The Daily Magic Formula Stock for 09/10/2008 is Unisys Corp. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 50-75 %.
Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.
Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.
Unisys Corporation is a worldwide information technology (â€śITâ€ť) services and solutions company. Our core offerings include systems integration and consulting services, outsourcing services, infrastructure services, maintenance services and high-end server technology. We combine these offerings with in-depth expertise in specific markets such as the public sector, financial services and other commercial markets, including transportation and communications. We serve organizations and government agencies throughout the world by helping them to use information and technology to achieve their business goals.
Our consultants, industry experts and infrastructure specialists work with clients to understand their business challenges and develop innovative IT solutions to make them more successful. We complement these services with some of the industryâ€™s most powerful, mission-critical enterprise server technology. This combination of services and technology capabilities, along with core competencies in such growing areas as outsourcing, enterprise security, open source, Microsoft solutions and real-time infrastructure, allows us to provide value-added solutions to handle an organizationâ€™s most business-critical information requirements.
We operate in two business segments â€“ Services and Technology. Financial information concerning the two segments is found in Note 17, â€śSegment informationâ€ť, of the Notes to Consolidated Financial Statements appearing in the Unisys 2007 Annual Report to Stockholders, and such information is incorporated herein by reference.
Principal Products and Services
We provide services and technology to commercial businesses and governments throughout most of the world.
In the Services segment, we provide end-to-end IT services and solutions designed to help clients improve their competitiveness and efficiency. We design, build and manage critical IT systems and solutions for businesses and governments around the world. Our services include systems integration and consulting, outsourcing, infrastructure services and core maintenance. In systems integration and consulting, we design and develop innovative solutions for specific industries â€“ such as check processing systems, public welfare systems, airline reservations and communications messaging solutions. In outsourcing, we manage a customerâ€™s internal information systems as well as specific business processes, such as check processing, insurance claims processing, health claims processing, mortgage administration and cargo management. In infrastructure services, we design and support customersâ€™ IT infrastructure, including desktops, servers, mobile and wireless systems, and networks, and we provide enterprise-wide security solutions to protect systems, networks, applications and data. Our core maintenance services include maintenance of Unisys proprietary products.
In the Technology segment, we design and develop servers and related products that operate in transaction-intensive, mission-critical environments. As a pioneer in large-scale computing, we bring deep experience and rich technological innovation and capabilities to the enterprise server marketplace. Major offerings include enterprise-class servers based on our Cellular MultiProcessing architecture, such as the ClearPath family of servers, and the ES7000 family of servers, which provide enterprise-class attributes on Intel-based servers. Our technology offerings include operating system software and middleware to power high-end servers, as well as specialized technologies such as payment systems and third-party technology products.
The primary vertical markets we serve worldwide include the public sector (including the U.S. federal government), financial services and other commercial markets including communications and transportation.
We market our products and services primarily through a direct sales force. In certain foreign countries, we market primarily through distributors. Complementing our direct sales force, we make use of a select group of alliance partners to market and complement our services and product portfolio. In 2006, we moved to an account-centric sales model focused on serving the needs of our top 500 customer accounts in our top ten countries.
Beginning in 2006, as part of our comprehensive, multi-year program to reposition the company in the marketplace, we have invested in and launched strategic programs focused on growing our business in five targeted higher-growth market areas: outsourcing, enterprise security, open source solutions, Microsoft solutions and real-time infrastructure. To support these growth initiatives, we have realigned our services delivery force by pooling and retraining services specialists in our targeted market areas. To access highly skilled delivery resources in lower-cost regions around the world, we have significantly expanded our use of offshore sourcing of people and centers in such areas as India, China and Eastern Europe.
Unisys purchases components and supplies from a number of suppliers around the world. For certain technology products, we rely on a single or limited number of suppliers, although we make every effort to assure that alternative sources are available if the need arises. The failure of our suppliers to deliver components and supplies in sufficient quantities and in a timely manner could adversely affect our business.
Patents, Trademarks and Licenses
Unisys owns over 1500 active U.S. patents and over 300 active patents granted in 19 non-U.S. jurisdictions. These patents cover systems and methods related to a wide variety of technologies, including, but not limited to computing systems, relational database management, information storage, device/circuit manufacture and design, imaging, data compression and document recognition/handling. We have granted licenses covering both single patents, and particular groups of patents to others. Likewise, we have active licensing agreements granting us rights under patents owned by other entities. However, our business is not materially dependent upon any single patent, patent license, or related group thereof.
Unisys also maintains over 60 U.S. trademark and service mark registrations, and over 1600 additional trademark and service mark registrations in over 120 non-U.S. jurisdictions. These marks are valuable assets used on or in connection with our products and services, and as such are actively monitored, policed and protected by Unisys and its agents.
Our revenue is affected by such factors as the introduction of new products and services, the length of sales cycles and the seasonality of purchases. Seasonality has generally resulted in higher fourth quarter revenue than in other quarters.
No single customer accounts for more than 10% of our revenue. Sales of commercial products and services to various agencies of the U.S. government represented 16% of total consolidated revenue in 2007. For more information on the risks associated with contracting with governmental entities, see â€śFactors that may affect future resultsâ€ť in â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operationsâ€ť in the Unisys 2007 Annual Report to Stockholders which is incorporated herein by reference.
