<PAGE>
RULE 424 (B)(5)
33-64396
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED FEBRUARY 23, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 5, 1993)
$250,000,000
UNISYS CORPORATION
% CONVERTIBLE SUBORDINATED NOTES DUE 2006
----------------
The % Convertible Subordinated Notes due 2006 (the "Notes") are
convertible into Common Stock of Unisys Corporation ("Unisys" or the
"Company") at any time prior to maturity, unless previously redeemed, at a
conversion price of $ per share (equivalent to a conversion rate of
approximately shares for each $1,000 principal amount of Notes), subject
to adjustment in certain events. The Common Stock of the Company is traded on
the New York Stock Exchange and prices are reported by the New York Stock
Exchange Composite Tape under the symbol UIS. On February 21, 1996, the
closing price for the Common Stock on the New York Stock Exchange was $6.75
per share. See "Common Stock--Price Range and Dividends."
The Notes are subject to redemption, at the option of the Company, in whole
or in part, at any time on and after , at the redemption prices set
forth herein plus accrued interest to the date of redemption. Each holder of
Notes may require the Company to repurchase such holder's Notes, in whole or
in part, in the event of a Change in Control (as defined in "Description of
Notes--Repurchase at Option of Holders Upon Change in Control") at a purchase
price equal to 100% of the principal amount of such Notes plus accrued
interest to the date of repurchase. The Notes are subordinated to all existing
and future Senior Indebtedness (as defined in "Description of Notes--
Subordination of Notes"). Application has been made for listing of the Notes
on the New York Stock Exchange. See "Description of Notes--General."
SEE "RISK FACTORS" COMMENCING ON PAGE S-6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES
OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note..................................
- --------------------------------------------------------------------------------
Total(4)..................................
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus Supplement, to purchase
up to an additional $37,500,000 aggregate principal amount of Notes on the
terms set forth above to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
----------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. It is expected that delivery of the
Notes will be made in New York, New York on or about , 1996.
----------------
MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
----------------
The date of this Prospectus Supplement is , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY OR THE COMMON STOCK OF THE COMPANY, OR BOTH, AT LEVELS ABOVE THOSE THAT
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and the notes thereto appearing
elsewhere herein or incorporated by reference in the accompanying Prospectus.
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Notes.
THE OFFERING
Securities Offered.................... $250,000,000 principal amount of %
Convertible Subordinated Notes due
2006.
Interest Payment Dates................ and of each year, commencing
, 1996.
Conversion............................ The Notes are convertible at the option
of the holder at any time prior to
maturity, unless previously redeemed,
into Common Stock at a conversion price
of $ per share (equivalent to a
conversion rate of approximately
shares for each $1,000 principal amount
of Notes), subject to adjustment in
certain events. The Company will issue
one Right (as defined in the
accompanying Prospectus) with each
share of Common Stock issued upon the
conversion of any Note prior to March
17, 2001 unless, prior to such
conversion, the Rights have been
redeemed or become exercisable and
transferable apart from the shares of
Common Stock. The Rights could have the
effect of delaying, deferring or
preventing a takeover or change in
control of the Company. See
"Description of Notes--Conversion of
Notes" herein and "Description of
Capital Stock--Common Stock--Preferred
Share Purchase Rights and Junior
Participating Preferred Stock" and "--
Anti-Takeover Provisions" in the
accompanying Prospectus.
Optional Redemption................... The Notes may be redeemed at the
Company's option, in whole or from time
to time in part, on and after , at
the redemption prices set forth herein
plus accrued interest to the date of
redemption. See "Description of Notes--
Optional Redemption" herein.
S-3
<PAGE>
Change in Control..................... Upon a Change in Control (as defined
herein), holders of the Notes will have
the right, subject to certain
restrictions, to require the Company to
repurchase all or any part of their
Notes at a price equal to 100% of the
principal amount thereof, plus accrued
and unpaid interest thereon to the date
of repurchase. Any such repurchase of
Notes is subordinated to all existing
and future Senior Indebtedness (as
defined herein). No assurance can be
given that the Company would have
sufficient funds or financing to repay
any Senior Indebtedness then required
to be repaid or to repurchase any or
all Notes then required to be
repurchased.
Subordination......................... The Notes are subordinate in right of
payment to all existing and future
Senior Indebtedness. At December 31,
1995, Senior Indebtedness aggregated
approximately $1.5 billion. The
Indenture governing the Notes does not
restrict the Company from incurring
additional Senior Indebtedness. The
holders of Senior Indebtedness may
receive more, ratably, and holders of
the Notes may receive less, ratably,
than the other creditors of the
Company, in the event of the Company's
dissolution or insolvency. See
"Description of Notes--Subordination of
Notes" herein.
Stock Exchange Listing................ Application has been made for listing
of the Notes on the New York Stock
Exchange. No assurance can be given
that an active public trading market in
the Notes will develop or continue.
Use of Proceeds....................... The net proceeds from the sale of the
Notes will be used for general
corporate purposes, including the
retirement of indebtedness of the
Company. See "Use of Proceeds" herein.
U.S. Taxation......................... Generally, no gain or loss will be
recognized by a holder upon the
conversion of a Note into Common Stock
(except to the extent of cash received
in lieu of fractional shares). Certain
adjustments to the conversion price may
result in constructive distributions
taxable as dividends to holders. See
"Certain United States Federal Income
Tax Consequences" herein.
S-4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the five years ended
December 31, 1995 are derived from audited consolidated financial statements.
The following information should be read in conjunction with the related
consolidated financial statements of the Company and accompanying notes
included herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1995(1) 1994(1) 1993 1992 1991(1)
-------- -------- -------- -------- ---------
(MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenue..................... $6,202.3 $5,978.2 $5,980.8 $6,600.9 $ 6,791.1
Gross Profit................ 1,595.2 2,162.8 2,578.0 2,720.0 2,041.1
Operating Income (Loss)..... (698.1) 154.4 572.4 573.5 (732.0)
Interest Expense............ 202.1 203.7 241.7 340.6 407.6
Income (Loss) From
Continuing Operations
Before Income Taxes,
Extraordinary Items &
Changes in Accounting
Principles................. (781.1) 14.6 370.9 301.3 (1,425.6)
Income (Loss) From
Continuing Operations
Before Extraordinary Items
& Changes in Accounting
Principles................. (627.3) 12.1 286.3 166.3 (1,520.2)
Income From Discontinued
Operations................. 2.7 96.1 75.3 129.9 126.9
Extraordinary Items......... -- (7.7) (26.4) 65.0 --
Effect of Changes in
Accounting Principles...... -- -- 230.2 -- --
Net Income (Loss)........... (624.6) 100.5 565.4 361.2 (1,393.3)
Earnings (Loss) per Common
Share From Continuing
Operations
Primary................... (4.37) (.63) 1.00 .27 (10.16)
Fully diluted............. (4.37) (.63) 1.17 .33 (10.16)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash, Cash Equivalents and
Marketable Securities...... $1,119.7 $ 884.6 $ 950.5 $ 882.8 $ 813.6
Working Capital............. 71.3 1,015.7 681.0 513.3 384.3
Total Assets................ 7,113.2 7,193.4 7,349.4 7,322.1 8,218.7
Current Debt................ 355.6 80.1 31.0 336.3 590.8
Long-Term Debt.............. 1,533.3 1,864.1 2,025.0 2,172.8 2,694.6
-------- -------- -------- -------- ---------
Total Debt.................. 1,888.9 1,944.2 2,056.0 2,509.1 3,285.4
Preferred Stock............. 1,570.3 1,570.3 1,570.2 1,578.0 1,578.0
Common Stockholders'
Equity(2).................. 289.9 1,034.2 1,057.3 541.8 342.1
OTHER DATA:
EBITDA(3)................... $ 637.4 $ 818.1 $1,045.9 $1,121.9 $ 804.7
Capital Additions........... 195.0 208.2 173.5 227.0 222.7
Depreciation &
Amortization(4)............ 369.8 413.6 433.3 480.0 622.7
EBITDA/Interest Expense(5).. 3.15x 4.02x 4.33x 3.29x 1.97x
</TABLE>
- --------
(1) Includes special pretax charges of $846.6 million, $186.2 million and
$1,200.0 million for the years ended December 31, 1995, 1994 and 1991,
respectively.
(2) Common Stockholders' Equity is presented after deduction of cumulative
preferred dividends in arrears of $107.8 million at December 31, 1993 and
$170.4 million at December 31, 1992, all of which were paid by December 31,
1994.
(3) EBITDA consists of Income (Loss) From Continuing Operations Before Income
Taxes, Extraordinary Items and Changes in Accounting Principles plus
special pretax charges plus Interest Expense plus Depreciation and
Amortization. Including special pretax charges, EBITDA was $(183.4) million
in 1995, $631.9 million in 1994 and $(118.3) million in 1991. EBITDA is
presented as additional information relating to the Company's ability to
service its debt but is not being presented as being representative of
operating results or cash flows for the period.
(4) Depreciation and amortization, for purposes of the EBITDA calculation,
excludes special pretax charges of $25.8 million in 1995 and $277.0 million
in 1991.
(5) EBITDA divided by Interest Expense. Including special pretax charges, the
ratio was 3.10x in 1994 and negative in both 1995 and 1991.
S-5
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus Supplement, the following factors
before purchasing the Notes offered hereby.
LOSSES IN 1995; RESTRUCTURINGS
The Company reported a net loss of $624.6 million in 1995. The loss included
a fourth quarter pretax restructuring charge of $717.6 million primarily
relating to the internal realignment of the Company into three operating units
and covering work force reductions of approximately 7,900 people, product and
program discontinuances and consolidation of office facilities and
manufacturing capacity. In the fourth quarter of 1995, the Company also
recorded a pretax charge for contract losses of $129.0 million relating
primarily to a few large multi-year, fixed-price systems integration
contracts. Stockholders' equity decreased $744.3 million during 1995,
principally reflecting the net loss of $624.6 million and the declaration of
preferred stock dividends of $123.7 million. The Company anticipates potential
disruptions to its business from the restructuring actions. No assurance can
be given that the Company will not experience losses in the future,
particularly in the first quarter of 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company operates in an industry that has undergone dramatic changes,
including, in the case of the Company, a shift from higher margin to lower
margin products and services. In order to improve its operating results, the
Company has moved aggressively to realign its operations to reflect the
rapidly changing market for information processing products and services. In
addition to the 1995 restructuring charge, the Company recorded special pretax
charges of $186.2 million in 1994, $1.2 billion in 1991, $181.0 million in
1990 and $231.0 million in 1989. Principally due to these special charges, the
Company had net losses of $1.4 billion in 1991, $436.7 million in 1990 and
$639.3 million in 1989.
HIGH LEVERAGE AND CASH REQUIREMENTS
At December 31, 1995, the Company had approximately $1.9 billion principal
amount of debt, a large portion of which is scheduled to mature during the
next two years. As of December 31, 1995, total debt maturing in 1996 and 1997
was $355.6 million and $431.8 million, respectively. The percentage of total
debt to total capitalization for the Company was 50.4% at December 31, 1995.
Total interest expense in 1995 was $202.1 million. In addition, dividends paid
on preferred stock in 1995 amounted to $120.2 million.
Cash requirements for the restructuring actions discussed above are expected
to be approximately $400 million in 1996 and $150 million in 1997. The Company
expects the restructuring actions to generate annualized savings in excess of
$500 million by the end of 1996 and $600 million by the end of 1997. The
degree to which cash savings from the restructuring actions will offset the
1996 cash requirement will depend upon the timing of implementation.
The Company may require continued access to financing sources to meet its
cash requirements for debt maturities, restructuring and operating activities.
There can be no assurance that such access will always be available to the
Company.
During 1995, the net cash used for continuing operations was $412.4 million
(including principal payments of debt of $68.2 million). In 1995, discontinued
operations provided cash of $658.3 million, primarily from the sale of the
Company's defense systems business.
The Company's $325 million revolving credit facility terminates in May 1996.
In September and December 1995, the bank syndicate waived compliance with
certain financial covenants contained in the facility which were affected by
the Company's performance in those fiscal quarters. In December, the facility
was amended to provide that future borrowings will be subject to the
discretion of the bank group. The Company has not utilized the facility since
its inception in December 1992. As of the date of this Prospectus Supplement,
the Company has not yet commenced discussions regarding renewal or replacement
of the revolving credit facility. The size, terms, conditions and
participating banks for a renewed or replacement facility, if any, have yet to
be determined. There can be no assurance that the amount available under such
a facility, if any, will not be reduced or that the financial covenants
thereunder will not be more restrictive. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
S-6
<PAGE>
The Notes are subordinate in right of payment to all Senior Indebtedness of
the Company, whether presently existing or created in the future. Generally,
the Company may not pay principal of or interest on or acquire Notes
(including any repurchase at the option of the holders of Notes after a Change
in Control) if a payment default on Senior Indebtedness has occurred and is
continuing. As of December 31, 1995, the Company had approximately $1.5
billion of Senior Indebtedness. The Indenture does not prohibit the Company
from creating additional Senior Indebtedness. Given the current maturity
structure of the Company's Senior Indebtedness, the Company may refinance
portions of such indebtedness with new Senior Indebtedness in 1996 depending
on market and other conditions. See "Description of Notes--Subordination of
Notes."
SERIES B AND C PREFERRED STOCK
The Company has outstanding $150 million of Series B and C convertible
preferred stock. If such preferred stock has not been previously converted by
the holder or redeemed by the Company, the Company will be required to convert
it into Common Stock, based on the then-current market price, and conduct a
managed sale program of the Common Stock, which must, in general, be completed
by June 28, 1997. See Note 16 of the Notes to Consolidated Financial
Statements.
COMPETITION
The Company's business is affected by rapid change in technology in the
information systems and services field and aggressive competition from many
domestic and foreign companies, including computer hardware manufacturers,
software providers and information services companies. The Company competes
primarily on the basis of product performance, service, technological
innovation and price. Many of the Company's competitors have greater
financial, marketing or other resources than the Company. The Company's
results depend upon its ability to compete successfully in the United States
and abroad.
SYSTEMS INTEGRATION CONTRACTS
Certain of the Company's systems integration contracts are fixed-price
contracts under which the Company assumes the risk for the delivery of the
contracted services at an agreed-upon fixed price. The Company has at times
experienced problems in performing certain of its fixed-price contracts on a
profitable basis and has provided periodically for adjustments to the cost to
complete such contracts. In the fourth quarter of 1995, the Company recorded a
pretax charge for contract losses of $129.0 million relating to certain
services contracts, primarily a few large multi-year, fixed-price systems
integration contracts. There can be no assurance that the Company will not
experience such contract performance problems in the future, which problems
could affect the Company's results of operations.
NO DIVIDENDS ON COMMON STOCK
The Company has not declared or paid any cash dividends on its Common Stock
since 1990 and does not anticipate declaring or paying dividends on the Common
Stock in the foreseeable future. Certain of the Company's credit facilities
and debt instruments contain financial covenants which could limit the payment
of dividends on the Common Stock. See "Common Stock--Price Range and
Dividends."
USE OF PROCEEDS
The net proceeds from the offering (estimated to be approximately $
million, assuming that the Underwriters' over-allotment option is not
exercised) will be added to the Company's general funds and used for general
corporate purposes, including the retirement of indebtedness of the Company.
See Note 9 of the Notes to Consolidated Financial Statements for information
on interest rates and maturities with respect to certain indebtedness of the
Company.
S-7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995, and as adjusted to give effect to the sale of the Notes
offered hereby and application of the net proceeds thereof. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(MILLIONS)
<S> <C> <C>
Cash, Cash Equivalents and Marketable Securities(1)...... $1,119.7 $
======== ========
Short-Term Debt:
Notes Payable and current maturities of Long-Term
Debt.................................................. $ 355.6 $ 355.6
======== ========
Long-Term Debt:
% Convertible Subordinated Notes due 2006(1).......... $ -- $ 250.0
Existing Senior Debt................................... 1,188.3 1,188.3
Existing Convertible Subordinated Debt(2).............. 345.0 345.0
-------- --------
Total Long-Term Debt................................. 1,533.3 1,783.3
-------- --------
Stockholders' Equity:
Preferred Stock, $1.00 par value per share, 40,000,000
shares authorized; 28,405,179 shares issued........... 1,570.3 1,570.3
Common Stock, $.01 par value per share, 360,000,000
shares authorized; 172,316,135 shares issued.......... 1.7 1.7
Accumulated Deficit.................................... (702.6) (702.6)
Other Capital.......................................... 990.8 990.8
-------- --------
Total Stockholders' Equity........................... 1,860.2 1,860.2
-------- --------
Total Capitalization................................. $3,393.5 $3,643.5
======== ========
</TABLE>
- --------
(1) The net proceeds to be received by the Company from the sale of the Notes
(assuming that the Underwriters' over-allotment option is not exercised),
after payment of certain fees and expenses in connection with the offering
of the Notes, are expected to be approximately $ million. Net proceeds
are assumed to increase Cash, Cash Equivalents and Marketable Securities.
The Notes are initially convertible into an aggregate of shares of the
Company's Common Stock at a conversion price of $ per share.
(2) Convertible into an aggregate of 33.7 million shares of the Company's
Common Stock at a conversion price of $10.2375 per share.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
* 1.11 2.21 1.72 *
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing income
(loss) from continuing operations before income taxes, extraordinary items and
changes in accounting principles minus undistributed earnings of associated
companies plus fixed charges by fixed charges. Fixed charges consist of
interest on all indebtedness, amortization of debt issuance expenses and the
portion of rental expense representative of interest.
- --------
* Earnings for the years ended December 31, 1995 and 1991 were inadequate to
cover fixed charges by $776.1 million and $1,432.1 million, respectively.
S-8
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995 are derived from audited consolidated financial statements. The following
information should be read in conjunction with the related consolidated
financial statements and accompanying notes included herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1995(1) 1994(1) 1993 1992 1991(1)
-------- -------- -------- -------- ---------
(MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenue..................... $6,202.3 $5,978.2 $5,980.8 $6,600.9 $ 6,791.1
Operating Income (Loss)..... (698.1) 154.4 572.4 573.5 (732.0)
Interest Expense............ 202.1 203.7 241.7 340.6 407.6
Income (Loss) From
Continuing Operations
Before Income Taxes,
Extraordinary Items &
Changes in Accounting
Principles ................ (781.1) 14.6 370.9 301.3 (1,425.6)
Income (Loss) From
Continuing Operations
Before Extraordinary Items
& Changes in Accounting
Principles................. (627.3) 12.1 286.3 166.3 (1,520.2)
Income From Discontinued
Operations................. 2.7 96.1 75.3 129.9 126.9
Extraordinary Items......... -- (7.7) (26.4) 65.0 --
Effect of Changes in
Accounting Principles...... -- -- 230.2 -- --
Net Income (Loss)........... (624.6) 100.5 565.4 361.2 (1,393.3)
Earnings (Loss) per Common
Share From Continuing
Operations
Primary................... (4.37) (.63) 1.00 .27 (10.16)
Fully diluted............. (4.37) (.63) 1.17 .33 (10.16)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash, Cash Equivalents and
Marketable Securities...... $1,119.7 $ 884.6 $ 950.5 $ 882.8 $ 813.6
Working Capital............. 71.3 1,015.7 681.0 513.3 384.3
Total Assets................ 7,113.2 7,193.4 7,349.4 7,322.1 8,218.7
Current Debt................ 355.6 80.1 31.0 336.3 590.8
Long-Term Debt.............. 1,533.3 1,864.1 2,025.0 2,172.8 2,694.6
-------- -------- -------- -------- ---------
Total Debt.................. 1,888.9 1,944.2 2,056.0 2,509.1 3,285.4
Preferred Stock............. 1,570.3 1,570.3 1,570.2 1,578.0 1,578.0
Common Stockholders'
Equity(2).................. 289.9 1,034.2 1,057.3 541.8 342.1
OTHER DATA:
EBITDA(3)................... $ 637.4 $ 818.1 $1,045.9 $1,121.9 $ 804.7
Capital Additions........... 195.0 208.2 173.5 227.0 222.7
Depreciation &
Amortization(4)............ 369.8 413.6 433.3 480.0 622.7
EBITDA/Interest Expense(5).. 3.15x 4.02x 4.33x 3.29x 1.97x
</TABLE>
- -------
(1) Includes special pretax charges of $846.6 million, $186.2 million and
$1,200.0 million for the years ended December 31, 1995, 1994 and 1991,
respectively.
(2) Common Stockholders' Equity is presented after deduction of cumulative
preferred dividends in arrears of $107.8 million at December 31, 1993 and
$170.4 million at December 31, 1992, all of which were paid by December
31, 1994.
(3) EBITDA consists of Income (Loss) From Continuing Operations Before Income
Taxes, Extraordinary Items and Changes in Accounting Principles plus
special pretax charges plus Interest Expense plus Depreciation and
Amortization. Including special pretax charges, EBITDA was $(183.4)
million in 1995, $631.9 million in 1994 and $(118.3) million in 1991.
EBITDA is presented as additional information relating to the Company's
ability to service its debt but is not being presented as being
representative of operating results or cash flows for the period.
(4) Depreciation and amortization, for purposes of the EBITDA calculation,
excludes special pretax charges of $25.8 million in 1995 and $277.0
million in 1991.
(5) EBITDA divided by Interest Expense. Including special pretax charges, the
ratio was 3.10x in 1994 and negative in both 1995 and 1991.
S-9
<PAGE>
COMMON STOCK
The following table sets forth the reported high and low sale prices of the
Company's Common Stock as reported on the New York Stock Exchange Composite
Tape for the periods indicated. No dividends have been declared or paid on the
Common Stock since 1990.
PRICE RANGE AND DIVIDENDS
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996 Fiscal Year
First Quarter (through February 21, 1996).................... $ 7 3/4 $ 5 5/8
1995 Fiscal Year
Fourth Quarter............................................... 8 5/8 5 1/2
Third Quarter................................................ 11 7 5/8
Second Quarter............................................... 11 3/4 9 1/8
First Quarter................................................ 10 1/8 8 1/2
1994 Fiscal Year
Fourth Quarter............................................... 12 1/8 8 1/4
Third Quarter................................................ 11 1/4 8 5/8
Second Quarter............................................... 15 1/4 8 5/8
First Quarter................................................ 16 1/2 12 1/2
</TABLE>
See the cover page of this Prospectus Supplement for a recent closing price
of the Company's Common Stock on the New York Stock Exchange. As of January
31, 1996, there were approximately 41,000 holders of record of shares of the
Company's Common Stock.
Holders of Common Stock are entitled to receive dividends from funds legally
available therefor, when, as and if declared by the Board of Directors of the
Company, subject to the prior rights of holders of any preferred stock of the
Company. The Company has not declared or paid dividends on the Common Stock
since 1990. The indenture governing certain of the Company's Senior
Indebtedness generally limits aggregate dividends (other than certain
dividends in arrears on the Company's preferred stock), distributions,
repurchases or redemptions paid or made with respect to the Company's capital
stock after June 30, 1992 to an aggregate amount equal to 50% of aggregate
cumulative consolidated net income (as defined in the indenture), plus capital
contributions and proceeds of equity issuances, plus $150 million.
STOCKHOLDER PROPOSAL
Greenway Partners, L.P., a stockholder of the Company, has requested the
Company to solicit stockholder approval at its next annual meeting of
stockholders (currently scheduled for April 1996) of a resolution that would
recommend to the Board of Directors that it authorize a spin-off transaction
pursuant to which stockholders would become the owners of three separate
publicly traded companies consisting of the Information Services Group,
Computer Systems Group and Global Customer Services Group. This resolution, if
adopted by the stockholders, would serve only as a recommendation to the Board
and would not compel the Board to take such action. The Board of Directors of
the Company considers all reasonable avenues to increase stockholder value and
has concluded that the Company's current business strategy and structure as
described below in "Business" will better serve to maximize stockholder value
over time. Accordingly, the Board will recommend a vote against the proposal.
S-10
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is a worldwide information management company. Through its three
business groups, Information Services Group ("ISG"), Computer Systems Group
("CSG") and Global Customer Services Group ("GCS"), the Company provides
systems and solutions designed to enhance the productivity, competitiveness
and responsiveness of its clients. The Company has a history of providing
these systems and solutions to clients in complex, transaction-intensive
environments, particularly financial services, communications, transportation,
public sector and commercial (the "Vertical Markets"). At December 31, 1995,
the Company employed approximately 37,400 people worldwide. For the fiscal
year ended December 31, 1995, the Company had revenue of $6.2 billion,
approximately 61% of which was derived from operations outside of the United
States.
