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, 2007
[ ] 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, 2007:
349,948,612.
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions)
June 30,
2007 December 31,
(Unaudited) 2006
----------- ------------
Assets
------
Current assets
Cash and cash equivalents $ 520.7 $ 719.3
Accounts and notes receivable, net 1,045.2 1,164.6
Inventories:
Parts and finished equipment 101.2 95.0
Work in process and materials 86.5 81.2
Deferred income taxes 30.0 30.0
Prepaid expenses and other current assets 173.1 148.4
-------- --------
Total 1,956.7 2,238.5
-------- --------
Properties 1,294.7 1,233.4
Less-Accumulated depreciation and
amortization 943.8 892.1
-------- --------
Properties, net 350.9 341.3
-------- --------
Outsourcing assets, net 419.2 401.1
Marketable software, net 286.8 304.3
Prepaid postretirement assets 308.8 250.1
Deferred income taxes 191.3 191.3
Goodwill 196.8 193.9
Other long-term assets 121.8 117.4
-------- --------
Total $3,832.3 $4,037.9
======== ========
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Notes payable $ .6 $ 1.2
Current maturities of long-term debt 200.3 .5
Accounts payable 373.3 460.9
Other accrued liabilities 1,342.1 1,469.1
-------- --------
Total 1,916.3 1,931.7
-------- --------
Long-term debt 849.3 1,049.1
Long-term postretirement liabilities 642.7 667.7
Other long-term liabilities 426.2 453.6
Stockholders' equity (deficit)
Common stock, shares issued: 2007; 352.1
2006, 347.5 3.5 3.5
Accumulated deficit (2,448.7) (2,386.8)
Other capital 3,984.2 3,945.1
Accumulated other comprehensive loss (1,541.2) (1,626.0)
-------- --------
Stockholders' equity (deficit) (2.2) (64.2)
-------- --------
Total $3,832.3 $4,037.9
======== ========
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
---------------- ---------------
2007 2006 2007 2006
---- ---- ---- ----
Revenue
Services $1,208.6 $1,224.5 $2,361.5 $2,400.9
Technology 167.1 182.8 362.2 394.2
-------- -------- -------- --------
1,375.7 1,407.3 2,723.7 2,795.1
Costs and expenses
Cost of revenue:
Services 992.2 1,136.3 1,986.1 2,212.8
Technology 84.1 108.1 180.8 217.5
-------- -------- -------- --------
1,076.3 1,244.4 2,166.9 2,430.3
Selling, general and administrative 247.4 282.7 492.0 578.1
Research and development 49.5 63.9 91.9 139.2
-------- -------- -------- --------
1,373.2 1,591.0 2,750.8 3,147.6
-------- ------- -------- --------
Operating profit (loss) 2.5 (183.7) (27.1) (352.5)
Interest expense 18.7 19.1 37.6 38.9
Other income (expense), net (8.7) (.7) 16.8 152.7
-------- -------- -------- --------
Loss before income taxes (24.9) (203.5) (47.9) (238.7)
Provision (benefit) for income taxes 40.6 (8.9) 14.0 (16.2)
-------- -------- -------- --------
Net loss $ (65.5) $ (194.6) $ (61.9) $ (222.5)
======== ======== ======== ========
Loss per share
Basic $ (.19) $ (.57) $ (.18) $ (.65)
======== ======== ======== ========
Diluted $ (.19) $ (.57) $ (.18) $ (.65)
======== ======== ======== ========
See notes to consolidated financial statements.
4
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
Six Months Ended
June 30
------------------
2007 2006
-------- --------
Cash flows from operating activities
Net loss $ (61.9) $(222.5)
Add (deduct) items to reconcile net loss
to net cash used for operating activities:
Equity loss - 4.3
Employee stock compensation 5.5 3.2
Company stock issued for U.S. 401(k) plan 23.0 8.9
Depreciation and amortization of properties 56.9 58.5
Depreciation and amortization of outsourcing assets 70.6 66.7
Amortization of marketable software 62.1 66.2
Gain on sale of assets (23.1) (153.2)
Increase in deferred income taxes, net - (41.9)
Decrease in receivables, net 136.0 66.7
(Increase) decrease in inventories (9.0) 10.2
(Decrease) increase in accounts payable and other
accrued liabilities (250.5) 8.0
Decrease in other liabilities (50.9) (44.5)
(Increase) decrease in other assets (39.9) 1.2
Other .1 2.2
------- ------
Net cash used for operating activities (81.1) (166.0)
------- ------
Cash flows from investing activities
Proceeds from investments 3,942.4 3,729.3
Purchases of investments (3,941.0) (3,731.3)
Investment in marketable software (48.9) (55.3)
Capital additions of properties (39.8) (32.7)
Capital additions of outsourcing assets (78.5) (50.1)
Purchases of businesses (1.6) -
Proceeds from sale of assets 27.7 380.6
------- -----
Net cash (used for) provided by
investing activities (139.7) 240.5
------- -----
Cash flows from financing activities
Net reduction in short-term borrowings (.6) (7.4)
Proceeds from exercise of stock options 11.3 .9
Payments of long-term debt - (57.9)
Cost of credit agreement - (4.6)
------- ------
Net cash provided by (used for) financing
activities 10.7 (69.0)
------- ------
Effect of exchange rate changes on
cash and cash equivalents 11.5 7.1
------- ------
(Decrease) increase in cash and cash equivalents (198.6) 12.6
Cash and cash equivalents, beginning of period 719.3 642.5
------- -------
Cash and cash equivalents, end of period $ 520.7 $ 655.1
======== =======
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, 2007 and 2006 (dollars in millions,
shares in thousands):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Basic Loss Per Share
Net loss $ (65.5) $ (194.6) $ (61.9) $ (222.5)
======== ========= ======== ========
Weighted average shares 348,958 343,414 347,690 342,936
======== ========= ======== ========
Basic loss per share $ (.19) $ (.57) $ (.18) $ (.65)
======== ========= ======== ========
Diluted Loss Per Share
Net loss $ (65.5) $ (194.6) $ (61.9) $ (222.5)
======== ========= ======== ========
Weighted average shares 348,958 343,414 347,690 342,936
Plus incremental shares
from assumed conversions
of employee stock plans - - - -
-------- --------- -------- --------
Adjusted weighted average shares 348,958 343,414 347,690 342,936
======== ========= ======== ========
Diluted loss per share $ (.19) $ (.57) $ (.18) $ (.65)
======== ========= ======== ========
At June 30, 2007, 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, 2007.
b. In October 2005, the company announced a cost-reduction plan to right size
the company's cost structure. During 2006, the company committed to a
reduction of 5,665 employees. This resulted in pretax charges in 2006 of
$330.1 million, principally related to severance costs, and was comprised of
(a) a charge of $72.4 million for 2,250 employees in the U.S. and (b) a
charge of $257.7 million for 3,415 employees outside the U.S.