In the Services segment, firm order backlog at December 31, 2007 was $6.9 billion, compared to $6.6 billion at December 31, 2006. Approximately $3.1 billion (45%) of 2007 backlog is expected to be filled in 2008. Although we believe that this backlog is firm, we may, for commercial reasons, allow the orders to be cancelled, with or without penalty. In addition, funded government contracts included in this backlog are generally subject to termination, in whole or part, at the convenience of the government or if funding becomes unavailable. In such cases, we are generally entitled to receive payment for work completed plus allowable termination or cancellation costs.
Because of the relatively short cycle between order and shipment in our Technology segment, we believe that backlog information for this segment is not material to the understanding of our business.
Our business is affected by rapid change in technology in the information services and technology industries and aggressive competition from many domestic and foreign companies. Principal competitors are systems integrators, consulting and other professional services firms, outsourcing providers, infrastructure services providers, computer hardware manufacturers and software providers. We compete primarily on the basis of service, product performance, technological innovation, and price. We believe that our continued focused investment in engineering and research and development, coupled with our marketing capabilities, will have a favorable impact on our competitive position. For more information on the competitive risks we face, see â€śFactors that may affect future resultsâ€ť in â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operationsâ€ť in the Unisys 2007 Annual Report to Stockholders which is incorporated herein by reference.
Research and Development
Unisys-sponsored research and development costs were $179.0 million in 2007, $231.7 million in 2006, and $263.9 million in 2005.
Our capital expenditures, earnings and the competitive position have not been materially affected by compliance with federal, state and local laws regulating the protection of the environment. Capital expenditures for environmental control facilities are not expected to be material in 2008 and 2009.
At December 31, 2007, we employed approximately 30,000 people worldwide.
We use the title â€śpartnerâ€ť for certain members of our services business management. In using the term â€śpartnerâ€ť or â€śpartners,â€ť we do not mean to imply that these individuals are partners in the legal sense or to imply any intention to create a separate legal entity, such as a partnership.
International and Domestic Operations
Financial information by geographic area is set forth in Note 17, â€śSegment informationâ€ť, of the Notes to Consolidated Financial Statements appearing in the Unisys 2007 Annual Report to Stockholders, and such information is incorporated herein by reference.
Our Internet web site is located at http://www.unisys.com/about unisys/investors. Through our web site, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after this material is electronically filed with or furnished to the SEC. We also make available on the web site our Guidelines on Significant Corporate Governance Issues, the charters of the Audit Committee, Compensation Committee, Finance Committee, and Nominating and Corporate Governance Committee of our board of directors, and our Code of Ethics and Business Conduct. This information is also available in print to stockholders upon request.
Mr. McGrath has been Chief Executive Officer since 2005 and President since 2004. He also served as Chief Operating Officer (2004), Executive Vice President and President of Enterprise Transformation Services (2000-2004), and Senior Vice President of Major Accounts Sales and Chief Marketing Officer (1999). Prior to joining Unisys in 1999, he was with Xerox Corporation from 1988 until 1998, serving as vice president and general manager of its Production Color Systems unit and as vice president of strategy and integration for the Production Systems division. Mr. McGrath has been an officer since 1999.
Mr. Hendricks has been Executive Vice President and President, Global Industries since January 2008. He has also served as Senior Vice President (2006-2008) and President, Global Outsourcing and Infrastructure Services (2005-2008). From 2005 until 2006 he was a Vice President. Mr. Hendricks joined Unisys in 2001 and has served in a variety of other leadership roles. Prior to joining Unisys, he was President and Chief Executive Officer of Digite, a software company based in Silicon Valley (2000-2001). Before that he was with Arthur Andersen & Co. and Andersen Consulting (now Accenture) for 20 years. Mr. Hendricks has been an officer since 2005.
Mr. Baroni has been Senior Vice President and President, Federal Systems since 2006. He has also served as Vice President (2004-2006) and President, Global Public Sector (2001-2006). Prior to joining Unisys in 2001, he spent almost 20 years at KPMG, LLP and KPMG Consulting (now Bearing Point) where his last position was as Senior Vice President of their Public Services Practice. Mr. Baroni has been an officer since 2004.
Ms. Bradford has been Senior Vice President, Worldwide Human Resources since 2006. Prior to that time, she served as Vice President, Worldwide Human Resources (2005-2006), Vice President, Human Resources Operations (2004), Vice President and Managing Business Partner, Enterprise Transformation Services (2003â€“2004), and Vice President and Managing Business Partner, Global Industries (1999-2003). Ms. Bradford joined Unisys in 1982 and has held several other leadership positions in Human Resources. Ms. Bradford has been an officer since 2005.
Mr. Doye has been Senior Vice President and President, Global Outsourcing and Infrastructure Services since January 2008. Before joining Unisys in November 2007, Mr. Doye held numerous global leadership roles at Computer Sciences Corporation, serving as Group President, Strategic Programs from May until November 2007 and as Group President, Commercial Outsourcing Americas from 2003 until May 2007. Mr. Doye has been an officer since January 2008.
Ms. Haugen has been Senior Vice President and Chief Financial Officer since 2000. Prior to that time, she served as Vice President and Controller and Acting Chief Financial Officer (1999-2000) and Vice President and Controller (1996-1999). Ms. Haugen has been an officer since 1996.
Mr. Marcello has been Senior Vice President and President, Systems and Technology since July 2007. Mr. Marcello has been with Unisys since May 2007, most recently serving as President, Systems and Technology. From 2003 until 2006, he was Senior Vice President and General Manager of the Business Critical Servers product line within Enterprise Storage and Servers global business unit at Hewlett Packard. Mr. Marcello has been an officer since July 2007.
