SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C.  20549
                    __________________________________

                                FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004March 31, 2005

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________.

                        Commission file number 1-8729


                             UNISYS CORPORATION
            (Exact name of registrant as specified in its charter)

               Delaware                            38-0387840
       (State or other jurisdiction             (I.R.S. Employer
       of incorporation or organization)        Identification No.)

               Unisys Way
        Blue Bell, Pennsylvania                          19424
       (Address of principal executive offices)        (Zip Code)

Registrant's telephone number, including area code:  (215) 986-4011


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  YES [X]    NO [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  YES [X]    NO [ ]

     Number of shares of Common Stock outstanding as of September 30, 2004:
335,930,924.March 31, 2005
338,840,423.



 2

Part I - FINANCIAL INFORMATION
Item 1.  Financial Statements.

                             UNISYS CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                                (Millions)


                                          Sept. 30,
                                            2004March 31,
                                            2005       December 31,
                                         (Unaudited)       20032004
                                         -----------   ------------
Assets
- ------
Current assets
Cash and cash equivalents                 $573.7       $  635.9441.6       $  660.5
Accounts and notes receivable, net         962.0        1,027.8
Inventories1,050.1        1,136.8
Inventories:
   Parts and finished equipment               102.2          121.792.2           93.7
   Work in process and materials             117.7          116.9130.4          122.4
Deferred income taxes                        295.0          270.0
Other292.1          291.8
Prepaid expenses and other current assets    104.9           85.7139.5          112.4
                                          --------       --------
Total                                      2,155.5        2,258.02,145.9        2,417.6
                                          --------       --------

Properties                                 1,364.9        1,352.71,271.3        1,305.5
Less-Accumulated depreciation and
  amortization                               952.5          928.5863.8          881.4
                                          --------       --------
Properties, net                              412.4          424.2407.5          424.1
                                          --------       --------
Outsourcing assets, net                      510.9          477.5433.3          431.9
Marketable software, net                     341.3          332.2340.5          336.8
Investments at equity                        166.4          153.3210.4          197.1
Prepaid pension cost                          49.2           55.549.4           52.5
Deferred income taxes                      1,385.7        1,384.61,394.6        1,394.6
Goodwill                                     185.3          177.5188.4          189.9
Other long-term assets                       203.5          211.8164.3          176.4
                                          --------       --------
Total                                     $5,410.2       $5,474.6$5,334.3       $5,620.9
                                          ========       ========
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities
Notes payable                             $    20.02.7       $    17.71.0
Current maturities of long-term debt           150.8            2.21.5          151.7
Accounts payable                             392.6          513.8365.6          487.4
Other accrued liabilities                  1,233.5        1,305.71,291.5        1,316.1
Income taxes payable                            153.5          214.1-            66.6
                                          --------       --------
Total                                      1,950.4        2,053.51,661.3        2,022.8
                                          --------       --------
Long-term debt                               899.5        1,048.3898.6          898.4
Accrued pension liabilities                  471.6          433.6573.3          537.9
Other long-term liabilities                  551.1          544.0708.6          655.3

Stockholders' equity
Common stock, shares issued: 2005, 340.8;
   2004, 337.9;
   2003, 333.8339.4                                 3.4            3.33.4
Accumulated deficit                       (341.3)      (  414.8)421.7)      (  376.2)
Other capital                              3,869.4        3,818.63,895.8        3,883.8
Accumulated other comprehensive loss      (1,993.9)      (2,011.9)(1,985.0)      (2,004.5)
                                          --------       --------
Stockholders' equity                       1,537.6        1,395.21,492.5        1,506.5
                                          --------       --------
Total                                     $5,410.2       $5,474.6$5,334.3       $5,620.9
                                          ========       ========

See notes to consolidated financial statements.



 3

                              UNISYS CORPORATION
                CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                     (Millions, except per share data)


                                         Three Months Nine Months
                                    Ended September 30      Ended September 30
                                    ------------------      ------------------March 31
                                         ---------------------------
                                             2005           2004      2003         2004      2003
                                     --------  --------
                                           --------       --------

Revenue
  Services                                 $1,147.1  $1,124.3     $3,470.9  $3,394.7$1,107.7       $1,165.0
  Technology                                  298.6     325.4        825.8     878.9258.9          297.9
                                           --------       --------
                                            --------  --------
                                      1,445.7   1,449.7      4,296.7   4,273.61,366.6        1,462.9
Costs and expenses
   Cost of revenue:
     Services                                 965.7     886.1      2,821.6   2,675.4981.4          925.7
     Technology                               139.0     138.5        375.5     393.9124.9          145.7
                                           --------       --------
                                            --------  --------
                                      1,104.7   1,024.6      3,197.1   3,069.31,106.3        1,071.4

Selling, general and administrative           expenses             303.7     251.0        837.8     737.1261.6          261.2
Research and development                       expenses      75.3      68.2        218.1     198.764.9           71.5
                                           --------       --------
                                            --------  --------
                                      1,483.7   1,343.8      4,253.0   4,005.1
                                     --------  --------1,432.8        1,404.1
                                           --------       --------
Operating income (loss)                       (38.0)    105.9         43.7     268.5(66.2)          58.8

Interest expense                               16.2      17.2         51.4      51.312.6           17.0
Other income (expense), net                      (3.0)     (4.7)        21.6       2.5
                                     --------  --------.5             .6
                                           --------       --------
Income (loss) before income taxes             (57.2)     84.0         13.9     219.7(78.3)          42.4
Provision (loss)(benefit) for income taxes          (82.4)     27.8        (59.6)     72.5
                                     --------  --------(32.8)          13.5
                                           --------       --------
Net income (loss)                          $  25.2(45.5)      $   56.2     $   73.5  $  147.228.9
                                           ========       ========
========  ========

Earnings (loss) per share
   Basic                                   $   .08(.13)      $    .17     $    .22  $    .45
                                     ========  ========.09
                                           ========       ========
   Diluted                                 $   .07(.13)      $    .17     $    .22  $    .44
                                     ========  ========.09
                                           ========       ========


See notes to consolidated financial statements.


 4

                           UNISYS CORPORATION
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                (Millions)

                                                    NineThree Months Ended
                                                         September 30
                                                    -----------------March 31
                                                    ------------------
                                                       2005      2004
                                                    2003
                                                    --------   ---------------

Cash flows from operating activities
Net income (loss)                                  $  73.5(45.5)   $  147.2
Add(deduct)28.9
Add (deduct) items to reconcile net income (loss)
   to net cash provided by operating activities:
Equity loss (income)                                    4.3      ( 5.3)
Depreciation and amortization of properties            30.0       35.8
Depreciation and amortization of outsourcing assets    181.7      154.934.7       26.6
Amortization of marketable software                    96.6       92.2
(Increase)28.5       29.3
Increase in deferred income taxes, net               (25.3)    (   2.5).3)     ( 1.4)
Decrease (increase) in receivables, net                           97.2     ( 32.3)
Decrease90.5       54.2
Increase in inventories                              19.1       43.0(  6.5)     (19.1)
(Decrease) increase in accounts payable and other
  accrued liabilities                                (207.5)    (192.8)
(Decrease) increase(158.5)       8.2
Decrease in income taxes payable                      (52.6)      19.8(66.6)      (8.0)
Increase (decrease) in other liabilities                          19.8     ( 44.0)
(Increase)97.7         -
Increase in other assets                              (34.0)    ( 29.9)(16.4)     (25.4)
Other                                                  44.7        6.534.9        5.4
                                                    -------     ------
Net cash provided by operating activities              213.2      162.126.8      129.2
                                                    -------     ------
Cash flows from investing activities
   Proceeds from investments                        4,423.4    3,626.11,779.9    1,408.3
   Purchases of investments                        (4,427.4)  (3,663.2)(1,776.8)  (1,413.7)
   Investment in marketable software                  (88.8)    (109.4)(33.0)    ( 29.0)
   Capital additions of properties                    and(22.4)    ( 36.5)
   Capital additions of outsourcing assets            (192.4)    (177.9)
   Purchases of businesses                            (18.6)(41.9)    ( 2.0)47.6)
                                                   -------     ------
Net cash used for investing activities                (303.8)    (326.4)(94.2)  (  118.5)
                                                    -------     ------
Cash flows from financing activities
   Net reduction inproceeds from short-term borrowings              (1.0)    ( 57.0)1.7       10.6
   Proceeds from employee stock plans                   30.9       21.06.6       11.1
   Payments of long-term debt                       ( 2.3)150.3)    (  3.8)
   Proceeds from issuance of long-term debt             -        293.31.0)
                                                    -------     ------
Net cash (used for) provided by financing activities 27.6      253.5(142.0)      20.7
                                                    -------     ------
Effect of exchange rate changes on
   cash and cash equivalents                           .8       11.7(9.5)       4.1
                                                    -------     ------

Increase (decrease)(Decrease) increase in cash and cash equivalents     (62.2)     100.9(218.9)      35.5
Cash and cash equivalents, beginning of period        660.5      635.9      301.8
                                                    -------    -------
Cash and cash equivalents, end of period            $ 573.7441.6    $ 402.7671.4
                                                    =======    =======



See notes to consolidated financial statements.


 5

UNISYS CORPORATIONUnisys Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In the opinion of management, the financial information furnished
herein reflects all adjustments necessary for a fair presentation of
the financial position, results of operations and cash flows for the
interim periods specified.  These adjustments consist only of normal
recurring accruals except as disclosed herein.  Because of seasonal and other
factors, results for interim periods are not necessarily indicative of the
results to be expected for the full year.

a. The following table shows how earnings (loss) per share were computed for the
   three and nine months ended September 30,March 31, 2005 and 2004 and 2003 (dollars in millions, shares
   in thousands):
                                                  Three Months Ended Nine Months Ended
                                    September 30             September 30
                                  ------------------      ------------------March 31,
                                                  ----------------------------
                                                      2005            2004
                                                   2003         2004       2003
                                  -------    -------      -------    ------------------     ----------
    Basic Earnings (Loss) Per Share

    Net income (loss)                              $   25.2(45.5)      $    56.2      $  73.5    $ 147.2
                                  =======    =======      =======    =======28.9
                                                   =========       =========
    Weighted average shares                          335,576    330,033      334,236    328,675
                                  =======    =======      =======    =======338,248         332,722
                                                   =========       =========
    Basic earnings (Loss) per share                $    .08(.13)      $     .17      $   .22    $   .45
                                  =======    =======      =======    =======.09
                                                   =========       =========
    Diluted Earnings (loss) Per Share

    Net income (loss)                              $   25.2(45.5)      $    56.2      $  73.5    $ 147.2
                                  ========   =======      =======    =======28.9
                                                   =========       =========
    Weighted average shares                          335,576    330,033      334,236    328,675338,248         332,722
    Plus incremental shares from assumed
      exercises
      underconversions of employee stock plans                1,786      3,946        3,823      2,642
                                  -------    -------      -------    --------             5,326
                                                   ---------       ---------
    Adjusted weighted average shares                 337,362    333,979      338,059    331,317
                                  =======    =======      =======    =======338,248         338,048
                                                   =========       =========
    Diluted earnings (loss) per share              $    .07(.13)      $     .17      $   .22    $   .44
                                  =======    =======      =======    =======.09
                                                   =========       =========

    At September 30, 2004, 35.9 millionMarch 31, 2005, no shares related to employee stock plans
    were not included in the computation of diluted earnings per share since
    inclusion of these shares would be antidilutive because
    the option prices are above the average market price of the company's common
    stock.

b.  As part of its ongoing efforts to reduce its cost base and enhance its
    administrative efficiency, on September 30, 2004, the company consolidated
    facility space and committed to a reduction of approximately 1,400
    employees, primarily in general and administrative areas.  These actions
    resulted in a pretax charge of $82.0 million, or $.18 per diluted share.
    The charge related to headcount reductions is approximately $75.3 million
    and is broken down as follows:  (a) approximately 750 employeesnet loss
    incurred in the U.S.
    for a charge of about $23.2 million and (b) 650 employees outside the U.S.
    for a charge of about $52.1 million.  The charge for employee reductions is
    principally related to severance costs.  Other employee-related costs are
    not significant.  The facility charge of approximately $6.7 million relates
    principally to a single U.S. leased property that as of September 30, 2004
    the company ceased using.  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 employee reductions are expected to be substantially completed by the
    end of the second quarter ofthree months ended March 31, 2005.

