Unisys Corporation

Unisys Way

Blue Bell, PA19424-0001

 

 

AprilMarch   , 20092010

 

Dear Fellow Stockholder:

 

It is my pleasure to invite you to the Unisys 20092010 Annual Meeting of Stockholders. This year’s meeting will be held on Thursday, May 28, 2009,April 29, 2010, at [ • ],the Philadelphia Marriott West, which is located at [ • ]111 Crawford Avenue in [ • ],West Conshohocken, Pennsylvania. The meeting will begin at 9:30 a.m.

 

These are unprecedented times in the global economy and financial markets. While the economic slowdown and other factors impacted the company’s results in 2008, we are taking aggressive actions to enhance our profitability, cash flow, and competitiveness. Our plan involves focusing our resources and investments, clearly differentiating Unisys in our chosen markets, enhancing our services labor delivery model, and reducing overhead expense by simplifying our business structure. We are moving quickly to implement this plan, and we are firmly committed to showing clear, demonstrablemade significant progress in our resultsturnaround program in 2009. Despite lower revenue in a challenging economic environment, our employees stayed focused on executing against our priorities, delivering three consecutive profitable quarters and much improved results. We reported net income of $189 million in 2009 compared with a year-earlier loss and our operating cash flow improved 56 percent to $397 million. We also made progress in strengthening our balance sheet. We are focused on continuing our progress in 2010.

 

You may have noticed changes in the wayAs we did last year, we are providingmaking the proxy materials to our stockholders for this year’s annual meeting. This is because we have elected to provide accessmeeting available to our proxy materialsstockholders over the Internet under the “notice and access” rules of the Securities and Exchange Commission. We believe these rules allow us to provide our stockholders with the information they need, while reducing our printing and mailing costs and helping to conserve natural resources. The Notice of Internet Availability of Proxy Materials that you received in the mail contains instructions on how to access this proxy statement and the 20082009 annual report and vote online. The Notice also includes instructions on how you can request a paper copy of the annual meeting materials.

 

Your vote is important. Whether or not you plan to attend the annual meeting, I urge you to take a moment to vote on the items in this year’s proxy statement. Voting takes only a few minutes, and it will ensure that your shares are represented at the meeting.

 

 

J. Edward Coleman

Chairman and Chief

Executive Officer

 

 

 

 

 

The Board of Directors of Unisys Corporation solicits your proxy for use at the 20092010 Annual Meeting of Stockholders to be held on May 28, 2009April 29, 2010 and at any adjournments.adjournments or postponements thereof. At the annual meeting, stockholders will be asked to (1) approve amendments to the Company’s Bylaws and Restated Certificate of Incorporation, as applicable, to (a) declassify the Board of Directors so that all directors are elected annually, (b) increase the mandatory retirement age for directors from age 70 to age 72 and (c) decrease the minimum and maximum number of directors that may comprise the Board of Directors; (2) elect two (or, if the above amendment relating to the mandatory retirement age is approved, three) directors, to(3) ratify the selection of the Company’s independent registered public accounting firm, to(4) approve an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stocknew long-term incentive and to decrease the number of authorized shares of common stockequity compensation plan and to(5) transact any other business properly brought before the meeting.

 

The record date for the annual meeting is March 31, 2009.1, 2010. Only holders of record of Unisys common stock as of the close of business on the record date are entitled to vote at the meeting. On the record date, [ • ] shares of common stock were outstanding. The presence, in person or by proxy, of a majority of those shares will constitute a quorum at the meeting.

 

This proxy statement, the proxy/voting instruction card and the annual report of Unisys, including the financial statements for 2008,2009, are being sent or given to stockholders on or about AprilMarch   , 2009.2010.

 

 

Each share of Unisys common stock outstanding on the record date is entitled to one vote on each matter to be voted upon.

Election of Directors.  Directors will be elected by the vote of a majority of the votes cast at the meeting. This means that a nominee will be elected if the number of votes cast “For” his or her election exceeds 50% of the total number of votes cast with respect to that nominee’s election. Votes cast with respect to the election of directors include votes to “Withhold” authority but do not include abstentions and broker non-votes.

