SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 1-8729
UNISYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-0387840
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Unisys Way
Blue Bell, Pennsylvania 19424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 986-4011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES [X] NO [ ]
Number of shares of Common Stock outstanding as of September 30, 2000:
314,135,593.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Millions)
<CAPTION>
September 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Assets
------
Current assets
Cash and cash equivalents $ 234.9 $ 464.0
Accounts and notes receivable, net 1,386.9 1,430.5
Inventories
Parts and finished equipment 241.5 236.8
Work in process and materials 177.6 136.1
Deferred income taxes 482.3 472.7
Other current assets 94.8 105.6
-------- --------
Total 2,618.0 2,845.7
-------- --------
Properties 1,612.0 1,723.0
Less-Accumulated depreciation 996.1 1,102.2
-------- --------
Properties, net 615.9 620.8
-------- --------
Investments at equity 224.5 225.5
Software, net of accumulated amortization 283.2 259.8
Prepaid pension cost 1,080.8 975.9
Deferred income taxes 655.6 655.6
Other assets 366.5 306.4
-------- --------
Total $5,844.5 $5,889.7
======== ========
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Notes payable $ 472.3 $ 26.9
Current maturities of long-term debt 18.7 22.9
Accounts payable 990.5 1,036.7
Other accrued liabilities 965.6 1,183.1
Estimated income taxes 359.5 348.9
-------- --------
Total 2,806.6 2,618.5
-------- --------
Long-term debt 535.9 950.2
Other liabilities 331.0 367.7
Stockholders' equity
Common stock, issued: 2000,316.0;
1999,312.5 3.2 3.1
Accumulated deficit (868.4) (1,054.4)
Other capital 3,641.8 3,575.0
Accumulated other comprehensive
loss (605.6) (570.4)
-------- --------
Stockholders' equity 2,171.0 1,953.3
-------- --------
Total $5,844.5 $5,889.7
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
<TABLE>
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Millions, except per share data)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------- ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $1,690.9 $1,865.4 $4,956.7 $5,584.7
-------- -------- -------- --------
Costs and expenses
Cost of revenue 1,216.2 1,195.2 3,461.9 3,581.8
Selling, general and
administrative 320.1 354.8 924.1 1,034.9
Research and development expenses 77.5 86.2 237.8 251.4
-------- -------- -------- --------
1,613.8 1,636.2 4,623.8 4,868.1
-------- -------- -------- --------
Operating income 77.1 229.2 332.9 716.6
Interest expense 18.5 34.1 57.7 103.0
Other income (expense), net 6.4 1.0 36.5 (65.3)
-------- -------- -------- --------
Income before income taxes 65.0 196.1 311.7 548.3
Estimated income taxes 22.1 45.6 106.0 169.9
-------- -------- -------- --------
Income before extraordinary items 42.9 150.5 205.7 378.4
Extraordinary items (12.1) (19.8) (12.1)
-------- -------- -------- --------
Net income 42.9 138.4 185.9 366.3
Dividends on preferred shares 1.9 36.7
-------- -------- -------- --------
Earnings on common shares $ 42.9 $ 136.5 $ 185.9 $ 329.6
======== ======== ======== ========
Earnings per common share
Basic
Before extraordinary items $ .14 $ .49 $ .66 $ 1.22
Extraordinary items (.04) (.06) (.04)
-------- -------- -------- --------
Total $ .14 $ .45 $ .60 $ 1.18
======== ======== ======== ========
Diluted
Before extraordinary items $ .14 $ .47 $ .65 $ 1.17
Extraordinary items (.04) (.06) (.04)
-------- -------- -------- --------
Total $ .14 $ .43 $ .59 $ 1.13
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
<TABLE>
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Millions)
<CAPTION>
Nine Months Ended
September 30
-----------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities
Income before extraordinary items $ 205.7 $ 378.4
Add(deduct) items to reconcile income before
extraordinary items to net cash (used for)
provided by operating activities:
Extraordinary items (19.8) (12.1)
Depreciation 109.4 105.3
Amortization:
Marketable software 90.2 83.6
Goodwill 7.7 10.2
(Increase) in deferred income taxes, net (9.6) ( 70.3)
Decrease (increase) in receivables, net 8.4 ( 47.1)
(Increase) decrease in inventories (46.2) 64.4
(Decrease) in accounts payable and
other accrued liabilities (335.6) (224.0)
Increase in estimated income taxes 10.5 68.1
(Decrease) in other liabilities (3.4) ( 16.2)
(Increase) in other assets (110.6) ( 94.4)
Other 20.6 74.2
------- -------
