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 March 31, 2009
[ ] 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 has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
YES [ ] NO [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [X] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller Reporting Company [ ]
(Do not check if a smaller reporting company)
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 March 31, 2009
370,314,728.
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Millions)
March 31, December 31,
2009 2008
----------- ------------
Assets
------
Current assets
Cash and cash equivalents $ 468.7 $ 544.0
Accounts and notes receivable, net 720.8 818.5
Inventories:
Parts and finished equipment 62.2 64.7
Work in process and materials 59.6 70.7
Deferred income taxes 19.8 23.8
Prepaid expenses and other current assets 122.4 116.7
-------- --------
Total 1,453.5 1,638.4
-------- --------
Properties 1,407.1 1,416.0
Less-Accumulated depreciation and
amortization 1,149.3 1,139.5
-------- --------
Properties, net 257.8 276.5
-------- --------
Outsourcing assets, net 285.0 314.9
Marketable software, net 192.4 202.0
Prepaid postretirement assets 27.4 20.7
Deferred income taxes 83.2 87.6
Goodwill 188.9 189.4
Other long-term assets 152.0 94.6
-------- --------
Total $2,640.2 $2,824.1
======== ========
Liabilities and stockholders' deficit
-------------------------------------
Current liabilities
Notes payable $ .1 $ -
Current maturities of long-term debt 301.0 1.5
Accounts payable 321.3 379.2
Other accrued liabilities 962.2 1,045.7
-------- --------
Total 1,584.6 1,426.4
-------- --------
Long-term debt 759.3 1,059.1
Long-term postretirement liabilities 1,458.1 1,497.0
Other long-term liabilities 262.7 265.4
Commitments and contingencies
Stockholders' deficit
Common stock, shares issued:
2009; 372.7, 2008, 372.1 3.7 3.7
Accumulated deficit (2,620.4) (2,596.0)
Treasury stock, shares at cost:
2009; 2.4, 2008; 2.2 (44.8) (44.8)
Paid-in capital 4,102.6 4,099.3
Accumulated other comprehensive loss (2,885.9) (2,904.6)
Noncontrolling interests 20.3 18.6
-------- --------
Total stockholders' deficit (1,424.5) (1,423.8)
-------- --------
Total $2,640.2 $2,824.1
======== ========
See notes to consolidated financial statements.
3
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions, except per share data)
Three Months Ended March 31
---------------------------
2009 2008
-------- --------
Revenue
Services $ 983.8 $1,137.1
Technology 116.1 164.2
-------- --------
1,099.9 1,301.3
Costs and expenses
Cost of revenue:
Services 805.1 922.2
Technology 71.8 85.9
-------- --------
876.9 1,008.1
Selling, general and administrative 173.6 232.5
Research and development 27.4 32.7
-------- --------
1,077.9 1,273.3
-------- --------
Operating income 22.0 28.0
Interest expense 21.8 21.6
Other income (expense), net (6.7) (1.1)
-------- --------
Income (loss) before income taxes (6.5) 5.3
Provision for income taxes 15.6 23.9
-------- --------
Consolidated net loss (22.1) (18.6)
Net income attributable to
noncontrolling interests (2.3) (4.8)
-------- --------
Net loss attributable
to Unisys Corporation $ (24.4) $ (23.4)
======== ========
Loss per share attributable
to Unisys Corporation
Basic $ (.07) $ (.07)
======== ========
Diluted $ (.07) $ (.07)
======== ========
See notes to consolidated financial statements.
4
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
Three Months Ended
March 31
------------------
2009 2008
-------- -------
Cash flows from operating activities
Consolidated net loss $ (22.1) $ (18.6)
Add (deduct) items to reconcile consolidated
net loss to net cash provided by (used for)
operating activities:
Employee stock compensation 2.1 6.0
Company stock issued for U.S. 401(k) plan - 8.8
Depreciation and amortization of properties 23.7 26.7
Depreciation and amortization of outsourcing assets 34.8 42.4
Amortization of marketable software 25.2 30.5
Disposal of capital assets 16.0 2.9
Increase in deferred income taxes, net 7.3 -
Decrease in receivables, net 83.7 42.5
Decrease (increase) in inventories 11.8 (2.2)
Decrease in accounts payable and other
accrued liabilities (116.8) (129.0)
Decrease in other liabilities (4.5) (19.3)
Increase in other assets (21.7) (42.5)
Other (.2) 2.5
------- ------
Net cash provided by (used for)
operating activities 39.3 (49.3)
------- ------
Cash flows from investing activities
Proceeds from investments 94.3 1,646.6
Purchases of investments (94.4) (1,675.9)
Collateralized letters of credit (61.2) -
Investment in marketable software (15.5) (22.4)
Capital additions of properties (9.9) (14.6)
Capital additions of outsourcing assets (21.9) (27.9)
Purchases of businesses (.4) (.4)
------- ------
Net cash used for investing activities (109.0) (94.6)
------- ------
Cash flows from financing activities
Net proceeds from short-term borrowings .1 -
Payment of long-term debt - (200.0)
Financing fees - (.8)
------- ------
Net cash provided by (used for) financing activities .1 (200.8)
------- ------
Effect of exchange rate changes on
cash and cash equivalents (5.7) 4.7
------- ------
Decrease in cash and cash equivalents (75.3) (340.0)
Cash and cash equivalents, beginning of period 544.0 830.2
------- -------
Cash and cash equivalents, end of period $ 468.7 $ 490.2
======== =======
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.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions about future events. These estimates and assumptions affect the
amounts of assets and liabilities reported, disclosures about contingent assets
and liabilities and the reported amounts of revenue and expenses. Such
estimates include the valuation of accounts receivable, inventories,
outsourcing assets, marketable software, goodwill and other long-lived assets,
legal contingencies, indemnifications, and assumptions used in the calculation
of income taxes and retirement and other post-employment benefits, among others.
These estimates and assumptions are based on management's best estimates and
judgment. Management evaluates its estimates and assumptions on an ongoing
basis using historical experience and other factors, including the current
economic environment, which management believes to be reasonable under the
circumstances. Management adjusts such estimates and assumptions when facts
and circumstances dictate. Illiquid credit markets, volatile equity and
foreign currency markets and reductions in information technology spending have
combined to increase the uncertainty inherent in such estimates and assumptions.
As future events and their effects cannot be determined with precision, actual
results could differ significantly from these estimates. Changes in those
estimates resulting from continuing changes in the economic environment will be
reflected in the financial statements in future periods.
