UNITED STATES
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 June 30, 2006
[ ] 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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
Number of shares of Common Stock outstanding as of June 30, 2006:
343,771,654.
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions)
June 30,
2006 December 31,
(Unaudited) 2005
----------- ------------
Assets
- ------
Current assets
Cash and cash equivalents $ 655.1 $ 642.5
Accounts and notes receivable, net 1,082.2 1,111.5
Inventories:
Parts and finished equipment 103.4 103.4
Work in process and materials 80.2 90.7
Deferred income taxes 110.2 68.2
Prepaid expenses and other current assets 155.7 137.0
-------- --------
Total 2,186.8 2,153.3
-------- --------
Properties 1,346.6 1,320.8
Less-Accumulated depreciation and
amortization 984.9 934.4
-------- --------
Properties, net 361.7 386.4
-------- --------
Outsourcing assets, net 420.6 416.0
Marketable software, net 317.0 327.6
Investments at equity 1.1 207.8
Prepaid pension cost 1,318.3 66.1
Deferred income taxes 138.4 138.4
Goodwill 192.1 192.0
Other long-term assets 138.7 141.3
-------- --------
Total $5,074.7 $4,028.9
======== ========
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities
Notes payable $ 10.7 $ 18.1
Current maturities of long-term debt .8 58.8
Accounts payable 390.0 444.6
Other accrued liabilities 1,393.9 1,293.3
-------- --------
Total 1,795.4 1,814.8
-------- --------
Long-term debt 1,049.2 1,049.0
Accrued pension liabilities 352.4 506.9
Other long-term liabilities 684.5 690.8
Stockholders' equity (deficit)
Common stock, shares issued: 2006; 345.8
2005, 344.2 3.5 3.4
Accumulated deficit (2,330.6) (2,108.1)
Other capital 3,931.6 3,917.0
Accumulated other comprehensive loss (411.3) (1,844.9)
-------- --------
Stockholders' equity (deficit) 1,193.2 (32.6)
-------- --------
Total $5,074.7 $4,028.9
======== ========
See notes to consolidated financial statements.
3
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Revenue
Services $1,224.5 $1,236.0 $2,400.9 $2,343.7
Technology 182.8 199.5 394.2 458.4
-------- -------- -------- --------
1,407.3 1,435.5 2,795.1 2,802.1
Costs and expenses
Cost of revenue:
Services 1,136.3 1,063.4 2,212.8 2,044.8
Technology 108.1 94.7 217.5 219.6
-------- -------- -------- --------
1,244.4 1,158.1 2,430.3 2,264.4
Selling, general and administrative 282.7 267.4 578.1 529.0
Research and development 63.9 66.6 139.2 131.5
-------- -------- -------- --------
1,591.0 1,492.1 3,147.6 2,924.9
-------- ------- -------- --------
Operating loss (183.7) (56.6) (352.5) (122.8)
Interest expense 19.1 15.2 38.9 27.8
Other income (expense), net (.7) 32.0 152.7 32.5
-------- -------- -------- --------
Loss before income taxes (203.5) (39.8) (238.7) (118.1)
Benefit for income taxes (8.9) (12.7) (16.2) (45.5)
-------- -------- -------- ---------
Net loss $ (194.6) $ (27.1) $ (222.5) $ (72.6)
======== ======== ======== ========
Loss per share
Basic $ (.57) $ (.08) $ (.65) $ (.21)
======== ======== ======== ========
Diluted $ (.57) $ (.08) $ (.65) $ (.21)
======== ======== ======== ========
See notes to consolidated financial statements.
4
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
Six Months Ended
June 30
------------------
2006 2005
-------- --------
Cash flows from operating activities
Net loss $ (222.5) $ (72.6)
Add (deduct) items to reconcile net loss
to net cash (used for) provided by operating
activities:
Equity loss (income) 4.3 (11.6)
Employee stock compensation 3.2
Depreciation and amortization of properties 58.5 61.8
Depreciation and amortization of outsourcing assets 66.7 65.6
Amortization of marketable software 66.2 59.2
Gain on sale of NUL shares and other assets (153.2)
Increase in deferred income taxes, net (41.9) ( .6)
Decrease in receivables, net 66.7 73.6
Decrease in inventories 10.2 10.4
Increase (decrease) in accounts payable and other
accrued liabilities 8.0 (249.3)
(Decrease) increase in other liabilities (44.5) 122.6
Decrease (increase) in other assets 1.2 (24.8)
Other 11.1 56.4
------- ------
Net cash (used for) provided by operating activities (166.0) 90.7
------- ------
Cash flows from investing activities
Proceeds from investments 3,729.3 3,709.4
Purchases of investments (3,731.3) (3,698.8)
Investment in marketable software (55.3) (63.3)
Capital additions of properties (32.7) (59.4)
Capital additions of outsourcing assets (50.1) (86.3)
Proceeds from sale of NUL shares and
other assets 380.6
Purchases of businesses (.5)
------- ------
Net cash provided by (used for)
investing activities 240.5 (198.9)
------- ------
Cash flows from financing activities
Net (reduction in) proceeds from
short-term borrowings (7.4) .5
Proceeds from employee stock plans .9 12.8
Payments of long-term debt (57.9) (150.7)
Financing fees (4.6)
------- ------
Net cash used for financing activities (69.0) (137.4)
------- ------
Effect of exchange rate changes on
cash and cash equivalents 7.1 (16.0)
------- ------
Increase (decrease) in cash and cash equivalents 12.6 (261.6)
Cash and cash equivalents, beginning of period 642.5 660.5
------- -------
Cash and cash equivalents, end of period $ 655.1 $ 398.9
======== =======
See notes to consolidated financial statements.
5
Unisys 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 six months ended June 30, 2006 and 2005 (dollars in millions, shares
in thousands):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Basic Loss Per Share
Net loss $ (194.6) $ (27.1) $ (222.5) $ (72.6)
======== ========= ======== ========
Weighted average shares 343,414 340,047 342,936 339,147
======== ========= ======== ========
Basic loss per share $ (.57) $ (.08) $ (.65) $ (.21)
======== ========= ======== ========
Diluted Loss Per Share
Net loss $ (194.6) $ (27.1) $ (222.5) $ (72.6)
======== ========= ======== ========
Weighted average shares 343,414 340,047 342,936 339,147
Plus incremental shares
from assumed conversions
of employee stock plans - - - -
-------- --------- -------- --------
Adjusted weighted average shares 343,414 340,047 342,936 339,147
========= ========= ======== ========
Diluted loss per share $ (.57) $ (.08) $ (.65) $ (.21)
========= ========= ======== ========
At June 30, 2006, no shares related to employee stock plans were included in
the computation of diluted earnings per share since inclusion of these shares
would be antidilutive because of the net loss incurred in the three and six
months ended June 30, 2006.
b. As part of the company's repositioning plan to right size its cost
structure, on March 31, 2006, the company committed to a reduction of
approximately 3,600 employees. This resulted in a pretax charge in the first
quarter of 2006 of $145.9 million, principally related to severance costs. The
charge is broken down as follows: (a) approximately 1,600 employees in the U.S.
for a charge of $50.3 million and (b) approximately 2,000 employees outside the
U.S. for a charge of $95.6 million. The pretax charge was recorded in the
following statement of income classifications: cost of revenue-services, $83.4
million; cost of revenue-technology, $2.0 million; selling, general and
administrative expenses, $45.4 million; research and development expenses,
$17.6 million; and other income (expense), net, $2.5 million. The income
recorded in other income (expense), net relates to minority shareholders'
portion of the charge related to majority owned subsidiaries which are fully
consolidated by the company.