Ms. Sundheim has been Senior Vice President , General Counsel and Secretary since 2001. From 1999 to 2001, she was Vice President, Deputy General Counsel and Secretary. She had been Deputy General Counsel since 1990. Ms. Sundheim has been an officer since 1999.
Mr. Battersby has been Vice President and Treasurer since 2000. Prior to that time, he served as Vice President of Corporate Strategy and Development (1998-2000) and Vice President and Assistant Treasurer (1996-1998). Mr. Battersby has been an officer since 2000.
Mr. McHale has been Vice President, Investor Relations since 1997. From 1989 to 1997, he was Vice President, Investor and Corporate Communications. Mr. McHale has been an officer since 1986.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Since late 2005, the company has been implementing a comprehensive, multi-year program to significantly enhance its profitability and competitive position in the information technology market. The repositioning program has involved fundamental changes to the company's business, from its strategic focus, to its sales and marketing efforts, to its cost structure and service delivery model. The program has also involved divestitures of non-core business areas, with the proceeds used to fund the cost-reduction efforts. In addition, in recent months, the company has been working with its Board of Directors on evaluating portfolio rationalization options to unlock value in the company's business and drive growth and success in the marketplace.
The company has made significant progress in enhancing its profitability as a result of the repositioning program. For the first half of 2008, the company reported operating profit of $50.6 million compared with an operating loss of $27.1 million in the year-ago period. Services operating profit percent was 2.8% for the first half compared with 0.8% in the year-ago period. However, in the second quarter of 2008, the company's revenue and profitability have been impacted by a weaker economic environment, particularly in the financial services industry, as well as the ending of $18.8 million of quarterly royalty revenue from a 2005 intellectual property agreement with Nihon Unisys Ltd. (NUL) that ended on March 31. In addition, in June 2008, the company learned of the decision by the U.S. Transportation Security Administration (TSA) that it had not selected the company to continue on to Phase 2 of the procurement for TSA's Information Technology Infrastructure Program (ITIP) contract providing for the establishment of secure information technology environments in airports. The company has filed a protest disputing this decision. The company began working for the TSA shortly after the agency was established and was instrumental in creating and managing the IT infrastructure that enabled the TSA to be mission- ready by November 2002. For 2007 the company recognized revenue of approximately $225 million from the TSA.
RESULTS OF OPERATIONS
Revenue for the three months ended June 30, 2008 was $1.34 billion compared with $1.38 billion for the three months ended June 30, 2007, a decrease of 3% from the prior year. This decrease was due to a 1% decrease in Services revenue and a 14% decrease in Technology revenue. Foreign currency fluctuations had a 4- percentage-point positive impact on revenue in the current period compared with the year-ago period. U.S. revenue declined 3% in the second quarter compared with the year-ago period. International revenue declined 2% in the current quarter compared with the year-ago period principally due to declines in Europe and Japan, offset in part by increases in Latin America, Brazil, Asia and South Pacific. On a constant currency basis, international revenue declined 10% in the three months ended June 30, 2008 compared with the three months ended June 30, 2007.
During the three months ended June 30, 2007, the company consolidated facility space and committed to an additional reduction of 551 employees. This resulted in a pretax charge in the quarter of $33.3 million. The charge related to work force reductions of $19.8 million is broken down as follows: (a) 425 employees in the U.S. for a charge of $12.0 million and (b) 126 employees outside the U.S. for a charge of $7.8 million. The facility charge of $13.5 million principally relates to leased property that the company ceased using as of June 30, 2007. The facility charge represents the fair value of the liability at the cease-use date and was determined based on the remaining lease rental payments, reduced by estimated sublease rentals that could be reasonably obtained for the property. The pretax charge was recorded in the following statement of income classifications: cost of revenue-services, $6.8 million; cost of revenue- technology, $.5 million; selling, general and administrative expenses, $16.5 million; research and development expenses, $9.7 million; and other income (expense), net, $.2 million. The income recorded in other income (expense), net relates to the minority shareholders' portion of the charge related to majority owned subsidiaries which are fully consolidated by the company.
There were no additional cost-reduction charges recorded during the three months ended June 30, 2008; however, a $2.5 million change in estimates was recorded as expense in the current quarter compared with a $9.5 million change in estimate recorded as income in the year-ago period.
During the three months ended June 30, 2008, the company recorded a pretax charge of $5.5 million in selling, general and administrative expense related to a lease guarantee (see note (b)).
For the three months ended June 30, 2008 pension income was $8.8 million compared with pension expense of $11.4 million for the three months ended June 30, 2007. The change in pension expense in 2008 from 2007 was principally due to increases in worldwide discount rates and prior years' higher returns on plan assets worldwide. The company records pension income or expense, as well as other employee-related costs such as payroll taxes and medical insurance costs, in operating income in the following income statement categories: cost of revenue; selling, general and administrative expenses; and research and development expenses. The amount allocated to each category is based on where the salaries of active employees are charged.
Total gross profit margin was 22.7% in the three months ended June 30, 2008 compared with 21.8% in the three months ended June 30, 2007. Included in the gross profit margin in 2007 were cost reduction charges of $7.3 million. The change in gross profit margin excluding these charges principally reflects the benefits derived in 2008 from the prior-years' cost reduction actions as well as a decline in pension expense of $15.0 million (income of $6.6 million in 2008 compared with expense of $8.4 million in 2007).