The company's accounting policies are set forth in detail in note 1 of the
notes to the consolidated financial statements in the company's Annual Report
on Form 10-K for the year ended December 31, 2008 filed with the Securities and
Exchange Commission. Such Annual Report also contains a discussion of the
company's critical accounting policies. The company believes that these
critical accounting policies affect its more significant estimates and
judgments used in the preparation of the company's consolidated financial
statements. There have been no changes in the company's critical accounting
policies from those disclosed in the company's Annual Report on Form 10-K for
the year ended December 31, 2008.
a. The following table shows how loss per share attributable to Unisys
Corporation was computed for the three months ended March 31, 2009 and 2008
(dollars in millions, shares in thousands):
Three Months Ended March 31,
----------------------------
2009 2008
--------- ----------
Basic Loss Per Share
Net loss attributable to Unisys Corporation $ (24.4) $ (23.4)
======== =========
Weighted average shares 370,046 354,798
======== =========
Basic loss per share $ (.07) $ (.07)
======== =========
Diluted Loss Per Share
Net loss attributable to Unisys Corporation $ (24.4) $ (23.4)
======== =========
Weighted average shares 370,046 354,798
Plus incremental shares from assumed
conversions of employee stock plans - -
-------- ---------
Adjusted weighted average shares 370,046 354,798
======== =========
Diluted loss per share $ (.07) $ (.07)
======== =========
6
At March 31, 2009 and 2008, 44.4 million and 37.0 million, respectively, of
employee stock options were antidilutive and therefore excluded from the
computation of diluted earnings per share.
b. A breakdown of the individual components of the company's cost-reduction
c. charges follows (in millions of dollars):
Work-Force
Reductions
-------------- Idle
Headcount Total U.S. Int'l. Lease Cost
--------- ----- ---- ------ ----------
Balance at December
31, 2008 787 $ 95.8 $ 25.1 $ 27.2 $ 43.5
Utilized (600) (28.3) (9.3) (12.7) (6.3)
Changes in estimates
and revisions (14) (2.4) .6 (2.2) (.8)
Translation adjustments - (1.8) - (1.1) (.7)
------ ------ ----- ----- ------
Balance at March 31, 2009 173 $ 63.3 $16.4 $ 11.2 $ 35.7
====== ====== ===== ===== ======
Expected future utilization:
2009 remaining nine months 173 $34.1 $16.4 $ 11.2 $ 6.5
Beyond 2009 29.2 - - 29.2
c. Net periodic pension expense (income) for the three months ended March
31, 2009 and 2008 is presented below (in millions of dollars):
Three Months Three Months
Ended March 31, 2009 Ended March 31, 2008
---------------------- ----------------------
U.S. Int'l. U.S. Int'l.
Total Plans Plans Total Plans Plans
----- ----- ----- ----- ----- -----
Service cost $ 2.9 $ - $ 2.9 $ 8.3 $ - $ 8.3
Interest cost 98.3 72.2 26.1 104.9 70.8 34.1
Expected return on
plan assets (126.3) (96.5) (29.8) (142.7) (102.1) (40.6)
Amortization of prior
service cost .2 .2 - .3 .2 .1
Recognized net actuarial
loss 22.0 20.9 1.1 17.7 13.8 3.9
----- ----- ----- ----- ---- -----
Net periodic pension
expense (income) $ (2.9) $ (3.2) $ .3 $(11.5) $(17.3) $ 5.8
===== ===== ==== ====== ===== =====
The company currently expects to make cash contributions of approximately $90-
$95 million to its worldwide defined benefit pension plans in 2009 compared
with $78.1 million in 2008. For the three months ended March 31, 2009 and
2008, $13.9 million and $19.1 million, respectively, of cash contributions have
been made. In accordance with regulations governing contributions to U.S.
defined benefit pension plans, the company is not required to fund its U.S.
qualified defined benefit pension plan in 2009.
The expense related to the company's match to the U.S. 401(k) plan for the
three months ended March 31, 2009 and 2008 was zero and $12.1 million,
respectively. Effective January 1, 2009, the company match was suspended.
Net periodic postretirement benefit expense for the three months ended
March 31, 2009 and 2008 is presented below (in millions of dollars):
Three Months Ended March 31,
----------------------------
2009 2008
---- ----
Service cost $ .1 $ .3
Interest cost 3.0 3.4
Expected return on assets (.1) (.1)
Amortization of prior service cost .3 .9
Recognized net actuarial loss .9 1.1
---- ----
Net periodic postretirement benefit expense $4.2 $5.6
==== ====
The company expects to make cash contributions of approximately $23 million to
its postretirement benefit plan in 2009 compared with $19.5 million in 2008.
For the three months ended March 31, 2009 and 2008, $5.0 million and $2.6
million, respectively, of cash contributions have been made.
7
d. Due to its foreign operations, the company is exposed to the effects of
foreign currency exchange rate fluctuations on the U.S. dollar, principally
related to intercompany account balances. The company uses derivative financial
instruments to manage its exposure to market risks from changes in foreign
currency exchange rates on such balances. The company enters into foreign
exchange forward contracts, generally having maturities of one month, which
have not been designated as hedging instruments in accordance with Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." At March 31, 2009, the fair value of such contracts
was a net loss of $.4 million, of which $.2 million has been recognized in
"Prepaid expenses and other current assets" and $.6 million has been recognized
in "Other accrued liabilities" in the company's consolidated balance sheet.
For the three months ended March 31, 2009, changes in the fair value of these
instruments was a loss of $.6 million, which has been recognized in earnings in
"Other income (expense), net" in the company's consolidated statement of
income.
e. Under stockholder approved stock-based plans, stock options, stock
appreciation rights, restricted stock and restricted stock units may be granted
to officers, directors and other key employees. At March 31, 2009, 14.3 million
shares of unissued common stock of the company were available for granting under
these plans.
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:
Three Months Ended March 31,
----------------------------
2009 2008
---- ----
Weighted-average fair value of grant $.28 $1.60
Risk-free interest rate 1.57% 3.63%
Expected volatility 58.28% 45.28%
Expected life of options in years 3.77 3.67
Expected dividend yield - -
Restricted stock unit awards may contain time-based units, performance-based
units or a combination of both. 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 all share-based expense in selling, general and
administrative expense.
During the three months ended March 31, 2009 and 2008, the company recorded
$2.1 million and $6.0 million of share-based compensation expense,
respectively, which is comprised of $1.3 million and $5.9 million of restricted
stock unit expense and $.8 million and $.1 million of stock option expense,
respectively.
8
A summary of stock option activity for the three months ended March 31, 2009
follows (shares in thousands):
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term (years) ($ in millions)
------- ------ --------- ------------ ---------------
Outstanding at
December
31, 2008 34,141 $16.35
Granted 11,427 .63
Forfeited and
expired (1,125) 16.87
------
Outstanding at
March 31, 2009 44,443 12.32 2.77 $ .1
======
Vested and
expected to
vest at
March 31, 2009 43,272 12.63 2.71 .1
======
Exercisable at
March 31, 2009 31,603 16.99 1.93 -
======
The aggregate intrinsic value represents the total pretax value of 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 March 31, 2009. 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 three months ended March 31, 2009 and for the three months ended March
31, 2008 was zero since no options were exercised. As of March 31, 2009, $2.6
million of total unrecognized compensation cost related to stock options is
expected to be recognized over a weighted-average period of 2.7 years.
A summary of restricted stock unit activity for the three months ended March
31, 2009 follows (shares in thousands):
Weighted-
Restricted Average
Stock Grant Date
Units Fair Value
---------- ----------
Outstanding at
December 31, 2008 7,630 $5.07
Granted 1,657 .64
Vested (501) 5.18
Forfeited and expired (2,597) 4.53
-----
Outstanding at
March 31, 2009 6,189 4.09
=====
The fair value of restricted stock units is determined based on the 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 three months
ended March 31, 2009 and 2008 was $.64 and $4.12, respectively. As of
March 31, 2009, there was $7.6 million of total unrecognized compensation cost
related to outstanding restricted stock units granted under the company's
plans. That cost is expected to be recognized over a weighted-average period
of 1.5 years. The total fair value of restricted share units vested during the
three months ended March 31, 2009 and 2008 was $.4 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 three months ended March 31, 2009
and 2008 was zero. 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.
9
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 months ended March 31, 2009 and 2008
was $1.5 million and $5.5 million, respectively. The profit on these
transactions is eliminated in Corporate.
The company evaluates business segment performance on operating income
exclusive of restructuring charges and unusual and nonrecurring items, which
are included in Corporate. All other corporate and centrally incurred costs
are allocated to the business segments based principally on revenue, employees,
square footage or usage.
