<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[___] OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number: 1-8729
UNISYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-0387840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Unisys Way
Blue Bell, Pennsylvania 19424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 986-4011
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, par value $.01 New York Stock Exchange
Series A Cumulative Convertible
Preferred Stock, par value
$1, $3.75 annual fixed dividend New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
8 1/4% Convertible Subordinated
Notes Due 2006 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates: approximately
$8,607,272,742 as of January 31, 1999. The amount shown is based on the closing
price of Unisys Common Stock as reported on the New York Stock Exchange
composite tape on that date. Voting stock beneficially held by officers and
directors is not included in the computation. However, Unisys Corporation has
not determined that such individuals are "affiliates" within the meaning of Rule
405 under the Securities Act of 1933.
Number of shares of Unisys Common Stock, par value $.01, outstanding as of
January 31, 1999: 260,626,662.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Unisys Corporation 1998 Annual Report to Stockholders -- Part I,
Part II and Part IV.
Portions of the Unisys Corporation Proxy Statement for 1999 Annual Meeting of
Stockholders -- Part III.
<PAGE>
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PART I
ITEM 1. BUSINESS
- -----------------
Unisys Corporation ("Unisys" or the "Company") is a worldwide information
services and technology company, providing systems and solutions that help
customers apply information technology to solve their business problems.
Unisys has two business segments -- Services and Technology. Financial
information concerning the two segments is set forth in Note 14, "Segment
information", of the Notes to Consolidated Financial Statements appearing in the
Unisys 1998 Annual Report to Stockholders, and such information is incorporated
herein by reference.
The principal executive offices of Unisys are located at Unisys Way, Blue
Bell, Pennsylvania 19424.
PRINCIPAL PRODUCTS AND SERVICES
- -------------------------------
Unisys provides services and technology to commercial businesses and
governments throughout most of the world.
In the Services segment, Unisys integrates information solutions and
technology into systems that support customers' critical business operations.
The Services segment also provides support services for distributed networks and
desktops. Major offerings include systems integration, including repeatable and
custom solutions targeted at selected vertical markets, outsourcing, multivendor
maintenance, and network services such as consulting, integration, and on-site
and remote management.
In the Technology segment, Unisys develops high-end servers and related
products to run applications in high-volume, mission-critical environments.
Major offerings include enterprise-class servers, such as the ClearPath server,
which integrates proprietary and "open" platforms, Windows NT servers with
enterprise-class attributes, system middleware to power high-end servers,
storage products, payment systems, and specialized technologies.
Products and services are marketed primarily through direct sales forces.
In certain foreign countries, Unisys markets primarily through distributors.
Unisys manufactures a significant portion of its product lines. Some products,
including certain personal computers, peripheral products, and software
products, are manufactured for Unisys to its design or specifications by other
business equipment manufacturers or software suppliers.
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RAW MATERIALS
- -------------
Raw materials essential to the conduct of the business are generally
readily available at competitive prices in reasonable proximity to those plants
utilizing such materials.
PATENTS, TRADEMARKS AND LICENSES
- --------------------------------
Unisys owns many domestic and foreign patents relating to the design and
manufacture of its products, has granted licenses under certain of its patents
to others and is licensed under the patents of others. Unisys does not believe
that its business is materially dependent upon any single patent or license or
related group thereof. Trademarks and service marks used on or in connection
with Unisys products and services are considered to be valuable assets of
Unisys.
BACKLOG
- -------
In the Services business, firm order backlog at December 31, 1998 was $3.4
billion, compared to $2.9 billion at December 31, 1997. Approximately $1.8
billion (54%) of 1998 backlog is expected to be filled in 1999. Although the
Company believes that this backlog is firm, the Company may, for commercial
reasons, allow the orders to be cancelled, with or without penalty. In addition,
funded U.S. Government contracts included in this backlog are generally subject
to termination, in whole or part, at the convenience of the government or if
funding becomes unavailable. In such cases, the Company is generally entitled to
receive payment for work completed plus allowable termination or cancellation
costs.
At the end of 1998, the Company also had $2.4 billion of potential future
Services order value which it may receive under certain multi-year U.S.
government contracts for which funding is appropriated annually. The comparable
value of unfunded multi-year U.S. government contracts for 1997 was $2.0
billion.
Because of the relatively short cycle between order and shipment in its
Technology business, the Company believes that backlog information for this
segment is not material to the understanding of its business.
CUSTOMERS
- ---------
No single customer accounts for more than 10% of Unisys revenue. Sales of
commercial products to various agencies of the U.S. government represented 13%
of total consolidated revenue in 1998.
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COMPETITION
- -----------
Unisys business is affected by rapid change in technology in the
information services and technology field and aggressive competition from many
domestic and foreign companies, including computer hardware manufacturers,
software providers and information services companies. Unisys competes primarily
on the basis of service, product performance, technological innovation, and
price. Unisys believes that its continued investment in engineering and research
and development, coupled with its marketing capabilities, will have a favorable
impact on its competitive position.
RESEARCH AND DEVELOPMENT
- ------------------------
Unisys-sponsored research and development costs were $296.6 million in
1998, $302.3 million in 1997, and $342.9 million in 1996.
ENVIRONMENTAL MATTERS
- ---------------------
Capital expenditures, earnings and the competitive position of Unisys have
not been materially affected by compliance with federal, state and local laws
regulating the protection of the environment. Capital expenditures for
environmental control facilities are not expected to be material in 1999 and
2000.
EMPLOYEES
- ---------
As of December 31, 1998, Unisys had approximately 33,200 employees.
INTERNATIONAL AND DOMESTIC OPERATIONS
- -------------------------------------
Financial information by geographic area is set forth in Note 14, "Segment
information", of the Notes to Consolidated Financial Statements appearing in the
Unisys 1998 Annual Report to Stockholders, and such information is incorporated
herein by reference.
YEAR 2000
- ---------
The Company's Year 2000 readiness disclosure is included under the heading
"Year 2000 readiness disclosure" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Unisys 1998 Annual Report
to Stockholders and is incorporated herein by reference.
ITEM 2. PROPERTIES
- -------------------
As of December 31, 1998, Unisys had 28 major facilities in the United
States with an aggregate floor space of approximately 5.6 million square feet,
located primarily in California, Illinois, Michigan,
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Minnesota, Pennsylvania, Utah and Virginia. Three of these facilities, with
aggregate floor space of approximately 1.5 million square feet, were owned by
Unisys and 25, with approximately 4.1 million square feet of floor space, were
leased to Unisys. Approximately 4.6 million square feet of the U.S. facilities
were in current operation, approximately .8 million square feet were subleased
to others, and approximately .2 million square feet were being held in reserve
or were declared surplus with disposition efforts in progress.
As of December 31, 1998, Unisys had 30 major facilities outside the United
States with an aggregate floor space of approximately 3.0 million square feet,
located primarily in Brazil, Canada, France, South Africa, Switzerland and the
United Kingdom. Eight of these facilities, with approximately 1.1 million square
feet of floor space, were owned by Unisys and 22, with approximately 1.9 million
square feet of floor space, were leased to Unisys. Approximately 2.3 million
square feet were in current operation, approximately .4 million square feet were
subleased to others, and approximately .3 million square feet were being held in
reserve or were declared surplus with disposition efforts in progress.
Unisys major facilities include offices, laboratories, manufacturing
plants, warehouses, and distribution and sales centers. Unisys believes that its
facilities are suitable and adequate for current and presently projected needs.
Unisys continuously reviews its anticipated requirements for facilities and, on
the basis thereof, will from time to time acquire additional facilities, expand
existing facilities, and dispose of existing facilities or parts thereof.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
As previously reported, most recently in the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998, the Company is
involved in two lawsuits with Ceska Sporitelna, a savings bank in the Czech
Republic (the "Bank"). The disputes relate to contracts entered into in 1992 and
1994 between the Bank and certain of the Company's foreign subsidiaries to
design and implement a computer system, including hardware and custom software,
for the Bank's headquarters and branch offices throughout the Czech Republic. In
the first action, the Company is a defendant in Ceska Sporitelna, a.s. v. Unisys
Corporation, filed in the United States District Court for the Eastern District
of Pennsylvania in June 1996. The Bank alleges that Unisys made a series of
fraudulent misrepresentations in connection with these contracts. The Bank seeks
to recover more than $100 million, together with punitive damages. The Company
believes it has meritorious defenses to these allegations and intends to defend
them vigorously. The Company has filed a counterclaim in this action alleging
fraud, negligent misrepresentation, intentional interference with prospective
business relations and breach of contract by the Bank, and the Company seeks to
recover more than $100 million, together with punitive damages. Trial is
currently scheduled for March 1999. In the second action, the Company's
subsidiary, Unisys International Services B.V., is the plaintiff in an
arbitration captioned Unisys International Services B.V. v. Ceska Sporitelna,
filed in March 1998, in Vienna, Austria. Unisys International Services B.V.
seeks to recover, among other amounts, approximately $21.1 million from the Bank
for hardware, software, and
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services delivered to and used by the Bank. Hearings in this arbitration are
currently scheduled to begin in June 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders of Unisys during the
fourth quarter of 1998.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
- ----------------------------------------------
Information concerning the executive officers of Unisys
is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH UNISYS
---- --- --------------------
<S> <C> <C>
Lawrence A. Weinbach 59 Chairman of the Board, President
and Chief Executive Officer
Gerald A. Gagliardi 51 Executive Vice President;
President, Unisys Global
Customer Services
George R. Gazerwitz 58 Executive Vice President;
President, Unisys Computer
Systems
Lawrence C. Russell 60 Executive Vice President;
President, Unisys Information
Services
David O. Aker 52 Senior Vice President,
Worldwide Human Resources
Harold S. Barron 62 Senior Vice President,
General Counsel and
Secretary
Jack A. Blaine 54 Senior Vice President;
President,
Pacific Asia Americas
Robert H. Brust 55 Senior Vice President and
Chief Financial Officer
Joseph W. McGrath 46 Senior Vice President, Major
Accounts Sales and Chief
Marketing officer
James F. McGuirk II 55 Senior Vice President and
President Unisys Federal
Systems
</TABLE>
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<TABLE>
<S> <C> <C>
Dewaine L. Osman 64 Senior Vice President,
Strategic Development
Richard D. Badler 48 Vice President, Corporate
Communications
Janet Brutschea Haugen 40 Vice President and
Controller
Jack F. McHale 50 Vice President,
Investor Relations
Angus F. Smith 57 Vice President and Treasurer
</TABLE>
There is no family relationship among any of the above-named executive
officers. The Bylaws provide that the officers of Unisys shall be elected
annually by the Board of Directors and that each officer shall hold office for a
term of one year and until a successor is elected and qualified, or until the
officer's earlier resignation or removal.
Mr. Weinbach has been the Chairman of the Board, President and Chief Executive
Officer of Unisys since September 1997. Prior to that time, he held the
position of Managing Partner-Chief Executive of Andersen Worldwide (Arthur
Andersen and Andersen Consulting), a global professional services organization.
He had been with Andersen Worldwide since 1961.
Mr. Gagliardi was elected an Executive Vice President of Unisys in 1996. He
had been a Senior Vice President of Unisys and President of Unisys Global
Customer Services since 1995. He held the positions of Vice President, Customer
Services Worldwide from 1994 to 1995 and Vice President and General Manager,
Customer Services and Support, from 1991 to 1994. Mr. Gagliardi has been an
officer since 1994.
Mr. Gazerwitz was elected an Executive Vice President of Unisys and President
of Unisys Computer Systems in 1996. He had been a Vice President of Unisys and
Executive Vice President of Nihon Unisys Limited from 1994 to October 1996 and
Vice President, Marketing, of the United States Division from 1992 to 1994. Mr.
Gazerwitz has been an officer since 1984.
Mr. Russell was elected an Executive Vice President of Unisys and President of
Unisys Information Services in 1995. He was an officer of The First Manhattan
Consulting Group, a management consulting firm, from 1993 to 1995. He was
Chairman and Chief Executive Officer of Palaru Corporation, a printing company,
from 1990 to 1993. Mr. Russell has been an officer since 1995.
Mr. Aker was elected Senior Vice President of Unisys Worldwide Human Resources
in February 1997. He had been Vice President of Unisys Worldwide Human
Resources since 1995 and Vice President, Human Resources, Information Services
and Systems Group from 1994 to 1995. From 1991 to 1994, he was Vice President,
Human Resources and Administration of Rolls-Royce of North America and a
director of its subsidiary, Rolls-Royce Incorporated. Mr. Aker has been an
officer since 1995.
<PAGE>
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Mr. Barron has been Senior Vice President, General Counsel and Secretary of
Unisys since April 1994. He has served as an officer of Unisys since 1991.
Mr. Blaine has been a Senior Vice President of Unisys and President of Unisys
Pacific Asia Americas since 1996. He was a Vice President of Unisys and
President of the Latin America and Caribbean Division from 1995 to 1996. From
1990 to 1995, Mr. Blaine was Vice President of Unisys and General Manager of the
Latin America and Caribbean Group of the Pacific Asia Americas Division. Mr.
Blaine has been an officer since 1988.
Mr. Brust was elected Senior Vice President and Chief Financial Officer of
Unisys in February 1997. Prior to that time he held the position of Vice
President of Finance at G.E. Plastics, a unit of General Electric Company. He
had been with General Electric Company since 1965. Mr. Brust has been an
officer since 1997.
Mr. McGrath joined Unisys as Senior Vice President of Major Accounts Sales and
Chief Marketing Officer in January 1999. From 1995 to 1998, he was the Vice
President and General Manager of Production Color Systems, a unit of Xerox
Corporation. Prior to 1995, he was Vice President of Strategy and Integration
for Xerox Production Systems Division. Before joining Xerox Corporation, Mr.
McGrath was Vice President and Service Director at Gartner Group. Mr. McGrath
has been an officer since January 1999.
Mr. McGuirk was elected a Senior Vice President of Unisys in April 1998. He
had been a Vice President of Unisys since 1996 and has been President, Unisys
Federal Systems, since 1992. Mr. McGuirk has been an officer since 1996.
Mr. Osman has been Senior Vice President, Strategic Development, since October
1997. From August 1996 to October 1997, he served as Senior Vice President,
Information Technology and Strategic Development. He also served as President
of Worldwide Sales and Marketing from July 1995 to January 1996 and as President
of the Pacific Asia Americas Group from July 1995 to July 1996. He was Vice
President, Corporate Planning and Business Development, from 1992 to 1995 and
Vice President, Commercial Marketing, from 1993 to 1994. Mr. Osman was an
officer from 1986 to 1991 and was reelected in 1992.
Mr. Badler joined Unisys as Vice President of Corporate Communications in July
1998. He had held the position of Vice President Corporate Communications at
General Instrument Corporation since 1996. Prior to 1996, Mr. Badler was an
Executive Vice President and account director with Golin/Harris Communications
in Chicago. Mr. Badler has been an officer since July 1998.
Ms. Haugen was elected Vice President and Controller of Unisys in 1996. Prior
to that time, she held the position of audit partner at Ernst & Young LLP. She
had been with Ernst & Young LLP since 1980. Ms. Haugen has been an officer
since 1996.
Mr. McHale has been Vice President, Investor Relations, since May 1997. From
1989 to 1997, he was Vice President, Investor and Corporate Communications. Mr.
McHale has been an officer since 1986.
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Mr. Smith has been Vice President and Treasurer since June 1997. Prior to
that time, he had held the position of Treasurer of Rohm and Haas Company since
1980. He had been with Rohm and Haas Company since 1967. Mr. Smith has been an
officer since 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- -------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Unisys Common Stock (trading symbol "UIS") is listed for trading on the New
York Stock Exchange, on exchanges in Amsterdam, Brussels, and London, and on the
Electronical Stock Exchange in Switzerland. Information on the high and low
sales prices for Unisys Common Stock is set forth under the heading "Quarterly
financial information", in the Unisys 1998 Annual Report to Stockholders and is
incorporated herein by reference. At December 31, 1998, there were 256.6 million
shares outstanding and approximately 28,600 stockholders of record. Unisys has
not declared or paid any cash dividends on its Common Stock since 1990.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
A summary of selected financial data for Unisys is set forth under the heading
"Eight-year summary of selected financial data" in the Unisys 1998 Annual Report
to Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Management's discussion and analysis of financial condition and results of
operations is set forth under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Unisys 1998 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- ---------------------------------------------------------
MARKET RISK
-----------
Information concerning market risk is set forth under the heading "Market
risk disclosure" in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Unisys 1998 Annual Report to Stockholders and
is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements of Unisys, consisting of the consolidated balance
sheets at December 31, 1998 and 1997 and the related consolidated statements of
income, cash flows and stockholders' equity for each of the three years in the
period ended December 31, 1998, appearing in the Unisys 1998 Annual Report to
Stockholders, together with the report of Ernst & Young LLP, independent
auditors, on the financial statements at December 31, 1998 and 1997 and for each
of the three years in the period ended December 31, 1998, appearing in the
Unisys 1998 Annual Report to Stockholders, are incorporated herein by reference.