As part of the company's continuing repositioning plan to right size its
cost structure, during the three months ended June 30, 2007, the company
consolidated facility space and committed to an additional reduction of 551
employees. This resulted in a pretax charge in the quarter of $33.3
million. The charge related to work force reductions of $19.8 million is
broken down as follows: (a) 425 employees in the U.S. for a charge of $12.0
million and (b) 126 employees outside the U.S. for a charge of $7.8 million.
The facility charge of $13.5 million principally relates to leased property
that the company ceased using as of June 30, 2007. The facility charge
represents the fair value of the liability at the cease-use date and was
determined based on the remaining lease rental payments, reduced by
estimated sublease rentals that could be reasonably obtained for the
property. The pretax charge was recorded in the following statement of
income classifications: cost of revenue-services, $6.8 million; cost of
revenue-technology, $.5 million; selling, general and administrative
expenses, $16.5 million; research and development expenses, $9.7 million;
and other income (expense), net, $.2 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
During the three months ended March 31, 2007, the company committed to a
reduction of 966 employees. This resulted in a pretax charge in the March
2007 quarter of $32.7 million, principally related to severance costs. The
charge was broken down as follows: (a) 451 employees in the U.S. for a
charge of $11.6 million and (b) 515 employees outside the U.S. for a charge
of $21.1 million. The pretax charge was recorded in the following statement
of income classifications: cost of revenue-services, $25.0 million; selling,
general and administrative expenses, $2.1 million; research and development
expenses, $6.2 million; and other income (expense), net, $.6 million.
The cost reduction actions taken in the first half of 2007 when combined
with the 2006 actions bring the total pretax charge to $396.1 million,
comprised of $382.6 million for 7,182 work force reductions and $13.5
million for idle lease cost. The combined employee reduction actions are
expected to be substantially completed by the end of 2007. During the
current quarter, the company took the first steps to consolidate lease space
around the world to reflect its recent headcount reductions and its
continued move to an increasingly mobile services delivery work force. The
company is currently looking at other potential opportunities and may take
additional actions later in the year to further consolidate facility space.
For the six months ended June 30, 2007, the pretax charge of $66.0 million
was recorded in the following statement of income classifications: cost of
revenue-services, $31.8 million; cost of revenue-technology, $.5 million;
selling, general and administrative expenses, $18.6 million; research and
development expenses, $15.9 million; and other income (expense), net, $.8
million.
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
was 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.
During the three months ended June 30, 2006, the company committed to a
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.
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.
A further breakdown of the individual components of these costs follows (in
millions of dollars):
Work Force
Reductions
-------------- Idle
Headcount Total U.S. Int'l. Lease Cost
--------- ----- ---- ------ ----------
Balance at December
31, 2006 757 $142.6 $ 26.1 $116.5
Additional provisions 1,517 66.0 23.6 28.9 $13.5
Minority interest .8 .8
Utilized (911) (82.3) (22.4) (59.9)
Changes in estimates
and revisions (110) (15.7) 6.0 (21.7)
Translation adjustments 1.7 1.7
------ ------ ----- ----- ------
Balance at June 30, 2007 1,253 $113.1 $33.3 $ 66.3 $13.5
====== ====== ===== ===== ======
7
Expected future utilization:
2007 remaining six months 1,082 $70.1 $25.1 $ 43.4 $ 1.6
Beyond 2007 171 43.0 8.2 22.9 11.9
c. In March 2006, the company adopted changes to its U.S. defined benefit
pension plans effective December 31, 2006. The changes affected most U.S.
employees including senior management and included ending the accrual of
future benefits in the company's defined benefit pension plans for employees
effective December 31, 2006. No new entrants to the plans are allowed after
that date. The changes do not affect the vested accrued pension benefits of
current and former employees, including retirees. In addition, effective
January 1, 2007, the company increased its matching contribution for its
U.S. defined contribution plan to 100 percent of the first 6 percent of
eligible pay contributed by plan participants. 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.
Net periodic pension expense (income) for the three and six months ended
June 30, 2007 and 2006 is presented below (in millions of dollars):
Three Months Three Months
Ended June 30, 2007 Ended June 30, 2006
-------------------- -------------------
U.S. Int'l. U.S. Int'l.
Total Plans Plans Total Plans Plans
----- ----- ----- ----- ----- -----
Service cost $ 11.0 $ - $ 11.0 $ 27.4 $ 15.2 $ 12.2
Interest cost 100.3 69.6 30.7 111.9 84.2 27.7
Expected return on
plan assets (133.3) (97.3) (36.0) (140.7) (110.3) (30.4)
Amortization of prior
service (benefit) cost .1 - .1 ( .2) ( .5) .3
Recognized net actuarial
loss 33.3 24.4 8.9 42.1 29.9 12.2
----- ------ ------ ----- ----- ----
Net periodic pension
expense (income) $ 11.4 $ (3.3) $14.7 $ 40.5 $ 18.5 $22.0
====== ====== ====== ====== ======= =====
Six Months Six Months
Ended June 30, 2007 Ended June 30, 2006
------------------- ----------------------
U.S. Int'l. U.S. Int'l.