In 1991, the Company began a phased transition away from a traditional
mainframe and defense electronics company to an information management
company. The transition was driven primarily by changing market and customer
requirements--the demand not only for open and interoperable systems, but also
for software and professional services that improve business results. The
Company's clients were increasingly seeking information technology vendors who
could work closely with them to use information and apply technology to
improve their service to their customers, enhance their competitive position
and increase their profitability. To implement this transition, the Company
has expanded existing strengths and added new capabilities. It has:
. developed a worldwide information services practice
. accelerated its move into technology based on open and interoperable
systems
. expanded its traditional hardware and software maintenance business to
include support services for distributed computing environments,
particularly network integration and desktop services
In October 1995, the Company launched a fundamental change to its
organizational structure designed to capitalize on these strengths and
capabilities and to provide increased focus and accountability. The Company
established three complementary business units: ISG, CSG and GCS. This "three
businesses--one company" approach replaces a highly interdependent matrix
management structure under which all of the Company's services and technology
businesses shared common resources to sell and market their services and
products. In contrast, the new structure recognizes the different markets that
each business unit serves. With its own sales and marketing force, each
business unit is responsible for customizing its services or products to the
specific needs of its clients. Each business unit is tailoring its resources
and aligning its cost structure to compete more effectively and react more
quickly to growth opportunities in its market. Internally, operations will be
streamlined by the elimination of the time, cost and bureaucracy involved
under the matrix structure in coordinating different business units with
different strategies.
Each group will capitalize on the Company's worldwide marketing presence,
its extensive customer base and its tradition of providing solutions in
complex, transaction-intensive environments. As a result of the breadth of
solutions required by the Company's clients, frequently some combination of
the Company's three business units will work together to meet the needs of any
one client. The Company believes its position as a single-source solutions
provider is a key differentiator that many clients prefer. The Company also
believes that greater market focus, combined with the synergy among the
business units and the cost benefits associated with utilizing common
corporate services, will strengthen its overall competitive position.
COMPETITIVE STRENGTHS
. Worldwide Infrastructure--The Company has an established worldwide sales
and support infrastructure. This not only allows the Company to respond
quickly and cost-effectively to client needs but also positions the
Company to expand into new markets and to broaden its services offerings
with a minimum of capital investment.
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<PAGE>
. Client Relationships/Industry Expertise--The Company has a large
installed base of major customers, located in over 100 countries.
Clients include many of the world's largest banks and airlines, U.S.
telephone companies and international PTTs and numerous government
agencies in the United States and overseas. The Company has a history of
providing complex solutions in transaction-intensive environments,
particularly the Vertical Markets.
. Single Source Solutions Provider--The Company believes that the breadth
of products and services offered by its three business units gives it
the ability to satisfy all of the information management requirements of
its clients. The Company believes that this ability is key to retaining
existing clients and attracting new ones. A substantial portion of the
Company's revenue in 1995 derived from clients who purchased products or
services attributable to at least two of the business units.
THE INFORMATION SERVICES GROUP
ISG provides management and technology consulting, systems integration,
outsourcing services and industry-specific software solutions to clients
worldwide. ISG's services and solutions are particularly designed for clients
in the Vertical Markets where the Company has industry expertise. The mission
of this group is to help clients gain a tangible improvement in their business
through the creative use of information and information technology. If the
three business units had been in place in 1995, ISG would have accounted for
approximately $1.8 billion or 30% of the Company's total customer revenue for
fiscal 1995. Approximately 51% of the revenue attributable to ISG in fiscal
1995 was generated in the United States, 32% in Europe/Africa and 17% in
Americas/Pacific.
ISG operates a global practice that is able to leverage both the Company's
experience in servicing the Vertical Markets and the Company's large installed
base of over 50,000 clients, many of whom need comprehensive solutions. ISG
has established business relationships with other leading services providers
and hardware and software suppliers to complement its offerings, to provide
timely access to new technology and to increase its market presence.
<TABLE>
<CAPTION>
VERTICAL MARKET REPRESENTATIVE CUSTOMERS SOLUTIONS PROVIDED
- ------------------ ---------------------------- ----------------------------
<S> <C> <C>
FINANCIAL SERVICES . Large banks . Retail and wholesale
. Major insurance companies banking services and
consulting
. Securities firms . Clearing and settlement
networks
. Item and payment
processing systems
. Image-enabled check
processing
. Remittance and archiving
COMMUNICATIONS . U.S. regional telephone . Multimedia messaging
companies . Network monitoring
. Long distance carriers . Payment and billing systems
. International PTTs
TRANSPORTATION . Airlines . Reservation systems and
. Railroads yield management
. Marine cargo lines . Cargo management
. Hotels/car rental agencies . Infrastructure management
PUBLIC SECTOR . National, state and . Justice/public safety
local/regional solutions
government agencies . Social services solutions
worldwide
. Tax processing/collection
systems
. Customs solutions
. Postal systems solutions
COMMERCIAL . Retailers . Supply chain management
. Distributors . Point of sale decision
support
. Manufacturers . Electronic commerce
. Publishers/graphic artists . Publishing
</TABLE>
S-12
<PAGE>
ISG has recently instituted procedures intended to improve its gross margins
while maintaining revenue growth. This approach is designed to improve the
quality of ISG's contracts by instituting a more disciplined process for
qualifying and bidding for contracts, thereby limiting execution risk and
improving pricing. In addition, management is also seeking to improve sales
efficiency and to decrease sales and marketing expenses with focused programs
in targeted vertical markets. In reconfiguring its sales force, ISG intends to
reduce the number of its employees in Europe, to institute a flatter
management structure worldwide and to increase the number of its trained
professionals in the United States.
THE COMPUTER SYSTEMS GROUP
CSG provides a full line of computer hardware and software products for use
by end users, systems integrators, software developers and resellers as the
building blocks of advanced information management solutions. These products
include enterprise systems and servers, departmental servers, desktop systems,
systems software and development tools, parallel processing systems, imaging,
document management and payment processing systems, data communications and
information storage solutions. CSG focuses on clients in the Vertical Markets
and elsewhere who depend upon information management technology to run
mission-critical applications on a continuous basis. If the three business
units had been in place in 1995, CSG would have accounted for approximately
$2.5 billion or 40% of the Company's total customer revenue for fiscal 1995.
Approximately 29% of revenue attributable to CSG for fiscal 1995 was generated
in the United States, 30% in Europe/Africa and 41% in Americas/Pacific.
CSG continues to align its product offerings in response to technological
advances and a shifting set of market and client requirements. CSG has
migrated its A Series and in 1996 will be migrating its 2200 Series enterprise
servers to CMOS integrated circuit technology, thus improving the
price/performance ratios of these servers and reducing product development
cycles. Using an approach known as heterogeneous multiprocessing, future
enterprise servers will be able to employ both the proprietary CMOS
processors--to protect clients' investment in custom software--and advanced
Intel Pentium(R) and Pentium Pro(TM) processors running the Windows NT(R) or
UNIX(R) operating environments to provide clients the additional benefits of
industry-standard client/server computing. In 1995, the Company and Intel
Corporation jointly developed the Open Parallel Unisys Server (OPUS) parallel
processing platform, primarily for the airlines, retail banking,
telecommunications, manufacturing, retailing and consumer products markets.
To capitalize on the growing personal computer market, CSG has developed the
capability to provide its clients with personal computers built to order using
components and software sourced from a number of technology vendors. This
allows CSG both to meet specialized client requirements and to reduce
inventory levels at assembly and distribution sites. CSG intends to continue
to grow this segment of its business by expanding its already strong customer
base and by drawing upon its international reputation for quality products.
CSG's goal is to drive volume sales of its products. CSG has a dedicated
worldwide direct sales force in place and is expanding indirect channels of
distribution such as independent software vendors, systems integrators,
solutions providers and resellers. To drive volume sales, CSG is also
complementing its own resources with the expertise of strategic partners in
specialized technology areas such as relational databases, data warehousing
and microprocessor technology. These alliances with other technology providers
have allowed CSG to enhance and broaden its product line, to achieve economies
of scale and to offer "best-of-breed" products to its clients.
CSG has undertaken numerous manufacturing initiatives to improve its
competitive position by consolidating its operations. It is also building its
products more cost-effectively by using common platforms and commodity
components, when possible. This, along with the availability of components and
technology from strategic partners, has allowed CSG both to reduce its overall
research and development expenditures and to focus a larger portion of
research and development expenditures on growth programs and businesses,
notably in software, parallel processing and personal computers.
S-13
<PAGE>
THE GLOBAL CUSTOMER SERVICES GROUP
GCS provides network integration, desktop services and maintenance services
to help clients manage, maintain and support their distributed computing
environments. GCS evolved from the Company's traditional equipment maintenance
organization, which provided installation, configuration and maintenance
services for the Company's proprietary hardware and software systems. The goal
of GCS is to help clients maximize the availability and effectiveness of their
information technology investments and to improve their systems' performance
and productivity across multiple systems. If the three business units had been
in place in 1995, GCS would have accounted for approximately $1.9 billion or
30% of the Company's total customer revenue for fiscal 1995. Approximately 40%
of the revenue attributable to GCS in fiscal 1995 was generated in each of the
United States and Europe/Africa and 20% in Americas/Pacific.
In recent years, microprocessor-based equipment has become increasingly
reliable, requiring less maintenance than in the past. However, the rapid
adoption of open systems, sourced from multiple vendors, and the rapid
proliferation of client/server architecture have produced a significantly more
complex and heterogeneous networked computing environment. As a result, demand
for services to design, install and support today's multi-vendor, distributed
networks is growing rapidly. The Company has moved aggressively to diversify
its traditional maintenance business to capitalize on the growth opportunities
in network design and integration, desktop services and multi-vendor
maintenance and support.
The Company believes that GCS possesses fundamental competitive advantages
in the growing customer services market. GCS has a mature services delivery
infrastructure already in place, with two worldwide parts distribution centers
and ten worldwide software support centers that facilitate uninterrupted
quality service and support to clients. In addition, GCS delivers its desktop
maintenance services using a unit replacement methodology rather than
traditional on-site repair. This approach reduces restore time considerably
and causes less disruption in the client's work place. Finally, the Network
Enable organization within GCS, which specializes in network integration and
management, has a depth of multi-vendor expertise and a degree of technology
independence that the Company believes is unique. The Network Enable
organization has established partnerships with many leading hardware
manufacturers and network software providers. Because the products used in a
Network Enable solution are sourced from multiple suppliers, GCS has been very
successful in providing "best-of-breed" product offerings to a wide range of
clients beyond the Company's existing client base.
S-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
In 1995, the Company reported a net loss of $624.6 million, or $4.35 per
primary and fully diluted common share, compared to net income of $100.5
million, or a loss of $.11 per primary and fully diluted common share, in
1994. Results include fourth quarter charges of $846.6 million pretax ($670.5
million after tax) in 1995 and $186.2 million pretax ($133.1 million after
tax) in 1994. See Note 2 of the Notes to Consolidated Financial Statements.
In October of 1995, the Company announced that it would realign internally
into three business units--information services, support services and computer
systems--each with its own marketing and sales organization. In the fourth
quarter of 1995, in connection with this realignment, the Company recorded a
restructuring charge of $717.6 million ($581.9 million after tax), or $3.39
per primary and fully diluted common share. The charge covers (i) $436.6
million for work force reductions of approximately 7,900 people including
severance, notice pay, medical and other benefits, (ii) $218.6 million for
consolidation of office facilities and manufacturing capacity, and (iii) $62.4
million for costs associated with product and program discontinuances. Cash
requirements for these charges are expected to approximate $400 million in
1996 and $150 million in 1997. However, depending on the timing of
implementation, cash savings are expected to significantly offset the 1996
cash requirements and more than offset the 1997 amount. As a result of the
restructuring actions, the Company expects to generate annualized savings in
excess of $500 million by the end of 1996 and $600 million by the end of 1997.
In addition, in the fourth quarter of 1995, the Company recorded a charge for
contract losses of $129.0 million ($88.6 million after tax), or $.51 per
primary and fully diluted share, primarily related to a few large multi-year,
fixed-price systems integration contracts. Included in the charge is $65.5
million, due to developments with respect to contract terminations.
In 1996, the Company may experience a slow first half because of potential
disruption caused by the realignment of its operations into three business
units. The Company's priorities in 1996 will be to focus on the effective and
timely implementation of its new three business unit model and the execution
of its restructuring plan. In addition, the Company will focus on operational
issues, including planned product introductions, working capital management
and improvement in the processes for qualification, bidding and execution of
long-term, fixed-price systems integration contracts.
In May of 1995, the Company sold its defense business for cash of $862
million. A loss on the sale of $9.8 million, or $.06 per primary and fully
diluted share, was recorded in the fourth quarter of 1995 after completion of
the purchase price adjustment process. The net results of the defense
operations for all periods presented are reported separately in the
Consolidated Statement of Income as "income from discontinued operations."
Prior period financial statements have been restated to report the defense
business as a discontinued operation. See Note 3 of the Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
Revenue for 1995 was $6.2 billion, up 4% from 1994 revenue of $6.0 billion.
Approximately two-thirds of the overall increase in revenue was caused by
foreign currency changes. Sales revenue declined 8% to $2.6 billion in 1995
from $2.9 billion in 1994, due to decreases in sales of enterprise systems and
servers (21%), offset by increases in sales of departmental servers and
desktop systems (6%) and software (3%). Services revenue increased 25% to $2.2
billion in 1995 from $1.8 billion in 1994. Equipment maintenance revenue
increased 1% in 1995 to $1.4 billion from $1.3 billion in 1994.
Revenue for 1994 was $6.0 billion, as an increase in services revenue of 30%
offset declines in sales revenue of 9% and equipment maintenance revenue of
7%.
Revenue from international operations in 1995 was $3.8 billion, up 6% from
1994, due principally to foreign currency changes. Revenue from U.S.
operations in 1995 was $2.4 billion, up 1% from 1994. Revenue from
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<PAGE>
operations outside the U.S. in 1994 was $3.6 billion, up 4% from 1993, due
principally to an increase in revenue in Japan. Revenue from U.S. operations
in 1994 was $2.4 billion, down 5% from 1993.
Sales gross profit margin was 39% in 1995 compared to 45% in 1994; services
gross profit margin was 8% in 1995 compared to 22% in 1994; and equipment
maintenance gross profit margin was 29% in 1995 compared to 35% in 1994.
Excluding restructuring charges in both years: sales gross profit margin was
43% in 1995 compared to 47% in 1994; services gross profit margin was 15% in
1995 compared to 23% in 1994; and equipment maintenance gross profit margin
was 36% in 1995 compared to 40% in 1994. The decline in sales gross profit
margin was due in large part to a higher proportion of lower-margin personal
computer sales and the reduced volume of large computer systems sales. The
decline in services gross profit margin was principally due to provisions for
loss contracts in 1995. The decline in equipment maintenance gross profit
margin was due in large part to a higher proportion of lower-margin
multivendor maintenance.
Total gross profit margin was 26% in 1995 (32% excluding restructuring
charges) compared to 36% in 1994 (38% excluding restructuring charges). The
total gross profit margin is expected to continue to reflect the continuing
shift to lower-margin products and services as well as competitive pricing. In
addition, business risks associated with services contracts, particularly
large, multi-year, fixed-price systems integration contracts, may from time to
time create volatility in margins.
In 1993, total gross profit margin was 43%, sales gross profit margin was
51%, services gross profit margin was 25%, and equipment maintenance gross
profit margin was 43%.
Selling, general and administrative expenses in 1995 were $1.9 billion
compared to $1.5 billion in 1994. Exclusive of restructuring charges, selling,
general and administrative expenses in 1995 were $1.6 billion, an increase of
5% from $1.5 billion in 1994. Approximately one-half of the increase was due
to the effects of foreign currency changes. Selling, general and
administrative expenses were $1.5 billion in 1993.
Research and development expenses in 1995 were $409.5 million compared to
$463.6 million in 1994. Exclusive of restructuring charges, research and
development expenses were $366.8 million in 1995 compared to $435.7 million in
1994, a decline of 16%. In 1993, research and development expenses were $489.3
million. Reductions in research and development expenses principally reflect
the Company's move to common hardware platforms and technologies. In addition,
research and development expense as a percent of total revenue is expected to
decline consistent with the increasing proportion of revenue from the services
businesses, which require less research and development expenditures.
In 1995, the Company reported an operating loss of $698.1 million compared
to operating income of $154.4 million in 1994 and $572.4 million in 1993.
Exclusive of restructuring charges, operating income in 1995 was $19.5 million
(.3% of revenue) compared to $339.6 million (5.7% of revenue) in 1994 and
$572.4 million (9.6% of revenue) in 1993.
Interest expense was $202.1 million in 1995, $203.7 million in 1994 and
$241.7 million in 1993. The decline in 1994 from 1993 was due principally to
lower average debt levels.
Other income in 1995 was $119.1 million compared to $63.9 million in 1994
and $40.2 million in 1993. The increase in other income in 1995 compared to
1994 was due principally to higher royalty and interest income. The increase
in other income in 1994 compared to 1993 was due principally to favorable
foreign currency translation.
It is the Company's policy to minimize its exposure to foreign currency
fluctuations. Due to a weakening of the U.S. dollar compared to foreign
currencies, foreign currency changes, including the cost of hedging, had a
positive effect on net income in 1995 when compared to last year.
The loss from continuing operations before income taxes for 1995 was $781.1
million ($63.5 million exclusive of restructuring charges) compared to income
in 1994 of $14.6 million ($200.8 million exclusive of restructuring charges)
and income in 1993 of $370.9 million.
S-16
<PAGE>
Estimated income taxes in 1995 were a benefit of $153.8 million ($18.1
million benefit before the restructuring charge) compared to a 1994 provision
of $2.5 million ($55.6 million before the restructuring charge) and a 1993
provision of $84.6 million.
The net loss for 1995 was $624.6 million compared to net income of $100.5
million in 1994 and $565.4 million in 1993.
ACCOUNTING CHANGES AND EXTRAORDINARY ITEMS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and SFAS 123, "Accounting for Stock-Based Compensation." Both of these
statements are required to be adopted by January 1, 1996. The Company does not
expect that adoption of SFAS 121 and 123 will have a material effect on its
consolidated financial position, consolidated statement of income, or
liquidity. For further discussion, see Note 4 of the Notes to Consolidated
Financial Statements.
In 1994, the Company recorded an extraordinary charge for repurchases of
debt of $7.7 million, net of $5.1 million of income tax benefits, or $.04 per
fully diluted common share.
Effective January 1, 1993, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS 109,
"Accounting for Income Taxes." The adoption of SFAS 106 decreased net income
$194.8 million, net of $124.5 million of income tax benefits, or $.79 per
fully diluted common share, and the adoption of SFAS 109 increased net income
by $425.0 million, or $1.73 per fully diluted common share. For further
discussion of SFAS 106 and 109, see Notes 15 and 7, respectively, of the Notes
to Consolidated Financial Statements.
At December 31, 1995, the Company had deferred tax assets in excess of
deferred tax liabilities of $1,457 million. For the reasons cited below,
management determined that it is more likely than not that $958 million of
such assets will be realized, therefore resulting in a valuation allowance of
$499 million. In assessing the likelihood of realization of this asset, the
Company considered various factors including its forecast of future taxable
income and available tax planning strategies that could be implemented to
realize deferred tax assets.
The principal methods used to assess the likelihood of realization were the
Company's forecast of future taxable income, which was adjusted by applying
probability factors to the achievement of this forecast, and tax planning
strategies. The combination of forecasted taxable income and tax planning
strategies are expected to be sufficient to realize the entire amount of net
deferred tax assets. Approximately $2.8 billion of future taxable income
(predominantly U.S.) is needed to realize all of the net deferred tax assets.
The Company's net deferred tax assets include substantial amounts of net
operating loss and tax credit carryforwards. Failure to achieve forecasted
taxable income might affect the ultimate realization of the net deferred tax
assets. In recent years, the information management business has undergone
dramatic changes and there can be no assurances that in the future there would
not be increased competition or other factors that may result in a decline in
sales or margins, loss of market share, or technological obsolescence. The
Company will evaluate quarterly the realizability of its net deferred tax
assets by assessing its valuation allowance and by adjusting the amount of
such allowance, if necessary.
In 1993, the Company reported an extraordinary charge of $26.4 million, net
of $16.8 million of income tax benefits, or $.11 per fully diluted common
share. See Note 4 of the Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
In 1995, cash provided by operating activities was $97.7 million compared to
$529.1 million in 1994 and $953.4 million in 1993. The decrease in cash
provided in 1995 compared to 1994 was due in large part to the loss in 1995,
restructuring payments relating to prior years, and an increase in income tax
payments.
Investments in properties and rental equipment were $195.0, $208.2, and
$173.5 million in 1995, 1994, and 1993, respectively.
S-17
<PAGE>
During 1995, 1994, and 1993, the Company retired $68.2, $140.1, and $394.4
million of debt, respectively. The Company intends, from time to time, to
continue to redeem or repurchase its securities in the open market or in
privately negotiated transactions depending upon availability, market
conditions, and other factors.
At December 31, 1995, total debt was $1.9 billion, a decrease of $55.3
million from December 31, 1994. Cash, cash equivalents, and marketable
securities at December 31, 1995 were $1,119.7 million compared to $884.6
million at December 31, 1994. During 1995, debt net of cash and marketable
securities decreased $290.4 million to $769.2 million. As a percent of total
capital, debt net of cash and marketable securities was 29% at both December
31, 1995 and 1994.
Cash requirements in 1996 are expected to include payments in respect of the
restructuring actions discussed above and current maturities of long-term
debt. See Notes 2 and 9 of the Notes to Consolidated Financial Statements. The
Company believes that the funds to meet these requirements will come from a
combination of utilization of cash on hand, operating cash flow, which will
reflect savings generated by the restructuring actions, and external sources
of financing.
The Company has on file with the Securities and Exchange Commission an
effective registration statement covering $500 million of debt or equity
securities which enables the Company to be prepared for future market
opportunities.
The Company has a $325 million revolving credit facility with a syndicate of
banks that expires in May of 1996. In September and December of 1995, the bank
syndicate waived compliance with certain financial covenants in the facility
which were impacted by performance in the respective quarters. Borrowings
under that facility are now subject to approval by the bank group. The Company
has never utilized the facility and does not expect to do so. The size, terms,
conditions and participating banks for a new facility, if any, after
expiration of the current facility, have yet to be determined.
Dividends paid on preferred stock amounted to $120.2 million in 1995
compared to $228.0 million in 1994 and $183.7 million in 1993. The 1994 amount
included full payment for all preferred dividend arrearages.
Net cash provided by discontinued operations in 1995 was $658.3 million
consisting of $862.0 million proceeds from the sale of the defense business
offset by cash used of $203.7 million. Cash provided by discontinued
operations in 1994 and 1993 amounted to $102.2 and $43.0 million,
respectively.
The Company may settle certain open tax years with the Internal Revenue
Service in 1996. It is expected that such settlements will result in cash
payments of approximately $60 million (including interest). These payments
will not affect earnings since provision for these taxes has been made in
prior years.
Stockholders' equity decreased $744.3 million during 1995, principally
reflecting the net loss of $624.6 million and preferred dividends of $123.7
million.
DESCRIPTION OF NOTES
The following description of the Notes offered hereby (referred to in the
accompanying Prospectus as "Debt Securities") supplements, and to the extent
inconsistent therewith supersedes, insofar as such description relates to the
Notes, the description of the general terms and provisions of the Debt
Securities set forth in the accompanying Prospectus, to which description
reference is hereby made.
The Notes will be issued under an Indenture (the "Indenture") to be entered
into between the Company and The Bank of New York, as Trustee (the "Trustee"),
as supplemented. The following statements are subject to the detailed
provisions of the Indenture and are qualified in their entirety by reference
to the Indenture, the form of which is filed as an exhibit to the Registration
Statement and is also available for inspection at the principal corporate
trust office of the Trustee. Wherever particular provisions of the Indenture
are referred to, such provisions are incorporated by reference as a part of
the statements made, and the statements are qualified in their entirety by
such reference.
S-18
<PAGE>
GENERAL
The Notes will represent unsecured general obligations of the Company,
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Notes," and convertible into Common Stock as
described under "Conversion of Notes." The Notes will be limited to $
principal amount (including $ subject to the Underwriters' over-allotment
option), will be issued in fully registered form only in denominations of
$1,000 or any multiple thereof and will mature on , 2006.
Interest at the annual rate set forth on the cover page hereof is payable in
arrears on and of each year to holders of record at the close of
business on the preceding and , respectively (subject to certain
exceptions in the case of Notes redeemed or repurchased upon a Change in
Control between a record date and the next succeeding interest payment date),
and, unless other arrangements are made, will be paid by check mailed to such
holders at their registered addresses. The first interest payment will be made
on , 1996, reflecting interest accrued from the date of issuance. (Section
301)
Principal and premium, if any, are payable, and the Notes may be presented
for conversion, registration of transfer and exchange, without service charge,
at an office maintained by the Company (which initially will be the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New
York). (Sections 1001 and 1002)
Application has been made to list the Notes on the New York Stock Exchange.