Supplementary financial data, consisting of information appearing under the
heading "Quarterly financial information" in the Unisys 1998 Annual Report to
Stockholders, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------------------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
(a) Identification of Directors. Information concerning the directors of
Unisys is set forth under the headings "Nominees for Election to the Board of
Directors", "Members of the Board of Directors Continuing in Office -- Term
Expiring in 2000" and "Members of the Board of Directors Continuing in Office --
Term Expiring in 2001" in the Unisys Proxy Statement for the 1999 Annual Meeting
of Stockholders and is incorporated herein by reference.
(b) Identification of Executive Officers. Information concerning executive
officers of Unisys is set forth under the caption "EXECUTIVE OFFICERS OF THE
REGISTRANT" in Part I, Item 10, of this report.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Information concerning executive compensation is set forth under the headings
"EXECUTIVE COMPENSATION", "REPORT OF THE CORPORATE GOVERNANCE AND COMPENSATION
COMMITTEE" and "STOCK PERFORMANCE GRAPH" in the Unisys Proxy Statement for the
1999 Annual Meeting of Stockholders and is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
- -------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
Information concerning shares of Unisys equity securities beneficially owned
by certain beneficial owners and by management is set forth under the heading
"SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Unisys
Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Information concerning certain relationships and transactions between Unisys
and members of its management is set forth under the headings "EXECUTIVE
COMPENSATION" and "REPORT OF THE CORPORATE GOVERNANCE AND COMPENSATION
COMMITTEE" in the Unisys Proxy Statement for the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- -------------------------------------------------------------
ON FORM 8-K
-----------
(a) The following documents are filed as part of this report:
1. Financial Statements from the Unisys 1998 Annual Report to
Stockholders which are incorporated herein by reference:
ANNUAL REPORT
PAGE NO.
-------------
Consolidated Balance Sheet at
December 31, 1998 and December 31, 1997.................. 39
Consolidated Statement of Income for each of the
three years in the period ended December 31, 1998........ 38
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1998........ 40
Consolidated Statement of Stockholders' Equity for
each of the three years in the period ended
December 31, 1998........................................ 41
Notes to Consolidated Financial Statements................. 42-59
Report of Independent Auditors............................. 60
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2. Financial Statement Schedules filed as part of this report
pursuant to Item 8 of this report:
SCHEDULE FORM 10-K
NUMBER PAGE NO.
- -------- ---------
II Valuation and Qualifying Accounts................ 16
The financial statement schedule should be read in conjunction with the
consolidated financial statements and notes thereto in the Unisys 1998 Annual
Report to Stockholders. Financial statement schedules not included with this
report have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
Separate financial statements of subsidiaries not consolidated with Unisys
and entities in which Unisys has a fifty percent or less ownership interest have
been omitted because these operations do not meet any of the conditions set
forth in Rule 3-09 of Regulation S-X.
3. Exhibits. Those exhibits required to be filed by Item 601 of Regulation S-K
are listed in the Exhibit Index included in this report at pages 17 through 20.
Management contracts and compensatory plans and arrangements are listed as
Exhibits 10.1 through 10.20.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1998, Unisys filed no Current Reports
on Form 8-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNISYS CORPORATION
/s/ Lawrence A. Weinbach
By: ----------------------------
Lawrence A. Weinbach
Chairman of the Board,
President and Chief
Executive Officer
Date: March 2, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 2, 1999.
/s/Lawrence A. Weinbach *James J. Duderstadt
- ------------------------- ---------------------
Lawrence A. Weinbach James J. Duderstadt
Chairman of the Board, Director
President and Chief Executive
Officer (principal *Henry C. Duques
executive officer) and ---------------------
Director Henry C. Duques
Director
/s/Robert H. Brust *Gail D. Fosler
- ------------------------- ---------------------
Robert H. Brust Gail D. Fosler
Senior Vice President and Director
Chief Financial Officer
(principal financial officer)
/s/Janet Brutschea Haugen *Melvin R. Goodes
- ------------------------- ---------------------
Janet Brutschea Haugen Melvin R. Goodes
Vice President and Director
Controller (principal
accounting officer)
*J. P. Bolduc *Edwin A. Huston
- ------------------------- ---------------------
J. P. Bolduc Edwin A. Huston
Director Director
*Kenneth A. Macke *Theodore E. Martin
- ------------------------- ---------------------
Kenneth A. Macke Theodore E. Martin
Director Director
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*Robert McClements, Jr.
- -------------------------
Robert McClements, Jr.
Director
*By:/s/Lawrence A. Weinbach
---------------------------
Lawrence A. Weinbach
Attorney-in-Fact
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UNISYS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions)
<TABLE>
<CAPTION>
Additions
Balance at Charged Balance
Beginning to Costs at End
Description of Period and Expenses Deductions (a) of Period
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
(deducted from accounts and
notes receivable):
Year Ended
December 31, 1996 $ 86.7 $ 2.5 $( 5.3) $ 83.9
Year Ended
December 31, 1997 $ 83.9 $ 9.8 $(24.2) $ 69.5
Year Ended
December 31, 1998 $ 69.5 $ 3.7 $(22.7) $ 50.5
</TABLE>
(a) Write-off of bad debts less recoveries.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Unisys
Corporation, incorporated by reference to Exhibit 4.1 to the
registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997.
3.2 Certificate of Amendment of Restated Certificate of Incorporation
dated April 24, 1998, incorporated by reference to Exhibit 4.4 to the
registrant's Registration Statement on Form S-3 (Registration No.
333-51885).
3.3 By-Laws of Unisys Corporation, incorporated by reference to Exhibit 3
to the registrant's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995.
4.1 Agreement to furnish to the Commission on request a copy of any
instrument defining the rights of the holders of long-term debt which
authorizes a total amount of debt not exceeding 10% of the total
assets of the registrant, incorporated by reference to Exhibit 4 to
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1982 (File No. 1-145).
4.2 Form of Rights Agreement dated as of March 7, 1986 between Burroughs
Corporation and Harris Trust Company of New York, as Rights Agent,
which includes as Exhibit A, the Certificate of Designations for the
Junior Participating Preferred Stock, and as Exhibit B, the Form of
Rights Certificate, incorporated by reference to Exhibit 1 to the
registrant's Registration Statement on Form 8-A, dated March 11,
1986.
4.3 Amendment No. 1, dated as of February 22, 1996, to Rights Agreement,
incorporated by reference to Exhibit 4 to the registrant's Current
Report on Form 8-K dated February 22, 1996.
</TABLE>
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<TABLE>
<S> <C>
10.1 Deferred Compensation Plan for Executives of Unisys Corporation, as
amended and restated effective February 26, 1998.
10.2 Deferred Compensation Plan for Directors of Unisys Corporation, as
amended and restated effective May 22, 1997, incorporated by
reference to Exhibit 10.5 to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997.
10.3 Form of Executive Employment Agreement, incorporated by reference to
Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995.
10.4 Unisys Corporation Executive Life Insurance Plan, effective
September 12, 1998, incorporated by reference to Exhibit 10 to the
registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998.
10.5 Employment Agreement, dated September 23, 1997, between the
registrant and Lawrence A. Weinbach, incorporated by reference to
Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997.
10.6 Unisys Corporation Director Stock Unit Plan, as amended and
restated, effective May 22, 1997, incorporated by reference to
Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
10.7 Summary of supplemental executive benefits provided to officers of
Unisys Corporation, incorporated by reference to Exhibit 10(k) of
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
</TABLE>
<PAGE>
-19-
<TABLE>
<S> <C>
10.8 Unisys Executive Annual Variable Compensation Plan, incorporated by
reference to Exhibit A to the registrant's Proxy Statement, dated
March 23, 1993, for its 1993 Annual Meeting of Stockholders.
10.9 1982 Unisys Long-Term Incentive Plan, as amended and restated
through September 1, 1989, incorporated by reference to Exhibit
10(p) to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.10 Amendment, dated December 11, 1989, to the 1982 Unisys Long-Term
Incentive Plan, incorporated by reference to Exhibit 10(o) to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1989.
10.11 Amendment, dated July 25, 1990, to 1982 Unisys Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(r) to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.12 1990 Unisys Long-Term Incentive Plan, effective as of January 1,
1990 incorporated by reference to Exhibit A to the registrant's
Proxy Statement, dated March 20, 1990, for its 1990 Annual Meeting
of Stockholders.
10.13 Amendment, dated May 26, 1994, to 1990 Unisys Long-Term Incentive
Plan, effective as of February 22, 1990, incorporated by reference
to Exhibit 10.15 to the registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.14 Amendment, dated May 25, 1995, to 1990 Unisys Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.2 to the registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1995.
10.15 Amendment, dated February 22, 1996, to 1990 Unisys Long-Term
Incentive Plan, incorporated by reference to Exhibit 10 to
registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1996.
</TABLE>
<PAGE>
-20-
<TABLE>
<S> <C>
10.16 Form of Loan Agreement including Note used for term loans to
executive officers purchasing residences, incorporated by reference
to Exhibit 10(ll) to the registrant's Annual Report on Form 10-K for
the year ended December 31, 1986.
10.17 Unisys Corporation Officers' Car Allowance Program, effective as of
July 1, 1991, incorporated by reference to Exhibit 10(hh) to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1991.
10.18 Form of Indemnification Agreement between Unisys Corporation and
each of its Directors, incorporated by reference to Exhibit B to the
registrant's Proxy Statement, dated March 22, 1988, for the 1988
Annual Meeting of Stockholders.
10.19 Unisys Corporation Elected Officer Pension Plan, as amended through
May 22, 1997, incorporated by reference to Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997.
10.20 Unisys Corporation Supplemental Executive Retirement Income Plan, as
amended through May 22, 1997, incorporated by reference to Exhibit
10.3 to the registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of the Annual Report to Stockholders of the registrant for
the year ended December 31, 1998.
21 Subsidiaries of Unisys Corporation.
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 10.1
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES OF UNISYS CORPORATION
(as amended and restated effective February 26, 1998)
Article I
Purpose & Authority
1.1 Purpose. The purpose of the Plan is to offer Eligible Executives
the opportunity to defer receipt of a portion of their compensation from the
Corporation, under terms advantageous to both the Eligible Executive and the
Corporation.
1.2 Effective Date. The Board originally approved the Officers' Plan on
January 29, 1982. The Plan has been amended and restated from time to time since
its original adoption and this amended and restated version of the Plan is
effective February 26, 1998.
1.3 Authority. Any decision made or action taken by the Corporation and
any of its officers or employees involved in the administration of this Plan, or
any member of the Board or the Committee arising out of or in connection with
the construction, administration, interpretation and effect of the Plan shall be
within the absolute discretion of all and each of them, as the case may be, and
will be conclusive and binding on all parties. No member of the Board and no
employee of the Corporation shall be liable for any act or action hereunder,
whether of omission or commission, by any other member or employee or by any
agent to whom duties in connection with the administration of the Plan have been
delegated or, except in circumstances involving the member's or employee's bad
faith, for anything done or omitted to be done by himself or herself.
Article II
Definitions
2.1 "Account" means, for any Participant, the memorandum account
established for the Participant under Section 4.1.
2.2 "Account Balance" means, for any Participant as of any date, the
aggregate amount reflected in his or her Account.
2.3 "Beneficiary" means the person or persons designated from time to
time in writing by a Participant to receive payments under the Plan after the
death of such Participant or, in the absence of such designation or in the event
that such designated person or persons predeceases the Participant, the
Participant's estate.
2.4 "Board" means the Board of Directors of the Corporation.
2.5 "Committee" means the Compensation and Organization Committee of the
Board.
2.6 "Corporation" means Unisys Corporation.
2.7 "Deferral Election" means an election by an Eligible Executive to
defer a portion of his or her compensation from the Corporation under the Plan,
as described in Section 3.1.
<PAGE>
2.8 "Directors' Plan" means the Deferred Compensation Plan for Directors
of Unisys Corporation.
2.9 "Eligible Executive" means, for any calendar year, an individual:
(1) who is employed by the Corporation at Level 25 or above (or at Level P3 or
above, if the individual is employed in the Information Services Division of the
Corporation); (2) for whom the sum of (A) the individual's base salary from the
Corporation and (B) 75 percent of the individual's Target EVC for the calendar
year equals or exceeds the maximum amount of compensation that is permitted to
be taken into account under section 401(a)(17) of the Internal Revenue Code
during a plan year that begins in the calendar year; and (3) who is designated
by the Vice President, Human Resources as an Eligible Executive.
2.10 "EVC" means, for any individual, the amount payable to such
individual under the Unisys Executive Annual Variable Compensation Plan (or
under any successor annual incentive plan of the Corporation) or under any other
similar annual incentive plan of the Corporation approved by the Vice President,
Human Resources.
2.11 "Investment Measurement Option" means any of the hypothetical
investment alternatives available for determining the additional amounts to be
credited to a Participant's Account under Section 4.2. Effective January 1,
1997, the Investment Measurement Options available are all of the investment
options available to eligible participants under the USP. Performance Unit
Compensation deferred under the Plan will be held as Stock Units.
2.12 "Officers' Plan" means the Deferred Compensation Plan for Officers
of Unisys Corporation, the predecessor of this Plan.
2.13 "Participant" means an Eligible Executive or former Eligible
Executive who has made a Deferral Election and who has not received a
distribution of his or her entire Account Balance.
2.14 "Performance Unit Compensation" means any amount payable to an
Eligible Executive as a result of the Eligible Executive's vesting in a
Performance Unit award (including, but not limited to, share unit and restricted
share unit awards) made under the terms of the 1990 Unisys Long-Term Incentive
Plan, or any successor equity-based incentive compensation plan.
2.15 "Plan" means the Deferred Compensation Plan for Executives of
Unisys Corporation, as set forth herein and as amended from time to time.
2.16 "Revised Election" means an election made by a Participant, in
accordance with Section 5.2, to change the date as of which payment of his or
her Account Balance is to commence and/or the form in which such payment is to
be made.
2.17 "Stock Units" means Unisys common stock-equivalent units. The value
of a Stock Unit on any given date is the Fair Market Value of a share of Unisys
Common Stock on that date. "Fair Market Value" means, on any date, the closing
sales price of a share of Unisys Common Stock as reported on the Composite Tape
of New York Stock Exchange Companies.
<PAGE>
2.18 "Target EVC" means, for any individual, the amount that will be
payable to such individual as EVC if the criteria applicable to such individual
are satisfied.
2.19 "USP" means the Unisys Savings Plan.
2.20 "Valuation Date" means the last business day of each calendar
month.
Article III
Deferral of Compensation
3.1 Deferral Election.
(a) During any calendar year, each individual who is an Eligible
Executive for such calendar year may, by properly completing a Deferral
Election, elect to defer:
(1) all or a portion of his or her salary that, absent deferral, would
be paid to him or her for services rendered during the remainder of the current
calendar year and/or the next following calendar year; and/or
(2) all or a portion of his or her EVC that, absent deferral, would be
paid to him/her in the next following calendar year.