The company estimates that the cash
    requirements for the cost reduction actions will be about $85 million,
    mostly in 2005.  The company anticipates that these actions will yield
    approximately $70 million of annualized cost savings on a run-rate basis by
    the end of 2005, thereby making the company better able to compete in the
    marketplace.

    The pretax charge was recorded in the following statement of income
    classifications:  cost of revenue-services, $28.1 million; selling, general
    and administrative expenses, $50.2 million; research and development


 6

    expenses, $8.4 million; and other income (expense), net, $4.7 million.  The
    income recorded in other income (expense), net relates to minority
    shareholders' portion of the charge related to a 51% owned subsidiary which
    is fully consolidated by the company.

c.  During the September 2004 quarter, the U.S. Congressional Joint Committee on
    Taxation approved an income tax refund to the company related to the
    settlement of tax audit issues dating from the mid-1980s.  The refund,
    including interest, is approximately $40 million and is recorded in current
    accounts receivable in the company's consolidated balance sheet.  After
    payment of related state taxes, the company expects a net cash refund of
    approximately $30 million by the end of 2004 or in early 2005.  As a result
    of the resolution of these audit issues, the company has recorded favorable
    adjustments to its existing tax liability reserves, which resulted in an
    after-tax benefit of $68.2 million, or $.20 per diluted share, to net income
    in the third quarter of 2004.

d.b.  The company has two business segments:  Services and Technology.  Revenue
    classifications by segment are as follows:  Services - consulting and
    systems integration, 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 profits 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 engagements.  The amount of such profit included in operating
    income of the Technology segment for the three and nine months ended September 30,March 31, 2005
    and 2004 and 2003 was $7.2$4.8 million and $6.7 million, and $9.8
    million and $18.6$1.4 million, respectively.  The profit on
    these transactions isare eliminated in Corporate. 6

    The company evaluates business segment performance on operating income
    exclusive of restructuring 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.

     7

    A summary of the company's operations by business segment for the three and
    ninethree-
    month periods ended September 30,March 31, 2005 and 2004 and 2003 is presented below (in millions
    of dollars):

                               Total    Corporate    Services    Technology
    Three Months Ended         -----    ---------    --------    ----------
      September 30,March 31, 2005
    ------------------

    Customer revenue         $1,366.6                $1,107.7     $ 258.9
    Intersegment                         $( 59.9)         4.8        55.1
                              --------   --------    --------     -------
    Total revenue            $1,366.6    $( 59.9)    $1,112.5     $ 314.0
                             ========    =======     ========     =======
    Operating income (loss)  $  (66.2)   $ (10.4)    $  (75.1)    $  19.3
                             =========   =======     ========     =======

    Three Months Ended
      March 31, 2004
    ------------------
    Customer revenue         $1,445.7                $1,147.1     $298.6$1,462.9                $1,165.0     $ 297.9
    Intersegment                        $(63.6)          5.2       58.4$(  45.7)         4.8        40.9
                             --------   ---------------     --------      ------
    Total revenue            $1,445.7    $(63.6)     $1,152.3     $357.0$1,462.9   $(  45.7)    $1,169.8      $338.8
                             ========   ===============     ========      ======
    Operating income         (loss)  $   (38.0)   $(85.4)58.8   $     (2.3).4     $   49.729.2     $  29.2
                             ========   ========     ========     =======    =========     ======
    Three Months Ended
    September 30, 2003
    ------------------
    Customer revenue         $1,449.7               $1,124.3    $  325.4
    Intersegment                         $(66.4)         7.3        59.1
                             --------   -------     --------    --------
    Total revenue            $1,449.7    $(66.4)    $1,131.6    $  384.5
                             ========    ======     ========    ========
    Operating income (loss)  $  105.9    $ (1.3)    $   43.8    $   63.4
                             ========    ======     ========    ========
    Nine Months Ended
    September 30, 2004
    ------------------
    Customer revenue         $4,296.7               $3,470.9    $  825.8
    Intersegment                        $(166.6)        14.5       152.1
                             --------   -------     --------    --------
    Total revenue            $4,296.7   $(166.6)    $3,485.4    $  977.9
                             ========   =======     ========    ========
    Operating income (loss)  $   43.7   $ (85.4)    $   35.1    $   94.0
                             ========   =======     ========    ========
    Nine Months Ended
    September 30, 2003
    ------------------
    Customer revenue         $4,273.6               $3,394.7    $  878.9
    Intersegment                        $(225.6)        19.2       206.4
                             --------   -------     --------    --------
    Total revenue            $4,273.6   $(225.6)    $3,413.9    $1,085.3
                             ========   =======     ========    ========
    Operating income (loss)  $  268.5   $(  3.6)    $  142.3    $  129.8
                             ========   =======     ========    ========

    Presented below is a reconciliation of total business segment operating
    income (loss) to consolidated income (loss) before income taxes (in
    millions of dollars):

                                            Three Months Ended Nine Months Ended
                                         September 30,        September 30,
                                       ------------------   -----------------March 31
                                            ---------------------------
                                                   2005         2004      2003       2004      2003
                                         ----      ----
                                                   ----         ----
    Total segment operating income (loss)        $ 47.4    $107.2     $129.1    $272.1(55.8)       $ 58.4
    Interest expense                               (16.2)    (17.2)     (51.4)    (51.3)(12.6)        (17.0)
    Other income (expense), net                       (3.0)    ( 4.7)      21.6       2.5.5            .6
    Corporate and eliminations                     1.3     ( 1.3)       1.3     ( 3.6)
   Cost reduction charge                 (86.7)               (86.7)
                                        ------    ------(10.4)           .4
                                                  ------        ------
    Total income (loss) before $(57.2)   $ 84.0     $ 13.9    $219.7
   income taxes      $ (78.3)       $ 42.4
                                                 =======        ======    ======     ======    ======


 8

    Customer revenue by classes of similar products or services, by segment, is
    presented below:below (in millions of dollars):

                                            Three Months Ended Nine Months Ended
                                        September 30,         September 30,
                                     ------------------    ------------------March 31
                                            ---------------------------
                                                  2005           2004       2003        2004      2003
                                        ----       ----
                                                  ----           ----
    Services
     Consulting and systems integration         $  403.3369.8      $  378.9    $1,194.3  $1,121.3377.1
     Outsourcing                                   411.8      396.2     1,274.2   1,227.3420.7         443.0
     Infrastructure services                       193.1      207.5       572.6     620.1186.2         199.5
     Core maintenance                              138.9      141.7       429.8     426.0131.0         145.4
                                                --------      --------
                                                 --------   -------
                                      1,147.1    1,124.3     3,470.9   3,394.71,107.7       1,165.0
    Technology
     Enterprise-class servers                      249.6      249.7       636.9     661.3198.2         201.8
     Specialized technologies                       49.0       75.7       188.9     217.660.7          96.1
                                                --------      --------
                                                   --------  --------
                                        298.6      325.4       825.8     878.9
                                      --------  --------258.9         297.9
                                                --------      --------
    Total                                       $1,445.7   $1,449.7    $4,296.7  $4,273.6$1,366.6      $1,462.9
                                                ========      ========



========  ========

e. 7

c.  Recoverability of outsourcing assets is dependent on various factors,
    including the timely completion and ultimate cost of the outsourcing
    solution, realization of expected profitability of existing outsourcing
    contracts and obtaining additional outsourcing customers.  The company
    quarterly compares the carrying value of the outsourcing assets with the
    undiscounted future cash flows expected to be generated by the outsourcing
    assets to determine if there is an impairment.  If impaired, the outsourcing
    assets are reduced to an estimated fair value on a discounted cash flow
    approach.  The company prepares its cash flow estimates based on assumptions
    that it believes to be reasonable but are also inherently uncertain.  Actual
    future cash flows could differ from these estimates.  At March 31, 2005,
    total outsourcing assets, net were $433.3 million, approximately $250
    million of which relate to iPSL, a 51% owned U.K.-based company.

d.  Comprehensive income (loss) for the three and nine months ended September 30,March 31, 2005 and
    2004
   and 2003 includes the following components (in millions of dollars):

                                                          Three Months Ended   Nine Months Ended
                                        September 30,         September 30,
                                       ------------------   -----------------2005       2004
                                                        2003       2004      2003
                                         ----      ----       ----      ----------     ------
    Net income (loss)                                   $(45.5)    $ 25.2    $ 56.2     $73.5     $147.228.9
    Other comprehensive income (loss)
      Cash flow hedges
        Income (loss), net of tax of $(.1), $(2.5), $.3,$1.3 and $(5.1)       (.2)     (4.6)       .7       (9.4)$(1.0)       2.3       (1.6)
        Reclassification adjustments, net of tax
        of $.6, $1.1 ,$2.2,$.7 and $3.1                             1.3       2.0       4.2        5.8$1.7                                    1.4        3.1
      Foreign currency translation adjustments            6.1       7.2      13.1       38.1
                                        ------    ------15.8       20.2
                                                        ------     ------
    Total other comprehensive income                      7.2       4.6      18.0       34.5
                                        ------    ------19.5       21.7
                                                        ------     ------
    Comprehensive income (loss)                         $(26.0)    $ 32.4    $ 60.8     $91.5     $181.7
                                        ======    ======50.6
                                                        ======     ======

    Accumulated other comprehensive income (loss) as of December 31, 2004 and
    March 31, 2005 is as follows (in millions of dollars):

                                                          Cash    Minimum
                                            Translation   Flow    Pension
                                     Total  Adjustments  Hedges  Liability
                                     -----  -----------  ------  ---------
    Balance at December 31, 2002   $(2,236.9)  $(745.0)2003  $(2,011.9)  $(679.7)   $( 1.5) $(1,490.4)6.6) $(1,325.6)
    Change during period                225.0      65.3     ( 5.1)     164.8
                                   ---------7.4      43.5       3.1      (39.2)
                                   --------   -------    ------  ---------
    Balance at December 31, 2003    (2,011.9)   (679.7)2004   (2,004.5)   (636.2)    ( 6.6)  (1,325.6)3.5)  (1,364.8)
    Change during period               18.0      13.1       4.9
                                   ---------19.5      15.8       3.7       -
                                   --------   -------    ------  ---------
    Balance at September 30, 2004  $(1,993.9)  $(666.6)March 31, 2005     $(1,985.0)  $(620.4)   $   (1.7) $(1,325.6)
                                   =========.2  $(1,364.8)
                                   ========   =======    ======  =========

f.e.  The amount credited to stockholders' equity for the income tax benefit
    related to the company's stock plans for the ninethree months ended September 30,March 31,
    2005 and 2004 and 2003 was $3.6$.4 million and $3.1$1.6 million, respectively. The company
    expects to realize these tax benefits on future Federal income tax returns.

g.f.  For equipment manufactured by the company, the company warrants that it will
    substantially conform to relevant published specifications for 12 months
    after shipment to the customer.  The company will repair or replace, at its
    option and expense, items of equipment that do not meet this warranty.  For 9
    company software, the company warrants that it will conform substantially to
    then-current published functional specifications for 90 days from customer's
    receipt.  The company will provide a workaround or correction for material
    errors in its software that prevents its use in a production environment.

