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, 1995.
[ ] 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Township Line and Union Meeting Roads
Blue Bell, Pennsylvania 19424
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(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 June 30,
1995: 171,354,354.
Page 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(Millions)
June 30,
1995 December 31,
(Unaudited) 1994
----------------------------
Assets
Current Assets
Cash and cash equivalents $ 962.4 $ 868.4
Marketable securities 15.7 16.2
Accounts and notes receivable, net 1,090.7 945.1
Inventories
Finished equipment and supplies 342.4 355.0
Work in process and raw materials 341.7 281.3
Deferred income taxes 281.4 310.5
Other current assets 92.3 98.3
Net assets of discontinued operations 526.5
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Total 3,126.6 3,401.3
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Long-term receivables, net 64.0 71.5
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Properties and rental equipment 2,141.0 2,209.9
Less-Accumulated depreciation 1,432.6 1,479.9
------- -------
Properties and rental equipment, net 708.4 730.0
------- -------
Cost in excess of net assets acquired 1,003.5 998.0
Investments at equity 366.4 315.8
Deferred income taxes 514.0 583.2
Other assets 1,108.9 1,093.6
------- -------
Total $6,891.8 $7,193.4
======= =======
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 27.0 $ 8.9
Current maturities of long-term debt 5.4 71.2
Accounts payable 857.9 917.6
Other accrued liabilities 890.2 1,123.6
Dividends payable 26.6 26.6
Estimated income taxes 182.5 237.7
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Total 1,989.6 2,385.6
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Long-term debt 1,873.5 1,864.1
Other liabilities 349.5 339.2
Stockholders' equity
Preferred stock 1,570.3 1,570.3
Common stock, issued:
1995, 172.2; 1994, 171.8 1.7 1.7
Retained earnings 70.2 45.7
Other capital 1,037.0 986.8
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Stockholders' equity 2,679.2 2,604.5
------- -------
Total $6,891.8 $7,193.4
======= =======
<FN>
See notes to consolidated financial statements.
Page 3
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
Revenue
Sales $ 656.0 $ 691.5 $1,309.3 $1,346.8
Services 508.3 413.8 935.4 735.3
Equipment maintenance 331.5 336.2 658.2 665.2
-------- -------- -------- --------
1,495.8 1,441.5 2,902.9 2,747.3
-------- -------- -------- --------
Costs and expenses
Cost of sales 352.8 375.0 721.2 716.2
Cost of services 407.5 312.3 740.4 565.9
Cost of equipment maintenance 201.7 206.1 413.1 403.9
Selling, general and administrative 380.6 358.6 721.8 683.4
Research and development 87.5 111.8 184.3 227.6
-------- -------- -------- --------
1,430.1 1,363.8 2,780.8 2,597.0
-------- -------- -------- --------
Operating income 65.7 77.7 112.1 150.3
Interest expense 51.1 50.9 101.6 102.9
Other income, net 46.0 4.2 88.5 31.2
-------- -------- -------- --------
Income from continuing operations
before income taxes 60.6 31.0 109.0 78.6
Estimated income taxes 20.8 8.3 37.1 21.3
-------- -------- -------- --------
Income from continuing operations
before extraordinary item 39.8 22.7 71.9 57.3
Income from discontinued operations 27.2 12.5 60.3
Extraordinary item (7.7)
-------- -------- -------- --------
Net income 39.8 49.9 84.4 109.9
Dividends on preferred shares 30.0 30.0 59.9 60.1
-------- -------- -------- --------
Earnings on common shares $ 9.8 $ 19.9 $ 24.5 $ 49.8
======== ======== ======== ========
Earnings per common share
Primary
Continuing operations $ .06 $ (.04) $ .07 $ (.02)
Discontinued operations .16 .07 .35
Extraordinary item (.04)
-------- -------- -------- --------
Total $ .06 $ .12 $ .14 $ .29
======== ======== ======== ========
Fully diluted
Continuing operations $ .06 $ (.01) $ .07 $ .03
Discontinued operations .13 .07 .29
Extraordinary item (.04)
-------- -------- -------- --------
Total $ .06 $ .12 $ .14 $ .28
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
Page 4
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Millions)
Six Months Ended
June 30
------------------------
1995 1994
--------- --------
Cash flows from operating activities
Income from continuing operations $ 71.9 $ 57.3
Add (deduct) items to reconcile income
from continuing operations to net cash
used for operating activities:
Effect of extraordinary item ( 7.7)
Depreciation 106.8 108.2
Amortization:
Marketable software 64.8 76.4
Cost in excess of net assets acquired 20.1 18.4