No assurance can be given that an active public trading market in the Notes
will develop or continue. The absence of an active public trading market could
have an adverse effect on the liquidity and value of the Notes. The Notes may
trade above, at or below face value depending primarily upon market
conditions, prevailing interest rates, the future financial condition of the
Company and general economic conditions.
The Indenture does not contain any restrictions on the payment of dividends
or on the repurchase of securities of the Company or any financial covenants,
nor does the Indenture require the Company to maintain any sinking fund or
other reserves for repayment of the Notes.
CONVERSION OF NOTES
The holders of Notes will be entitled at any time prior to maturity, subject
to prior redemption or repurchase, to convert any Notes or portions thereof
(in denominations of $1,000 or multiples thereof) into Common Stock of the
Company at the conversion price set forth on the cover page of this Prospectus
Supplement, subject to adjustment as described below. (Sections 1601 and 1602)
Except as described below, no payment or adjustment will be made on conversion
of any Note for interest accrued thereon or for dividends on any Common Stock
issued on conversion. (Section 1603) If any Note is converted between a record
date for the payment of interest and the opening of business on the next
succeeding interest payment date (unless it shall have been called for
redemption on a redemption date within such period, in which case the payment
referred to in the next succeeding sentence shall not be required), then,
notwithstanding such conversion, the interest payable on such succeeding
interest payment date will be paid to the registered holder of such Note on
such record date. In such event, such Note must be accompanied by funds equal
to the interest payable on such succeeding interest payment date on the
principal amount so converted. (Sections 307 and 1603) The Company is not
required to issue fractional shares of Common Stock upon conversion of Notes
and, in lieu thereof, will pay a cash adjustment based upon the market price
of the Common Stock on the last business day prior to the date of conversion.
(Section 1604)
In the case of Notes called for redemption, conversion rights will expire at
the close of business on the redemption date, and in the event any holder
exercises its Repurchase Right (as defined below), such holder's conversion
right will terminate upon receipt of the written notice of exercise of such
Repurchase Right. See "Repurchase at Option of Holders Upon Change in
Control." In the case of Notes called for redemption on a redemption date
between a record date and the opening of business on the next succeeding
interest payment date, no interest will be payable on any such Notes converted
during such period. (Sections 307, 1602 and 1603)
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The conversion price is subject to adjustment as set forth in the Indenture
in certain events, including: (i) the issuance of Common Stock of the Company
as a dividend or distribution on the Common Stock; (ii) subdivisions and
combinations of the Common Stock; (iii) the issuance to substantially all
holders of Common Stock of certain rights or warrants entitling them (for a
period expiring within 45 days after the record date for such issuance) to
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) at a price less than the then current market price (as defined in the
Indenture); (iv) the distribution to substantially all holders of Common Stock
of capital stock of the Company (other than Common Stock or capital stock
convertible into Common Stock), of evidences of indebtedness of the Company,
of assets (excluding cash dividends and distributions) or of rights or
warrants to subscribe for or purchase any of its securities (excluding those
referred to in clause (iii) above); and (v) the payment to substantially all
holders of Common Stock of cash dividends and other distributions paid
exclusively in cash within any 12-month period to the extent that the
aggregate amount of such per share dividends and distributions during such 12-
month period exceeds the greater of (a) $1.00 per share and (b) 15% of the
market price per share of the Common Stock, calculated with respect to each
such dividend or distribution within such 12-month period, as of the close of
business on the last day prior to the declaration date for each such dividend
or distribution; provided, however, no adjustment will be made upon any
further issuance of Rights (as defined in the accompanying Prospectus) or upon
any exercise of outstanding Rights. (Sections 1605 and 1606)
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then
in effect; provided, that any adjustment that would otherwise be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. (Section 1605) The Company reserves the right to make such
reductions in the conversion price (in addition to those required in the
foregoing provisions) as the Company in its discretion shall determine to be
advisable in order that certain stock-related distributions hereafter made by
the Company to its stockholders shall not be taxable. Except as stated above,
the conversion price will not be adjusted for the issuance of Common Stock or
any securities convertible into or exchangeable for Common Stock, or carrying
the right to purchase any of the foregoing.
In the case of any reclassification of the Common Stock, consolidation or
merger involving the Company as a result of which holders of Common Stock
shall be entitled to receive stock, securities, other property or assets
(including cash) with respect to or in exchange for such Common Stock or in
the case of a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, the holders of the Notes then outstanding will
be entitled thereafter to convert such Notes into the kind and amount of
shares of stock, other securities or other property or assets receivable upon
such reclassification, consolidation, merger, sale or conveyance by a holder
of Common Stock issuable upon conversion of such Notes immediately prior to
such reclassification, consolidation, merger, sale or conveyance. (Section
1607)
Shares of Common Stock issued on conversion of the Notes in accordance with
the Indenture prior to the Distribution Date (as defined in the accompanying
Prospectus) or the redemption or expiration of the Rights will also be
entitled to receive Rights under the terms and conditions of the Rights
Agreement (as defined in the accompanying Prospectus). The Final Expiration
Date (as defined in the accompanying Prospectus) of the Rights has been
extended to March 17, 2001. See "Description of Capital Stock--Preferred Share
Purchase Rights and Junior Participating Preferred Stock" in the accompanying
Prospectus.
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OPTIONAL REDEMPTION
The Notes will be redeemable on at least 20 but not more than 60 days'
notice, at the option of the Company, as a whole or in part, at any time on
and after , at the following prices (expressed as percentages of the
principal amount), together with accrued interest to the date fixed for
redemption:
If redeemed during the 12-month period beginning :
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
.................................................................. %
..................................................................
..................................................................
..................................................................
..................................................................
..................................................................
</TABLE>
If the date fixed for redemption is a or then the interest payable
on such date shall be paid to the holder of record on the next preceding or
, respectively.
If less than all of the Notes are to be redeemed, the Trustee will select
the particular Notes (or the portions thereof) to be redeemed either by lot,
pro rata or by such other method as the Trustee shall deem fair and
appropriate.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
Upon any Change in Control (as defined below) with respect to the Company,
each holder of Notes shall have the right (the "Repurchase Right"), at the
holder's option, to require the Company to repurchase all of such holder's
Notes, or a portion thereof which is $1,000 or any integral multiple thereof,
on the date (the "Repurchase Date") that is 45 days after the date of the
Company Notice (as defined below) at a price equal to 100% of the principal
amount of the Notes, plus accrued interest, if any, to the Repurchase Date.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to mail to all holders of record of the Notes a notice (the "Company
Notice") of the occurrence of such Change in Control and the Repurchase Right
arising as a result thereof. The Company shall deliver a copy of the Company
Notice to the Trustee and shall cause a copy of such notice to be published in
The Wall Street Journal or another newspaper of national circulation. To
exercise the Repurchase Right, a holder of Notes must deliver on or before the
30th day after the date of the Company Notice irrevocable written notice to
the Company (or an agent designated by the Company for such purpose) and the
Trustee of the holder's exercise of such right together with the Notes with
respect to which the right is being exercised, duly endorsed for transfer.
"Change in Control" means an event or series of events as a result of which
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares entitling the holder thereof to
cast more than 50% of the votes for the election of directors of the Company;
(ii) the Company consolidates with or merges into any other corporation, or
conveys, transfers or leases all or substantially all of its assets to any
person, or any other corporation merges into the Company, and, in the case of
any such transaction, the outstanding Common Stock of the Company is changed
or exchanged as a result; (iii) at any time Continuing Directors do not
constitute a majority of the Board of Directors of the Company; or (iv) on any
day (a "Calculation Date") the Company makes any distribution or distributions
of cash, property or securities (other than regular quarterly dividends,
Common Stock, preferred stock which is substantially equivalent to Common
Stock or rights to acquire Common Stock or preferred stock which is
substantially equivalent to Common Stock) to holders of Common Stock, or the
Company or any of its subsidiaries purchases or otherwise acquires Common
Stock, and the sum of the fair
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market value of such distribution or purchase on the Calculation Date, plus
the fair market value, when made, of all other such distributions and
purchases which have occurred during the 12-month period ending on the
Calculation Date, in each case expressed as a percentage of the aggregate
market price of all of the shares of Common Stock of the Company outstanding
at the close of business on the last day prior to the date of each such
distribution or purchase, exceeds 50%. "Continuing Director" means at any date
a member of the Company's Board of Directors (i) who was a member of such
board 24 months prior to such date or (ii) who was nominated or elected by at
least two-thirds of the directors who were Continuing Directors at the time of
such nomination or election or whose election to the Company's Board of
Directors was recommended or endorsed by at least two-thirds of the directors
who were Continuing Directors at the time of such election (under this
definition, if the present Board of Directors of the Company were to approve a
new director or directors and then resign, no Change in Control would occur
even though the present Board of Directors would thereafter cease to be in
office). No quantitative or other established meaning has been given to the
phrase "all or substantially all" (which appears in the definition of Change
in Control) by courts which have interpreted this phrase in various contexts.
In interpreting this phrase, courts make a subjective determination as to,
among other things, the portion of assets conveyed, considering such factors
as the value of assets conveyed and the proportion of an entity's income
derived from the assets conveyed. To the extent the meaning of such phrase is
uncertain, uncertainty will exist as to whether or not a Change in Control may
have occurred (and, accordingly, whether or not the holders of Notes will have
the right to require the Company to repurchase their Notes).
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the Repurchase Right. The Indenture does not provide the Company's
Board of Directors with the right to limit or waive the Repurchase Right in
the event of any such leveraged transaction. The Company could, in the future,
enter into certain transactions, including certain recapitalizations of the
Company, that would not constitute a Change in Control but that would increase
the amount of Senior Indebtedness (or other indebtedness) outstanding at such
time. There are no restrictions in the Indenture or the Notes on the creation
of additional Senior Indebtedness (or any other indebtedness) of the Company
or any of its subsidiaries, and the incurrence of significant amounts of
additional indebtedness could have an adverse impact on the Company's ability
to service its debt, including the Notes. The Notes are subordinate in right
of payment to all existing and future Senior Indebtedness as described under
"Subordination of Notes" below.
The occurrence of a Change in Control would enable the holders of certain
other outstanding debt securities of the Company to exercise Repurchase Rights
of the type described above and would, in most cases, permit the Company's
lenders to require prepayment of some or all amounts outstanding under the
Company's revolving credit facility. The exercise of the Repurchase Right by
holders of the Notes could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
payment in full of such Senior Indebtedness or waiver, be prevented by the
subordination provisions of the Notes. See "Subordination of Notes." Failure
by the Company to repurchase the Notes when required will result in an Event
of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions. The right to require the Company to
repurchase the Notes could delay or deter a Change in Control of the Company,
whether or not such Change in Control were supported by the Board of Directors
of the Company. In addition, certain provisions of the Company's Certificate
of Incorporation and By-Laws could have the effect of delaying, defering or
preventing a future Change in Control unless such Change in Control is
approved by the Company's Board of Directors. See "Description of Capital
Stock--Common Stock--Anti-Takeover Provisions" in the accompanying Prospectus.
If a Change in Control occurs, there can be no assurance that the Company
would have sufficient funds or financing to repay or repurchase any Senior
Indebtedness then required to be repaid or repurchased or to repurchase any or
all Notes then required to be repurchased under the Indenture.
If an offer is made to repurchase Notes as a result of a Change in Control,
the Company will comply with all tender offer rules, including but not limited
to Section 13(e) and 14(e) under the Exchange Act and Rules 13c-1 and 14c-1
thereunder, to the extent applicable to such offer.
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<PAGE>
SUBORDINATION OF NOTES
The indebtedness evidenced by the Notes is subordinate in right of payment
to all existing and future Senior Indebtedness.
No payment shall be made by the Company on account of principal of (and
premium, if any) or interest on the Notes or on account of the purchase
(including any repurchase pursuant to the exercise of any Repurchase Right),
redemption or other acquisition of the Notes if there shall have occurred and
be continuing any default in the payment of principal, premium, if any, or
interest on any Senior Indebtedness continuing beyond the period of grace, if
any, specified in the instrument evidencing such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization, the payment of the principal of (and
premium, if any) and interest on the Notes is to be subordinated to the extent
provided in the Indenture in right of payment to the prior payment in full of
all Senior Indebtedness. By reason of this provision, in the event of the
Company's dissolution or insolvency, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably,
than the other creditors of the Company.
The foregoing subordination provisions will not prevent the occurrence of
any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any, and
interest on, and any other payment due pursuant to the terms of an instrument
(including, without limitation, fees, expenses, collection expenses (including
attorneys' fees), interest yield amounts, post-petition interest and taxes)
creating, securing or evidencing any of the following, whether outstanding at
the date of the Indenture or thereafter incurred or created:
(i) All indebtedness of the Company for money borrowed or constituting
amounts due in respect of reimbursement obligations relating to letters of
credit (including indebtedness secured by a mortgage, conditional sales
contract or other lien which is (a) given to secure all or a part of the
purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (b) existing on property at the time of
acquisition thereof);
(ii) All indebtedness of the Company evidenced by notes, debentures,
bonds or other securities;
(iii) All indebtedness of others of the kinds described in either of the
preceding clauses (i) or (ii) assumed by or guaranteed in any manner by the
Company or in effect guaranteed by the Company through an agreement to
purchase, contingent or otherwise; and
(iv) All renewals, deferrals, increases, extensions or refundings of and
modifications to indebtedness of the kinds described in any of the
preceding clauses (i), (ii) or (iii);
unless, in the case of any particular indebtedness, renewal, extension or
refunding, the instrument creating or evidencing the same or the assumption or
guarantee of the same provides that such indebtedness, renewal, extension,
deferral, increase, modification or refunding is not superior in right of
payment to the Notes or is pari passu with or subordinate by its terms in
right of payment to the Notes; provided that the term "Senior Indebtedness"
does not include (A) the Securities of any series issued under the Indenture
or (B) the Company's 8 1/4% Convertible Subordinated Notes due 2000. (Section
1512)
As of December 31, 1995, the Company had Senior Indebtedness (excluding
accrued interest and premium, if any) of approximately $1.5 billion. The
amount of Senior Indebtedness may change in the future. The Indenture contains
no limitations on the incurrence of Senior Indebtedness.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: default for 30
days in payment of any installment of interest on the Notes; default in
payment of the principal of (and premium, if any, on) any of the Notes,
S-23
<PAGE>
including default in payment of any amount due in satisfaction of a holder's
right to require the Company to repurchase such holder's Notes in the event of
a Change in Control; default by the Company for 90 days after written notice
in the observance or performance of any other covenant in the Indenture;
and/or certain events involving bankruptcy, insolvency or reorganization of
the Company. (Section 501) The Indenture provides that the Trustee may
withhold notice to the holders of Notes of any covenant default if the Trustee
considers it in the interest of the holders of the Notes to do so. (Section
602)
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of all the
Notes to be due and payable immediately, but if the Company shall cure all
defaults (except the nonpayment of interest and premium, if any, on and
principal of any Notes which shall have become due by acceleration) and
certain other conditions are met, such declaration may be annulled and past
defaults may be waived by the holders of a majority of principal amount of the
Notes then outstanding. (Section 502)
The holders of a majority in principal amount of the Notes then outstanding
have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee subject to certain
limitations specified in the Indenture. (Section 512)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of a majority of the principal amount of the
Notes at the time outstanding, to modify the Indenture or any supplemental
indenture or the rights of the holders of the Notes except that no such
modification shall (i) change the fixed maturity of any Note, reduce the rate
or change the time of payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable on redemption
thereof or upon exercise of the Repurchase Right with respect thereto, impair
the right of a holder to institute suit for the payment thereof, change the
currency in which the principal, interest and premium, if any, are payable,
impair the right to convert the Notes into Common Stock subject to the terms
set forth in the Indenture, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes, the consent of the
holders of which is required for any such modification, without the consent of
the holders of all of the Notes then outstanding. (Section 902)
The Indenture contains provisions permitting the Company and the Trustee,
without the consent of the holders of the Notes, to modify the Indenture or
any supplemental indenture or the rights of the holders of the Notes to, among
other things, (i) add to the covenants of the Company for the benefit of the
holders of the Notes, (ii) add any additional Events of Default with respect
to the Notes, (iii) add to or change any of the provisions of the Indenture to
such extent as shall be necessary to facilitate the issuance of Notes in
bearer form or (iv) cure any ambiguity or otherwise change or eliminate any of
the provisions of the Indenture which do not adversely affect the holders of
the Notes.
GOVERNING LAW
The Indenture and the Notes provide that they are to be governed by and
construed in accordance with the laws of the State of New York. (Section 112)
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the Indenture, provides certain
banking and other financial services to the Company in the ordinary course of
its business and may provide other such services in the future. The Bank of
New York currently serves as trustee under another indenture with the Company.
S-24
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain material United States federal
income tax consequences of the ownership of Notes purchased in connection with
this offering as of the date hereof and shares of Common Stock issued upon
conversion of the Notes. Except where noted, this summary deals only with
Notes held as capital assets by initial purchasers of the Notes and does not
deal with special situations, such as those of dealers in securities,
financial institutions, life insurance companies, persons holding shares as
part of a hedging or conversion transaction or a straddle or whose functional
currency is not the United States dollar. Furthermore, the discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so
as to result in federal income tax consequences different from those discussed
below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein (1), a "United States Holder" of a Note means a holder that
is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate or trust the income of which
is subject to United States federal income taxation regardless of its source
and (2) the term "United States" means the United States of America (including
the States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction (including the Commonwealth of Puerto
Rico). A "Non-United States Holder" is a holder that is not a United States
Holder.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest on a Note will generally be taxable to a United States Holder as
ordinary income at the time it is received or accrued in accordance with the
United States Holder's method of accounting for tax purposes.
ADJUSTMENT OF CONVERSION PRICE
Certain adjustments to the conversion price that increase the proportionate
interest of Note holders in the shares of Common Stock, made to reflect the
Company's issuance of certain rights, warrants, evidences of indebtedness,
securities or other assets or its payment of certain dividends to holders of
shares of Common Stock may result in constructive distributions to the holders
of the Notes, taxable as ordinary income (subject to a possible dividends-
received deduction in the case of holders which are domestic corporations) to
the extent of the Company's current earnings and profits as of the end of the
taxable year to which such constructive distribution relates and/or
accumulated earnings and profits. In addition, if full adjustment to the
conversion price is not made upon the issuance of a stock dividend or upon the
occurrence of another event, resulting in an increase in the proportionate
interests of holders of shares of Common Stock, such increase in the
proportionate interests of holders of shares of Common Stock will be treated
as a distribution to such holders, taxable as ordinary income (subject to a
possible dividends-received deduction in the case of holders which are
domestic corporations) to the extent of the Company's current earnings and
profits as of the end of the taxable year to which such constructive
distribution relates and/or accumulated earnings and profits.
CONVERSION INTO SHARES OF COMMON STOCK
In general, no gain or loss will be recognized upon a conversion of the
Notes into shares of Common Stock. However, cash paid in lieu of a fractional
share likely will result in taxable gain or loss, which will be capital gain
or loss, equal to the difference between the amount of such cash and the
portion of the adjusted basis of the Notes allocable to such fractional share.
The adjusted basis of shares of Common Stock received on conversion will equal
the adjusted basis of the Notes converted, reduced by the portion of adjusted
basis allocated to any fractional share exchanged for cash. The holding period
of the shares of Common Stock received on conversion will include the period
during which the Notes were held.
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DISTRIBUTIONS ON SHARES OF COMMON STOCK
Distributions on the shares of Common Stock into which Notes have been
converted will be taxable as dividends to the extent of the Company's current
and/or accumulated earnings and profits, as determined under United States
federal income tax principles. Such dividends may be eligible for the
dividends-received deduction in the case of holders which are domestic
corporations, subject to applicable limitations.
To the extent that the amount of any distribution exceeds the Company's
current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital, causing a
reduction in the adjusted basis of the shares of Common Stock (thereby
increasing the amount of gain, or decreasing the amount of loss, to be
recognized by the investor on a subsequent disposition of the shares of Common
Stock), and the balance in excess of adjusted basis will be taxed as capital
gain.
DISPOSITION OF NOTES AND SHARES OF COMMON STOCK
Subject to the discussion above under "Conversion into Shares of Common
Stock," upon the sale, exchange or other disposition of Notes, or upon the
sale, exchange or other disposition of shares of Common Stock, a United States
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized upon the sale, exchange or other disposition
(other than amounts, if any, attributable to accrued interest) and the
adjusted tax basis of the Notes or shares of Common Stock. A United States
Holder's tax basis in a Note will, in general, be the holder's cost therefor.
The capital gain or loss will be long-term capital gain or loss if at the time
of sale, exchange or other disposition the Notes or shares of Common Stock
have been held for more than one year. Under current law, long-term capital
gains of individuals are, under certain circumstances, taxed at lower rates
than items of ordinary income. The deductibility of capital losses is subject
to limitations.
NON-UNITED STATES HOLDERS
Subject to the discussion below concerning backup withholding, no
withholding of United States federal income tax will be required with respect
to the payment by the Company of principal or interest on a Note owned by a
Non-United States Holder, provided that (i) the beneficial owner does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote within the meaning of
section 871(h) (3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related to
the Company through stock ownership, (iii) the beneficial owner is not a bank
whose receipt of interest on a Note is described in section 881(c) (3) (A) of
the Code and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) or section 881(c) of
the Code and the regulations thereunder.
To satisfy the statement requirement referred to in (iv) above (the
"Statement Requirement"), the beneficial owner of such Note, or a financial
institution holding the Note on behalf of such owner, must provide, in
accordance with specified procedures, a paying agent of the Company with a
statement to the effect that the beneficial owner is not a United States
person. Pursuant to current temporary United States Treasury regulations,
these requirements will be met if (1) the beneficial owner provides his name
and address, and certifies, under penalties of perjury, that he is not a
United States person (which certification may be made on an Internal Revenue
Service Form W-8 (or successor form)) or (2) a financial institution holding
the Note on behalf of the beneficial owner certifies, under penalties of
perjury, that such statement has been received by it and furnishes a paying
agent with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in the second preceding paragraph
above, payments of interest (including original issue discount ("OID")) or
premium, if any, made to such Non-United States Holder will be subject to a 30
percent withholding tax unless the beneficial owner of the Note provides the
Company or its paying agent, as the case may be, with a properly executed (1)
Internal Revenue Service Form 1001 (or successor form) claiming an exemption
from withholding under the benefit of a tax treaty or (2) Internal Revenue
Service Form 4224 (or successor form) stating that interest paid on the Note
is not subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States.
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<PAGE>
Dividends paid (or deemed paid as discussed above in "United States
Holders--Adjustment of Conversion Price") to a Non-United States Holder of
shares of Common Stock generally will be subject to withholding of United
States federal income tax at a 30 percent rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the Non-
United States Holder within the United States and certain certification and
disclosure requirements are met. Dividends paid to an address outside the
United States are presumed to be paid to a resident of such country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate.
Under proposed United States Treasury regulations not currently in effect,
however, a Non-United States Holder of Notes or shares of Common Stock who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification and other requirements. A Non-United States
Holder of Notes or shares of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service (the "IRS").
If interest (including OID) or premium, if any, on a Note or a dividend paid
with respect to shares of Common Stock is effectively connected with the
conduct by a Non-United States Holder of a trade or business in the United
States, the Non-United States Holder, although exempt from the withholding tax
discussed above, will generally be subject to United States federal income tax
on such interest, premium or dividend in the same manner as if such holder
were a United States Holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30 percent (or
such lower rate as may be specified by an applicable income tax treaty) of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such interest (including OID) or premium, if
any, on a Note or a dividend paid with respect to shares of Common Stock will
be included in such foreign corporation's earnings and profits.
Subject to the discussion below concerning backup withholding, any gain or
income realized upon the sale, exchange or retirement of a Note or shares of
Common Stock generally will not be subject to United States federal income
tax, including withholding tax, unless (i) such gain or income is effectively
connected with the conduct by the Non-United States Holder of a United States
trade or business, (ii) in the case of an individual, such Non-United States
Holder is present in the United States for a total of 183 days or more during
the taxable year of such sale, exchange or retirement, and certain other
conditions are met, or (iii) in the case of shares of Common Stock, the
Company is or has been a "U.S. real property holding corporation" for United
States federal income tax purposes. The Company is not and does not anticipate
becoming a "U.S. real property holding corporation" for United States federal
income tax purposes.
