Letter to Our Shareholders
To Our Shareholders:
I'm pleased to report that in 2011 Unisys reported our third consecutive year of profitability and positive free cash flow.
A year ago in this letter I outlined our three-year financial objectives that build on the work we've done to create a more streamlined, cost-competitive business foundation for the company. Those objectives are to:
- Increase our pretax profit to $350 million in 2013, assuming no change in pension income or expense from 2010 levels;
- Grow our IT outsourcing and systems integration revenue at market rates, adjusted for the loss of our former IT services contract with the U.S. Transportation Security Administration (TSA), while maintaining stable revenue in our technology business, particularly within our flagship ClearPath business;
- Consistently achieve an 8 to 10 percent operating profit margin in our services business; and
- Reduce our debt by 75 percent from September 2010 levels.
Despite facing headwinds in our U.S. Federal government business during the year, we made tangible progress toward these objectives in 2011.
We reported 2011 pretax income of $206.0 million and net income from continuing operations of $120.5 million, or $2.71 per diluted share. The results included $85 million of pretax debt reduction charges. Excluding debt reduction charges in both years, our non-GAAP* pretax profit in 2011 was $291 million, up 29 percent from 2010 levels, and non-GAAP* diluted earnings per share increased to $4.43 compared to $3.72 in 2010.
At the top line, our revenue in 2011 declined 4 percent to $3.85 billion, driven by 23 percent lower revenue in our U.S. Federal business reflecting the ending of the TSA contract and continued uncertainty in that market. We were encouraged, however, by progress toward our revenue goals in other areas of the business. Excluding the U.S. Federal business, we grew our overall revenue by 1 percent and our services revenue by 3 percent. Our IT outsourcing revenue outside the U.S. Federal business grew 9 percent -- the second consecutive year of growth in this business -- while our non-U.S. Federal systems integration revenue grew in each of the last two quarters of 2011 and was flat for the full year, following revenue declines in prior years.
In our technology business, we met our goal of maintaining ClearPath revenue at 2010 levels. This marked the second consecutive year of maintaining revenue in our flagship technology line when compared to the previous year.
In terms of our margin goals, we reported a services operating profit margin of 6.9 percent in 2011. This was up slightly from 2010 but below our targeted 8 to 10 percent range, primarily reflecting the impact of the lower U.S. Federal revenue. Outside the U.S. Federal business, our services operating margin increased from 2010 levels and was within our targeted margin range.
We also made significant progress in 2011 toward our debt reduction goals. During the year we reduced our debt by $464 million, or 56 percent, and finished 2011 with nearly twice as much cash as debt.
In the first quarter of 2012, we further reduced our debt by an additional $66.5 million. We are now about 87 percent of the way toward our 2013 debt reduction goal and have reduced our annualized interest expense by $69 million since September 2010.
A Strengthened Financial and Competitive Profile
Because of the work we've done in recent years, Unisys today is a stronger company -- financially and competitively.
In addition to three consecutive profitable years, we have generated positive cash flow and significantly reduced debt and interest expense. We have a streamlined cost structure and geographic footprint that makes us more competitive in the marketplace.
From a competitive perspective, we have focused our resources on what we're best at -- namely, security; data center transformation and outsourcing, including our technology business; end user outsourcing; and application modernization. Within these areas of strength, we have enhanced our solutions and services portfolio to help our clients deal with sophisticated cyber security threats and take advantage of powerful disruptive technologies such as cloud computing, mobile computing, social computing, smart computing, and IT appliances.
In our technology business, we are making ongoing investments in our ClearPath server platform -- extending what we believe is the industry's most secure, reliable server platform with powerful new models and innovative features such as secure partitioning for Intel Xeon processor-based systems, integrated specialty appliances and mobile device support. This has enabled us to stabilize our ClearPath revenue while opening up the platform to potential new markets.
Complementing all of this is a first-class, standards-based global service delivery network that enables us to provide consistent, "follow the sun" service to our clients no matter where they are located around the world.
Because of these capabilities, our client satisfaction ratings and service quality continue to improve. We are winning exciting contracts with new and existing clients alike -- organizations such as McDonald's, Hertz, Air France, the U.S. Coast Guard, the U.S. Patent and Trade Office, California State University, Brazil's Secretariat of Ports, and China's Chengdu Airport.
Focused on Driving Profitable Growth and Shareholder Value
While we are pleased with the progress we've made, we recognize that we have more work to do, particularly at the top line, to increase shareholder value and realize our full potential in the marketplace.
To drive profitable revenue growth, we have focused on improving our sales effectiveness. In 2011 we refreshed about 27 percent of our global sales force, adding experienced leaders with the skills needed to represent and sell our refreshed portfolio in the market. We are equipping those individuals with new systems and tools to be more effective in consulting with clients to understand their needs and find solutions to their most complex mission-critical IT challenges.
As part of our growth focus, we are building our sales channels and investing in software-based solutions with growth potential -- such as our Secure Private Cloud solution, our Stealth network security technology, and our Airline Core Systems Solution (AirCore).
We are also focused on improving results in our important U.S. Federal business. While conditions in that market remain challenging, we see opportunities in helping agencies reduce costs and collaborate more effectively through new delivery models such as cloud computing. For instance, we're excited about the work we're doing to help the General Services Administration and the National Atmospheric and Oceanic Administration move their employees to cloud-based email and collaboration systems built on Google Apps for Government.
Priorities in 2012
As we move into 2012, we are focused on continuing progress toward our strategic and financial objectives. We are confident in our strategy and believe we have created a strong foundation for profitable growth.
Our vision for Unisys remains the same. We want to be a company known for our financial strength and consistency -- a company recognized in our chosen markets as a leading provider of mission-critical IT services and solutions, with a differentiated portfolio and a reputation for service excellence.
The 23,000 employees of Unisys look forward to making this vision real -- for you and for our customers.
J. Edward Coleman
*See "Reconciliation of Selected GAAP to Non-GAAP Measures" elsewhere in this report.
Statements made by Unisys in this annual report that are not historical facts, including those regarding future performance, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ from expectations. These risks and uncertainties are discussed in the Management's Discussion and Analysis section under "Factors that may affect future results."|