technology industry, providing computer systems, information services, and global customer services. The company is headquartered in Blue Bell, Pennsylvania, and reported 254,321,522 shares of common stock outstanding as of the period end.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1998 | Six Months Ended June 30, 1998 |
|---|---|---|
| Revenue | $1,728.5 million | $3,378.2 million |
| Net Income | $90.1 million | $152.8 million |
| Earnings Per Share (Diluted) | $0.24 | $0.38 |
| Operating Income | $184.3 million | $340.4 million |
| Operating Margin | 10.7% | 10.1% |
| Gross Profit Margin | 33.7% | 33.8% |
| Cash from Operations | N/A | $226.6 million |
| Total Debt | $1.5 billion (as of June 30, 1998) | N/A |
| Cash and Equivalents | $711.7 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 9% year-over-year for the quarter ($1.73B vs. $1.59B) and 8% for the six-month period ($3.38B vs. $3.12B). Excluding foreign currency impacts, quarterly revenue rose 12%.
- Profitability Surge: Net income for the quarter more than doubled to $90.1 million from $41.9 million in the prior year. Six-month net income rose to $152.8 million from $61.2 million.
- EPS Improvement: Diluted earnings per share increased to $0.24 for the quarter and $0.38 for the six months, compared to $0.08 and $0.02 respectively in 1997.
- Cash Flow Turnaround: Operating cash flow improved significantly to $226.6 million for the six months ended June 30, 1998, reversing a cash usage of $176.3 million in the same period of 1997. This was driven by higher net income and improved working capital management.
- Debt Reduction: Total debt declined by $181.8 million from year-end 1997 levels. Interest expense dropped to $42.6 million for the quarter from $59.5 million.
Outlook, Risks, and Management Commentary
- Segment Performance: Information Services revenue grew 29% due to systems integration growth, with operating income turning positive (3.9%) from a loss (3.7%) in the prior year. Computer Systems revenue declined 7% due to a strategic shift away from PCs toward enterprise servers, though margins improved to 45.4%.
- Debt Management: The company issued $200 million in senior notes in January 1998 to refinance higher-cost debt. It plans to redeem the remaining $130 million of 10 5/8% notes in October 1998, one year early.
- Credit Ratings: Moody's and Standard & Poor's upgraded the company's senior long-term debt ratings in May and June 1998, respectively.
- Legal Contingencies: Unisys is involved in significant litigation with Ceska Sporitelna, a Czech bank. The bank seeks over $100 million in damages; Unisys has filed a counterclaim seeking similar amounts. Trial is scheduled for January 1999.
- Year 2000 (Y2K) Risk: Approximately 60% of revenue is international. Management is addressing Y2K compliance for internal systems and customer products but notes potential risks regarding delays or increased costs.
- Deferred Taxes: The company maintains a valuation allowance of $387 million against deferred tax assets, citing the need for approximately $3.0 billion in future taxable income to realize the full asset value.
Investor Verification Checklist
- Verify the sustainability of the 29% revenue growth in the Information Services segment and the continued profitability of systems integration contracts.
- Confirm the timeline and funding for the planned October 1998 debt redemption of $130 million.
- Monitor the status of the Ceska Sporitelna litigation and the potential impact of the $100 million+ counterclaims on future cash flows.
- Assess the company's progress on Year 2000 compliance, particularly given the 60% international revenue exposure.
- Review future taxable income forecasts to determine if the $387 million deferred tax valuation allowance will be reduced or maintained.