Unisys Corporation (NYSE:UIS)
2012 Annual Meeting
May 01, 2012 9:30 am ET
J. Edward Coleman - Chairman of the Board, Chief Executive Officer and Member of Finance Committee
J. Edward Coleman
Good morning. I'm Ed Coleman, Chairman and CEO of your company. It's my pleasure to welcome you to this year's Annual Meeting I also want to welcome those of you who are listening over the Internet. This broadcast is available now and for the next 30 days on Unisys' website. It can be accessed through the Investors section.
Here with me today are several members of our management team. Janet Haugen, our Senior Vice President and Chief Financial Officer; Pat Bradford, Senior Vice President of Worldwide Human Resources; Dominick Cavuoto, Senior Vice President and President of Technology, Consulting & Integration Solutions; Ed Davies, Senior Vice President, Federal Systems; Ron Frankenfield, Senior Vice President and President, Global Managed Services; Lazane Smith, Senior Vice President of Corporate Development; Lawrence Wieser, Vice President of Global Operations; and Nancy Sundheim, Senior Vice President, General Counsel and Secretary. Nancy will serve as secretary of the meeting today.
Now let me introduce the members of our board. When I call your name, please stand and remain standing until all directors are introduced. Alison Davis, Nate Davis, Jim Duderstadt, Ric Duques, Matt Espe, Denise Fletcher, Leslie Kenne, Lee Roberts and Paul Weaver, and I'm also a director. Please join me in recognizing our directors.
I would also like to take this opportunity to thank Charles McQuade, who is retiring from our board today. We're grateful to Charlie for his many contributions to Unisys.
You all should have a copy of the meeting agenda. We'll proceed in accordance with that agenda. As you can see, Item 7 has been reserved for questions or comments from stockholders. I would appreciate your holding your general questions or comments until then.
Now to the formal part of our meeting. Each stockholder of record as of March 2, 2012, the record date for this meeting, has been given proper notice of the meeting. A quorum is present, affidavits relating to the mailing of the meeting notice, the proxy materials and the annual report will be filed with the records of this meeting.
A complete list of the stockholders as of the record date is on hand. It has been open to stockholders of record for the last 10 days, and is open at this meeting for examination by any record holder.
The Board of Directors has appointed Carl Hagberg and Thomas Watt as the inspectors of election for this meeting. In keeping with our policy of confidential voting, the inspectors are independent inspectors. They have been duly sworn in our presence.
Let's move now to the next order of business, the election of directors. You've seen the proxy statement listing the nominees. I hereby declare them duly nominated.
This year, the deadline for stockholders to submit director nominations was January 27. Since no such nomination was received, under our bylaw procedure, I declare the nominations closed. Before proceeding, is there any discussion concerning the nomination?
There being no further discussion, we'll proceed to the next order of business, the proposal to ratify the selection of KPMG LLP as the independent registered public accounting firm to audit the corporation's financial statements for 2012. The Board of Directors has recommended a vote for this proposal. Is there any discussion on this proposal?
There being no further discussion, we will proceed to the next order of business, the advisory vote on executive compensation. The Board of Directors has recommended a vote for this proposal. Is there any discussion on this proposal?
The polls are now open for voting. Any stockholder or proxy holder present, who has not voted or who wishes to vote at this time, may now do so by either holding up a ballot or proxy for an usher to collect or by going to the table at the back of the room. Only stockholders of record or proxy holders may vote at this time. Stockholders in the Unisys Savings Plan may not vote at this time, since they must vote through the plan trustee.
It appears that those who wish to vote have had an opportunity to do so. Accordingly, the polls are now closed. I will accept the voting reports from the inspectors of election when it is completed. While we're waiting on the results of the vote, let me comment on the state of our company.
A year ago at this meeting, I outlined our 3-year strategic and financial goals, building on the work we've done to strengthen the financial and competitive profile of Unisys.
Strategically, our goal is for Unisys to be known as a leading provider of mission-critical IT solutions and services, with a differentiated portfolio and a reputation for providing consistently high levels of client service and satisfaction.