Selling, general and administrative expenses were $251.0 million for the three months ended June 30, 2008 (18.7% of revenue) compared with $247.4 million (18.0% of revenue) in the year-ago period. Included in selling, general and administrative expense in 2008 was $5.5 million of expense related to the lease guarantee, discussed above, as well as higher pre-sales costs related to a number of large federal and public sector engagements. Included in 2007 were cost reduction charges of $16.5 million. The change in selling, general and administrative expense also reflects the benefits derived in 2008 from the prior-years cost reduction actions as well as a decline in pension expense of $3.8 million (income of $.6 million in 2008 compared with expense of $3.2 million in 2007).
Research and development (R&D) expenses in the second quarter of 2008 were $30.2 million compared with $49.5 million in the second quarter of 2007. The company continues to invest in proprietary operating systems, enterprise server operating systems, middleware and in key programs within its industry practices. Included in R&D expense in 2007 were cost reduction charges of $9.7 million. The reduction in R&D in 2008 compared with 2007 excluding these charges principally reflects the benefits derived in 2008 from the prior-years' cost reduction actions.
For the second quarter of 2008, the company reported an operating profit of $22.6 million compared with $2.5 million in the second quarter of 2007. The principal items affecting the comparison of 2008 with 2007 are discussed above.
Interest expense for the three months ended June 30, 2008 was $21.2 million compared with $18.7 million for the three months ended June 30, 2007. The increase in interest expense was primarily due to increased interest rates related to the refinancing of the $200 million 7 7/8% notes due 2008 with the company's $210 million 12 1/2% notes due 2016.
Other income (expense), net, which can vary from period to period, was an expense of $11.8 million in the second quarter of 2008, compared with expense of $8.7 million in 2007. The change was principally due to foreign exchange gains and losses; a $1.4 million gain was incurred in the three months ended June 30, 2007 compared with a $2.5 million loss for the three months ended June 30, 2008.
Income (loss) before income taxes for the three months ended June 30, 2008 was a loss of $10.4 million compared with a loss of $24.9 million in 2007. The provision for income taxes was $3.6 million in the current quarter compared with $40.6 million in the year-ago period. Included in the current period tax provision is a benefit of $5.1 million related to prior years' intercompany royalties. The net loss for the three months ended June 30, 2008 was $14.0 million, or $.04 per share, compared with a net loss of $65.5 million, or $.19 per share, for the three months ended June 30, 2007.
As discussed in note (l), the company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company's U.S. operations will have no provision or benefit associated with it. As a result, the company's provision or benefit for taxes will vary significantly quarter to quarter depending on the geographic distribution of income.
Revenue for the six months ended June 30, 2008 was $2.64 billion compared with $2.72 billion for the six months ended June 30, 2007, a decrease of 3% from the prior year. This decrease was due to a 1% decrease in Services revenue and a 15% decrease in Technology revenue. Foreign currency fluctuations had a 5- percentage-point positive impact on revenue in the current period compared with the year-ago period. On a constant currency basis, international revenue declined 8% in the six months ended June 30, 2008 compared with the six months ended June 30, 2007.
For the six months ended June 30, 2008 pension income was $20.3 million compared with pension expense of $22.0 million for the six months ended June 30, 2007.
Total gross profit margin was 22.6% in the six months ended June 30, 2008 compared with 20.4% in the six months ended June 30, 2007. Included in the gross profit margin in 2007 were cost reduction charges of $32.3 million. The change in gross profit margin reflects the benefits derived in 2008 from the prior-years' cost reduction actions as well as a decline in pension expense of $32.0 million (income of $15.7 million in 2008 compared with expense of $16.3 million in 2007).
Selling, general and administrative expenses were $483.5 million for the six months ended June 30, 2008 (18.3% of revenue) compared with $492.0 million (18.1% of revenue) in the year-ago period. Included in selling, general and administrative expense in 2008 was $5.5 million of expense related to a lease guarantee (discussed above), as well as higher pre-sales costs related to a number of large federal and public sector engagements. Included in 2007 were cost reduction charges of $18.6 million. The change in selling, general and administrative expense also reflects the benefits derived in 2008 from the prior-years cost reduction actions as well as a decline in pension expense of $7.4 million (income of $1.2 million in 2008 compared with expense of $6.2 million in 2007).
Research and development (R&D) expenses in the first half of 2008 were $62.9 million compared with $91.9 million in the first half of 2007. Included in R&D expense in 2007 were cost reduction charges of $15.9 million. The reduction in R&D in 2008 compared with 2007 excluding these charges principally reflects the benefits derived in 2008 from the prior-years' cost reduction actions.
For the first half of 2008, the company reported an operating profit of $50.6 million compared with an operating loss of $27.1 million in the first half of 2007. The principal items affecting the comparison of 2008 with 2007 are discussed above.
Interest expense for the six months ended June 30, 2008 was $42.8 million compared with $37.6 million for the six months ended June 30, 2007. The increase in interest expense was primarily due to increased interest rates related to the refinancing discussed above.
Other income (expense), net was an expense of $17.8 million for the six months ended June 30, 2008, compared with income of $16.8 million in 2007. Other income (expense) for the six months ended June 30, 2007 principally reflects a gain of $23.1 million on the sale of the company's media business (see note
(d)). In addition, for the six months ended June 30, 2008, other income (expense) includes foreign exchange losses of $2.8 million compared with gains of $6.3 million in the year-ago period.