 

Independent Registered Public Accounting Firm; New Long-Term Incentive and Equity Compensation Plan.The proposal to ratify the selection of the Company’s independent registered public accounting firm and the proposal to approve a new long-term incentive and equity compensation plan will each be approved if it receives the affirmative vote of a majority of

shares present, in person or by proxy, and entitled to vote on the matter. Abstentions will be included in the vote totaltotals for this matterthese matters and therefore will have the same effect as a negative vote; broker non-votes will not be included in the vote totaltotals and therefore will have no effect on the vote.

 

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission (the “SEC”), the Company has elected to provide stockholders access to its proxy materials over the Internet. Accordingly, the Company sent a Notice of Internet Availability of Proxy Materials (the “Notice”) to most stockholders (other than those who previously requested electronic or paper delivery of proxy materials). The Notice includes instructions on how to access the proxy materials over the Internet and how to request a printed copy of these materials. In addition, by

receives your completed proxy by May 26, 2009.April   , 2010. If the proxy is not timely received, or if you give no instructions on a matter to be voted upon, the trustee will vote the shares credited to your account in the same proportion as it votes those shares for which it received timely instructions from other participants.

 

The Board of Directors currently consists of 1312 members, divided into three classes. OneCurrently, one class of directors is elected each year to hold office for a three-year term. TwoHowever, if stockholders approve the amendments to the Company’s Restated Certificate of Incorporation and Bylaws to eliminate the classified board, as described under Item 1 of this proxy statement, the terms of all directors, including the directors to be elected at the annual meeting, will expire at the 2011 annual meeting. In either case, each director will hold office until his or her successor has been elected and qualified or until the director’s earlier resignation or removal. Three of the four directors whose terms expire in 2009, J. Edward Coleman2010, Henry C. Duques, Theodore E. Martin and Leslie F. Kenne,Charles B. McQuade, have been nominated for reelection. Craig A. ConwayClayton M. Jones has decided not to stand for reelection, and Edwin A. Hustonreelection. Mr. Martin’s nomination is subject to the approval by stockholders of the amendment to the Company’s Bylaws to increase the mandatory retirement age of directors described above in

Item 2. If that amendment is not approved by stockholders, Mr. Martin will retire from the Board of Directors at the annual meeting because he has attainedand will not stand for reelection, and the mandatory retirement agesize of 70.the Board will be reduced to 10 members. The remaining nineeight directors will continue to serve as set forth below,below. However, if stockholders approve the amendments to the Restated Certificate of Incorporation and Bylaws to eliminate the Boardclassified board, the terms of all the Company’s directors, including the directors to be elected at this annual meeting, will then consistexpire at the 2011 annual meeting of 11 members.stockholders. Each of the nominees has agreed to serve as a director if elected, and Unisys believes that each nominee will be available to serve. However, the proxy holders have discretionary authority to cast votes for the election of a substitute should any nominee not be available to serve as a director.

 

systems of internal financial and accounting controls, (3) the independence and qualifications of its independent registered public accounting firm, (4) the performance of its internal auditors and independent registered public accounting firm, (5) the Company’s compliance with legal and regulatory requirements and the soundness of its ethical and environmental compliance programs.programs and (6) the Company’s risk assessment and risk management policies. The Audit Committee held 10 meetings in 2008.2009. Its members arein 2009 were Mr. Duques, Mr. Espe (chair), Ms. Fletcher and Mr. Martin. Mr. Weaver became a member of the Audit Committee in February 2010. The Board has determined that each of Mr. Duques, Mr. Espe, Ms. Fletcher, Mr. Huston (chair) and Ms. Kenne. For 2008, the Board determined that each of Mr. Espe, Ms. FletcherMartin and Mr. Huston wasWeaver is an audit committee financial expert as defined by the SEC. Mr. Huston will be retiring from the Board at the 2009 annual meeting, and the Board has determined that the audit committee financial experts will then be Mr. Espe and Ms. Fletcher.