Financially, our goals through 2013 are to increase our pretax profit to $350 million in 2013, assuming no change in pension income or expense from 2010 levels; to grow our IT outsourcing and systems integration revenue at market rates, while maintaining stable revenue in our technology business, particularly within our flagship ClearPath business; to consistently achieve an 8% to 10% operating profit margin in our services business; and to reduce our debt by 75% from September 2010 levels. I'm pleased to report that we made progress towards those goals over the past year.
Despite facing softness in our U.S. Federal government business, we reported our third consecutive year of profitability and positive free cash flow while further reducing debt. We reported 2011 pretax income of $206 million and net income from continuing operations of $120.5 million or $2.71 per diluted share. Excluding debt reduction charges in both years, we grew our non-GAAP pretax profit 29% to $291 million, and our non-GAAP diluted EPS increased to $4.43 from $3.72 in 2010.
Note please that we provide a reconciliation of our GAAP to non-GAAP results on our investor website.
While our overall revenue in 2011 declined 4% to $3.85 billion, primarily due to a 23% decline in our U.S. Federal government revenue, we made progress toward our revenue goals in other areas of the business. Excluding the U.S. Federal business, we grew overall 2011 revenue by 1% and services revenue by 3%.
Our IT outsourcing revenue outside the U.S. Federal business grew for the second consecutive year, and our non-U.S. Federal systems integration revenue was flat for the year, following declines in prior years.
In our technology business, we met our goal of keeping sales of our flagship ClearPath enterprise servers stable for the second straight year after a number of years of decline.
Against our services margin goal, we reported a services operating profit margin of 6.9% in 2011, which is below our targeted 8% to 10% range due to the lower U.S. Federal revenue. Outside the Federal business, our services operating margin increased from 2010.
Our progress continued in the first quarter of 2012 as we reported increased profits on higher revenue in the quarter. Our first quarter 2012 revenue grew 2% overall and 3% in our services business. At the bottom line, we reported first quarter 2012 diluted earnings per share of $0.30 compared with a diluted net loss of $0.95 in the first quarter of 2011.
Excluding debt reduction charges and pension expense in both years, our first quarter 2012 non-GAAP earnings per share increased to $0.97 from a non-GAAP loss of $0.04 a year ago.
Again, please see our Investor website for a reconciliation of our GAAP to non-GAAP results.
Importantly, we have also made significant progress towards our debt reduction goal. Over the past year, we've reduced outstanding debt by nearly $325 million. Overall, since September 2010, we've cut our debt by more than $540 million or nearly 2/3. These actions have resulted in an annualized interest savings of $69 million.
Last year at this meeting, I reported that in 2010 for the first time, Unisys ended the year with more cash than debt. As of the end of the first quarter of 2012, our cash position of $655 million was more than twice our outstanding debt of $296 million, a major milestone for the company.
One difficult part of our business over the past year has been our U.S. Federal government business, where revenue has declined due to the challenges in that market and the ending of our previous IT services contract with the Transportation Security Administration.
We expect our U.S. Federal business will continue to be challenged in 2012 as we adjust to structural changes occurring in the budget environment in Washington. However, we believe the work we are doing on our portfolio positions Unisys to capitalize on these changes over the long term by helping agencies innovate while reducing costs.
As we look at the work we've done in recent years and the progress we've made, we can confidently say that Unisys today is a more focused, profitable and nimble company. We have a cost structure that makes us more competitive in the market. We have an enhanced portfolio of services and solutions that enables us to help our clients address major disruptive changes that are occurring in the marketplace. We have a world-class global delivery model that allows us to deliver consistent levels of service to clients, regardless of where they're located.
In our technology business, we have what we believe is the market's most secure Open Enterprise Server platform with our flagship ClearPath family, which we continue to enhance with new features.
Our clients have responded favorably to our strengthened portfolio and profile. Our client satisfaction and service quality ratings continue to improve, and we're winning exciting engagements with new and existing clients such as McDonald's, the American Red Cross, Hertz, Air France, the U.S. Coast Guard, U.S. Patent and Trade Office, Brazil's Secretariat of Ports, TravelSky and Chengdu Airport in China. And yet we recognize that we've only begun to tap the full potential of this company.
To take advantage of our strengthened business foundation, we must drive profitable revenue growth. As we look at the market, we see exciting growth opportunities that align well with our strength. New technologies such as mobility, cloud computing, social computing are changing the way people work and connect. These technologies are disrupting established business models and creating entirely new revenue streams and ways of serving customers.
