SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
___
[_X_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994.
OR
___
[___] 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.)
Township Line and Union Meeting Roads
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 [___]
Number of shares of Common Stock outstanding as of
September 30, 1994: 170,851,960
Page 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(Millions)
September 30,
1994 December 31,
(Unaudited) 1993
----------- ------------
Assets
Current assets
Cash and cash equivalents $ 566.9 $ 835.4
Marketable securities 27.0 115.1
Accounts and notes receivable, net 1,002.9 1,088.2
Inventories
Finished equipment and supplies 348.3 354.1
Work in process and raw materials 489.3 399.8
Deferred income taxes 313.4 313.4
Other current assets 90.6 94.1
------- -------
Total 2,838.4 3,200.1
======= =======
Long-term receivables, net 70.7 104.3
------- -------
Properties and rental equipment 2,730.4 2,776.0
Less-Accumulated depreciation 1,798.9 1,814.2
------- -------
Properties and rental equipment, net 931.5 961.8
------- -------
Cost in excess of net assets acquired 1,152.8 1,183.9
Investments at equity 311.7 303.6
Deferred income taxes 543.8 543.8
Other assets 1,126.2 1,221.7
-------- --------
Total $6,975.1 $7,519.2
======== ========
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 15.0 $ 6.0
Current maturities of long-term debt 71.3 25.0
Accounts payable 843.7 1,027.0
Other accrued liabilities 866.0 1,016.1
Dividends payable 26.6 39.9
Estimated income taxes 213.5 251.9
------- -------
Total 2,036.1 2,365.9
======= =======
Long-term debt 1,864.8 2,025.0
Other liabilities 389.2 432.8
Stockholders' equity
Preferred stock 1,570.3 1,570.2
Common stock, issued: 1994, 171.7; 1993, 171.2 1.7 1.7
Retained earnings 127.9 159.8
Other capital 985.1 963.8
-------- --------
Stockholders' equity 2,685.0 2,695.5
-------- --------
Total $6,975.1 $7,519.2
======== ========
<FN>
See notes to consolidated financial statements.
Page 3
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Millions, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
Revenue
Sales $ 992.0 $1,068.0 $2,942.2 $3,449.4
Services 467.4 378.6 1,340.1 1,096.0
Equipment maintenance 328.7 360.1 993.9 1,096.0
-------- -------- -------- --------
1,788.1 1,806.7 5,276.2 5,641.4
-------- -------- -------- --------
Costs and expenses
Cost of sales 605.4 642.6 1,776.8 2,043.6
Cost of services 364.8 293.9 1,052.0 858.2
Cost of equipment maintenance 207.7 207.3 611.6 635.5
Selling, general and
administrative 410.5 398.6 1,154.8 1,215.3
Research and development 114.2 129.0 353.4 383.4
------- ------- ------- -------
1,702.6 1,671.4 4,948.6 5,136.0
------- ------- ------- -------
Operating income 85.5 135.3 327.6 505.4
Interest expense 50.2 55.2 153.1 187.0
Other income, net 25.2 15.3 51.5 12.0
------- ------- ------- -------
Income before income taxes 60.5 95.4 226.0 330.4
Estimated income taxes 17.6 11.3 65.5 86.5
------- ------- ------- -------
Income before extraordinary
items and changes in accounting
principles 42.9 84.1 160.5 243.9
Extraordinary items (7.7) (26.4)
Effect of changes in accounting
principles 230.2
------- ------- ------- -------
Net income 42.9 84.1 152.8 447.7
Dividends on preferred shares 30.0 30.3 90.1 91.3
------- -------- ------- -------
Earnings on common shares $ 12.9 $ 53.8 $ 62.7 $ 356.4
======== ======== ======== ========
Earnings per common share
Primary
Before extraordinary items
and changes in accounting
principles $ .08 $ .33 $ .40 $ .93
Extraordinary items (.04) (.16)
Effect of changes in accounting
principles 1.39
--------- -------- --------- --------
Total $ .08 $ .33 $ .36 $ 2.16
========= ======== ========= ========
Fully diluted
Before extraordinary items
and changes in accounting
principles $ .08 $ .29 $ .40 $ 1.00
Extraordinary items (.04) (.11)
Effect of changes in accounting
principles .94
-------- -------- -------- --------
Total $ .08 $ .29 $ .36 $ 1.83
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
Page 4
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Millions)
Nine Months Ended September 30
------------------------------
1994 1993
---- ----
Cash flows from operating activities
Net income $ 152.8 $ 447.7
Add (deduct) items to reconcile net income
to net cash provided by operating activities
Effect of extraordinary items and changes
in accounting principles 7.7 ( 203.8)
Depreciation 188.0 221.1
Amortization:
Marketable software 114.7 105.3