As part of the company's continuing repositioning plan to right size its cost
structure, during the three months ended June 30, 2006, the company committed
to an additional reduction of approximately 1,900 employees. This resulted in
a pretax charge in the second quarter of 2006 of $141.2 million, principally
related to severance costs. The charge is broken down as follows: (a)
approximately 650 employees in the U.S. for a charge of $22.1 million and (b)
approximately 1,250 employees outside the U.S. for a charge of $119.1 million.
The pretax charge was recorded in the following statement of income
classifications: cost of revenue-services, $101.4 million; selling, general and
administrative expenses, $28.3 million; research and development expenses,
$11.8 million; and other income (expense), net, $.3 million. The income
recorded in other income (expense), net relates to minority shareholders'
portion of the charge related to majority owned subsidiaries which are fully
consolidated by the company.
6
For the six months ended June 30, 2006, the pretax charge of $287.1 million was
recorded in the following statement of income classifications: cost of revenue-
services, $184.8 million; cost of revenue-technology, $2.0 million; selling,
general and administrative expenses, $73.7 million; research and development
expenses, $29.4 million; and other income (expense), net, $2.8 million. The
income recorded in other income (expense), net relates to minority
shareholders' portion of the charge related to majority owned subsidiaries
which are fully consolidated by the company.
Of the total of approximately 5,500 employee reductions announced in the first
half of 2006, approximately 90% are expected to be completed by the end of 2006
with the remaining reductions targeted for the first half of 2007. Net of
increases in offshore resources and outsourcing of certain internal, non-client
facing functions, the company anticipates that these combined actions will
yield annualized cost savings in excess of $325 million by the second half of
2007. The company continues to explore other approaches to reducing its cost
structure, including additional work force reductions and potential idle
facility charges which could result in additional cost reduction charges in the
second half of 2006.
A further breakdown of the individual components of these costs follows (in
millions of dollars):
Headcount Total U.S. Int'l.
--------- ----- ---- ------
Charge for work force reductions 5,528 $287.1 $72.4 $214.7
Minority interest 2.8 2.8
------ ------ ------ -----
5,528 289.9 72.4 217.5
Utilized (2,017) (29.8) (8.8) (21.0)
Changes in estimates and
revisions (195) (.4) 1.6 (2.0)
Translation adjustments 4.5 4.5
------ ------ ----- -----
Balance at June 30, 2006 3,316 $264.2 $65.2 $199.0
====== ====== ===== ======
Expected future utilization:
2006 remaining six months 2,800 $150.6 $40.6 $110.0
2007 and thereafter 516 113.6 24.6 89.0
c. On March 17, 2006, the company adopted changes to its U.S. defined
benefit pension plans effective December 31, 2006, and will increase matching
contributions to its defined contribution savings plan beginning January 1,
2007.
The changes to the U.S. plans are part of a global effort by the company to
provide a competitive retirement program while controlling the level and
volatility of retirement costs.
The changes to the U.S. pension plans affect most U.S. employees and senior
management. They include:
* Ending the accrual of future benefits in the company's defined benefit
pension plans for employees effective December 31, 2006. There will be no new
entrants to the plans after that date.
* Increasing the company's matching contribution under the company savings plan
to 100 percent of the first 6 percent of eligible pay contributed by
participants, up from the current 50 percent of the first 4 percent of eligible
pay contributed by participants. The company match is made in company common
stock.
7
The changes do not affect the vested accrued pension benefits of current and
former employees, including Unisys retirees, as of December 31, 2006.
As a result of the amendment to stop accruals for future benefits in its U.S.
defined benefit pension plans, the company recorded a pretax curtailment gain
of $45.0 million in the first quarter of 2006. U.S. GAAP pension accounting
rules require companies to re-measure both plan assets and obligations whenever
a significant event occurs, such as a plan amendment. The company has
performed such re-measurement as of March 31, 2006. As a result of the re-
measurement, the company's U.S. qualified defined benefit pension plan is no
longer in a minimum liability position and, accordingly, the company has
reclassified its prepaid pension asset from other comprehensive income to a
prepaid pension asset on its balance sheet. Based on the changes to the U.S.
plans, the March 31, 2006 re-measurement and including the $45.0 million
curtailment gain, the company currently expects its 2006 worldwide pension
expense to be approximately $135 million, down from $181 million in 2005. The
expected pension expense in 2006 is based on actuarial assumptions and on
assumptions regarding interest rates and currency exchange rates, all of which
are subject to change. Accordingly the expected expense amount could change.
Net periodic pension expense for the three and six months ended June 30, 2006
and 2005 is presented below (in millions of dollars):
Three Months Three Months
Ended June 30, 2006 Ended June 30, 2005
-------------------- -------------------
U.S. Int'l. U.S. Int'l.
Total Plans Plans Total Plans Plans
----- ----- ----- ----- ----- -----
Service cost $ 27.4 $ 15.2 $ 12.2 $ 28.1 $ 15.6 $ 12.5
Interest cost 111.9 84.2 27.7 93.0 66.2 26.8
Expected return on
plan assets (140.7) (110.3) (30.4) (119.8) ( 90.2) (29.6)
Amortization of prior
service (benefit) cost (.2) (.5) .3 ( 1.7) ( 1.9) .2
Recognized net actuarial
loss 42.1 29.9 12.2 46.2 36.0 10.2
----- ------ ------ ------ ----- ----
Net periodic pension
expense $ 40.5 $ 18.5 $22.0 $ 45.8 $ 25.7 $20.1
====== ====== ====== ====== ======= =====
Six Months Six Months
Ended June 30, 2006 Ended June 30, 2005
------------------- -------------------
U.S. Int'l. U.S. Int'l.
Total Plans Plans Total Plans Plans
----- ----- ------ ----- ----- ------
Service cost $ 57.2 $ 33.6 $23.6 $ 59.8 $ 34.7 $ 25.1
Interest cost 206.8 152.3 54.5 186.1 131.5 54.6
Expected return on
plan assets (260.6) (201.0) (59.6) (240.8) (180.5) (60.3)
Amortization of prior
service (benefit) cost (.5) (1.0) .5 (3.0) (3.8) .8
Recognized net actuarial
loss 90.5 66.4 24.1 90.5 70.1 20.4
Curtailment gain (45.0) (45.0)
------- ------- ------- ------- ------ -----
Net periodic pension
expense $ 48.4 $ 5.3 $43.1 $ 92.6 $ 52.0 $40.6
======= ======= ======= ====== ====== =====
The company currently expects to make cash contributions of approximately $75
million to its worldwide defined benefit pension plans in 2006 compared with
$71.6 million in 2005. For the six months ended June 30, 2006 and 2005, $33.7
million and $30.1 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 2006.
8
Net periodic postretirement benefit expense for the three and six months ended
June 30, 2006 and 2005 is presented below (in millions of dollars):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Interest cost $3.2 $3.5 $ 6.4 $ 6.9
Expected return on assets (.1) (.1) (.2)
Amortization of prior
service benefit (.5) (.5) (1.0) (1.0)
Recognized net actuarial
loss 1.3 1.6 2.6 3.2
---- ---- ---- -----
Net periodic postretirement
benefit expense $4.0 $4.5 $ 7.9 $ 8.9
==== ==== ==== =====
The company expects to make cash contributions of approximately $28 million to
its postretirement benefit plan in 2006 compared with $26.4 million in 2005.