These trends are also creating significant challenges for organizations such as how to support increasingly mobile workers, how to secure critical data from sophisticated hackers and cyber thieves and how to manage and use the flood of information that continues to grow exponentially.
We believe that Unisys, with our systems integration expertise, our security skills, our outsourcing capabilities and our mission-critical technology, is well positioned to capitalize on these growth trends. We see an opportunity to differentiate Unisys as the company that provides services and solutions to help organizations to operate more safely and securely in an ever more connected world.
We're delivering on this mission today for clients around the world. For the Mexican government, we're implementing an advanced citizen identification system for up to 110 million citizens that uses biometric technologies to reduce identity theft and child trafficking.
For China's TravelSky, the leading provider of IT solutions to that country's air travel and tourism industry, we're providing a secure cloud-based solution to handle transaction loads driven by that country's growing aviation sector.
For the e-car experimental fusion facility being constructed in France, we're leading a consortium to design and build a sophisticated end-to-end security environment to address the safety of systems and people at the facility.
For the American Red Cross, a new Unisys client, we recently won a major contract to provide services to ensure that 20,000 American Red Cross workers are well supported and connected to achieve their critical mission.
In the U.S. Federal government, we're helping agencies such as the General Services Administration, the Department of Energy, the National Oceanic and Atmospheric Administration use new tools such as the cloud and mobile technology to collaborate and deliver services securely and more cost efficiently.
This vision of Unisys as a company that helps organizations deliver a safer and more secure connected world is an exciting one for our company. It builds on our core strengths as a provider of mission-critical solutions and applies those strengths to the increasingly complex IT challenges of today's world.
We have much more work to do to achieve our vision for Unisys. We have challenges to overcome, but we're confident in our strategy and excited by the progress we've made. In the year ahead, we're focused on continuing our progress, and I look forward to reporting to you on our results. Thank you.
This brings us to Item 7 on the agenda: stockholders questions or comments. Mike McAleer and Jen Strong of KPMG, our independent registered public accounting firm, are present today and available to respond to questions.
Mike and Jen, please stand so our stockholders can recognize you. Thank you.
J. Edward Coleman
In order to ensure that all stockholders have an opportunity, our procedures limit those who may be recognized to speak to stockholders of record on the March 2 record date or their proxies. If you have questions or comments, please stand to be recognized by the chair. When you're recognized, proceed to the microphone, state your name and whether you're speaking as a stockholder of record or as a proxy. If speaking as a proxy, please name the stockholder. As a courtesy to the other stockholders, your comments should not exceed 3 minutes. Now who has the first question?
I'm Karen Mullican [ph]. I'm speaking as a stockholder, and I have a question. For years, Unisys has operated on the model with a CEO and a CFO but no COO. And my question to you is, why do you believe that's the model that works for Unisys?
J. Edward Coleman
I think in terms of the COO role, we really rely on the heads of our business units, the technology, consulting and systems integration, our global managed services and our federal business to operate in many ways as COOs for those units. So when you look at them in combination, I think we have strong operational skills, as well as the head of our global operation. So I think we have strong operational skills across the company.
I don't dispute that they would be very -- have very strong operational skills, individually. My question is, though, if you don't have an oversight over all 3 of them, how do you keep it from becoming too territorial?
J. Edward Coleman
I honestly view that as my role, as CEO.
Any other questions? If not, the final reporting of the inspectors of election will not be available before the end of the meeting. However, I am advised by the inspectors of election that they have counted the votes and certified the proxies representing at least 90% of the common stock have been received.
The preliminary results are as follows: No material change in the outcomes as expected. Each of the directors received at least 27,868,556 votes for his or her election, which represents 84% of the shares voted. Accordingly, each of them has been duly elected as a director.
The proposal to ratify the selection of the company's independent registered public accounting firm for 2012 received approximately 39,084,143 votes for, representing 98.5% of the shares present and entitled to vote. Accordingly, this proposal has been adopted.
The advisory vote on executive compensation received approximately 29,955,524 votes for, representing 89.8% of the shares present and entitled to vote. Accordingly, this proposal has been approved.
Since there is no further business to come before the meeting, I now declare the meeting adjourned. I thank you for attending and for your support of our company. Thank you.