Cost in excess of net assets acquired 31.1 31.0
(Increase) in deferred income taxes, net ( 23.3)
Decrease in receivables, net 103.2 385.9
(Increase) decrease in inventories ( 83.7) 57.3
(Decrease) in accounts payable and
other accrued liabilities ( 315.5) ( 565.4)
(Decrease) increase in estimated income taxes ( 38.4) 11.6
(Decrease) in other liabilities ( 43.6) ( 10.0)
Decrease in other assets 78.0 47.0
Other 27.8 26.4
--------- ---------
Net cash provided by operating activities 222.1 530.8
--------- ---------
Cash flows from investing activities
Proceeds from investments 1,330.8 1,497.3
Purchases of investments (1,348.7) (1,498.1)
Proceeds from marketable securities 185.3 122.3
Purchases of marketable securities ( 97.2) ( 72.7)
Proceeds from sales of properties 16.9 18.3
Investment in marketable software ( 93.7) ( 81.0)
Capital additions of properties
and rental equipment ( 148.0) ( 149.4)
--------- ---------
Net cash used for investing activities ( 154.6) ( 163.3)
--------- ---------
Cash flows from financing activities
Payment of debt ( 139.8) ( 379.2)
Net proceeds from (reduction in) short-
term borrowings 9.0 ( 21.4)
Dividends paid on preferred shares ( 198.0) ( 138.0)
Other 3.1 5.6
--------- ---------
Net cash used for financing activities ( 325.7) ( 533.0)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents ( 10.3) ( 30.0)
--------- ---------
Decrease in cash and cash equivalents ( 268.5) ( 195.5)
Cash and cash equivalents, beginning of period 835.4 809.1
--------- ---------
Cash and cash equivalents, end of period $ 566.9 $ 613.6
========= ==========
<FN>
See notes to consolidated financial statements.
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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. During the nine months ended September 30, 1994, the Company recorded an
extraordinary charge for the repurchases of debt of $7.7 million, net of
$5.1 million of income tax benefits, or $.04 per fully diluted common share.
b. Effective January 1, 1993, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS 109, "Accounting for Income Taxes." The adoption of SFAS 106 decreased
net income for the nine months ended September 30, 1993 by $194.8 million,
net of $124.5 million of income tax benefits, or $.79 per fully diluted
common share, and the adoption of SFAS 109 increased net income for the nine
months ended September 30, 1993 by $425.0 million, or $1.73 per fully
diluted common share.
c. In April 1993, the Company settled lawsuits with Honeywell Inc. in
connection with its sale of the Sperry Aerospace Group in December 1986. As
a result of the settlement, in the nine months ended September 30, 1993, the
Company recorded an extraordinary charge of $26.4 million, net of $16.8
million of income tax benefits, or $.11 per fully diluted common share.
d. For the three and nine months ended September 30, 1994 and 1993, the
computation of primary earnings per share is based on the weighted average
number of outstanding common shares and additional shares assuming the
exercise of stock options. The computation of fully diluted earnings per
share for the three months ended September 30, 1994 and 1993 assumes the
conversion of the 8 1/4% Convertible Subordinated Notes due August 1, 2000,
but does not assume conversion of the Series A Preferred Stock since this
would have been antidilutive. For the nine months ended September 30, 1994,
the computation assumes that neither the Convertible Notes nor the Series A
Preferred Stock is converted, since this would have been antidilutive. For
the nine months ended September 30, 1993, in addition to the assumed
conversion of the Convertible Notes, the fully diluted earnings per share
computation also assumes the conversion of Series A Preferred Stock. The
shares used in the computations are as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
-------------------- -----------------
1994 1993 1994 1993
-------- ------- ------- -------
Primary 171,803 164,945 172,460 164,950
Fully diluted 205,597 198,871 172,460 246,466
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
For the three months ended September 30, 1994, the Company
reported net income of $42.9 million, or $.08 per primary and
fully diluted common share, compared to net income of $84.1
million, or $.33 per primary common share and $.29 per fully
diluted common share, for the three months ended September 30,
1993. Excluding a one-time favorable tax item of $.09 per
share, fully diluted earnings per share was $.20 in the year-ago
period.