Total Plans Plans Total Plans Plans
----- ----- ------ ----- ----- ------
Service cost $ 21.8 $ .1 $21.7 $ 57.2 $ 33.6 $ 23.6
Interest cost 200.1 139.0 61.1 206.8 152.3 54.5
Expected return on
plan assets (266.5) (194.9) (71.6) (260.6) (201.0) (59.6)
Amortization of prior
service (benefit) cost .3 - .3 (.5) (1.0) .5
Recognized net actuarial
loss 66.3 48.7 17.6 90.5 66.4 24.1
Curtailment gain - - - (45.0) (45.0) -
------- ------- ----- ------- ------ -----
Net periodic pension
expense (income) $ 22.0 $ (7.1) $29.1 $ 48.4 $ 5.3 $43.1
======= ======= ===== ====== ====== =====
The company currently expects to make cash contributions of approximately
$77 million to its worldwide defined benefit pension plans in 2007 compared
with $78.0 million in 2006. For the six months ended June 30, 2007 and
2006, $34.3 million and $33.7 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 2007.
Net periodic postretirement benefit expense for the three and six months
ended June 30, 2007 and 2006 is presented below (in millions of dollars):
8
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Interest cost $3.1 $3.2 $ 6.1 $ 6.4
Expected return on assets (.2) - (.3) (.1)
Amortization of prior
service benefit - (.5) - (1.0)
Recognized net actuarial
loss 1.3 1.3 2.6 2.6
---- ---- ---- -----
Net periodic postretirement
benefit expense $4.2 $4.0 $ 8.4 $ 7.9
==== ==== ==== =====
The company expects to make cash contributions of approximately $30 million
to its postretirement benefit plan in 2007 compared with $26.9 million in
2006. For the six months ended June 30, 2007 and 2006, $16.7 million and
$12.7 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.
In February 2007, the company sold its media business for gross proceeds of
$27.7 million and recognized a pretax gain of $23.1 million.
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. As of June 30,
2007, the company has granted non-qualified stock options and restricted
stock units under these plans. At June 30, 2007, 3.5 million shares of
unissued common stock of the company were available for granting under these
plans.
For the six months ended June 30, 2007, no stock options were granted. The
company currently expects that any future grants of stock option awards will
be principally to newly hired individuals.
The fair value of stock option awards was estimated using the Black-Scholes
option pricing model with the following assumptions and weighted-average
fair values:
Six Months Ended June 30,
----------------------------
2007 2006
---- ----
Weighted-average fair value of grant N/A $2.53
Risk-free interest rate N/A 4.35%
Expected volatility N/A 45.88%
Expected life of options in years N/A 3.67
Expected dividend yield - -
For periods after January 1, 2006, the company has granted an annual
restricted stock unit award to officers, directors and other key employees
in lieu of an annual stock option grant. The restricted stock unit awards
granted in March 2006 contained 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 (the
first installment), 2006-2007 (the second installment), and 2006-2008 (the
third installment). The restricted stock unit awards granted in March 2007
consist of only performance-based units which vest at the end of three
years, based upon the achievement of pretax profit and revenue growth rate
9
goals for the three-year period from 2007-2009. Each performance-based unit
will vest into zero to 1.5 shares depending on the degree 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. The company records share-based expense in
selling, general and administrative expense.
During the six months ended June 30, 2007 and 2006, the company recorded
$5.5 million and $3.2 million of share-based compensation expense,
respectively, which is comprised of $5.3 million and $3.0 million of
restricted stock unit expense and $.2 million and $.2 million of stock
option expense, respectively.
A summary of stock option activity for the six months ended June 30, 2007
follows (shares in thousands):
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term (years) ($ in millions)
------- ------ --------- ------------ ---------------
Outstanding at
December
31, 2006 43,190 $16.44
Granted - -
Exercised (1,578) 7.13
Forfeited and
expired (1,978) 16.87
-------
Outstanding at
June 30, 2007 39,634 16.79 3.76 $19.3
======
Vested and
expected to
vest at
June 30, 2007 39,634 16.79 3.76 19.3
======
Exercisable at
June 30, 2007 39,164 16.92 3.76 17.9
======
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, 2007. 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,
2007 was $2.8 million; the amount for the six months ended June 30, 2006 was
immaterial. As of June 30, 2007, $1.1 million of total unrecognized
compensation cost related to stock options is expected to be recognized over
a weighted-average period of 1.1 years.
A summary of restricted stock unit activity for the six months ended June
30, 2007 follows (shares in thousands):
Weighted-
Restricted Average
Stock Grant Date
Units Fair Value
---------- ----------
Outstanding at
December 31, 2006 1,963 $6.66
Granted 3,223 8.32
Vested (342) 6.95
Forfeited and expired (305) 5.71
----
Outstanding at
June 30, 2007 4,539 7.80
=====
10
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, 2007 and 2006 was $8.32
and $6.63, respectively. As of June 30, 2007, there was $26.8 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 2.3 years. The total fair
value of restricted share units vested during the six months ended June 30,
2007 and 2006 was $2.9 million and $.8 million, respectively.
Common stock issued upon exercise of stock options or upon lapse of
restrictions on restricted stock units is newly issued shares. Cash
received from the exercise of stock options for the six months ended June
30, 2007 and 2006 was $11.3 million and $.9 million, respectively. The
company is currently not recognizing 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 position. Tax benefits resulting
from tax deductions in excess of the compensation costs 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 - systems integration
and consulting, outsourcing, infrastructure services and core maintenance;
Technology - enterprise-class servers and specialized technologies.
The accounting policies of each business segment are the same as those
followed by the company as a whole. Intersegment sales and transfers are
priced as if the sales or transfers were to third parties. Accordingly, the
Technology segment recognizes intersegment revenue and manufacturing profit
on hardware and software shipments to customers under Services contracts.
The Services segment, in turn, recognizes customer revenue and marketing
profits on such shipments of company hardware and software to customers.
The Services segment also includes the sale of hardware and software
products sourced from third parties that are sold to customers through the
company's Services channels. In the company's consolidated statements of
income, the manufacturing costs of products sourced from the Technology
segment and sold to Services customers are reported in cost of revenue for
Services.
Also included in the Technology segment's sales and operating profit are
sales of hardware and software sold to the Services segment for internal use
in Services engagements. The amount of such profit included in operating
income of the Technology segment for the three and six months ended June 30,
2007 and 2006 was $1.3 million and $2.0 million, and $1.8 million and $3.3
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.