    The company estimates the costs that may be incurred under its warranties
    and records a liability in the amount of such costs at the time revenue is
    recognized.  Factors that affect the company's warranty liability include
    the number of units sold, historical and anticipated rates of warranty
    claims and cost per claim.  The company quarterly assesses the adequacy of
    its recorded warranty liabilities and adjusts the amounts as necessary.
    Presented below is a reconciliation of the aggregate product warranty
    liability (in millions of dollars):


PAGE> 8

                                                 Three Months Ended Nine Months Ended
                                           September 30,       September 30,
                                         ------------------  -----------------March 31,
                                                 ----------------------------
                                                       2005        2004    2003        2004    2003
                                           ----    ----
                                                       ----        ----
    Balance at beginning of period                    $15.0   $21.1$11.6       $20.8   $19.2

    Accruals for warranties issued
      during the period                                 2.0     5.5         9.1    17.22.4         5.0

    Settlements made during the period                 (3.8)(2.9)       (4.7)      (12.7)  (13.8)

    Changes in liability for pre-existing warranties
      during the period, including expirations          (.4)    (.8)       (4.4)   (1.5)
                                          -----   -----(.1)       (3.2)
                                                      -----       -----
    Balance at September 30               $12.8   $21.1       $12.8   $21.1March 31                               $11.0       $17.9
                                                      =====       =====

=====   =====

h.g.  The company applies the recognition and measurement principles of APB
    Opinion No. 25, "Accounting for Stock Issued to Employees," and related
    interpretations in accounting for its stock-based employee compensation
    plans.  For stock options, no compensation expense is reflected in net
    income as all stock options granted had an exercise price equal to or
    greater than the market value of the underlying common stock on the date
    of grant.  In addition, no compensation expense is recognized for common
    stock purchases under the Employee Stock Purchase Plan.  Pro forma
    information regarding net income and earnings per share is required by
    Statement of Financial Accounting Standards ("SFAS")(SFAS) No. 123, "Accounting
    for Stock-Based Compensation," and has been determined as if the company
    had accounted for its stock plans under the fair value method of SFAS No.
    123.  For purposes of the pro forma disclosures, the estimated fair value of
    the options isare amortized to expense over the options' vesting period.  The
    following table illustrates the effect on net income and earnings per share
    if the company had applied the fair value recognition provisions of SFAS No.
    123 (in millions of dollars):

                                          Three Months Ended Nine Months Ended
                                         September 30,        September 30,
                                       ------------------   -----------------March 31,
                                          ----------------------------
                                                   2005         2004
                                                  2003       2004      2003
                                         ----      ----       ----      ----------       ------
    Net income (loss) as reported                 $(45.5)      $ 25.2    $ 56.2     $ 73.5    $147.228.9
    Deduct total stock-based employee
      compensation expense determined
      under fair value method for all
      awards, net of tax                            ( 7.6)    (10.4)     (25.3)    (35.2)
                                        ------    ------(5.7)       (10.0)
                                                  ------       ------
    Pro forma net income (loss)                   $(51.2)      $ 17.6    $ 45.8     $ 48.2    $112.018.9
                                                  ======       ======
    ======    ======
   Earnings (loss) per share
      Basic - as reported                         $ .08(.13)      $  .17     $  .22    $  .45.09
      Basic - pro forma                           $ .05(.15)      $  .14     $  .14    $  .34.06
      Diluted - as reported                       $ .07(.13)      $  .17     $  .22    $  .44.09
      Diluted - pro forma                         $ .05(.15)      $  .14     $  .14    $  .34

 10

i..06

h.  Net periodic pension expense (income) for the three and nine months ended September 30,March 31, 2005
    and 2004 and 2003 is presented below (in millions of dollars):

                                     Three Months             Three Months
                                 Ended Sept. 30,March 31, 2005     Ended March 31, 2004     Ended Sept. 30, 2003
                                ----------------------   ----------------------
                                        U.S.    Int'l.            U.S.    Int'l.
                                Total   Plans   Plans    Total    Plans   Plans
                                -----   -----   -----    -----    -----   -----

    Service cost               $ 29.231.7  $ 16.8  $12.419.1   $ 25.412.6  $  14.729.3  $  10.717.1 $ 12.2
    Interest cost                90.3    66.0   24.3      87.0     66.9    20.193.1    65.3     27.8     89.5     65.6   23.9
    Expected return on
      plan assets              (123.9)  (94.7) (29.2)   (124.9)  (100.9)  (24.0)(121.0)  (90.3)   (30.7)  (123.5)  ( 94.8) (28.7)
    Amortization of prior
      service (benefit) cost   (1.6)   (1.9)    .3      (2.8)    (3.0)     .2(  1.3)  ( 1.9)      .6   (  1.4)  (  1.9)    .5
    Recognized net actuarial
      loss                       29.5    23.3    6.2       8.3      5.1     3.2
    Settlement/curtailment
      loss                                                (1.5)            (1.5)44.3    34.1     10.2     28.3     22.2    6.1
                                -----   -----   ------   ------   ------  -----
    Net periodic pension
      expense                   (income)          $23.5$46.8   $26.3   $ 9.520.5  $  22.2  $   8.2  $14.0   $ (8.5)  $(17.2) $  8.7
                                =====  ======   =====   =======  ======= ======

                                     Nine Months               Nine Months
                                 Ended Sept. 30, 2004     Ended Sept. 30, 2003
                                ----------------------   ----------------------
                                        U.S.    Int'l.            U.S.    Int'l.
                                Total   Plans   Plans    Total    Plans   Plans
                                -----   -----   -----    -----    -----   -----

    Service cost                $87.1  $ 50.4   $ 36.7  $ 74.1   $ 44.1  $ 30.0
    Interest cost               270.5   198.3     72.2   260.4    200.5    59.9
    Expected return on
      plan assets              (370.7) (284.2)   (86.5) (376.0)  (302.7)  (73.3)
    Amortization of prior
      service (benefit) cost     (4.6)   (5.7)     1.1    (8.1)    (9.0)     .9
    Recognized net actuarial
      loss                       88.2    69.8     18.4    26.1     15.5    10.6
    Settlement/curtailment
      loss                                                  .7               .7
                                -----   -----   ------   ------   ------  -----
    Net periodic pension
      expense (income)          $70.5   $28.6    $41.9  $(22.8)  $(51.6) $ 28.8
                                =====   =====   ======  =======   ======  ===== 9

    The company currently expects to make cash contributions of approximately
    $66$70 million to its worldwide defined benefit pension plans in 20042005 compared
    with $62.5$62.8 million in 2003.2004.  For the ninethree months ended September 30,March 31, 2005 and
    2004, and 2003, $41.4$15.6 million and $36.0$12.0 million, respectively of cash contributions
    have been made.  In accordance with regulations governing contributions to
    U.S. defined benefit pension plans, the company is not required to fund its
    U.S. qualified defined benefit pension plan in 2004.2005.

    Net periodic postretirement benefit expense for the three and nine months ended
    Sept. 30,March 31, 2005 and 2004 and 2003 is presented below (in millions of dollars):

                                                   Three Months Nine Months
                                               Ended Sept. 30,  Ended Sept. 30,
                                               ---------------  ---------------March 31,
                                                   ----------------------------
                                                       2005          2004    2003     2004    2003
                                                 ----    ----
                                                       ----          ----
    Interest cost                                      $ 3.5   $ 3.6     $10.5   $10.8$3.5         $3.5
    Expected return on assets                           (.1)          -
    Amortization of prior service benefit               (.5)         (.5)
    (1.5)   (1.5)
    Recognized net actuarial loss                       1.6          1.0
                                                       .7       3.0     2.1
                                                -----   -----     -----   ---------         ----
    Net periodic postretirement benefit expense        $ 4.0   $ 3.8     $12.0   $11.4
                                                =====   =====     =====   =====$4.5         $4.0
                                                       ====         ====

    The company expects to make cash contributions of approximately $25$27 million
    to its postretirement benefit plan in 2004.2005.  For the ninethree months ended
    September 30,March 31, 2005 and 2004, $20$7.4 million and $6.0 million, respectively of cash
    contributions have been made.

 11

j.  Substantially all of the company's investments at equity consist of Nihon
    Unisys, Ltd., a publicly traded Japanese company ("NUL").  NUL is the
    exclusive supplier of the company's hardware and software products in Japan.
    The company owns approximately 28% of NUL's outstanding common stock.  Prior
    to January 1, 2004, the company's share of NUL's earnings or losses were
    recorded semiannually in the second quarter and fourth quarter on a quarter-
    lag basis since NUL's quarterly financial results were not available.  Due
    to recent regulatory changes in Japan, NUL is required to publish its
    earnings quarterly.  Accordingly, effective January 1, 2004, the company has
    begun to record its equity earnings in NUL quarterly on a quarter-lag basis,
    and recorded equity income (loss) of $(7.2) million and $7.2 million for the
    three and nine months ended September 30, 2004, respectively.

k.i.  Cash paid during the ninethree months ended September 30,March 31, 2005 and 2004 and 2003 for income
    taxes was $47.0$41.3 million and $63.2$18.4 million, respectively.

    Cash paid during the ninethree months ended September 30,March 31, 2005 and 2004 and 2003 for interest
    was $57.7$16.5 million and $51.4$16.1 million, respectively.

l.  In November 2003, the company purchased KPMG's Belgian consulting business
    for approximately $3.3 million of cash plus assumed liabilities.  The
    preliminary purchase price allocation was completed in December 2003 and
    assumed that the excessj.  Following is a breakdown of the purchase price overindividual components of the assets acquired2004 cost
    reduction action charge (in millions of dollars):

                                                       Work Force
                                                       Reductions*
                                                      -----------       Idle
                                                                       Lease
                               Headcount   Total    U.S.      Int'l.    Cost
    ------------------------------------------------------------------------
    Balance at
      Dec. 31, 2004               851      $81.1   $22.5      $52.9     $5.7
    Utilized                     (401)     (12.6)   (6.6)      (5.1)     (.9)
    Changes in
      estimates and
      liabilities assumed was allocated to goodwill.  An outside company
    completed its appraisal during therevisions                             (3.7)     .1       (3.9)      .1
    Translation                             (1.6)              (1.6)
      adjustments                 ------------------------------------------
    Balance at
      March 2004 quarter.  Approximately $1.5
    million of amortizable intangibles (principally customer relationships) were
    identified31, 2005              450      $63.2   $16.0      $42.3     $4.9
                                  ==========================================
    Expected future
      utilization:
    2005 remaining
      nine months                 450      $50.1   $16.0      $32.2     $1.9
    2006 and recorded.  The intangible assets have a weighted average life
    of approximately 5.5 years. The goodwill from this acquisition has been
    assignedthereafter                     13.1               10.1      3.0

    ------------------------------------------------------------------------

    * Includes severance, notice pay, medical and other benefits.

    Cash expenditures related to the Services segment.