A summary of the company's operations by business segment for the three-month
periods ended March 31, 2009 and 2008 is presented below (in millions of
dollars):
Total Corporate Services Technology
----- --------- -------- ----------
Three Months Ended
March 31, 2009
------------------
Customer revenue $1,099.9 $ 983.8 $ 116.1
Intersegment $ (37.9) 1.7 36.2
-------- -------- -------- -------
Total revenue $1,099.9 $ (37.9) $ 985.5 $ 152.3
======== ======== ======== =======
Operating income (loss) $ 22.0 $ 13.5 $ 26.2 $ (17.7)
======== ======== ======== =======
Three Months Ended
March 31, 2008
------------------
Customer revenue $1,301.3 $1,137.1 $ 164.2
Intersegment $ (43.7) 2.7 41.0
-------- -------- -------- -------
Total revenue $1,301.3 $ (43.7) $1,139.8 $ 205.2
======== ======== ======== =======
Operating income (loss) $ 28.0 $ (.3) $ 26.7 $ 1.6
======== ======== ======== =======
Presented below is a reconciliation of total business segment operating
income (loss) to consolidated income (loss) before income taxes (in millions
of dollars):
Three Months Ended March 31
---------------------------
2009 2008
---- ----
Total segment operating profit (loss) $ 8.5 $ 28.3
Interest expense (21.8) (21.6)
Other income (expense), net (6.7) (1.1)
Corporate and eliminations 13.5 (.3)
------ ------
Total income (loss) before income taxes $ (6.5) $ 5.3
====== ======
10
Customer revenue by classes of similar products or services, by segment, is
presented below (in millions of dollars):
Three Months Ended March 31
---------------------------
2009 2008
---- ----
Services
Systems integration and consulting $ 339.5 $ 344.1
Outsourcing 425.4 494.5
Infrastructure services 142.2 201.7
Core maintenance 76.7 96.8
------- --------
983.8 1,137.1
Technology
Enterprise-class servers 79.6 128.8
Specialized technologies 36.5 35.4
------- --------
116.1 164.2
------- --------
Total $1,099.9 $1,301.3
======== ========
Geographic information about the company's revenue, which is principally based
on location of the selling organization, is presented below (in millions of
dollars):
Three Months Ended March 31
---------------------------
2009 2008
---- ----
United States $ 538.5 $ 536.9
United Kingdom 130.1 209.5
Other foreign 431.3 554.9
------- --------
Total $1,099.9 $1,301.3
======== ========
g. Comprehensive income (loss) for the three months ended March 31, 2009 and
2008 includes the following components (in millions of dollars):
2009 2008
------ -------
Consolidated net loss $ (22.1) $ (18.6)
-------- --------
Other comprehensive income (loss)
Cash flow hedges
Loss - (.5)
Reclassification adjustments - .3
Foreign currency translation adjustments (13.8) (14.3)
Postretirement adjustments 31.9 6.0
------- -------
Total other comprehensive income (loss) 18.1 (8.5)
------- -------
Consolidated comprehensive loss (4.0) (27.1)
Comprehensive income attributable to
noncontrolling interests 1.7 4.4
------- -------
Comprehensive loss attributable to
Unisys Corporation $ (2.3) $ (22.7)
======= =======
Accumulated other comprehensive loss as of December 31, 2008 and March 31, 2009
is as follows (in millions of dollars):
Post-
Translation retirement
Total Adjustments Plans
----- ----------- --------
Balance at $(2,904.6) $(701.5) $(2,203.1)
December 31, 2008
Change during period 18.7 (13.0) 31.7
-------- ------- ---------
Balance at March 31, 2009 $(2,885.9) $(714.5) $(2,171.4)
======== ======= =========
11
Noncontrolling interests as of December 31, 2008 and March 31, 2009 is as
follows (in millions of dollars):
Non-
Controlling
Interests
-----------
Balance at December 31, 2008 $ 18.6
Net income 2.3
Translation adjustments (.8)
Postretirement plans .2
--------
Balance at March 31, 2009 $ 20.3
========
h. For equipment manufactured by the company, the company warrants that it
will substantially conform to relevant published specifications for 12 months
after shipment to the customer. The company will repair or replace, at its
option and expense, items of equipment that do not meet this warranty. For
company software, the company warrants that it will conform substantially to
then-current published functional specifications for 90 days from customer's
receipt. The company will provide a workaround or correction for material
errors in its software that prevents its use in a production environment.
The company estimates the costs that may be incurred under its warranties and
records a liability in the amount of such costs at the time revenue is
recognized. Factors that affect the company's warranty liability include the
number of units sold, historical and anticipated rates of warranty claims and
cost per claim. The company quarterly assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Presented below is a reconciliation of the aggregate product warranty
liability (in millions of dollars):
Three Months Ended March 31,
----------------------------
2009 2008
---- ----
Balance at beginning of period $ 5.2 $ 6.9
Accruals for warranties issued
during the period .5 .7
Settlements made during the period (.7) (.7)
Changes in liability for pre-existing warranties
during the period, including expirations (.5) (1.1)
----- -----
Balance at March 31 $ 4.5 $ 5.8
===== =====
i. Cash paid during the three months ended March 31, 2009 and 2008 for income
taxes was $8.5 million and $6.9 million, respectively.
Cash paid during the three months ended March 31, 2009 and 2008 for interest
was $24.0 million and $15.1 million, respectively.
j. Effective January 1, 2009, the company adopted Statement of Financial
Accounting Standards No. 141 (revised 2007), "Business Combinations" (SFAS No.
141R). SFAS No. 141R replaced SFAS No. 141, "Business Combinations," and
established principles and requirements for how the acquirer: (a) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141R applies to
business combinations for which the acquisition date is on or after January 1,
2009.
12
Effective January 1, 2009, the company adopted Statement of Financial
Accounting Standards No. 160, "Noncontrolling Interests in Consolidated
Financial Statements - an amendment to ARB No. 51" (SFAS No. 160). SFAS No. 160
describes a noncontrolling interest, sometimes called a minority interest, as
the portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent. SFAS No. 160 establishes accounting and reporting standards that
require, among other items: (a) the ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity, but separate
from the parent's equity; (b) the amount of consolidated net income (loss)
attributable to the parent and the noncontrolling interests be clearly
identified and presented on the face of the consolidated statement of income;
and (c) entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. The presentation and disclosure requirements of SFAS
No. 160 are required to be applied retrospectively for all periods presented.
See note (m).
Effective January 1, 2009, the company adopted Statement of Financial
Accounting Standards No. 161, "Disclosures about Derivative Instruments and
Hedging Activities" (SFAS No. 161). SFAS No. 161 requires enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance and
cash flows. See note (d).
In December 2008, the FASB issued FSP FAS 132(R)-1 "Employers' Disclosures
about Postretirement Benefit Plan Assets." This FSP provides guidance on an
employer's disclosures about plan assets of a defined benefit pension or other
postretirement plan. The disclosures about plan assets required by FSP FAS
132(R)-1 shall be provided for fiscal years ending after December 15, 2009,
which is December 31, 2009 for the company.
k. There are various lawsuits, claims, investigations and proceedings that
have been brought or asserted against the company, which arise in the ordinary
course of business, including actions with respect to commercial and government
contracts, labor and employment, employee benefits, environmental matters and
intellectual property. In accordance with SFAS No. 5, "Accounting for
Contingencies," the company records a provision for these matters when it is
both probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. Any provisions are reviewed at least quarterly and
are adjusted to reflect the impact and status of settlements, rulings, advice
of counsel and other information and events pertinent to a particular matter.