Income (loss) before income taxes for the six months ended June 30, 2008 was a loss of $10.0 million compared with a loss of $47.9 million in 2007. The provision for income taxes was $27.4 million in the current period compared with $14.0 million in the year-ago period. Included in the current period tax provision is a benefit of $5.1 million related to prior years' intercompany royalties. The tax provision in the prior year six-month period included a $39.4 million benefit related to the Netherlands income tax audit settlement (see note (d)).
For the six months ended June 30, 2008, the company reported a net loss of $37.4 million, or $.10 per share, compared with a net loss of $61.9 million, or $.18 per share, for the six months ended June 30, 2007. The prior year six-month period includes pretax charges relating to cost reduction actions of $66.0 million.
The company has two business segments: Services and Technology. Revenue classifications by segment are as follows: Services - systems integration and consulting, outsourcing, infrastructure services and core maintenance; Technology - enterprise-class servers and specialized technologies. The accounting policies of each business segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profit on such shipments of company hardware and software to customers. The Services segment also includes the sale of hardware and software products sourced from third parties that are sold to customers through the company's Services channels. In the company's consolidated statements of income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.
Also included in the Technology segment's sales and operating profit are sales of hardware and software sold to the Services segment for internal use in Services agreements. The amount of such profit included in operating income of the Technology segment for the three months ended June 30, 2008 and 2007 was $5.7 million and $1.3 million, respectively. The amount for the six months ended June 30, 2008 and 2007 was $11.2 million and $1.8 million, respectively. The profit on these transactions is eliminated in Corporate.
The company evaluates business segment performance on operating profit exclusive of cost reduction charges and unusual and nonrecurring items, which are included in Corporate. All other corporate and centrally incurred costs are allocated to the business segments, based principally on revenue, employees, square footage or usage. Therefore, the segment comparisons below exclude the cost reduction items mentioned above.
In the Services segment, customer revenue was $1.20 billion for the three months ended June 30, 2008 down 1.0% from the three months ended June 30, 2007. Foreign currency translation had a 4-percentage-point positive impact on Services revenue in current quarter compared with the year-ago period.
Revenue from systems integration and consulting increased 5.0% from $370.8 million in the June 2007 quarter to $389.4 million in the June 2008 quarter.
Outsourcing revenue increased 3.1% for the three months ended June 30, 2008 to $520.2 million compared with the three months ended June 30, 2007, led by an increase in information technology outsourcing (ITO).
Infrastructure services revenue declined 14.4% for the three month period ended June 30, 2008 compared with the three month period ended June 30, 2007 due to weakness in demand for network design and consulting projects and the shift of project-based infrastructure work to managed outsourcing contracts, all of which is expected to continue.
Core maintenance revenue declined 12.3% in the current quarter compared with the prior-year quarter. The decline in core maintenance was due to the secular decline in core maintenance as well as lower maintenance on high-volume, high- margin check sorting equipment. The company expects the high single-digit secular decline of core maintenance to continue.
Services gross profit was 19.2% in the second quarter of 2008 compared with 17.3% in the year-ago period. Services operating profit percent was 3.3% in the three months ended June 30, 2008 compared with 2.5% in the three months ended June 30, 2007. The increase in Services margins was principally due to the benefits derived from the cost reduction actions as well as a decline in pension expense in gross profit of $14.6 million (income of $6.1 million for the three months ended June 30, 2008 compared with expense of $8.5 million in the year-ago period) and a decline in pension expense in operating income of $17.8 million (income of $6.5 million for the three months ended June 30, 2008 compared with expense of $11.3 million in the year-ago period).
In the Technology segment, customer revenue was $143 million in the current quarter compared with $167 million in the year-ago period for a decrease of 14.4%. The decline in Technology revenue reflects the NUL revenue decline beginning in the current quarter due to expiration of the one-time fixed royalty fee of $225 million under an agreement executed in 2005. The company had recognized revenue of $18.8 million per quarter ($8.5 million in enterprise- class servers and $10.3 million in specialized technologies) under this royalty agreement over the three-year period ended March 31, 2008. The expiration of this royalty from NUL contributed almost 11 percentage points of the technology segment's 14% decline in revenue. Foreign currency translation had a positive impact of approximately 5-percentage points on Technology revenue in the current period compared with the prior-year period.
Revenue for the company's enterprise-class servers, which includes the company's ClearPath and ES7000 product families, decreased 10.1% for the three months ended June 30, 2008 compared with the three months ended June 30, 2007. The company expects the secular decline of enterprise-class servers to continue.
Revenue from specialized technologies, which includes the company's payment systems products, third-party technology products and royalties from the company's agreement with NUL, decreased 28.3% for the three months ended June 30, 2008 compared with the three months ended June 30, 2007. The decline was principally due to the ending of the NUL royalties, discussed above.
Technology gross profit was 39.2% in the current quarter compared with 43.3% in the year-ago quarter. Technology operating loss percent was (3.7)% in the three months ended June 30, 2008 compared with (.6)% in the three months ended June 30, 2007. The decline in operating profit margin in 2008 compared with 2007 primarily reflects the NUL revenue decline, discussed above, as well as the continuing secular decline in enterprise servers.
Earlier this morning Unisys released its second quarter 2008 financial results. With us this morning to discuss our results are Unisys President and CEO Joe McGrath and our Chief Financial Officer Janet Haugen. Before we begin I want to cover just a few things with you.
First, today's conference call and the Q&A session are being webcast via the Unisys investor website. This webcast including the question and answer session is being recorded and will be available as a replay on our website shortly after the conclusion of the live event. Second, you can find on our investor website the earnings release and the associated spreadsheets as well as presentation slides that we will be using this morning to guide the discussion. These materials are available for viewing as well as downloading and printing.