    In Aprilabove actions, as well as cost
    reduction actions taken in years prior to 2004, the company purchased the document services business unit of
    Interpay Nederlands B.V. ("Interpay") for $5.2 million.  This business unit
    processes approximately 110 million paper-related payments a year for Dutch
    banks.  The purchase price was allocated to assets acquired and liabilities
    assumed based on their estimated fair values, and resulted in goodwill of
    $3.4 million.  The acquisition provides  for the company to make contingent
    payments to Interpay based on the achievement of certain future revenue
    levels.  The contingent consideration will be recorded as additional
    goodwill when the contingencies are resolvedthree months
    ended March 31, 2005 and consideration is issued or
    becomes issuable.  The goodwill from this acquisition has been assigned to
    the Services segment.2004 were approximately $14.3 million and $4.0
    million, respectively.

k.  In JuneDecember 2004, the company purchased the security services and identity and
    access management solutions business of ePresence, Inc., whose consultants
    design and implement enterprise directory and security solutions that enable
    identity management within and across organizations.  The purchase price of
    $10.6 million was allocated to assets acquired and liabilities assumed
    based on their estimated fair values.  An outside company completed its
    appraisal during the September 2004 quarter.  Approximately $.7 million of
    amortizable intangible assets (principally customer relationships) were
    identified and recorded.  The intangible assets have a weighted average
    life of approximately 3.8 years.  The goodwill from this acquisition
    (approximately $7.5 million) has been assigned to the Services segment.

    In July 2004, the company purchased Baesch Computer Consulting, Inc., a
    provider of technology solutions and services to the U.S. intelligence and
    defense communities, for $6.0 million.  The purchase price was allocated to
    assets acquired and liabilities assumed based on their estimated fair
    values, and resulted in goodwill of $6.3 million.  The goodwill from this
    acquisition has been assigned to the Services segment.

m.  In January 2003, the Financial Accounting Standards Board ("FASB")(FASB) issued
    interpretationFASB Staff Position No. 46 ("FIN 46")FAS 109-2 (FSP No. 109-2), "Consolidation"Accounting and
    Disclosure Guidance for the Foreign Earnings Repatriation Provisions within
    the American Jobs Creation Act of Variable Interest
    Entities,2004" (the Jobs Act).  FSP No. 109-2
    provides guidance with respect to reporting the potential impact of the


 10

    repatriation provisions of the Jobs Act on an interpretation of ARB 51."enterprise's income tax
    expense and deferred tax liability.  The primary objectives of this
    interpretation are to provide guidanceJobs Act was enacted on October 22,
    2004, and provides for a temporary 85% dividends received deduction on
    certain foreign earnings repatriated during a one-year period.  The
    deduction would result in an approximate 5.25% federal tax rate on the
    identificationrepatriated earnings.  To qualify for the deduction, the earnings must be
    reinvested in the United States pursuant to a domestic reinvestment plan
    established by a company's chief executive officer and approved by a
    company's board of entitiesdirectors.  Certain other criteria in the Jobs Act must
    be satisfied as well.  FSP No. 109-2 states that an enterprise is allowed
    time beyond the financial reporting period to evaluate the effect of the
    Jobs Act on its plan for which control is achieved through means other than through voting rights
    ("variable interest entities") and how to determine when and which business
    enterprise (the "primary beneficiary") should consolidatereinvestment or repatriation of foreign earnings.

    Although the variable
    interest entity.  This new model for consolidation applies to an entity in
    which either (i)company has not yet completed its evaluation of the equity investors (if any) doimpact of
    the repatriation provisions of the Jobs Act, the company does not expect
    that these provisions will have a controllingmaterial impact on its consolidated
    financial interest,position, consolidated results of operations, or (ii)liquidity.
    Accordingly, as provided for in FSP No. 109-2, the equity investment at risk is insufficientcompany has not adjusted
    its tax expense or deferred tax liability to finance that entity's activities without receiving additional subordinated
    financial support from other parties.  In addition, FIN 46 requires thatreflect the primary beneficiary, as well as all other enterprises with a significant
    variable interest in a variable interest entity, make additional
    disclosures.  Certain disclosure requirementsrepatriation
    provisions of FIN 46 were effective for

 12

    financial statements issued after January 31, 2003.the Jobs Act.

    In December 2003,2004, the FASB issued FIN 46Statement of Financial Accounting
    Standards (SFAS) No. 123 (revised December 2003)2004), "Consolidation"Share-Based Payment" (SFAS No.
    123R), which replaces SFAS No. 123 and supersedes APB Opinion No. 25,
    "Accounting for Stock Issued to Employees."  SFAS No. 123R requires all
    share-based payments to employees, including grants of Variable
    Interest Entities" ("FIN 46-R")employee stock
    options, to address certain FIN 46 implementation
    issues.be recognized in the financial statements based on their fair
    values.  The provisionspro forma disclosures previously permitted under SFAS No. 123
    no longer will be an alternative to financial statement recognition.  In
    accordance with a recently-issued Securities and Exchange Commission rule,
    companies will be allowed to implement SFAS No. 123R as of FIN 46 were applicablethe beginning of
    the first interim or annual period that begins after June 15, 2005.  The
    company currently expects that it will adopt SFAS No. 123R on January 1,
    2006.  Under SFAS No. 123R, the company must determine the appropriate fair
    value model to be used for variable interests in entities
    obtained after January 31, 2003.valuing share-based payments, the amortization
    method for compensation cost and the transition method to be used at date of
    adoption.  The permitted transition methods include either retrospective or
    prospective adoption.  Under the retrospective method, prior periods may be
    restated either as of the beginning of the year of adoption or for all
    periods presented.  The prospective method requires that compensation
    expense be recorded for all unvested stock options at the beginning of the
    first quarter of adoption of SFAS No. 123R, while the provisions applicable
    to special purpose entities ("SPE")retrospective methods
    would record compensation expense for all unvested stock options beginning
    with the first period presented.  The company is currently evaluating the
    requirements of SFAS No. 123R and all other variable interests
    obtained after January 31, 2003 did notexpects that adoption of SFAS No. 123R
    will have a material impact on the company's consolidated financial position
    and consolidated results of operations,operations.  The company has not yet determined
    the method of adoption or liquidity.

    Effective March 31,the effect of adopting SFAS No. 123R, and it has
    not determined whether the adoption will result in amounts that are similar
    to the current pro forma disclosures under SFAS No. 123.  See note g.

    In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
    Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
    Transactions" (SFAS No. 153).  SFAS No. 153 eliminates the exception from
    fair value measurement for nonmonetary exchanges of similar productive
    assets in paragraph 21 (b) of APB Opinion No. 29, "Accounting for
    Nonmonetary Transactions," and replaces it with an exception for exchanges
    that do not have commercial substance.  SFAS No. 153 specifies that a
    nonmonetary exchange has commercial substance if the future cash flows of
    the entity are expected to change significantly as a result of the exchange.
    SFAS No. 153 is effective for periods beginning after June 15, 2005.  The
    company adopted the provisionsdoes not expect that adoption of FIN 46-R
    applicable to Non-SPEs created prior to February 1, 2003.  Adoption of
    FIN 46-R had no impactSFAS No. 153 will have a material
    effect on the company'sits consolidated financial position, consolidated results of
    operations, or liquidity.

    OnIn November 2004, the FASB issued SFAS No. 151, "Inventory Costs an
    amendment of ARB No. 43, Chapter 4" (SFAS No. 151).  SFAS No. 151 amends the
    guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
    accounting for abnormal amounts of idle facility expense, handling costs and
    wasted material (spoilage).  Among other provisions, the new rule requires
    that such items be recognized as current-period charges, regardless of
    whether they meet the criterion of "so abnormal" as stated in ARB No. 43.
    SFAS No. 151 is effective for fiscal years beginning after June 15, 2005.
    The company does not expect that adoption of SFAS No. 151 will have a
    material effect on its consolidated financial position, consolidated results
    of operations, or liquidity.


 11

    In May 19, 2004, the FASB issued Staff Position No. FAS 106-2 (FSP No. 106-2),
    "Accounting and Disclosure Requirements Related to the Medicare Prescription
    Drug, Improvement and Modernization Act of 2003", ("FSP No. 106-2") (the Act).  The above Act
    introduces a prescription drug benefit under Medicare, as well as a federal
    subsidy to sponsors of retiree health care benefit plans that provide a
    benefit that is at least actuarially equivalent to Medicare Part D.  FSP No.
    106-2 is effective for the first interim period beginning after June 15,
    2004, and provides that an employer shall measure the accumulated plan
    benefit obligation ("APBO")(APBO) and net periodic postretirement benefit cost,
    taking into account any subsidy received under the Act.  As of September 30, 2004,March 31,
    2005, the company's measurements of both the APBO and the net postretirement
    benefit cost do not reflect any amounts associated with the subsidy becausesubsidy.  Final
    regulations implementing the Act were issued on January 21, 2005.  The final
    regulations clarify how a company should determine actuarial equivalency and
    the definition of a plan for purposes of determining actuarial equivalency.
    The company is currently evaluating these regulations and has not yet
    been able to conclude whether the
    benefits provided bydetermined what effect adoption of FSP No. 106-2 will have on its
    postretirement medical plan are actuarially
    equivalent to Medicare Part D under the Act.consolidated financial position, consolidated results of operations, or
    liquidity.



 1312


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.

Overview
- --------

The company's financial results for the first quarter of 2005 were impacted
by a number of factors that resulted in lower earnings compared with the
year-ago period.  First, the company continued to be impacted by operational
issues in several of its large, transformational business process
outsourcing engagements.  These contracts involve transitioning from the
client's legacy environment to a new, state-of-the-art environment with new
processes and software.  It has taken the company longer than anticipated to
develop the new software and transition to the new processes.  This has
resulted in higher-than-expected costs on the contracts, not only in terms
of creating the new technology and processes, but also in the salary costs
involved in the legacy operation.  The company is addressing these execution
issues but expects the issues to continue to impact its 2005 results.
Second, the company experienced lower demand for project-based assignments and
for its proprietary maintenance services.  The maintenance services decline was
due to server and payment system consolidations and reductions in
certain client accounts.  Given the high profitability of these services,
the lower demand impacted the company's margins in its services business.
Third, in its Technology segment, revenues declined 13% primarily driven by
a 37% decline in sales of specialized equipment.  In addition, the company
experienced a decline in sales of large enterprise servers.  Lower sales of
these systems, which are highly profitable, contributed to the lower
earnings in 2005.  Finally, the company continues to be impacted by
significantly higher pension expense.  Pretax pension expense in the first
quarter of 2005 increased to $47 million compared to $22 million in the
year-ago quarter.  The company expects the challenges in the outsourcing
engagements, the lower proprietary maintenance revenue, the weakness in
high-end enterprise server sales, and the higher pension expense to continue
to impact its financial results in 2005.


Results of Operations
- ---------------------

For the three months ended September 30, 2004,March 31, 2005, the company reported a net loss of
$45.5 million, or $.13 per share, compared with net income of $25.2$28.9 million, or
$.07 per diluted share, compared with $56.2
million, or $.17$.09 per share, for the three months ended September 30, 2003.
During the quarter ended September 30, 2004, the company's results of
operations were affected by two significant items.

During the quarter, the U.S. Congressional Joint Committee on Taxation
approved an income tax refund to the company related to the settlement of
tax audit issues dating from the mid-1980s.  The refund, including interest,
is approximately $40 million.  After payment of related state taxes, the
company expects a net cash refund of approximately $30 million by the end of
2004 or in early 2005.  As a result of the resolution of these audit issues,
the company has recorded favorable adjustments to its existing tax liability
reserves, which resulted in an after-tax benefit of $68.2 million, or $.20
per diluted share, to net income in the third quarter ofMarch 31, 2004.