(b) To be effective, a Deferral Election with respect to EVC must be
made in writing by the Eligible Executive on a form furnished by the Corporate
Executive Compensation Department on or before September 30 of the calendar year
immediately preceding the calendar year in which the amounts to be deferred,
absent deferral, would be paid to the Eligible Executive, and a Deferral
Election with respect to salary must be made in writing by the Eligible
Executive on a form furnished by the Corporate Executive Compensation Department
on or before the date that is at least three months and one day before the date
on which the amounts to be deferred, absent deferral, would be paid to the
Eligible Executive provided, however, that an individual who becomes an Eligible
Executive after the effective date of the Plan (as set forth in Section 1.2) may
make a Deferral Election with respect to salary that, absent deferral, would be
paid to him or her during the remainder of the calendar year in which he or she
becomes an Eligible Executive and with respect to all or a portion of the EVC
that, absent deferral, would be paid to him or her in the next following
calendar year by filing the required written election with the Corporate
Executive Compensation Department on or before the date that is 30 days after
the date on which he or she becomes an Eligible Executive.
(c) In addition to the Deferral Elections described in Section 3.1(a),
an Eligible Executive may make a Deferral Election with respect to Performance
Unit Compensation that, absent deferral, would be paid to the Eligible
Executive. To be effective, a Deferral Election with respect to Performance Unit
Compensation must be made in writing by the Eligible Executive on or before the
date that is 12 months and one day before the date on which the amounts to be
deferred, absent deferral, would be paid to the Executive.
(d) Once made, a Deferral Election shall become effective upon approval
by the Corporate Executive Compensation Department and is thereafter
irrevocable, except to the extent otherwise provided in Section 5.2. A Deferral
Election will be deemed to have been approved by the Corporate Executive
Compensation Department if it is not
<PAGE>
disapproved by the Corporate Executive Compensation Department within ten days
of the date on which it is received.
(e) An Eligible Executive's Deferral Election must specify either a
percentage or a certain dollar amount of his or her salary and/or EVC and/or a
percentage of his or her Performance Unit Compensation to be deferred under the
Plan. In addition, the Deferral Election must specify the date on which payment
of the Eligible Executive's Account Balance is to commence and the manner in
which such payment is to be made.
(1) The Eligible Executive must specify the date as
of which payment of his or her Account Balance is to commence and may
specify that such payment is to commence as of:
(A) his or her termination of active employment (including as a
result of retirement or disability) with the Corporation; or
(B) a specific date (which may be determined by reference to the
Eligible Executive's retirement or other termination of employment) that is at
least five years after the date on which the amounts to be deferred, absent
deferral, would be paid to the Eligible Executive.
(2) The Eligible Executive must specify the manner in which payment
of his or her Account Balance is to be made and may specify that such payment is
to be made either in a single sum or in annual installments.
(3) Notwithstanding the foregoing, an Eligible Executive may not
elect a time of benefit commencement and/or a form of payment to the extent that
such an election would cause any payments to be made after the March 31 first
following the date that is 20 years after the date of the Eligible Executive's
retirement or other termination of employment.
(f) Deferrals of an Eligible Executive's salary shall be credited to the
Plan ratably throughout the year (or, where applicable, the portion of the year)
to which the Deferral Election applies. Deferrals of an Eligible Executive's EVC
and Performance Unit Compensation shall be credited at the time at which the EVC
or Performance Unit Compensation, absent deferral, would be payable to the
Participant.
(g) Unless the Deferral Election form specifically provides otherwise, a
Deferral Election with respect to salary shall expire as of the last day of the
calendar year that includes the first day on which any amount, absent deferral,
would be paid to the Eligible Executive and a Deferral Election with respect to
EVC or Performance Unit Compensation shall expire as of the date on which the
EVC or Performance Unit Compensation that is the subject of the Deferral
Election is credited under the Plan.
3.2 Payment of FICA and Other Taxes. To the extent that, as a result of
a Deferral Election, the compensation currently payable to an Eligible Executive
during any period is insufficient to permit an amount equal to the FICA and
other taxes that are payable by the Eligible Executive, and required to be
withheld by the Corporation, during that period to be withheld from such current
compensation, the
<PAGE>
Eligible Executive shall be notified by the Corporation and shall provide the
Corporation with a check in an amount equal to the difference between the amount
of FICA and other taxes payable by the Eligible Executive during the period and
the amount of compensation otherwise currently payable to the Eligible Executive
during the period. If the Eligible Executive does not provide such check within
the time period specified by the Corporation, the Eligible Executive's Account
Balance shall be reduced by an amount equal to the sum of (a) the difference
between the amount of FICA and other taxes payable by the Eligible Executive,
and required to be withheld by the Corporation, during the period and the amount
of compensation otherwise currently payable to the Eligible Executive during the
period and (b) any additional Federal, state and local income taxes payable by
the Eligible Executive with respect to the reduction in his or her Account
Balance made pursuant to this Section 3.2.
Article IV
Treatment of Deferred Amounts
4.1 Memorandum Account. The Corporation shall establish on its books an
Account for each Participant. Amounts deferred by a Participant pursuant to a
Deferral Election shall be credited to the Participant's Account on the date on
which the deferred amounts, absent deferral, would have been paid to the
Participant. Performance Unit Compensation will be credited to the Participant's
Account as Stock Units. In addition, as of each Valuation Date, incremental
amounts determined in accordance with Section 4.2 will be credited or debited to
each Participant's Account. Any payments made to or on behalf of the Participant
and for his or her Beneficiary shall be debited from the Account. No assets
shall be segregated or earmarked in respect to any Account and no Participant or
Beneficiary shall have any right to assign, transfer, pledge or hypothecate his
or her interest or any portion thereof in his or her Account. The Plan and the
crediting of Accounts hereunder shall not constitute a trust or a funded
arrangement of any sort and shall be merely for the purpose of recording an
unsecured contractual obligation of the Corporation.
4.2 Investment Measurement Options.
(a) Subject to the provisions of this Section 4.2, a Participant's
Account shall be credited or debited with amounts equal to the amounts that
would be earned or lost with respect to the Participant's Account Balance
(including, with respect to Stock Units, dividend equivalents and other
adjustments) if amounts equal to that Account Balance were actually invested in
the Investment Measurement Options in the manner specified by the Participant.
(b) Each Eligible Executive may elect, at the same time as a Deferral
Election is made, to have one or more of the Investment Measurement Options
applied to current deferrals. Such election with respect to current deferrals
may be changed as of the first day of any month, provided that notice of such
election is made prior to the first day of that month with the Corporate
Executive Compensation Department or its designee.
(c) Subject to the restrictions described in Subsection (e), a
Participant may elect to change the manner in which Investment Measurement
Options apply to existing Account Balances. Such an election will be effective
as of the first day of the month following the date on which an election is made
with the Corporate Executive Compensation Department or its designee.
<PAGE>
(d) Notwithstanding anything to the contrary in the Plan, Performance
Unit Compensation deferred and held under the Plan in the form of Stock Units
may not be transferred into any other Investment Measurement Option.
(e) The following rules apply to Investment Measurement Options.
(1) The percentage of a Participant's current deferrals and/or
Account Balance to which a specified Investment Measurement Option is to be
applied must be a multiple of five percent.
(2) To the extent that a Participant has not specified an Investment
Measurement Option to apply to all or a portion of his or her current deferrals
and/or Account Balance, the Insurance Contract Fund shall be deemed to be the
applicable Investment Measurement Option.
(3) The chosen Investment Measurement Option or Options shall apply
to deferred amounts on and after the date on which such amounts, absent
deferral, would have been paid to the Participant.
(f) The Committee shall have the authority to modify the rules and
restrictions relating to Investment Measurement Options (including the authority
to change such Investment Measurement Options prospectively) as it, in its
discretion, deems necessary and in accord with the investment practices in place
under the USP.
Article V
Payment of Deferred Amounts
5.1 Form and Time of Payment. The benefits to which a Participant or a
Beneficiary may be entitled under the Plan shall be paid in accordance with this
Section 5.1.
(a) All payments under the Plan shall be made in cash, provided,
however, that unless otherwise provided by the Committee, Stock Units shall be
paid in shares of Unisys common stock.
(b) Except as otherwise provided in Sections 5.3 and 5.4, payment of a
Participant's Account Balance shall commence as of the Valuation Date next
following the date or dates specified in the Participant's Deferral Election or
Elections or (where applicable) the Participant's Revised Election or Elections;
provided, however, that where the Participant's Deferral Election or Elections
or (where applicable) the Participant's Revised Election or Elections specify
that payments with respect to a Participant's Account Balance are to commence as
of a specified date or specified dates not determined by reference to the
Participant's retirement or other termination of employment and the Participant
terminates employment with the Corporation prior to such date or dates, payment
of the portion of the Participant's Account Balance that was deferred to such
date or dates shall commence as of the Valuation Date next following the
Participant's termination of employment, but in the same form specified in the
Participant's Deferral Election or Elections or (where applicable) the
Participant's Revised Election or Elections.
(c) All payments shall be made in the form or forms specified in the
Participant's Deferral Election or Elections or (where
<PAGE>
applicable) the Participant's Revised Election or Elections.
(d) To the extent a Participant has not specified the form or time of
payment of his or her Account Balance, payment will be made in a single sum as
soon as administratively practicable, but within 90 days, after the first
Valuation Date following the Participant's termination of employment with the
Corporation.
(e) Where a Participant has elected payment in the form of annual
installments, each installment payment after the initial installment payment
shall be made on or about March 31 of each year following the year in which the
first installment was paid. With respect to each Deferral Election made by a
Participant, the amount of each annual installment payment to be made to a
Participant or Beneficiary under such Deferral Election shall be determined by
dividing the portion of the Participant's Account Balance attributable to such
Deferral Election as of the latest Valuation Date preceding the date of payment
by the number of installments remaining to be paid under such Deferral Election.
(f) Notwithstanding any election made by a Participant, any portion of a
Participant's Account Balance that has not been paid to the Participant as of
the date of his or her death shall be paid to the Participant's Beneficiary in a
single sum as soon as administratively practicable, but within 90 days, after
the Valuation Date following the date on which the Corporation receives
notification of the Participant's death.
5.2 Revised Election.
(a) Pursuant to a Revised Election, a Participant may specify:
(1) a date for the commencement of the payment of the Participant's
Account Balance that is after the date specified in the Participant's Deferral
Election; and/or
(2) a form of payment that calls for a greater number of annual
installment payments than that specified in the Participant's Deferral Election,
or a number of annual installment payments where the Participant specified a
single sum payment in his or her Deferral Election.
(3) Notwithstanding the foregoing, an Eligible Executive may not
elect a time of benefit commencement and/or a form of payment to the extent that
such an election would cause any payments to be made after the March 31 first
following the date that is 20 years after the date of the Eligible Executive's
retirement or other termination of employment.
(b) If a Participant has made a Revised Election with respect to amounts
the payment of which has been deferred to a certain date, the Participant may
not thereafter make another Revised Election with respect to amounts the payment
of which, as of the date on which such Revised Election is made and before
giving effect to the Revised Election, has been deferred to the same date.
(c) To be effective, a Revised Election must be:
(1) made in writing by the Participant on a form
<PAGE>
furnished for such purpose by the Corporate Executive Compensation Department;
(2) submitted to the Corporate Executive Compensation Department on
or before the date that is three months and one day before the date on which the
portion of the Participant's Account Balance that is the subject of the Revised
Election would, absent the Revised Election, first become payable; and
(3) approved by the Corporate Executive Compensation Department. A
Revised Election will be deemed to have been approved by the Corporate Executive
Compensation Department if it is not disapproved by the Corporate Executive
Compensation Department within ten days of the date on which it is received.
5.3 Special Payments.
(a) Notwithstanding any other provision of the Plan to the contrary, a
Participant may receive payment of all or a portion of his or her Account
Balance as soon as administratively practicable following the receipt by the
Corporate Executive Compensation Department of the Participant's written request
for such payment.
(b) (1) As a condition of receiving any payment made pursuant to
Subsection 5.3(a), a Participant will be subject to, and must elect the
application of, one of the following penalties:
(A) payment to the Company of an amount equal to eight percent of
the amount of the payment made pursuant to Subsection 5.3(a) and suspension of
the Participant's further participation in the Plan or any equivalent plan or
plans maintained by the Corporation or a subsidiary of the Corporation for the
entire calendar year described in "(B)" below; or
(B) payment to the Company of an amount equal to six percent of the
amount of the payment made pursuant to Subsection 5.3(a), and suspension of the
Participant's tax-deferred contributions to the Plan and the USP or any
equivalent plan or plans maintained by the Corporation or a subsidiary of the
Corporation for the entire calendar year that follows the date on which the
Participant submits to the Corporate Executive Compensation Department his or
her request for payment pursuant to Subsection 5.3(a).
(2) The payment to the Company specified in Paragraph 5.3(b)(1) shall
generally be deducted from the amount otherwise payable to the Participant under
Subsection 5.3(a).
(c) Where a Participant receives a payment of less than his or her
entire Account Balance pursuant to Subsection 5.3(a), the portion of the
Participant's Account Balance to which each Investment Measurement Option is
applied shall be reduced proportionately so that the Investment Measurement
Options apply to the Participant's Account Balance in the same percentages
immediately before and immediately after the payment.
(d) Notwithstanding any provision of the Plan to the contrary, in the
event the Committee determines that any portion of a Participant's Account
Balance is the subject of a final determination by the Internal Revenue Service
that such portion is includible in the Participant's taxable income, the
Participant's Account Balance shall be
<PAGE>
distributed to the extent it is so includible. All income taxes and related
interest and penalties associated with credits to or distributions from a
Participant's Account shall be borne by the Participant.
5.4 Acceleration of Payment. Notwithstanding any other provision of
this Plan to the contrary, the Committee in its sole discretion may accelerate
the payment of Account Balances to all or any group of similarly situated
Participants or Beneficiaries, whether before or after the Participants'
termination of service, in response to changes in the tax laws or accounting
principles.
Article VI
Miscellaneous
6.1 Amendment. The Board may modify or amend, in whole or in part, any
of or all the provisions of the Plan, or suspend or terminate it entirely;
provided, however, that any such modification, amendment, suspension or
termination may not, without the Participant's consent, adversely affect any
deferred amount credited to him or her for any period prior to the effective
date of such modification, amendment, suspension or termination. The Plan shall
remain in effect until terminated pursuant to this provision.
6.2 Administration. The Committee shall have the sole authority to
interpret the Plan and in its discretion to establish and modify administrative
rules for the Plan. All expenses and costs in connection with the operation of
this Plan shall be borne by the Corporation. The Corporation shall have the
right to deduct from any payment to be made pursuant to this Plan any federal,
state or local taxes required by law to be withheld, and any associated interest
and/or penalties.
6.3 Governing Law. The Plan shall be construed and its provisions
enforced and administered in accordance with the laws of the Commonwealth of
Pennsylvania except as such laws may be superseded by the federal law.
Article VII
Transfer of Account Balance
7.1 Transfer to Director's Plan. Notwithstanding any election of form
of payments made hereunder, a Participant who, following his termination of
employment with the Corporation will be eligible to participate in the
Directors' Plan, may elect at any time prior to the date that is three months
and one day before the Participant's termination of employment to transfer all
or any portion of his Account Balance to the Directors' Plan. Such transfer must
occur prior to the date that payments of the Participant's Account Balance would
otherwise be made, or commence, hereunder. Upon transfer, the Participant's
Account Balance (or the portion thereof transferred) will be subject to the
terms and conditions of the Directors' Plan; provided, however, that any
election of form of payment made under the Directors' Plan with respect to the
amount transferred may not provide for a form of payment that is in any way more
rapid than the form of payment in effect under this Plan with respect to such
amounts immediately prior to transfer to the Directors' Plan. Valuation of the
Account Balance (or the portion thereof) to be transferred shall be made
consistent with the valuation provisions described in Article V. Upon transfer,
the Participant's (or his or her Beneficiary's) rights hereunder with respect to
the amounts transferred shall cease.
<PAGE>
Exhibit 12
UNISYS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
($ in millions)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------
1998 1997 1996 1995 1994
------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before income taxes $604.7 $(758.8) $ 93.7 $(781.1) $ 14.6
Add (deduct) share of loss
(income) of associated
companies (.3) 5.9 (4.9) 5.0 16.6
------ ------- ------ ------- ------
Subtotal 604.4 (752.9) 88.8 (776.1) 31.2
------ ------- ------ ------- ------
Interest expense 171.7 233.2 249.7 202.1 203.7
Amortization of debt issuance
expenses 4.6 6.7 6.3 5.1 6.2
Portion of rental expense
representative of interest 48.5 51.2 59.2 65.3 65.0
------ ------- ------ ------- ------
Total Fixed Charges 224.8 291.1 315.2 272.5 274.9
------ ------- ------ ------- ------
Earnings (loss) from continuing
operations before income
taxes and fixed charges $829.2 $(461.8) $404.0 $(503.6) $306.1
====== ======= ====== ======= ======
Ratio of earnings to fixed
charges 3.69 * 1.28 * 1.11
====== ======= ====== ======= ======
</TABLE>
* Earnings for the years ended December 31, 1997 and 1995 were inadequate to
cover fixed charges by approximately $752.9 and $776.1 million, respectively.
<PAGE>
EXHIBIT 13
Unisys Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of operations
For 1998, the company reported net income of $387.0 million, or $1.06 per
diluted common share, compared to net income, before one-time charges, of $199.0
million, or $.46 per diluted common share, for 1997. In 1996, income before an
extraordinary item was $61.8 million, or a loss of $.34 per common share.
In the fourth quarter of 1997, the company recorded one-time charges of
$1.1 billion against net income. Including these charges, the company had a 1997
net loss of $853.6 million, or $5.30 per share, which is computed based on the
weighted average common shares outstanding. Earnings per share for 1997 before
one-time charges ($.46) are computed on a diluted basis, which also includes
additional shares from the assumed conversion of outstanding stock options and
convertible debt. For further information on the 1997 fourth quarter charges,
see Note 3 of the Notes to the Consolidated Financial Statements.
The following comparisons of income statement categories exclude the
one-time charges discussed above.
Revenue for 1998 was $7.2 billion compared to $6.6 billion in 1997 and $6.4
billion in 1996. Revenue from international operations in 1998, 1997, and 1996
was $4.1 billion, $3.9 billion, and $4.0 billion, respectively. Revenue from
U.S. operations was $3.1 billion in 1998, $2.7 billion in 1997, and $2.4 billion
in 1996.
Total gross profit percent was 34.0% in 1998, 35.1% in 1997, and 33.3% in
1996. The decrease in 1998 reflects the company's shift to higher-growth,
lower-margin services businesses.
Selling, general and administrative expenses in 1998 were $1.3 billion
compared to $1.4 billion in both 1997 and 1996. The decline in 1998 was largely
due to the company's cost reduction programs, as well as stringent controls over
all discretionary expenditures.
Research and development expenses in 1998 were $296.6 million compared to
$297.4 million in 1997 and $342.9 million in 1996. The decline in 1997 compared
to 1996 was largely due to the company's cost reduction actions.
In 1998, the company reported operating income of $810.2 million (11.2% of
revenue) compared to $613.8 million (9.2% of revenue) in 1997 and $327.4 million
(5.1% of revenue) in 1996.
In 1998, the company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information." See Note 14 of the Notes to the Consolidated Financial Statements.
Prior to its adoption, the company reported information on its Information
Services, Global Customer Services and Computer Systems business units. For the
most part, the company now combines the Information Services and Global Customer
Services businesses into a segment called Services, and now reports the Computer
Systems business under the Technology segment.
30
<PAGE>
Information by these business segments for 1998, 1997, and 1996 is
presented below:
<TABLE>
<CAPTION>
(Millions of dollars) Total Eliminations Services Technology
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
- ------------------------------
Customer revenue $ 7,208.4 $ 4,909.3 $ 2,299.1
Intersegment $ (511.2) 73.7 437.5
----------------------------------------------------------------------
Total revenue $ 7,208.4 $ (511.2) $ 4,983.0 $ 2,736.6
----------------------------------------------------------------------
Gross profit percent 34.0% 24.2% 46.9%
Operating income percent 11.2% 6.9% 18.7%
1997
- ------------------------------
Customer revenue $ 6,636.0 $ 4,281.0 $ 2,355.0
Intersegment $ (483.8) 70.0 413.8
----------------------------------------------------------------------
Total revenue $ 6,636.0 $ (483.8) $ 4,351.0 $ 2,768.8
----------------------------------------------------------------------
Gross profit percent 35.1% 24.2% 46.2%
Operating income percent 9.2% 3.8% 16.0%
1996
- ------------------------------
Customer revenue $ 6,370.5 $ 4,008.8 $ 2,361.7
Intersegment $ (529.3) 82.1 447.2
----------------------------------------------------------------------
Total revenue $ 6,370.5 $ (529.3) $ 4,090.9 $ 2,808.9
----------------------------------------------------------------------
Gross profit percent 33.3% 24.0% 41.5%
Operating income percent 5.1% 3.0% 8.9%
- -------------------------------------------------------------------------------------------------------------------------
Gross profit percent and operating income percent are as a percent of total revenue.
</TABLE>
In the Services segment, customer revenue was $4.9 billion in 1998, $4.3
billion in 1997, and $4.0 billion in 1996. The growth in customer revenue was
15% in 1998 and 7% in 1997 led by increases in network services, systems
integration, and outsourcing revenue. In both years, these increases more than
offset the decline in proprietary maintenance revenue. Gross profit, although
relatively constant, reflects benefits from improvements in bid quality and
control processes and from completion of certain problem contracts, offset by:
(a) heavy competition in the network services market, (b) commoditization of
low-end, third-party hardware components that are typically part of a network
integration project, (c) continued roll out of a large low-margin federal
government networking project, and (d) continued shift in mix away from
proprietary maintenance. Operating profit in the segment was 6.9% in 1998, 3.8%
in 1997, and 3.0% in 1996. The increases in operating profit were largely due to
cost reduction programs as well as stringent cost controls over all
discretionary expenditures.
In the Technology segment, customer revenue was $2.3 billion in 1998 and
$2.4 billion in both 1997 and 1996. In 1998, revenue for ClearPath enterprise
servers remained strong, which offset declines, as expected, in personal
computer revenue. Earlier in 1998, the company outsourced the supply of
notebooks, PCs, and entry-level servers to focus on its more profitable
enterprise server business. The gross profit percent was 46.9% in 1998, 46.2% in
1997, and 41.5% in 1996. The increases in gross profit percent were due in large
part to a richer mix of enterprise servers and enterprise server software sales.
Operating profit in this segment was 18.7% in 1998, 16.0% in 1997, and 8.9% in
1996. The increases in operating profit, above the respective increases in gross
profit, were largely due to cost reduction programs as well as stringent
controls over all discretionary expenditures.
31
<PAGE>
Interest expense was $171.7 million in 1998, $233.2 million in 1997, and
$249.7 million in 1996. The declines were due to lower average debt levels.
Other income (expense), net, which can vary from year to year, was an
expense of $33.8 million in 1998 and $64.8 million in 1997, and income of $16.0
million in 1996. The difference in 1998 compared to 1997 was principally due to
lower goodwill amortization and higher equity income. In addition in 1998, a net
gain on the sale of properties was offset by charges related to certain legal
disputes and the early extinguishment of debt. The difference in 1997 compared
to 1996 was principally due to lower interest and equity income in 1997 and a
gain on the sale of an equity investment in 1996.
Income before income taxes in 1998 was $604.7 million compared to $315.8
million in 1997 and $93.7 million in 1996.
Estimated income taxes in 1998 were $217.7 million compared to $116.8
million in 1997 and $31.9 million in 1996. The 1996 tax provision included a
benefit of $24.8 million related to reversals of deferred tax valuation
allowances due to additional tax planning strategies available to the company.
Effective January 1, 1998, the company changed the functional currency of
its Brazilian operations from the U.S. dollar to the Brazilian local currency
because the Brazilian economy was no longer considered highly inflationary. This
change did not have a material effect on the company's consolidated financial
position, consolidated results of operations, or liquidity.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which is effective for the year beginning January 1, 2000, establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires a company to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management is evaluating the impact this
statement may have on the company's financial statements.
Financial condition
Cash and cash equivalents at December 31, 1998 were $604.3 million compared to
$803.0 million at December 31, 1997.
During 1998, cash provided by operations was $650.0 million compared to
$383.5 million in 1997. This increase was due in large part to higher net income
and improved working capital management, including improvements in inventory
turns. Operational cash flow in both years was reduced by a decline in sales of
accounts receivable. In October 1998, the company terminated its $120 million
U.S. facility used to sell accounts receivable. In 1997, the company reduced
sales of accounts receivables, principally outside the United States, by $151
million. Cash expenditures related to prior-year restructuring actions (which
are included in operating activities) in 1998, 1997, and 1996 were $139.2
million, $178.7 million, and $220.8 million, respectively. Cash expenditures for
restructuring actions, principally for work-force reductions and facility costs,
are expected to be approximately $84 million in 1999 and $47 million thereafter.
Personnel reductions in 1998 related to restructuring actions were approximately
900 and are expected to be approximately 400 thereafter, principally in 1999.
32
<PAGE>
Cash used for investing activities during 1998 was $275.0 million compared
to $291.6 million for 1997.
Cash used for financing activities during 1998 was $570.7 million compared
to $274.1 million in 1997. Included in 1998 were payments of debt of $748.5
million (described below) partially offset by proceeds of $195.2 million from
issuance of 7 7/8% senior notes due 2008. In 1997, the company redeemed all
$150.0 million of its Series B and C Cumulative Convertible Preferred Stock and
spent $46.1 million in connection with the conversions of debt into common stock
described below. Dividends paid on preferred stock were $106.5 million in 1998
compared to $113.1 million in 1997.
At December 31, 1998, total debt was $1.2 billion, a decline of $532.2
million from December 31, 1997. Debt retirements during 1998 were as follows. On
February 5, 1998, the company redeemed all $197.5 million of its 9 1/2% senior
notes due on July 15, 1998. On March 2, 1998, the company redeemed $200 million
principal amount of its 10 5/8% senior notes due 1999. On September 15, 1998,
the company made a $30 million sinking fund payment, which included a $20
million optional prepayment, on its 9 3/4% sinking fund debentures. On October
1, 1998, the company redeemed at par the remaining $130 million outstanding of
its 10 5/8% notes, one year ahead of the due date in October 1999. On December
4, 1998, the company redeemed the remaining $160.0 million of its 9 3/4% sinking
fund debentures at the stated redemption price of 103.61% of principal.
In the fourth quarter of 1997, $616.2 million of the company's convertible
subordinated notes were converted into 73.2 million shares of common stock.
These conversions included all $345.0 million of the company's 8 1/4%
convertible subordinated notes due 2000 and $271.2 million of its 8 1/4%
convertible subordinated notes due 2006.
In December 1998, the company called 2.0 million shares of its Series A
Cumulative Convertible Preferred Stock for redemption on January 21, 1999. The
preferred stock is convertible into shares of the company's common stock, at the
option of the holder, at a conversion rate of approximately 1.67 shares of
common stock for each preferred share converted.
On January 21, 1999, 1.9 million shares of the preferred stock were
converted into 3.2 million shares of the company's common stock and 270 thousand
shares of preferred stock were redeemed for $13.5 million. Included in the above
number were 184 thousand shares of preferred stock that were voluntarily
converted into the company's common stock during the call period.
In addition, on January 21, 1999, the company announced that it was calling
for redemption on March 4, 1999, an additional 6.0 million shares of its
preferred stock. This call, when combined with the January 21, 1999 conversions
and redemptions, will save $30.7 million of annual dividend payments and will be
accretive to 1999 diluted earnings per common share.
In January 1999, the company called for redemption on March 15, 1999, the
remaining $27 million of its 8 1/4% convertible subordinated notes due 2006. The
notes will be redeemed at 105.775% of par, plus accrued interest. Each note is
convertible into approximately 145.45 shares of the company's common stock.
The company may, from time to time, continue to redeem, tender for, or
repurchase its securities in the open market or in privately negotiated
transactions depending upon availability, market conditions, and other factors.
33
<PAGE>
The company has on file with the Securities and Exchange Commission an
effective registration statement covering $700 million of debt or equity
securities, which enables the company to be prepared for future market
opportunities.
In June 1998, the company entered into a $400 million, three-year credit
agreement. The new facility replaced the company's more restrictive $200 million
credit agreement established in June 1997. As of December 31, 1998, there were
no borrowings under the agreement.
In May 1998, Moody's Investor Services raised its credit rating on the
company's senior long-term debt to Ba3 from B1. In June 1998, Standard & Poor's
Corporation raised its credit rating on the company's senior long-term debt to
BB- from B+. In February 1999, Duff & Phelps Credit Rating Co. increased its
rating on the company's senior long-term debt to BB+ from BB.
At December 31, 1998, the company had deferred tax assets in excess of
deferred tax liabilities of $1,384 million. For the reasons cited below,
management determined that it is more likely than not that $1,061 million of
such assets will be realized, therefore resulting in a valuation allowance of
$323 million.
The company evaluates quarterly the realizability of its net deferred tax
assets by assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are the company's forecast of future taxable income, which is
adjusted by applying probability factors, and available tax planning strategies
that could be implemented to realize deferred tax assets. Failure to achieve
forecasted taxable income might affect the ultimate realization of the net
deferred tax assets. See "Factors that may affect future results" below. The
combination of these factors is expected to be sufficient to realize the entire
amount of net deferred tax assets. Approximately $3.2 billion of future taxable
income (predominantly U.S.) is needed to realize all of the net deferred tax
assets.
Stockholders' equity increased $311.1 million during 1998, principally
reflecting net income of $387.0 million, proceeds from the issuance of stock
under stock option and other plans of $89.7 million, and $30.6 million of tax
benefits related to stock plans, offset in part by preferred stock dividends of
$106.5 million and translation adjustments of $83.5 million.
Market risk disclosure
The company has exposure to interest rate risk from its short-term and long-term
debt. In general, the company's long-term debt is fixed rate and the short-term
debt is variable rate. See Note 8 of the Notes to Consolidated Financial
Statements for components of the company's long-term debt.
The company is also exposed to foreign currency exchange rate risks. The
company uses derivative financial instruments to reduce its exposure to market
risks from changes in foreign currency exchange rates. The derivative
instruments used are foreign exchange forward contracts and options. These
derivatives, which are over-the-counter instruments, are non-leveraged and
involve little complexity. The company does not hold or issue derivatives for
speculative trading purposes. See Note 12 of the Notes to Consolidated Financial
Statements for additional information on the company's derivative financial
instruments.
The company has performed a sensitivity analysis assuming a hypothetical
10% adverse movement in foreign currency exchange rates and interest rates
applied to the hedging contracts and debt instruments described above. As of
December 31, 1998, the analysis indicated that such market movements would not
have had a material effect on the company's consolidated results of operations
or on the fair value of its risk-sensitive financial instruments. Based on
changes in the timing and amount of interest rate and foreign currency exchange
rate movements and the company's portfolio of risk-sensitive financial
instruments, actual effects on operations in the future may differ materially
from that analysis.
34
<PAGE>
Year 2000 readiness disclosure
Many computer systems and embedded technology may experience problems handling
dates beyond the year 1999 and therefore may need to be modified prior to the
year 2000 in order to remain functional. The company is taking steps to ensure
both the readiness of its product offerings to customers and the readiness of
its internal systems for handling dates beginning in the year 2000.
As part of its development efforts, the company's current product offerings
have been designed or are being redesigned to be year 2000 ready, as defined by
the company. However, certain of the company's hardware and software products
currently used by customers will require upgrades or other remediation to become
year 2000 ready. Some of these products are used in critical applications where
the impact of non-performance to these customers and other parties could be
significant. The company has taken steps to notify customers of the year 2000
issue, provide information and resources on the company's year 2000 web site,
emphasize the importance of customer testing of their own systems in their own
unique business environment and offer consulting services to assist customers in
assessing their year 2000 risk.
The company is also in the process of assessing the year 2000 readiness of
its key suppliers. The company's reliance on suppliers, and therefore, on the
proper functioning of their products, information systems, and software, means
that their failure to address year 2000 issues could affect the company's
business. However, the potential impact and related costs are not known at this
time. The company is in the process of inquiring about the year 2000 readiness
of key suppliers providing services to the company. It is also in the process of
trying to obtain year 2000 readiness warranties from key vendors supplying
product to the company for incorporation into the company's products for resale.