Third, today's presentation, which is complimentary to the earnings press release, includes some non-GAAP financial measures. Certain financial comparisons made in this call will be with and without the impact of retirement expense and restructuring charges. In the presentation we have provided a reconciliation of our reported results on a US GAAP basis compared with our results excluding the impact of restructuring and retirement expense.
Finally, I'd like to remind you that all forward looking statements made in this conference call are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These factors are discussed more fully in the earnings release and in the company's periodic reports as filed with the SEC. Copies of these SEC reports are available from the SEC and from the Unisys investor website. Let me now turn the call over to Joe.
Welcome to todayâ€™s call to discuss our Second Quarter 2008 Financial Results. Please turn to slide one to begin our discussion. This was a mixed quarter for Unisys. We made encouraging progress in a number of important areas while also seeing the effect of softer IT spending by our financial services clients. Our orders, revenue and non-GAAP operating profit all grew sequentially from the first quarter of 2008.
Another clear positive was cash flow. Our cash flow from operations more than doubled over the year ago quarter as we continue to place a strong emphasis on enhancing our cash flow. In fact, if you take out a one time tax refund a year ago our cash from operations increased by nearly $90 million in the quarter.
In our services business we saw good growth in our systems integration and consulting business, building on the improvement weâ€™ve been seeing in this business. Our outsourcing business also continued to grow. Our other strategic growth programs including security, open source and real time infrastructure services grew double digits in the quarter as we continue to expand our business and reputation in these growing markets.
In our technology business we saw stronger ClearPath sales and we are seeing positive initial results and returns from the new software and services based solutions that weâ€™ve been rolling out this year. Our US Federal revenue grew in the second quarter after a tough first quarter. We also saw growth in our public sector business in the quarter.
We were disappointed however at the bottom line. Over the past two plus years weâ€™ve been making steady quarter by quarter progress in our profitability through our repositioning actions. That year over year profit progress slowed in the second quarter due to three primary factors. First, we saw an impact on our revenue and margins as some clients cut back on IT expenditures in an uncertain economic environment.
We saw this impact primarily in our financial services business both in the US and Internationally. Financial services is our second largest industry segment at Unisys representing about 30% of our overall revenue. The majority of this is in services including our business process outsourcing business. The weaker spending by our financial services clients impacted our services results in the quarter.
A second issue that impacted our technology results was the ending as expected of about $19 million of quarterly royalty revenues from a 2005 intellectual property agreement with Nihon Unisys Limited that ended on March 31. We were able to offset some of this loss royalty revenue and margin by taking out costs and driving sales in new areas. The weaker economic environment in the quarter made it more difficult for us to fill this gap.
Third, we saw higher SG&A expense in the quarter related to investments in pre-sales activities around a large number of Federal and public sector engagements. As a result of these factors our operating profit in the second quarter came in lower than we were hoping. This morning Iâ€™d like to walk you through the strategy we will be implementing over the remainder of 2008 to navigate through a weaker business environment and get our profit progress back on track.
Slide two provides an overview of our results for the quarter. Our revenue came in at $1.34 billion down 3% year over year. Services revenue was down 1% while Technology revenue declined 14%. Services represented 90% of our revenue in the quarter. Within services systems integration and consulting revenue grew 5% which building on the flat revenue we saw last quarter was encouraging to us that this business appears to be stabilizing after declines in 2007.
Outsourcing revenue grew 3% which was down somewhat from recent quarters reflecting declines in financial services related BPO. Growth in these two services business was offset by double digit declines in infrastructure services and core maintenance. Within infrastructure services we continue to deliberately shift out of some lower margin project work in this area but we also saw an impact from clients slowing down on IT infrastructure improvement programs in an uncertain business environment.
The decline in core maintenance was higher this quarter than we have seen recently. This was mainly due to lower maintenance on high volume, high margin check sorting equipment. The declines in infrastructure services and core maintenance were disappointing to us given the revenue softness weâ€™re seeing there we need to reduce our cost space and our break even point in this business. Iâ€™ll discuss our planned actions in a few moments.
Our Technology results in the quarter reflected the ending of the royalty revenue from NUL. If you exclude that quarterly revenue from our Technology results a year ago our Technology revenue was down about 3% in the quarter. ClearPath revenue actually grew on an organic basis when you strip out the NUL royalty revenue in the year ago quarter. At the bottom line our operating profit on a GAAP basis increased significantly in the quarter but on a non-GAAP basis excluding retirement related expenses and cost reduction charges our operating profits declined year over year.
Cash flow from operations in the quarter more than doubled to $52 million and excluding one time tax benefit a year ago our cash flow increased nearly $90 million year over year. Janet will provide more details on our financial results in her comments.
Slide three breaks down our profit by segment in the second quarter compared to a year ago. To give you an apples to apples comparison of our progress weâ€™ve shown our margins both reported as well as on a non-GAAP basis excluding retirement related expenses. As you can see our services gross profit margin excluding retirement expense showed nice improvement year over year, continuing the progress weâ€™ve been making in recent years.
At the operating line excluding retirement related expense our services operating profit came in at 3.7% in the second quarter. This was sequentially up from 2% in the first quarter of 2008 but down from the year ago period. We were impacted by the higher pre-sales expense in the quarter as well as lower revenue volume in infrastructure services and core maintenance against a fixed cost base. In our Technology business, due to the ending of the NUL royalty stream both our gross margin and operating margin declined year over year.