The company believes that it has valid defenses with respect to legal matters
pending against it. Based on its experience, the company also believes that the
damage amounts claimed in the lawsuits disclosed below are not a meaningful
indicator of the company's potential liability. Litigation is inherently
unpredictable, however, and it is possible that the company's results of
operations or cash flow could be affected in any particular period by the
resolution of one or more of the legal matters pending against it.
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 Civil Division
of the Department of Justice, working with the Inspector General's Office of
the Department of Homeland Security, is reviewing issues relating to labor
categorization and overtime on the TSA contract. The Civil Division is also
reviewing issues relating to cyber intrusion protection under the TSA and
follow-on contracts. The company is working cooperatively with the Civil
Division. The company does not know whether the Civil Division will pursue
these matters, or, if pursued, what effect they might have on the company.
The company has contracts with the General Services Administration (GSA), known
as Multiple Award Schedule Contracts, under which various U.S. governmental
agencies can purchase products and services from the company. Auditors from
the GSA's Office of Inspector General are reviewing the company's compliance
with the disclosure and pricing provisions under two of these contracts, and
whether the company has potentially overcharged the government under the
contracts. Separately, the company has made voluntary disclosures about these
matters to the responsible GSA contracting officers. The company is providing
pricing and other information to the GSA auditors and is working cooperatively
with them. As the audit is on-going, the company cannot predict the outcome at
this time.
13
In April 2007, the Ministry of Justice of Belgium sued Unisys Belgium SA-NV, a
Unisys subsidiary (Unisys Belgium), in the Court of First Instance of Brussels.
The Belgian government had engaged the company to design and develop software
for a computerized system to be used to manage the Belgian court system. The
Belgian State terminated the contract and in its lawsuit has alleged that the
termination was justified because Unisys Belgium failed to deliver satisfactory
software in a timely manner. It claims damages of approximately 28 million
euros. The company believes it has valid defenses to the claims and contends
that the Belgian State's termination of the contract was unjustified. Unisys
Belgium has filed its defense and counterclaim in the amount of approximately
18.5 million euros. The litigation is proceeding.
In December 2007, Lufthansa AG sued Unisys Deutschland GmbH, a Unisys
subsidiary (Unisys Germany), in the District Court of Frankfurt, Germany, for
allegedly failing to perform properly its obligations during the initial phase
of a 2004 software design and development contract relating to a Lufthansa
customer loyalty program. Under the contract, either party was free to
withdraw from the project at the conclusion of the initial design phase.
Rather than withdraw, Lufthansa instead terminated the contract and failed to
pay the balance owed to Unisys Germany for the initial phase. Lufthansa's
lawsuit alleges that Unisys Germany breached the contract by failing to deliver
a proper design for the new system and seeks approximately 21.4 million euros
in damages. The company believes it has valid defenses and has filed its
defense and a counterclaim in the amount of approximately 1.5 million euros.
The litigation is proceeding.
In July 2008, Lufthansa Systems Passenger Services GmbH sued Unisys Germany in
the District Court of Frankfurt, Germany, in connection with a 2005 agreement
under which Unisys Germany was to develop passenger management software for
Lufthansa Systems. Lufthansa Systems purported to terminate the agreement for
cause in July 2007 claiming that Unisys Germany failed to deliver satisfactory
software in a timely manner. The lawsuit seeks a monetary recovery of
approximately 49 million euros. The company believes it has valid defenses
and has filed its defense and a counterclaim in the amount of approximately 8.6
million euros. The litigation is proceeding.
Notwithstanding that the ultimate results of the lawsuits, claims,
investigations and proceedings that have been brought or asserted against the
company are not currently determinable, the company believes that at March 31,
2009, it has adequate provisions for any such matters.
l. The company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or the entire d
eferred tax asset will not be realized.
The company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are the company's forecast of future taxable income and available
tax-planning strategies that could be implemented to realize the net deferred
tax assets. The company uses tax-planning strategies to realize or renew net
deferred tax assets to avoid the potential loss of future tax benefits.
In 2005, based upon the level of historical taxable income and projections of
future taxable income over the periods during which the deferred tax assets are
deductible, management concluded that it is more likely than not that the U.S.
and certain foreign deferred tax assets in excess of deferred tax liabilities
would not be realized. A full valuation allowance was recognized in 2005 and
is currently maintained for all U.S. and certain foreign deferred tax assets in
excess of deferred tax liabilities. 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 depending on the geographic distribution of income.
m. Certain prior year amounts have been reclassified due to the adoption of
SFAS No. 160, see note (j). As a result of the adoption, the following
retroactive adjustment was made: the December 31, 2008 noncontrolling
interests' balance of $30.5 million, previously presented in other long-term
liabilities, has been presented as part of stockholders' deficit. Also, in
connection with the adoption, the December 31, 2008 noncontrolling interests
portion of the postretirement plans of $11.9 million, which had previously been
included in Accumulated Other Comprehensive Income, has been reported as a
reduction in the noncontrolling interests included in stockholders' deficit.
14
n. On April 30, 2009, the company announced that it had commenced a private
offer to exchange its 6 7/8% senior notes due 2010 (the 2010 Notes), its 8%
senior notes due 2012, its 12 1/2% senior notes due 2016 (the 2016 Notes) and
its 8 1/2% senior notes due 2015 (the 2015 Notes) in a private placement for up
to $375 million aggregate principal amount of new 12 5/8% senior secured notes
due 2014 (the New Secured Notes) to be issued by the company. The New Secured
Notes will be guaranteed by Unisys Holding Corporation, a wholly-owned Delaware
corporation that directly or indirectly holds the shares of substantially all
of the company's foreign subsidiaries, and by the company's other current and
future material U.S. subsidiaries. The New Secured Notes will be secured on a
first-priority lien basis (subject to permitted prior liens) by substantially
all of the company's assets, except (i) accounts receivable that are subject to
one or more receivables facilities, (ii) real estate, (iii) the stock or
indebtedness of the company's U.S. operating subsidiaries, (iv) cash or cash
equivalents securing reimbursement obligations under letters of credit or
surety bonds and (v) certain other excluded assets. A portion of the assets
that will secure the New Secured Notes are currently pledged in favor of
lenders under the company's revolving credit facility. If the revolving credit
facility has not yet expired in accordance with its terms, the company intends
to terminate the facility on or prior to the date it issues the New Secured
Notes. Concurrently with the exchange offer, the company is privately offering
New Secured Notes to eligible holders of the 2015 Notes and the 2016 Notes. In
order to participate in the exchange offer, holders of 2015 Notes and 2016
Notes must subscribe for New Secured Notes in the concurrent offering. It is a
condition to the completion of the exchange offer that (i) notes representing
at least 40% of the aggregate principal amount of the 2010 Notes have been
tendered and (ii) a minimum of $200 million in aggregate principal amount of
New Secured Notes be issuable upon the settlement of the exchange offer and the
concurrent notes offering. The exchange offer will expire on May 28, 2009,
unless it is extended or earlier terminated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The company's first-quarter 2009 financial results were impacted by the
challenging global economic environment and the negative effect of foreign
currency exchange on revenue and gross margins. First-quarter 2009 revenue
declined 15% over the year-ago quarter. Foreign exchange rates had an
approximately 10 percentage-point negative impact on revenue in the quarter.
While the company reported progress in reducing expenses and improving
operating margins in its services business in the quarter, this reduction in
expenses was more than offset by lower revenue, particularly in the company's
technology business.