A summary of the company's operations by business segment for the three and
six month periods ended June 30, 2007 and 2006 is presented below (in
millions of dollars):
Total Corporate Services Technology
----- --------- -------- ----------
Three Months Ended
June 30, 2007
------------------
Customer revenue $1,375.7 $1,208.6 $ 167.1
Intersegment $ (47.4) 3.6 43.8
-------- -------- -------- ------
Total revenue $1,375.7 $ (47.4) $1,212.2 $ 210.9
======== ======= ======== ======
Operating income (loss) $ 2.5 $ (27.0) $ 30.7 $ (1.2)
======== ======= ======== =======
11
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 income (loss) $ (183.7) $(143.9) $ (11.6) $ (28.2)
======== ======= ======== =======
Six Months Ended
June 30, 2007
----------------
Customer revenue $2,723.7 $2,361.5 $ 362.2
Intersegment $ (87.5) 7.5 80.0
-------- ------- -------- -------
Total revenue $2,723.7 $ (87.5) $2,369.0 $ 442.2
======== ======= ======== =======
Operating income (loss) $ (27.1) $ (53.1) $ 19.2 $ 6.8
======== ======= ======== =======
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 income (loss) $ (352.5) $(288.7) $ (22.1) $ (41.7)
======== ======== ======== =======
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
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Total segment operating
income (loss) $ 29.5 $ (39.8) $ 26.0 $ (63.8)
Interest expense (18.7) (19.1) (37.6) (38.9)
Other income (expense), net (8.7) (.7) 16.8 152.7
Cost reduction charges (33.3) (141.2) (66.0) (287.1)
Corporate and eliminations 6.3 (2.7) 12.9 (1.6)
------- ------- ------- -------
Total loss before income
taxes $ (24.9) $(203.5) $ (47.9) $(238.7)
======= ======= ======= =======
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
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Services
Systems integration
and consulting $ 370.8 $ 404.0 $ 713.4 $ 785.3
Outsourcing 504.7 471.2 973.8 926.4
Infrastructure services 224.2 229.5 458.8 454.5
Core maintenance 108.9 119.8 215.5 234.7
-------- -------- -------- --------
1,208.6 1,224.5 2,361.5 2,400.9
Technology
Enterprise-class servers 127.5 145.6 277.9 313.7
Specialized technologies 39.6 37.2 84.3 80.5
-------- -------- -------- --------
167.1 182.8 362.2 394.2
-------- -------- -------- --------
Total $1,375.7 $1,407.3 $2,723.7 $2,795.1
======== ======== ======== ========
12
g. Comprehensive income (loss) for the three and six months ended June 30, 2007
and 2006 includes the following components (in millions of dollars):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Net loss $(65.5) $ (194.6) $ (61.9) $ (222.5)
Other comprehensive income
(loss)
Cash flow hedges
Income (loss) (.2) (.4) (.4) (.2)
Reclassification adj. .3 .2 .4 -
Foreign currency
translation adjustments 24.3 (1.7) 29.4 (12.2)
Postretirement adjustments 23.2 - 55.4 1,446.0
------ ------- ------ -------
Total other comprehensive
income (loss) 47.6 (1.9) 84.8 1,433.6
------- ------- ------- --------
Comprehensive income (loss) $ (17.9) $(196.5) $ 22.9 $1,211.1
======= ======= ======= ========
Accumulated other comprehensive income (loss) as of December 31, 2006 and
June 30, 2007 is as follows (in millions of dollars):
Cash
Translation Flow Postretirement
Total Adjustments Hedges Plans
----- ----------- ------ -------------
Balance at December 31, 2006 $(1,626.0) $(633.1) $ - $ (992.9)
Change during period 84.8 29.4 - 55.4
-------- ------- ------ ---------
Balance at June 30, 2007 $(1,541.2) $(603.7) $ - $ (937.5)
========= ======= ====== =========
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):
13
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
2007 2006 2007 2006
---- ---- ---- ----
Balance at beginning of
period $ 8.5 $ 9.3 $ 8.2 $ 8.0
Accruals for warranties
issued during the period 1.1 2.1 2.5 5.0
Settlements made during
the period (1.4) (2.4) (3.8) (4.8)
Changes in liability for
pre-existing warranties
during the period,
including expirations .4 (.1) 1.7 .7
------- ------- ------- ------
Balance at June 30 $ 8.6 $ 8.9 $ 8.6 $ 8.9
======= ======= ======= ======
i. Net cash refunds received during the six months ended June 30, 2007 for
income taxes was $30.1 million compared with net cash paid for income taxes
during the six months ended June 30, 2006 of $47.4 million.
Cash paid during the six months ended June 30, 2007 and 2006 for interest
was $41.8 million and $49.0 million, respectively.
During the six months ended June 30, 2007, the company financed $22.7
million of internal use software licenses.
j. Effective January 1, 2007, the company adopted 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.
Adoption of FIN 48 did not have a material impact on the company's
consolidated results of operations and financial position. See note (l).
Effective January 1, 2007, the company adopted EITF 06-2, "Accounting for
Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No.
43." EITF 06-2 applies to compensated absences that require a minimum
service period but have no increase in the benefit even with additional
years of service and requires the benefit to be recognized as a liability
over the service period. Adoption of EITF 06-2 did not have a material
impact on the company's consolidated results of operations and financial
position.
Effective January 1, 2007, the company adopted EITF 06-5, "Accounting for
Purchases of Life Insurance - Determining the Amount That Could Be Realized
in Accordance with FASB Technical Bulletin No. 85-4." EITF 06-5 requires
that a policyholder should consider any additional amounts included in the
contractual terms of the policy in determining the amount that could be
realized under the insurance contract on a policy-by-policy basis. Adoption
of EITF 06-5 did not have a material impact on the company's consolidated
results of operations and financial position.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" (SFAS No. 157). SFAS No. 157 defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair
value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. Accordingly,
SFAS No. 157 does not require any new fair value measurements. The
provisions of SFAS No. 157 are to be applied prospectively and are effective
for financial statements issued for fiscal years beginning after November
15, 2007. The company is currently evaluating what effect, if any, adoption
of SFAS No. 157 will have on the company's consolidated results of
operations and financial position.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities" (SFAS No. 159). SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has
been elected are reportable in earnings. The provisions of SFAS No. 159
shall be effective as of the beginning of each reporting entity's first
fiscal year that begins after November 15, 2007. SFAS No. 159 should not be
applied retrospectively to fiscal years beginning prior to the effective
date. The company is currently evaluating whether it will adopt the
provisions of SFAS No. 159, and if adopted, what effect adoption of SFAS No.