 

 

The Compensation Committee oversees the compensation of the Company’s executives, the Company’s executive management structure, the compensation-related policies and programs involving the Company’s executive management and the level of benefits of officers and key employees. In this capacity, the committee regularly reviews and approves the Company’s executive compensation strategy and principles to ensure that they are aligned with the Company’s business strategy and objectives and with stockholder interests. Under its charter, the Compensation Committee annually reviews and approves goals and objectives relevant to the compensation of the chief executive officer, evaluates the performance of the chief executive officer in light of those goals and makes recommendations to the independent members of the Board concerning the compensation level of the chief executive officer. The committee also annually reviews and approves compensation levels of the other elected officers. In this regard, the committee solicits input from the Company’s chief executive officer regarding the compensation of those executives who report directly to him. The Compensation Committee also reviews and recommends to the Board the adoption of director compensation programs. The Company’s guidelines regarding the compensation of directors are described more fully in paragraph 11 of “Corporate Governance Guidelines” below. As is discussed more fully below in “Compensation Discussion and Analysis”, the Compensation Committee regularly receives reports and recommendations from management and from the committee’s outside compensation consultant to assist it in carrying out its responsibilities. In 2009, the outside compensation consultant engaged by the Compensation Committee was Watson Wyatt. During 2009, Watson Wyatt and its affiliates did not provide additional services to the Company or its affiliates in an amount in excess of $120,000. In January 2010, Watson Wyatt and Towers Perrin merged to form Towers Watson & Co. Towers Perrin has provided in the past, and continues to provide, human resources consulting and other services to the Company. As a result, effective January 1, 2010, the Compensation Committee engaged a new consultant, Pearl Meyer & Partners. Under its charter, the committee also may consult with legal, accounting or other advisors, as appropriate, and may form and delegate authority to subcommittees when appropriate. The Compensation Committee held seveneight meetings in 2008.2009. Its members are Dr. Duderstadt, Mr. Jones, Mr. Martin (chair) and Mr. McQuade.

 

The Nominating and Corporate Governance Committee identifies and reviews candidates and recommends to the Board of Directors nominees for membership on the Board of Directors. It also oversees the Company’s corporate governance. The Nominating and Corporate Governance Committee held fivefour meetings in 2008.2009. Its members are Mr. Conway, Dr. Duderstadt (chair), Ms. Fletcher, Ms. Kenne and Mr. Lifflander.

 

 

As part of the nomination process, the Nominating and Corporate Governance Committee is responsible for determining the appropriate skills and characteristics required of new Board members in the context of the currentmake-up of the Board and for identifying qualified candidates for Board membership. In so doing, the Nominating and Corporate Governance Committee considers, a number ofwith input from the Board, those factors includingit deems appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The aim is to assemble a Board that is strong in its collective knowledge and that consists of individuals who bring a variety of complementary attributes and who, taken together, have the appropriate skills and experience to oversee the Company’s business. As set forth above, the Nominating and Corporate Governance Committee considers diversity as one of a number of factors in identifying nominees for director. It does not, however, have a formal policy in this regard. The committee views diversity broadly to include diversity of experience, skills and viewpoint as well as traditional diversity concepts such as race or gender.

 

The Nominating and Corporate Governance Committee receives suggestions for new directors from a number of sources, including Board members. It also reviewsmay, in its discretion, employ a third party search firm to assist in identifying candidates for director. In February 2010, the committee recommended, and the Board elected, a new director, Paul E. Weaver. As part of the selection process, the committee looked for a candidate with auditing and accounting expertise and with experience with the information technology industry. Mr. Weaver, who was a director of Gateway, Inc. when Mr. Coleman was that company’s chief executive officer and also a director, was initially suggested by a non-management member of the Unisys Board. The committee will also consider recommendations for Board membership received from stockholders and other qualified sources. Recommendations on director candidates must be in writing and addressed to the Chairman of the Nominating and Corporate Governance Committee,c/o Corporate Secretary, Unisys Corporation, Unisys Way, Blue Bell, Pennsylvania 19424.

 

See “Related Party Transactions” belowThe full Board is responsible for a descriptionfinal approval of new director candidates, as well as the nomination of existing directors for reelection. With respect to existing directors, prior to making its recommendation to the full Board, the Nominating and Corporate Governance Committee, in consultation with the Chairman of the agreement, dated May 20, 2008, between the Company, MMI Investments, L.P., MCM Capital Management, LLC, Clay B. LifflanderBoard and Charles B. McQuade pursuant to which Mr. Lifflander and Mr. McQuade were appointed toChief Executive Officer, reviews each director’s continuation on the Board as a regular part of Directors.the nominating process, which currently occurs every three years and will occur annually if the amendments discussed above in Item 1 are approved by stockholders. Specific information on the qualifications of each of the Company’s directors is included above in Item 4.