(Increase) in deferred income taxes ( 7.4) ( 8.8)
(Increase) decrease in receivables, net ( 33.3) 22.4
(Increase) in inventories ( 47.8) ( 50.2)
(Decrease) in accounts payable and other
accrued liabilities ( 361.3) ( 261.5)
(Decrease) in estimated income taxes ( 41.9) ( 19.1)
(Decrease) in other liabilities ( 5.7) ( 16.7)
(Increase) decrease in other assets ( 50.2) 26.7
Other 23.6 5.2
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Net cash used for operating activities ( 260.4) ( 49.4)
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Cash flows from investing activities
Proceeds from investments 1,483.9 742.6
Purchases of investments ( 1,497.0) ( 749.4)
Proceeds from marketable securities 2.0 182.3
Purchases of marketable securities ( 92.3)
Proceeds from sales of properties 7.8 15.3
Investment in marketable software ( 61.4) ( 62.7)
Capital additions of properties
and rental equipment ( 101.9) ( 88.5)
Purchase of company ( 8.1)
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Net cash used for investing activities ( 174.7) ( 52.7)
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Cash flows from financing activities
Principal payments of debt ( 67.2) ( 139.5)
Net proceeds from short-term borrowings 18.1 4.3
Dividends paid on preferred shares ( 59.9) ( 168.0)
Other 2.5 2.9
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Net cash used for financing activities ( 106.5) ( 300.3)
------- ------
Effect of exchange rate changes on
cash and cash equivalents 1.5 ( 11.6)
------- ------
Net cash used for continuing operations ( 540.1) ( 414.0)
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Discontinued operations
Proceeds from sale 862.0
Other ( 227.9) 70.8
------- ------
Net cash provided by discontinued operations 634.1 70.8
------- ------
Increase (decrease) in cash and cash equivalents 94.0 ( 343.2)
Cash and cash equivalents, beginning of period 868.4 835.4
------- ------
Cash and cash equivalents, end of period $ 962.4 $ 492.2
======= =======
<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. In May, 1995, the Company sold its defense business to Loral
Corporation for cash of $862 million. The Company's financial
results of operations for the three months ended June 30, 1995
do not include the results of operations of its defense
business or the impact of the sale. For periods prior to
April 1, 1995 the net results of these defense operations have
been reported separately as "income from discontinued
operations". In addition, other financial statements have
been restated to report the defense business as discontinued
operations. The results of operations of this business for
the three months ended June 30, 1995, and the impact of the
sale, including any adjustments to the proceeds received for
the defense business, will be reported in a future period as
discontinued operations, following resolution of issues
arising from the purchase price adjustment process specified
in the contract of sale.
The following is a summary of the results of operations of the
Company's defense business (in millions of dollars):
Year Three Months Six Months Three Months
Ended Ended Ended Ended
Dec. 31, 1994 June 30, 1994 June 30, 1994 March 31, 1995
------------- ------------- ------------- --------------
Revenue $1,421.5 $ 357.7 $740.8 $258.1
======== ======= ====== ======
Operating income $ 151.6 $ 41.4 $ 91.8 $ 25.7
======== ======= ====== ======
Income before income taxes $ 138.6 $ 39.2 $ 86.9 $ 19.0
Estimated income taxes 42.5 12.0 26.6 6.5
-------- ------- ------ ------
Net income $ 96.1 $ 27.2 $ 60.3 $ 12.5
======== ======= ====== ======
The net assets of discontinued operations at December 31, 1994 were as
follows (in millions of dollars):
Current assets $266.7
Current liabilities (123.8)
Property, plant and equipment, net 203.7
Cost in excess of net assets acquired 144.5
Other, net 35.4
------
Total $526.5
======
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
b. During the three months ended March 31, 1994, the Company
recorded an extraordinary charge for repurchases of debt of
$7.7 million, net of $5.1 million of income tax benefits, or
$.04 per fully diluted common share.
c. For the three and six months ended June 30, 1995 and 1994,
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
and six months ended June 30, 1994, assumes the conversion of
the 8 1/4% Convertible Subordinated Notes due August 1, 2000.
Such conversion was not assumed for the three and six months
ended June 30, 1995 since it would have been antidilutive.