For the six months ended June 30, 2006 and 2005, $12.7 million and $12.4
million, respectively, of cash contributions have been made.
d. In March 2006, the company sold all of the shares it owned in Nihon
Unisys, Ltd. (NUL), a publicly traded Japanese company. The company received
gross proceeds of $378.1 million and recognized a pretax gain of $149.9 million
in the first quarter of 2006. NUL will remain the exclusive distributor of the
company's hardware and software in Japan.
At December 31, 2005, the company owned approximately 29% of the voting common
stock of NUL. The company accounted for this investment by the equity method,
and, at December 31, 2005, the amount recorded in the company's books for the
investment, after the reversal of a minimum pension liability adjustment, was
$243 million. During the years ended December 31, 2005, 2004, 2003, and for
the six months ended June 30, 2006 and 2005, the company recorded equity income
(loss) related to NUL of $9.1 million, $16.2 million, $18.2 million, $(4.2)
million and $11.5 million, respectively. These amounts were recorded in "Other
income (expense), net" in the company's consolidated statements of income.
e. Under the company's stockholder approved stock-based plans, stock options,
stock appreciation rights, restricted stock and restricted stock units may be
granted to officers, directors and other key employees. At June 30, 2006, 5.4
million shares of unissued common stock of the company were available for
granting under these plans.
As of June 30, 2006, the company has granted non-qualified stock options and
restricted stock units under these plans. Prior to January 1, 2006, the
company applied the recognition and measurement principles of APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for those plans, whereby for stock options, at the date of grant, no
compensation expense was reflected in 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. Pro forma information regarding net income
and earnings per share was provided in accordance with Statement of Financial
Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" (SFAS No. 148), as if the fair value method defined
by SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) had
been applied to stock-based compensation. For purposes of the pro forma
disclosures, the estimated fair value of stock options was amortized to expense
over the options' vesting periods.
Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123R), which replaces SFAS No. 123 and
supersedes APB Opinion No. 25. SFAS No. 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values. The company adopted SFAS
No. 123R using the modified-prospective transition method, which requires the
company, beginning January 1, 2006 and thereafter, to expense the grant date
fair value of all share-based awards over their remaining vesting periods to
the extent the awards were not fully vested as of the date of adoption and to
expense the fair value of all share-based awards granted subsequent to December
31, 2005 over their requisite service periods. Stock-based compensation
9
expense for all share-based payment awards granted after January 1, 2006 is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123R. The company recognizes compensation cost net of a forfeiture
rate and recognizes the compensation cost for only those awards expected to
vest on a straight-line basis over the requisite service period of the award,
which is generally the vesting term. The company estimated the forfeiture rate
based on its historical experience and its expectations about future
forfeitures. As required under the modified-prospective transition method,
prior periods have not been restated. In March 2005, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107)
regarding the SEC's interpretation of SFAS No. 123R and the valuation of share-
based payments for public companies. The company has applied the provisions of
SAB 107 in its adoption of SFAS No. 123R. The company records share-based
payment expense in selling, general and administrative expenses.
The company's stock option and time-based restricted stock unit grants include
a provision that if termination of employment occurs after the participant has
attained age 55 and completed 5 years of service with the company, or for
directors, the completion of 5 years of service as a director, the participant
shall continue to vest in each of his or her awards in accordance with the
vesting schedule set forth in the applicable award agreement. For purposes of
the pro forma information required to be disclosed by SFAS No. 123, the company
recognized compensation expense over the vesting period. Under SFAS No. 123R,
compensation expense is recognized over the period through the date that the
employee first becomes eligible to retire and is no longer required to provide
service to earn the award. For grants prior to January 1, 2006, compensation
expense continues to be recognized under the prior method; compensation expense
for awards granted after December 31, 2005 is recognized over the period to the
date the employee first becomes eligible for retirement.
Options have been granted to purchase the company's common stock at an exercise
price equal to or greater than the fair market value at the date of grant.
Options granted before January 1, 2005 generally have a maximum duration of ten
years and were exercisable in annual installments over a four-year period
following date of grant. Stock options granted after January 1, 2005 generally
have a maximum duration of five years and become exercisable in annual
installments over a three-year period following date of grant. On September 23,
2005, the company accelerated the vesting of all of its then-issued unvested
stock options. On December 19, 2005, the company granted fully vested stock
options to purchase a total of 3.4 million shares of the company's common stock
at an exercise price of $6.05, the fair market value of the company's common
stock on December 19, 2005.
Prior to January 1, 2006, restricted stock units had been granted and were
subject to forfeiture upon employment termination prior to the release of the
restrictions. Compensation expense resulting from these awards is recognized
as expense ratably from the date of grant until the date the restrictions lapse
and is based on the fair market value of the shares at the date of grant.
For stock options issued both before and after adoption of SFAS No. 123R, the
fair value is estimated at the date of grant using a Black-Scholes option
pricing model. As part of its adoption of SFAS No. 123R, for stock options
issued after December 31, 2005, the company reevaluated its assumptions in
estimating the fair value of stock options granted. Principal assumptions used
are as follows: (a) expected volatility for the company's stock price is based
on historical volatility and implied market volatility, (b) historical exercise
data is used to estimate the options' expected term, which represents the
period of time that the options granted are expected to be outstanding, and (c)
the risk-free interest rate is the rate on zero-coupon U.S. government issues
with a remaining term equal to the expected life of the options. The company
recognizes compensation expense for the fair value of stock options, which have
graded vesting, on the straight-line basis over the requisite service period of
the awards.
10
The fair value of stock option awards was estimated using the Black-Scholes
option pricing model with the following assumptions and expected weighted-
average fair values as follows:
Six Months Ended June 30
------------------------
2006 2005
---- ----
Weighted-average fair value of grant $2.53 $3.27
Risk-free interest rate 4.35% 3.43%
Expected volatility 45.88% 55.00%
Expected life of options in years 3.67 3.50
Expected dividend yield - -
Prior to January 1, 2006, the company would grant an annual stock option award
to officers, directors and other key employees generally in the first quarter
of a year. For 2006, this annual stock option award has been replaced with
restricted stock unit awards. The company currently expects to continue to
grant stock option awards, principally to newly hired individuals. The
restricted stock unit awards granted in March of 2006 contain both time-based
units (25% of the grant) and performance-based units (75% of the grant). The
time-based units vest in three equal annual installments beginning with the
first anniversary of the grant, and the performance-based units vest in three
equal annual installments, beginning with the first anniversary of the grant,
based upon the achievement of pretax profit and revenue growth rate goals in
2006, 2006-2007, and 2006-2008, for each installment, respectively. Each
performance-based unit will vest into zero to 1.5 shares depending on the
extent to which the performance goals are met. Compensation expense resulting
from these awards is recognized as expense ratably for each installment from
the date of grant until the date the restrictions lapse and is based on the
fair market value at the date of grant and the probability of achievement of
the specific performance-related goals.
During the six months ended June 30, 2006, the company recorded $3.2 million of
share-based compensation expense, which is comprised of $3.0 million of
restricted stock unit expense and $.2 million of stock option expense.
The adoption of SFAS No. 123R had an immaterial impact to income before income
taxes and net income for the six months ended June 30, 2006.