In addition, as part of its ongoing efforts to reduce its cost base and
enhance its administrative efficiency, on September 30, 2004, the company
consolidated facility space and committed to a reduction in global headcount
of about 1,400 employees, primarily in general and administrative areas.
These actions resulted in an after-tax charge to earnings of $60 million, or
$.18 per share, in the third quarter of 2004.  The company anticipates these
actions will yield approximately $70 million of annualized cost savings on a
run-rate basis by the end of 2005.  The company anticipates cash
requirements for these actions of about $85 million, mostly in year 2005,
before the effect of cash savings from these actions and the tax refund.

The current quarter results were also impacted by pretax pension expense of
$23.5 million compared with pretax pension income of $8.5 million in the
year-ago quarter as well as lower margins in the outsourcing business.

Results of Operations
- ---------------------

Total revenue for the quarter ended September 30, 2004March 31, 2005 was $1.45$1.37 billion, which
was flat when compared withdown 7%
from revenue of $1.46 billion for the quarter ended September 30, 2003.March 31, 2004.  Foreign
currency translations had a 3%2% positive impact on revenue in the quarter when
compared with the year-ago period.  In the current quarter, Services revenue
increased 2% from the prior yeardecreased 5% and Technology revenue decreased 8% from the
prior year.13%.

U.S. revenue decreased 4%9% in the currentfirst quarter compared with the year-ago period
and revenue in international markets was up 3% driven by increasesdecreased 4% due to decreases in Europe and
Pacific/AsiaLatin America which were partially offset by declinesan increase in Latin
America.  On a constant currency basis, international revenue declined 3% inPacific/Asia.

Pension expense for the quarter.

The company recorded $23.5three months ended March 31, 2005 was $46.8 million
compared with $22.2 million of pension expense for the three months ended September 30, 2004 compared with $8.5 million ofMarch
31, 2004.  The increase in pension income for the three
months ended September 30, 2003.  The changeexpense was due to the following:  (1) a
decline in the discount rate used for the U.S. pension plan to 5.88% at December
31, 2004 from 6.25% at December 31, 2003, from 6.75% at December 31, 2002, (2) an increase in amortization of net
unrecognized losses (3) lower expected returns onfor the U.S. plan, assets due to
amortization of the difference between the calculated value of plan assets and the fair value of plan assets, and (4)(3) for international plans, declines
in discount rates and currency translation.  The company records pension
income or
expense, as well as other employee-related costs such as FICApayroll taxes and
medical insurance costs, in operating income in the following income statement
categories: cost of sales; selling, general and administrative expenses; and
research and development expenses.  The amount allocated to each income
statement linecategory is
based on where the salaries of the active employees are charged.  The company
currently expects to report pension expense of approximately $90 - $95$186.0 million in
20042005 compared with pension incomeexpense of $22.6$93.6 million in 2003.2004.


 13

Total gross profit margin was 23.6%19.0% in the thirdfirst quarter of 20042005 compared with
29.3%26.8% in the year-ago period.  The change principally reflected a $28.1 million
charge in the current quarter relating to the cost reduction actions, lower
margins in the outsourcing business due toreflects higher costs in the current period
relating principally to modification of two agreements, as well as pension
expense of $17.1$32.8 million in the current quarter compared with pension incomeexpense of
$1.7$15.5 million in the year-ago quarter.

 14quarter, as well as operational issues in several
outsourcing contracts.

For the three months ended September 30, 2004,March 31, 2005, selling, general and administrative
expenses were $303.7$261.6 million (21.0%(19.1% of revenue) compared with $251.0$261.2 million
(17.3%(17.9% of revenue) for the three months ended September 30, 2003.March 31, 2004.  The increase principally reflected a $50.2 million charge in the current quarter
relating to the cost reductions actions, as well as pension expense of $4.4
million in the current year compared with $3.2three months
ended March 31, 2005 includes $9.1 million of pension incomeexpense compared with $4.9
million in the year-ago period.

Research and development ("R&D")(R&D) expense was $75.3$64.9 million compared with $68.2$71.5
million a year ago.  The company continues to invest in high-end Cellular
MultiProcessing server technology and in key programs within its industry
practices.  R&D in the current period includes a charge relating to the cost
reductions actions of $8.4 million as well as $2.0$4.9 million of pension expense
compared with pension incomeexpense of $3.6$1.8 million in the year-ago period.

For the thirdfirst quarter of 2004,2005, the company reported ana pretax operating income (loss)
percentloss of
(2.6%)$66.2 million compared with 7.3% for the third quarterpretax income of 2003.$58.8 million a year ago.  The
change resulted principally reflected a charge relating to the cost reductions actions of $86.7
million in the current quarter as well as(a) from increased pension expense of $23.5$46.8 million
in the current quarter compared with pension incomeexpense of $8.5$22.2 million in the
year-ago period.period, (b) execution issues in several outsourcing contracts, and (c)
lower revenue levels.

Interest expense for the three months ended September 30, 2004March 31, 2005 was $16.2$12.6 million
compared with $17.2$17.0 million for the three months ended September 30, 2003.March 31, 2004.  The
decrease was principally due to the January 2005 retirement at maturity of all
of the company's $150 million 7 1/4% senior notes.

Other income (expense), net was an expenseincome of $3.0$.5 million in the current quarter
compared with an expenseincome of $4.7$.6 million in the year-ago quarter.

Income (loss) before income taxes was a loss of $57.2$78.3 million in the thirdfirst
quarter of 2004 compared with $84.0 million income last year.  The provision for income
taxes was a benefit of $82.4 million in the current period compared with a
provision of $27.8 million in the year-ago period.  The current period includes
a benefit of $68.2 million related to the tax refund as well as a $22.0 million
benefit related to the cost reduction charge.  Included in the $22.0 million tax
benefit on the cost reduction action is an increase in valuation allowances on
deferred tax assets of approximately $7 million related to countries where the
company has assessed the realization of the tax benefits to be less than likely.

For the nine months ended September 30, 2004, the company reported net income of
$73.5 million, or $.22 per diluted share, compared with $147.2 million, or $.44
per diluted share, for the nine months ended September 30, 2003.

Total revenue for the nine months ended September 30, 2004 was $4.30 billion, up
1% from revenue of $4.27 billion for the nine months ended September 30, 2003.
Foreign currency translations had a 5% positive impact on revenue in the nine
months when compared with the year-ago period.  In the current nine-month
period, Services revenue increased 2% and Technology revenue decreased 6%.

U.S. revenue decreased 2% in the current nine-month period compared with the
year-ago period.  Revenue in international markets increased 3% driven by an
increase in Europe which was partially offset by declines in other international
regions.  On a constant currency basis, international revenue declined 6% in the
nine months ended September 30, 2004.

Pension expense for the nine months ended September 30, 2004 was $70.5 million
compared with $22.8 million of pension income for the nine months ended
September 30, 2003.

Total gross profit margin was 25.6% in the nine months ended September 30, 2004
compared with 28.2% in the year-ago period.  The change principally reflected a
$28.1 million charge relating to the cost reduction actions in the current nine-
month period as well as pension expense of $50.4 million in the current period
compared with pension income of $4.4 million in the year-ago period.

For the nine months ended September 30, 2004, selling, general and
administrative expenses were $837.8 million (19.5% of revenue) compared with
$737.1 million (17.2% of revenue) for the nine months ended September 30, 2003.
Selling, general and administrative expenses in the current period includes a
$50.2 million charge relating to the cost reduction actions as well as $14.1
million of pension expense compared with pension income of $7.6 million in the
year-ago period.

 15

R&D expense for the nine months ended September 30, 2004 was $218.1 million
compared with $198.7 million a year ago.  R&D in the current period includes an
$8.4 million charge relating to the cost reduction actions as well as $6.0
million of pension expense compared with pension income of $10.8 million in the
year-ago period.

For the nine months ended September 30, 2004, the company reported an operating
income percent of 1.0% compared with 6.3% for the nine months ended September
30, 2003.  The change principally reflected an $86.7 million charge relating to
the cost reduction actions in the current nine-month period as well as pension
expense of $70.5 million in the current period compared with pension income of
$22.8 million in the year-ago period.

Interest expense for the nine months ended September 30, 2004 was $51.4 million
compared with $51.3 million for the nine months ended September 30, 2003.

Other income (expense), net was income of $21.6 million in the current nine-
month period2005 compared with income of $2.5 million in the year-ago period.  The
increase in income was principally due to foreign exchange losses of $3.4
million in the current year compared with losses of $15.0 million in the prior-
year period as well as $4.7 million income in the current period related to
minority shareholders' portion of the cost reduction charge of a 51% owned
subsidiary which is fully consolidated by the company.

Income before income taxes was $13.9 million in the nine months ended September
30, 2004 compared with $219.7$42.4 million last year.  The provision
for income taxes was a benefit of $59.6$32.8 million in the current period compared
with a provision of $72.5$13.5 million in the year-ago period.  TheIn the current nine-month period
includestax benefit, the company recorded a tax benefit of $68.2$7.8 million related to thea
favorable decision in foreign tax refund as well as a $22.0 million
benefit related to the cost reduction charge.

For 2005, pension expense cannot be reliably estimated until after December 31,
2004 when the actual amount of pension plan assets is known and the discount
rate can be determined.  However, based on 2004 stock market performance
expectations as well as the long-term interest rate environment, the company's
U.S. pension expense could increase by as much as 100-200% from an expected 2004
level of $38 million.  Currently the company estimates approximately $56 million
of expense for all other defined benefit pension plans for 2004; current
estimates indicate slightly higher 2005 expense for these plans.

Despite the estimated increase in 2005 pension expense, in accordance with
regulations governing contributions to U.S. defined benefit pension plans, the
company currently expects that it will not be required to fund its U.S.
qualified defined benefit pension plan in 2005.litigation.  The company also currently
expects thatto receive a
cash contributions to its other defined benefit pension plans will
be somewhat higher thanrefund of such taxes in 2004.

The 2005 pension estimates mentioned above are preliminary and can vary
significantly from actual amounts.  The 2005 pension expense will be determined
in January 2005 when the December 31, 2004 employee levels, pension plan assets
and discount rates are known.second quarter of 2005.


Segment results
- ---------------

The company has two business segments:  Services and Technology.  Revenue
classifications are as follows:  Services - consulting and systems integration,
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 engagements.  The amount of such profit included in operating income of
the Technology segment for the three months ended September 30,March 31, 2005 and 2004, and 2003,
was
$7.2$4.8 million and $6.7$1.4 million, respectively.  The profit on these transactions
is eliminated in Corporate. 16

The company evaluates business segment performance on operating income exclusive
of restructuring 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 comparisons below exclude the cost reduction items
discussed above. 14

Information by business segment is presented below (in millions of dollars):

                                       Elimi-
                            Total      nations      Services    Technology
                           -------     -------      --------    ----------

Three Months Ended
September 30, 2004March 31, 2005
- ------------------
Customer revenue          $1,445.7                  $1,147.1    $298.6$1,366.6                  $1,107.7     $258.9
Intersegment                           $(63.6)           5.2      58.4$( 59.9)          4.8       55.1
                           --------    -------      --------    -------------
Total revenue             $1,445.7     $(63.6)      $1,152.3    $357.0$1,366.6     $( 59.9)     $1,112.5     $314.0
                          ========     =======      ========     ======
Gross profit percent          23.6%                     16.2%     51.0%19.0%                     11.0%      47.7%
                          ========                  ========     ======

Operating income
     (loss) percent           (2.6)(4.8)%                    (0.2)(6.8)%      13.9%6.1%
                          ========                   ========    =============

Three Months Ended
September 30, 2003March 31, 2004
- ------------------
Customer revenue          $1,449.7                  $1,124.3    $325.4$1,462.9                  $1,165.0     $297.9
Intersegment                           $( 66.4)          7.3      59.145.7)          4.8       40.9
                          --------     -------      --------     ------
Total revenue             $1,449.7$1,462.9     $( 66.4)     $1,131.6    $384.545.7)     $1,169.8     $338.8
                          ========     =======      ========     ======

Gross profit percent          29.3%                     19.8%     53.1%26.8%                     19.1%      48.3%
                          ========                  ========     ======
Operating income
     percent                   7.3%                      3.9%     16.5%4.0%                      2.5%       8.6%
                          ========                  ========     ======

Gross profit percent and operating income percent are as a percent of total
revenue.