None of periods presented below assumes conversion of the
Series A Preferred Stock since this would have been
antidilutive. The shares used in the computations are as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
Primary 172,150 172,245 171,986 172,788
Fully diluted 172,150 205,943 171,986 206,661
Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Sale of Defense Systems
In May, 1995, the Company sold its defense business to Loral
Corporation for cash of $862 million. The Company expects that the
proceeds from the sale will be used to strengthen its capital
structure and invest in its businesses.
The Company's financial results of operations for the three months
ended June 30, 1995 do not include the results of operations of its
defense business or the impact of the sale. For periods prior to
April 1, 1995 the net results of these defense operations have been
reported separately as "income from discontinued operations". In
addition, other financial statements have been restated to report
the defense business as discontinued operations. The results of
operations of this business for the three months ended June 30,
1995, and the impact of the sale, including any adjustments to the
proceeds received for the defense business, will be reported in a
future period as discontinued operations, following resolution of
issues arising from the purchase price adjustment process specified
in the contract of sale.
Results of Operations
For the three months ended June 30, 1995, the Company reported net
income from continuing operations of $39.8 million, or $.06 per
primary and fully diluted common share, compared to net income from
continuing operations of $22.7 million, or a loss of $.04 per
primary and $.01 per fully diluted common share, for the three
months ended June 30, 1994. Total net income in the year ago
period was $49.9 million, or $.12 per primary and fully diluted
share, including $27.2 million, or $.16 per primary and $.13 per
fully diluted share, from discontinued operations.
Revenue for the quarter ended June 30, 1995 was $1.50 billion, up
4% from $1.44 billion for the quarter ended June 30, 1994,
principally as a result of foreign currency translation. Sales
revenue declined 5% when compared to the prior year period as
increases in sales of the departmental servers and desktop systems
business segment were more than offset by decreases in enterprise
systems and servers. Services revenue in the quarter increased 23%
to $508.3 million from $413.8 million in last years' second
quarter. Services revenue, which is the Company's single largest
revenue stream, represented 34% of total revenue for the three
months ended June 30, 1995 compared to 29% in the comparable period
a year ago. Equipment maintenance revenue for the current quarter
declined slightly from the prior year.
Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
Sales gross profit margin was 46% in both the current and prior
year period. Services gross profit margin was 20% in the current
quarter compared to 25% a year ago. The decline in services gross
profit margin was mainly due to project costs adjustments.
Business risks associated with services contracts, particularly
large, multi-year, fixed-price systems integration contracts, may,
from time to time, continue to create volatility in margins.
Equipment maintenance gross profit margin was 39% in both the
current and prior year period.
The total gross profit margin was 36% for the three months ended
June 30, 1995 compared to 38% in the comparable period a year ago.
The total gross profit margin is expected to continue to be
pressured by competitive pricing and the continuing shift to lower-
margin products and services.
In the second quarter of 1995, selling, general and administrative
expenses were $380.6 million compared to $358.6 million in the
second quarter of 1994. Approximately two-thirds of the increase
was due to the effects of foreign currency translation with the
remaining increase principally due to higher sales and marketing
expenses.
Research and development expenses were $87.5 million in the quarter
ended June 30, 1995 compared to $111.8 million a year earlier. The
reduction principally reflects the Company's move to common
hardware platforms and technologies. Research and development
expense as a percent of total revenue is expected to continue to
decline consistent with the increasing proportion of revenue from
the services business which requires less research and development
expenditures.
As a result of the above, operating income was $65.7 million in the
current period (4.4% of revenue) compared to $77.7 million last
year (5.4% of revenue).
Other income in the three months ended June 30, 1995 was $46.0
million compared to $4.2 million in the three months ended June 30,
1994. The increase was principally due to higher royalty income
from the Company's Japanese joint venture, higher interest income
and favorable foreign currency translation.
It is the Company's policy to minimize its exposure to foreign
currency fluctuations. Due to a significant weakening of the U.S.
dollar compared to foreign currencies, foreign currency changes had
a positive effect on net income when compared to the year-ago
quarter.
Income from continuing operations before income taxes was $60.6
million in the current quarter compared to $31.0 million a year
earlier.
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
Financial Condition
During the six months ended June 30, 1995, cash used for operating
activities was $260.4 million compared to $49.4 million during the
six months ended June 30, 1994. The increase in cash used was due
in large part to a reduction in payables, an increase in income tax
payments and management's decision to reduce the level of accounts
receivable discounting.
Investments in properties and rental equipment during the first
half of 1995 were $101.9 million compared to $88.5 million in the
prior year.