The company expects to identify alternate sources or strategies where necessary
if significant exposure is identified.
The company's year 2000 internal systems effort involves three stages:
inventory and assessment of its hardware, software and embedded systems,
remediation or replacement of those that are not year 2000 ready, and testing
the systems. In 1997, the company completed an inventory and year 2000
assessment of its internal information technology ("IT") systems, and developed
a work plan to remediate non-compliant systems or replace or consolidate these
systems as part of the company's efforts to reduce and simplify, on a worldwide
basis, its IT systems.
The company is initially focusing on the IT systems that are critical to
running its business. The company expects to complete the remediation or
replacement/consolidation of such systems by March 1999 and to complete
integrated testing of these systems by mid 1999. The company expects to
remediate or replace/consolidate its other IT systems by mid 1999 and to test
these systems throughout 1999.
The company has completed an inventory and assessment of its key non-IT
systems, such as data and voice communications, building management, and
manufacturing systems. The company is in the process of remediating those
systems that are not year 2000 ready and expects to have such remediation and
testing completed by mid 1999.
The company estimates that, as of December 31, 1998, the cost of
remediating its internal systems has been approximately $12 million, and it
expects to spend approximately $3 million in 1999. The company is funding this
effort through normal working capital. This estimate does not include the cost
of replacing or consolidating IT systems in connection with the company's
worldwide IT simplification project, which was undertaken for reasons unrelated
to year 2000 issues, potential costs related to any customer or other claims,
the costs associated with making the company's product offerings year 2000
ready, and the costs of any disruptions caused by suppliers not being year 2000
ready. This estimate is based on a current assessment of the year 2000 projects
and is subject to change as the projects progress.
35
<PAGE>
Although the company does not believe that it will incur material costs or
experience material disruptions in its business associated with the year 2000,
there can be no assurance that the company will not experience serious
unanticipated negative consequences and/or material costs. The company may see
increased customer satisfaction costs related to year 2000 over the next few
years. In addition, some commentators have stated that a significant amount of
litigation may arise out of year 2000 compliance issues, and the company is
aware of a growing number of lawsuits against information technology and
solutions providers. Although the company believes it has taken adequate
measures to address year 2000 issues, because of the unprecedented nature of
such litigation, it is uncertain to what extent the company may be affected by
it. It is also unknown whether customer spending patterns may be impacted by the
year 2000 issue. Efforts by customers to address year 2000 issues may absorb a
substantial part of their IT budgets in the near term, and customers may either
accelerate or delay the purchase of new applications and systems. While this
behavior may increase demand for certain of the company's products and services,
including its year 2000 offerings, it could also soften demand. These events
could affect the company's revenues or change its revenue patterns. In addition,
there can be no assurance that the company's current product offerings do not
contain undetected errors or defects associated with year 2000 date functions
that may result in increased costs to the company. With respect to its internal
systems, the worst case scenarios might include corruption of data contained in
the company's internal IT systems, hardware failures, the failure of the
company's significant suppliers, and the failure of infrastructure services
provided by utilities and other third parties such as electricity, phone
service, water transport and internet services.
The company is in the initial stages of developing contingency plans in the
event it does not complete all phases of its year 2000 program. The company
plans to evaluate the status of completion of its year 2000 program in the
second quarter of 1999 and to begin implementing such plans as it deems
necessary.
Conversion to the euro currency
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (the "euro"). The transition period for the introduction
of the euro began on January 1, 1999. Beginning January 1, 2002, the
participating countries will issue new euro-denominated bills and coins for use
in cash transactions. No later than July 1, 2002, the participating countries
will withdraw all bills and coins denominated in the legacy currencies, so that
the legacy currencies no longer will be legal tender for any transactions,
making the conversion to the euro complete.
The company is addressing the issues involved with the introduction of the
euro. The more important issues facing the company include converting
information technology systems, reassessing currency risk, and negotiating and
amending agreements. Based on progress to date, the company believes that the
use of the euro will not have a significant impact on the manner in which it
conducts its business. Accordingly, conversion to the euro is not expected to
have a material effect on the company's consolidated financial position,
consolidated results of operations, or liquidity.
36
<PAGE>
Factors that may affect future results
From time to time, the company provides information containing "forward-looking"
statements, as defined in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements rely on assumptions and are subject to risks,
uncertainties, and other factors that could cause the company's actual results
to differ materially from expectations. In addition to changes in general
economic and business conditions and natural disasters, these include, but are
not limited to, the factors discussed below.
The company operates in an industry characterized by aggressive
competition, rapid technological change, evolving technology standards, and
short product life cycles.
Future operating results will depend on the company's ability to design,
develop, introduce, deliver, or obtain new products and services on a timely and
cost-effective basis; on its ability to mitigate the effects of competitive
pressures and volatility in the information services and technology industry on
revenues, pricing, and margins; on its ability to effectively manage the shift
of its business mix away from traditional high-margin product and services
offerings; and on its ability to successfully attract and retain highly skilled
people.
Certain of the company's systems integration contracts are fixed-price
contracts under which the company assumes the risk for delivery of the
contracted services at an agreed-upon price. Future results will depend on the
company's ability to profitably perform these services contracts and bid and
obtain new contracts.
Approximately 57% of the company's total revenue derives from international
operations. The risks of doing business internationally include foreign currency
exchange rate fluctuations, changes in political or economic conditions, trade
protection measures, and import or export licensing requirements.
In the course of providing complex, integrated solutions to customers, the
company frequently forms alliances with third parties that have complementary
products, services, or skills. Future results will depend in part on the
performance and capabilities of these third parties, including their ability to
deal effectively with the year 2000 issue. Future results will also depend upon
the ability of external suppliers to deliver components at reasonable prices and
in a timely manner and on the financial condition of and the company's
relationship with distributors and other indirect channel partners.
Future results may also be adversely affected by a delay in, or increased
costs associated with, the implementation of the year 2000 actions discussed
above, or by the company's inability to implement them.
37
<PAGE>
Unisys Corporation
Consolidated Financial Statements
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 (Millions, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $7,208.4 $6,636.0 $6,370.5
-----------------------------------------------
Costs and expenses
Cost of revenue 4,758.6 4,402.4 4,252.1
Selling, general and administrative expenses 1,343.0 1,427.2 1,448.1
Research and development expenses 296.6 302.3 342.9
Goodwill impairment 883.6
-----------------------------------------------
6,398.2 7,015.5 6,043.1
-----------------------------------------------
Operating income (loss) 810.2 (379.5) 327.4
Interest expense 171.7 233.2 249.7
Other income (expense), net (33.8) (146.1) 16.0
-----------------------------------------------
Income (loss) before income taxes 604.7 (758.8) 93.7
Estimated income taxes 217.7 94.8 31.9
-----------------------------------------------
Income (loss) before extraordinary item 387.0 (853.6) 61.8
Extraordinary item (12.1)
-----------------------------------------------
Net income (loss) 387.0 (853.6) 49.7
Dividends on preferred shares 106.5 111.1 120.8
-----------------------------------------------
Earnings (loss) on common shares $ 280.5 $ (964.7) $ (71.1)
-----------------------------------------------
Earnings (loss) per common share - basic
Before extraordinary item $ 1.11 $ (5.30) $ (.34)
Extraordinary item (.07)
-----------------------------------------------
Total $ 1.11 $ (5.30) $ (.41)
-----------------------------------------------
Earnings (loss) per common share - diluted
Before extraordinary item $ 1.06 $ (5.30) $ (.34)
Extraordinary item (.07)
-----------------------------------------------
Total $ 1.06 $ (5.30) $ (.41)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
Unisys Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31 (Millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 604.3 $ 803.0
Accounts and notes receivable, net 1,232.0 967.3
Inventories 463.3 560.8
Deferred income taxes 428.8 461.4
Other current assets 88.3 94.0
------------------------------
Total 2,816.7 2,886.5
------------------------------
Properties 1,720.5 1,774.1
Less - Accumulated depreciation 1,139.6 1,192.9
------------------------------
Properties, net 580.9 581.2
------------------------------
Investments at equity 184.6 215.7
------------------------------
Software, net of accumulated amortization 246.6 259.0
------------------------------
Prepaid pension cost 833.8 762.4
------------------------------
Deferred income taxes 694.4 665.7
------------------------------
Other assets 220.7 220.8
------------------------------
Total $ 5,577.7 $ 5,591.3
------------------------------
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 50.6 $ 40.6
Current maturities of long-term debt 4.0 213.1
Accounts payable 922.7 817.1
Other accrued liabilities 1,301.9 1,307.2
Dividends payable 26.6 26.6
Estimated income taxes 276.7 172.8
------------------------------
Total 2,582.5 2,577.4
------------------------------
Long-term debt 1,105.2 1,438.3
------------------------------
Other liabilities 373.0 369.7
------------------------------
Stockholders' equity
Preferred stock 1,420.0 1,420.1
Common stock, shares issued: 1998 - 257.9; 1997 - 250.2 2.6 2.5
Accumulated deficit (1,456.3) (1,736.8)
Other capital 2,082.3 1,968.2
Accumulated other comprehensive loss (531.6) (448.1)
------------------------------
Stockholders' equity 1,517.0 1,205.9
------------------------------
Total $ 5,577.7 $ 5,591.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
Unisys Corporation
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 (Millions) 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Income (loss) before extraordinary item $ 387.0 $ (853.6) $ 61.8
Add (deduct) items to reconcile income (loss) before
extraordinary item to net cash provided by
(used for) operating activities:
Effect of extraordinary item (12.1)
Depreciation 145.7 156.0 182.0
Amortization:
Marketable software 111.8 97.0 101.6
Goodwill 8.9 963.9 46.1
(Increase) in deferred income taxes, net (26.8) (25.3) (51.0)
(Increase) decrease in receivables, net (276.1) 24.0 11.0
Decrease in inventories 98.2 81.5 32.1
Increase (decrease) in accounts payable and other accrued liabilities 100.5 (220.6) (258.4)
Increase (decrease) in estimated income taxes 148.0 23.0 (34.7)
Increase (decrease) in other liabilities 11.8 (71.1) (85.9)
(Increase) decrease in other assets (57.3) 106.5 (70.3)
Other (1.7) 102.2 (11.9)
----------------------------------------
Net cash provided by (used for) operating activities 650.0 383.5 (89.7)
----------------------------------------
Cash flows from investing activities
Proceeds from investments 1,991.0 1,662.5 1,846.1
Purchases of investments (2,006.5) (1,629.0) (1,845.9)
Proceeds from sales of properties 51.1 5.1 77.4
Investment in marketable software (99.4) (132.9) (116.2)
Capital additions of properties (207.3) (179.9) (162.3)
Purchases of businesses (3.9) (22.2) (17.9)
Proceeds from marketable securities 4.8
----------------------------------------
Net cash used for investing activities (275.0) (291.6) (218.8)
----------------------------------------
Cash flows from financing activities
Proceeds from issuance of long-term debt 195.2 1,139.7
Payments of long-term debt (748.5) (766.4)
Net proceeds from (reduction in) short-term borrowings 10.0 26.7 (1.9)
Dividends paid on preferred shares (106.5) (113.1) (120.8)
Proceeds from employee stock plans 79.1 8.4 .6
Redemption of redeemable preferred stock (150.0)
Costs of debt conversions (46.1)
----------------------------------------
Net cash (used for) provided by financing activities (570.7) (274.1) 251.2
----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (3.0) (24.9) (7.3)
----------------------------------------
Net cash used for continuing operations (198.7) (207.1) (64.6)
----------------------------------------
Net cash used for discontinued operations (19.1) (20.5)
----------------------------------------
Decrease in cash and cash equivalents (198.7) (226.2) (85.1)
----------------------------------------
Cash and cash equivalents, beginning of year 803.0 1,029.2 1,114.3
----------------------------------------
Cash and cash equivalents, end of year $ 604.3 $ 803.0 $ 1,029.2
----------------------------------------
See notes to consolidated financial statements.
</TABLE>
40
<PAGE>
Unisys Corporation
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Other, Accumulated
Principally Other Comprehensive
Preferred Common Accumulated Treasury Paid-In Comprehensive Income
(Millions) Stock Stock Deficit Stock Capital Income (Loss)* (Loss)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1,570.3 $ 1.7 $ (702.6) $ (16.3) $ 1,346.3 $ (339.2)
Transfer to "redeemable
preferred stock" (150.0)
Issuance of stock under stock
option and other plans .1 23.6
Net income 49.7 $ 49.7
Other comprehensive income -
translation adjustments (50.9) (50.9)
--------
Comprehensive loss $ (1.2)
--------
Dividends (117.2)
Unearned compensation (9.4)
Other (.1)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1,420.2 1.8 (770.1) (16.3) 1,360.5 (390.1)
Conversions to common stock (.1) .7 606.0
Issuance of stock under stock
option and other plans 4.0 8.4
Net loss (853.6) $ (853.6)
Other comprehensive income -
translation adjustments (58.0) (58.0)
--------
Comprehensive loss $ (911.6)
--------
Dividends (113.1)
Unearned compensation 3.0
Tax benefit related to stock plans 1.5
Other .1 1.0
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,420.1 2.5 (1,736.8) (12.2) 1,980.4 (448.1)
Conversions to common stock (.1) .5
Issuance of stock under stock
option and other plans .1 (11.4) 89.6
Net income 387.0 $ 387.0
Other comprehensive income -
translation adjustments (83.5) (83.5)
--------
Comprehensive income $ 303.5
--------
Dividends (106.5)
Unearned compensation 4.8
Tax benefit related to stock plans 30.6
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 1,420.0 $ 2.6 $ (1,456.3) $ (23.6) $2,105.9 $ (531.6)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Entire amount relates to foreign currency translation adjustments.
See notes to consolidated financial statements.
41
<PAGE>
Unisys Corporation
Notes to Consolidated Financial Statements
1 Summary of significant accounting policies
Principles of consolidation. The consolidated financial statements include the
accounts of all majority-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 and depreciation. Properties are carried at cost and are depreciated
over the estimated lives of such assets using the straight-line method.
Revenue recognition. Sales revenue is 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 equipment
maintenance is recorded as earned over the lives of the respective contracts.
Revenue under systems integration and services contracts is recognized on
the basis of the estimated percentage of completion of services rendered or when
services have been performed and accepted, depending on the nature of the
project.
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 that give rise to the revision become
known.
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 because such amounts
are expected to be reinvested indefinitely.
Marketable software. 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.
42
<PAGE>
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
other comprehensive income. Exchange gains and losses on intercompany balances
of a long-term investment nature are also reported in other comprehensive
income.
For those international subsidiaries operating in hyper-inflationary
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.
Derivative financial instruments. The derivative financial instruments used by
the company are foreign exchange forward contracts and options. The company does
not hold or issue derivatives for speculative trading purposes. These
instruments have been designated as hedges of certain forecasted transactional
exposures. For these financial instruments, no impact on financial position or
results of operations would result from a change in the underlying exchange
rate. All of the company's foreign currency contracts and options have been
designated as and are effective as hedges against specific exposures and have
been accounted for as such. Therefore, a change in the derivative's value would
be offset by an opposite change in the hedged exposure.
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.
Gains or losses on foreign exchange forward contracts and the cost of
foreign currency options are deferred in current liabilities and prepaid
expenses, respectively, and are recognized in income (either in revenue or cost
of revenue) when the transactions being hedged are recorded. Cash flows on such
instruments are reported in investing activities as proceeds or purchases of
investments.
If the criteria for hedge accounting discussed above were not met, gains or
losses on these instruments would be included in income currently and would not
be deferred. If a derivative financial instrument is terminated before the
transaction date of the hedged transaction, any deferred gain or loss would
continue to be deferred until the transaction date. If a forecasted transaction
is no longer likely to occur, any deferred gains or losses on financial
instruments that hedge such a transaction would be reported in income
immediately.
Reclassifications. Certain prior-year amounts have been reclassified to conform
with the 1998 presentation.
43
<PAGE>
2 Earnings per share
The following table shows how earnings per share was computed for the three
years ended December 31, 1998.
<TABLE>
<CAPTION>
Year ended December 31
(Millions, except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings per share computation - basic
Income (loss) before extraordinary item $ 387.0 $ (853.6) $ 61.8
Less dividends on preferred shares (106.5) (111.1) (120.8)
---------------------------------------
Income (loss) available to common stockholders before extraordinary item 280.5 (964.7) (59.0)
Extraordinary item (12.1)
---------------------------------------
Net income (loss) available to common stockholders $ 280.5 $ (964.7) $ (71.1)
---------------------------------------
Weighted average shares (thousands) 251,786 182,016 172,507
---------------------------------------
Earnings per share - basic
Income (loss) before extraordinary item $ 1.11 $ (5.30) $ (.34)
Extraordinary item (.07)
---------------------------------------
Net income (loss) $ 1.11 $ (5.30) $ (.41)
---------------------------------------
Earnings per share computation - diluted
Income (loss) available to common stockholders before extraordinary item $ 280.5 $ (964.7) $ (59.0)
Plus interest expense on assumed conversion of 8 1/4% Convertible
Notes due 2006, net of tax 1.5
---------------------------------------
Income (loss) available to common stockholders before extraordinary item 282.0 (964.7) (59.0)
Extraordinary item (12.1)
---------------------------------------
Net income (loss) available to common stockholders $ 282.0 $ (964.7) $ (71.1)
---------------------------------------
Weighted average shares (thousands) 251,786 182,016 172,507
Plus incremental shares from assumed conversions:
Employee stock plans 11,164
8 1/4% Convertible Notes due 2006 3,994
---------------------------------------
Adjusted weighted average shares 266,944 182,016 172,507
---------------------------------------
Earnings per share - diluted
Income (loss) before extraordinary item $ 1.06 $ (5.30) $ (.34)
Extraordinary item (.07)
---------------------------------------
Net income (loss) $ 1.06 $ (5.30) $ (.41)
---------------------------------------
</TABLE>
The shares listed below were not included in the computation of diluted earnings
per share because to do so would have been antidilutive for the periods
presented.
Year ended December 31 (thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Employee stock plans 101 22,792 20,636
Series A preferred stock 47,448 47,450 47,454
8 1/4% convertible notes due 2006 4,042 43,491
8 1/4% convertible notes due 2000 33,697
- --------------------------------------------------------------------------------
44
<PAGE>
3 One-time charges
Restructuring charges. In the fourth quarter of 1997, the company recorded a
pretax charge of $149.0 million, $127.0 million after tax, or $.70 per diluted
common share. The charge was related to plans to discontinue the manufacturing
and assembly of personal computers and low-end servers, and to dispose of a
small, non-strategic technology product. The charge included (a) $64.9 million
for work-force reductions (principally in Europe) of approximately 1,000 people,
including severance, notice pay, medical, and other benefits, (b) $81.6 million
for product and program discontinuances, and goodwill associated with these
businesses, and (c) $2.5 million associated with facilities.
Cash expenditures related to restructuring in 1998, 1997, and 1996 were
$139.2 million, $178.7 million, and $220.8 million, respectively. Cash
expenditures are expected to be $84 million in 1999 and $47 million thereafter,
principally for work-force reductions and facility costs. Personnel reductions
in 1998 related to restructuring actions were approximately 900 and are expected
to be approximately 400 thereafter, principally in 1999. Actual costs incurred
are charged to the accrued liability when the actions are taken.
During 1996, the company experienced lower-than-anticipated costs for
work-force reductions. Revisions of estimates for these previously provided
costs were offset by additional provisions for product and program
discontinuances and facility consolidations.
Activity related to the restructuring reserve during the years ended
December 31, 1998 and 1997, was as follows:
Work-Force
(Millions) Total Reductions(1) Facilities(2) Products(3)
- --------------------------------------------------------------------------------
Balance at
Dec. 31, 1996 $ 433.9 $ 207.5 $ 192.3 $ 34.1
Provided 149.0 64.9 2.5 81.6
Utilized (284.2) (140.9) (76.5) (66.8)
Other(4) (9.7) (1.0) (15.1) 6.4
---------------------------------------------------------
Balance at
Dec. 31, 1997 289.0 130.5 103.2 55.3
Utilized (148.1) (80.0) (36.0) (32.1)
Other(4) (4.0) (7.5) (10.8) 14.3
--------------------------------------------------------
Balance at
Dec. 31, 1998 $ 136.9 $ 43.0 $ 56.4 $ 37.5
- -------------------------------------------------------------------------------
(1) Includes severance, notice pay, medical, and other benefits.
(2) Includes consolidation of office facilities and manufacturing capacity.
(3) Includes product and program discontinuances, and goodwill.
(4) Includes changes in estimates, reversals of excess reserves, and
translation adjustments.
Other charges. In the fourth quarter of 1997, the company recorded a charge of
$883.6 million, or $4.85 per diluted common share, for the writeoff of goodwill
principally related to the 1986 acquisition of Sperry Corporation. Yearly
amortization of such goodwill was approximately $36 million. Effective December
31, 1997, the company elected to change its method of measuring goodwill
impairment. Prior to the change, when impairment indicators existed, goodwill
was evaluated for impairment and any impairment would have been measured based
on comparing the unamortized goodwill to projected undiscounted operating
results. Under the company's new accounting method, any impairment of goodwill
indicated by such comparison would be measured by discounting projected cash
flows using a discount rate commensurate with the risks involved. When a
goodwill impairment must be recognized, the company believes the discounted cash
flow method is a better measurement of the remaining value of goodwill.
45
<PAGE>
In addition, in the fourth quarter of 1997, the company completed the
conversion of $271.2 million of its 8 1/4% convertible subordinated notes due
2006. The conversion was in response to a special offer to pay holders of these
notes a cash premium for each note converted. The company recorded a one-time
charge of $42.0 million, or $.23 per diluted common share, to cover the cost of
this special offer.
Summary. The 1997 restructuring and other charges were recorded in the
following statement of income classifications: Cost of revenue, $92.5 million;
selling, general and administrative expenses, $12.3 million; research and
development expenses, $4.9 million; goodwill impairment, $883.6 million; and
other income expense, net, $81.3 million.
4 Accounting changes and extraordinary item
Effective January 1, 1998, the company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" and SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 97-2 provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions, and SOP 98-1 provides guidance on accounting
for the costs of computer software developed or obtained for internal use.
Adoption of SOP 97-2 and 98-1 did not have a material effect on the company's
consolidated financial position, consolidated results of operations, or
liquidity.
As discussed in Note 14, effective January 1, 1998, the company adopted
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that companies report information about operating
segments. Adoption of SFAS No. 131 had no effect on the company's consolidated
financial position, consolidated results of operations, or liquidity.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which is effective for the year beginning January 1, 2000, establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires a company to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management is evaluating the impact this
statement may have on the company's financial statements.
As discussed in Note 3, effective December 31, 1997, the company elected to
change its method of measuring goodwill impairment.
Effective January 1, 1997, the company adopted SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement requires that if a transfer of financial assets
does not meet certain criteria for recording the transaction as a sale, the
transfer must be accounted for as a secured borrowing. The adoption of SFAS No.
125 did not have a material effect on the company's consolidated financial
position, consolidated results of operations, or liquidity.
Effective January 1, 1997, the company adopted SOP 96-1, "Environmental
Remediation Liabilities." The SOP provides authoritative guidance on the
recognition, measurement, display, and disclosure of environmental remediation
liabilities. Adoption of SOP 96-1 did not have a material effect on the
company's consolidated financial position, consolidated results of operations,
or liquidity.
46
<PAGE>
Effective January 1, 1996, the company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
requires the recognition or disclosure of compensation expense for grants of
stock options or other equity instruments issued to employees based upon their
fair value. As permitted by SFAS No. 123, the company adopted the
disclosure-only option and therefore will continue to apply APB Opinion 25 for
its stock plans. Accordingly, no compensation expense has been recognized for
its stock option or purchase plans. The adoption of these statements had no
effect on the company's consolidated financial position, consolidated results of
operations, or liquidity.
In 1996, the company recorded an extraordinary charge for extinguishment of
debt of $12.1 million, net of $6.5 million of income tax benefits, or $.07 per
diluted common share.
5 Inventories
Inventories comprise the following:
December 31 (Millions) 1998 1997
- -------------------------------------------------------------------------------
Parts and finished equipment $263.6 $289.7
Work in process and materials 199.7 271.1
---------------------------------------
Total inventories $463.3 $560.8
- -------------------------------------------------------------------------------
At December 31, 1998 and 1997, work in process inventories included $85.9
and $140.7 million, respectively, of costs related to long-term contracts.
6 Estimated income taxes
Year ended December 31 (Millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Income (loss) before income taxes
United States $ 408.3 $ (954.1) $ (91.1)
Foreign 196.4 195.3 184.8
---------------------------------------
Total income (loss) before
income taxes $ 604.7 $ (758.8) $ 93.7
- -------------------------------------------------------------------------------
Estimated income taxes (benefit)
Current
United States $ 26.7 $ 28.0 $ (15.0)
Foreign 51.8 69.0 87.0
State and local 23.3 23.1 10.9
---------------------------------------
Total 101.8 120.1 82.9
---------------------------------------
Deferred
United States 115.2 (26.0) (70.9)
Foreign .7 1.0 12.4
State and local (.3) 7.5
---------------------------------------
Total 115.9 (25.3) (51.0)
---------------------------------------
Total estimated income taxes $ 217.7 $ 94.8 $ 31.9
- -------------------------------------------------------------------------------
Following is a reconciliation of estimated income taxes at the United
States statutory tax rate to estimated income taxes as reported:
Year ended December 31 (Millions) 1998 1997 1996
- -------------------------------------------------------------------------------
United States statutory income
tax (benefit) $ 211.6 $ (265.6) $ 32.8
Difference in estimated income
taxes on foreign earnings, losses,
and remittances (46.1) (35.4) 7.9
State taxes 15.1 14.8 11.8
Tax refund claims, audit issues,
and other matters 31.2 42.7 (12.9)
Amortization of goodwill 1.8 335.1 12.6
Reversal of valuation allowances (24.8)
Other 4.1 3.2 4.5
---------------------------------------
Estimated income taxes $ 217.7 $ 94.8 $ 31.9
- -------------------------------------------------------------------------------
47
<PAGE>
The tax effects of temporary differences and carryforwards that give
rise to significant portions of deferred tax assets and liabilities at December
31, 1998 and 1997, were as follows:
December 31 (Millions) 1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets
Capitalized research and
development $ 591.6 $ 327.4
Tax loss carryforwards 256.9 433.3
Foreign tax credit carryforwards 232.3 479.8
Other tax credit carryforwards 138.2 82.2
Prepayments 109.7
Postretirement benefits 91.0 88.0
Employee benefits 63.9 65.4
Depreciation 60.8 55.7
Restructuring 60.7 115.9
Other 226.9 253.1
------------------------------------
1,832.0 1,900.8
Valuation allowance (323.3) (400.7)
------------------------------------
Total deferred tax assets $ 1,508.7 $ 1,500.1
------------------------------------
Deferred tax liabilities
Pensions $ 337.3 $ 319.5
Other 110.0 146.0
------------------------------------
Total deferred tax liabilities $ 447.3 $ 465.5
------------------------------------
Net deferred tax asset $ 1,061.4 $ 1,034.6
- --------------------------------------------------------------------------------
SFAS No. 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 1998, the net decrease in the valuation
allowance was $77.4 million.
Cumulative undistributed earnings of foreign subsidiaries, for which no
U.S. income or foreign withholding taxes have been recorded, approximated $650
million at December 31, 1998. 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 1998, 1997, and 1996 for income taxes was $92.7, $80.0,
and $112.7 million, respectively.
At December 31, 1998, the company has state and local tax loss
carryforwards and foreign tax loss carryforwards for certain foreign
subsidiaries, the tax effect of which is approximately $256.9 million. These
carryforwards will expire as follows (in millions): 1999, $3.8; 2000, $4.9;
2001, $14.3; 2002, $1.7; 2003, $6.4; and $225.8 thereafter. The company also has
available tax credit carryforwards of approximately $370.5 million, which will
expire as follows (in millions): 1999, $59.2; 2000, $49.4; 2001, $89.6; 2002,
$55.5; 2003, $7.2; and $109.6 thereafter.
The company's net deferred tax assets include substantial amounts of
capitalized research and development, and tax credit carryforwards. Failure to
achieve forecasted taxable income might affect the ultimate realization of the
net deferred tax assets. There can be no assurance 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, delays in product availability, or
technological obsolescence.
The company is currently contesting issues before the Internal Revenue
Service in connection with Sperry Corporation for the years ended March 31,
1978, through September 16, 1986. In management's opinion, adequate provisions
for income taxes have been made for all years.
48
<PAGE>
7 Properties
Properties comprise the following:
December 31 (Millions) 1998 1997
- ----------------------------------------------------------------------------
Land $ 10.3 $ 24.5
Buildings 166.4 208.7
Machinery and office equipment 1,247.0 1,250.0
Rental and outsourcing
equipment 296.8 290.9
---------------------------------
Total properties $ 1,720.5 $ 1,774.1
- ----------------------------------------------------------------------------
8 Long-term debt
Long-term debt comprises the following:
December 31 (Millions) 1998 1997
- ----------------------------------------------------------------------------
12% senior notes due 2003 $ 425.0 $ 425.0
11 3/4% senior notes due 2004 450.0 450.0
7 7/8% senior notes due 2008 200.0
8 1/4% convertible subordinated
notes due 2006 27.0 27.8
9 3/4% senior sinking fund
debentures 190.0
9 1/2% notes 197.5
10 5/8% senior notes 330.1
Other, net of unamortized
discounts 7.2 31.0
---------------------------------
Total 1,109.2 1,651.4
Less - Current maturities 4.0 213.1
---------------------------------
Total long-term debt $ 1,105.2 $ 1,438.3
- ----------------------------------------------------------------------------
Total long-term debt maturities in 1999, 2000, 2001, 2002, and 2003 are
$4.0, $4.6, $.6, $.4, and $425.0 million, respectively.
Cash paid during 1998, 1997, and 1996 for interest was $185.6, $253.1, and
$255.1 million, respectively.
On January 30, 1998, the company issued $200 million of 7 7/8% senior notes
due 2008. The net proceeds from the sale of the notes were used to call $200
million principal amount of the 10 5/8% senior notes due October 1999 at
101.77%. On February 5, 1998, the company redeemed all $197.5 million of the
9 1/2% senior notes due on July 15, 1998.
On September 15, 1998, the company made a $30.0 million sinking fund
payment, which included a $20.0 million optional prepayment, on the 9 3/4%
sinking fund debentures. On October 1, 1998, the company redeemed at par the
remaining $130.1 million outstanding of the 10 5/8% notes.
On December 4, 1998, the company redeemed the remaining $160.0 million of
the 9 3/4% sinking fund debentures at the stated redemption price of 103.61% of
principal.
The company has a $400 million, three year credit agreement expiring June
2001. As of December 31, 1998, there were no borrowings outstanding under the
facility and the entire $400 million was available for borrowings. The company
pays commitment fees on the total amount of the facility. In addition,
international subsidiaries maintain short-term credit arrangements with banks in
accordance with local customary practice.
49
<PAGE>
9 Other accrued liabilities
Other accrued liabilities (current) comprise the following:
December 31 (Millions) 1998 1997
- -----------------------------------------------------------------------------
Payrolls and commissions $ 331.8 $ 288.7
Customers' deposits and
prepayments 628.9 540.2
Taxes other than income taxes 132.9 130.5
Restructuring* 88.0 224.0
Other 120.3 123.8
------------------------------
Total other accrued liabilities $1,301.9 $1,307.2
- -----------------------------------------------------------------------------
* At December 31, 1998 and 1997, an additional $48.9 million and $65.0
million, respectively, was reported in other liabilities (long term) on the
consolidated balance sheet.
10 Comprehensive income
Comprehensive income for the three years ended December 31, 1998, includes
the following components:
Year ended
December 31 (Millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Net income (loss) $ 387.0 $(853.6) $ 49.7
-----------------------------------
Other comprehensive
income (loss)
Foreign currency translation
adjustments* (89.6) (40.4) (35.8)
Related tax (benefit) expense (6.1) 17.6 15.1
-----------------------------------
Total other comprehensive
income (loss) (83.5) (58.0) (50.9)
-----------------------------------
Comprehensive income (loss) $ 303.5 $(911.6) $ (1.2)
- -------------------------------------------------------------------------------
* Net of income (loss) on translation adjustments reclassified to income upon
sale or writeoff of ownership interest in foreign investments as follows:
1998, $(.1) million; 1997, $2.8 million; and 1996, $1.5 million.