In the Services segment, customer revenue was $1.15$1.11 billion for the three months
ended September 30, 2004,March 31, 2005, down 5% compared with $1.12$1.17 billion for the three months
ended September 30, 2003.March 31, 2004.  Foreign currency translations had about a 3% positive
impact on Services revenue in the quarter when compared with the year-ago
period.  ConsultingThe decrease in Services revenue was due to an 5% decrease in
outsourcing ($421 million in 2005 compared with $443 million in 2004), a 2%
decrease in consulting and systems integration revenue grew 6% ($403370 compared with $377 million
in 2004 compared with $379 million in 2003) and outsourcing revenue grew 4% ($412
million in 2004 compared with $396 million in 2003).  These increases were
partially offset by2004), a 2% decline10% decrease in core maintenance revenue ($139131 million in 20042005
compared with $142$145 million in 2003)2004) and a 7% declinedecrease in infrastructure services
revenue ($193186 million in 20042005 compared with $207$200 million in 2003)2004).  Services
gross profit was 16.2%11.0% for the three months ended September 30, 2004March 31, 2005 compared with
19.8%19.1% in the year-ago period.  This changeIncluded in gross profit was principally due to the impact of
pension expense of $16.7$31.8 million in the current period compared with pension
expense of $15.2 million in the year-ago period.  Services operating income
(loss) percent was (6.8)% for the three months ended March 31, 2005 compared
with 2.5% last year.  Included in operating income (loss) was the impact of
pension expense of $39.4 million in the current quarter compared with pension
incomeexpense of $1.0$19.3 million in the year-ago period as well as higher
costs inperiod.  In addition, the current period relating to modifications of twoyear
gross profit and operating profit margins were negatively impacted by
operational issues in several outsourcing agreements.  Services operating income percent was (0.2)% for the three months
ended September 30, 2004 compared with 3.9% last year.  The principal reason forcontracts, weakness in project-based
assignments and the decline in operating income was due to the impact of pension accounting.  In
the current period, operating profit included $20.6 million of pension expense
compared with pension income of $3.9 million in the year-ago quarter.  The
remaining reason for the decline in operating income related to modifications of
two outsourcing agreements, which resulted in higher current-period cost and a
write down to net realizable value of certain outsourcing assets related to such
agreements.

 17core maintenance.

In the Technology segment, customer revenue was $299$259 million for the three
months ended September 30, 2004,March 31, 2005, down 8%13% compared with $325$298 million for the three
months ended September 30, 2003.March 31, 2004.  Foreign currency translations had about a 3%2%
positive impact on Technology revenue in the quarter when compared with the
year-ago period.  The decrease in revenue was due to a 35%37% decrease in sales of
specialized technology products ($4961 million in 20042005 compared with $75$96 million
in 2003).  Sales2004) and a 2% decline in sales of enterprise-class servers were flat at $249.6($198 million in
2005 compared with the year-ago period.  The decrease$202 million in specialized technology
revenue was caused by lower sales of semiconductor test systems and payment
systems.  Sales of these systems can vary significantly from quarter to quarter
depending on customer needs.2004).  Technology gross profit was 51.0%47.7% for
the three months ended September 30, 2004March 31, 2005 compared with 53.1%48.3% in the year-ago
period, and Technology operating income percent was 13.9%6.1% for the three months
ended September 30, 2004March 31, 2005 compared with 16.5%8.6% last year.  The gross profit decreasemargin declines
primarily reflected a lower proportion of high-end, higher-margin ClearPath
products within the
specialized technology product line.  The decline in operating income percent
was principally due toas well as pension expense of $2.9$7.4 million in the current period
compared with pension incomeexpense of $4.6$2.9 million in the prior-year period. 15

New Accounting Pronouncements
- -----------------------------

In January 2003,December 2004, the Financial Accounting Standards Board ("FASB")(FASB) issued interpretationFASB
Staff Position No. 46 ("FIN 46")FAS 109-2 (FSP No. 109-2), "Consolidation"Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provisions within the American
Jobs Creation Act of Variable Interest Entities,2004" (the Jobs Act).  FSP No. 109-2 provides guidance with
respect to reporting the potential impact of the repatriation provisions of the
Jobs Act on an interpretation of ARB 51."enterprise's income tax expense and deferred tax liability.  The
primary objectives of this interpretation are
to provide guidanceJobs Act was enacted on October 22, 2004, and provides for a temporary 85%
dividends received deduction on certain foreign earnings repatriated during a
one-year period.  The deduction would result in an approximate 5.25% federal tax
rate on the identificationrepatriated earnings.  To qualify for the deduction, the earnings
must be reinvested in the United States pursuant to a domestic reinvestment plan
established by a company's chief executive officer and approved by a company's
board of entitiesdirectors.  Certain other criteria in the Jobs Act must be satisfied as
well.  FSP No. 109-2 states that an enterprise is allowed time beyond the
financial reporting period to evaluate the effect of the Jobs Act on its plan
for which control is
achieved through means other than through voting rights ("variable interest
entities") and how to determine when and which business enterprise (the "primary
beneficiary") should consolidatereinvestment or repatriation of foreign earnings.  Although the variable interest entity.  This new model
for consolidation applies to an entity in which either (i)company has
not yet completed its evaluation of the equity investors
(if any) doimpact of the repatriation provisions of
the Jobs Act, the company does not expect that these provisions will have a
controllingmaterial impact on its consolidated financial interest,position, consolidated results of
operations, or (ii)liquidity.  Accordingly, as provided for in FSP No. 109-2, the
equity
investment at risk is insufficientcompany has not adjusted its tax expense or deferred tax liability to finance that entity's activities without
receiving additional subordinated financial support from other parties.  In
addition, FIN 46 requires thatreflect
the primary beneficiary, as well as all other
enterprises with a significant variable interest in a variable interest entity,
make additional disclosures. Certain disclosure requirementsrepatriation provisions of FIN 46 were
effective for financial statements issued after January 31, 2003.the Jobs Act.

In December 2003,2004, the FASB issued FIN 46Statement of Financial Accounting Standards
(SFAS) No. 123 (revised December 2003)2004), "Consolidation"Share-Based Payment" (SFAS No. 123R), which
replaces SFAS No. 123 and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees."  SFAS No. 123R requires all share-based payments to
employees, including grants of Variable
Interest Entities" ("FIN 46-R")employee stock options, to address certain FIN 46 implementation issues.be recognized in the
financial statements based on their fair values.  The provisionspro forma disclosures
previously permitted under SFAS No. 123 no longer will be an alternative to
financial statement recognition.  In accordance with a recently-issued
Securities and Exchange Commission rule, companies will be allowed to implement
SFAS No. 123R as of FIN 46 were applicablethe beginning of the first interim or annual period that
begins after June 15, 2005.  The company currently expects that it will adopt
SFAS No. 123R on January 1, 2006.  Under SFAS No. 123R, the company must
determine the appropriate fair value model to be used for variable interests in entities
obtained after January 31, 2003.valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption.  The permitted transition methods include
either retrospective or prospective adoption.  Under the retrospective method,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented.  The prospective method requires that compensation
expense be recorded for all unvested stock options at the beginning of the first
quarter of adoption of SFAS No. 123R, while the provisions applicable to
special purpose entities ("SPE")retrospective methods would
record compensation expense for all unvested stock options beginning with the
first period presented.  The company is currently evaluating the requirements of
SFAS No. 123R and all other variable interests obtained after
January 31, 2003 did notexpects that adoption of SFAS No. 123R will have a material
impact on the company's consolidated financial position and consolidated results
of operations,operations.  The company has not yet determined the method of adoption or liquidity.

Effective March 31,the
effect of adopting SFAS No. 123R, and it has not determined whether the adoption
will result in amounts that are similar to the current pro forma disclosures
under SFAS No. 123.  See note g.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" (SFAS No. 153).  SFAS No. 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21 (b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance.  SFAS No. 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange.  SFAS No. 153 is effective for
periods beginning after June 15, 2005.  The company adopted the provisionsdoes not expect that
adoption of FIN 46-R
applicable to Non-SPEs created prior to February 1, 2003.  Adoption of FIN 46-R
had no impactSFAS No. 153 will have a material effect on the company'sits consolidated
financial position, consolidated results of operations, or liquidity.

OnIn November 2004, the FASB issued SFAS No. 151, "Inventory Costs an amendment of
ARB No. 43, Chapter 4" (SFAS No. 151).  SFAS No. 151 amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, handling costs and wasted material (spoilage).
Among other provisions, the new rule requires that such items be recognized as
current-period charges, regardless of whether they meet the criterion of "so
abnormal" as stated in ARB No. 43.  SFAS No. 151 is effective for fiscal years


16

beginning after June 15, 2005.  The company does not expect that adoption of
SFAS No. 151 will have a material effect on its consolidated financial position,
consolidated results of operations, or liquidity.

In May 19, 2004, the FASB issued Staff Position No. FAS 106-2 (FSP No. 106-2),
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003", ("FSP No. 106-2") (the Act).  The above Act introduces
a prescription drug benefit under Medicare, as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D.  FSP No. 106-2 is effective for
the first interim period beginning after June 15, 2004, and provides that an
employer shall measure the accumulated plan benefit obligation ("APBO")(APBO) and net
periodic postretirement benefit cost, taking into account any subsidy received
under the Act.  As of September 30, 2004,March 31, 2005, the company's measurements of both the
APBO and the net postretirement benefit cost do not reflect any amounts
associated with the subsidy becausesubsidy.  Final regulations implementing the Act were issued
on January 21, 2005.  The final regulations clarify how a company should
determine actuarial equivalency and the definition of a plan for purposes of
determining actuarial equivalency.  The company is currently evaluating these
regulations and has not yet been able to
conclude whether the benefits provided bydetermined what effect adoption of FSP No. 106-2
will have on its postretirement medical plan are
actuarially equivalent to Medicare Part D under the Act.consolidated financial position, consolidated results of
operations, or liquidity.


Financial Condition
- -------------------

Cash and cash equivalents at September 30, 2004March 31, 2005 were $573.7$441.6 million compared with
$635.9$660.5 million at December 31, 2003.2004.

During the ninethree months ended September 30, 2004,March 31, 2005, cash provided by operations was
$213.2$26.8 million compared with $162.1cash provided by operations of $129.2 million for
the ninethree months ended September
30, 2003.March 31, 2004.  Operating cash flow increaseddecreased
principally due to lower expenditures
on prior-year restructuring and improved working capital management.earnings.  Cash expenditures in the nine months ended September 30, 2004current quarter
related to prior-year restructuring charges (which are included in operating
activities) were approximately $10$14 million compared with $51$4 million for the
prior-year period.
Cash expenditures for the 2004 cost reduction actionsquarter, and are expected to be approximately $3$57 million for the
remainder of 20042005 and $82$22 million in total for all subsequent years, (primarily in 2005), principally
for work-force reductions.