For the first quarter of 2009, the company reported operating profit of $22.0
million compared with an operating profit of $28.0 million in the year-ago
period. Services operating profit percent was 2.7% for the first quarter
compared with an operating profit percent of 2.3% in the year-ago period. For
the first quarter of 2009, the company reported a tax provision of $15.6
million compared with a tax provision of $23.9 million in the year-ago period.
For the three months ended March 31, 2009, the company reported a net loss
attributable to Unisys Corporation of $24.4 million, or $.07 per share,
compared with a net loss attributable to Unisys Corporation of $23.4 million,
or $.07 per share, for the three months ended March 31, 2008.
Results of operations
Company results
Revenue for the quarter ended March 31, 2009 was $1.10 billion compared with
$1.30 billion for the first quarter of 2008, a decrease of 15% from the prior
year. Foreign currency fluctuations had a 10-percentage-point negative impact
on revenue in the current period compared with the year-ago period. Services
revenue declined 13% and Technology revenue declined 29% in the current quarter
compared with the year-ago period. U.S. revenue was up slightly in the first
quarter compared with the year-ago period, principally driven by increases in
Federal government revenue. International revenue decreased 27% in the current
quarter principally due to declines in Europe, Brazil and Japan. On a constant
currency basis, international revenue declined 10% in the three months ended
March 31, 2009 compared with the three months ended March 31, 2008.
15
For the three months ended March 31, 2009 pension income was $2.9 million
compared with pension income of $11.5 million for the three months ended March
31, 2008. The decrease in pension income in 2009 from 2008 was principally due
to lower returns on plan assets worldwide. 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 revenue; 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 20.3% in the three months ended March 31, 2009
compared with 22.5% in the three months ended March 31, 2008. The decrease in
gross profit margin principally reflects the decline in revenue which more than
offset the benefits derived in 2009 from the prior-year cost reduction actions.
Selling, general and administrative expense in the three months ended March 31,
2009 was $173.6 million (15.8% of revenue) compared with $232.5 million (17.9%
of revenue) in the year-ago period. The decrease in selling, general and
administrative expense reflects the benefits derived in 2009 from the prior-
years' cost reduction actions as well as foreign currency exchange fluctuations.
Research and development (R&D) expenses in the first quarter of 2009 were $27.4
million compared with $32.7 million in the first quarter of 2008. The decrease
in R&D expenses in 2009 compared with 2008 principally reflects changes in the
company's development model as the company has focused its investments on value-
added software and services while partnering with outside companies on hardware
and systems design and development.
For the first quarter of 2009, the company reported an operating profit of
$22.0 million compared with an operating profit of $28.0 million in the first
quarter of 2008.
Interest expense for the three months ended March 31, 2009 was $21.8 million
compared with $21.6 million for the three months ended March 31, 2008.
Other income (expense), net was an expense of $6.7 million in the first quarter
of 2009, compared with expense of $1.1 million in 2008. The increase in
expense was principally due to foreign exchange losses of $7.0 million in the
three months ended March 31, 2009 compared with losses of $.3 million in the
three months ended March 31, 2008.
Income (loss) before income taxes for the three months ended March 31, 2009 was
a loss of $6.5 million compared with income of $5.3 million in 2008. The
provision for income taxes was $15.6 million in the current quarter compared
with a provision of $23.9 million in the year-ago period. The current quarter
provision for income taxes includes the favorable impact of a tax rate change
of $1.1 million, a U.S. refundable credit of $2.0 million and a foreign tax
refund of $2.7 million related to a 2008 refund claim. As discussed in note
(l) of the Notes to Consolidated Financial Statements, the company accounts for
income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes."
The company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. 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.
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.
16
Also included in the Technology segment's sales and operating income 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 months ended March 31, 2009 and 2008
was $1.5 million and $5.5 million, respectively. The profit on these
transactions is eliminated in Corporate.
The company evaluates business segment performance on operating profit
exclusive of cost reduction 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.
Information by business segment is presented below (in millions of dollars):
Elimi-
Total nations Services Technology
------- ------- -------- ----------
Three Months Ended
March 31, 2009
------------------
Customer revenue $1,099.9 $ 983.8 $ 116.1
Intersegment $ (37.9) 1.7 36.2
-------- ------- ------- ------
Total revenue $1,099.9 $ (37.9) $ 985.5 $ 152.3
======== ======== ======== =======
Gross profit percent 20.3% 16.2% 33.2%
======== ======= ======
Operating profit
(loss) percent 2.0% 2.7% (11.7)%
======== ======= ======
Three Months Ended
March 31, 2008
------------------
Customer revenue $1,301.3 $1,137.1 $ 164.2
Intersegment $ (43.7) 2.7 41.0
-------- ------- ------- ------
Total revenue $1,301.3 $ (43.7) $1,139.8 $ 205.2
======== ======== ======== =======
Gross profit percent 22.5% 18.5% 42.9%
======== ======= ======
Operating profit percent 2.2% 2.3% .8%
======== ======= ======
Gross profit percent and operating income percent are as a percent of total
revenue.
17
Customer revenue by classes of similar products or services, by segment, is
presented below (in millions of dollars):
Three Months
Ended March 31
------------------ Percent
2009 2008 Change
---- ---- --------
Services
Systems integration
and consulting $ 339.5 $ 344.1 (1.3)%
Outsourcing 425.4 494.5 (14.0)%
Infrastructure services 142.2 201.7 (29.5)%
Core maintenance 76.7 96.8 (20.8)%
-------- --------
983.8 1,137.1 (13.5)%
Technology
Enterprise-class servers 79.6 128.8 (38.2)%
Specialized technologies 36.5 35.4 3.1%
-------- --------
116.1 164.2 (29.3)%
-------- --------
Total $1,099.9 $1,301.3 (15.5)%
======== ========
In the Services segment, customer revenue was $983.8 million for the three
months ended March 31, 2009 down 13.5% from the three months ended March 31,
2008. Foreign currency translation had an 11-percentage-point negative impact
on Services revenue in the current quarter compared with the year-ago period.
Revenue from systems integration and consulting decreased 1.3% from $344.1
million in the March 2008 quarter to $339.5 million in the March 2009 quarter.
Outsourcing revenue decreased 14.0% for the three months ended March 31, 2009
to $425.4 million compared with the three months ended March 31, 2008, as both
information technology outsourcing (ITO) and business processing outsourcing
(BPO) declined.
Infrastructure services revenue declined 29.5% for the three month period ended
March 31, 2009 compared with the three month period ended March 31, 2008. The
decline was due to weakness in demand for network design and consulting
projects, the shift of project-based infrastructure work to managed outsourcing
contracts and the company's shift away from low-margin project work.
Core maintenance revenue declined 20.8% in the current quarter compared with
the prior-year quarter. The company expects the secular decline of core
maintenance to continue.
Services gross profit was 16.2% in the first quarter of 2009 compared with
18.5% in the year-ago period, reflecting the lower revenue level. Services
operating income percent was 2.7% in the three months ended March 31, 2009
compared with 2.3% in the three months ended March 31, 2008. The increase in
Services operating profit margin was principally due to the benefits derived
from the cost reduction actions.
In the Technology segment, customer revenue was $116.1 million in the current
quarter compared with $164.2 million in the year-ago period for a decrease of
29.3%. Foreign currency translation had a negative impact of approximately 6-
percentage points on Technology revenue in the current period compared with the
prior-year period. The decline in Technology revenue in 2009 reflects lower
sales of high-end mainframe systems, primarily in Japan, as clients deferred
planned purchases in a weak economic environment, as well as the expiration of
a royalty from Nihon Unisys Limited (NUL). The company had recognized revenue
of $18.8 million per quarter ($8.5 million in enterprise-class servers and
$10.3 million in specialized technologies) under this royalty agreement over
the three-year period ended March 31, 2008. The expiration of this royalty
from NUL contributed about 9 percentage points of the technology segment's 29%
decline in revenue.