159 will have on the company's consolidated results of operations and
financial position.
14
EITF 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements," was issued
in September 2006 and is effective for fiscal years beginning after December
15, 2007. EITF 06-4 requires that, for split-dollar life insurance
arrangements that provide a benefit to an employee that extends to
postretirement periods, an employer should recognize a liability for future
benefits in accordance with SFAS No. 106. EITF 06-4 requires that
recognition of the effects of adoption should be either by (a) a change in
accounting principle through a cumulative-effect adjustment to retained
earnings as of the beginning of the year of adoption or (b) a change in
accounting principle through retrospective application to all prior periods.
The company is reviewing EITF 06-4 and does not currently expect that its
adoption will have a material impact on the company's consolidated results
of operations and financial position.
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. The
company continues to work to address certain contracts administration issues
raised by the DCAA. In addition, the company has learned that the Civil
Division of the Department of Justice, working with the Inspector General's
Office of the Department of Homeland Security, is reviewing issues raised by
the DCAA relating to labor categorization and overtime on the TSA contract.
The company understands that the Civil Division is at an early stage in its
review. The company is working cooperatively with the Civil Division. The
company does not know whether the Civil Division will pursue the matter, or,
if pursued, what effect this might have on the company.
l. Effective January 1, 2007, the company adopted 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.
Adoption of FIN 48 did not have a material impact on the company's
consolidated results of operations and financial position.
The company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. The company
recently concluded a U.S. federal income tax audit of the years 2000-2003
with no material impact. Several U.S. state and foreign income tax audits
are in process. There are currently no income tax audits in process in
either Brazil or the United Kingdom, which are the most significant
jurisdictions outside the U.S. For Brazil, the audit period through 2000 is
closed and for the United Kingdom, the audit period through 2004 is closed.
All of the various ongoing income tax audits throughout the world are not
expected to have a material impact on the company's financial position.
The company recognizes penalties and interest accrued related to income tax
liabilities in the provision (benefit) for income taxes in its consolidated
statements of income. The company had an accrual of $11.4 million for the
payment of penalties and interest at June 30, 2007 and $10.3 million at
December 31, 2006. The increase in the liability of $1.1 million was
recognized as part of the company's income tax provision during the six
months ended June 30, 2007.
As of December 31, 2006, the company had $38.3 million of a liability for
unrecognized tax benefits. In March 2007, the company settled an income tax
audit in the Netherlands and as a result, recorded a tax benefit of $39.4
million and received a refund, including interest, of approximately $58
million during the second quarter of 2007.
After the settlement discussed above, the company had $13.4 million of a
liability for unrecognized tax benefits as of June 30, 2007, all of which,
if recognized, would affect the company's effective tax rate. The company
does not currently expect that the total amount of unrecognized tax benefits
at June 30, 2007 will significantly increase or decrease within the next 12
months.
15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
For the six months ended June 30, 2007, the company reported a net loss of $61.9
million, or $.18 per share, compared with a net loss of $222.5 million, or $.65
per share, for the six months ended June 30, 2006. The current six-month period
includes pretax charges relating to cost reduction actions of $66.0 million
compared with $287.1 million in the prior six-month period.
During the first half of 2007, the company:
* recorded cost reduction charges of $66.0 million for 1,517 personnel
reductions and idle facility costs (see note (b));
* continued its program to divest non-core assets by selling its media
business for cash proceeds of approximately $28 million (see note (d));
and
* settled a Netherlands income tax audit and, as a result, recorded a tax
benefit of approximately $39 million and received a cash refund,
including interest, of approximately $58 million (see note (l)).
Results of operations
Company results
For the three months ended June 30, 2007, the company reported a net loss of
$65.5 million, or $.19 per share, compared with a net loss of $194.6 million, or
$.57 per share, for the three months ended June 30, 2006. The current period
includes pretax charges relating to cost reduction actions of $33.3 million
compared with $141.2 million in the prior-year period.
Revenue for the quarter ended June 30, 2007 was $1.38 billion compared with
$1.41 billion for the second quarter of 2006, a decrease of 2% from the prior
year. This decrease was principally due to a decrease of 9% in Technology
revenue and a decrease of 1% in Services revenue. Foreign currency had a 3-
percentage-point positive impact on revenue in the current period compared with
the year-ago period. U.S. revenue declined 7% in the quarter compared with the
year-ago period, principally driven by continued weakness in systems integration
and consulting. Revenue in international markets increased 2% due to increases
in Europe, Latin America (excluding Brazil), South Pacific and Asia, offset in
part by decreases in Japan and Brazil. On a constant currency basis,
international revenue declined 4% in the three months ended June 30, 2007
compared with the three months ended June 30, 2006.
As part of the company's continuing repositioning plan to right size its cost
structure, during the three months ended June 30, 2007, the company consolidated
facility space and committed to an additional reduction of 551 employees. This
resulted in a pretax charge in the quarter of $33.3 million. The $19.8 million
charge related to work force reductions is broken down as follows: (a) 425
employees in the U.S. for a charge of $12.0 million and (b) 126 employees
outside the U.S. for a charge of $7.8 million. The facility charge of $13.5
million principally relates to leased property that the company ceased using as
of June 30, 2007. The facility charge represents the fair value of the
liability at the cease-use date and was determined based on the remaining lease
rental payments, reduced by estimated sublease rentals that could be reasonably
obtained for the property. The pretax charge was recorded in the following
statement of income classifications: cost of revenue-services, $6.8 million;
cost of revenue-technology, $.5 million; selling, general and administrative
expenses, $16.5 million; research and development expenses, $9.7 million; and
other income (expense), net, $.2 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.