Before I move into actions to reduce our cost structure please turn to slide four for an overview of the demand trends weâ€™re seeing in the business environment. Overall our services order grew low single digits in the quarter. We saw order gains in outsourcing orders partially offset by order declines in project based services.
Organizations are reacting defensively in the current economic environment. They are undertaking IT projects only where there is a clear payback in terms of cost savings such as outsourcing, open source software and server virtualization and consolidation or in critical strategic areas such as IT security services.
In terms of industries I mentioned the weaknesses weâ€™re seeing in financial services orders and revenue both declined in our financial services practice in the quarter. Our transportation business was also soft as our airline and cargo customers contend with higher fuel prices. On the other hand our public sector business is holding up well. We saw double digit order gains in the public sector both in the US and Internationally. This included the second consecutive quarter of order gains in our Federal business.
Within this overall mix picture we continue to see the strongest demand trends for our strategic programs that we launched at the start of our repositioning effort. Just as a reminder the programs we are focused on for future growth are enterprise security, outsourcing, open source services, Microsoft services and real time infrastructure and virtualization solutions.
In slide five you can see how far weâ€™ve come with these strategic programs since starting the repositioning effort at the end of 2005. In 2006 revenue from these strategic programs accounted for about 50% of our overall revenue. Revenue grew about 10% in 2007 and by the end of the year these programs accounted for approximately 55% of our overall revenue. Through six months in 2008 revenue from our strategic programs has grown about 8% and these businesses now account for almost 60% of our total revenue.
Excluding outsourcing which is a much larger more mature market than the others and growing more slowly, our strategic program revenue year to date has grown 14%. To give you a sense of the opportunity that exists in these newer markets we are pursuing a pipeline of deals worth over $16 billion in our strategic programs. Within that pipeline weâ€™re going after more than 35 deals each worth over $100 million in contract value.
As just a few examples of the kinds of strategic deals we are winning; in enterprise security during the second quarter we closed a significant contract to help the Angola Ministry of Justice implement a new citizen ID card program. Weâ€™re part of companies led by DGM Sistemas. I mentioned this project earlier in the year and we were able to close our subcontract with the prime contractor during the quarter. The program will involve issuing some 20 million ID cards to citizens to reduce fraud and modernize the countries criminal registry.
In the UK we won an approximately $63 million contract to create and manage a public information network and security service for Kent County Council, one of the largest county councils in that country. We are pursuing similar contracts with other county councils in the UK as well.
We are also seeing strong growth in our open source program, particularly in cost sensitive markets such as the one weâ€™re seeing today. Open source technology offers organizations great potential in terms of cost savings around software development and modernization. In addition to the US and Federal markets, demand for open source has traditionally high.
Weâ€™re seeing growing interest in our open source solutions in the United Kingdom, Europe, Latin America and emerging countries such as China. In the second quarter we won quite a number of new engagements in these regions involving open source services.
Weâ€™re also already winning key deals around the new technology base real time infrastructure portfolio that we started rolling out earlier this year. In the second quarter for example we won a contract to help Nationwide Building Society in the UK with a major storage and solution optimization project to reduce costs and space requirements. Weâ€™re excited by these wins because they show our strategy is working and that we are delivering the kind of fresh, relevant service and solutions that organizations are looking for today.
Turning to slide six, despite the challenging market we continue to make progress in repositioning Unisys in the marketplace and transitioning to a new more profitable business model. Our cash flow has improved significantly. Orders continue to grow. Services gross margins are improving. Weâ€™re winning major deals and weâ€™re seeing continued growth in our strategic programs in outsourcing, security, RTI and open source.
Weâ€™re encouraged by the improvement weâ€™re seeing in our systems integration and consulting business. Progress in these areas is being offset by declines in other traditional businesses as we knew it would. Unfortunately right now this fundamental transition in the business is being impacted by weakness in some of our key markets.
Looking forward we continue to target a financial goal for the business of an 8% to 10% operating profit margin excluding retirement expense. The business environment is making this goal more challenging over the near term. Longer term we are confident we can get there. We are driving the business to achieve the low end of the 8% to 10% range for the second half of 2008. Given what we are seeing in the market itâ€™s clear to us that we need to take additional steps to further focus our business and continue our progress toward this margin goal.
As you can see in slide seven we will be pursuing a three-fold plan over the second half of 2008. First weâ€™re taking actions to adjust our services portfolio around providing solutions that offer clients more of an immediate short-term value proposition in terms of cost payback. In our financial services practice for instance, weâ€™ve recently brought on a new leader with 30 years experience in banking and in consulting firms to rebuild our portfolio in our financial services and our other industry practices. Under his leadership we will be launching a refreshed set of solutions for financial services in the next 30 days.
Second, weâ€™re taking additional actions to address the weaknesses in our infrastructure services and core maintenance business. Our infrastructure service and core maintenance business are closely tied. The services are delivered by generally the same work force. The majority of our revenue softness in these areas is in three regions; the US, the UK and Germany.
In each region we recently hired highly experienced leaders from the likes of IBM, CSC and EDS to lead these businesses and drive profitable growth. As part of this reengineering we will be reducing our resources, a combination of contractors and Unisys employees by about 800 full time equivalents in the second half of the year. We will do this through productivity gains, attrition management and reduced use of third party contractors. We are not taking a special restructuring charge to complete the actions.