A summary of stock option activity for the six months ended June 30, 2006
follows (shares in thousands):
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term (years) ($ in millions)
------- ------ --------- ------------ ---------------
Outstanding at
December
31, 2005 47,536 $16.54
Granted 447 6.49
Exercised (150) 6.25
Forfeited and
expired (2,344) 15.32
------
Outstanding at
June 30, 2006 45,489 16.54 4.7 $ .8
======
Vested and
expected to
vest at
June 30, 2006 45,489 16.54 4.7 .8
======
Exercisable at
June 30, 2006 44,789 16.71 4.7 .8
======
The aggregate intrinsic value in the above table reflects the total pretax
intrinsic value (the difference between the company's closing stock price on
the last trading day of the period and the exercise price of the options,
multiplied by the number of in-the-money stock options) that would have been
received by the option holders had all option holders exercised their options
on June 30, 2006. The intrinsic value of the company's stock options changes
based on the closing price of the company's stock. The total intrinsic value
of options exercised for the six months ended June 30, 2006 and June 30, 2005
was immaterial. As of June 30, 2006, $1.6 million of total unrecognized
compensation cost related to stock options is expected to be recognized over a
weighted-average period of 1.6 years.
11
A summary of restricted stock unit activity for the six months ended June 30,
2006 follows (shares in thousands):
Weighted-
Restricted Average
Stock Grant Date
Units Fair Value
---------- ----------
Outstanding at December 31, 2005 352 $8.89
Granted 1,777 6.63
Vested (128) 7.62
Forfeited and expired (83) 10.45
-----
Outstanding at June 30, 2006 1,918 6.81
=====
The fair value of restricted stock units is determined based on the average of
the high and low trading price of the company's common shares on the date of
grant. The weighted-average grant-date fair value of restricted stock units
granted during the six months ended June 30, 2006 and 2005 was $6.63 and $7.62,
respectively. As of June 30, 2006, there was $9.0 million of total
unrecognized compensation cost related to outstanding restricted stock units
granted under the company's plans. That cost is expected to be recognized over
a weighted-average period of 1.7 years. The total fair value of restricted
share units vested during the six months ended June 30, 2006 was $.8 million.
No restricted share units vested during the six months ended June 30, 2005.
For the six months ended June 30, 2005, 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, except
per share amounts):
Six Months Ended June 30
------------------------
2005
-----
Net loss as reported $(72.6)
Deduct total stock-based employee
compensation expense determined
under fair value method for all
awards, net of tax (11.1)
------
Pro forma net loss $(83.7)
======
Loss per share
Basic - as reported $ (.21)
Basic - pro forma $ (.25)
Diluted - as reported $ (.21)
Diluted - pro forma $ (.25)
Common stock issued upon exercise of stock options or upon lapse of
restrictions on restricted stock units are newly-issued shares. Cash received
from the exercise of stock options for the six months ended June 30, 2006 and
2005 was $1.0 million and $.3 million, respectively. The company did not
realize any tax benefits from the exercise of stock options or upon issuance of
stock upon lapse of restrictions on restricted stock units in light of its tax
asset carryforwards. Prior to the adoption of SFAS No. 123R, the company
presented such tax benefits as operating cash flows. Upon the adoption of SFAS
No. 123R, tax benefits resulting from tax deductions in excess of the
compensation cost recognized are classified as financing cash flows.
f. 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.
12
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 six months ended June 30, 2006 and
2005 was $2.0 million and $4.8 million, and $3.3 million and $9.7 million,
respectively. The profit on these transactions is eliminated in Corporate.
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.
A summary of the company's operations by business segment for the three and six
month periods ended June 30, 2006 and 2005 is presented below (in millions of
dollars):
Total Corporate Services Technology
----- --------- -------- ----------
Three Months Ended
June 30, 2006
------------------
Customer revenue $1,407.3 $1,224.5 $ 182.8
Intersegment $ (53.2) 3.8 49.4
-------- -------- -------- ------
Total revenue $1,407.3 $ (53.2) $1,228.3 $ 232.2
======== ======== ======== ======
Operating loss $ (183.7) $(143.9) $ (11.6) $ (28.2)
======== ======== ======== =======
Three Months Ended
June 30, 2005
------------------
Customer revenue $1,435.5 $1,236.0 $ 199.5
Intersegment $( 75.7) 4.9 70.8
-------- -------- -------- -------
Total revenue $1,435.5 $( 75.7) $1,240.9 $ 270.3
======== ======= ======== =======
Operating income (loss) $ (56.6) $ 2.7 $ (46.4) $ (12.9)
========= ======= ======== =======
Six Months Ended
June 30, 2006
----------------
Customer revenue $2,795.1 $2,400.9 $ 394.2
Intersegment $ (95.8) 7.2 88.6
-------- -------- -------- --------
Total revenue $2,795.1 $ (95.8) $2,408.1 $ 482.8
======== ======== ======== ========
Operating loss $ (352.5) $(288.7) $ (22.1) $ (41.7)
======== ======== ======== ========
Six Months Ended
June 30, 2005
----------------
Customer revenue $2,802.1 $2,343.7 $ 458.4
Intersegment $( 135.6) 9.7 125.9
-------- -------- -------- -------
Total revenue $2,802.1 $( 135.6) $2,353.4 $ 584.3
======== ======== ======== =======
Operating income (loss) $ (122.8) $ (7.7) $ (121.5) $ 6.4
======== ======== ======== =======
13
Presented below is a reconciliation of total business segment operating income
(loss) to consolidated loss before income taxes (in millions of dollars):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Total segment operating loss $ (39.8) $ (59.3) $ (63.8) $(115.1)
Interest expense (19.1) (15.2) (38.9) (27.8)
Other income (expense), net (.7) 32.0 152.7 32.5
Cost reduction charge (141.2) (287.1)
Corporate and eliminations (2.7) 2.7 (1.6) (7.7)
------- ------- ------- -------
Total loss before income
taxes $(203.5) $ (39.8) $(238.7) $(118.1)
======= ======= ======= =======
Customer revenue by classes of similar products or services, by segment, is
presented below (in millions of dollars):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Services
Consulting and systems
integration $ 404.0 $ 443.5 $ 785.3 $ 813.3
Outsourcing 471.2 452.6 926.4 852.8
Infrastructure services 229.5 208.4 454.5 411.2
Core maintenance 119.8 131.5 234.7 266.4
-------- -------- -------- --------
1,224.5 1,236.0 2,400.9 2,343.7
Technology
Enterprise-class servers 145.6 165.7 313.7 363.9
Specialized technologies 37.2 33.8 80.5 94.5
-------- -------- -------- --------
182.8 199.5 394.2 458.4
-------- -------- -------- --------
Total $1,407.3 $1,435.5 $2,795.1 $2,802.1
======== ======== ======== ========
g. Comprehensive income (loss) for the three and six months ended June 30, 2006
and 2005 includes the following components (in millions of dollars):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Net loss $(194.6) $ (27.1) $ (222.5) $ (72.6)
Other comprehensive income
(loss)
Cash flow hedges
Income (loss), net of
tax of $ -, $1.4, -,
and $2.7 (.4) 2.6 (.2) 4.9
Reclassification
adjustments, net of
tax of $ -, $ (1.3), $-
and $(.6) .2 (2.4) - (1.0)
Foreign currency
translation adjustments (1.7) 1.4 (12.2) 17.2
Reversal of U.S. minimum
pension liability - - 1,446.0 -
-------- -------- -------- --------
Total other comprehensive
income (loss) (1.9) 1.6 1,433.6 21.1
-------- ------- -------- --------
Comprehensive income (loss) $(196.5) $(25.5) $1,211.1 $ (51.5)
======== ======= ======== ========
14
Accumulated other comprehensive income (loss) as of December 31, 2005 and
June 30, 2006 is as follows (in millions of dollars):
Cash Minimum
Translation Flow Pension
Total Adjustments Hedges Liability
----- ----------- ------ ---------
Balance at December 31, 2005 $(1,844.9) $(627.3) $ .1 $(1,217.7)
Change during period 1,433.6 (12.2) (.2) 1,446.0
-------- ------- ------ ---------
Balance at June 30, 2006 $ (411.3) $(639.5) $ (.1) $ 228.3
========= ======= ====== =========
h. 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
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):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Balance at beginning of
period $ 9.3 $ 11.0 $ 8.0 $ 11.6
Accruals for warranties
issued during the period 2.1 1.9 5.0 4.3
Settlements made during
the period (2.4) (2.6) (4.8) (5.5)
Changes in liability for
pre-existing warranties
during the period,
including expirations (.1) (.9) .7 (1.0)
------- -------- -------- ------
Balance at June 30 $ 8.9 $ 9.4 $ 8.9 $ 9.4
======= ======= ======== ======
i. Cash paid during the six months ended June 30, 2006 and 2005 for income
taxes was $47.4 million and $24.5 million, respectively.
Cash paid during the six months ended June 30, 2006 and 2005 for interest was
$49.0 million and $41.7 million, respectively.
j. Effective January 1, 2006, the company adopted 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. Adoption of
SFAS No. 151 did not have a material effect on the company's consolidated
financial position, consolidated results of operations, or liquidity.
15
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109," (FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The company is currently evaluating what effect, if any,
adoption of FIN 48 will have on the company's financial statements.
k. In 2002, the company and the Transportation Security Administration (TSA)
entered into a competitively awarded contract providing for the establishment
of secure information technology environments in airports. The Defense
Contract Audit Agency (DCAA), at the request of TSA, reviewed contract
performance and raised some government contracting issues. It is not unusual
in complex government contracts for the government and the contractor to have
issues arise regarding contract obligations. The company continues to work
collaboratively with the DCAA and TSA to try to resolve these issues. While
the company believes that it and the government will resolve the issues raised,
there can be no assurance that these issues will be successfully resolved or
that new issues will not be raised. It has been publicly reported that certain
of these matters have been referred to the Inspector General's office of the
Department of Homeland Security for investigation. The company has received no
investigative requests from the Inspector General's office or any other
government agency with respect to any such referral. The company does not know
whether any such referral will be pursued or, if pursued, what effect it may
have on the company or on the resolution of the issues with TSA.
l. In June 2006, the company retired at maturity all $57.9 million of its
remaining 8 1/8% senior notes.
Effective May 31, 2006, the company entered into a three-year, secured
revolving credit facility. The new credit agreement, which provides for loans
and letters of credit up to an aggregate of $275 million, replaces the
company's $500 million credit agreement that expired on May 31, 2006.
Borrowings under the new facility will bear interest based on short-term rates
and the company's credit rating. The credit agreement contains customary
representations and warranties, including no material adverse change in the
company's business, results of operations or financial condition. It also
contains financial covenants requiring the company to maintain certain interest
coverage, leverage and asset coverage ratios and a minimum amount of liquidity,
which could reduce the amount the company is able to borrow. The
credit facility also includes covenants limiting liens, mergers, asset sales,
dividends and the incurrence of debt. Events of default include non-payment,
failure to perform covenants, materially incorrect representations and
warranties, change of control and default under other debt aggregating at least
$25 million. If an event of 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. The credit facility is secured by the company's assets,
except that the collateral does not include accounts receivable that are
subject to the receivable facility, U.S. real estate or the stock or
indebtedness of the company's U.S. operating subsidiaries. As of June 30,
2006, there were letters of credit of approximately $24 million issued under
the facility and there were no cash borrowings.
m. Certain prior year amounts have been reclassified to conform with the 2006
presentation.
16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
For the six months ended June 30, 2006, the company reported a net loss of
$222.5 million, or $.65 per share, compared with a net loss of $72.6 million,
or $.21 per share, for the six months ended June 30, 2005. The current period
includes pretax charges of $287.1 million relating to cost reduction actions.
During the first half of 2006, the company executed against its previously-
announced plan to fundamentally reposition the company for profitable growth.
During the period, the company:
* began implementing personnel reductions by committing to a reduction of
approximately 5,500 employees, which resulted in pretax charges of $287.1
million. See note (b) to the financial statements.
* adopted changes to its U.S. defined benefit pension plans effective December
31, 2006, and will increase matching contributions to its defined contribution
savings plan beginning January 1, 2007. As a result of stopping the accruals
for future benefits, the company recorded a pretax curtailment gain of $45.0
million. See note (c).
* took initial steps in its program to divest non-core assets. In March the
company divested its stake in Nihon Unisys, Ltd. (NUL), a leading IT solutions
provider in Japan. The company sold all of its 30.5 million shares in NUL,
generating cash proceeds of approximately $378 million, which will be used to
fund the company's cost reduction program. A pretax gain of $149.9 million was
recorded on the sale. The company also sold certain assets of its Unigen
semiconductor test equipment business for cash proceeds of $8 million. See
note (d).
* reached a definitive agreement with its partner banks on renegotiated terms
for its iPSL payment processing joint venture in the United Kingdom. The terms
of the new agreement, which went into effect on January 1, 2006, include new
tariff arrangements that are expected to yield an additional approximately $150
million in revenue to the company over the 2006-2010 timeframe.
* reached a series of alliance agreements with NEC Corporation (NEC) to
collaborate in server technology, research and development, manufacturing, and
solutions delivery. Among the areas included in the agreements, the two
companies will co-design and develop a common high-end, Intel-based server
platform for customers of both companies, and NEC is recognizing the company as
a preferred provider of technology support and maintenance services and managed
security services in markets outside of Japan.
* announced new high-end products in the company's ClearPath and MCP families
which should help improve demand in the Technology business in the second half
of 2006 compared with the first half of 2006.
Results of operations
Company results
For the three months ended June 30, 2006, the company reported a net loss of
$194.6 million, or $.57 per share, compared with a net loss of $27.1 million, or
$.08 per share, for the three months ended June 30, 2005.
Revenue for the quarter ended June 30, 2006 was $1.41 billion compared with
$1.44 billion for the second quarter of 2005. Revenue in the current period
decreased 2% from the prior year. This decrease was principally due to a
decrease of 8% in Technology revenue and a decrease of 1% in Services revenue.
Foreign currency fluctuations had a negligible impact on revenue in the current
period compared with the year-ago period. U.S. revenue declined 6% in the
quarter compared with the year-ago period principally in the company's Federal
business. Revenue in international markets increased 2% due to increases in
Latin America and Europe offset in part by a decline in Pacific/Asia. On a
constant currency basis, international revenue increased 2% in the three months
ended June 30, 2006 compared with the three months ended June 30, 2005.
Pension expense for the three months ended June 30, 2006 was $40.5 million
compared with $45.8 million for the three months ended June 30, 2005. The
company records pension income or expense, as well as other employee-related
costs such as payroll taxes and medical insurance costs, in operating income in
the following income statement categories: cost of sales; selling, general and
administrative expenses; and research and development expenses. The amount
allocated to each category is based on where the salaries of active employees
are charged.