The cost reduction actions taken in the first half of 2007, when combined with
the 2006 actions, bring the total pretax charge to $396.1 million, comprised of
$382.6 million for 7,182 work force reductions and $13.5 million for idle lease
cost. The combined employee reduction actions are expected to be substantially
completed by the end of 2007. Net of investments in offshore resources and
outsourcing of certain internal, non-client facing functions, the company
anticipates that these combined actions will yield, on a run-rate basis,
annualized cost savings in excess of $340 million by the second half of 2007 and
in excess of $365 million by the first half of 2008. During the current quarter,
the company took the first steps to consolidate lease space around the world to
reflect its recent headcount reductions and its continued move to an
increasingly mobile services delivery work force. The company is currently
looking at other potential opportunities and may take additional actions later
in the year to further consolidate facility space.
16
During the three months ended June 30, 2006, the company committed to a
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.
In March 2006, the company adopted changes to its U.S. defined benefit
pension plans effective December 31, 2006. The changes affected most U.S.
employees and senior management and included ending the accrual of future
benefits in the company's defined benefit pension plans for employees
effective December 31, 2006. No new entrants to the plans are allowed after
that date. The changes do not affect the vested accrued pension benefits of
current and former employees, including retirees. In addition, effective
January 1, 2007, the company increased its matching contribution for its
U.S. defined contribution plan to 100 percent of the first 6 percent of
eligible pay contributed by plan participants. 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.
Pension expense for the three months ended June 30, 2007 was $11.4 million
compared with $40.5 million for the three months ended June 30, 2006. The
decrease was principally due to the change in the U.S. defined benefit pension
plans. 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.
Total gross profit margin was 21.8% in the three months ended June 30, 2007
compared with 11.6% in the three months ended June 30, 2006. Included in the
gross profit margin in 2007 and 2006 were cost reduction charges of $7.3 million
and $101.4 million, respectively. The increase in gross profit margin excluding
these charges principally reflects the benefits derived from the cost reduction
actions as well as a decline in pension expense of $20.8 million ($8.4 million
for the three months ended June 30, 2007 compared with $29.2 million in the
year-ago period).
Selling, general and administrative expenses were $247.4 million for the three
months ended June 30, 2007 (18.0% of revenue) compared with $282.7 million
(20.1% of revenue) in the year-ago period. Included in selling, general and
administrative expense in 2007 and 2006 were cost reduction charges of $16.5
million and $28.3 million, respectively. The decrease in selling, general and
administrative expense excluding these charges principally reflects the benefits
derived from the cost reduction actions as well as a decline in pension expense
of $5.3 million ($3.2 million for the three months ended June 30, 2007 compared
with $8.5 million in the year-ago period).
Research and development (R&D) expenses in the second quarter of 2007 were $49.5
million compared with $63.9 million in the second quarter of 2006. The company
continues to invest in proprietary operating systems and in key programs within
its industry practices. Included in R&D expense in 2007 and 2006 were cost
reduction charges of $9.7 million and $11.8 million, respectively. The
reduction in R&D in 2007 compared with 2006, excluding these charges,
principally reflects the benefits derived from the cost reduction actions as
well as a decline in pension expense of $3.0 million ($.2 million income for the
three months ended June 30, 2007 compared with expense of $2.8 million in the
year-ago period).
For the second quarter of 2007, the company reported a pretax operating profit
of $2.5 million compared with a pretax operating loss of $183.7 million in the
second quarter of 2006. The principal items affecting the comparison of 2007
with 2006 were a $33.5 million and a $141.5 million charge in 2007 and 2006,
respectively, relating to the cost reduction actions, as well as the benefits
derived from the cost reduction actions. Contributing to the increase in
operating profit was a decline in pension expense of $29.1 million ($11.4
million for the three months ended June 30, 2007 compared with $40.5 million in
the year-ago period).
17
Interest expense for the three months ended June 30, 2007 was $18.7 million
compared with $19.1 million for the three months ended June 30, 2006.
Other income (expense), net, which can vary from period to period, was expense
of $8.7 million in the second quarter of 2007, compared with expense of $.7
million in 2006. The difference in 2007 from 2006 was principally due to
expense of $6.1 million in the current quarter compared with expense of $2.2
million in last year's second quarter related to minority shareholders' portion
of income of iPSL, a 51% owned subsidiary which is fully consolidated by the
company. The change was due to increased profit from iPSL resulting from the
renegotiated contract in January 2006 and benefits derived from cost
reduction actions. Additionally, lower interest income in the current quarter
($6.5 million compared with $8.7 million in the prior-year quarter) due to
reduced cash levels contributed to the increase in expense.
Income (loss) before income taxes for the three months ended June 30, 2007 was a
loss of $24.9 million compared with a loss of $203.5 million in 2006. The
provision for income taxes was $40.6 million in the current quarter compared
with a benefit of $8.9 million in the year-ago period. Due to the establishment
of a full valuation allowance for all of the company's U.S. deferred tax assets
and certain international subsidiaries 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. In the current quarter, income increased in certain
international jurisdictions where the company still provides for income taxes
due in large part to profit improvement caused by the company's cost reduction
actions.
For the six months ended June 30, 2007, the company reported a net loss of $61.9
million, or $.18 per share, compared with a net loss of $222.5 million, or $.65
per share, for the six months ended June 30, 2006. The current six-month period
includes pretax charges relating to cost reduction actions of $66.0 million
compared with $287.1 million in the prior six-month period.
Total revenue for the six months ended June 30, 2007 and 2006 was $2.72 billion
and $2.80 billion, respectively. Foreign currency translations had a 3-
percentage-point positive impact on revenue in the current six months when
compared with the year-ago period. In the current six-month period, Services
revenue decreased 2% and Technology revenue decreased 8%.
U.S. revenue declined 5% in the current six-month period compared with the year-
ago period and revenue in international markets decreased 1%. On a constant
currency basis, international revenue decreased 7% in the six months ended June
30, 2007.
Pension expense for the six months ended June 30, 2007 was $22.0 million
compared with $48.4 million of pension expense for the six months ended June 30,
2006. The decrease in pension expense in 2007 from 2006 was principally due to
the change in the U.S. defined benefit pension plans, discussed above.