11 Leases
Rental expense, less income from subleases, for 1998, 1997, and 1996 was $145.6,
$153.5, and $177.7 million, respectively.
Minimum net rental commitments under noncancelable operating leases
outstanding at December 31, 1998, substantially all of which relate to real
properties, were as follows: 1999, $133.6 million; 2000, $106.2 million; 2001,
$85.6 million; 2002, $66.2 million; 2003, $49.3 million; and thereafter, $330.6
million. Such rental commitments have been reduced by minimum sublease rentals
of $97.9 million due in the future under noncancelable subleases.
12 Financial instruments
The company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign currency exchange rates. The derivative
instruments used are foreign exchange forward contracts and options. These
derivatives, which are over-the-counter instruments, are non-leveraged and
involve little complexity.
Due to its foreign operations, the company is exposed to the effects of
foreign currency exchange rate fluctuations on the U.S. dollar. Foreign exchange
forward contracts and options generally having maturities of less than nine
months are entered into for the sole purpose of hedging certain transactional
exposures.
The cost of foreign currency options is recorded in other current assets in
the consolidated balance sheet. At December 31, 1998, such amount was $4.2
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 12 months) are recognized.
50
<PAGE>
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, 1998, the company had a total of $192.3 million (of
notional value) of such contracts, $181.9 million to sell foreign currencies,
and $10.4 million to buy foreign currencies. At December 31, 1997, the company
had a total of $205.4 million (of notional value) of foreign exchange forward
contracts, $159.1 million to sell foreign currencies, and $46.3 million to buy
foreign currencies. At December 31, 1998, a realized net loss on such contracts
of approximately $9.2 million was deferred and included in current liabilities.
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 12 months) are recognized.
Financial instruments comprise the following:
December 31 (Millions) 1998 1997
- ----------------------------------------------------------------------------
Outstanding:
Long-term debt $1,109.2 $1,651.4
Foreign exchange forward contracts* 192.3 205.4
Foreign exchange options* 262.2 284.4
--------------------------
Estimated fair value:
Long-term debt $1,350.4 $1,823.4
Foreign exchange forward contracts 1.5 (6.1)
Foreign exchange options 2.8 5.9
- ----------------------------------------------------------------------------
* 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. At
December 31, 1998, the company's cash equivalents 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 1998 and 1997, as well as
unrealized gains or losses at December 31, 1998, were immaterial. Receivables
are due from a large number of customers that are dispersed worldwide across
many industries. At December 31, 1998 and 1997, the company had no significant
concentrations of credit risk.
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments. The fair value of the
company's long-term debt is based on the quoted market prices for publicly
traded issues. For debt that is not publicly traded, the fair value is
estimated, after considering any conversion terms, 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.
51
<PAGE>
13 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 currently determinable, management does not
expect that these matters will have a material adverse effect on the company's
consolidated financial position, consolidated results of operations, or
liquidity.
14 Segment information
In 1998, the company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that companies report information about operating segments, geographic
areas, and major customers in annual financial statements and requires that
those companies report selected information about operating segments in interim
financial reports. The adoption of SFAS No. 131 had no effect on the company's
consolidated financial position, consolidated results of operations, or
liquidity.
The company has two business segments: Services and Technology. The
products and services of each segment are marketed throughout the world to
commercial businesses and governments. The major service and product lines by
segment are as follows: Services - systems integration, including repeatable and
custom solutions, outsourcing, network services, and multivendor maintenance;
Technology - enterprise-class servers, specialized technologies, and personal
computers.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies. Intersegment sales
and transfers are priced as if the sales or transfers were to third parties. The
company evaluates business segment performance on operating income exclusive of
restructuring charges and unusual and nonrecurring items. All corporate and
centrally incurred costs are allocated to the business segments based
principally on assets, revenue, employees, square footage, or usage.
Corporate assets are principally cash and cash equivalents, goodwill
related to the acquisition of Sperry Corporation, prepaid pension assets, and
deferred income taxes. The expense or income related to corporate assets are
allocated to the business segments. In addition, corporate assets include an
offset for accounts receivable that have been recorded as sales in accordance
with SFAS No. 125 because such receivables are included in the assets of the
business segments.
No single customer accounts for more than 10% of revenue. Revenue from
various agencies of the U.S. Government, which is reported in both business
segments, approximated $917, $791, and $542 million in 1998, 1997, and 1996,
respectively.
52
<PAGE>
A summary of the company's operations by business segment for 1998, 1997,
and 1996 is presented below:
<TABLE>
<CAPTION>
(Millions of dollars) Total Corporate Services Technology
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
- -------------------
Customer revenue $ 7,208.4 $ 4,909.3 $ 2,299.1
Intersegment $ (511.2) 73.7 437.5
-------------------------------------------------------------------
Total revenue $ 7,208.4 $ (511.2) $ 4,983.0 $ 2,736.6
-------------------------------------------------------------------
Operating income (loss) $ 810.2 $ (45.3) $ 343.5 $ 512.0
Depreciation and
amortization 266.4 84.1 182.3
Total assets 5,577.7 2,705.7 1,814.2 1,057.8
Investments at equity 184.6 2.1 182.5
Capital expenditures for
properties 207.3 44.2 84.7 78.4
1997
- -------------------
Customer revenue $ 6,636.0 $ 4,281.0 $ 2,355.0
Intersegment $ (483.8) 70.0 413.8
-------------------------------------------------------------------
Total revenue $ 6,636.0 $ (483.8) $ 4,351.0 $ 2,768.8
-------------------------------------------------------------------
Operating income (loss) $ (379.5) $ (990.8) $ 167.2 $ 444.1
Depreciation and
amortization 1,216.9 952.2 86.8 177.9
Total assets 5,591.3 2,769.8 1,554.6 1,266.9
Investments at equity 215.7 9.9 205.8
Capital expenditures for
properties 179.9 77.7 102.2
1996
- -------------------
Customer revenue $ 6,370.5 $ 4,008.8 $ 2,361.7
Intersegment $ (529.3) 82.1 447.2
-------------------------------------------------------------------
Total revenue $ 6,370.5 $ (529.3) $ 4,090.9 $ 2,808.9
-------------------------------------------------------------------
Operating income (loss) $ 327.4 $ (47.0) $ 123.1 $ 251.3
Depreciation and
amortization 329.7 36.9 101.4 191.4
Total assets 6,967.1 3,709.4 1,702.3 1,555.4
Investments at equity 244.4 10.1 234.3
Capital expenditures for
properties 162.3 62.5 99.8
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
Presented below is a reconciliation of total business segment operating
income to consolidated income before income taxes:
<TABLE>
<CAPTION>
Year Ended December 31
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total segment operating
income $ 855.5 $ 611.3 $ 374.4
Interest expense (171.7) (233.2) (249.7)
Other income (expense), net* (33.8) (106.8) 16.0
Goodwill impairment (883.6)
Restructuring charges (149.0)
Corporate and eliminations (45.3) 2.5 (47.0)
-------------------------------------------------
Total income (loss) before
income taxes $ 604.7 $ (758.8) $ 93.7
- ----------------------------------------------------------------------------------------
</TABLE>
*exclusive of restructuring charges
Presented below is a reconciliation of total business segment assets to
consolidated assets:
<TABLE>
<CAPTION>
December 31 (Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total segment assets $ 2,872.0 $ 2,821.5 $ 3,257.7
Cash and cash equivalents 604.3 803.0 1,029.2
Prepaid pension assets 833.8 762.4 788.5
Deferred income taxes 1,123.2 1,127.1 1,044.5
Elimination for sale of receivables (28.4) (125.9) (276.9)
Goodwill 924.6
Other corporate assets 172.8 203.2 199.5
-------------------------------------------------
Total assets $ 5,577.7 $ 5,591.3 $ 6,967.1
- ----------------------------------------------------------------------------------------
</TABLE>
Geographic information about the company's revenue, which is principally based
on location of the selling organization, and properties, is presented below:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
United States $ 3,118.8 $ 2,705.5 $ 2,350.0
Foreign 4,089.6 3,930.5 4,020.5
-------------------------------------------------
Total $ 7,208.4 $ 6,636.0 $ 6,370.5
-------------------------------------------------
Properties, net
United States $ 317.8 $ 307.4 $ 340.3
Brazil 61.9 67.9 56.1
Other foreign 201.2 205.9 225.4
-------------------------------------------------
Total $ 580.9 $ 581.2 $ 621.8
- ----------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
15 Employee plans
Stock plans. Under plans approved by the stockholders, stock options, stock
appreciation rights, restricted stock, and restricted stock 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 generally become exercisable in annual installments over a
four-year period following date of grant.
Restricted stock and restricted stock units have been granted and are
subject to forfeiture until the expiration of a specified period of service
commencing on the date of grant. Compensation expense resulting from the awards
is charged to income ratably from the date of grant until the date the
restrictions lapse and is based on fair market value at the date of grant.
During the year ended December 31, 1998, there were no grants or forfeitures.
During the year ended December 31, 1997, .7 million shares of restricted stock
and restricted stock units were granted at a weighted average fair market value
of $8.79 per share, and .3 million shares and units were forfeited. During the
year ended December 31, 1996, 2.9 million shares of restricted stock and
restricted stock units were granted at a weighted average fair market value of
$7.06 per share, and .5 million shares and units were forfeited. During the
years ended December 31, 1998, 1997, and 1996, $6.0, $6.4, and $4.6 million was
charged to income, respectively.
Effective July 1, 1998, the company implemented a world-wide Employee Stock
Purchase Plan ("ESPP"), which enables substantially all regular employees to
purchase full or fractional shares of the company's common stock through payroll
deductions of up to 10% of eligible pay. The price the employee pays is 85% of
the market price at the beginning or end of a calendar quarter, whichever is
lower. During the year ended December 31, 1998, employees purchased shares, all
of which were newly issued shares, for which $5.6 million was paid to the
company.
U.S. employees are eligible to participate in an employee savings plan.
Under this plan, a percentage of the employee's pay may be contributed to
various investment alternatives. Effective July 1, 1998, a company match for up
to 1% of pay was reinstituted. The match consists of the company contributing
newly issued shares of its common stock to the plan. The charge to income,
related to such company match, was $4.1 million in 1998.
Effective January 1, 1996, the company adopted the disclosure-only option
under SFAS No. 123, "Accounting for Stock-Based Compensation." The company
continues to apply APB Opinion 25 for its stock plans. Accordingly, no
compensation expense has been recognized for stock options granted and for
common stock purchases under the ESPP.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the company had
accounted for its stock plans under the fair value method of SFAS No. 123. The
fair value of stock options is estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998, 1997, and 1996, respectively: risk-free interest rates of
5.67%, 6.59%, and 6.34%, volatility factors of the expected market price of the
company's common stock of 55%, a weighted average expected life of the options
of five years, and no dividends.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The company's
pro forma net income (loss) for the years ended December 31, 1998, 1997, and
1996, respectively, follows: 1998, $373.2 million, or income of $1.00 per
diluted share; 1997, $(858.3) million, or a loss of $5.33 per share; and 1996,
$46.0 million, or a loss of $.43 per share.
55
<PAGE>
A summary of the status of stock option activity follows:
<TABLE>
<CAPTION>
Year ended December 31
(Shares in thousands) 1998 1997 1996
- ------------------------------------------------------------------- ------------------------ ------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 20,281 $ 9.67 18,224 $10.16 17,429 $11.48
Granted 5,305 22.74 5,259 7.49 4,493 6.23
Exercised (6,839) 10.75 (944) 8.45 (119) 4.20
Forfeited and expired (770) 13.07 (2,258) 9.36 (3,579) 11.87
-------------------------- ------------------------ -------------------------
Outstanding at end of year 17,977 12.97 20,281 9.67 18,224 10.16
-------------------------- ------------------------ -------------------------
Exercisable at end of year 7,494 10.27 11,237 11.26 10,499 11.57
-------------------------- ------------------------ -------------------------
Shares available for granting
options at end of year 4,592 4,058 4,351
-------------------------- ------------------------ -------------------------
Weighted average fair value
of options granted during
the year $12.16 $ 3.99 $ 3.40
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
(Shares in thousands) Outstanding Exercisable
- ----------------------------------------------------------------- --------------------------
Exercise Average Average Average
Price Range Shares Life * Exercise Price Shares Exercise Price
- ----------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$4-7 6,031 7.79 $ 6.20 1,997 $ 6.07
$7-20 6,971 5.08 11.76 5,482 11.75
$20-33 4,975 9.32 22.87 15 26.20
---------------------------------------- --------------------------
Total 17,977 7.16 12.97 7,494 10.27
- ----------------------------------------------------------------- --------------------------
</TABLE>
* Average contractual remaining life in years.
56
<PAGE>
Retirement benefits
Retirement plans funded status and amounts recognized in the company's
consolidated balance sheet at December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
U.S. Plans International Plans
---------- -------------------
December 31 (Millions) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $3,543.7 $3,299.7 $685.4 $747.8
Service cost 35.7 33.4 15.3 14.2
Interest cost 248.3 247.3 45.8 42.8
Plan participants' contributions 9.7 10.5
Plan amendments .6 2.5 3.0
Actuarial loss 105.8 202.5 76.5 43.4
Benefits paid (250.0) (237.8) (34.5) (31.0)
Effect of settlements/curtailments (3.9) (24.4)
Foreign currency translation adjustment 10.5 (56.4)
Other (61.5)
------------------------------------------------
Benefit obligation at end of year $3,684.1 $3,543.7 $811.7 $685.4
- -----------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $4,107.1 $3,662.8 $789.3 $891.9
Actual return on plan assets 597.2 680.4 86.6 105.6
Employer contribution 4.8 4.6 13.9 13.9
Plan participants' contributions 9.7 10.5
Benefits paid (250.0) (237.8) (34.5) (31.0)
Effect of settlements (2.9) (75.1)
Foreign currency translation adjustment 10.6 (66.7)
Other 2.3 (59.8)
------------------------------------------------
Fair value of plan assets at end of year $4,459.1 $4,107.1 $877.9 $789.3
- -----------------------------------------------------------------------------------------------------------------
Funded status $775.0 $563.4 $66.2 $103.9
Unrecognized net actuarial loss (gain) 13.1 171.9 (17.8) (63.9)
Unrecognized prior service (benefit) cost (28.0) (35.7) 9.1 7.0
Unrecognized net obligation at date of adoption 1.5 2.2 1.0 1.0
------------------------------------------------
Prepaid pension cost $761.6 $701.8 $58.5 $48.0
- -----------------------------------------------------------------------------------------------------------------
Amounts recognized in the statement of
financial position consist of:
Prepaid pension cost $761.6 $701.8 $72.2 $60.6
Other liabilities (13.7) (12.6)
------------------------------------------------
$761.6 $701.8 $58.5 $48.0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligations, accumulated benefit obligations and fair
value of plan assets for plans with accumulated benefit obligations in excess of
plan assets was as follows (in millions of dollars): $92.0 million, $86.2
million, and $13.3 million at December 31, 1998; and $81.9 million, $76.1
million, and $13.7 million at December 31, 1997.