 

 

Stockholders and other interested parties may send communications to the Board of Directors or to the non-management directors as a group by writing to themc/o Corporate Secretary, Unisys

Corporation, Unisys Way, Blue Bell, Pennsylvania 19424. All communications directed to Board members will be delivered to them.

 

 

Unisys has a code of ethics, the Unisys Code of Ethics and Business Conduct, that applies to all employees, officers (including the chief executive officer, chief financial officer and principal accounting officer or controller) and directors. The code is posted on the Company’s Internet web site atwww.unisys.com in the InvestorsInvestor Relations section under Corporate Governance and Board of Directors and is also available in print to any stockholder who requests it. The Company intends to post amendments to or waivers from the code (to the extent applicable to the

 

 

 

 

 

 

executive officer or any person or group beneficially owning more than 5% of the Company’s common stock had a direct or indirect material interest.

 

Currently the Company has not adopted a policy specifically directed at the review, approval or ratification of related party transactions required to be disclosed. However, under the Unisys Code of Ethics and Business Conduct, all employees, officers and directors are required to avoid conflicts of interest. Employees (including officers) must review with, and obtain the approval of, their immediate supervisor and the Company’s Corporate Ethics Office, any situation (without regard to dollar amount) that may involve a conflict of interest. Directors should raise possible conflicts of interest with the chief executive officer or the general counsel. The code of ethics defines a conflict of interest as any relationship, arrangement, investment or situation in which loyalties are divided between Unisys interests and personal interests and specifically notes involvement (either personally or through a family member) in a business that is a competitor, supplier or customer of the Company as a particularly sensitive area that requires careful review.

 

 

KPMG LLP was the Company’s independent registered public accounting firm for the yearyears ended December 31, 2008,2009 and Ernst & Young LLP was the Company’s independent registered public accounting firm for the year ended December 31, 2007. Fees for2008. KPMG LLP and Ernst & Young LLPhas billed the Company the following fees for professional services rendered in respect of 20082009 and 20072008 (in millions of dollars), respectively, are as follows::

 

 

Audit fees consist of fees for the audit and review of the Company’s financial statements, statutory audits, comfort letters, consents, assistance with and review of documents filed with the SEC and Section 404 attestation procedures. Audit-related fees consist of fees for SAS 70 engagements, employee benefit plan audits, accounting advice regarding specific transactions and various attestation engagements. Tax fees principally represent fees for tax compliance services.

 

The Audit Committee annually reviews and pre-approves the services that may be provided by the independent registered public accounting firm. The committee has also adopted an Audit and Non-Audit Services Pre-Approval Policy that contains a list of pre-approved services, which the committee may revise from time to time. In addition, the Audit Committee has delegated pre-approval authority, up to a fee limitation of $150,000 per service, to the chairman of the committee.

The following is a brief description of the principal U.S. federal income tax consequences, based on current law, of awards under the 2010 Plan.

Tax Consequences to Participants.  Generally, when a participant receives an award under the 2010 Plan, the participant’s receipt of cash or Company stock in settlement of the reverse stock split that may be relevant to stockholders. This summaryaward is based uponconditioned on the provisionsparticipant’s performing future services for the Companyand/or the attainment of performance goals. The award, therefore, is not taxable at grant. Instead, when and if a participant later receives cash in settlement of the Internal Revenue Codeaward, he or she will have income, taxable at ordinary income rates, equal to the amount of 1986, as amended (the “Internal Revenue Code”), Treasury regulations promulgated thereunder, published administrative rulingscash received. Similarly, when and judicial decisions asif a participant receives Company stock in settlement of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below. This summary does not purport to be complete and does not address all aspects of federal income taxation that may be relevant to stockholders in light of their particular circumstancesan award, he or to stockholders that may beshe will, subject to special tax rules including, without limitation: (i) stockholdersdescribed below, have income, taxable at ordinary income rates, equal to the excess of the fair market value of the stock on that date over the amount, if any, the participant paid for the stock.

Thus, participants generally will be taxable on any cash or the fair market value of any stock received in settlement of an incentive award or other stock-based award or upon exercise of a SAR. Similarly, participants will have taxable income on exercise of a nonqualified stock option equal to the difference between the fair market value of the stock subject to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships (or other flow-through entities for U.S. federal income tax purposesoption and their partners or members); (vii) traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; (viii) foreign stockholders or U.S. stockholders whose “functional currency” is not the U.S. dollar; (ix) persons holding the common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; (x) persons who acquire sharesexercise price of the common stockoption.

Special rules apply in connection with employment or other performancethe case of services; (xi) dealers and other stockholders that do not own their sharesan ISO. Participants generally recognize no taxable income on exercise of common stock asan ISO. Instead, they have gain, taxable at capital assets; or (xii) U.S. expatriates. In addition, this summary does not addressgains rates, upon the tax consequences arising under the laws of any foreign, state or local jurisdiction and U.S. federal tax consequences other than federal income taxation. If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds sharesdisposition of the common stock the tax treatment of a partner in the partnership generally will depend upon the statusacquired on exercise of the partner and the activities of the partnership.

 

The following table sets forth information as of December 31, 20082009 with respect to compensation plans under which Unisys common stock is authorized for issuance.

 

 

 

 

Shown below is information with respect to persons or groups that beneficially own more than 5% of Unisys common stock. This information is derived from Schedules 13D and 13G filed by such persons or groups.

 

 

Shown below are the number of shares of Unisys common stock (or stock units) beneficially owned as of February 28, 200926, 2010 by all directors and nominees, each of the executive officers named on page 33,41, and all directors and current officers of Unisys as a group.

 

 

 

 

 

The Company’s executive compensation program is based upon the following objectives:

 

 

Given these objectives, the Company’s executive compensation program is designed to provide a mix of fixed compensation and at-risk compensation that is heavily weighted towards variable compensation tied to the achievement of specific business objectives and corporate financial goals (both short-term and long-term), as well as to the attainment of the executive’s individual performance objectives. To that end, the principal components of executive officer compensation are:

 

 

In addition, executive officers receive other benefits that the Company believes are reasonable and consistent with its overall compensation program. These include supplemental retirement programs and executive perquisites.

 

Each of the three principal elements of the Company’s executive compensation program is essential to meeting the program’s overall objectives, and most of the compensation components simultaneously fulfill one or more of these objectives. Base salaries, which are the only fixed component of compensation, are used primarily to attract and retain executives responsible for the Company’s long-term success. Annual cash incentive compensation is “at-risk” compensation designed both to reward executives for the achievement of short-term corporate, business unit and individual goals and to attract and retain executives. Long-term incentive compensation is intended to align executive and stockholder interests, to motivate and reward executives for long-term business success and to attract and retain executives responsible for this long-term success.

 

The Company has not adopted a formula to allocate total compensation among its various components. As a general matter, total target compensation, as well as each element of total target compensation, is intended to be consistent with the median for the companies against which Unisys benchmarks the compensation it pays to its executive officers. However, the Company incorporates flexibility into its compensation programs and into the assessment process to respond to and adjust for the changing business environment and to emphasize, as needed, one or more of its compensation objectives.

 

The Company’s executive compensation program takes into account the compensation practices of companies with which Unisys competes or could compete for executive talent. In its general review of the Company’s executive compensation program in 2008,2009, the Compensation Committee compared the Company’s overall compensation practices (types of compensation paid, mix of variable and fixed compensation, mix of cash and equity-based compensation and the like) with the compensation practices of the 36 High Technology companies in the Towers Perrin TriComp survey that are principally in the businesses of systems integration and consulting, information technology outsourcing, infrastructure services and hardware technology.

The committee also reviewed compensation levels for persons holding comparable positions at a subset of the following High Technology companies in the Towers Perrin TriComp survey. The companies included in this subset, whichsurvey that have revenue levels more similar to the Company’s were:as the second benchmark:

 

 

As a general proposition, total target compensation, as well as each element of total target compensation, for the Company’s executive officers is intended to be consistent with the median for this smaller group ofpersons holding comparable positions at the benchmark companies. However, because the Compensation Committee also takes into consideration both individual and corporate performance, as well as a subjective assessment of the relative complexity and strategic importance of any particular position held, any given executive can be compensated at, above or below the median benchmark levels. For 2008,2009, base salaries and annual incentive targets were generally in line with the benchmark companies. For the reasons set forth below, long-term incentive targets were below the benchmark levels, and, as a result, total target compensation was below competitive levels.

 

 

To assist in carrying out its responsibilities, the Compensation Committee regularly consults with the committee’s outside compensation consultant. Under its charter, the Compensation Committee has sole authority to retain and terminate outside compensation consultants, including sole authority to approve the consultant’s fees and other retention terms. In December 2007, the Compensation Committee engaged2009, Watson Wyatt to act as its outside compensation consultant. Aswas the committee’s outside compensation consultant,consultant. In this role, Watson Wyatt performed such duties as were requested by the committee. Those duties consisted primarily of providing market data and advice to the committee that were used to determine executive and director compensation, particularly analyses of the Company’s executive and director compensation in comparison to the benchmark companies. Watson Wyatt spoke with the chairman of the

Compensation Committee, as well as with management, in preparing for committee meetings, regularly attended committee meetings and frequently met in executive session with the Compensation Committee without the presence of management. As is discussed more fully on page 13, effective January 1, 2010, the committee engaged Pearl Meyer & Partners to act as its outside compensation consultant.

 

As set forth above, the principal elements of the Company’s executive compensation program consist of base salary, annualshort-term variable cash incentives and long-term incentive compensation.

 

 

Base salaries for elected officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual and comparing such salaries to the benchmark compensation data. Thereafter, increases in salary can be based on the Compensation Committee’s evaluation of any number of factors, including the individual’s level of responsibility, individual performance, pay levels of both the executive in question and other similarly situated executives and the benchmark compensation data. In February 2008,2009, when it conducted its review of executive compensation, the Compensation Committee determined that, except as set forth below, no elected officers would receive salary increases in 2009 given economic conditions and the Company’s cost reduction program. In its review, the committee also considered primarily the relationship of executive compensation at the Company to the benchmark compensation data. The committee noteddata and determined that theresalaries that had been no salary increasesin effect for the Company’s elected officers2008 for two years (except for increases related to the discontinuation of certain executive perquisites) and that inflation had increased by more than 6% during that period. The committee approved a 3.8% salary increase for elected officers, other than Mr. McGrath. The amount of the increase and the resultant new base salaries for Named Officers listed in the Summary Compensation Table on page 33 were as follows:

 

 

During 2008,2009, all of the Company’s elected officers were eligible to receive annual and quarterly cash incentive compensation through the EVC Plan.Company’s Executive Variable Compensation Plan (the “EVC Plan”). Compensation under the EVC Plan is “at-risk” compensation intended to motivate and reward executives for the attainment of corporateand/or individual performance goals for the year. Under the plan, the Compensation Committee has the discretion to determine the conditions (including performance objectives) applicable to annual award payments and the amounts of such awards. The amount of incentive compensation awards payable under the plan depends upon (1) a participant’s target annual incentive, (2) the amount of

Performance targets set for the Company as a whole for 2009 were based on free cash flow and pre-tax profit (exclusive of gain or loss from divestitures, restructuring charges and retirement-related expense) performance targets.profit. Each target was weighted 50%. Both the revenue growth and the pre-tax profit targets were based on the Company’s Board-approved operating plan, which outlooks the Company’s anticipated results for the year. Target levels (those that would result in funding at 100% if achieved) were the same as the forecasted amounts in the operating plan. The committee also set threshold and, in the case of annual performance, maximum performance levels for each criterion, which would result in funding at 50% and 150% of target, respectively, if achieved. No funding would be provided by the Company in respect of a criterion if performance was below the threshold level.level, except that the plan had a“catch-up” feature for quarterly periods that allowed participants to receive payments for quarters in which targets were not fully met if there was overachievement in later quarters.

The above performance metrics include non-GAAP financial measures. The Company defines free cash flow as cash from operations less capital expenditures. Pre-tax profit excludes retirement-related expenses and is calculated before the accrual for variable compensation. In addition, the committee determined that if pre-tax profit at the target level was not achieved, all funding for the year would be reduced by 50%. Both both