A Note beneficially owned by an individual who at the time of death is a
Non-United States Holder will not be subject to United States federal estate
tax as a result of such individual's death, provided that such individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of section 871(h)(3) of the Code and provided that the interest
payments with respect to such Note would not have been, if received at the
time of such individual's death, effectively connected with the conduct of a
United States trade or business by such individual.
Shares of Common Stock beneficially owned by an individual who at the time
of death is a Non-United States Holder will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Notes, dividends paid
with respect to shares of Common Stock and to the proceeds of sale of a Note
or shares of Common Stock received by United States Holders other than certain
exempt recipients (such as corporations). A 31 percent backup withholding tax
will apply to such payments if the United States Holder fails to provide a
correct taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.
S-27
<PAGE>
No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to a Non-United States
Holder if such holder satisfies the Statement Requirement and the payor does
not have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Note or dividends
with respect to shares of Common Stock are paid or collected by a foreign
office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such Note or shares of Common Stock, or if a foreign
office of a foreign broker (as defined in applicable United States Treasury
regulations) pays the proceeds of the sale of a Note or shares of Common Stock
to the owner thereof. If, however, such nominee, custodian, agent or broker
is, for United States federal income tax purposes, a United States person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business
in the United States, such payments will not be subject to backup withholding
but will be subject to information reporting, unless (1) such custodian,
nominee, agent or broker has documentary evidence in its records that the
beneficial owner is not a United States person and certain other conditions
are met or (2) the beneficial owner otherwise establishes an exemption.
Temporary United States Treasury regulations provide that the United States
Treasury is considering whether backup withholding will apply with respect to
such payments of principal, interest, dividends or the proceeds of a sale that
are not subject to backup withholding under the current regulations.
Payments of principal, interest, OID and premium on a Note or dividends with
respect to shares of Common Stock paid to the beneficial owner of a Note or
shares of Common Stock, respectively, by a United States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Note or shares of Common Stock, will be
subject to both backup withholding and information reporting unless the
beneficial owner satisfies the Statement Requirement and the payor does not
have actual knowledge that the beneficial owner is a United States person or
such owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
S-28
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bear, Stearns & Co.
Inc. (the "Underwriters") have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement Basic Provisions dated
June, 1993 and the related Terms Agreement dated March , 1996 (collectively,
the "Underwriting Agreement") among the Company and the Underwriters, to
purchase from the Company the principal amount of Notes set forth below
opposite their respective names.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. $
Bear, Stearns & Co. Inc...........................................
------------
Total........................................................ $250,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the offering price set forth on the cover
page of this Prospectus Supplement, and to certain dealers at such price less
a concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed. The Notes are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part. The Underwriters are committed to purchase all of
the Notes if any are purchased.
The Underwriters have performed investment banking services in the ordinary
course of their respective businesses for the Company in the past, for which
they have received customary compensation, and may continue to do so in the
future.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
The Company has granted the Underwriters an option to purchase, in the
aggregate, up to an additional $37,500,000 principal amount of Notes at the
public offering price less underwriting discount, solely to cover over-
allotments. Such option may be exercised at any time until 30 days after the
date of this Prospectus Supplement. To the extent that the Underwriters
exercise such option, each Underwriter will be committed, subject to certain
conditions, to purchase an additional principal amount of Notes proportionate
to such Underwriter's initial commitment as indicated in the preceding table.
The Company has agreed not to offer, sell or otherwise dispose of any shares
of, or options, rights or warrants to purchase, Common Stock (except for
restricted shares and stock options granted to employees and the issuance of
Common Stock pursuant to existing options or upon conversion of any
convertible securities) without the written consent of the Underwriters for a
period of 90 days after the date of this Prospectus Supplement.
S-29
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Statement of Income........................................... F-3
Consolidated Balance Sheet................................................. F-4
Consolidated Statement of Cash Flows....................................... F-5
Notes to Consolidated Financial Statements................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Unisys Corporation
We have audited the accompanying consolidated balance sheets of Unisys
Corporation at December 31, 1995 and 1994, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
Unisys Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unisys
Corporation at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the consolidated financial statements, in 1993
Unisys Corporation changed its method of accounting for postretirement
benefits other than pensions and income taxes.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 26, 1996
F-2
<PAGE>
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue
Sales................................. $ 2,646.3 $ 2,877.1 $ 3,178.6
Services.............................. 2,198.1 1,759.4 1,358.2
Equipment maintenance................. 1,357.9 1,341.7 1,444.0
----------- ----------- -----------
6,202.3 5,978.2 5,980.8
----------- ----------- -----------
Costs and expenses
Cost of sales......................... 1,611.0 1,568.7 1,563.8
Cost of services...................... 2,030.4 1,374.0 1,018.6
Cost of equipment maintenance......... 965.7 872.7 820.4
Selling, general and administrative
expenses............................. 1,883.8 1,544.8 1,516.3
Research and development expenses..... 409.5 463.6 489.3
----------- ----------- -----------
6,900.4 5,823.8 5,408.4
----------- ----------- -----------
Operating income (loss)................. (698.1) 154.4 572.4
Interest expense........................ 202.1 203.7 241.7
Other income, net....................... 119.1 63.9 40.2
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes.................... (781.1) 14.6 370.9
Estimated income taxes (benefit)........ (153.8) 2.5 84.6
----------- ----------- -----------
Income (loss) from continuing operations
before extraordinary items and changes
in accounting principles............... (627.3) 12.1 286.3
Income from discontinued operations..... 2.7 96.1 75.3
Extraordinary items..................... (7.7) (26.4)
Effect of changes in accounting
principles............................. 230.2
----------- ----------- -----------
Net income (loss)....................... (624.6) 100.5 565.4
Dividends on preferred shares........... 120.3 120.1 121.6
----------- ----------- -----------
Earnings (loss) on common shares........ $ (744.9) $ (19.6) $ 443.8
=========== =========== ===========
Earnings (loss) per common share
Primary
Continuing operations................. $ (4.37) $ (.63) $ 1.00
Discontinued operations............... .02 .56 .46
Extraordinary items................... (.04) (.16)
Effect of changes in accounting
principles........................... 1.39
----------- ----------- -----------
Total............................... $ (4.35) $ (.11) $ 2.69
=========== =========== ===========
Fully diluted
Continuing operations................. $ (4.37) $ (.63) $ 1.17
Discontinued operations............... .02 .56 .31
Extraordinary items................... (.04) (.11)
Effect of changes in accounting
principles........................... .94
----------- ----------- -----------
Total............................... $ (4.35) $ (.11) $ 2.31
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
-------- --------
(MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $1,114.3 $ 868.4
Marketable securities....................................... 5.4 16.2
Accounts and notes receivable, net.......................... 996.3 945.1
Inventories................................................. 673.9 636.3
Deferred income taxes....................................... 329.8 310.5
Other current assets........................................ 98.9 98.3
Net assets of discontinued operations....................... 526.5
-------- --------
Total................................................... 3,218.6 3,401.3
-------- --------
Long-term receivables, net.................................. 58.7 71.5
-------- --------
Properties and rental equipment............................. 2,088.4 2,209.9
Less--Accumulated depreciation.............................. 1,397.0 1,479.9
-------- --------
Properties and rental equipment, net........................ 691.4 730.0
-------- --------
Cost in excess of net assets acquired....................... 1,014.6 998.0
-------- --------
Investments at equity....................................... 298.9 315.8
-------- --------
Deferred income taxes....................................... 682.6 583.2
-------- --------
Other assets................................................ 1,148.4 1,093.6
-------- --------
Total................................................... $7,113.2 $7,193.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................... $ 12.1 $ 8.9
Current maturities of long-term debt........................ 343.5 71.2
Accounts payable............................................ 940.6 917.6
Other accrued liabilities................................... 1,677.4 1,123.6
Dividends payable........................................... 30.2 26.6
Estimated income taxes...................................... 143.5 237.7
-------- --------
Total................................................... 3,147.3 2,385.6
-------- --------
Long-term debt.............................................. 1,533.3 1,864.1
-------- --------
Other liabilities........................................... 572.4 339.2
-------- --------
Stockholders' equity
Preferred stock............................................. 1,570.3 1,570.3
Common stock, shares issued: 1995--172.3; 1994--171.8....... 1.7 1.7
Retained earnings (accumulated deficit)..................... (702.6) 45.7
Other capital............................................... 990.8 986.8
-------- --------
Stockholders' equity........................................ 1,860.2 2,604.5
-------- --------
Total................................................... $7,113.2 $7,193.4
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations..... $ (627.3) $ 12.1 $ 490.1
Add (deduct) items to reconcile income (loss)
from continuing operations to net cash pro-
vided by operating activities:
Effects of extraordinary items and changes in
accounting principles....................... (7.7) (203.8)
Depreciation................................. 203.0 226.2 252.0
Amortization:
Marketable software.......................... 151.7 150.5 144.6
Cost in excess of net assets acquired........ 40.9 36.9 36.7
(Increase) decrease in deferred income taxes,
net......................................... (223.1) (60.6) 223.7
(Increase) decrease in receivables, net...... (66.9) (16.5) 307.8
(Increase) decrease in inventories........... (15.4) (28.0) 74.9
Increase (decrease) in accounts payable and
other accrued liabilities................... 565.6 186.3 (276.0)
(Decrease) in estimated income taxes......... (63.9) (12.2) (164.9)
Increase (decrease) in other liabilities..... 215.5 (36.8) (37.5)
(Increase) decrease in other assets.......... (132.7) 57.6 78.6
Other........................................ 50.3 21.3 27.2
--------- --------- ---------
Net cash provided by operating activities.... 97.7 529.1 953.4
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments.................... 3,311.9 1,792.7 1,821.2
Purchases of investments..................... (3,329.6) (1,816.4) (1,829.4)
Proceeds from marketable securities.......... 14.4 197.9 146.5
Purchases of marketable securities........... (97.2) (187.2)
Proceeds from sales of properties............ 30.3 24.8 26.5
Investment in marketable software............ (123.0) (121.3) (118.7)
Capital additions of properties and rental
equipment................................... (195.0) (208.2) (173.5)
Purchases of businesses...................... (42.3)
--------- --------- ---------
Net cash used for investing activities....... (333.3) (227.7) (314.6)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of debt................... (68.2) (140.1) (394.4)
Net proceeds from (reduction in) short-term
borrowings.................................. 3.1 2.9 (47.2)
Dividends paid on preferred shares........... (120.2) (228.0) (183.7)
Other........................................ 2.8 3.7 7.1
--------- --------- ---------
Net cash used for financing activities....... (182.5) (361.5) (618.2)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS............................ 5.7 (9.1) (37.3)
--------- --------- ---------
Net cash used for continuing operations...... (412.4) (69.2) (16.7)
--------- --------- ---------
DISCONTINUED OPERATIONS
Proceeds from sale........................... 862.0
Other........................................ (203.7) 102.2 43.0
--------- --------- ---------
Net cash provided by discontinued opera-
tions....................................... 658.3 102.2 43.0
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS........ 245.9 33.0 26.3
--------- --------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR........................................ 868.4 835.4 809.1
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR....... $ 1,114.3 $ 868.4 $ 835.4
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries. Investments in companies representing ownership interests
of 20% to 50% are accounted for by the equity method.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash equivalents
All short-term investments purchased with a maturity of three months or less
are classified as cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
principally on the first-in, first-out method.
Properties, rental equipment and depreciation
Properties and rental equipment are carried at cost and are depreciated over
the estimated lives of such assets using the straight-line method. Leasehold
improvements are amortized over the shorter of the asset lives or the terms of
the respective leases. The principal rates used are summarized below by
classification of properties:
<TABLE>
<CAPTION>
RATE PER YEAR (%)
-----------------
<S> <C>
Buildings.................................................. 2-5
Machinery and equipment.................................... 5-25
Tools and test equipment................................... 10-33 1/3
Rental equipment........................................... 25
</TABLE>
Revenue recognition
Sales revenue is generally recorded upon shipment of product in the case of
sales contracts, upon shipment of the program in the case of software, and
upon installation in the case of sales-type leases. Revenue from services and
equipment maintenance is recorded as earned over the lives of the respective
contracts.
Revenue under cost-type contracts is recognized when costs are incurred, and
under systems integration and services contracts when services have been
performed and accepted or milestones have been met. Cost of revenue under such
contracts is charged based on current estimated total costs.
Accounting for large multi-year, fixed-price systems integration contracts
involves considerable use of estimates in determining revenue, costs and
profits. When estimates indicate a loss under a contract, cost of revenue is
charged with a provision for such loss. Revisions in profit estimates are
reflected in the period in which the facts which require the revision become
known.
F-6
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes
Income taxes are provided on taxable income at the statutory rates
applicable to such income. Deferred taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries since such amounts
are expected to be reinvested indefinitely.
Earnings per common share
In 1995 and 1994, the computation of both primary and fully diluted earnings
per share was based on the weighted average number of outstanding common
shares. The inclusion of additional shares assuming the exercise of stock
options, conversion of Series A Cumulative Convertible Preferred Stock, or
conversion of the 8 1/4% convertible subordinated notes due August 1, 2000
would have been antidilutive. In 1993, the computation of primary earnings per
share was based on the weighted average number of outstanding common shares
and additional shares assuming the exercise of stock options, and the
computation of fully diluted earnings per share assumed the conversion of the
8 1/4% convertible subordinated notes due August 1, 2000. The computation of
fully diluted earnings per share for 1993 further assumed conversion of Series
A Cumulative Convertible Preferred Stock. The shares used in the computations
for the three years ended December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Primary.............................................. 171,238 170,752 165,070
Fully diluted........................................ 171,238 170,752 246,550
</TABLE>
Software capitalization
The cost of development of computer software to be sold or leased is
capitalized and amortized to cost of sales over the estimated revenue-
producing lives of the products, but not in excess of three years following
product release. Unamortized marketable software costs (which are included in
other assets) at December 31, 1995 and 1994 were $238.9 and $265.3 million,
respectively.
Cost in excess of net assets acquired
Cost in excess of net assets acquired principally represents the excess of
cost over fair value of the net assets of Sperry Corporation and Convergent,
Inc., which is being amortized on the straight-line method over 40 years and
12 years, respectively. Accumulated amortization at December 31, 1995 and 1994
was $571.6 and $530.7 million, respectively.
The carrying value of cost in excess of net assets acquired is reviewed for
impairment whenever events or changes in circumstances indicate that it may
not be recoverable. If such an event occurred, the Company would prepare
projections of future results of operations for the remaining amortization
period. If such projections indicated that the cost in excess of net assets
acquired would not be recoverable, the Company's carrying value of such asset
would be reduced by the estimated excess of such value over projected income.
Translation of foreign currency
The local currency is the functional currency for most of the Company's
international subsidiaries and, as such, assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are
translated at average exchange rates during the year. Translation adjustments
resulting from changes in exchange rates are reported in a separate component
of stockholders' equity. Exchange gains and losses on certain forward exchange
contracts designated as hedges of international net investments and exchange
gains and
F-7
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
losses on intercompany balances of a long-term investment nature are also
reported in the separate component of stockholders' equity.
For those international subsidiaries operating in hyperinflationary
economies, the U.S. dollar is the functional currency and, as such, non-
monetary assets and liabilities are translated at historical exchange rates
and monetary assets and liabilities are translated at current exchange rates.
Exchange gains and losses arising from translation are included in other
income.
The Company also enters into forward exchange contracts and options that
have been designated as hedges of certain transactional exposures. Gains and
losses on these instruments are deferred and are recognized in income together
with the transaction being hedged.
NOTE 2 SIGNIFICANT 1995 AND 1994 FOURTH QUARTER EVENTS
1995 restructuring charge
In the fourth quarter of 1995, the Company recorded a pretax charge of
$717.6 million, $581.9 million after tax, or $3.39 per fully diluted common
share. The charge included (a) $436.6 million for work force reductions of
approximately 7,900 people including severance, notice pay, medical and other
benefits, (b) $218.6 million for consolidation of office facilities and
manufacturing capacity, and (c) $62.4 million associated with product and
program discontinuances.
Cash expenditures related to the restructuring in 1996 and 1997 will
approximate $400.0 million and $150.0 million, respectively. Personnel
reductions in the U.S. will account for approximately 61% of the work force
related accrual and such actions in Europe will represent 32% with the balance
of 7% in Americas/Pacific business units. Actual costs incurred are charged to
the accrued liability when the actions are taken.
1995 fourth quarter events
In the fourth quarter of 1995, the Company recorded a charge (in cost of
services) for contract losses of $129.0 million ($88.6 million after tax), or
$.51 per primary and fully diluted share, primarily related to a few large
multi-year, fixed-price systems integration contracts. Included in the charge
is $65.5 million, due to developments with respect to contract terminations.
1994 restructuring charge
In the fourth quarter of 1994, the Company recorded a pretax charge of
$186.2 million, $133.1 million after tax, or $.78 per fully diluted common
share. The charge was related to involuntary employee termination benefits
including severance, notice pay, medical and other benefits for approximately
4,600 people and was taken to reduce the Company's cost structure.
Cash expenditures in 1994 and 1995 relating to this restructuring charge
were $6.3 million for 825 terminations and $133.0 million for 3,565
terminations, respectively. Approximately $36.0 million is expected to be
expended in 1996 for salary continuation payments and to terminate
approximately 160 people.
F-8
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summary
The 1995 charges for restructuring and loss contracts and the 1994
restructuring charge were recorded in the following statement of income
classifications:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1994
----------- -----------
(MILLIONS)
<S> <C> <C>
Cost of sales....................................... $ 111.5 $ 30.3
Cost of services.................................... 294.4 17.5
Cost of equipment maintenance....................... 92.8 61.8
Selling, general and administrative expenses........ 305.2 47.7
Research and development expenses................... 42.7 27.9
Other income, net................................... 1.0
----------- -----------
Total............................................. $ 846.6 $ 186.2
=========== ===========
</TABLE>
NOTE 3 DISCONTINUED OPERATIONS
During the year ended December 31, 1995, the Company sold its defense
business for cash of $862 million. The net results of the defense operations
for all periods presented are reported separately in the Consolidated
Statement of Income as "income from discontinued operations." Prior period
financial statements have been restated to report the defense business as a
discontinued operation.
The following is a summary of the results of operations of the Company's
defense business:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------ -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenue.......................................... $258.1* $1,421.5 $1,761.7
====== ======== ========
Income from operations (net of taxes: 1995, $6.5;
1994, $42.5; 1993, $57.2)....................... $ 12.5* $ 96.1 $ 75.3
Loss on sale, net of taxes of $98.2.............. (9.8)
------ -------- --------
Income from discontinued operations.............. $ 2.7 $ 96.1 $ 75.3
====== ======== ========
</TABLE>
- --------
* Reflects results for the period January 1 through March 31, 1995.
The net assets of discontinued operations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
(MILLIONS)
<S> <C>
Current assets............................................. $ 266.7
Current liabilities........................................ (123.8)
Property, plant and equipment, net......................... 203.7
Cost in excess of net assets acquired...................... 144.5
Other, net................................................. 35.4
-------
Total.................................................... $ 526.5
=======
</TABLE>
F-9
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 ACCOUNTING CHANGES AND EXTRAORDINARY ITEMS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-Based Compensation." SFAS 123, which is required to be adopted by
January 1, 1996, establishes financial accounting and reporting standards for
stock-based employee compensation plans, and establishes accounting standards
for issuance of equity instruments to acquire goods and services from non-
employees.
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121,
which is required to be adopted by January 1, 1996, establishes accounting
standards for the impairment of long-lived assets, certain intangible assets
and cost in excess of net assets related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be disposed
of.
The Company does not expect that adoption of SFAS 121 and 123 will have a
material effect on its consolidated financial position, consolidated statement
of income, or liquidity.
In 1994, the Company recorded an extraordinary charge for the repurchases of
debt of $7.7 million, net of $5.1 million of income tax benefits, or $.04 per
fully diluted common share.
Effective January 1, 1993, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS 109,
"Accounting for Income Taxes." The adoption of SFAS 106 decreased net income
$194.8 million, net of $124.5 million of income tax benefits, or $.79 per
fully diluted common share, and the adoption of SFAS 109 increased net income
by $425.0 million, or $1.73 per fully diluted common share. For further
discussion of SFAS 106 and 109, see notes 15 and 7, respectively.
In 1993, the Company settled certain lawsuits in connection with its sale of
the Sperry Aerospace Group in December 1986 to Honeywell, Inc. The Aerospace
Group was part of Sperry Corporation, which was acquired by the Company in
September 1986 in the largest acquisition at the time in the computer
industry. The lawsuits alleged violations of securities laws and fraudulent
and negligent misrepresentations of interim financial statements of the Sperry
Aerospace Group as of and for the six months ended September 30, 1986 prepared
in connection with the sale. The sale of the Aerospace Group as a non-
strategic business was part of the financing strategy for the acquisition of
Sperry Corporation and was carried out very shortly after the completion of
this acquisition. The Aerospace Group operations were never reported in the
financial results of the Company. The settlement of litigation arising out of
the sale, therefore, was unrelated to the ordinary activities of the Company.
Accordingly, the Company reported this litigation settlement as an
extraordinary charge of $26.4 million, net of $16.8 million of income tax
benefits, or $.11 per fully diluted common share.
NOTE 5 CURRENT AND LONG-TERM RECEIVABLES, NET
Current and long-term receivables, net comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
------- -------
(MILLIONS)
<S> <C> <C>
Accounts receivable, net.................................... $ 975.1 $ 907.1
Sales-type leases, net...................................... 50.7 83.9
Installment accounts, net................................... 29.2 25.6
------- -------
Total, net................................................ 1,055.0 1,016.6
Less--Current receivables, net.............................. 996.3 945.1
------- -------
Long-term receivables, net.................................. $ 58.7 $ 71.5
======= =======
</TABLE>
F-10
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the Company had sold accounts receivable of
$393.0 and $359.0 million, respectively. Recourse amounts associated with
these sales are expected to be minimal. Adequate reserves are in place to
cover potential losses. On an ongoing basis, the Company sells accounts
receivable to Unisys Receivables, Inc., a wholly owned subsidiary, which then
sells such receivables to a master trust. Amounts sold under this arrangement,
which are included in the above accounts receivable sold, were $152.5 and
$125.0 million at December 31, 1995 and 1994, respectively.
NOTE 6 INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Finished equipment and supplies............................... $358.6 $355.0
Work in process and raw materials............................. 315.3 281.3
------ ------
Total inventories........................................... $673.9 $636.3
====== ======
</TABLE>
At December 31, 1995 and 1994, inventories included $120.0 and $94.2
million, respectively, of costs related to long-term contracts.
NOTE 7 ESTIMATED INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994 1993
------- ------ -------
(MILLIONS)
<S> <C> <C> <C>
Income (loss) from continuing operations before
income taxes
United States.................................. $(482.7) $(75.2) $ 265.8
Foreign........................................ (298.4) 89.8 105.1
------- ------ -------
Total income (loss) from continuing operations
before income taxes............................. $(781.1) $ 14.6 $ 370.9
======= ====== =======
Estimated income taxes (benefit)
Current
United States................................ $ (83.6) $ (6.0) $ (40.4)
Foreign...................................... 60.5 87.7 (55.2)
State and local.............................. (5.7) (18.6) (17.8)
------- ------ -------
Total........................................ (28.8) 63.1 (113.4)
------- ------ -------
Deferred
United States................................ (140.4) (32.8) 127.8
Foreign...................................... 15.4 (27.8) 57.2
State and local.............................. 13.0
------- ------ -------
Total........................................ (125.0) (60.6) 198.0
------- ------ -------
Total estimated income taxes (benefit)........... $(153.8) $ 2.5 $ 84.6
======= ====== =======
</TABLE>
F-11
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reconciliation of estimated income taxes at United States statutory tax rate
to estimated income taxes as reported follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
-------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
United States statutory income tax (benefit)... $ (273.4) $ 5.1 $ 129.8
Difference in estimated income taxes on foreign
earnings, losses and remittances.............. 192.8 30.3 (17.2)
State taxes.................................... (3.6) (12.1) (3.1)
Tax refund claims, audit issues, and other mat-
ters.......................................... (85.4) (32.8) (10.3)
Amortization of cost in excess of net assets
acquired...................................... 12.6 12.6 12.6
Change in tax rates............................ (19.4)
Other.......................................... 3.2 (.6) (7.8)
-------- ------- -------
Estimated income taxes (benefit)............... $ (153.8) $ 2.5 $ 84.6
======== ======= =======
</TABLE>
The Company adopted SFAS 109 effective January 1, 1993. Under the provisions
of SFAS 109, deferred tax assets and liabilities are recognized using enacted
tax rates and reflect the effect of "temporary differences" between the
recorded amounts of assets and liabilities for financial reporting purposes
and the tax basis of such assets and liabilities.