17
Total gross profit margin was 11.6% in the three months ended June 30, 2006
compared with 19.3% in the three months ended June 30, 2005. This decline
principally reflected a $101.4 million cost reduction charge in the current
quarter.
Selling, general and administrative expenses were $282.7 million for the three
months ended June 30, 2006 (20.1% of revenue) compared with $267.4 million
(18.6% of revenue) in the year-ago period. The increase was principally due to
a $28.3 million charge in 2006 relating to the cost reduction actions.
Research and development (R&D) expenses in the second quarter of 2006 were
$63.9 million compared with $66.6 million in the second quarter of 2005. The
company continues to invest in proprietary operating systems, middleware and in
key programs within its industry practices. R&D expense in the second quarter
of 2006 included an $11.8 million charge relating to the 2006 cost reduction
actions. The decline in R&D, exclusive of the current period cost reduction
charge, was principally a result of cost reduction actions.
For the second quarter of 2006, the company reported a pretax operating loss of
$183.7 million compared with a pretax operating loss of $56.6 million in the
second quarter of 2005. The principal item affecting the comparison was a
$141.5 million charge in 2006 relating to the cost reduction actions.
Interest expense for the three months ended June 30, 2006 was $19.1 million
compared with $15.2 million for the three months ended June 30, 2005,
principally due to higher average debt.
Other income (expense), net, which can vary from period to period, was expense
of $.7 million in the second quarter of 2006, compared with income of $32.0
million in 2005. The difference in 2006 from 2005 was principally due to (a) a
decline in NUL equity income from $15.9 million in the year-ago quarter to zero
in the current quarter due to the sale of the company's investment in NUL in
March 2006 (see note d) and (b) expense of $2.2 million in the current quarter
compared with income of $7.8 million in the last year's second quarter related
to minority shareholders' portion of gains or losses of iPSL, a 51% owned
subsidiary which is fully consolidated by the company, due to increased profit
from iPSL resulting from the renegotiated contract in January 2006.
Income (loss) before income taxes for the three months ended June 30, 2006 was
a loss of $203.5 million compared with a loss of $39.8 million in 2005. The
benefit for income taxes was $8.9 million in the current quarter compared with
a benefit of $12.7 million in the year-ago period. Due to the fact that the
company has a full valuation allowance for all of its U.S. tax assets and
certain international subsidiaries, which was recorded in the third quarter of
2005, the company no longer has a meaningful effective tax rate. The company
will record a tax provision or benefit for those international subsidiaries
that do not have a full valuation allowance against their deferred tax assets.
Any profit or loss recorded for the company's U.S. operations will have no
provision or benefit associated with it. As a result, the company's provision
or benefit for taxes will vary significantly quarter to quarter depending on
the geographic distribution of income.
For the six months ended June 30, 2006, the company reported a net loss of
$222.5 million, or $.65 per share, compared with a net loss of $72.6 million,
or $.21 per share, for the six months ended June 30, 2005. The current period
includes a pretax charge of $287.1 million relating to the cost reduction
actions.
Total revenue for both the six months ended June 30, 2006 and 2005 was $2.80
billion. Foreign currency translations had a 2 percentage point negative
impact on revenue in the current six months when compared with the year-ago
period. In the current six-month period, Services revenue increased 2% and
Technology revenue decreased 14%.
U.S. revenue declined 3% in the current six-month period compared with the year-
ago period. Revenue in international markets increased 2% driven by increases
in Europe and Latin America which was partially offset by a decrease in
Pacific/Asia/Japan. On a constant currency basis, international revenue
increased 6% in the six months ended June 30, 2006.
Pension expense for the six months ended June 30, 2006 was $48.4 million
compared with $92.6 million of pension expense for the six months ended
June 30, 2005. The decrease in pension expense in 2006 from 2005 was
principally due to the U.S. curtailment gain of $45.0 million recognized in
March 2006.
18
Total gross profit margin was 13.1% in the six months ended June 30, 2006
compared with 19.2% in the year-ago period. The current period included a
$186.8 million charge related to the cost reduction actions.
For the six months ended June 30, 2006, selling, general and administrative
expense were $578.1 million (20.7% of revenue) compared with $529.0 million
(18.9% of revenue) for the six months ended June 30, 2005. Selling general and
administrative expenses for the six months ended June 30, 2006 included $73.7
million related to the cost reduction actions. Selling, general and
administrative expense in the current six-month period includes $10.3 million
of pension expense compared with pension expense of $18.0 million in the year-
ago period.
R&D expense for the six months ended June 30, 2006 was $139.2 million compared
with $131.5 million a year ago. R&D expense in the first six months of 2006
included $29.4 million related to the cost reduction actions. R&D in the
current period includes $1.2 million of pension expense compared with pension
expense of $9.8 million in the year-ago period.
For the six months ended June 30, 2006, the company reported an operating loss
of $352.5 million compared with an operating loss of $122.8 million for the six
months ended June 30, 2005. The current period includes a $289.9 million
charge related to the cost reduction actions. The current period also includes
pension expense of $48.4 million compared with pension expense of $92.6 million
in the year-ago period.
Interest expense for the six months ended June 30, 2006 was $38.9 million
compared with $27.8 million for the six months ended June 30, 2005, principally
due to higher average debt.
Other income (expense), net was income of $152.7 million in the current six-
month period compared with income of $32.5 million in the year-ago period. The
increase in income was principally due to the $149.9 million gain from the sale
of all of the company's shares in NUL (see note (d)), offset in part by (a) a
decline in NUL equity income from $11.5 million in the year-ago period to a
loss of $4.2 million in the current six month period, and (b) an expense of $.8
million in the current period compared with income of $16.1 million in the last
year's six month period related to minority shareholders' portion of gains or
losses of iPSL, a 51% owned subsidiary which is fully consolidated by the
company.
Income (loss) before income taxes was a loss of $238.7 million in the six
months ended June 30, 2006 compared with a loss of $118.1 million last year.
The benefit for income taxes was $16.2 million in the current period compared
with a benefit of $45.5 million in the year-ago period.
In 2002, the company and the Transportation Security Administration (TSA)
entered into a competitively awarded contract providing for the establishment
of secure information technology environments in airports. The Defense Contract
Audit Agency (DCAA), at the request of TSA, reviewed contract performance and
raised some government contracting issues. It is not unusual in complex
government contracts for the government and the contractor to have issues arise
regarding contract obligations. The company continues to work collaboratively
with the DCAA and TSA to try to resolve these issues. While the company
believes that it and the government will resolve the issues raised, there can
be no assurance that these issues will be successfully resolved or that new
issues will not be raised. It has been publicly reported that certain of these
matters have been referred to the Inspector General's office of the Department
of Homeland Security for investigation. The company has received no
investigative requests from the Inspector General's office or any other
government agency with respect to any such referral. The company does not know
whether any such referral will be pursued or, if pursued, what effect it may
have on the company or on the resolution of the issues with TSA.
19
Segment results
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 profit on such
shipments of company hardware and software to customers. The Services segment
also includes the sale of hardware and software products sourced from third
parties that are sold to customers through the company's Services channels. In
the company's consolidated statements of income, the manufacturing costs of
products sourced from the Technology segment and sold to Services customers are
reported in cost of revenue for Services.