Total gross profit margin was 20.4% in the six months ended June 30, 2007
compared with 13.1% in the year-ago period. Included in the gross profit
margin in 2007 and 2006 were cost reduction charges of $32.3 million and $186.8
million, respectively. The increase in gross profit margin excluding these
charges principally reflects the benefits derived from the cost reduction
actions as well as a decline in pension expense of $20.6 million ($16.3 million
for the six months ended June 30, 2007 compared with $36.9 million in the year-
ago period).
For the six months ended June 30, 2007, selling, general and administrative
expenses were $492.0 million (18.1% of revenue) compared with $578.1 million
(20.7% of revenue) for the six months ended June 30, 2006. Included in selling,
general and administrative expense in 2007 and 2006 were cost reduction charges
of $18.6 million and $73.7 million, respectively. The decrease in selling,
general and administrative expense excluding these charges principally reflects
the benefits derived from the cost reduction actions as well as a decline in
pension expense of $4.1 million ($6.2 million for the six months ended June 30,
2007 compared with $10.3 million in the year-ago period).
18
R&D expense for the six months ended June 30, 2007 was $91.9 million compared
with $139.2 million a year ago. Included in R&D expense in 2007 and 2006 were
cost reduction charges of $15.9 million and $29.4 million, respectively. The
reduction in R&D in 2007 compared with 2006 excluding these charges principally
reflects the benefits derived from the cost reduction actions as well as a
decline in pension expense of $1.7 million ($.5 million income for the six
months ended June 30, 2007 compared with $1.2 million of expense in the year-ago
period).
For the six months ended June 30, 2007, the company reported an operating loss
of $27.1 million compared with an operating loss of $352.5 million for the six
months ended June 30, 2006. The principal items affecting the comparison of
2007 with 2006 were a $66.8 million and a $289.9 million charge in 2007 and
2006, respectively, relating to the cost reduction actions, as well as the
benefits derived from the cost reduction actions. Contributing to the increase
in operating profit was a decline in pension expense of $26.4 million ($22.0
million for the six months ended June 30, 2007 compared with $48.4 million in
the year-ago period).
Interest expense for the six months ended June 30, 2007 was $37.6 million
compared with $38.9 million for the six months ended June 30, 2006.
Other income (expense), net was income of $16.8 million in the current six-month
period compared with income of $152.7 million in the year-ago period. Other
income (expense) in 2007 principally reflects a gain of $23.1 million on the
sale of the company's media business and 2006 principally reflects a gain of
$149.9 million from the sale of all of the company's shares in NUL (see note
(d)).
Income (loss) before income taxes was a loss of $47.9 million in the six months
ended June 30, 2007 compared with a loss of $238.7 million last year. The
provision for income taxes was $14.0 million in the current period compared with
a benefit of $16.2 million in the year-ago period. The tax provision in the
current six-month period includes a $39.4 million benefit related to the
Netherlands income tax audit settlement (see note (l)).
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. The company continues to work to
address certain contracts administration issues raised by the DCAA. In
addition, the company has learned that the Civil Division of the Department of
Justice, working with the Inspector General's Office of the Department of
Homeland Security, is reviewing issues raised by the DCAA relating to labor
categorization and overtime on the TSA contract. The company understands that
the Civil Division is at an early stage in its review. The company is working
cooperatively with the Civil Division. The company does not know whether the
Civil Division will pursue the matter, or, if pursued, what effect this might
have on the company.
Segment results
The company has two business segments: Services and Technology. Revenue
classifications by segment are as follows: Services - systems integration and
consulting, 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, 2007 and 2006
was $1.3 million and $2.0 million, and $1.8 million and $3.3 million,
respectively. The profit on these transactions is eliminated in Corporate.
19
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, 2007
------------------
Customer revenue $1,375.7 $1,208.6 $167.1
Intersegment $(47.4) 3.6 43.8
-------- ------- -------- ------
Total revenue $1,375.7 $(47.4) $1,212.2 $210.9
======== ======= ======== ======
Gross profit percent 21.8 % 17.3 % 43.3 %
======== ======== ======
Operating profit
(loss) percent .2 % 2.5 % (.6)%
======== ======== ======
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)%
======== ======== ======
Gross profit percent and operating income percent are as a percent of total
revenue.
In the Services segment, customer revenue was $1.21 billion for the three months
ended June 30, 2007 compared with $1.22 billion for the three months ended June
30, 2006. Foreign currency translation had a 4-percentage-point positive impact
on Services revenue in the current quarter compared with the year-ago period.
Revenue in the second quarter of 2007 declined 1% compared with 2006,
principally due to an 8% decrease in systems integration and consulting revenue
($370.8 million in 2007 compared with $404.0 million in 2006), a 9% decrease in
core maintenance revenue ($108.9 million in 2007 compared with $119.8 million in
2006), and a 2% decrease in infrastructure services ($224.2 million in 2007
compared with $229.5 million in 2006), offset in part by a 7% increase in
outsourcing ($504.7 million in 2007 compared with $471.2 million in 2006).
Services gross profit was 17.3% in the second quarter of 2007 compared with
14.3% in the year-ago period. Services operating income (loss) percent was 2.5%
in the three months ended June 30, 2007 compared with (.9)% in the three months
ended June 30, 2006. The increase in Services operating profit margin
principally reflects the benefits derived from the cost reduction actions as
well as a decline in pension expense of $24.1 million ($11.3 million for the
three months ended June 30, 2007 compared with $35.4 million in the year-ago
period). During the quarter, the company continued to experience lower volume
in systems integration and consulting, and higher temporary contract labor costs
primarily due to changes and disruptions associated with the repositioning
program. The company is currently addressing these issues.
20
In the Technology segment, customer revenue was $167 million in the current
quarter compared with $183 million in the year-ago period. Foreign currency
translation had a positive 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, 2007 was down 9% from the three
months ended June 30, 2006, due to a 12% decrease in sales of enterprise-class
servers ($127.5 million in 2007 compared with $145.6 million in 2006) offset in
part by a 6% increase in sales of specialized technology products ($39.6 million
in 2007 compared with $37.2 million in 2006). Technology gross profit was 43.3%
in the current quarter compared with 37.6% in the year-ago quarter. Technology
operating income (loss) percent was (.6)% in the three months ended June 30,
2007 compared with (12.2)% in the three months ended June 30, 2006. The
increase in Technology operating profit margin principally reflects the benefits
derived from the cost reduction actions as well as a decline in pension expense
of $4.9 million ($.1 million for the three months ended June 30, 2007 compared
with $5.0 million in the year-ago period). The decline in revenue in 2007
compared with 2006 primarily reflected the continuing secular decline in
enterprise servers.