57
<PAGE>
Net periodic pension costs for 1998, 1997, and 1996 includes the following
components:
<TABLE>
<CAPTION>
U.S. Plans International Plans
---------------------------------- ---------------------------------
Year ended December 31 (Millions) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 35.7 $ 33.4 $ 34.6 $ 15.3 $ 14.2 $ 20.9
Interest cost 248.3 247.3 242.5 45.8 42.8 45.8
Expected return on plan assets (356.5) (332.6) (323.0) (56.8) (53.7) (61.6)
Amortization of prior service (benefit) cost (6.6) (7.3) (8.0) .8 .7 .9
Amortization of asset or liability at adoption .7 .7 .7 .1 .1
Recognized net actuarial loss (gain) 23.7 23.6 20.3 (.1) (1.8) (2.7)
Settlement/curtailment (gain) loss (.4) (2.8) (6.6) .4 3.9
------------------------------------------------------------------------
Net periodic pension (income) cost $ (55.1) $ (37.7) $ (39.5) $ 5.0 $ 2.7 $ 7.3
- --------------------------------------------------------------------------------------------------------------------------------
Weighted-average assumptions as of December 31 were
as follows:
Discount rate 7.00% 7.25% 7.75% 6.36% 6.77% 7.11%
Rate of compensation increase 5.40% 5.40% 5.40% 4.07% 3.74% 3.88%
Expected long-term rate of return on assets 10.00% 10.00% 10.00% 8.23% 8.25% 8.33%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other postretirement benefits
A reconciliation of the benefit obligation, fair value of the plan assets, and
the funded status of the postretirement medical plan at December 31, 1998 and
1997, follows:
December 31 (Millions) 1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 227.4 $ 221.6
Interest cost 15.5 16.3
Plan participants' contributions 24.6 26.9
Actuarial (gain) loss (2.1) 9.9
Benefits paid (39.6) (47.3)
------------------------
Benefit obligation at end of year $ 225.8 $ 227.4
------------------------
Change in plan assets
Fair value of plan assets at beginning
of year $ 15.4 $ 24.8
Actual return on plan assets 1.0 1.8
Employer contributions 11.9 9.2
Plan participants' contributions 24.6 26.9
Benefits paid (39.6) (47.3)
------------------------
Fair value of plan assets at end of year $ 13.3 $ 15.4
------------------------
Funded status $ (212.5) $ (212.0)
Unrecognized net actuarial loss 16.8 19.3
Unrecognized prior service benefit (22.9) (25.5)
------------------------
Accrued benefit cost $ (218.6) $ (218.2)
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost for 1998, 1997, and 1996 follows:
Year ended December 31 (Millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Interest cost $15.5 $16.3 $16.0
Expected return on plan assets (1.1) (1.8) (2.1)
Amortization of prior
service benefit (2.7) (2.7) (2.7)
Recognized net actuarial loss (gain) .6 1.2 (.4)
-----------------------------------
Net periodic benefit cost $12.3 $13.0 $10.8
-----------------------------------
Weighted-average assumptions as of December 31 were as follows:
Discount rate 7.20% 7.30% 7.50%
Expected return on plan assets 8.00% 8.00% 8.00%
- --------------------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the expected cost
of benefits covered by the plan was 8.75% for 1999, gradually declining to 5.5%
in 2006 and thereafter. A one-percentage point increase (decrease) in the
assumed health care cost trend rate would increase (decrease) the accumulated
postretirement benefit obligation at December 31, 1998, by $10.8 million and
$(9.9) million, respectively, and increase (decrease) the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for 1998 by $.8 million and $(.7) million, respectively.
58
<PAGE>
16 Stockholders' equity
The company has 720.0 million authorized shares of common stock, par value $.01
per share, and 40.0 million shares of authorized preferred stock, par value $1
per share, issuable in series. The company has authorization to issue up to 30.0
million shares of Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock").
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
at $50.00 per share. In addition, shares of Series A Preferred Stock have
priority as to dividends over holders of the company's common stock that rank
junior with regard to dividends.
In 1997, the company redeemed at stated value all $150.0 million of its
Series B and C Preferred Stock.
In December 1998, the company called 2.0 million of its Series A Preferred
Stock for redemption. On January 21, 1999, 1.9 million shares of Series A
Preferred Stock were converted into 3.2 million shares of the company's common
stock and 270 thousand shares of Series A Preferred Stock were redeemed for
$13.5 million. Included in the above number were 184 thousand shares of Series A
Preferred Stock that were voluntarily converted into the company's common stock
during the call period. In addition, on January 21, 1999, the company announced
that it was calling for redemption on March 4, 1999, an additional 6.0 million
shares of its Series A Preferred Stock.
Each outstanding share of common stock has attached to it one preferred
share purchase right. 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. Until the rights become
exercisable, they have no dilutive effect on net income per common share.
At December 31, 1998, 82.0 million shares of unissued common stock of the
company were reserved for the following: 47.4 million for convertible preferred
stock, 3.9 million for the 8 1/4 % convertible subordinated notes due 2006, and
30.7 million for stock options and for stock purchase and savings plans.
Changes in issued shares during the three years ended December 31, 1998,
were as follows:
Series A
Preferred Common Treasury
(Thousands) Stock Stock Stock
- -------------------------------------------------------------------------------
Balance at December 31, 1995 28,405 172,316 (893)
Issuance of stock under stock
option and other plans 3,426 (6)
Other 1
-------------------------------------
Balance at December 31, 1996 28,405 175,743 (899)
Conversions to common stock (2) 73,150
Issuance of stock under stock
option and other plans 1,245 160
Other 84
-------------------------------------
Balance at December 31, 1997 28,403 250,222 (739)
Conversions to common stock (2) 110
Issuance of stock under stock
option and other plans 7,557 (553)
-------------------------------------
Balance at December 31, 1998 28,401 257,889 (1,292)
- -------------------------------------------------------------------------------
59
<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, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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 the 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As described in Note 3 to the consolidated financial statements, effective
December 31, 1997, Unisys Corporation changed its method of accounting for the
measurement of goodwill impairment.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 14, 1999, except for the fourth paragraph of Note 16,
as to which the date is January 21, 1999
60
<PAGE>
Unisys Corporation
Supplemental Financial Data (Unaudited)
Quarterly financial information
<TABLE>
<CAPTION>
First Second Third Fourth
(Millions, except per share data) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,649.7 $1,728.5 $1,781.4 $2,048.8 $7,208.4
Gross profit 559.2 582.9 600.2 707.5 2,449.8
Income before income taxes 98.0 140.8 149.4 216.5 604.7
Net income 62.7 90.1 95.6 138.6 387.0
Dividends on preferred shares 26.7 26.6 26.6 26.6 106.5
Earnings on common shares 36.0 63.5 69.0 112.0 280.5
Earnings per common share - basic .14 .25 .27 .44 1.11
- diluted .14 .24 .26 .42 1.06
Market price per common share - high 20 3/16 28 3/8 30 11/16 35 3/8 35 3/8
- low 13 5/16 17 1/4 17 5/8 18 1/8 13 5/16
- ------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------
Revenue $1,530.7 $1,585.3 $1,621.4 $1,898.6 $6,636.0
Gross profit 515.7 538.4 575.0 604.5 2,233.6
Income (loss) before income taxes 30.6 66.5 80.8 (936.7) (758.8)
Net income (loss)* 19.3 41.9 50.9 (965.7) (853.6)
Dividends on preferred shares 30.1 27.8 26.6 26.6 111.1
Earnings (loss) on common shares (10.8) 14.1 24.3 (992.3) (964.7)
Earnings (loss) per common share - basic (.06) .08 .14 (4.75) (5.30)
- diluted* (.06) .08 .13 (4.75) (5.30)
Market price per common share - high 7 5/8 8 15 3/4 16 1/2 16 1/2
- low 6 1/4 5 3/4 7 3/8 11 1/8 5 3/4
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* In the fourth quarter of 1997, the company recorded one-time charges to net
income of $1,052.6 million. Before these charges, fourth-quarter net income
was $86.9 million, or $.25 per diluted common share, and full-year net income
was $199.0 million, or $.46 per diluted common share. See Note 3 of the Notes
to Consolidated Financial Statements.
The individual quarterly per-common share amounts may not total to the per-
common share amount for the full year because of accounting rules governing
the computation of earnings per common share.
Market prices per common share are as quoted on the New York Stock Exchange
composite listing.
61
<PAGE>
Eight-year summary of selected financial data
<TABLE>
<CAPTION>
(Millions, except per share data) 1998 1997(1) 1996 1995(1) 1994(1) 1993 1992 1991(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of operations
Revenue $7,208.4 $6,636.0 $6,370.5 $6,342.3 $6,095.5 $6,107.1 $6,715.6 $6,908.8
Operating income (loss) 810.2 (379.5) 327.4 (562.1) 271.7 698.7 688.2 (614.3)
Income (loss) from continuing operations
before income taxes 604.7 (758.8) 93.7 (781.1) 14.6 370.9 301.3 (1,425.6)
Income (loss) from continuing operations
before extraordinary items and changes
in accounting principles 387.0 (853.6) 61.8 (627.3) 12.1 286.3 166.3 (1,520.2)
Net income (loss) 387.0 (853.6) 49.7 (624.6) 100.5 565.4 361.2 (1,393.3)
Dividends on preferred shares 106.5 111.1 120.8 120.3 120.1 121.6 122.1 121.2
Earnings (loss) on common shares 280.5 (964.7) (71.1) (744.9) (19.6) 443.8 239.1 (1,514.5)
Earnings (loss) from continuing operations
per common share
Basic 1.11 (5.30) (.34) (4.37) (.63) 1.01 .27 (10.16)
Diluted 1.06 (5.30) (.34) (4.37) (.63) .92 .27 (10.16)
Financial position
Working capital $ 234.2 $ 309.1 $ 668.0 $ 71.3 $1,015.7 $ 681.0 $ 513.3 $ 384.3
Total assets 5,577.7 5,591.3 6,967.1 7,113.2 7,193.4 7,349.4 7,322.1 8,218.7
Long-term debt 1,105.2 1,438.3 2,271.4 1,533.3 1,864.1 2,025.0 2,172.8 2,694.6
Common stockholders' equity(2) 97.0 (214.2) 185.8 289.9 1,034.2 1,057.3 541.8 342.1
Common stockholders' equity per share .38 (.86) 1.06 1.69 6.05 6.21 3.35 2.12
Other data
Research and development $ 296.6 $ 302.3 $ 342.9 $ 404.5 $ 458.5 $ 489.3 $ 505.6 $ 610.6
Capital additions of properties 207.3 179.9 162.3 195.0 208.2 173.5 227.0 222.7
Investment in marketable software 99.4 132.9 116.2 123.0 121.3 118.7 110.2 167.7
Depreciation 145.7 156.0 182.0 203.0 226.2 252.0 311.4 412.1
Amortization
Marketable software 111.8 97.0 101.6 151.7 150.5 144.6 131.8 241.0
Goodwill 8.9 963.9 46.1 40.9 36.9 36.7 36.8 246.6
Common shares outstanding (millions) 256.6 249.5 174.8 171.4 171.0 170.4 161.9 161.7
Stockholders of record (thousands) 28.6 37.3 39.2 41.5 45.3 47.8 51.7 54.6
Employees (thousands) 33.2 32.6 32.9 37.4 37.8 38.2 41.7 46.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes special pretax charges of $1,074.6 million, $846.6 million, $186.2
million, and $1,200.0 million for the years ended December 31, 1997, 1995,
1994, and 1991, respectively.
(2) After deduction of cumulative preferred dividends in arrears in 1991, 1992,
and 1993.
62
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Unisys Corporation, the registrant, a Delaware company, has no parent. The
registrant owns directly or indirectly all the voting securities of the
following subsidiaries:
<TABLE>
<CAPTION>
State
or Other
Jurisdiction
Under the
Laws of Which
Name of Company Organized
- --------------- -------------
<S> <C>
Unisys Canada, Inc. Canada
Unisys Australia Limited Michigan
Unisys New Zealand Limited New Zealand
Unisys Espana S.A. Spain
Unisys (Schweiz) A.G. Switzerland
Unisys Belgium Belgium
Unisys Deutschland G.m.b.H. Germany
Unisys Electronica Ltda. Brazil
Unisys France France
Unisys Italia S.p.A. Italy
Unisys Limited England
Unisys Nederland N.V. Netherlands
Unisys de Mexico, S.A. de C.V. Mexico
Unisys Korea Limited Korea
Unisys South Africa, Inc. Delaware
Unisys de Colombia, S.A. Delaware
</TABLE>
The names of certain subsidiaries are omitted from the above list; such
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Unisys Corporation of our report dated January 14, 1999 (except for the
fourth paragraph of Note 16, as to which the date is January 21, 1999), included
in the 1998 Annual Report to Stockholders of Unisys Corporation.
Our audits also included the financial statement schedule of Unisys Corporation
listed in Item 14(a). This schedule is the responsibility of Unisys
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the following Registration
Statements: (1) Registration Statement (Form S-8 No. 33-7893) pertaining to the
Burroughs LTIP, (2) Registration Statement (Form S-8 No. 33-4317) pertaining to
the Burroughs 1985 Payroll Deduction Stock Purchase Plan, (3) Registration
Statement (Form S-3 No. 33-25715) of Unisys Corporation, (4) Registration
Statement (Form S-8 No. 33-3937) pertaining to the Burroughs LTIP, (5)
Registration Statement (Form S-8 No. 2-63842) pertaining to the Burroughs LTIP,
(6) Registration Statement (Form S-8 No. 33-38711) pertaining to the Unisys
Savings Plan, (7) Registration Statement (Form S-8 No. 33-38712) pertaining to
the Unisys Retirement Investment Plan II, (8) Registration Statement (Form S-8
No. 33-38713) pertaining to the Unisys Retirement Investment Plan, (9)
Registration Statement (Form S-8 No. 33-40259) pertaining to the Unisys LTIP,
(10) Registration Statement (Form S-3 No. 33-51747) of Unisys Corporation, (11)
Registration Statement (Form S-3 No. 333-20373) of Unisys Corporation, (12)
Registration Statement (Form S-3 No. 333-51885) of Unisys Corporation, (13)
Registration Statement (Form S-8 No. 333-51887) pertaining to the Unisys LTIP
and (14) Registration Statement (Form S-8 No. 333-51889) pertaining to the
Unisys Global Employee Stock Purchase Plan; of our report dated January 14, 1999
(except for the fourth paragraph of Note 16, as to which the date is January 21,
1999), with respect to the consolidated financial statements incorporated herein
by reference and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Unisys Corporation.
/s/ ERNST & YOUNG LLP
Philadephia, Pennsylvania
March 2,1999
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Unisys Corporation
Annual Report on Form 10-K
for the year ended December 31, 1998
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby make, constitute and appoint LAWRENCE A. WEINBACH, HAROLD S.
BARRON, ROBERT H. BRUST AND JANET BRUTSCHEA HAUGEN, and each one of them
severally, his true and lawful attorneys-in-fact and agents, for such person and
in such person's name, place and stead, to sign the Unisys Corporation Annual
Report on Form 10-K for the year ended December 31, 1998, and any and all
amendments thereto and to file such Annual Report on Form 10-K and any and all
amendments thereto with the Securities and Exchange Commission, and does hereby
grant unto such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
said person might or could do in person, hereby ratifying and confirming all
that such attorney-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
Dated: February 18, 1999
/s/ J.P. Bolduc /s/ Edwin A. Huston
- ----------------------- --------------------------
J. P. Bolduc Edwin A. Huston
Director Director
/s/ James J. Duderstadt /s/ Kenneth A. Macke
- ----------------------- --------------------------
James J. Duderstadt Kenneth A. Macke
Director Director
/s/ Henry C. Duques /s/ Theodore E. Martin
- ----------------------- --------------------------
Henry C. Duques Theodore E. Martin
Director Director
/s/ Gail D. Fosler /s/ Robert McClements, Jr.
- ----------------------- --------------------------
Gail D. Fosler Robert McClements, Jr.
Director Director
/s/ Melvin R. Goodes /s/ Lawrence A. Weinbach
- ----------------------- --------------------------
Melvin R. Goodes Lawrence A. Weinbach
Director Chairman of the Board,
President
and Chief Executive
Officer; Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 604
<SECURITIES> 0
<RECEIVABLES> 1,251
<ALLOWANCES> (46)
<INVENTORY> 463
<CURRENT-ASSETS> 2,817
<PP&E> 1,721
<DEPRECIATION> (1,140)
<TOTAL-ASSETS> 5,578
<CURRENT-LIABILITIES> 2,583
<BONDS> 1,105
0
1,420
<COMMON> 3
<OTHER-SE> 94
<TOTAL-LIABILITY-AND-EQUITY> 5,578
<SALES> 2,737
<TOTAL-REVENUES> 7,208
<CGS> 1,453
<TOTAL-COSTS> 4,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 605
<INCOME-TAX> 218
<INCOME-CONTINUING> 387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.06
</TABLE>