 18reductions and idle lease costs.  In the second quarter of 2005,
the company expects to receive approximately $48 million of income tax refunds
of which $40 million represents the U.S. Internal Revenue Service (IRS) tax
audit settlement in 2004 and $8 million represents the foreign refund discussed
above.

Cash used for investing activities for the ninethree months ended September 30, 2004March 31, 2005 was
$303.8$94.2 million compared with $326.4$118.5 million during the ninethree months ended September 30, 2003.March
31, 2004.  The decrease in cash used was principally due to net purchasesproceeds of
investments of $4.0$3.1 million in the current periodquarter compared with net purchases
of $37.1$5.4 million in the prior-year period.  In addition, the current period
investment in marketable software was $88.8$33.0 million compared with $109.4$29.0 million
in the prior-year.  Capital additions of properties were $192.4$22.4 million for the
ninethree months ended September 30, 2004March 31, 2005 compared with $177.9$36.5 million in the prior-year
period.  The increase in current year capital expenditures was principally
related to the moveCapital additions of the company's Federal headquarters into a new facility.
Cash expenditures for purchases of businesses was $18.6outsourcing assets were $41.9 million for the
ninethree months ended September 30, 2004March 31, 2005 compared with $2.0$47.6 million in the prior year.prior-year
period.

Cash provided byused for financing activities during the nine months ended September 30,
2004current quarter was $27.6$142.0 million
compared with $253.5cash provided of $20.7 million in the prior year.  The priorcurrent
period includes net proceeds from issuancecash expenditures of long-term debt$150.0 million to retire at maturity all of $293.3
million in connection with
the company's issuance in7 1/4% senior notes.

At March 2003 of $300 million
of 6 7/8% senior notes due 2010.

At September 30, 2004 and December 31, 2003,2005, total debt was $1.1 billion.$.9 billion, a decrease of $148.3 million from
December 31, 2004.

The company has a $500 million credit agreement that expires in May 2006.  As of
September 30, 2004,March 31, 2005, there were no borrowings under this facility, and the entire
$500 million was available for borrowings.   Borrowings under the agreement bear
interest based on the then-current LIBOR or prime rates and the company's credit
rating.  The credit agreement contains financial and other covenants, including
maintenance of certain financial ratios, a minimum level of net worth and
limitations on certain types of transactions, which could reduce the amount the
company is able to borrow.  Events of default under the credit agreement include
failure to perform covenants, material adverse change, change of control and
default under other debt aggregating at least $25 million.  If an event of


 17


default were to occur under the credit agreement, the lenders would be entitled
to declare all amounts borrowed under it immediately due and payable.  The
occurrence of an event of default under the credit agreement could also cause
the acceleration of obligations under certain other agreements and the
termination of the company's U.S. trade accounts receivable facility, described
below.

In addition, the company and certain international subsidiaries have access to
certain uncommitted lines of credit from various banks.  Other sources of short-
termshort-term
funding are operational cash flows, including customer prepayments, and the
company's U.S. trade accounts receivable facility.  Using this facility, the
company sells, on an on-going basis, up to $225 million of its eligible U.S.
trade accounts receivable through a wholly owned subsidiary, Unisys Funding
Corporation I.  The facility is renewable annually at the purchasers' option and
expires in December 2006.  At both September 30, 2004March 31, 2005 and at December 31, 2003,2004, the
company had sold $225 million of eligible receivables.

At September 30, 2004,March 31, 2005, the company has met all covenants and conditions under its
various lending and funding agreements.  Since the company believes that it
willexpects to continue
to meet these covenants and conditions, the company believes that it has
adequate sources and availability of short-term funding to meet its expected
cash requirements.

The company may, from time to time, redeem, tender for, or repurchase its
securities in the open market or in privately negotiated transactions depending
upon availability, market conditions and other factors.

The company has on file with the Securities and Exchange Commission a
registration statement covering $1.2 billion of debt or equity securities, which
enables the company to be prepared for future market opportunities.

The company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or the entire deferred
tax asset will not be realized.

At September 30, 2004,March 31, 2005, the company had deferred tax assets in excess of deferred tax
liabilities of $2,073$2,147 million.  For the reasons cited below, management
determined that it is more likely than not that $1,609$1,625 million of such assets
will be realized, therefore resulting in a valuation allowance of $464$522 million.

The American Jobs Creation Act of 2004 extends the excess foreign tax credit
carryforward period from five to ten years and limits the carryback period to
one year.  This should provide the company with more opportunities to fully
utilize its foreign tax credits.

 19

The company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and adjustsby adjusting the amount of the related valuationsuch allowance,
if necessary.  The factors used to assess the likelihood of realization are the
company's forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets.
The company has used tax-planning strategies to realize or renew net deferred
tax assets to avoid the potential loss of future tax benefits.

In addition to the repatriation provisions discussed above, the Jobs Act extends
the excess foreign tax credit carry forward period from five to 10 years and
limits the carry back period to one year.  The company's deferred tax asset
included approximately $183 million of foreign tax credit carry forwards.  The
Jobs Act should provide the company with additional opportunities to fully
utilize this portion of the deferred tax asset.

Approximately $4.9 billion of future taxable income (predominantly(predominately U.S.)
ultimately is needed to realize all of the net deferred tax assets.assets at March 31, 2005.
Failure to achieve forecasted taxable income might affect the ultimate
realization of the net deferred tax assets.  Factors that may affect the
company's ability to achieve sufficient forecasted taxable income include, but
are not limited to, the following:  increased competition, a continuing decline
in sales or margins, loss of market share, delays in product availability or
technological obsolescence.  See "Factors That May
Affect Future Results"that may affect future results" below.

The company's annual provision for income taxes and the determination of the
resulting deferred tax assets and liabilities involve a significant amount of
management judgment and are based on the best information available at the time.
The company operates within federal, state and international taxing
jurisdictions and is subject to audit in these jurisdictions.  These audits can
involve complex issues, which may require an extended period of time to resolve.


 18


As a result, the actual income tax liabilities to the jurisdictions with respect
to any fiscal year are ultimately determined long after the financial statements
have been published. The company maintains reserves for estimated tax exposures.
Income tax exposures include potential challenges of research and development
credits and intercompany pricing. Exposures are settled primarily through the
settlement of audits within these tax jurisdictions, but can also be affected by
changes in applicable tax law or other factors, which could cause management of
the company to believe a revision of past estimates is appropriate. Management
believes that an appropriate liability has been established for estimated
exposures; however, actual results may differ materially from these estimates.
The liabilities are reviewed quarterly for their adequacy and appropriateness.
As of March 31, 2005, the IRS was in the process of examining Unisys U.S.
Federal Income tax returns for the fiscal years 1997 through 1999.  The company
anticipates the examination of these years will be completed in 2005.  The
company expects that the audit of 2000 through 2003 will commence in 2005.  The
liabilities, if any, associated with these years will ultimately be resolved
when events such as the completion of audits by the taxing jurisdictions occur.
To the extent the audits or other events result in a material adjustment to the
accrued estimates, the effect would be recognized in the provision for income
taxes line in the company's Consolidated Statement of Income in the period of
the event.

Stockholders' equity increased $142.4decreased $14.0 million during the ninethree months ended September 30, 2004,March
31, 2005, principally reflecting the net incomeloss of $73.5$45.5 million, $47.2offset in part
by $11.5 million for issuance of stock under stock option and other plans, $3.6$.4
million of tax benefits related to employee stock plans and currency translation
of $13.1$15.8 million.

At December 31 of each year, accounting rules require a company to recognize a
liability on its balance sheet for each defined benefit pension plan if the fair
value of the assets of that pension plan is less than the present value of the
pension obligation (the accumulated benefit obligation, or "ABO")ABO).  This liability
is called a "minimum pension liability." Concurrently, any existing prepaid
pension asset for the pension plan must be removed.  These adjustments are
recorded as a charge in "accumulated other comprehensive income (loss)" in
stockholders' equity.  If at any future year-end, the fair value of the pension
plan assets exceeds the ABO, the charge to stockholders' equity would be
reversed for such plan.  Alternatively, if the fair market valuevalues of pension
plan assets experiencesexperience further declines or the discount rate is reduced,
additional charges to accumulated other comprehensive income (loss) may be
required at a future year-end.

At December 31, 2002, for all of the company's defined benefit pension plans,
the ABO exceeded the fair value of pension plan assets.  At December 31, 2003,2004, the difference between the ABO and the fair value of
pension plan assets decreased.increased from the amount at December 31, 2003.  As a result
at December 31, 2003,2004, the company adjusted its minimum pension liability
adjustment as follows:  decreasedincreased its pension plan liabilities by approximately
$300$95 million, increased its investments at equity by approximately $6$27 million
relating to the company's share of the change in NUL's minimum pension
liability, decreasedincreased prepaid pension asset by $56$13 million, and offset these
changes by a credit toan increase in other comprehensive incomeloss of approximately $250$55 million,
or $165$39 million net of tax.

This accounting treatment has no effect on the company's net income, liquidity
or cash lows.flows.  Financial ratios and net worth covenants in the company's credit
agreements and debt securities are unaffected by charges or credits to
stockholders' equity caused by adjusting a minimum pension liability.

In accordance with regulations governing contributions to U.S. defined benefit
pension plans, the company is not required to fund its U.S. qualified defined
benefit plan in 2004.2005.  The company expects to make cash contributions of
approximately $66$70 million to its other defined benefit pension plans during
2004.2005.

Factors That May Affect Future Results
- --------------------------------------

From time to time, the company provides information containing "forward-looking"
statements, as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements provide current expectations of future events and
include any statement that does not directly relate to any historical or current
fact. Words such as "anticipates," "believes," "expects," "intends," "plans,"
"projects" and similar expressions may identify such forward-looking statements.
All forward-looking statements rely on assumptions and are subject to risks,
uncertainties and other factors that could cause the company's actual results to
differ materially from expectations.  Statements in this report concerning
anticipated savings from cost reduction actions are subject to the risk that the
company may not implement the headcount reductions as quickly or as fully as
currently planned.  Other factors that could affect future 19


results include, but are not limited to, those discussed below. Any forward-lookingforward-
looking statement speaks only as of the date on which that statement is made.
The company assumes no obligation to update any forward-looking statement to
reflect events or circumstances that occur after the date on which the statement
is made.

 20

The company's business is affected by changes in general economic and business
conditions. The company continues to face a highly competitive business
environment and economic weakness in certain geographic regions.  In this
environment, many organizations are delayingcontinue to delay planned purchases of
information technology products and services. If the level of demand for the
company's products and services declines in the future, the company's business
could be adversely affected. The company's business could also be affected by
acts of war, terrorism or natural disasters. Current world tensions could
escalate, and this could have unpredictable consequences on the world economy
and on ourthe company's business.

The information services and technology markets in which the company operates
include a large number of companies vying for customers and market share both
domestically and internationally.  The company's competitors include consulting
and other professional services firms, systems integrators, outsourcing
providers, infrastructure services providers, computer hardware manufacturers
and software providers. Some of the company's competitors may develop competing
products and services that offer better price performanceprice-performance or that reach the
market in advance of the company's offerings. Some competitors also have or may
develop greater financial and other resources than the company, with enhanced
ability to compete for market share, in some instances through significant
economic incentives to secure contracts. Some also may be better able to compete
for skilled professionals. Any of these factors could have an adverse effect on
the company's business. Future results will depend on the company's ability to
mitigate the effects of aggressive competition on revenues, pricing and margins
and on the company's ability to attract and retain talented people.