Revenue for the third quarter ended September 30, 1994 was $1.79
billion, down 1% from $1.81 billion for the third quarter ended
September 30, 1993. The largest decline occurred in the
Government Systems business, which continues to be impacted by
a decline in government spending and increased competition.
Sales revenue declined 7% to $1.0 billion from $1.1 billion
in last years' third quarter, principally due to a decrease in
sales of custom defense systems. Partially offsetting this
decline was growth in departmental servers and desktop systems.
Services revenue increased 23% to $467.4 million from $378.6
million in last years' third quarter as the Company continued to
implement its strategy to aggressively grow its services and
systems integration business. Equipment maintenance revenue
declined 9% to $328.7 million from $360.1 million last year, due
principally to declining equipment sales and improved product
reliability. The Company's objective continues to be overall
revenue growth in the fourth quarter of 1994 as compared to
the fourth quarter of 1993.
Sales gross profit margin was 39% in the current period compared
to 40% last year; services gross profit margin was 22% both in
the current quarter and last year; and equipment maintenance
gross profit margin was 37% in the current quarter compared to
42% in the comparable period a year ago. The total gross profit
margin, which was 34% in the third quarter of 1994 compared to
37% in the same period a year earlier, is expected to be
pressured by competitive pricing and the continuing shift to
lower margin products and services.
In the third quarter of 1994, selling, general and
administrative expenses were $410.5 million compared to $398.6
million in the third quarter of 1993. The increase was
principally due to the effects of increased selling expense,
particularly in support of the services business, and foreign
currency translation.
Research and development expenses were $114.2 million in the
quarter ended September 30, 1994 compared to $129.0 million a
year earlier. The decline principally reflects the Company's
move to common hardware platforms and technologies. The decline
is also is consistent with the continuing shift of emphasis
to services business which requires less research and development.
As a result of the above, operating income was $85.5 million for
the three months ended September 30, 1994 or 5% of revenue,
compared to $135.3 million, or 7% of revenue, in the year-ago
period. The decline in operating income was principally due to
lower revenue and lower gross profit margin.
Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (cont'd.)
Interest expense was $50.2 million compared to $55.2 million a
year earlier, principally reflecting lower average debt levels.
Other income, which may vary widely from quarter to quarter,
was $25.2 million in the third quarter of 1994 compared to
$15.3 million in the year-ago period. The increase was principally
due to favorable foreign currency fluctuations.
It is the Company's policy to minimize its exposure to foreign
currency fluctuations. On a net basis, and after taking into
account the cost of the Company's hedging program, foreign
currency effects had a minimal effect on pretax results for the
three months ended September 30, 1994.
Estimated income taxes were $17.6 million in the third quarter
of 1994 compared to $11.3 million in the third quarter of 1993.
Included in 1993 was a net benefit of $19.2 million relating to
a U.S. tax law change enacted in August 1993. This law
increased the top corporate tax rate from 34% to 35% retroactive
to January 1, 1993. Since the Company had net deferred tax
assets in the U.S., the effect of the tax rate change was to
increase these tax assets with a corresponding reduction in
provision for taxes.
For the nine months ended September 30, 1994, net income was
$152.8 million, or $.36 per primary and fully diluted common
share, on revenue of $5.3 billion. Net income for the nine
months ended September 30, 1993 was $447.7 million, or $2.16 per
primary and $1.83 per fully diluted common share, on revenue of
$5.6 billion. Net income for the nine months ended September
30, 1994 included a cost of $7.7 million, or $.04 per fully
diluted common share, as a result of an extraordinary charge for
repurchases of debt. Net income for the nine months ended
September 30, 1993 included an extraordinary charge of $26.4
million, or $.11 per fully diluted common share, and a credit of
$230.2 million, or $.94 per fully diluted common share, as a
result of the adoption of new accounting standards.
Extraordinary Items and Accounting Changes
During the nine months ended September 30, 1994, the Company
repurchased and redeemed $112.5 million of debt. The associated
costs resulted in an extraordinary charge of $7.7 million, net
of $5.1 million of income tax benefits, or $.04 per fully
diluted common share.
Effective January 1, 1994, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards ("SFAS") 112, "Employers' Accounting for
Postemployment Benefits," and SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 112
establishes financial accounting standards for employers that
provide benefits to former or inactive employees after
employment but before retirement. SFAS 115 establishes
financial accounting standards for investments in equity
securities that have readily determinable fair values and for
all investments in debt securities. The effect of adoption of
these statements on the Company's consolidated financial
position, results of operations and liquidity was immaterial.
Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (cont'd.)