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
-------- --------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards................................. $ 532.8 $ 470.7
Foreign tax credit carryforwards....................... 316.8 287.4
Other tax credit carryforwards......................... 77.8 81.2
Capitalized research and development................... 114.2 134.6
Depreciation........................................... 60.7 113.7
Postretirement benefits................................ 85.3 101.6
Employee benefits...................................... 81.6 81.4
Restructuring.......................................... 286.1 82.3
Other.................................................. 331.0 255.2
-------- --------
1,886.3 1,608.1
Valuation allowance...................................... (498.5) (326.8)
-------- --------
Total deferred tax assets............................ $1,387.8 $1,281.3
======== ========
Deferred tax liabilities:
Pensions............................................... $ 317.5 $ 284.1
Other.................................................. 112.1 163.9
-------- --------
Total deferred tax liabilities....................... $ 429.6 $ 448.0
======== ========
</TABLE>
F-12
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax asset will not be realized. During 1995, the net increase in the
valuation allowance was $171.7 million.
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S.
income or foreign withholding taxes have been recorded, approximated $660
million at December 31, 1995. Such earnings are expected to be reinvested
indefinitely. Determination of the amount of unrecognized deferred tax
liability with respect to such earnings is not practicable. The additional
taxes payable on the earnings of foreign subsidiaries, if remitted, would be
substantially offset by U.S. tax credits for foreign taxes already paid. While
there are no specific plans to distribute the undistributed earnings in the
immediate future, where economically appropriate to do so, such earnings may
be remitted.
Cash paid during 1995, 1994, and 1993 for income taxes was $132.2, $87.6,
and $118.1 million, respectively.
At December 31, 1995, the Company has U.S. federal and state and local tax
loss carryforwards and foreign tax loss carryforwards for certain foreign
subsidiaries, the tax effect of which is approximately $532.8 million. These
carryforwards will expire as follows (in millions): 1996, $10.6; 1997, $12.2;
1998, $9.3; 1999, $16.5; 2000, $16.0; and $468.2 thereafter. The Company also
has available tax credit carryforwards of approximately $394.6 million, which
will expire as follows (in millions): 1996, $2.6; 1997, $2.1; 1998, $114.6;
1999, $132.0; 2000, $96.1; and $47.2 thereafter.
The Company's net deferred tax assets include substantial amounts of net
operating loss and tax credit carryforwards. Failure to achieve forecasted
taxable income might affect the ultimate realization of the net deferred tax
assets. In recent years, the information management business has undergone
dramatic changes and there can be no assurance that in the future there would
not be increased competition or other factors which may result in a decline in
sales or margins, loss of market share, or technological obsolescence.
In 1995, the Internal Revenue Service completed its audit of Sperry
Corporation for the years ended March 31, 1985 and 1986 and for the short
period ended September 16, 1986. The Company is currently contesting issues in
connection with Sperry Corporation for the years ended March 31, 1978 through
September 16, 1986. The audit of Convergent, Inc. is currently in the process
of being finalized for the years 1985-1988. In management's opinion, adequate
provisions for income taxes have been made for all years.
NOTE 8 PROPERTIES AND RENTAL EQUIPMENT
Properties and rental equipment comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(MILLIONS)
<S> <C> <C>
Land...................................................... $ 26.8 $ 27.2
Buildings................................................. 239.8 248.7
Machinery and equipment................................... 1,312.6 1,313.2
Tools and test equipment.................................. 159.8 204.3
Unamortized leasehold improvements........................ 52.7 48.8
Construction in progress.................................. 29.9 28.6
Rental equipment.......................................... 266.8 339.1
-------- --------
Total properties and rental equipment................... $2,088.4 $2,209.9
======== ========
</TABLE>
F-13
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9 LONG-TERM DEBT
Long-term debt comprises:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(MILLIONS)
<S> <C> <C>
10 5/8% senior notes due 1999............................. $ 330.1 $ 330.1
8 1/4% convertible subordinated notes due 2000............ 345.0 345.0
9 3/4% senior notes due 1996.............................. 238.1 238.1
Credit sensitive notes due 1997........................... 291.8 291.8
9 3/4% senior sinking fund debentures due 2016............ 190.0 190.0
9 1/2% notes due 1998..................................... 197.5 197.5
8 7/8% notes due 1997..................................... 135.0 135.0
Japanese yen, 5.52% due 1996.............................. 100.3 100.3
11 3/8% subordinated notes................................ 50.0
6 3/4% bonds.............................................. 17.1
Other..................................................... 49.0 40.4
-------- --------
Total................................................... 1,876.8 1,935.3
Less--Current maturities.................................. 343.5 71.2
-------- --------
Total long-term debt.................................... $1,533.3 $1,864.1
======== ========
</TABLE>
Total long-term debt maturities in 1996, 1997, 1998, 1999, and 2000 are
$343.5, $431.8, $211.0, $343.7, and $360.7 million, respectively.
Cash paid during 1995, 1994 and 1993 for interest was $201.3, $208.9, and
$256.7, million, respectively.
The Company has a $325 million revolving credit agreement with a syndicate
of banks that expires on May 31, 1996. This agreement provides for short-term
borrowings and up to $100 million of letters of credit. The terms of the
agreement include a minimum net worth requirement, an interest coverage ratio,
and a limitation on the payment of dividends, payment of debt and amount of
outstanding debt. In September and December of 1995, the bank syndicate waived
compliance with those covenants that were impacted by results of operations in
the respective quarters. Borrowings under the facility are now subject to
approval by the bank group. The Company has never utilized the facility and
does not expect to do so.
The Company pays commitment fees on the unused amount of the revolving
credit agreement; there are no compensating balance requirements. Revolving
credit borrowings, at the Company's option, are at the agent bank's base rate
or the London Interbank Offered Rate, plus a margin depending on the Company's
debt rating on its outstanding senior unsecured long-term debt securities.
Commissions for letters of credit also vary depending on such debt rating. In
addition, international subsidiaries maintain short-term credit arrangements
with banks in accordance with local customary practice.
F-14
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10 OTHER ACCRUED LIABILITIES
Other accrued liabilities comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(MILLIONS)
<S> <C> <C>
Payrolls and commissions.................................. $ 328.4 $ 287.5
Customers' deposit and prepayments........................ 507.3 430.2
Taxes other than income taxes............................. 172.4 157.5
Restructuring*............................................ 503.7 209.3
Other..................................................... 165.6 39.1
-------- --------
Total other accrued liabilities......................... $1,677.4 $1,123.6
======== ========
</TABLE>
- --------
* At December 31, 1995, an additional $230.6 million was reported in other
liabilities on the consolidated balance sheet.
NOTE 11 LEASES
Rental expense, less income from subleases, for 1995, 1994, and 1993 was
$195.8, $195.1, and $211.8 million, respectively.
Minimum net rental commitments under noncancelable operating leases
outstanding at December 31, 1995, substantially all of which relate to real
properties, were as follows: 1996, $170.2 million; 1997, $140.6 million; 1998,
$116.1 million; 1999, $89.9 million; 2000, $71.8 million; and thereafter,
$457.2 million. Such rental commitments have been reduced by minimum sublease
rentals of $114.5 million due in the future under noncancelable subleases.
NOTE 12 LITIGATION
There are various lawsuits, claims, and proceedings that have been brought
or asserted against the Company. Although the ultimate results of these
lawsuits, claims, and proceedings are not presently determinable, management
does not expect that these matters will have a material adverse effect on the
Company's consolidated financial position, consolidated statement of income,
or liquidity.
NOTE 13 FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward
contracts and options, and interest rate and foreign currency swap agreements.
These derivatives, which are over-the-counter instruments, are non-leveraged
and involve little complexity.
The Company monitors and controls its risks in the derivative transactions
referred to above by periodically assessing the cost of replacing, at market
rates, those contracts in the event of default by the counterparty. The
Company believes such risk to be remote. In addition, before entering into
derivative contracts, and periodically during the life of the contract, the
Company reviews the counterparties' financial condition.
Due to its foreign operations, the Company is exposed to the effects of
foreign exchange rate fluctuations on the U.S. dollar. Foreign exchange
forward contracts and options generally having maturities of less than nine
F-15
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
months are entered into for the sole purpose of hedging long-term investments
in foreign subsidiaries and certain transactional exposures.
The cost of foreign currency options is recorded in prepaid expenses in the
consolidated balance sheet. At December 31, 1995, such prepaid expense was
$6.1 million. When the U.S. dollar strengthens against foreign currencies, the
decline in value of the underlying exposures is partially offset by gains in
the value of purchased currency options designated as hedges. When the U.S.
dollar weakens, the increase in the value of the underlying exposures is
reduced only by the premium paid to purchase the options. The cost of options
and any gains thereon are reported in income when the related transactions
being hedged (generally within twelve months) are recognized.
The Company also enters into foreign exchange forward contracts. Gains and
losses on such contracts, which hedge transactional exposures, are deferred
and included in current liabilities until the corresponding transaction is
recognized. At December 31, 1995, the Company had a total of $370.9 million
(of notional value) of foreign exchange forward contracts, $176.1 million to
sell foreign currencies and $194.8 million to buy foreign currencies. At
December 31, 1994, the Company had a total of $1,483.7 million of such
contracts, $811.2 million to sell foreign currencies and $672.5 million to buy
foreign currencies. At December 31, 1995, a realized net gain of approximately
$24.7 million was deferred and included in current liabilities on such
contracts. Gains or losses on foreign exchange forward contracts that hedge
foreign currency transactions are reported in income when the related
transactions being hedged (generally within twelve months) are recognized.
Gains or losses on those contracts that hedge long-term investments in foreign
subsidiaries are reported in a separate component of stockholders' equity for
translation adjustments.
The Company uses interest rate swap agreements to effectively convert
variable rate obligations to a fixed-rate basis, and uses foreign currency
swaps to effectively convert foreign currency denominated debt to U.S. dollar
denominated debt in order to reduce the impact of interest rate and foreign
currency rate changes on future income. The differential to be paid or
received under these agreements is recognized as an adjustment to interest
expense related to the debt. The related amount payable to or receivable from
counterparties is included in current liabilities or current receivables. At
December 31, 1995, the weighted average fixed rate paid by the Company was
8.9%. The fair values of the swap agreements are not recognized in the
financial statements. At December 31, 1995, the Company had one interest rate
swap contract with a total notional value of $50.2 million which expires in
1996, and one foreign currency swap for $50.1 million expiring in 1996. During
the three years ended December 31, 1995, there were no terminations of swap
contracts. Accordingly, there were no deferred gains or losses related to such
swaps as of December 31, 1995.
F-16
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial instruments comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(MILLIONS)
<S> <C> <C>
Outstanding:
Long-term debt....................................... $ 1,876.8 $ 1,935.3
Foreign exchange forward contracts*.................. 370.9 1,483.7
Foreign exchange options*............................ 256.8 373.9
Interest rate swaps*................................. 50.2 63.8
Foreign currency swaps*.............................. 50.1 50.1
--------- ---------
Estimated fair value:
Long-term debt....................................... 1,715.8 1,935.6
Foreign exchange forward contracts................... 369.3 1,484.1
Foreign exchange options............................. 3.8 4.8
Interest rate swaps.................................. (1.0) (.9)
Foreign currency swaps............................... 18.6 22.1
--------- ---------
</TABLE>
- --------
* notional value
Financial instruments also include temporary cash investments and customer
accounts receivable. Temporary investments are placed with creditworthy
financial institutions, primarily in over-securitized treasury repurchase
agreements, Euro-time deposits or commercial paper of major corporations. The
Company's cash equivalents are classified as available-for-sale and at
December 31, 1995 principally have maturities of less than one month. Due to
the short maturities of these instruments, they are carried on the balance
sheet at cost plus accrued interest, which approximates market value. Realized
gains or losses during 1995, as well as unrealized gains or losses at December
31, 1995, were immaterial. Receivables are due from a large number of
customers which are dispersed worldwide across many industries. At December
31, 1995 and 1994, the company had no significant concentrations of credit
risk.
For foreign currency contracts and options, no impact on financial position
or results of operations would result from a change in the level of the
underlying rate, price or index. All of the Company's foreign currency
contracts and options are hedges against specific exposures and have been
accounted for as such. Therefore, a change in the derivative's value would be
offset with an equal but opposite change in the hedged item.
The carrying amount of cash, cash equivalents, and marketable securities
approximates fair value because of the short maturity of these instruments.
The fair value of the Company's long-term debt was based on the quoted market
prices for publicly traded issues. For debt that is not publicly traded, the
fair value was estimated based on current yields to maturity for the Company's
publicly traded debt with similar maturities. In estimating the fair value of
its derivative positions, the Company utilizes quoted market prices, if
available, or quotes obtained from outside sources.
NOTE 14 BUSINESS SEGMENT INFORMATION
The Company operates primarily in one business segment--information
management. This segment represents more than 90% of consolidated revenue,
operating profit and identifiable assets. The Company's principal products and
services include enterprise systems and servers, departmental servers and
desktop systems, software, information services and systems integration, and
equipment maintenance. These products and services are marketed throughout the
world to commercial businesses and governments. The Company's worldwide
operations are structured to achieve consolidated objectives. As a result,
significant interdependencies and overlaps exist among the Company's operating
units. Accordingly, the revenue, operating profit and identifiable
F-17
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assets shown for each geographic area may not be indicative of the amounts
which would have been reported if the operating units were independent of one
another.
Sales and transfers between geographic areas are generally priced to recover
cost plus an appropriate mark-up for profit. Operating profit is revenue less
related costs and direct and allocated operating expenses, excluding interest
and the unallocated portion of corporate expenses. Corporate assets are those
assets maintained for general purposes, principally cash and cash equivalents,
marketable securities, costs in excess of net assets acquired, prepaid pension
assets, deferred taxes, investments at equity, net assets of discontinued
operations and corporate facilities.
No single customer accounts for more than 10% of revenue. Revenue from
various agencies of the U.S. Government approximated $530, $476, and $797
million in 1995, 1994, and 1993, respectively.
A summary of the Company's operations by geographic area is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
(MILLIONS)
<S> <C> <C> <C>
United States
Customer revenue.......................... $2,405.5 $2,389.1 $ 2,513.7
Affiliate revenue......................... 721.6 695.6 944.1
-------- -------- ---------
Total................................... $3,127.1 $3,084.7 $ 3,457.8
-------- -------- ---------
Operating profit (loss)................... $ (306.9) $ 33.3 $ 352.2
Identifiable assets....................... 1,368.5 1,247.8 1,378.6
-------- -------- ---------
Europe and Africa
Customer revenue.......................... $2,090.3 $1,935.4 $ 1,921.2
Affiliate revenue......................... 28.8 47.2 107.5
-------- -------- ---------
Total................................... $2,119.1 $1,982.6 $ 2,028.7
-------- -------- ---------
Operating (loss).......................... $ (505.0) $ (82.5) $ (165.0)
Identifiable assets....................... 827.8 758.2 702.4
-------- -------- ---------
Americas/Pacific
Customer revenue.......................... $1,706.5 $1,653.7 $ 1,545.9
Affiliate revenue......................... 138.7 177.7 167.9
-------- -------- ---------
Total................................... $1,845.2 $1,831.4 $ 1,713.8
-------- -------- ---------
Operating profit.......................... $ 408.0 $ 392.6 $ 465.9
Identifiable assets....................... 496.1 628.1 578.9
-------- -------- ---------
Adjustments and eliminations
Affiliate revenue......................... $ (889.1) $ (920.5) $(1,219.5)
Operating profit.......................... 21.5 18.4 17.1
Identifiable assets....................... (23.9) (50.7) (66.6)
-------- -------- ---------
Consolidated
Revenue................................... $6,202.3 $5,978.2 $ 5,980.8
-------- -------- ---------
Operating profit (loss)................... $ (382.4) $ 361.8 $ 670.2
General corporate expenses................ (196.6) (143.5) (57.6)
Interest expense.......................... (202.1) (203.7) (241.7)
-------- -------- ---------
Income (loss) from continuing operations
before income taxes...................... $ (781.1) $ 14.6 $ 370.9
======== ======== =========
Identifiable assets....................... $2,668.5 $2,583.4 $ 2,593.3
Corporate assets.......................... 4,444.7 4,610.0 4,756.1
-------- -------- ---------
Total assets............................ $7,113.2 $7,193.4 $ 7,349.4
======== ======== =========
</TABLE>
F-18
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15 EMPLOYEE PLANS
Retirement benefits
Defined benefit retirement income plans cover the majority of domestic
employees and certain employees in countries outside the United States. In the
United States, the Company has retirement plans under which funds are
deposited with a trustee. Major subsidiaries outside the United States provide
for employee pensions in accordance with local requirements and customary
practices, and several maintain funded defined benefit plans.
For plans covered by the Employee Retirement Income Security Act ("ERISA"),
the Company's funding policy is to fund in accordance with ERISA funding
standards. The various benefit formulas and the funding methods used in the
international plans are in accordance with local requirements. Plan assets
generally are invested in common stocks, fixed-income securities, insurance
contracts, and real estate. At December 31, 1995, the assets of the Company's
U.S. pension plans included approximately 1.8 million shares of the Company's
common stock valued at approximately $9.7 million.
Net curtailment gains of $14.9, $8.3, and $7.4 million have been recognized
in 1995, 1994, and 1993, respectively.
Stock plans
Under plans approved by the stockholders, stock options, stock appreciation
rights, restricted stock and performance units may be granted to officers and
other key employees.
Options have been granted to purchase the Company's common stock at 100% of
the fair market value at the date of grant. Options have a maximum duration of
ten years and become exercisable in annual installments over a two, three or
four year period following date of grant.
Other postretirement benefits
The Company provides certain health care benefits for U.S. employees who
retired or terminated after qualifying for such benefits. Most international
employees are covered by government-sponsored programs and the cost to the
Company is not significant. The Company expects to fund its share of such
benefit costs principally on a pay-as-you-go-basis.
The Company adopted SFAS 106 effective January 1, 1993. SFAS 106 required
the Company to change from the cash basis of accounting for such benefits by
requiring the accrual, during the years that the employee renders services, of
the estimated cost of providing such benefits.
In 1992, the Company announced changes to its post-retirement benefit plans,
effective January 1, 1993, whereby the Company's current subsidy would be
phased out, ending as of January 1, 1996. Several lawsuits have been brought
by plan participants challenging the announced changes to the plans, and the
Company is defending them vigorously. In 1994, several of these lawsuits were
resolved which resulted in the Company recognizing income of $13.8 million
($8.0 million amortization of prior service benefit and $5.8 million
settlement).
F-19
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the period.. $ .1 $ 1.0 $ 1.2
Interest cost on accumulated postretirement bene-
fit obligation.................................. 17.6 22.1 26.1
Amortization of prior service benefit............ (8.5) (8.0)
Net amortization and deferral.................... 3.6 (2.5) .5
Return on plan assets............................ (4.2) .5 (3.3)
------ ------- -------
Net periodic postretirement benefit cost......... $ 8.6 $ 13.1 $ 24.5
====== ======= =======
</TABLE>
The status of the plan and amounts recognized in the Company's consolidated
balance sheet at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994
----------- -----------
(MILLIONS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees....................................... $ 223.4 $ 240.2
Fully eligible active plan participants........ 14.9
Other active plan participants................. 12.3
----------- -----------
223.4 267.4
Less plan assets at fair value................... (27.3) (26.5)
----------- -----------
Accrued postretirement benefit liability in
excess of plan assets........................... 196.1 240.9
Unrecognized net loss............................ (8.3) (27.9)
Unrecognized prior service benefit............... 30.9 39.2
----------- -----------
Accrued postretirement benefit obligation
recognized in the consolidated balance sheet.... $ 218.7 $ 252.2
=========== ===========
</TABLE>
As of December 31, 1995, the entire liability was classified as long-term.
The assumed rate of return on plan assets, which are principally invested in
fixed-income securities, was 8% in 1995 and 1994, respectively, and the
weighted average discount rate used to measure the accumulated postretirement
benefit obligation was 7.5% at December 31, 1995 and 8.75% at December 31,
1994. The assumed health care cost trend rate used in measuring the expected
cost of benefits covered by the plan was 9.5% for 1996, gradually declining to
6% in 2006 and thereafter. A one-percentage point increase in the assumed
health care cost trend rate would increase the accumulated postretirement
benefit obligation at December 31, 1995 by $11.3 million and increase the
aggregate of the service and interest cost components of net periodic
postretirement health care benefit cost by $1.0 million.
F-20
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Retirement benefits
The plans' funded status and amounts recognized in the Company's consolidated
balance sheet at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS
--------------------------------------- --------------------------------------
U.S. PLANS INT'L PLANS U.S. PLANS INT'L PLANS
-------------------- ----------------- ------------------ ------------------
1995 1994 1995 1994 1995 1994 1995 1994
--------- --------- -------- -------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation............ $ 3,165.4 $ 2,702.4 $ 631.3 $ 519.7 $ 49.8 $ 40.5 $ 31.8 $ 44.9
--------- --------- ------- ------- -------- -------- -------- --------
Acumulated benefit
obligation............ $3,226.7 $ 2,773.2 $ 642.9 $ 536.0 $ 51.0 $ 42.1 $ 50.2 $ 67.6
--------- --------- ------- ------- -------- -------- -------- --------
Projected benefit
obligation............ $ 3,254.2 $ 2,798.3 $ 674.7 $ 603.8 $ 53.4 $ 45.1 $ 58.4 $ 75.7
Plan assets at fair
value.................. 3,390.8 2,961.1 784.1 652.8 27.0 42.5
--------- --------- ------- ------- -------- -------- -------- --------
Projected benefit
obligation less than
(in excess of) plan
assets................. 136.6 162.8 109.4 49.0 (53.4) (45.1) (31.4) (33.2)
Unrecognized net loss
(gain)................. 580.0 507.6 (3.9) 37.9 12.4 4.2 .7 7.7
Unrecognized prior
service (benefit)
cost................... (65.8) (86.7) 4.2 4.7 2.2 2.2 1.2 2.0
Unrecognized net (asset)
obligation at date of
adoption............... (.4) (.4) (4.3) (1.8) 4.0 4.8 4.7 3.5
--------- --------- ------- ------- -------- -------- -------- --------
Prepaid pension cost
(pension liability)
recognized in the
consolidated balance
sheet.................. $ 650.4 $ 583.3 $ 105.4 $ 89.8 $ (34.8) $ (33.9) $ (24.8) $ (20.0)
========= ========= ======= ======= ======== ======== ======== ========
</TABLE>
Net periodic pension cost for 1995, 1994, and 1993 includes the following
components:
<TABLE>
<CAPTION>
U.S. PLANS INTERNATIONAL PLANS
------------------------- -----------------------
1995 1994 1993 1995 1994 1993
------- ------- ------- ------ ------ -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits
earned during the
period................. $ 33.8 $ 44.1 $ 43.2 $ 22.9 $ 22.2 $ 18.4
Interest cost on
projected benefit
obligation............. 245.2 231.5 229.9 49.5 42.7 42.3
Return on assets........ (684.1) 5.6 (343.1) (85.6) 33.8 (116.1)
Net amortization and
deferral............... 355.2 (293.7) 42.7 25.3 (86.8) 58.2
------- ------- ------- ------ ------ -------
Net periodic pension
(income) cost.......... $ (49.9) $ (12.5) $ (27.3) $ 12.1 $ 11.9 $ 2.8
======= ======= ======= ====== ====== =======
</TABLE>
The assumptions used to determine the above data were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Discount rate....................... 7.50% 8.75% 7.38% 7.23% 7.48% 6.93%
Rate of increase in compensation
levels............................. 5.40% 5.40% 5.13% 4.08% 4.43% 4.27%
Expected long-term rate of return on
assets............................. 10.00% 10.00% 10.00% 8.37% 8.40% 9.15%
</TABLE>
F-21
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK PLANS
A summary of the changes in shares under option for all plans follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1995 1994
----------------------- -----------------------
SHARES PRICE RANGE SHARES PRICE RANGE
-------- ------------- -------- -------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 17,473.5 $3 3/4-44 1/2 15,402.2 $3 3/4-44 1/2
Granted.................... 4,331.5 $5 5/8-11 1/4 4,499.2 $8 5/8-14 3/8
Exercised.................. (471.3) $ 3 3/4-9 7/8 (654.0) $3 3/4-14 7/8
Canceled................... (3,904.7) (1,773.9)
-------- ------------- -------- -------------
Outstanding at end of
year...................... 17,429.0 $4 1/8-44 1/2 17,473.5 $3 3/4-44 1/2
-------- ------------- -------- -------------
Exercisable at end of
year...................... 9,996.7 9,619.9
-------- ------------- -------- -------------
Shares available for grant-
ing options at end of
year...................... 4,480.2 2,104.5
-------- ------------- -------- -------------
</TABLE>
F-22
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16 STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the three years ended December 31,
1995 were as follows:
<TABLE>
<CAPTION>
OTHER CAPITAL
-------------------------------
RETAINED PRINCI-
PREFERRED STOCK EARNINGS PALLY
---------------------------- COMMON (ACCUMULATED TREASURY TRANSLATION PAID-IN
SERIES A SERIES B SERIES C STOCK DEFICIT) STOCK ADJUSTMENTS CAPITAL
--------- -------- -------- ------ ------------ -------- ----------- ---------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $ 1,428.0 $ 50.0 $ 100.0 $ 1.6 $ (228.0) $ (13.6) $ (337.5) $ 1,243.6
Issuance of stock under
stock option and other
plans.................. (1.7) 7.1
Contribution to pension
plan................... .1 89.2
Net income.............. 565.4
Dividends............... (177.6)
Translation
adjustments............ (23.3)
Other................... (7.8)
--------- ------ ------- ----- -------- ------- -------- ---------
Balance at December 31,
1993................... 1,420.2 50.0 100.0 1.7 159.8 (15.3) (360.8) 1,339.9
Issuance of stock under
stock option and other
plans.................. (.7) 3.6
Net income.............. 100.5
Dividends............... (214.6)
Translation
adjustments............ 20.0
Other................... .1 .1
--------- ------ ------- ----- -------- ------- -------- ---------
Balance at December 31,
1994................... 1,420.3 50.0 100.0 1.7 45.7 (16.0) (340.8) 1,343.6
Issuance of stock under
stock option and other
plans.................. (.3) 2.7
Net income (loss)....... (624.6)
Dividends............... (123.7)
Translation
adjustments............ 1.6
--------- ------ ------- ----- -------- ------- -------- ---------
Balance at December 31,
1995................... $ 1,420.3 $ 50.0 $ 100.0 $ 1.7 $ (702.6) $ (16.3) $ (339.2) $ 1,346.3
========= ====== ======= ===== ======== ======= ======== =========
</TABLE>
The Company has 360,000,000 authorized shares of common stock, par value
$.01 per share. The Company has 40,000,000 shares of authorized preferred
stock, par value $1 per share, issuable in series.