New accounting pronouncements
See note (j) of the Notes to Consolidated Financial Statements for a full
description of recent accounting pronouncements, including the expected dates of
adoption and estimated effects on results of operations and financial condition.
Financial condition
Cash and cash equivalents at June 30, 2007 were $520.7 million compared with
$719.3 million at December 31, 2006.
During the six months ended June 30, 2007, cash used for operations was $81.1
million compared with cash used of $166.0 million for the six months ended June
30, 2006. The current-year period included a tax refund of approximately $58
million. Cash expenditures in the current period related to the current year
and prior-year restructuring actions (which are included in operating
activities) were approximately $86.7 million compared with $39.6 million for the
prior-year period. Cash expenditures for the current-year and the prior-year
restructuring actions are expected to be approximately $75.1 million for the
remainder of 2007, resulting in an expected cash expenditure of approximately
$161.8 million in 2007 compared with $198 million in 2006. In addition, there
was a reduction in the amount of receivables sold in the company's U.S.
securitization. At June 30, 2007 and December 31, 2006, receivables of $125
million and $170 million, respectively, were sold under the company's U.S.
securitization.
Cash used for investing activities for the six months ended June 30, 2007 was
$139.7 million compared with $240.5 million of cash provided during the six
months ended June 30, 2006. The principal reason for the decrease was that in
2006, the company received net proceeds of $380.6 million from the sale of the
NUL shares and other assets. In the current period, the investment in
marketable software was $48.9 million compared with $55.3 million in the year-
ago period, capital additions of properties were $39.8 million in 2007 compared
with $32.7 million in 2006 and capital additions of outsourcing assets were
$78.5 million in 2007 compared with $50.1 million in 2006. The increase in
capital expenditures for outsourcing assets reflects higher expenditures on
outsourcing projects as the company began new client projects. During the six
months ended June 30, 2007, the company financed $22.7 million of internal use
software licenses.
Cash provided by financing activities during the six months ended June 30, 2007
was $10.7 million compared with $69.0 million of cash used during the six months
ended June 30, 2006. The prior-year 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 current-year period includes $11.3 million of cash received due to
employee exercise of stock options during the six months ended June 30, 2007
compared with $.9 million in the prior-year period.
At June 30, 2007, total debt was $1.05 billion, unchanged from December 31,
2006.
21
The company has a three-year, secured revolving credit facility which expires in
2009 that provides for loans and letters of credit up to an aggregate of $275
million. Borrowings under the facility 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. Also, the credit facility may be terminated if the 7 7/8% senior notes
due 2008 have not been repaid, refinanced or defeased by payment of amounts due
to an escrow agent on or prior to January 1, 2008. 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, 2007, there were letters of credit of $45.5
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.
At June 30, 2007, the company had an agreement 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 corporate rating is 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, 2007, the company's corporate rating was B+ and
B2 by S&P and Moody's, respectively. The facility is renewable annually in
November at the purchasers' option until November 2008. At June 30, 2007 and
December 31, 2006, the company had sold $125 million and $170 million,
respectively, of eligible receivables.
At June 30, 2007, 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.
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 $62.0 million during the six months ended
June 30, 2007, principally reflecting a decrease in other comprehensive loss due
to amortization of postretirement losses recognized in accumulated other
comprehensive income, offset in part by a net loss of $61.9 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.
22
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, increase its offshore resources, or reduce its use of third-party
contract labor as quickly as currently planned. All of these factors 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.
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.
The company's future results will depend in part on the success of its efforts
to control and reduce costs through the development and use of low-cost
subsidiaries and low-cost offshore and global sourcing models. 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.
23
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
continue 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 systems integration and consulting. 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 market demand for the company's
high-end enterprise servers and customer acceptance of the new models introduced
in 2006. 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
growth potential in the 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
arrangements with NEC.
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.
24
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.
Certain of the company's outsourcing agreements require that the company's
prices be benchmarked and provide for a downward adjustment to those prices if
the pricing for similar services in the market has changed. As a result,
anticipated revenues from these contracts may decline.
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, 2007. 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, 2007 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 2007 Annual Meeting of Stockholders (the "Annual
Meeting") was held on April 26, 2007 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:
Henry C. Duques - 309,811,117 votes for; 12,414,882 votes withheld
Clayton M. Jones - 309,618,973 votes for; 12,607,026 votes withheld
Theodore E. Martin - 308,556,030 votes for; 13,659,969 votes withheld
(2) Ratification of the selection of the company's independent registered
public accounting firm for 2007 - 316,358,692 votes for; 3,488,294 votes
against; 2,379,015 abstentions.
(3) Approval of the Unisys Corporation 2007 Long-Term Incentive and Equity
Compensation Plan - 211,375,645 votes for; 58,785,518 votes against; 2,885,245
abstentions; 49,179,593 broker non-votes.
(4) Consideration and vote upon a stockholder proposal to provide a report
concerning political contributions by the company - 110,229,306 votes for;
105,613,155 votes against; 57,203,947 abstentions; 49,179,593 broker non-votes.
(5) Consideration and vote upon a stockholder proposal requesting the Board
of Directors to issue a sustainability report relating to the company's social
and environmental practices - 17,267,505 votes for; 200,272,719 votes against;
55,506,184 abstentions; 49,179,593 broker non-votes.
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 2007.
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 6, 2007 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 February 8, 2007
(incorporated by reference to Exhibit 3 to the registrant's Current
Report on Form 8-K dated February 8, 2007)
10 Unisys Corporation 2007 Long-Term Incentive and Equity Compensation
Plan (incorporated by reference to Appendix A to the registrant's Proxy
Statement, dated March 15, 2007, for its 2007 annual meeting of
stockholders)
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