In April 1993, the Company settled lawsuits with Honeywell Inc.
in connection with its sale of the Sperry Aerospace Group in
December 1986. As a result of the settlement, in the nine
months ended September 30, 1993, the Company recorded an
extraordinary charge of $26.4 million, net of $16.8 million of
income tax benefits, or $.11 per fully diluted common share.
Effective January 1, 1993, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS 109, "Accounting for Income Taxes." The
adoption of SFAS 106 decreased net income for the nine months
ended September 30, 1993 by $194.8 million, net of $124.5
million of income tax benefits, or $.79 per fully diluted common
share, and the adoption of SFAS 109 increased net income for the
nine months ended September 30, 1993 by $425.0 million, or $1.73
per fully diluted common share.
Financial Condition
During the nine months ended September 30, 1994, net cash
provided from operations was $222.1 million compared to $530.8
million in the same period a year earlier. Cash flow from
operations decreased from a year ago due to larger working
capital reductions in the prior year.
Investments in properties and rental equipment during the first
nine months of 1994 were $148.0 million compared to $149.4
million in last years' first nine months.
At September 30, 1994, total debt was $1.95 billion, a decline
of $104.9 million from December 31, 1993 principally due to the
repurchases and redemptions discussed above. The Company
intends to continue repurchases or redemptions from time to
time. Cash, cash equivalents and marketable securities at
September 30, 1994 were $593.9 million compared to $950.5
million at December 31, 1993. During the nine months ended
September 30, 1994, debt net of cash and marketable securities
increased $251.7 million. As a percent of total capital, debt
net of cash and marketable securities at September 30, 1994 was
34% compared to 29% at December 31, 1993.
Dividends paid on preferred stock amounted to $198.0 million
during the first nine months of 1994 compared to $138.0 million
in the year-ago period. The current year amount includes full
payment for all dividend arrearages.
Stockholders' equity decreased $10.5 million during the first
nine months of 1994, principally reflecting net income of $152.8
million and favorable foreign currency translation adjustments
of $18.7 million, offset by preferred dividends of $184.7
million.
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (cont'd.)
At September 30, 1994, the Company had deferred tax assets in
excess of deferred tax liabilities of $1,123 million. For the
reasons cited below, management believes that it is more likely
than not that $773 million of such assets will be realized,
therefore resulting in a valuation allowance of $350 million.
In assessing the likelihood of realization of this asset, the
Company has considered various factors including its forecast of
future taxable income and available tax planning strategies that
could be implemented to realize deferred tax assets.
The principal basis used to assess the likelihood of realization
was the Company's forecast of future taxable income which was
adjusted by applying varying probability factors to the
achievement of this forecast. Forecasted taxable income is
expected to arise from ordinary and recurring operations and to
be sufficient to realize the entire amount of net deferred tax
assets. Approximately $2.3 billion of future taxable income
(predominantly U.S.) is needed to realize all of the net
deferred tax assets.
The Company's net deferred tax assets include substantial
amounts of net operating loss and tax credit carryforwards. The
major portion of such carryforwards expire beyond the year 2003.
In addition, substantial amounts of foreign net operating losses
have an indefinite carryforward period. Failure to achieve
forecasted taxable income might affect the ultimate realization
of the net deferred tax assets. In recent years, the computer
industry has undergone dramatic changes and there can be no
assurance that in the future there could not be increased
competition or other factors which may result in a decline in
sales or margins, loss of market share, or technological
obsolescence. The Company will evaluate quarterly the
realizability of its net deferred tax assets by assessing its
valuation allowance and by adjusting the amount of such
allowance if necessary.
In 1995, the Company expects to settle certain open tax years
with the Internal Revenue Service, which would result in net
cash payments by the Company of approximately $125 million.
These payments will not affect earnings since provision for
these taxes has been made in prior years.
Page 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
During the quarter ended September 30, 1994, the Company
filed no Current Reports on Form 8-K.
Page 11
SIGNATURE
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: November 11, 1994 By:
Deborah C. Hopkins
Vice President and Controller
(chief accounting officer)
Page 12
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Employment Agreement dated August 10, 1994
between Unisys Corporation and James A. Unruh
10.2 Deferred Compensation Plan for Executives
of Unisys Corporation, effective
November 1, 1994
11.1 Statement of Computation of Earnings
Per Share for the nine months ended
September 30, 1994 and 1993
11.2 Statement of Computation of Earnings
Per Share for the three months ended
September 30, 1994 and 1993
12 Statement of Computation of Ratio
of Earnings to Fixed Charges
27 Financial Data Schedule