In 1993, the Company contributed seven million shares of its common stock,
valued at $89.2 million, to its U.S. pension plan.
The Company has authorization to issue up to 30,000,000 shares of Series A
Cumulative Convertible Preferred Stock ("Series A Preferred Stock"), 10 shares
of Series B Cumulative Convertible Preferred Stock ("Series B Preferred
Stock") and 20 shares of Series C Cumulative Convertible Preferred Stock
("Series C Preferred Stock").
F-23
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each share of Series A Preferred Stock (i) accrues quarterly cumulative
dividends of $3.75 per share per annum, (ii) has a liquidation preference of
$50.00 plus accrued and unpaid dividends, (iii) is convertible into 1.67
shares of the Company's common stock, subject to customary anti-dilution
adjustments, and (iv) is redeemable at the option of the Company under certain
circumstances and at varying prices. If, on the date used to determine
stockholders of record for a meeting of stockholders at which directors are to
be elected, preferred stock dividends are in arrears in an amount equal to at
least six quarterly dividends, the number of members of the Board of Directors
will be increased by two as of the date of such stockholders' meeting and the
holders of shares of Series A Preferred Stock will be entitled to vote for and
elect such two additional directors.
Mitsui & Co., Ltd. ("Mitsui") owns $150 million of convertible preferred
stock, which includes 10 shares of Series B Preferred Stock and 20 shares of
Series C Preferred Stock. The Series B Preferred Stock and the Series C
Preferred Stock are convertible at the option of the holder into the Company's
common stock at conversion prices of $20.00 and $21.00 per share,
respectively, subject to customary anti-dilution adjustments. Both Series B
Preferred Stock and Series C Preferred Stock (i) have a stated value of $5
million per share, (ii) accrue quarterly cumulative dividends based on such
stated value at 8 7/8% per annum until June 28, 1995 and 9 1/2% per annum from
June 28, 1995 to June 28, 1997, (iii) accrue dividends on the amount of any
unpaid dividends, (iv) are redeemable at the option of the Company at a
premium that is determined by reference to interest rates then in effect and
the amount of time then remaining to June 28, 1997, and (v) are entitled to
receive upon liquidation the stated value plus accrued and unpaid dividends.
In the event that the Series B Preferred Stock and Series C Preferred Stock
have not been previously redeemed by the Company or converted by the holder,
the Company will be required to convert both series into the Company's common
stock based on the then-current market price after June 28, 1996 (or after
June 28, 1995 if so requested by Mitsui, the original holder of the Series B
Preferred Stock and Series C Preferred Stock), or earlier under certain
extraordinary circumstances, and conduct a managed sale program of the common
stock. Such conversions and sales must, in general, be completed by June 28,
1997. To the extent that the proceeds received by Mitsui from such managed
sale program are less than the stated value of the shares so converted, plus
accrued and unpaid dividends and a present valued premium amount if such
conversion takes place before June 28, 1997, the Company has agreed to issue
additional shares of capital stock to Mitsui which will be sold in a manner
approved by the Company until Mitsui receives proceeds equal to the sum of
such amounts. Shares of Series B Preferred Stock and Series C Preferred Stock
rank pari passu with each other and with Series A Preferred Stock, and the
holders of Series A, B and C Preferred Stock have priority as to dividends
over holders of the Company's common stock and other series or classes of the
Company's stock that rank junior with regard to dividends. Each series of
Cumulative Convertible Preferred Stock is non-voting except with respect to
certain matters relating to the rights and preferences of such series. With
respect to such matters, each of the Series B Preferred Stock and Series C
Preferred Stock votes separately as a class. The Series A Preferred Stock also
votes as a class on these matters, but its class includes the Series B
Preferred Stock and Series C Preferred Stock, as well as any other series of
preferred stock having equal rank as to dividends and liquidation rights.
Each outstanding share of common stock has attached to it one preferred
share purchase right. Each right entitles the registered holder to purchase
for $75, under certain circumstances, one three-hundredth of a share of Junior
Participating Preferred Stock, par value $1 per share. The rights become
exercisable only if a person or group acquires 20% or more of the Company's
common stock, or announces a tender or exchange offer for 30% or more of the
common stock. If the Company is acquired (or survives in a reverse merger
transaction) or 50% or more of its consolidated assets or earning power are
sold, each right will entitle its holder to purchase a number of the acquiring
company's common shares (or the Company's common shares) having a market value
of $150. The Company will be entitled to redeem the rights at one and two-
thirds cents per right prior to the earlier of the expiration of the rights,
or the time that a 20% position has been acquired. Until the rights become
exercisable, they have no dilutive effect on net income per common share.
F-24
<PAGE>
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, 113.5 million shares of unissued common stock of the
Company were reserved for the following: 57.2 million for convertible
preferred stock, 33.7 million for the 8 1/4% convertible subordinated
debentures and 22.6 million for stock options and stock purchase plans.
Changes in issued shares during the three years ended December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------- COMMON TREASURY
SERIES A SERIES B SERIES C STOCK STOCK
---------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992..................... 28,559,598 10 20 162,604,036 (672,555)
Issuance of stock under
stock option and other
plans.................... 1,566,568 (133,628)
Contribution to pension
plan..................... 7,000,000
Other..................... (155,159) 423
---------- --- --- ----------- --------
Balance at December 31,
1993..................... 28,404,439 10 20 171,171,027 (806,183)
Issuance of stock under
stock option and other
plans.................... 654,024 (58,861)
Other..................... 747 2,298
---------- --- --- ----------- --------
Balance at December 31,
1994..................... 28,405,186 10 20 171,827,349 (865,044)
Issuance of stock under
stock option and other
plans.................... 488,726 (27,965)
Other..................... (37) 60
---------- --- --- ----------- --------
Balance at December 31,
1995..................... 28,405,149 10 20 172,316,135 (893,009)
========== === === =========== ========
</TABLE>
F-25
<PAGE>
PROSPECTUS
$500,000,000
UNISYS CORPORATION
SECURITIES
----------------
Unisys Corporation (the "Company") may offer from time to time, together or
separately, (1) its unsecured debt securities (the "Debt Securities"), which
may be either senior debt securities ("Senior Debt Securities") or
subordinated debt securities ("Subordinated Debt Securities"); (2) shares of
its Common Stock, par value $.01 per share ("Common Stock"), and (3) shares of
its Preferred Stock, par value $1 per share ("Preferred Stock") (the Debt
Securities, the Common Stock and the Preferred Stock are collectively referred
to as the "Securities"), in amounts, at prices and on terms to be determined
at the time of offering. The Subordinated Debt Securities may be issued as
convertible Debt Securities which will be convertible into shares of Common
Stock. The Securities offered pursuant to this Prospectus may be issued in one
or more series or issuances and will be limited to $500,000,000 aggregate
offering price (or its equivalent, if Debt Securities are issued with
principal amounts denominated in one or more foreign currencies or foreign
currency units). Certain specific terms of the particular Securities in
respect of which this Prospectus is being delivered (the "Offered Securities")
will be set forth in a Prospectus Supplement (the "Prospectus Supplement"),
including, where applicable (1) in the case of Debt Securities, the specific
designation (including whether senior or subordinated and whether
convertible), aggregate principal amount, currency or currency unit for which
the Debt Securities may be purchased or in which the principal and any premium
or interest is payable, maturity, premium, if any, rate and times of payment
of any interest, any terms for optional or mandatory redemption, the terms for
any conversion into Common Stock, the initial public offering price and other
special terms and (2) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, voting and other rights,
any terms for conversion into Common Stock, the initial public offering price
and other special terms. If so specified in the applicable Prospectus
Supplement, Debt Securities of a series may be issued in whole or in part in
the form of one or more temporary or permanent global securities.
The Senior Debt Securities will rank equally with all other unsubordinated
and unsecured indebtedness of the Company. The Subordinated Debt Securities
will be subordinated in right of payment to all Senior Indebtedness of the
Company (as hereinafter defined).
----------------
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The Securities will be sold either through underwriters, dealers or agents,
or directly by the Company. The accompanying Prospectus Supplement will set
forth the names of any underwriters or agents involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the
proposed amounts, if any, to be purchased by underwriters and the
compensation, if any, of such underwriters or agents.
The aggregate proceeds to the Company from all Securities will be the
purchase price of Securities sold less the aggregate of agents' commissions
and underwriters' discounts and other expenses of issuance and distribution.
See "Plan of Distribution."
AUGUST 5, 1993
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities being
offered hereby (the "Registration Statement"). As permitted by the rules and
regulations of the Commission, this Prospectus, which constitutes a part of
the Registration Statement, does not contain certain information, exhibits and
undertakings contained in the Registration Statement. Such additional
information can be inspected at and obtained from the Commission in the manner
set forth below. For further information, reference is made to the
Registration Statement and to the exhibits thereto. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file periodic reports, proxy statements and other
information with the Commission relating to its business, financial statements
and other matters. Such reports, proxy statements and other information, as
well as the Registration Statement, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission located in the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade
Center, New York, New York 10007. Copies of such material can also be obtained
from the Commission at prescribed rates by addressing written requests for
such copies to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and other
information are also available for inspection at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York, 10005.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission pursuant to the
Exchange Act and are incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1992 (as amended on Form 8 dated March 31, 1993).
2. The Company's Current Report on Form 8-K dated April 16, 1993.
3. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1993.
4. The description of the Company's Common Stock contained in the
registration statement of Burroughs Corporation ("Burroughs"), the
predecessor to the Company, on Form 8-B dated May 22, 1984 (as amended on
Form 8 dated May 7, 1991), filed pursuant to Section 12 of the Exchange
Act, including any amendment or report filed for the purpose of updating
such description.
5. The description of the Company's Preferred Share Purchase Rights
contained in the Registration Statement of Burroughs on Form 8-A dated
March 11, 1986 (as amended on Forms 8 dated, respectively, April 16, 1986,
July 8, 1987 and May 7, 1991) and in the Registration Statement of
Burroughs on Form 8-A dated October 3, 1986 (as amended on Forms 8 dated,
respectively, July 8, 1987 and May 7, 1991), filed pursuant to Section 12
of the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
2
<PAGE>
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statements contained in a document incorporated
by reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein, in the accompanying
Prospectus Supplement or in any other subsequently filed document which also
is incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on written or oral request, copies of any or all
documents incorporated by reference herein (other than the exhibits thereto
unless such exhibits are incorporated specifically by reference therein).
Requests should be directed to Unisys Corporation, Township Line and Union
Meeting Roads, Blue Bell, Pennsylvania 19424, Attention: Corporate Secretary;
Telephone (215) 986-3206.
THE COMPANY
The Company makes and markets computer-based information systems and
software and offers professional services on a worldwide basis. The Company
designs, manufactures and supports a complete line of enterprise servers and
peripherals, departmental servers and workstations, and applications and
systems software, and provides services and systems integration, equipment
maintenance and defense custom products and services.
The address and telephone number of the principal executive offices of the
Company are Township Line and Union Meeting Roads, Blue Bell, Pennsylvania
19424, telephone number (215) 986-4011.
CERTAIN INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the Securities offered hereby.
THE COMPUTER INDUSTRY; COMPANY REPOSITIONING ACTIONS
The Company operates in an industry that has undergone dramatic changes in
recent years, highlighted by technological advances, which have significantly
lowered the cost of computing and have led to increased competition, lower
prices and lower profit margins; a shift towards standards and open computing
systems, which has resulted in increasing "commoditization" of hardware
products and lower profit margins; and a growing focus by customers on service
and software solutions rather than on hardware. These factors have combined to
render previous cost structures obsolete.
The Company has moved aggressively to realign its financial structure to
reflect the rapidly changing market for information processing products and
services. It has lowered its cost structure significantly by reducing its
workforce, consolidating plants and facilities and streamlining product lines.
In connection with these repositioning actions, the Company recorded special
charges of $1.2 billion in 1991, $181.0 million in 1990 and $231.0 million in
1989. Losses in each of those years amounted to $1.4 billion, $436.7 million
and $639.3 million, respectively. Principally as a result of the lower costs
associated with the repositioning actions, the Company has reported profits in
each quarter beginning with the fourth quarter of 1991. Net income for the
year ended December 31, 1992 was $361.2 million. No assurance can be given,
however, that the Company will not experience losses in the future,
particularly if worldwide adverse economic conditions and weakness in the
computer industry persist.
3
<PAGE>
HIGH LEVERAGE
As of December 31, 1992, the Company had total long-term debt (including
current maturities) of $2,455.9 million. Total long-term debt maturities in
1993, 1994, 1995, 1996 and 1997 are $283.1, $9.5, $178.7, $370.2 and $455.9
million, respectively. The percentage of total debt to total capitalization
for the Company was 53% at December 31, 1992. Total interest expense in 1992
was $340.6 million. As of March 31, 1993, total long-term debt (including
current maturities) was $2,235.5 million, and the percentage of total debt to
total capitalization was 48%.
DIVIDEND SUSPENSIONS; DIVIDEND LIMITATIONS
In September 1990 and February 1991, the Company suspended the quarterly
cash dividends on its outstanding Common Stock and Preferred Stock,
respectively. In October 1992, the Company resumed paying dividends on
outstanding Preferred Stock, with payments being applied to reduce the
accumulated dividend arrearage. Under the terms of the Preferred Stock, the
Company may not pay cash dividends on its Common Stock until all dividend
arrearages on the Preferred Stock are satisfied. The terms of the Company's
Preferred Stock also provide that when dividends have not been paid in full,
all series of Preferred Stock share ratably in the payment of dividends. As of
May 31, 1993, dividends on Preferred Stock were $139.2 million in arrears. In
addition, certain of the Company's credit facilities and debt instruments
contain financial covenants which could limit dividends on the Company's
capital stock.
IMPORTANCE OF INTERNATIONAL OPERATIONS
Revenue from international operations accounted for approximately half of
the Company's total revenue in each of the past three years. As a result, the
Company's business is sensitive to worldwide economic conditions, particularly
continuing weakness in Europe and Japan. In addition, because the Company
operates in approximately 100 countries, its international business is also
affected by other factors beyond its control, such as fluctuations in foreign
currency exchange rates, U.S. and foreign government laws and policies
affecting trade and investment and governmental changes.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, net proceeds from the sale of the Offered Securities will be used
for general corporate purposes and to reduce or refinance indebtedness.
RATIOS OF EARNINGS
The following tables set forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the Company for each of the years in the five-year period ended December
31, 1992 and for the three months ended March 31, 1993.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. The ratio of earnings to combined fixed charges and
preferred stock dividends has been computed by dividing earnings by the sum of
fixed charges and preferred dividend requirements. Earnings consist of income
before income taxes minus undistributed earnings of associated companies plus
fixed charges. Fixed charges consist of interest on all indebtedness,
amortization of debt issuance expenses and the portion of rental expense
representative of interest.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31
ENDED ---------------------------------------------------------------------
MARCH 31, 1993 1992 1991 1990 1989 1988
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.92 2.02 * * * 3.49
</TABLE>
- --------
* Earnings for the years ended December 31, 1991, 1990 and 1989 were
inadequate to cover fixed charges by $1,294.8 million, $389.1 million and
$604.3 million, respectively.
4
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31
ENDED ---------------------------------------------------------------------
MARCH 31, 1993 1992 1991 1990 1989 1988
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.26 1.38 * * * 2.37
</TABLE>
- --------
* Earnings for the years ended December 31, 1991, 1990 and 1989 were
inadequate to cover combined fixed charges and preferred stock dividends by
$1,493.5 million, $576.5 million and $780.0 million, respectively.
DESCRIPTION OF THE DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indentures under which the Debt Securities are to be issued. The particular
terms of a series of Debt Securities will be set forth in the Prospectus
Supplement or Prospectus Supplements relating to such Debt Securities.
The Senior Debt Securities are to be issued under an Indenture dated as of
August 6, 1992 (the "Senior Indenture") between the Company and Bank One,
Columbus NA, as Trustee (the "Senior Trustee"). The Subordinated Debt
Securities are to be issued under an Indenture (the "Subordinated Indenture")
to be entered into between the Company and The Bank of New York, as Trustee
(the "Subordinated Trustee"). The Senior Indenture and the Subordinated
Indenture are sometimes referred to individually as an "Indenture" and
collectively as the "Indentures". The Senior Trustee and the Subordinated
Trustee are sometimes referred to individually as a "Trustee" and collectively
as the "Trustees". The Senior Indenture and the form of Subordinated Indenture
are filed as exhibits to the Registration Statement. The following are brief
summaries of certain provisions of the Indentures and are subject to the
detailed provisions of the Indentures, to which reference is hereby made for a
complete statement of such provisions. Capitalized terms used herein and not
otherwise defined shall have the meanings specified in the Indentures.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provide that Debt Securities may
be issued from time to time in series.
The Senior Debt Securities will be unsecured obligations of the Company and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Company. The Subordinated Debt Securities will be unsecured obligations
of the Company and will be subordinated in right of payment to all Senior
Indebtedness (as defined below in "Subordination of Debt Securities").
The applicable Prospectus Supplement will describe the following terms of
the Debt Securities offered thereby: (1) the title of such Debt Securities;
(2) whether such Debt Securities are Senior Debt Securities or Subordinated
Debt Securities; (3) any limit on the aggregate principal amount of such Debt
Securities; (4) the date or dates on which such Debt Securities may be issued
and are or will be payable; (5) the rate or rates per annum (which may be
fixed or variable) at which such Debt Securities will bear interest, if any,
or the method by which such rate or rates shall be determined, and the date or
dates from which such interest, if any, will accrue; (6) the date or dates on
which interest, if any, on such Debt Securities will be payable and the
regular record date or dates therefor; (7) the place or places where the
principal of, and premium, if any, and any interest on such Debt Securities
will be payable; (8) the period or periods within which, the price or prices
at which, the currency or currencies (including currency units) in which, and
the terms and conditions upon which such Debt Securities may be redeemed at
the option of the Company; (9) the obligation, if any, of the Company to
redeem, to repay or purchase such Debt Securities pursuant to any sinking fund
or analogous provisions, upon the happening of a specified event or at the
option of a holder thereof, and the period or periods within which, the price
or prices at which and the terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased pursuant to any such
obligations; (10) whether such Debt Securities are to be issued in registered
5
<PAGE>
form without coupons, in bearer form with or without coupons, including
temporary and definitive global form, or a combination thereof and the
circumstances, if any, upon which such Debt Securities may be exchanged for
Debt Securities issued in a different form; (11) whether such Debt Securities
are to be issued in whole or in part in the form of one or more Global Notes
(as defined under "Denominations, Registration and Transfer") and, if so, the
identity of the depositary, if any, for such Global Note or Notes; (12)
whether and under what circumstances the Company will pay additional amounts
to any holder of Debt Securities who is not a U.S. Person (as defined under
"Limitations on Issuance of Bearer Securities") in respect of any tax,
assessment or other governmental charge required to be withheld or deducted
and, if so, whether the Company will have the option to redeem rather than pay
any additional amounts; (13) if other than dollars, the foreign currency or
currencies (including currency units) in which the principal of, and premium,
if any, and any interest on such Debt Securities shall or may be paid and, if
applicable, whether at the election of the Company and/or the holder, and the
conditions and manner of determining the exchange rate or rates; (14) any
index used to determine the amount of payment of principal of, and premium, if
any, and any interest on such Debt Securities; (15) whether such Debt
Securities are convertible into shares of Common Stock and the terms and
conditions upon which any conversion will be effected, including the
conversion price, the conversion period and other conversion provisions; (16)
any addition to, or modification or deletion of, any Events of Default or
covenants provided for with respect to such Debt Securities; and (17) any
other detailed terms and provisions of such Debt Securities which are not
inconsistent with the Indentures.
Debt Securities may be issued at or above par or with an original issue
discount. Federal income tax consequences and other special considerations
applicable to any Debt Securities issued with original issue discount or above
par will be described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in one or
more foreign currencies or currency units, or if the principal of or any
premium or interest on any series of Debt Securities is payable in one or more
foreign currencies or currency units, the restrictions, elections, Federal
income tax considerations, specific terms and other information with respect
to such series and such foreign currency or currency units will be described
in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Debt Securities may be issued in fully registered form, without coupons
("Registered Securities"), in bearer form with or without coupons ("Bearer
Securities") or in the form of one or more global securities (each a "Global
Note"). Registered Securities which are book-entry securities ("Book-Entry
Notes") will be issued as registered Global Notes. Bearer Securities may be
issued in the form of temporary or definitive Global Notes. Unless otherwise
provided in an applicable Prospectus Supplement with respect to a series of
Debt Securities, the Debt Securities will be issued as Registered Securities
in denominations of $1,000 or any integral multiple thereof. One or more
Global Notes will be issued in denominations or aggregate denominations equal
to the aggregate principal amount of outstanding Debt Securities of the series
to be represented by such Global Note or Notes.
Registered Securities of any series (other than a Book-Entry Note) may be
exchanged for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations.
Whenever any such Registered Securities are surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Registered Securities which the holder making the exchange is entitled to
receive. In addition, if so provided in an applicable Prospectus Supplement,
Bearer Securities of any series which is registrable as to principal and
interest may, at the option of the holder and subject to the terms of the
applicable Indenture, be exchangeable into Registered Securities of the same
series of any authorized denominations and of a like aggregate principal
amount and tenor. Any Bearer Security surrendered for exchange shall be
surrendered with all unmatured coupons and all matured coupons in default,
except that any Bearer Security surrendered in exchange for a Registered
Security between a regular record date or a special record date and the
relevant date for payment of interest shall be surrendered without the coupon
6
<PAGE>
relating to such date for payment of interest, and interest due on such date
will not be payable in respect of the Registered Security issued in exchange
for such Bearer Security, but will be payable only to the holder of such
coupon when due in accordance with the terms of the applicable Indenture.
Except as provided in an applicable Prospectus Supplement, Bearer Securities
will not be issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than Book-Entry Notes) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar designated by the Company
for such purpose with respect to any series of Debt Securities and referred to
in an applicable Prospectus Supplement, without service charge and upon
payment of any taxes and other governmental charges as described in the
applicable Indenture. Such transfer or exchange will be effected upon the
Security Registrar being satisfied with the documents of title and identity of
the person making the request. The Company has appointed the Trustee under
each Indenture as Security Registrar for the applicable Debt Securities.
For a discussion of restrictions on the exchange, registration and transfer
of Global Notes, see "Global Notes".