At June 30, 1995, total debt was $1.91 billion, a decrease of $38.3
million from December 31, 1994. Cash, cash equivalents and
marketable securities at June 30, 1995 were $978.1 million compared
to $884.6 million at December 31, 1994. During the six months
ended June 30, 1995, debt net of cash and marketable securities
decreased $131.8 million to $927.8 million. As a percent of total
capital, debt net of cash and marketable securities was 26% at June
30, 1995 compared to 29% at December 31, 1994.
During the six months ended June 30, 1995 and 1994, the Company
retired $67.2 million and $139.5 million principal amount of debt
securities, respectively. The Company intends, from time to time,
to continue to redeem 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
an effective registration statement covering $500 million of debt
or equity securities. The registration statement enables the
Company to be prepared for future market opportunities. Proceeds
from future offerings of these securities are anticipated to be
used for general corporate purposes, including reduction or
refinancing of debt.
During the first quarter of 1995, the Company amended its revolving
credit agreement to increase the amount available for borrowing to
$325 million from $300 million and to extend the term until May 31,
1996. This agreement provides for short-term borrowings and up to
$100 million of letters of credit. During the first half of 1995,
there were no borrowings under this agreement.
Dividends paid on preferred stock amounted to $59.9 million during
the six months ended June 30, 1995 compared to $168.0 million in
the year-ago period. The prior year amount included payment for
preferred dividend arrearages.
Page 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
Net cash provided by the discontinued defense operations during the
six months ended June 30, 1995 was $634.1 million consisting of
$862.0 million proceeds from the sale offset by cash used of $227.9
million. A significant portion of the cash usage is expected to be
recovered upon completion of the purchase price adjustment process.
Stockholders' equity increased $74.7 million during the first half
to $2,679.2 million, principally reflecting net income of $84.4
million and favorable foreign currency translation of $47.9 million
offset by preferred dividends of $59.9 million.
At June 30, 1995, the Company had deferred tax assets in excess of
deferred tax liabilities of $1,057 million. For the reasons cited
below, management believes that it is more likely than not that
$730 million of such assets will be realized, therefore resulting
in a valuation allowance of $327 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 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 $2.1
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 in 1998 and beyond. 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 information management
business has undergone dramatic changes and there can be no
assurance that in the future there would 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.
The Company expects to settle certain open tax years with the
Internal Revenue Service in 1996. It is expected that such
settlements will result in cash payments of approximately $130
million (including interest). These payments will not affect
earnings since provision for these taxes has been made in prior
years.
Page 11
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's 1995 Annual Meeting of Stockholders (the "Annual Meeting")
was held on April 27, 1995 in Philadelphia, Pennsylvania.
(c) The following matters were voted upon at the Annual Meeting and received
the following votes:
1. Election of Directors as follows:
Theodore E. Martin -- 136,491,623 votes for; 6,197,650 votes withheld
Alan E. Schwartz -- 135,904,176 votes for; 6,785,097 votes withheld
James A. Unruh -- 135,484,597 votes for; 7,204,676 votes withheld
2. A proposal to ratify the selection of the Company's independent
auditors for 1995 -- 139,225,407 votes for; 2,434,250 votes against;
1,029,616 abstentions
3. A stockholder proposal concerning executive compensation --
17,496,151 votes for; 77,302,041 votes against; 3,645,695
abstentions; 44,245,386 broker non-votes.
4. A stockholder proposal concerning Company matching contributions --
21,629,665 votes for; 72,637,257 votes against; 4,176,965
abstentions; 44,245,386 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
During the quarter ended June 30, 1995, the Company filed one Current
Report on Form 8-K dated June 27, 1995 to report under Item 5 of that
Form.
Page 12
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: August 14, 1995 By: /s/ Deborah C. Hopkins
----------------------
Deborah C. Hopkins
Vice President and
Controller
(Chief Accounting Officer)
Page 13
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3 Bylaws of Unisys Corporation as amended through May 25, 1995
10.1 Form of Executive Employment Agreement
10.2 Amendment dated May 25, 1995 to the 1990 Unisys Long-Term
Incentive Plan
10.3 Amendment dated May 25, 1995 to the Unisys Elected Officer
Pension Plan
10.4 Amendment dated as of July 28, 1995 to Employment Agreement dated
August 10, 1994 between Unisys Corporation and James A. Unruh
11.1 Statement of Computation of Earnings Per Share for the six
months ended June 30, 1995 and 1994.
11.2 Statement of Computation of Earnings Per Share for the three
months ended June 30, 1995 and 1994
12 Statement of Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule