Letter to Shareholders

To Our Shareholders:

For Unisys and many of our competitors, 2013 was a challenging year. Lower demand for IT services projects and high-end enterprise servers impacted our full-year results and kept us from achieving some of our year-end 2013 financial goals.

Still, we were pleased to deliver our fifth consecutive year of profitability and free cash flow in 2013 -- a record that we're proud of and that speaks to the financial progress we've made as a company. In 2013 we brought to market a range of exciting products and services that position Unisys to capitalize on large, growing markets. We closed the year with a good fourth quarter and move into 2014 with momentum that we look to build on in the year ahead.

2013 Financial Results and Progress

We reported full year 2013 net income of $92.3 million, or $2.08 per diluted share of common stock, compared with full year 2012 net income of $129.4 million, or $2.84 per diluted share. Our revenue declined 7 percent in 2013 to $3.46 billion, driven primarily by lower systems integration and enterprise server revenue. Given the higher-margin nature of these businesses, the lower revenue impacted our profitability in 2013, although we were able to offset some of the impact through continued tight cost controls and significantly lower interest expense

Three years ago we established a number of financial goals to achieve by year-end 2013. As we review our progress against those goals, we can see clear progress against some of these goals as well as areas that need further improvement.

  • We reached our aggressive goal of a 75 percent debt reduction from September 2010 levels and have reduced debt by about $1 billion since 2008. As a result, we have reduced annual interest expense by more than $90 million, or 90 percent, from 2010 levels. This work, along with continued progress in simplifying our operations and reducing costs, has given Unisys a much stronger, more competitive financial foundation moving forward.
  • We stabilized our technology business, which had been in decline, by reaffirming our commitment to continued innovation in our flagship ClearPath family of enterprise servers. Although 2013 was a challenging year for technology sales, we have grown or maintained our ClearPath revenue in three of the past four years. Equally important, we laid the foundation for future growth with innovative products including our Unisys Stealth cybersecurity software and our Forward! by Unisys Intel-based computing platform.
  • In our services business, while we've made good progress in enhancing the quality of services delivery and bringing new service innovations to the market, we have not yet met our goals of growing our systems integration and outsourcing businesses at market rates and consistently achieving an 8-10 percent services operating profit margin. These remain important goals going forward.
  • Against our goal of increasing our pretax profit to $350 million excluding pension expense, we exceeded this goal in 2012 but fell short of it in 2013 due to the impact of lower enterprise server and systems integration revenue.

Growth Opportunities in a Changing IT Market

As we look ahead, we are focused on driving profitable top-line growth that enables us to take advantage of our streamlined cost structure.

The IT marketplace is undergoing fundamental changes that are rewriting the rules of competition. New technologies like cloud, mobility, big data and social computing are disrupting established ways of doing business and creating more cost-efficient models for working, collaborating, and delivering services to end users.

These new technologies bring challenges, however. Organizations are struggling to manage the proliferation of consumer devices and applications being used in the workplace. They need better ways to support their end users, power their mission-critical systems, and secure those systems against sophisticated cyber criminals. They need help turning mountains of data into actionable information that they can use to better serve their customers. And they need to do all this while reducing costs. 

We believe we have the right blend of mission-critical capabilities to help organizations take advantage of new technologies and delivery models to better serve their constituents and succeed in an ever-more connected world.

Our portfolio today is more competitive than it's been in years, with offerings including:

  • Unisys Stealth. Our Stealth family of cybersecurity software makes use of advanced encryption and data cloaking technologies to mitigate cyber attacks by rendering critical data and end points essentially invisible on the network. We believe Stealth is a disruptive technology that breaks the established paradigm of security at a time when traditional approaches to cyber security aren't working.
  • Forward! by Unisys. Our new Forward! server platform combines Unisys secure partitioning technology with the power of industry-standard Intel x86 processors to offer organizations an alternative to proprietary Unix systems and virtualized environments for running their mission-critical applications. Building on the strengths and heritage of ClearPath, Forward! provides a secure, predictable platform for handling Linux and Microsoft workloads, high-volume cloud applications, and enterprise resource planning applications. It is also ideal for server consolidation.
  • Cloud and Software-as-a-Service Delivery Models. Unisys is using the power of the cloud to provide our clients with secure, convenient, on-demand models for accessing critical computing resources while minimizing upfront capital investments. In addition to our Secure Private Cloud solution, we provide as-a-service versions of our IT Service Management solution, our InfoImage enterprise content management solution, our air cargo handling system, and other industry solutions. We are also a leader in helping U.S. Federal government agencies -- such as the U.S. General Services Administration, the National Oceanic and Atmospheric Administration, the Department of Energy and the National Archives -- migrate their email and collaboration environments to Google Apps for Government.
  • Application Managed Services. More organizations today are looking to outsource the management of their mission-critical applications to reduce costs and improve service to their end users. Complementing our existing data center and end user outsourcing businesses, we have brought to market an application managed services offering that leverages our global, ITIL-based support network. We have a healthy pipeline of opportunities in this area and are focused on growing this business.

Expanding Sales Channels for Unisys Solutions

To drive growth and market expansion for our solutions, we are increasing our investments in sales and marketing initiatives in 2014.

We are mobilizing new dedicated sales teams focused on selling key solutions such as Forward! We have recently strengthened our sales leadership by bringing on Jeff Renzi as president of Global Sales, with responsibility for leading sales efforts across all lines of business and geographies. Jeff is a highly experienced executive with demonstrated success in creating high-performing sales organizations and driving profitable growth at Dell, Perot Systems, and EDS.

To complement our direct sales effort, we are working to increase the percentage of our revenue coming from indirect channels, which is currently less than our competition. We have built a robust channel of approximately 60 value-added resellers who are initially focused on selling Unisys Stealth to new clients in selected geographies. Over time we expect to add more products and regions to our channel business.

2014-2016 Financial Goals

As we implement these activities, we believe we are well positioned to profitably grow the company over the next three years and move Unisys to the next level of success.

Our financial goals over the 2014 to 2016 timeframe are as follows:

To grow our technology business. Building on the investments we have made and continue to make in Forward!, Stealth, our cloud offerings, as well as ClearPath, we look for technology products to be a driver of growth for the overall business over the next three years.

To sell new products through new channels to reach new customers. We will continue our efforts to build out our reseller channel to address broader market opportunities and increase the percentage of our revenue coming from the channel.

To consistently achieve an 8 to 10 percent operating profit margin in our services business. As part of that, we continue to look for ways to grow our higher-margin services, simplify our operations, and provide services more cost efficiently.

All of these goals support our mission to become a company known for financial strength, where the quality of our services and solutions provides ongoing differentiation and where we are an acknowledged industry leader.

We are excited about the opportunities in front of us. I look forward to reporting on our continued progress in the year ahead. 

J. Edward Coleman