Revenue from the company's enterprise-class servers, which includes the
company's ClearPath and ES7000 product families, decreased 38.2% for the three
months ended March 31, 2009 compared with the three months ended March 31, 2008.
As mentioned above, technology sales during the quarter slowed as clients
tightened spending on information technology projects due to economic concerns.
Also contributing to the decrease in revenue was the secular decline in the
enterprise-class server market, which the company expects to continue.
18
Revenue from specialized technologies, which includes third-party technology
products and the company's payment systems products, increased 3.1% for the
three months ended March 31, 2009 compared with the three months ended
March 31, 2008.
Technology gross profit was 33.2% in the current quarter compared with 42.9% in
the year-ago quarter. Technology operating income percent (loss) percent was
(11.7)% in the three months ended March 31, 2009 compared with .8% in the three
months ended March 31, 2008. The declines in gross profit and operating profit
margin in 2009 compared with 2008 reflect the lower levels of mainframe sales,
primarily in Japan, and loss of the NUL royalty.
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
The company's principal sources of liquidity are cash on hand, cash from
operations and its U.S. trade accounts receivable facility, which is discussed
below. The company's anticipated future cash expenditures include
contributions to its defined benefit pension plans and payments in respect of
cost-reduction actions. The company also has a revolving credit facility,
which expires on May 31, 2009 that provides for loans and letters of credit up
to an aggregate of $275 million. Given the global economic slowdown and
resultant tight credit markets, the company does not plan to renew or replace
this facility before its expiration. As discussed below, on April 30, 2009,
the company announced that it had commenced a private offer to exchange its
outstanding senior notes, including its $300 million 6 7/8% senior notes due in
March 2010 (the 2010 Notes), in a private placement for new senior secured
notes due in 2014. The company's ability to successfully complete this
exchange could be affected by credit market conditions. As of March 31, 2009,
the $300 million of 2010 Notes has been classified as a current liability. The
volatility and disruption in financial markets could also impact the company's
ability to utilize surety bonds, letters of credit, foreign exchange
derivatives and other financial instruments the company uses to conduct its
business. In addition to actions to reduce its cost structure, the company
will continue to focus on working capital management and to tightly manage
capital expenditures. Given these actions and its cash on hand at March 31,
2009, the company believes that it will have adequate sources of liquidity to
meet its expected near-term cash requirements.
Cash and cash equivalents at March 31, 2009 were $468.7 million compared with
$544.0 million at December 31, 2008. The decline was primarily due to the use
of $61.2 million of cash to collateralize letters of credit as discussed below.
The $61.2 million has been reported in the company's consolidated balance sheet
in "Other long-term assets."
During the three months ended March 31, 2009, cash provided by operations was
$39.3 million compared with cash usage of $49.3 million for the three months
ended March 31, 2008. Cash expenditures in the current quarter related to cost-
reduction actions (which are included in operating activities) were
approximately $26.7 million compared with $21.4 million for the prior-year
quarter. Cash expenditures for prior year cost-reduction actions are expected
to be approximately $34.1 million for the remainder of 2009, resulting in an
expected cash expenditure of approximately $60.8 million in 2009 compared with
$60.4 million in 2008.
Cash used for investing activities for the three months ended March 31, 2009
was $109.0 million compared with cash usage of $94.6 million during the three
months ended March 31, 2008. Items affecting cash used for investing
activities were the following: Net purchases of investments were $.1 million
for the three months ended March 31, 2009 compared with net purchases of $29.3
million in the prior-year period. Proceeds from investments and purchases of
investments represent derivative financial instruments used to manage the
company's currency exposure to market risks from changes in foreign currency
exchange rates. The amount of proceeds and purchases of investments has
declined significantly from last year, principally reflecting the fact that in
the fourth quarter of 2008, the company capitalized certain intercompany
balances for foreign subsidiaries which reduced the need for these derivatives.
During the three months ended March 31, 2009, the company used $61.2 million of
cash to collateralize letters of credit (see below). In addition, in the
current quarter, the investment in marketable software was $15.5 million
compared with $22.4 million in the year-ago period, capital additions of
properties were $9.9 million in 2009 compared with $14.6 million in 2008 and
capital additions of outsourcing assets were $21.9 million in 2009 compared
with $27.9 million in 2008. The company has announced that it plans to reduce
capital expenditures from $294.5 million in 2008 to approximately $200 - $225
million in 2009.
19
Cash provided by financing activities during the three months ended March 31,
2009 was $.1 million compared with $200.8 million of cash used during the three
months ended March 31, 2008. The decrease was principally due to the January
2008 redemption, at par, of all $200 million of the company's 7 7/8% senior
notes due April 1, 2008.
At March 31, 2009, total debt was $1.06 billion, a decrease of $.2 million from
December 31, 2008.
The company's revolving credit facility, which expires on May 31, 2009,
provides for loans and letters of credit up to an aggregate of $275 million.
As of March 31, 2009, there were no cash borrowings under the facility. The
credit facility is secured by the company's assets, except that the collateral
does not include accounts receivable that are subject to the receivables
facility, U.S. real estate or the stock or indebtedness of the company's U.S.
operating subsidiaries. Under the terms of the maturing facility, the lenders
could require the company to cash collateralize the letters of credit
outstanding under the facility beginning on March 2, 2009. The amount of
letters of credit issued by these lenders collateralized at March 31, 2009 was
$61.2 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 nonpayment,
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.
In addition, the company and certain international subsidiaries have access to
uncommitted lines of credit from various banks.
On April 30, 2009, the company announced that it had commenced a private offer
to exchange its 2010 Notes, its 8% senior notes due 2012, its 12 1/2% senior
notes due 2016 (the 2016 Notes) and its 8 1/2% senior notes due 2015 (the 2015
Notes) in a private placement for up to $375 million aggregate principal amount
of new 12 5/8% senior secured notes due 2014 (the New Secured Notes) to be
issued by the company. The New Secured Notes will be guaranteed by Unisys
Holding Corporation, a wholly-owned Delaware corporation that directly or
indirectly holds the shares of substantially all of the company's foreign
subsidiaries, and by the company's other current and future material U.S.
subsidiaries. The New Secured Notes will be secured on a first-priority lien
basis (subject to permitted prior liens) by substantially all of the company's
assets, except (i) accounts receivable that are subject to one or more
receivables facilities, (ii) real estate, (iii) the stock or indebtedness of
the company's U.S. operating subsidiaries, (iv) cash or cash equivalents
securing reimbursement obligations under letters of credit or surety bonds and
(v) certain other excluded assets. A portion of the assets that will secure
the New Secured Notes are currently pledged in favor of lenders under the
company's revolving credit facility discussed above. If the revolving credit
facility has not yet expired in accordance with its terms, the company intends
to terminate the facility on or prior to the date it issues the New Secured
Notes. Concurrently with the exchange offer, the company is privately offering
New Secured Notes to eligible holders of the 2015 Notes and the 2016 Notes. In
order to participate in the exchange offer, holders of 2015 Notes and 2016
Notes must subscribe for New Secured Notes in the concurrent offering. It is a
condition to the completion of the exchange offer that (i) notes representing
at least 40% of the aggregate principal amount of the 2010 Notes have been
tendered and (ii) a minimum of $200 million in aggregate principal amount of
New Secured Notes be issuable upon the settlement of the exchange offer and the
concurrent notes offering. The exchange offer will expire on May 28, 2009,
unless it is extended or earlier terminated. There can be no assurance that
the exchange offer and concurrent notes offering will be completed. The
exchange offer, the concurrent offering and the New Secured Notes have not been
and will not be registered under the Securities Act of 1933, as amended (the
Securities Act), or any state securities laws. The company is not required to
register to exchange the New Secured Notes for resale under the Securities Act,
or the securities laws of any other jurisdiction and it is not required to
offer to exchange the New Secured Notes for notes registered under the
Securities Act or the securities laws of any other jurisdiction and it has no
present intention to do so.