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of, and premium, if any, and any interest on Bearer Securities
will be payable, subject to any applicable laws and regulations, at the
offices of such Paying Agents outside the United States as the Company may
designate from time to time, and payment of interest on Bearer Securities on
any interest payment date will be made only against surrender of the coupon
relating to such interest payment date. Presentation of coupons for payment or
other demands for payment of Bearer Securities must be made outside the United
States, and no payment with respect to any Bearer Security will be made at any
office or agency of the Company in the United States or by check mailed to any
address in the United States or by transfer to an account maintained in the
United States. No payment of interest on a Bearer Security will be made
unless, on the earlier of the date of the first such payment by the Company or
the date of delivery by the Company of the Bearer Security in definitive form,
a written certificate, in the form required by the applicable Indenture, is
provided to the Company stating that on such date the Bearer Security is not
owned by or on behalf of a U.S. Person or, if a beneficial interest in such
Bearer Security is owned by or on behalf of a U.S. Person, that such U.S.
Person is (1) a foreign branch of a United States financial institution; (2)
acquired and holds the Bearer Security through the foreign branch of a United
States financial institution (and, in either case (1) or (2), such financial
institution agrees to comply with the requirements of Section 165(j)(3)(A),
(B) or (C) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder, or (3) is a financial institution purchasing for
resale during the "restricted period" (as defined under "Global Notes--
Temporary and Definitive Global Notes") only to non-U.S. Persons outside the
United States. Notwithstanding the foregoing, payment of principal of, and
premium, if any, and any interest on Bearer Securities will be made at the
office of the Company's Paying Agent in the United States if (but only if) (1)
payment of the full amount thereof at all offices or agencies outside the
United States is illegal or effectively precluded by exchange controls or
other similar restrictions and (2) such payment is then permitted by
applicable laws.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of, and premium, if any, and any interest on Registered
Securities will be made at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made (1) by check mailed to the address
of the person entitled thereto as such address shall appear in the Security
Register or (2) by wire transfer to an account maintained by the person
entitled thereto. Unless otherwise indicated in an applicable Prospectus
Supplement, payment of any installment of interest on Registered Securities
will be made to the person in whose name such Registered Security is
registered at the close of business on the regular record date for such
interest.
7
<PAGE>
Unless otherwise indicated in an applicable Prospectus Supplement, the
Trustee under the applicable Indenture will act as the Company's sole Paying
Agent through its principal office with respect to Debt Securities which are
issuable solely as Registered Securities. Any Paying Agents outside the United
States and other Paying Agents in the United States initially designated by
the Company for the offered Debt Securities will be named in an applicable
Prospectus Supplement. The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent or approve a change in
the office through which any Paying Agent acts, except that, if Debt
Securities of a series are issuable only as Registered Securities, the Company
will be required to maintain a Paying Agent in each Place of Payment for such
series and, if Debt Securities of a series may be issuable as Bearer
Securities, the Company will be required to maintain (1) a Paying Agent in the
United States, for payments with respect to any Registered Securities of the
series (and for payments with respect to Bearer Securities of the series in
the circumstances described above, but not otherwise) and (2) a Paying Agent
in a Place of Payment located outside the United States where Debt Securities
of such series and any coupons appertaining thereto may be presented and
surrendered for payment; provided that if the Debt Securities of such series
are listed on The International Stock Exchange of the United Kingdom and the
Republic of Ireland Limited or the Luxembourg Stock Exchange or any other
stock exchange located outside the United States and such stock exchange shall
so require, the Company will maintain a Paying Agent in London or Luxembourg
or any other required city located outside the United States, as the case may
be, for the Debt Securities of such series.
All moneys paid by the Company to the Trustee or a Paying Agent for the
payment of principal of, and premium, if any, and any interest on any Debt
Security that remain unclaimed at the end of two years after such principal,
premium or interest shall have become due and payable will be repaid to the
Company, and the holder of such Debt Security or any coupon will thereafter
look only to the Company for payment thereof.
GLOBAL NOTES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Notes that will be deposited with, or on behalf of,
a depositary located in the United States (a "U.S. Depositary") or a common
depositary located outside the United States (a "Common Depositary")
identified in the Prospectus Supplement relating to such series. Global Notes
may be issued in either registered or bearer form and in either temporary or
definitive form.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will
apply to all depositary arrangements.
Book-Entry Notes
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Note to be deposited with
or on behalf of a U.S. Depositary will be represented by a Global Note
registered in the name of such depositary or its nominee. Upon the issuance of
a Global Note in registered form, the U.S. Depositary for such Global Note
will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Note to the accounts of institutions that have accounts with such Depositary
or its nominee ("participants"). The accounts to be credited shall be
designated by the underwriters or agents of such Debt Securities, or by the
Company if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in such Global Notes will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Notes will be
shown on, and the transfer of that ownership interest will be effected only
through, records maintained by the U.S. Depositary or its nominee for such
Global Note. Ownership of beneficial interests in Global Notes by persons that
hold through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Note.
8
<PAGE>
So long as the U.S. Depositary for a Global Note in registered form, or its
nominee, is the registered owner of such Global Note, such depositary or such
nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Global Note for all purposes under the
Indenture governing such Debt Securities. Except as set forth below, owners of
beneficial interests in such Global Notes will not be entitled to have Debt
Securities of the series represented by such Global Note registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the applicable Indenture.
Payment of principal of, and premium, if any, and any interest on Debt
Securities registered in the name of or held by a U.S. Depositary or its
nominee will be made to the U.S. Depositary or its nominee, as the case may
be, as the registered owner or the holder of the Global Note representing such
Debt Securities. None of the Company, any Trustee, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Note for such Debt
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that the U.S. Depositary for Debt Securities of a series
or its nominee, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Note, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records
of such depositary or nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Note held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
Unless and until it is exchanged in whole for Debt Securities in definitive
form, a Global Note may not be transferred except as a whole by the U.S.
Depositary for such Global Note to a nominee of such depositary or by a
nominee of such depositary to such depositary or another nominee of such
depositary or by such depositary or any such nominee to a successor of such
depositary or a nominee of such successor. If a U.S. Depositary for Debt
Securities in registered form is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the Company
within ninety days, the Company will issue Debt Securities in definitive
registered form in exchange for the Global Note or Notes representing such
Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have any Debt Securities in registered form
represented by one or more Global Notes and, in such event, will issue Debt
Securities in definitive registered form in exchange for the Global Note or
Notes representing such Debt Securities. Further, if the Company so specifies
with respect to the Debt Securities of a series, an owner of a beneficial
interest in a Global Note representing Debt Securities of such series may, on
terms acceptable to the Company and the U.S. Depositary for such Global Note,
receive Debt Securities of such series in definitive form. In any such
instance, an owner of a beneficial interest in a Global Note will be entitled
to physical delivery in definitive form of Debt Securities of the series
represented by such Global Note equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name.
Temporary and Definitive Global Notes
If so specified in an applicable Prospectus Supplement, all Bearer
Securities of a series will initially be issued in the form of one or more
temporary Global Notes, to be deposited with a Common Depositary in London for
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euro-clear System ("Euro-clear Operator") and CEDEL, S.A. ("CEDEL") for credit
to the designated accounts. On and after the exchange date determined as
provided in any such temporary Global Note and described in the applicable
Prospectus Supplement, each such temporary Global Note will be exchangeable
for definitive Debt Securities in bearer form, registered form, definitive
global bearer form or any combination thereof, as specified in the Prospectus
Supplement, upon written certification (as described under "Payment and Paying
Agents") of
9
<PAGE>
non-United States beneficial ownership. No Bearer Security delivered in
exchange for a portion of a temporary Global Note shall be mailed or otherwise
delivered to any location in the United States.
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of a temporary Global Note payable in respect of an
interest payment date occurring prior to the issuance of definitive Debt
Securities will be paid to each of the Euro-clear Operator and CEDEL with
respect to the portion of the temporary Global Note held for its account upon
delivery by the Euro-clear Operator and CEDEL to the Trustee of a certificate
or certificates of non-United States beneficial ownership in the form required
by the applicable Indenture.
If any Debt Securities of a series are issuable in definitive global bearer
form, the Prospectus Supplement will describe the circumstances, if any, under
which beneficial owners of interests in any such definitive Global Notes may
exchange such interests for Debt Securities of such series and of like tenor
and principal amount in any authorized form and denomination. No Bearer
Security delivered in exchange for a portion of a definitive Global Note shall
be mailed or otherwise delivered to any location in the United States in
connection with such exchange.
In connection with the sale of a Bearer Security during the "restricted
period" as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States
Treasury regulations (generally, the first 40 days after the closing date and,
with respect to unsold allotments, until sold), no Bearer Security (including
a definitive Bearer Security in global form) shall be mailed or otherwise
delivered to any location in the United States, and a Bearer Security sold
during the restricted period (other than a temporary Bearer Security in global
form) may be delivered only if the person entitled to receive such Bearer
Security (including a definitive Bearer Security in global form) furnishes
written certification, in the form required by the applicable Indenture, to
the effect that such Bearer Security is not being acquired by a U.S. Person,
or, if a beneficial interest in such Bearer Security is being acquired by a
U.S. Person, that such U.S. Person (1) is a foreign branch of a United States
financial institution, (2) acquired and holds the Bearer Security through the
foreign branch of a United States financial institution (and, in either case
(1) or (2), such financial institution agrees to comply with the requirements
of Section 165(j)(3)(A), (B) or (C) of the Code and the regulations
thereunder) or (3) is a financial institution purchasing for resale during the
restricted period only to non-U.S. Persons outside the United States. See
"Limitations on Issuance of Bearer Securities".
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Generally, in compliance with United States Federal tax laws and
regulations, Bearer Securities may not be offered or sold during the
restricted period or delivered in connection with their sale during the
restricted period in the United States or to U.S. Persons (each as defined
below) other than to foreign branches of United States financial institutions
which agree in writing to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code or purchase for resale during the
restricted period only to non-U.S. Persons outside the United States (or as
otherwise permitted under United States Treasury regulations), and any
underwriters, agents and dealers participating in the offering of Debt
Securities must agree that they will not offer or sell any Bearer Securities
in the United States or to U.S. Persons (other than as described above) nor
deliver Bearer Securities within the United States.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any U.S. Person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code". The Sections referred to in the legend provide that,
with certain exceptions, a U.S. Person holding a Bearer Security or coupon
will not be permitted to deduct any loss, and will not be eligible for capital
gain treatment with respect to any gain, realized on a sale, exchange or
redemption of such Bearer Security or coupon.
As used in this Prospectus, "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States, or an estate or trust the
10
<PAGE>
income of which is subject to United States Federal income taxation regardless
of its source, and the term "United States" means the United States of America
(including the States and the District of Columbia) and its possessions,
including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Mariana Islands.
CERTAIN COVENANTS APPLICABLE TO SENIOR DEBT SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement with
respect to Senior Debt Securities of a series, Senior Debt Securities will
have the benefit of the following covenants contained in the Senior Indenture.
Unless otherwise indicated in the applicable Prospectus Supplement with
respect to Subordinated Debt Securities of a series, the Subordinated Debt
Securities will not have the benefit of such covenants.
Limitation Upon Mortgages and Liens
Neither the Company nor a Subsidiary will create or assume, except in favor
of the Company or a Wholly-Owned Subsidiary, any mortgage, pledge, lien or
encumbrance upon any Principal Manufacturing Property or any stock or
indebtedness of any Subsidiary without equally and ratably securing the
outstanding Senior Debt Securities. For the purpose of providing such equal
and ratable security, the principal amount of outstanding Senior Debt
Securities issued with original issue discount shall be such portion of the
principal amount as may be specified in the terms of that series. This
limitation will not apply to certain permitted encumbrances as described in
the Senior Indenture, including (1) purchase money mortgages entered into
within specified time limits; (2) liens existing on acquired property; (3)
certain tax, materialmen's, mechanics' and judgment liens, certain liens
arising by operation of law and certain other similar liens; (4) liens in
connection with certain government contracts; (5) certain mortgages, pledges,
liens or encumbrances in favor of any state or local government or
governmental agency in connection with certain tax-exempt financings; (6)
pledges of customers' accounts or paper; (7) certain mortgages, pledges, liens
or encumbrances securing the payment of any V Loan Debt (as defined in the
Senior Indenture) and (8) mortgages, pledges, liens and encumbrances not
otherwise permitted if the sum of the indebtedness thereby secured plus the
aggregate sales price of property involved in certain sale and leaseback
transactions does not exceed the greater of $250,000,000 or 5% of Consolidated
Shareholders' Equity.
Limitation Upon Sale and Leaseback Transactions
The Company and any Subsidiary will be prohibited from selling any Principal
Manufacturing Property owned on the date of the Senior Indenture with the
intention of taking back a lease thereof, other than a temporary lease (a
lease of not more than 36 months) with the intent that the use of the property
by the Company or such Subsidiary will be discontinued before the expiration
of such period, unless (1) the sum of the sale price of property involved in
sale and leaseback transactions not otherwise permitted plus all indebtedness
secured by certain mortgages, pledges, liens and encumbrances does not exceed
the greater of $250,000,000 or 5% of Consolidated Shareholders' Equity or (2)
the greater of the net proceeds of such sale or the fair market value of such
Principal Manufacturing Property (which may be conclusively determined by the
Board of Directors of the Company) are applied within 120 days to the optional
retirement of outstanding Senior Debt Securities or to the optional retirement
of other Funded Debt (as defined) of the Company ranking on a parity with
outstanding Senior Debt Securities.
Certain Definitions
Certain terms defined in the Senior Indenture and applicable to the
foregoing covenants are summarized below:
"Consolidated Shareholders' Equity" means the total shareholders' equity of
the Company and its consolidated subsidiaries which, under generally accepted
accounting principles, would appear on a consolidated
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<PAGE>
balance sheet of the Company and its subsidiaries, excluding the separate
component of shareholders' equity attributable to foreign currency translation
adjustments pursuant to "Statement of Financial Accounting Standards No. 52--
Foreign Currency Translation" or any successor provision or principle of
generally accepted accounting principles.
"Principal Manufacturing Property" means any manufacturing property located
within the United States of America (other than its territories or
possessions) owned by the Company or any Subsidiary, except for any
manufacturing property that, in the opinion of the Board of Directors, is not
of material importance to the business conducted by the Company and its
Subsidiaries, taken as a whole.
"Subsidiary" means any corporation of which at least a majority of the
outstanding voting stock is owned by the Company or by other Subsidiaries, but
will not include any such corporation (an "Affiliated Corporation") which (1)
does not transact any substantial portion of its business or regularly
maintain any substantial portion of its operating assets in the United States;
(2) is principally engaged in financing sales or leases of merchandise,
equipment or services by the Company, a Subsidiary or another Affiliated
Corporation; (3) is principally engaged in holding or dealing in real estate
or (4) is principally engaged in the holding of stock in, and/or the financing
of operations of, Affiliated Corporations.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the outstanding
voting stock (other than directors' qualifying shares) is at the time,
directly or indirectly, owned by the Company and/or by one or more Wholly-
Owned Subsidiaries.
CONSOLIDATION, MERGER, SALE OR LEASE OF ASSETS
Each Indenture provides that the Company, without the consent of the holders
of any of the outstanding Debt Securities, may consolidate with or merge into,
or transfer or lease its assets substantially as an entirety to, any
corporation organized under the laws of any domestic jurisdiction, provided
that (1) the successor corporation assumes the Company's obligations under
such Indenture and the Debt Securities issued thereunder; (2) after giving
effect to the transaction, no Event of Default and no event which, after
notice or lapse of time, would become an Event of Default shall have occurred
and be continuing and (3) that certain other conditions are met.
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (1) failure to pay principal of or any premium
on any Debt Security of that series when due; (2) failure to pay any interest
on any Debt Security of that series when due, continued for 30 days; (3)
failure to deposit any sinking fund payment in respect of any Debt Security of
that series when due; (4) failure to perform any other covenant of the Company
in the applicable Indenture (other than a covenant included in such Indenture
solely for the benefit of a series of Debt Securities other than that series),
continued for 60 days (90 days in the case of the Subordinated Indenture)
after written notice as provided in the Indenture; (5) certain events of
bankruptcy, insolvency or reorganization and (6) any other Event of Default
provided with respect to Debt Securities of that series. Such other Events of
Default, if any, will be described in the Prospectus Supplement relating to
such Debt Securities.
If any Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, either the Trustee or the holders
of at least 25% in aggregate principal amount of the outstanding Debt
Securities of that series may declare the principal amount (or, if the Debt
Securities of that series are issued with original issue discount, such
portion of the principal amount as may be specified in the terms of that
series) of all the Debt Securities of that series to be due and payable
immediately. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained, the holders of a majority in
aggregate principal amount of outstanding Debt Securities of that series may,
under certain circumstances, rescind and annul such acceleration.
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The Indentures provide that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the holders, unless such holders shall have
offered to the Trustee reasonable indemnity. Subject to such provisions for
the indemnification of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Debt Securities of that series.
The Company is required to furnish the Trustees annually with a statement as
to the performance by the Company of certain of its obligations under the
Indentures and as to any default in such performance.
MODIFICATION AND WAIVER
Each Indenture provides that the Company and the Trustee may, without the
consent of any holders of Debt Securities, enter into supplemental indentures
for the purposes, among other things, of adding to the Company's covenants,
adding any additional Events of Default, establishing the form or terms of
Debt Securities or curing ambiguities or inconsistencies in such Indentures or
making other provisions; provided such action shall not adversely affect the
interests of the holders of any series of outstanding Debt Securities in any
material respect.
Modifications of and amendments to the Indentures may be made by the Company
and the Trustee with the consent of the holders of a majority (66 2/3% in the
case of the Senior Indenture) in aggregate principal amount of the outstanding
Debt Securities of each series affected by such modification or amendment;
provided, however, that no such modification or amendment may without the
consent of the holder of each outstanding Debt Security affected thereby (1)
change the stated maturity of the principal of, or any installment of
principal or interest on, any Debt Security; (2) reduce the principal amount
of, or any premium or interest on, any Debt Security; (3) reduce the amount of
principal of Debt Securities issued with original issue discount payable upon
acceleration of the maturity thereof; (4) change the currency of payment of
principal of, or any premium or interest on, any Debt Security; (5) impair the
right to institute suit for the enforcement of any payment on or with respect
to any Debt Security; (6) reduce the percentage in principal amount of
outstanding Debt Securities of any series, the consent of whose holders is
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of, or of certain defaults under, such
Indenture or (7) limit certain obligations of the Company to maintain an
office or agency in the places and for the purposes required by such
Indenture.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt
Securities of that series, waive any past default under the applicable
Indenture with respect to Debt Securities of that series, except a default in
the payment of the principal of or any premium or interest on any of the Debt
Securities of such series or in respect of a covenant or provision of such
Indenture that cannot, under the terms of such Indenture, be modified or
amended without the consent of the holders of each outstanding Debt Security
affected thereby.
DEFEASANCE
Each Indenture provides that, if such provision is made applicable to the
Debt Securities of any series, the Company, at its option, will be discharged
from its obligations in respect of the outstanding Debt Securities of a series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, convert Debt Securities of such series, replace
stolen, lost or mutilated Debt Securities of such series, maintain paying
agencies and hold moneys for payment in trust) or, in the case of Senior Debt
Securities, will not be subject to certain covenants applicable to the Debt
Securities of such series, in each case if the Company deposits with the
Trustee, in trust, money or U.S. Government Obligations which through the
payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient to pay all the principal of,
and premium, if any, and any interest on the Debt Securities of such series on
the dates such
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payments are due in accordance with the terms of such Debt Securities. To
exercise any such option, the Company is required, among other things, to
deliver to the Trustee an opinion of counsel to the effect that the deposit
and related defeasance would not cause the holders of the Debt Securities of
such series to recognize income, gain or loss for United States income tax
purposes.
CONVERSION RIGHTS
The terms on which and the prices at which Subordinated Debt Securities of a
series may be convertible into Common Stock will be set forth in the
Prospectus Supplement relating thereto. Such terms will include provisions as
to whether conversion is mandatory, at the option of the holder or at the
option of the Company.
SUBORDINATION PROVISIONS
Except as described in the applicable Prospectus Supplement, the
indebtedness evidenced by the Subordinated Debt Securities will be subordinate
in right of payment to all Senior Indebtedness (as hereinafter defined).
No payment shall be made by the Company on account of principal of, and
premium, if any, or interest on the Subordinated Debt Securities or on account
of the purchase, redemption or other acquisition of the Subordinated Debt
Securities if there shall have occurred and be continuing any default in the
payment of principal, premium, if any, or interest on any Senior Indebtedness
continuing beyond the period of grace, if any, specified in the instrument
evidencing such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization, the payment of the principal of, and
premium, if any, and interest on the Subordinated Debt Securities is to be
subordinated to the extent provided in the Subordinated Indenture in right of
payment to the prior payment in full of all Senior Indebtedness. By reason of
this provision, in the event of the Company's dissolution or insolvency,
holders of Senior Indebtedness may receive more, ratably, and holders of
Subordinated Debt Securities may receive less, ratably, than the other
creditors of the Company.
The foregoing subordination provisions will not prevent the occurrence of
any Event of Default under the Subordinated Indenture.
The term "Senior Indebtedness" will be defined to mean the principal of,
premium, if any, and any interest on, and any other payment due pursuant to
the terms of an instrument (including, without limitation, fees, expenses,
collection expenses (including attorneys' fees), interest yield amounts, post-
petition interest and taxes) creating, securing or evidencing any of the
following, whether outstanding on the date of the Subordinated Indenture or
thereafter incurred or created:
(1) All indebtedness of the Company for money borrowed or constituting
reimbursement obligations with respect to letters of credit (including
indebtedness secured by a mortgage, conditional sales contract or other
lien which is (A) given to secure all or a part of the purchase price of
property subject thereto, whether given to the vendor of such property or
to another, or (B) existing on property at the time of acquisition
thereof);
(2) All indebtedness of the Company evidenced by notes, debentures, bonds
or other securities;
(3) All indebtedness of others of the kinds described in either of the
preceding clauses (1) or (2) assumed by or guaranteed in any manner by the
Company or in effect guaranteed by the Company through an agreement to
purchase, contingent or otherwise; and
(4) All renewals, deferrals, increases, extensions or refundings of and
modifications to indebtedness of the kinds described in any of the
preceding clauses (1), (2) or (3);
except (A) the Subordinated Debt Securities, (B) certain outstanding
subordinated indebtedness of the Company, which indebtedness at March 31, 1993
was approximately $395 million and (C) any indebtedness, renewal,
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extension or refunding that, under the provisions of the instrument creating,
evidencing, or assuming or guaranteeing it, is not superior in right of
payment to the Subordinated Debt Securities or is subordinate by its terms in
right of payment to the Subordinated Debt Securities.
As of March 31, 1993, the Company had Senior Indebtedness (excluding accrued
interest and premium, if any) of approximately $1.8 billion. The amount of
Senior Indebtedness may change in the future. The Subordinated Indenture
contains no limitations on the incurrence of Senior Indebtedness.
NOTICES
Except as otherwise provided in the Indentures, notices to holders of Bearer
Securities will be given by publication at least twice in a daily newspaper in
The City of New York and, if Debt Securities of such series are then listed on
The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited or the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, in
a daily newspaper in London or Luxembourg or any other required city located
outside the United States, as the case may be, or, if not practicable,
elsewhere in Europe. Notices to holders of Registered Securities will be given
by mail to the addresses of such holders as they appear in the Security
Register.
GOVERNING LAW
The Indentures, the Debt Securities and the coupons, if any, will be
governed by, and construed in accordance with, the laws of the State of New
York.
CONCERNING THE TRUSTEES
Each Trustee has normal banking relationships with the Company and also
serves as trustee under other indentures with the Company pursuant to which
unsecured debt securities are currently outstanding.
DESCRIPTION OF CAPITAL STOCK
The following descriptions do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete
descriptions thereof set forth in (1) the Company's Certificate of
Incorporation; (2) the Company's By-Laws and (3) the Rights Agreement (as
defined below), all of which are exhibits to the Registration Statement.
The Company's authorized capital stock consists of 360,000,000 shares of
Common Stock, par value $.01 per share, and 40,000,000 shares of Preferred
Stock, par value $1 per share.
As of March 31, 1993, there were 162,053,408 shares of Common Stock
outstanding, and the Company had reserved approximately 147,660,000 additional
shares of Common Stock for issuance pursuant to various employee benefit plans
and upon the conversion of outstanding shares of Preferred Stock and other
outstanding securities.