Also included in the Technology segment's sales and operating profit are sales
of hardware and software sold to the Services segment for internal use in
Services agreements. The amount of such profit included in operating income of
the Technology segment for the three and six months ended June 30, 2006 and
2005 was $2.0 million and $4.8 million, and $3.3 million and $9.7 million,
respectively. The profit on these transactions is eliminated in Corporate.
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 segment comparisons below exclude the
cost reduction items mentioned above.
Information by business segment is presented below (in millions of dollars):
Elimi-
Total nations Services Technology
------- ------- -------- ----------
Three Months Ended
June 30, 2006
- ------------------
Customer revenue $1,407.3 $1,224.5 $182.8
Intersegment $(53.2) 3.8 49.4
-------- ------- -------- ------
Total revenue $1,407.3 $(53.2) $1,228.3 $232.2
======== ======= ======== ======
Gross profit percent 11.6 % 14.3 % 37.6 %
======== ======== ======
Operating loss percent (13.1)% ( .9)% (12.2)%
======== ======== ======
Three Months Ended
June 30, 2005
- ------------------
Customer revenue $1,435.5 $1,236.0 $199.5
Intersegment $( 75.7) 4.9 70.8
-------- ------- -------- ------
Total revenue $1,435.5 $( 75.7) $1,240.9 $270.3
======== ======= ======== ======
Gross profit percent 19.3% 12.2% 44.6%
======== ======== ======
Operating loss percent (3.9)% (3.7)% (4.8)%
======== ======== ======
Gross profit percent and operating loss percent are as a percent of total
revenue.
In the Services segment, customer revenue was $1.22 billion for the three
months ended June 30, 2006 compared with $1.24 billion for the three months
ended June 30, 2005. Foreign currency translation had a negligible impact on
Services revenue in current quarter compared with the year-ago period. Revenue
in the second quarter of 2006 declined 1% compared with 2005, principally due
to a 4% increase in outsourcing ($471.2 million in 2006 compared with $452.6
million in 2005) and a 10% increase in infrastructure services ($229.5 million
in 2006 compared with $208.4 million in 2005), offset by a 9% decrease in
consulting and systems integration revenue ($404.0 million in 2006 compared
with $443.5 million in 2005) and a 9% decrease in core maintenance revenue
($119.8 million in 2006 compared with $131.5 million in 2005). Services gross
profit was 14.3% in the second quarter of 2006 compared with 12.2% in the year-
ago period. Services operating income (loss) percent was (.9)% in the three
months ended June 30, 2006 compared with (3.7)% in the three months ended June
30, 2005. The Services margin improvements were principally due to operational
improvements in several large BPO contracts.
<PAGGE> 20
In the Technology segment, customer revenue was $183 million in the current
quarter compared with $200 million in the year-ago period. Foreign currency
translation had a negative impact of approximately 1 percentage point on
Technology revenue in the current period compared with the prior-year period.
Revenue in the three months ended June 30, 2006 was down 8% from the three
months ended June 30, 2005, due to a 12% decrease in sales of enterprise-class
servers ($145.6 million in 2006 compared with $165.7 million in 2005) offset in
part by a 10% increase in sales of specialized technology products ($37.2
million in 2006 compared with $33.8 million in 2005). Technology gross profit
was 37.6% in the current quarter compared with 44.6% in the year-ago quarter.
Technology operating income percent was (12.2)% in the three months ended June
30, 2006 compared with (4.8)% in the three months ended June 30, 2005. The
decline in revenue and margins in 2006 compared with 2005 primarily reflected
weak demand for enterprise servers based on customer technology lifecycles and
buying patterns. The company expects the technology segment to strengthen in
the second half of the year over the first half of the year as the company
introduces new enterprise server models.
New accounting pronouncements
Effective January 1, 2006, the company adopted 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. Adoption of SFAS
No. 151 did not have a material effect on the company's consolidated financial
position, consolidated results of operations, or liquidity.
Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004),
"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 employee stock options, to be recognized in the financial statements based
on their fair values. The company adopted SFAS No. 123R using the modified-
prospective transition method, which requires the company, beginning January 1,
2006 and thereafter, to expense the grant date fair value of all share-based
awards over their remaining vesting periods to the extent the awards were not
fully vested as of the date of adoption and to expense the fair value of all
share-based awards granted subsequent to December 31, 2005 over their requisite
service periods. During the six months ended June 30, 2006, the company
recorded $3.2 million of share-based compensation expense. Previous periods
have not been restated. See note (e) for further details.
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109," (FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The company is currently evaluating what effect, if any,
adoption of FIN 48 will have on the company's financial statements.
Financial condition
Cash and cash equivalents at June 30, 2006 were $655.1 million compared with
$642.5 at December 31, 2005.
During the six months ended June 30, 2006, cash used for operations was $166.0
million compared with cash provided of $90.7 million for the six months ended
June 30, 2005. The prior-year period included a tax refund of approximately
$39 million. Also contributing to the reduction in operating cash flow was a
reduction in the amount of receivables sold in the company's U.S.
securitization and a reduction in the amount of customer prepayments. Cash
expenditures in the current period related to the current year and prior-year
restructuring actions (which are included in operating activities) were
approximately $39.6 million compared with $33.6 million for the prior-year
period. Cash expenditures for the current-year and the prior-year
restructuring actions are expected to be approximately $158.4 million for the
remainder of 2006, resulting in an expected cash expenditure of approximately
$198 million in 2006 compared with $57.8 million in 2005.
21
Cash provided by investing activities for the six months ended June 30, 2006
was $240.5 million compared with $198.9 million of cash used during the six
months ended June 30, 2005. The principal reason for the increase was that the
company received net proceeds of $380.6 million from the sale of the NUL shares
and other assets. Net purchases of investments was $2.0 million for the six
months ended June 30, 2006 compared with net proceeds of $10.6 million in the
prior-year period. Proceeds from investments and purchases of investments
represent derivative financial instruments used to manage the company's
currency exposure to market risks from changes in foreign currency exchange
rates. In addition, in the current period, the investment in marketable
software was $55.3 million compared with $63.3 million in the year-ago period,
capital additions of properties were $32.7 million in 2006 compared with $59.4
million in 2005 and capital additions of outsourcing assets were $50.1 million
in 2006 compared with $86.3 million in 2005.
Cash used for financing activities during the six months ended June 30, 2006
was $69.0 million compared with $137.4 million of cash used during the six
months ended June 30, 2005. The current period includes a cash expenditure of
$57.9 million to retire at maturity all of the company's remaining 8 1/8% senior
notes. The prior-year period included a cash expenditure of $150.0 million to
retire at maturity all of the company's 7 1/4% senior notes.
At June 30, 2006, total debt was $1.06 billion, a decrease of $65.2 million
from December 31, 2005.
The company has various lending and funding arrangements as follows:
Effective May 31, 2006, the company entered into a three-year, secured
revolving credit facility. The new credit agreement, which provides for loans
and letters of credit up to an aggregate of $275 million, replaces the
company's $500 million credit agreement that expired on May 31, 2006.
Borrowings under the new facility will bear interest based on short-term rates
and the company's credit rating. The credit agreement contains customary
representations and warranties, including no material adverse change in the
company's business, results of operations or financial condition. It also
contains financial covenants requiring the company to maintain certain interest
coverage, leverage and asset coverage ratios and a minimum amount of liquidity,
which could reduce the amount the company is able to borrow,. The
credit facility also includes covenants limiting liens, mergers, asset sales,
dividends and the incurrence of debt. Events of default include non-payment,
failure to perform covenants, materially incorrect representations and
warranties, change of control and default under other debt aggregating at least
$25 million. If an event of 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, discussed below. The credit facility is secured by the
company's assets, except that the collateral does not include accounts
receivable that are subject to the receivable facility, U.S. real estate or the
stock or indebtedness of the company's U.S. operating subsidiaries. As of June
30, 2006, there were letters of credit of approximately $24 million issued
under the facility and there were no cash borrowings.