Third, on a strategic level we recognize that to succeed in todayâ€™s market we need to either be very big and highly diversified or else smaller and highly focused. We believe the best path forward is the later one to build on the work weâ€™ve done and further focus and refine our business model. In recent months weâ€™ve been working with our Board of Directors on evaluating portfolio rationalization options to unlock value in our business and drive growth and success in the marketplace. We are in the final stages of this evaluation process.
While the going is getting a bit more difficult right now, step by step weâ€™re positioning Unisys in the center of some of the most dynamic growing markets in the IT services industry we believe the work weâ€™re doing will have significant benefits for our investors, our clients and our employees.
Thank you again for joining us this morning. Now Iâ€™ll turn the call over to Janet for a more in depth review of our financials.
This morning I will provide more details on our second quarter 2008 financial results including cash flow. To begin please turn to slide eight for an overview of our second quarter 2008 results. At the top line we reported revenue of $1.34 billion in the quarter down 3% year over year. Currency had a four percentage point positive impact on our revenue in the quarter. We anticipate a similar four percentage point positive impact on revenue in the third quarter.
Our second quarter 2008 results include $8 million of net cost reduction related charges compared with $24 million pre-tax cost reduction charge in the year ago quarter. Pre-tax retirement related expense was $5.8 million in the quarter compared to $24.5 million a year ago. We still expect full year pre-tax retirement related expense to be around zero for the full year.
Including these items we reported second quarter 2008 operating income of $22.6 million compared with the second quarter 2007 operating income of $2.5 million. Interest expense increased by $2.5 million year over year primarily reflecting higher interest rates and debt levels. On a pre-tax basis we reported a pre-tax loss of $10.4 million in the quarter compared with a pre-tax loss of $24.9 million a year ago. Tax expense was $3.6 million in the quarter compared with $40.6 million of tax expense in the year ago period.
At the bottom line after taxes we reported a second quarter 2008 net loss of $14 million or $0.04 per share. By comparison in the year ago quarter including the restructuring charge we reported a net loss of $65.5 million or $0.19 per share. As we have done in previous quarters at the end of these presentation slides we have provided supplemental slides showing details on the cost reduction charges and retirement related expense.
Please turn to slide 9 for an overview of our second quarter revenue by geography. Our US revenue declined 3% in the quarter driven primarily by softness in financial services. The US represented 43% of our revenue in the second quarter. International revenue accounted for 57% of our overall revenue in the second quarter and declined 2%. On a constant currency basis international revenue declined 10% in the quarter. The decline was primarily driven by weakness in financial services and the ending of the $19 million of NUL royalty revenue in the quarter.
Services orders showed single digit growth in the quarter. At June 30, 2008, we had $7.17 billion in services backlog which was up 6% versus June 30, 2007, and up 3% from services backlog at March 31, 2008.
Slide 10 shows our second quarter revenue by business segment. Services revenue declined 1% in the quarter and represented 89% of our second quarter revenue. Technology revenue declined 14% and represented 11% of our revenue in the quarter. For more detail on our services revenue please turn to slide 11. Our systems integration and consulting revenue grew 5% in the quarter and represented 33% of our revenue.
Outsourcing grew 3% and represented 43% of our services revenue in the quarter. Within outsourcing ITO has been growing at a consistent rate in 2007 and the first half of 2008. BPO revenue has declined particularly from our financial services BPO as expected resulting from the decreased check processing volumes.
Infrastructure services revenue declined 14% in the quarter as Joe discussed earlier. Core maintenance declined 12% in the quarter which was higher than the 8% to 10% secular trends weâ€™ve been seeing in this business attributable to declines in the maintenance of high end check sorters as Joe mentioned in his comments.
Slide 12 provides more detail on our technology revenue in the quarter. Technology revenue declined 14% in the quarter primarily reflecting the ending of the $19 million in quarterly revenue from our licensing agreement with Nihon Unisys Limited which ended March 31. Excluding the NUL royalty revenue from the year ago period our technology revenue declined 3.5% in the quarter. The NUL royalty revenue and margin flow through both enterprise servers and specialized equipment.
Enterprise server revenue declined 10% in the quarter. Excluding NUL revenue our ClearPath server revenue was up in the quarter. Specialized equipment revenue declined 28% in the quarter primarily reflecting the impact of the ending of the NUL royalty revenue.
Moving to operating expenses on slide 13, our operating expenses while down on a GAAP basis increased on a non-GAAP basis driven by increased pre-sales investments particularly in our Federal business as well as some currency impact.
Please turn to slide 14 for an overview of our cash flow in the second quarter of 2008. The company generated $52 million of cash from operations in the quarter compared with operational cash flow of $23 million in the second quarter of 2007. The year ago quarter included a $58 million cash tax refund. Excluding that one time refund our cash from operations increased by $87 million from the second quarter of 2007. The improvement in cash flow was primarily driven by lower cash restructuring payments and improved working capital management.
We used approximately $22 million of cash in the quarter for restructuring compared with $37 million for restructuring payments in the second quarter of 2007. Total capital expenditures were $71 million for the second quarter compared to $84 million in the year ago period. After deducting capital expenditures we used $19 million of free cash in the second quarter of 2008 compared to a free cash usage of $61 million in the year ago quarter.
Depreciation and amortization was $99 million in the second quarter of 2008 and looking ahead for the full year of 2008 we continue to anticipate capital expenditures of around $300 million and depreciation and amortization to be in the $360 to $380 million range. We closed the quarter with $471 million of cash on hand. That concludes my comments this morning now Iâ€™d like to turn the call over to Jack for questions.