20
On May 16, 2008, the company entered into a three-year, U.S. trade accounts
receivable facility. Under this facility, the company has agreed to sell, on
an ongoing basis, through Unisys Funding Corporation I, a wholly owned
subsidiary, up to $150 million of interests in eligible U.S. trade accounts
receivable. Under the facility, receivables are sold at a discount that
reflects, among other things, a yield based on LIBOR subject to a minimum rate.
The facility includes customary representations and warranties, including no
material adverse change in the company's business, assets, liabilities,
operations or financial condition. It also requires the company to maintain a
minimum fixed charge coverage ratio and requires the maintenance of certain
ratios related to the sold receivables. The facility will be subject to early
termination if, as of February 28, 2010, the 2010 Notes have not been
refinanced or extended to a date later than May 16, 2011. Other termination
events include failure to perform covenants, materially incorrect
representations and warranties, change of control and default under debt
aggregating at least $25 million. At March 31, 2009 and December 31, 2008, the
company had sold $120 million and $141 million, respectively, of eligible
receivables.
At March 31, 2009, 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 currently expects to make cash contributions of approximately $90-
$95 million to its worldwide, primarily non-U.S., defined benefit pension plans
in 2009. 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 2009. Previously, the company had
expected to be required to contribute a maximum of approximately $90 million of
cash to its U.S. qualified defined benefit pension plan in 2010. Under
recently clarified IRS regulations, the company does not expect to be required
to make a cash contribution in 2010 to fund its U.S. qualified defined benefit
pension plan.
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 an effective registration
statement covering $440 million of debt or equity securities, which expires in
May 2009 and enables the company to be prepared for future market opportunities.
In November 2008, the company filed a registration statement for an additional
$660 million of securities. This registration statement is not yet effective.
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.
Factors that could affect future results include the following:
21
THE COMPANY'S BUSINESS IS AFFECTED BY THE ECONOMIC AND BUSINESS ENVIRONMENT.
The company's recent financial results have been impacted by the global
economic slowdown. The company has seen this slowdown particularly in its
financial services business but also in other key commercial industries, as
clients reacted to economic uncertainties by reducing information technology
spending. Decreased demand for the company's services and products has
impacted its revenue and profit margins. If current economic conditions
continue or worsen, including if the company's customers are unable to obtain
financing to purchase the company's services and products due to tight credit
conditions, the company could see further reductions in demand and increased
pressure on revenue and profit margins. The company could also see a further
consolidation of firms in the financial services industry, which could also
result in a decrease in demand. In addition, during the recent period of
disruption in the financial markets, the market price for the company's common
shares has declined substantially. 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 COMPANY'S FUTURE RESULTS MAY DEPEND ON ITS ABILITY TO ACCESS EXTERNAL
CREDIT MARKETS. The capital and credit markets have been experiencing extreme
volatility and disruption. In addition, the commercial lending market has
contracted, with limited new loan originations or refinancings taking place.
Based on the current lending environment, the company expects to have
difficulty accessing significant additional capital in the credit markets on
acceptable terms. Given tight credit markets, along with the company's credit
rating, the company does not plan to renew or replace its existing revolving
credit facility before its expiration on May 31, 2009. Also, the company's
ability to successfully complete the exchange offer for its senior notes could
be affected by credit market conditions. The turmoil and volatility in
financial markets may also impact the company's ability to utilize surety
bonds, letters of credit, foreign exchange derivatives and other financial
instruments the company uses to conduct its business. Although the company
intends to use cash on hand to address its liquidity needs, its ability to do
so assumes that its operations will continue to generate sufficient cash and
that its cash requirements will not materially exceed current estimates.
THE COMPANY HAS SIGNIFICANT PENSION OBLIGATIONS. The company has unfunded
obligations under its U.S. and non-U.S. defined benefit pension plans. The
company expects to make cash contributions of approximately $90-$95 million to
its worldwide, primarily non-U.S., defined benefit pension plans in 2009. 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 2009. In addition, under recently issued IRS
regulations, the company currently believes that it will not be required to
fund its U.S. qualified defined benefit pension plan in 2010. A further
deterioration in the value of the company's worldwide defined benefit pension
plan assets could require the company to make larger cash contributions to its
defined benefit pension plans in the future. In addition, the funding of plan
deficits over a shorter period of time than currently anticipated could result
in making cash contributions to these plans on a more accelerated basis.
Either of these events would reduce the cash available for working capital and
other corporate uses and may have an adverse impact on the company's
operations, financial condition and liquidity.
THE COMPANY'S FUTURE RESULTS WILL DEPEND ON THE SUCCESS OF ITS TURNAROUND
PROGRAM. Over the past several years, the company has implemented and is
continuing to implement, significant cost-reduction measures intended to
achieve profitability. The company has incurred significant cost reduction
charges in connection with these efforts. If the cost reduction actions are
not fully completed or are not completed in a timely manner, the company may
not realize their full potential benefits. The expected amount of anticipated
cost savings from these actions is also subject to currency exchange rate
fluctuations with regard to actions taken outside the United States. Future
results will also depend in part on the success of the company's program to
focus its global resources and simplify its business structure. This program
is 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.
Furthermore, the company's institutional stockholders may attempt to influence
these strategies.
THE COMPANY FACES AGGRESSIVE COMPETITION IN THE INFORMATION SERVICES AND
TECHNOLOGY MARKETPLACE. 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 lead to reduced demand for the company's products and services
and 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.
22
THE COMPANY FACES VOLATILITY AND RAPID TECHNOLOGICAL CHANGE IN ITS INDUSTRY.
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 ON ITS ABILITY TO RETAIN SIGNIFICANT
CLIENTS. The company has a number of significant long-term contracts with
clients, including governmental entities, and its future success will depend,
in part, on retaining its relationships with these clients. The company could
lose clients for such reasons as contract expiration, conversion to a competing
service provider, disputes with clients or a decision to in-source services,
including for contracts with governmental entities as part of the rebid
process. The company could also lose clients as a result of their merger,
acquisition or business failure. The company may not be able to replace the
revenue and earnings from any such lost client.
THE COMPANY'S FUTURE RESULTS WILL DEPEND IN PART ON ITS ABILITY TO GROW
OUTSOURCING. The company's outsourcing contracts are multiyear engagements
under which the company takes over management of a client's technology
operations, business processes or networks. In a number of these arrangements,
the company hires certain of its clients' employees and may become responsible
for the related employee obligations, such as pension and severance commitments.
In addition, system development activity on outsourcing contracts may require
the company to make significant upfront investments. The company will need to
have available sufficient financial resources in order to take on these
obligations and make these investments.
Recoverability of outsourcing assets is dependent on various factors, including
the timely completion and ultimate cost of the outsourcing solution, and
realization of expected profitability of existing outsourcing contracts. These
risks could result in an impairment of a portion of the associated assets,
which are tested for recoverability quarterly.