The company operates in a highly volatile industry characterized by rapid
technological change, evolving technology standards, short product life cycles
and continually changing customer demand patterns. Future success will depend in
part on the company's ability to anticipate and respond to these market trends
and to design, develop, introduce, deliver or obtain new and innovative products
and services on a timely and cost-effective basis. The company may not be
successful in anticipating or responding to changes in technology, industry
standards or customer preferences, and the market may not demand or accept its
services and product offerings. In addition, products and services developed by
competitors may make the company's offerings less competitive.

The company's future results will depend in part on its ability to grow
outsourcing and infrastructure services.  The company's outsourcing contracts
are multiyear engagements under which the company takes over management of a
client's technology operations, business processes or networks.  The company
will need to maintain a strong financial position in order to grow its outsourcing
business.  In a number of these arrangements, the company hires certain of its
clients' employees and may become responsible for the related employee
obligations, such as pension and severance commitments.  In addition, system
development activity on outsourcing contracts may require the company to make
significant upfront investments.

Recoverability of outsourcing assets is dependent on various factors, including
the timely completion and ultimate cost of the outsourcing solution, realization
of expected profitability of existing outsourcing contracts and obtaining
additional outsourcing customers.  These risks could result in an impairment of
a portion of the associated assets, which are tested for recoverability
quarterly.

As long-term relationships, outsourcing contracts provide a base of recurring
revenue.  However, outsourcing contracts are highly complex and can involve the
design, development, implementation and operation of new solutions and the
transitioning of clients from their existing business processes to the new
environment.  In the early phases of these contracts, gross margins may be lower
than in later years when an integrated solution has been implemented, the
duplicate costs of transitioning from the old to the new system have been
eliminated and the work force and facilities have been rationalized for
efficient operations.  Future results will depend on the company's ability to
effectively and timely complete these implementations, transitions and
rationalizations.



 20


Future results will also depend in part on the company's ability to drive
profitable growth in consulting and systems integration.  The company's ability
to grow profitably in this business will depend in part on an improvement in
economic conditions and a pick-up in demand for systems integration projects. It
will also depend on the success of the actions the company has taken to enhance
the skills base and management team in this business and to refocus parts of the
business on integrating best-of-breed, standards-based solutions to solve client
needs. In addition, profit margins in this business are largely a function of
the rates the company is able to charge for services and the chargeability of
its professionals. If the company is unable to maintain the rates it charges or
appropriate chargeability for its professionals, profit margins will suffer.
The rates the company is able to charge for services are affected by a number of
factors, including clients' perception of the company's ability to add value
through its services; introduction of new services or products by the company or
its competitors; pricing policies of competitors; and general economic
conditions. Chargeability is also affected by a number of factors, including the
company's ability to transition employees from completed projects to new
engagements, and its ability to forecast demand for services and thereby
maintain an appropriate head count.

 21

Future results will also depend, in part, on market acceptance of the company's
high-end enterprise servers. In its technology business, the company is focusing
its resources on creating and enhancing a common high-performance platform for
both its proprietary operating environments and open standards-based operating
environments such as Microsoft Windows and Linux.  In addition, the company is
applying its resources to develop value-added software capabilities and
optimized solutions for these server platforms which provide competitive
differentiation.  The high-end enterprise serversserver platforms are based on its
Cellular MultiProcessing (CMP) architecture. The company's CMP servers are
designed to provide mainframe-class capabilities with compelling price-performanceprice
performance by making use of standards-based technologies such as Intel chips
and Microsoft operating
systemsupporting industry standard software. The company has transitioned both its
legacy ClearPath servers and its Intel-based ES7000s to the CMP platform, creating a common platform for
all the company's high-end server lines.platform. Future
results will depend, in part, on customer acceptance of the new CMP-based
ClearPath Plus systems and the company's ability to maintain its installed base
for ClearPath and to develop next-generation ClearPath products that are
purchased by the installed base. In addition, future results will depend, in
part, on the company's ability to generate new customers and increase sales of
the Intel-based ES7000 line. The company believes there is significant growth
potential in the developing market for high-end, Intel-based servers running
Microsoft and Linux operating system software. However, competition in these new
markets is likely to intensify in coming years, and the company's ability to
succeed will depend on its ability to compete effectively against enterprise
server competitors with more substantial resources and its ability to achieve
market acceptance of the ES7000 technology by clients, systems integrators and
independent software vendors.

A number of the company's long-term contracts for infrastructure services,
outsourcing, help desk and similar services do not provide for minimum
transaction volumes. As a result, revenue levels are not guaranteed. In
addition, some of these contracts may permit customer termination or may impose
other penalties if the company does not meet the performance levels specified in
the contracts.

Some of the company's systems integration contracts are fixed-pricedfixed-price contracts
under which the company assumes the risk for delivery of the contracted services
and products at an agreed-upon fixed price. At times the company has experienced
problems in performing some of these fixed-price contracts on a profitable basis
and has provided periodically for adjustments to the estimated cost to complete
them.  Future results will depend on the company's ability to perform these
services contracts profitably.

The company frequently enters into contracts with governmental entities. Risks
and uncertainties associated with these government contracts include the
availability of appropriated funds and contractual provisions that allow
governmental entities to terminate agreements at their discretion before the end
of their terms.

The success of the company's business is dependent on strong, long-term client
relationships and on its reputation for responsiveness and quality. As a result,
if a client is not satisfied with the company's services or products, its
reputation could be damaged and its business adversely affected. In addition, if



 21

the company fails to meet its contractual obligations, it could be subject to
legal liability, which could adversely affect its business, operating results
and financial condition.

The company has commercial relationships with suppliers, channel partners and
other parties that have complementary products, services or skills. Future
results will depend, in part, on the performance and capabilities of these third
parties, on the ability of external suppliers to deliver components at
reasonable prices and in a timely manner, and on the financial condition of, and
the company's relationship with, distributors and other indirect channel
partners.

Approximately 54%More than half of the company's total revenue derives from international
operations. The risks of doing business internationally include foreign currency
exchange rate fluctuations, changes in political or economic conditions, trade
protection measures, import or export licensing requirements, multiple and
possibly overlapping and conflicting tax laws, new tax legislation, and weaker
intellectual property protections in some jurisdictions.

The company cannot be sure that its services and products do not infringe on the
intellectual property rights of third parties, and it may have infringement
claims asserted against it or against its clients. These claims could cost the
company money, prevent it from offering some services or products, or damage its
reputation.


 22

Item 4.  Controls and Procedures
- -----------------------------------------------------------------

The company'sCompany's management, with the participation of the company'sCompany's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the company'sCompany's disclosure controls and procedures as of September 30, 2004.March 31, 2005.  Based
on this evaluation, the company'sCompany's Chief Executive Officer and Chief Financial
Officer concluded that the company'sCompany's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information the companyCompany is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC's rules and forms.  Such
evaluation did not identify any change in the company'sCompany's internal controlcontrols over
financial reporting that occurred during the quarter ended September 30, 2004March 31, 2005 that
has materially affected, or is reasonably likely to materially affect, the
company'sCompany's internal control over financial reporting.


Part II - OTHER INFORMATION
- -------   -----------------

Item 5.   Other Information
- -------   -----------------

(a)  The company's independent auditor, Ernst & Young LLP (E&Y), has recently
notified the SEC, the Public Company Accounting Oversight Board and the audit
committee of the company's board of directors that certain non-audit work it
has performed in China has raised questions regarding E&Y's independence with
respect to its performance of audit services for the company.

During the period from January 2001 to July 2003, E&Y performed tax calculation
and tax preparation services for certain of the company's subsidiaries in China
and Taiwan for fees aggregating approximately $48,000 over the period.  E&Y
disclosed that, in the course of providing these services, its affiliates in
China held tax related funds of the subsidiaries and paid such funds to the
applicable tax authorities in settlement of the relevant taxes.  Having custody
of the assets of an audit client is not permitted under the auditor independence
rules in Regulation S-X of the SEC.  E&Y discontinued this handling of funds in
mid 2003.

The company's audit committee and E&Y have considered the impact that the
holding and paying of these funds may have had on E&Y's independence with
respect to the company, and each has concluded that there has been no impairment
of E&Y's independence.  In making this determination, the company's audit
committee considered the ministerial nature of the actions, that the
subsidiaries involved were not material to the consolidated financial statements
of the company and that neither the amount of associated fees received by E&Y
nor the amount of funds involved was significant.  In addition, E&Y has informed
the company that none of its personnel involved in providing these tax services
performed any audit or audit-related services for the company.


Item 6.   Exhibits
- -------   --------

(a)       Exhibits

          See Exhibit Index





 2322


                               SIGNATURES
                               ----------



     Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                              UNISYS CORPORATION

Date: October 22, 2004April 21, 2005                        By: /s/ Janet M. Brutschea Haugen
                                                -----------------------------
                                                Janet M. Brutschea Haugen
                                                Senior Vice President and
                                                Chief Financial Officer
                                                (Principal Financial Officer)


                                             By: /s/ Carol S. Sabochick
                                                 ----------------------
                                                 Carol S. Sabochick
                                                 Vice President and
                                                 Corporate Controller
                                                 (Chief Accounting Officer)



 23
                             EXHIBIT INDEX

Exhibit
Number                        Description
- -------                       -----------
3.1      Restated Certificate of Incorporation of Unisys Corporation
         (incorporated by reference to Exhibit 3.1 to the registrant's Quarterly
         Report on Form 10-Q for the quarterly period ended September 30, 1999)1999

3.2      Bylaws of Unisys Corporation, as amended through April 22, 2004
         (incorporated by reference to Exhibit 3 to the registrant's Quarterly
         Report on Form 10-Q for the quarterly period ended March 31, 2004)

10.1     Unisys Corporation Supplemental Executive Retirement Income Plan, as
         amended and restated effective January 1, 2005 (incorporated by
         reference to Exhibit 10.17 to the registrant's Annual Report on Form
         10-K for the year ended December 31, 2004)

10.2     Unisys Corporation Elected Officer Pension Plan, as amended and
         restated effective January 1, 2005 (incorporated by
         reference to Exhibit 10.18 to the registrant's Annual Report on Form
         10-K for the year ended December 31, 2004)

10.3     2005 Deferred Compensation Plan for Directors of Unisys Corporation
         (incorporated by reference to Exhibit 10.19 to the registrant's Annual
         Report on Form 10-K for the year ended December 31, 2004)

10.4     Unisys Corporation 2005 Deferred Compensation Plan (incorporated by
         reference to Exhibit 10.20 to the registrant's Annual
         Report on Form 10-K for the year ended December 31, 2004)

10.5     Consulting Agreement, dated as of March 31, 2005, between Unisys
         Corporation and George R. Gazerwitz (incorporated by reference to
         Exhibit 10 to the registrant's Current Report on Form 8-K dated March
         31, 2005)

12       Statement of Computation of Ratio of Earnings to Fixed Charges

31.1     Certification of Lawrence A. WeinbachJoseph W. McGrath required by Rule 13a-14(a)
         or Rule 15d-14(a)

31.2     Certification of Janet Brutschea Haugen required by Rule 13a-14(a)
         or Rule 15d-14(a)

32.1     Certification of Lawrence A. WeinbachJoseph W. McGrath required by Rule 13a-14(b)
         or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002,
         18 U.S.C. Section 1350

32.2     Certification of Janet Brutschea Haugen required by Rule 13a-14(b)
         or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002,
         18 U.S.C. Section 1350