In addition, the company and certain international subsidiaries have access to
uncommitted lines of credit from various banks. Other sources of short-term
funding are operational cash flows, including customer prepayments, and the
company's U.S. trade accounts receivable facility.
Under the accounts receivable facility, the company has agreed to sell, on an
on-going basis, through Unisys Funding Corporation I, a wholly owned subsidiary,
interests in up to $300 million of eligible U.S. trade accounts receivable.
The receivables are sold at a discount that reflects a margin based on, among
other things, the company's then-current S&P and Moody's credit rating. The
facility is terminable by the purchasers if the company's public debt securities
are rated below B by S&P or B2 by Moody's and requires the maintenance of
certain ratios related to the sold receivables. At June 30, 2006, the
company's public debt was rated BB- and Ba3 by S&P and Moody's, respectively.
On July 20, 2006, Moody's lowered its rating on the company's public debt to B2.
The facility is renewable annually at the purchasers' option until November
2008.
At June 30, 2006, the company has met all covenants and conditions under its
various lending and funding agreements. The company expects to continue to
meet these covenants and conditions. The company believes that it will have
adequate sources and availability of short-term funding to meet its expected
cash requirements.
22
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 $650 million of debt or equity securities,
which enables the company to be prepared for future market opportunities.
Stockholders' equity increased $1,225.8 million during the six months ended
June 30, 2006, principally reflecting the reversal of the minimum pension
liability adjustment of $1,446.0 million for the U.S. qualified defined benefit
pension plan, offset in part by the net loss of $222.5 million.
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. Factors that could affect
future results include, but are not limited to, those discussed below. Any
forward-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.
Statements in this report regarding the company's cost reduction plan are
subject to the risk that the company may not implement the planned headcount
reductions or increase its offshore resources as quickly as currently planned,
which could affect the timing of anticipated cost savings. The amount of
anticipated cost savings is also subject to currency exchange rate fluctuations
with regard to actions taken outside the U.S. Statements in this report
regarding the revenue increases anticipated from the new iPSL tariff
arrangements are based on assumptions regarding iPSL processing volumes and
costs over the 2006-2010 time-frame. Because these volumes and costs are
subject to change, the amount of anticipated revenue is not guaranteed. In
addition, because iPSL is paid by its customers in British pounds, the U.S.
dollar amount of revenue recognized by the company is subject to currency
exchange rate fluctuations.
Other factors that could affect future results include the following:
The company's business is affected by changes in general economic and business
conditions. The company continues to face a highly competitive business
environment. 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 the 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-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.
23
Future results will also depend in part on the success of the company's focused
investment and sales and marketing strategies. These strategies are based on
various assumptions, including assumptions regarding market segment growth,
client demand, and the proper skill set of and training for sales and marketing
management and personnel, all of which are subject to change.
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. 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. The
company will need to have available sufficient financial resources in order to
take on these obligations and make these investments.
Recoverability of outsourcing assets is dependent on various factors, including
the timely completion and ultimate cost of the outsourcing solution, and
realization of expected profitability of existing outsourcing contracts. 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. Future results will also depend on the company's ability to
effectively address its challenging outsourcing operations through negotiations
or operationally and to fully recover the associated outsourcing assets.
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 on the level of demand for
systems integration projects. It will also depend on an improvement in the
utilization of services delivery personnel. 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 attain sufficient rates and 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.
Future results will also depend, in part, on an improvement in the company's
technology business. This will require, in part, an increase in market demand
for the company's high-end enterprise servers and customer acceptance of the
new models announced in the second quarter of 2006. In its technology business,
the company continues to focus its resources on 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 continues to apply its resources to develop value-added
software capabilities and optimized solutions for these server platforms which
provide competitive differentiation. Future results will depend, in part, on
customer acceptance of new ClearPath 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,
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. Future
results of the technology business will also depend, in part, on the successful
implementation of the company's new arrangements with NEC.
24
The company frequently enters into contracts with governmental entities. U.S.
government agencies, including the Defense Contract Audit Agency and the
Department of Labor, routinely audit government contractors. These agencies
review a contractor's performance under its contracts, cost structure and
compliance with applicable laws, regulations and standards. The U.S. government
also may review the adequacy of, and a contractor's compliance with, its
systems and policies, including the contractor's purchasing, property,
estimating, accounting, compensation and management information systems. Any
costs found to be overcharged or improperly allocated to a specific contract
will be subject to reimbursement to the government. If an audit uncovers
improper or illegal activities, the company may be subject to civil and
criminal penalties and administrative sanctions, including termination of
contracts, forfeiture of profits, suspension of payments, fines and suspension
or prohibition from doing business with the U.S. government. Other risks and
uncertainties associated with 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. In
addition, if the company's performance is unacceptable to the customer under a
government contract, the government retains the right to pursue remedies under
the affected contract, which remedies could include termination.
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-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 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 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. The company
has announced that alliance partnerships with select IT companies are a key
factor in the development and delivery of the company's refocused portfolio.
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.
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.
25
Item 4. Controls and Procedures
- --------------------------------
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of June 30, 2006. Based
on this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective for gathering, analyzing and disclosing the information the Company
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's internal controls
over financial reporting that occurred during the quarter ended June 30, 2006
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II - OTHER INFORMATION
- ------- -----------------
Item 1A. Risk Factors
- ------- ------------
See "Factors that may affect future results" in Management's Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of
risk factors.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The company's 2006 Annual Meeting of Stockholders (the "Annual
Meeting") was held on April 20, 2006 in Philadelphia, Pennsylvania.
(b) The following matters were voted upon at the Annual Meeting and received
the following votes:
(1) Election of Directors as follows:
Randall J. Hogan - 302,803,483 votes for; 9,493,299 votes withheld
Edwin A. Huston - 295,929,801 votes for; 16,366,981 votes withheld
Leslie F. Kenne - 302,872,185 votes for; 9,424,597 votes withheld
Joseph W. McGrath - 301,196,395 votes for; 11,100,387 votes withheld
(2) Ratification of the selection of the company's independent registered
public accounting firm for 2006 - 304,389,020 votes for; 5,306,945 votes
against; 2,600,817 abstentions.
Item 5. Other Information
- ------ -----------------
See note (b) of the notes to consolidated financial statements for information
on the restructuring charge taken in the second quarter of 2006.
Item 6. Exhibits
- ------- --------
(a) Exhibits
See Exhibit Index
26
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: August 9, 2006 By: /s/ Janet Brutschea Haugen
-----------------------------
Janet Brutschea Haugen
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Joseph M. Munnelly
----------------------
Joseph M. Munnelly
Vice President and
Corporate Controller
(Chief Accounting Officer)
27
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)
3.2 Bylaws of Unisys Corporation, as amended through December 1, 2005
(incorporated by reference to Exhibit 3 to the registrant's Current
Report on Form 8-K dated December 1, 2005)
12 Statement of Computation of Ratio of Earnings to Fixed Charges
31.1 Certification of Joseph 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 Joseph 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