As long-term relationships, outsourcing contracts provide a base of recurring
revenue. However, outsourcing contracts are highly complex and can involve the
design, development, implementation and operation of new solutions and the
transitioning of clients from their existing business processes to the new
environment. In the early phases of these contracts, gross margins may be
lower than in later years when an integrated solution has been implemented, the
duplicate costs of transitioning from the old to the new system have been
eliminated and the work force and facilities have been rationalized for
efficient operations. Future results will depend on the company's ability to
effectively and timely complete these implementations, transitions and
rationalizations.
FUTURE RESULTS WILL ALSO DEPEND IN PART ON THE COMPANY'S ABILITY TO DRIVE
PROFITABLE GROWTH IN CONSULTING AND SYSTEMS INTEGRATION. The company's ability
to grow profitably in this business will depend on the level of demand for
systems integration projects and the portfolio of solutions the company offers
for specific industries. It will also depend on an improvement in the
utilization of services delivery personnel and on the company's ability to work
through disruptions in this business related to the turnaround program. 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
headcount.
23
FUTURE RESULTS WILL ALSO DEPEND, IN PART, ON MARKET DEMAND FOR THE COMPANY'S
HIGH-END ENTERPRISE SERVERS AND MAINTENANCE ON THESE SERVERS. In the company's
technology business, high-end enterprise servers and maintenance on these
servers continue to experience secular revenue declines. 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 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. Future results of the technology business
will also depend, in part, on the successful execution of the company's
arrangements with NEC.
THE COMPANY'S CONTRACTS WITH U.S. GOVERNMENTAL AGENCIES MAY BE SUBJECT TO
AUDITS, CRIMINAL PENALTIES, SANCTIONS AND OTHER EXPENSES AND FINES. 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 contract
terms and conditions, its systems and policies, including the contractor's
purchasing, property, estimating, billing, accounting, compensation and
management information systems. Any costs found to be overcharged or improperly
allocated to a specific contract or any amounts improperly billed for products
or services 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.
THE COMPANY'S CONTRACTS MAY NOT BE AS PROFITABLE AS EXPECTED OR PROVIDE THE
EXPECTED LEVEL OF REVENUES. 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.
The company's contracts with governmental entities are subject to the
availability of appropriated funds. These contracts also contain provisions
allowing the governmental entity to terminate the contract at the governmental
entity's discretion before the end of the contract's term. 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.
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 COMPANY MAY FACE DAMAGE TO ITS REPUTATION OR LEGAL LIABILITY IF ITS CLIENTS
ARE NOT SATISFIED WITH ITS SERVICES OR PRODUCTS. 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. Allegations by private litigants
or regulators of improper conduct, as well as negative publicity and press
speculation about the company, whatever the outcome and whether or not valid,
may harm its reputation. In addition to harm to reputation, 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.
24
FUTURE RESULTS WILL DEPEND IN PART ON THE PERFORMANCE AND CAPABILITIES OF THIRD
PARTIES. The company has commercial relationships with suppliers, channel
partners and other parties that have complementary products, services or
skills. 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.
THE COMPANY IS SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY. More
than half of the company's total revenue is derived 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,
weaker intellectual property protections in some jurisdictions and additional
legal and regulatory compliance requirements applicable to businesses that
operate internationally, including the Foreign Corrupt Practices Act and non-
U.S. laws and regulations.
IF THE COMPANY DOES NOT MEET NEW YORK STOCK EXCHANGE LISTING REQUIREMENTS, ITS
COMMON STOCK MAY BE DELISTED. The company's common stock is listed on the New
York Stock Exchange (NYSE) and is subject to various NYSE listing requirements.
The company was notified in writing by the NYSE on December 4, 2008 that it was
below the NYSE's criteria for continued listing because the average per share
closing price of the common stock over a consecutive 30-trading-day period was
less than $1.00. On December 12, 2008, the company notified the NYSE of its
intent to take actions to cure the deficiency, including a plan to pursue a
reverse stock split. If the company fails to complete the reverse stock split
or otherwise fails to meet the NYSE listing requirements, the NYSE may suspend
trading in the company's common stock or delist it from the NYSE. A delisting
could negatively impact the company by reducing the liquidity and market price
of the common stock and reducing the number of investors willing to hold or
acquire it, which could negatively affect the company's ability to raise equity
financing.
THE COMPANY COULD FACE BUSINESS AND FINANCIAL RISK IN IMPLEMENTING FUTURE
DISPOSITIONS OR ACQUISITIONS. As part of the company's business strategy, it
may from time to time consider disposing of existing technologies, products and
businesses that may no longer be in alignment with its strategic direction,
including transactions of a material size or acquiring complementary
technologies, products and businesses. Potential risks with respect to
dispositions include difficulty finding buyers or alternative exit strategies
on acceptable terms in a timely manner; potential loss of employees; and
dispositions at unfavorable prices or on unfavorable terms, including relating
to retained liabilities. Any acquisitions may result in the incurrence of
substantial additional indebtedness or contingent liabilities. Acquisitions
could also result in potentially dilutive issuances of equity securities and an
increase in amortization expenses related to intangible assets. Additional
potential risks associated with acquisitions include integration difficulties;
difficulties in maintaining or enhancing the profitability of any acquired
business; risks of entering markets in which the company has no or limited
prior experience; potential loss of employees or failure to maintain or renew
any contracts of any acquired business; and expenses of any undiscovered or
potential liabilities of the acquired product or business, including relating
to employee benefits contribution obligations or environmental requirements.
Further, with respect to both dispositions and acquisitions, management's
attention could be diverted from other business concerns. Current adverse
credit conditions could also affect the company's ability to consummate
divestments or acquisitions. The risks associated with dispositions and
acquisitions could have a material adverse effect upon the company's business,
financial condition and results of operations. There can be no assurance that
the company will be successful in consummating future dispositions or
acquisitions on favorable terms or at all.
THE COMPANY'S SERVICES OR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS. 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
PENDING LITIGATION COULD AFFECT THE COMPANY'S RESULTS OF OPERATIONS OR CASH
FLOW. There are various lawsuits, claims, investigations and proceedings that
have been brought or asserted against the company, which arise in the ordinary
course of business, including actions with respect to commercial and government
contracts, labor and employment, employee benefits, environmental matters and
intellectual property. See note (k) of the Notes to Consolidated Financial
Statements for more information on litigation. The company believes that it has
valid defenses with respect to legal matters pending against it. Litigation is
inherently unpredictable, however, and it is possible that the company's
results of operations or cash flow could be affected in any particular period
by the resolution of one or more of the legal matters pending against it.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------
There has been no material change in the company's assessment of its
sensitivity to market risk since its disclosure in its Annual Report on Form
10-K for the fiscal year ended December 31, 2008.
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 March 31, 2009. 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 control
over financial reporting that occurred during the quarter ended March 31, 2009
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II - OTHER INFORMATION
------- -----------------
Item 1 Legal Proceedings
------- -----------------
Information with respect to litigation is set forth in note (k) of the Notes to
Consolidated Financial statements, and such information is incorporated herein
by reference.
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 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: May 11, 2009 By: /s/ Janet Brutschea Haugen
-----------------------------
Janet Brutschea Haugen
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Scott Hurley
----------------------
Scott Hurley
Vice President and
Corporate Controller
(Chief Accounting Officer)
27
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of Unisys Corporation
(incorporated by reference to Exhibit 3.1 to the registrant's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1999)
3.2 Bylaws of Unisys Corporation, as amended through December 6, 2007
(incorporated by reference to Exhibit 3 to the registrant's Current
Report on Form 8-K dated December 6, 2007)
12 Statement of Computation of Ratio of Earnings to Fixed Charges
31.1 Certification of J. Edward Coleman 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 J. Edward Coleman 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