The Board of Directors has authorized the issuance of 30,000,000 shares of
Series A Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock"), 10 shares of Series B Cumulative Convertible Preferred Stock (the
"Series B Preferred Stock") and 20 shares of Series C Cumulative Preferred
Stock (the "Series C Preferred Stock") and 1,500,000 shares of Junior
Participating Preferred Stock (the "Junior Preferred Stock"). As of March 31,
1993, there were 28,559,515 shares of Series A Preferred Stock, 10 shares of
Series B Preferred Stock, 20 shares of Series C Preferred Stock and no shares
of Junior Preferred Stock outstanding.
The Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock rank on a parity with each other, and prior to the Common
Stock and the Junior Preferred Stock, as to payment of dividends and
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as to distribution of assets upon liquidation, dissolution or winding up of
the Company. Unless otherwise set forth in the applicable Prospectus
Supplement, each series of Preferred Stock offered hereby will rank on a
parity with each other such series and with the Series A, Series B and Series
C Preferred Stock.
COMMON STOCK
General
Subject to the rights of the holders of shares of Preferred Stock, holders
of shares of Common Stock (1) are entitled to receive dividends when and as
declared by the Board of Directors of the Company from funds legally available
for that purpose; (2) have the exclusive right, except as otherwise may be
required by law, to vote for the election of directors and for all other
purposes and (3) are entitled, upon any liquidation, dissolution or winding up
of the Company, to a pro rata distribution of the assets and funds of the
Company available for distribution to stockholders. Each share of Common Stock
is entitled to one vote on all matters on which stockholders generally are
entitled to vote. Holders of shares of Common Stock do not have preemptive
rights to subscribe for additional shares of Common Stock or securities
convertible into shares of Common Stock. The Common Stock is traded on the New
York Stock Exchange and prices are reported by the New York Stock Exchange
Composite Tape under the symbol UIS. Harris Trust Company of New York is the
transfer agent for the Common Stock.
Dividend Limitations
The Company suspended the quarterly dividend on the Common Stock in
September 1990. The Company's outstanding Preferred Stock currently prohibits
the Company from paying dividends on the Common Stock while dividends on the
Preferred Stock are in arrears. See "Certain Provisions of Outstanding
Preferred Stock". In addition, the Company's most restrictive credit facility
limits dividends on the Company's capital stock generally to an amount no
greater than the accumulated arrearages on the Series A, Series B and Series C
Preferred Stock plus 50% of cumulative consolidated net income since October
1, 1992.
Preferred Share Purchase Rights and Junior Participating Preferred Stock
The Company has distributed to its stockholders one Preferred Share Purchase
Right (the "Rights") with respect to each outstanding share of Common Stock
pursuant to a Rights Agreement (the "Rights Agreement") dated as of March 7,
1986 between the Company and Harris Trust Company of New York, as Rights
Agent. Each Right entitles the holder thereof, until the earlier of March 17,
1996 or the redemption of the Rights, to buy one three-hundredth of a share of
the Junior Preferred Stock at an exercise price of $75. The Rights are
represented by the certificates for shares of Common Stock and will not be
exercisable, or transferable apart from the shares of Common Stock, until the
earlier of the tenth day after the announcement that a person or group has
acquired beneficial ownership of 20% or more of the shares of Common Stock (a
"20% holder") or the tenth day after a person commences, or announces an
intention to commence, an offer, the consummation of which would result in a
person beneficially owning 30% or more of the shares of Common Stock as of
such date (the earlier of such dates being called the "Distribution Date").
The Rights could then begin trading separately from the shares of Common
Stock.
In the event that the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at
the exercise price of the Right, that number of shares of common stock of the
surviving company which, at the time of such transaction, would have a market
value of two times the exercise price of the Right. Alternatively, if a 20%
holder were to acquire the Company by means of a reverse merger in which the
Company and its stock survive, or were to engage in certain "self-dealing"
transactions, each Right not owned by the 20% holder would become exercisable
for the number of shares of Common Stock which, at that time, would have a
market value of two times the exercise price of the Right.
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The Rights are redeemable at $.01 2/3 per Right at any time prior to the
time that a person or group has acquired beneficial ownership of 20% of the
shares of Common Stock. The Rights will expire on March 17, 1996 (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed by the Company in accordance with their terms. At
no time will the Rights have any voting rights.
The foregoing summary of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is an
exhibit to the Registration Statement.
The shares of Junior Preferred Stock purchasable upon exercise of the Rights
will be nonredeemable. Each share of Junior Preferred Stock will have a
minimum preferential quarterly dividend of $15 per share, but will be entitled
to a dividend of 300 times the aggregate dividend declared per share of Common
Stock. In the event of liquidation, the holders of the shares of Junior
Preferred Stock will receive a preferred liquidation payment of $100 per
share, but will be entitled to receive an aggregate liquidation payment per
share equal to 300 times the payment made per share of Common Stock. Each
share of the Junior Preferred Stock will have 300 votes, voting together with
the shares of Common Stock. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of the
Junior Preferred Stock will be entitled to receive 300 times the amount
received per share of Common Stock. The Junior Preferred Stock has customary
antidilution provisions to protect the dividend, liquidation and voting rights
described above.
The purchase price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (1) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of the shares of Junior Preferred Stock; (2) as a result of
the grant to holders of the shares of Junior Preferred Stock of certain rights
or warrants to subscribe for shares of Junior Preferred Stock or of securities
convertible into shares of Junior Preferred Stock (at a price, or with a
conversion price, respectively, less than the then current market price for
the shares of Junior Preferred Stock) or (3) as a result of the distribution
to holders of the shares of Junior Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends at a rate
not in excess of 125% of the rate of the last cash dividend theretofore paid
or dividends payable in shares of Junior Preferred Stock) or of subscription
rights or warrants (other than those referred to above). With certain
exceptions, no adjustment in the purchase price will be required until
cumulative adjustments require an adjustment of at least 1% in such purchase
price. The percentage of a share of Junior Preferred Stock for which a Right
is exercisable and the number of Rights outstanding are also subject to
adjustment in the event of dividends on the shares of Common Stock payable in
shares of Common Stock or subdivisions, combinations or consolidations of the
shares of Common Stock, occurring, in any case, before the Rights become
exercisable or transferable apart from the shares of Common Stock.
One Right is presently associated with each issued and outstanding share of
Common Stock. The Company will issue one Right with each share of Common Stock
issued prior to the Final Expiration Date unless, prior to such issuance, the
Rights are redeemed or become exercisable and transferable apart from the
shares of Common Stock.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms that the Board of Directors determines are not in the best interests
of the Company's stockholders, except pursuant to an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board of
Directors since the Rights may be redeemed by the Company at $.01 2/3 per
Right prior to the time that a person or group has acquired beneficial
ownership of 20% or more of the shares of Common Stock.
Anti-Takeover Provisions
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law. Generally, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business
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combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless (1) prior to such date, either the business combination or
such transaction is approved by the board of directors of the corporation, (2)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the outstanding voting stock, or (3) on or after such date the business
combination is approved by the board and by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's outstanding voting stock.
The Company's Certificate of Incorporation and By-Laws contain certain anti-
takeover provisions that are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and that may have
the effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Board of Directors. Such provisions may also render the removal of the
current Board of Directors more difficult.
The Company's Certificate of Incorporation and By-Laws provide that the
Board of Directors shall consist of not less than 10 nor more than 20
directors (subject to any rights of the holders of shares of Preferred Stock
to elect additional directors), with the exact number to be fixed by the Board
of Directors pursuant to a resolution adopted by a majority of the entire
Board. The Board of Directors is divided into three classes of directors,
which classes are as nearly equal in number as possible. One class of
directors is elected each year for a term of three years. Directors may be
removed from office only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all capital stock of the
Company entitled to vote generally in the election of directors (the "Voting
Stock"), voting as a single class. Subject to any rights of the holders of
shares of Preferred Stock, vacancies in the Board of Directors and newly
created directorships are filled for the unexpired term only by the vote of a
majority of the remaining directors in office. Pursuant to the Certificate of
Incorporation, advance notice of stockholder nominations for the election of
directors must be given in the manner provided in the Company's By-Laws. The
By-Laws provide that written notice of the intent of a stockholder to make a
nomination at a meeting of stockholders must be delivered to the Secretary of
the Company not less than 90 days prior to the date of the meeting, in the
case of an annual meeting, and not more than seven days following the date of
notice of the meeting, in the case of a special meeting. The notice must
contain certain background information about the nominee and the number of
shares of the Company's capital stock beneficially owned by the nominee. The
affirmative vote of the holders of 80% or more of the voting power of the then
outstanding shares of Voting Stock, voting as a single class, is required to
amend, alter or repeal the provisions of the Certificate of Incorporation and
the By-Laws discussed above.
The Company's Certificate of Incorporation also provides that certain
mergers, consolidations, sales or other transfers of assets of, issuances or
reclassifications of securities of, or adoptions of plans of liquidation by
the Company (individually, a "Business Combination") must be approved by an
affirmative vote of the holders of 80% or more of the voting power of the then
outstanding shares of Voting Stock, voting as a single class, when such action
involves a person (an "Interested Stockholder") who beneficially owns more
than 20% of the voting power of the then outstanding shares of Voting Stock,
unless certain minimum price, form of consideration and procedural
requirements (the "Fair Price Provisions") are satisfied or unless a majority
of the directors not affiliated with the Interested Stockholder approve the
Business Combination. The affirmative vote of the holders of 80% or more of
the voting power of the then outstanding shares of Voting Stock, voting as a
single class, is required to amend, alter or repeal such provisions of the
Certificate of Incorporation.
Under the Certificate of Incorporation and By-Laws, except as otherwise
required by law and subject to the rights of the holders of shares of
Preferred Stock, stockholders may not call a special meeting of stockholders.
Only the Board of Directors, pursuant to a resolution adopted by a majority of
the entire Board, may call a special meeting of stockholders. The General
Corporation Law of the State of Delaware provides that, unless specifically
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prohibited by the certificate of incorporation, any action required or
permitted to be taken by stockholders of a corporation may be taken without a
meeting, without prior notice, and without a stockholder vote if a written
consent or consents setting forth the action to be taken is signed by the
holders of outstanding shares of capital stock having the requisite number of
votes that would be necessary to authorize or take such action at a meeting of
stockholders. The Company's Certificate of Incorporation requires that
stockholder action be taken at a meeting of stockholders and prohibits
stockholder action by written consent. The affirmative vote of the holders of
80% or more of the voting power of the then outstanding shares of Voting
Stock, voting as a single class, is required to amend, alter or repeal the
provisions of the Certificate of Incorporation and By-Laws discussed above.
The purpose of certain provisions of the Certificate of Incorporation and
By-Laws discussed above relating to (1) a classified Board of Directors; (2)
the removal of directors and the filling of vacancies; (3) the prohibition of
stockholder action by written consent and (4) supermajority voting
requirements for the repeal of provisions (1) through (3) is to help assure
the continuity and stability of the business strategies and policies of the
Company and to discourage certain types of transactions that involve an actual
or threatened change of control of the Company. They are designed to make it
more difficult and time-consuming to change majority control of the Board of
Directors and thus to reduce the vulnerability of the Company to an
unsolicited takeover proposal that does not contemplate the acquisition of at
least 80% of the voting power of all of the Voting Stock or to an unsolicited
proposal for the restructuring or sale of all or part of the Company.
Such charter and by-law provisions may make more difficult or discourage a
proxy contest, or the assumption of control, by a holder of a substantial
block of shares of Common Stock, or the removal of the incumbent Board of
Directors, and could thus increase the likelihood that incumbent directors
will retain their positions. In addition, since the Fair Price Provisions
discussed above provide that certain business combinations involving the
Company and a certain type of stockholder which do not meet specified criteria
or are not approved by supermajority vote cannot be consummated without the
approval of a majority of those directors who are not affiliated with such
stockholder, such provisions could give incumbent management the power to
prevent certain takeovers. The Fair Price Provisions may also discourage
attempts to effect a "two-step" acquisition in which a third party purchases a
controlling interest in cash and acquires the balance of the voting stock of
the Company for less desirable consideration. Under the classified board and
related provisions, the third party would not immediately obtain the ability
to control the Board of Directors through its first-step acquisition and,
under the Fair Price Provisions, having made the first-step acquisition, the
third party could not acquire the balance of the Voting Stock for a lower
price without a supermajority vote or the approval of a majority of such
unaffiliated directors.
These provisions of the Certificate of Incorporation and By-Laws help ensure
that the Board of Directors, if confronted with an unsolicited proposal from a
third party which has acquired a block of shares of Common Stock, will have
sufficient time to review the proposal and appropriate alternatives for the
Company's stockholders.
Such charter and by-law provisions are intended to encourage persons seeking
to acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Board of Directors, who would then be in a
position to negotiate a transaction which would treat all stockholders in
substantially the same manner. Such provisions may have the effect of
discouraging a third party from making an unsolicited tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. In addition,
since the provisions are designed to discourage accumulations of large blocks
of shares of Common Stock by purchasers whose objective is to have such shares
repurchased by the Company at a premium, such provisions could tend to reduce
the temporary fluctuations in the market price of Common Stock caused by such
accumulations. Accordingly, stockholders of the Company could be deprived of
certain opportunities to sell their shares at a temporarily higher market
price.
The Rights could also have the effect of delaying, deferring or preventing a
takeover or change in control of the Company. See "Common Stock--Preferred
Share Purchase Rights and Junior Participating Preferred Stock".
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PREFERRED STOCK
The following description sets forth certain general terms and provisions of
the Preferred Stock to which any Prospectus Supplement may relate. Certain
other terms of a particular series of Preferred Stock will be described in the
Prospectus Supplement relating to that series. If so indicated in the
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below. The description of certain provisions of the Preferred Stock
set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Certificate of Incorporation and the Certificate of Designation
relating to each such series of Preferred Stock, which will be filed with the
Commission in connection with the offering of such series of Preferred Stock.
Under the Company's Certificate of Incorporation, the Board of Directors
may, by resolution, establish series of Preferred Stock having such voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as the Board of Directors may determine.
The Preferred Stock offered hereby will have the dividend, liquidation,
redemption and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular
series of Preferred Stock offered thereby for specific terms, including: (1)
the designation and stated value per share of such Preferred Stock and the
number of shares offered; (2) the amount of liquidation preference per share;
(3) the price at which such Preferred Stock will be issued; (4) the dividend
rate (or method of calculation), the dates on which dividends will be payable,
whether such dividends will be cumulative or noncumulative and, if cumulative,
the dates from which dividends will commence to cumulate; (5) any redemption
or sinking fund provisions; (6) any conversion rights; and (7) any additional
voting, dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations and restrictions.
The Preferred Stock offered hereby will be issued in one or more series. The
holders of Preferred Stock will have no pre-emptive rights. Preferred Stock
will be fully paid and nonassessable upon issuance against full payment of the
purchase price therefor. Unless otherwise specified in the Prospectus
Supplement relating to a particular series of Preferred Stock, each series of
Preferred Stock will, with respect to dividend rights and rights on
liquidation, dissolution and winding up of the Company, rank prior to the
Common Stock and the Junior Preferred Stock (the "Junior Stock") and on a
parity with the Series A, Series B and Series C Preferred Stock and each other
series of Preferred Stock offered hereby (the "Parity Stock").
Dividend Rights
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
funds legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
books of the Company on such record dates as will be fixed by the Board of
Directors of the Company. Dividends on any series of the Preferred Stock may
be cumulative or noncumulative, as provided in the Prospectus Supplement
relating thereto. If the Board of Directors of the Company fails to declare a
dividend payable on a dividend payment date on any series of Preferred Stock
for which dividends are noncumulative, then the right to receive a dividend in
respect of the dividend period ending on such dividend payment date will be
lost, and the Company will have no obligation to pay the dividend accrued for
that period, whether or not dividends are declared for any future period.
Dividends on shares of each series of Preferred Stock for which dividends are
cumulative will accrue from the date set forth in the applicable Prospectus
Supplement.
The Preferred Stock of each series will include customary provisions (1)
restricting the payment of dividends or the making of other distributions on,
or the redemption, purchase or other acquisition of, Junior Stock unless full
dividends, including, in the case of cumulative Preferred Stock, accruals, if
any, in respect of
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prior dividend periods, on the shares of such series of Preferred Stock have
been paid and (2) providing for the pro rata payment of dividends on such
series and other Parity Stock when dividends have not been paid in full upon
such series and other Parity Stock.
See "Certain Provisions of Outstanding Preferred Stock" for a description of
provisions of the Company's Series A, Series B and Series C Preferred Stock
that could limit the Company's ability to pay dividends on the Preferred Stock
offered hereby.
Rights Upon Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for distribution
to stockholders, before any distribution of assets is made to holders of
Junior Stock, liquidating distributions in the amount set forth in the
Prospectus Supplement relating to such series of Preferred Stock plus an
amount equal to accrued and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the amounts
payable with respect to the Preferred Stock of any series and any Parity Stock
are not paid in full, the holders of the Preferred Stock of such series and of
such Parity Stock will share ratably in any such distribution of assets of the
Company in proportion to the full respective preferential amounts (which may
include accumulated dividends) to which they are entitled. After payment of
the full amount of the liquidating distribution to which they are entitled,
the holders of such series of Preferred Stock will have no right or claim to
any of the remaining assets of the Company. Neither the sale of all or a
portion of the Company's assets nor the merger or consolidation of the Company
into or with any other corporation shall be deemed to be a dissolution,
liquidation or winding up, voluntarily or involuntarily, of the Company.
Redemption
The terms, if any, on which shares of a series of Preferred Stock may be
subject to optional or mandatory redemption will be set forth in the
Prospectus Supplement relating to such series.
Conversion
The terms, if any, on which shares of any series of Preferred Stock are
convertible into Common Stock will be set forth in the Prospectus Supplement
relating thereto.
Voting Rights
The holders of Preferred Stock of a series offered hereby will not be
entitled to vote except as indicated below or in the Prospectus Supplement
relating to such series of Preferred Stock or as required by applicable law.
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Preferred Stock, when and if any such series is entitled
to vote, each share in such series will be entitled to one vote.
Unless otherwise specified in the related Prospectus Supplement, holders of
shares of a series of Preferred Stock will have the following voting rights.
If, on the date used to determine stockholders of record for any meeting of
stockholders of the Company at which directors are to be elected, dividends
payable on any series of Preferred Stock offered hereby and any other series
of Parity Stock are in arrears in an amount equal to at least six quarterly
dividends, the number of directors of the Company will be increased by two and
the holders of all such series of Preferred Stock, voting as a class without
regard to series, will be entitled to elect such two additional directors at
such meeting. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of a series of Preferred Stock and any
other series of Parity Stock also being affected, voting as a single class
without regard to series, will be required for any amendment of the Company's
Certificate of Incorporation if the amendment would have a materially adverse
effect on the powers, preferences or special rights of such series. The
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of a series of Preferred Stock and any other series of
Parity Stock, voting as a single class without regard to
21
<PAGE>
series, will be required to authorize, create or issue, or increase the
authorized amount of, any class or series of capital stock ranking prior to
such series of Preferred Stock as to dividends or upon liquidation.
CERTAIN PROVISIONS OF OUTSTANDING PREFERRED STOCK
As of March 31, 1993, there were 28,559,515 shares of Series A Preferred
Stock, 10 shares of Series B Preferred Stock and 20 shares of Series C
Preferred Stock outstanding. The Series A Preferred Stock accrues quarterly
cumulative dividends at the annual rate of $3.75 per share and is entitled to
receive $50 per share, plus accrued and unpaid dividends, upon liquidation.
Each of the Series B Preferred Stock and the Series C Preferred Stock has a
stated value of $5 million per share, accrues quarterly cumulative dividends
based on such stated value at the rate of 8 7/8% per annum until June 28, 1995
and at the rate of 9 1/2% per annum thereafter, accrues dividends on the
amount of any unpaid dividends and is entitled to receive the stated value,
plus accrued and unpaid dividends, upon liquidation.
Each of the Series A, Series B and Series C Preferred Stock prohibits the
payment of cash dividends or other distributions on, and the purchase,
redemption or other acquisition of, any shares of Junior Stock until all
accrued and unpaid dividends on such series of Preferred Stock have been paid.
When dividends are not paid in full on such series of Preferred Stock, all
dividends paid upon shares of such series and Parity Stock must be paid pro
rata so that the amount of dividends paid per share on such series and the
Parity Stock bear to each other the same ratio that accrued dividends per
share on such series and the Parity Stock bear to each other. In February
1991, the Company suspended the quarterly dividend on the Series A, Series B
and Series C Preferred Stock. The Company began paying pro rata dividends on
each of the Series A, Series B and Series C Preferred Stock in October 1992.
Quarterly payments made since that date have been in amounts greater than the
stated quarterly dividends and have been applied to reduce the accumulated
dividend arrearages. As a result, dividend arrearages as of May 31, 1993 on
the Series A, Series B and Series C Preferred Stock had declined to $139.2
million from $185.8 million at September 15, 1992.
PLAN OF DISTRIBUTION
The Offered Securities may be sold to underwriters for public offering
pursuant to terms of offering fixed at the time of sale. In addition, the
Offered Securities may be sold by the Company to other purchasers directly or
through agents. Any such underwriter or agent involved in the offer and sale
of the Offered Securities will be named in an applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may offer and sell the Offered Securities
in exchange for one or more of its outstanding issues of debt securities. The
Company also may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell the Offered Securities upon the terms and
conditions as shall be set forth in an applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Offered Securities for whom they may act as agents. Underwriters may sell
Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agents.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of the Offered Securities
may be deemed to be underwriting discounts and commissions under the
Securities Act. Underwriters, dealers and agents
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may be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by the
Company for certain expenses.
If so indicated in an applicable Prospectus Supplement, the Company may
authorize agents, underwriters or dealers acting as the Company's agents to
solicit offers from certain institutional investors to purchase Offered
Securities from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on a future date or dates specified
therein. There may be limitations on the minimum amount which may be purchased
by any such institutional investor or on the portion of the aggregate amount
of the particular Offered Securities which may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made, when
offered, include commercial and savings banks, insurance companies, pension
funds, investment banks, educational and charitable institutions and such
other institutions as may be approved by the Company. Each Contract will be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (1) purchase shall not at the time of delivery be prohibited
under the laws of any jurisdiction in the United States to which the purchaser
is subject and (2) if the Offered Securities are being sold to underwriters,
the Company shall have sold to underwriters the total amount of the Offered
Securities less the amount covered by Contracts. Agents or underwriters will
have no responsibility in respect of the delivery or performance of Contracts.
Each underwriter, dealer and agent participating in the distribution of any
Offered Securities which are Bearer Securities will agree that it will not
offer, sell or deliver, directly or indirectly, Bearer Securities in the
United States or to U.S. Persons (other than qualifying financial
institutions), in connection with the original issuance of the Offered
Securities. See "Limitations on Issuance of Bearer Securities".
LEGAL MATTERS
Unless otherwise indicated in an accompanying Prospectus Supplement, certain
legal matters in connection with the Offered Securities will be passed upon
for the Company by Harold S. Barron, Esq., Senior Vice President and General
Counsel of the Company, and for any agents or underwriters by Simpson Thacher
& Bartlett (a partnership which includes professional corporations). As of the
date of this Prospectus, Mr. Barron owns 1,600 shares of Common Stock and
holds options to purchase 119,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference or appearing in the Company's Annual Report (Form 10-K) for the year
ended December 31, 1992, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon incorporated therein and
incorporated herein by reference. Such consolidated financial statements are,
and audited financial statements to be included in subsequently filed
documents will be, incorporated herein in reliance upon the reports of Ernst &
Young pertaining to such financial statements (to the extent covered by
consents filed with the Commission) given upon the authority of such firm as
experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HERE-
UNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SO-
LICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S-3
Risk Factors............................................................. S-6
Use of Proceeds.......................................................... S-7
Capitalization........................................................... S-8
Ratio of Earnings to Fixed Charges....................................... S-8
Selected Financial Data.................................................. S-9
Common Stock............................................................. S-10
Business................................................................. S-11
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-15
Description of Notes..................................................... S-18
Certain United States Federal Income Tax Consequences.................... S-25
Underwriting............................................................. S-29
Index to Consolidated Financial Statements............................... F-1
PROSPECTUS
Available Information.................................................... 2
Information Incorporated by Reference.................................... 2
The Company.............................................................. 3
Certain Investment Considerations........................................ 3
Use of Proceeds.......................................................... 4
Ratios of Earnings....................................................... 4
Description of the Debt Securities....................................... 5
Description of Capital Stock............................................. 15
Plan of Distribution..................................................... 22
Legal Matters............................................................ 23
Experts.................................................................. 23
</TABLE>
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$250,000,000
UNISYS CORPORATION
% CONVERTIBLE SUBORDINATED
NOTES DUE 2006
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
, 1996
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