Net cash (used for) provided by operating
activities (72.7) 320.1
------- -------
Cash flows from investing activities
Proceeds from investments 525.1 803.6
Purchases of investments (454.0) (778.2)
Proceeds from sales of properties 17.0 21.7
Investment in marketable software (113.6) ( 83.7)
Capital additions of properties (143.2) (139.0)
Purchases of businesses (13.9) ( 53.9)
------- -------
Net cash used for investing activities (182.6) (229.5)
------- -------
Cash flows from financing activities
Redemption of preferred stock (197.0)
Proceeds from issuance of long-term debt 30.3
Payments of long-term debt (447.2) (161.5)
Net proceeds from (reduction in)
short-term borrowings 442.5 ( 9.1)
Dividends paid on preferred shares ( 59.4)
Proceeds from employee stock plans 42.5 74.4
------- -------
Net cash provided by (used for) financing
activities 37.8 (322.3)
------- -------
Effect of exchange rate changes on
cash and cash equivalents (11.6) ( 10.7)
------- -------
(Decrease) in cash and cash equivalents (229.1) (242.4)
Cash and cash equivalents, beginning of period 464.0 616.4
------- -------
Cash and cash equivalents, end of period $ 234.9 $ 374.0
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the financial information furnished
herein reflects all adjustments necessary for a fair presentation of
the financial position, results of operations and cash flows for the
interim periods specified. These adjustments consist only of normal
recurring accruals. Because of seasonal and other factors, results
for interim periods are not necessarily indicative of the results to
be expected for the full year.
a. The shares used in the computations of earnings per share are as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
Basic 313,744 302,183 312,473 279,678
Diluted 315,516 314,541 316,539 292,733
b. A summary of the company's operations by business segment for the
three and nine month periods ended September 30, 2000 and 1999 is
presented below(in millions of dollars):
Total Corporate Services Technology
Three Months Ended ----- --------- -------- ----------
September 30, 2000
------------------
Customer revenue $1,690.9 $1,200.2 $ 490.7
Intersegment $( 92.8) 10.6 82.2
-------- ------- -------- --------
Total revenue $1,690.9 $( 92.8) $1,210.8 $ 572.9
======== ======= ======== ========
Operating income(loss) $ 77.1 $ 2.8 $ 18.1 $ 56.2
======== ======= ======== ========
Three Months Ended
September 30, 1999
------------------
Customer revenue $1,865.4 $1,318.5 $ 546.9
Intersegment $(151.7) 17.7 134.0
-------- ------- -------- --------
Total revenue $1,865.4 $(151.7) $1,336.2 $ 680.9
======== ======= ======== ========
Operating income(loss) $ 229.2 $( 13.5) $ 104.9 $ 137.8
======== ======= ======== ========
Nine Months Ended
September 30, 2000
----------------
Customer revenue $4,956.7 $3,454.1 $1,502.6
Intersegment $(326.7) 35.2 291.5
-------- ------- -------- --------
Total revenue $4,956.7 $(326.7) $3,489.3 $1,794.1
======== ======= ======== ========
Operating income(loss) $ 332.9 $ 20.4 $ 37.5 $ 275.0
======== ======= ======== ========
Nine Months Ended
September 30, 1999
------------------
Customer revenue $5,584.7 $3,901.3 $1,683.4
Intersegment $(415.6) 49.0 366.6
-------- ------- -------- --------
Total revenue $5,584.7 $(415.6) $3,950.3 $2,050.0
======== ======= ======== ========
Operating income(loss) $ 716.6 $( 21.6) $ 288.7 $ 449.5
======== ======= ======== ========
<PAGE> 6
Notes to Consolidated Financial Statements (cont'd)
Presented below is a reconciliation of total business segment operating
income to consolidated income before taxes (in millions of dollars):
Three Months Nine Months
Ended Ended
September 30 September 30
--------------- -------------
2000 1999 2000 1999
------ ------ ------ ------
Total segment operating income $ 74.3 $242.7 $312.5 $738.2
Interest expense (18.5) ( 34.1) (57.7) (103.0)
Other income (expense), net 6.4 1.0 36.5 ( 65.3)
Corporate and eliminations 2.8 ( 13.5) 20.4 ( 21.6)
------ ------ ------ ------
Total income before income taxes $ 65.0 $196.1 $311.7 $548.3
====== ====== ====== ======
c. Comprehensive income for the three and nine months ended September 30, 2000
and 1999 includes the following components (in millions of dollars):
Three Months Nine Months
Ended Sept 30 Ended Sept 30
--------------- -------------
2000 1999 2000 1999
------ ------ ------ ------
Net income $ 42.9 $138.4 $185.9 $366.3
Other comprehensive
income (loss)
Foreign currency
translation adjustment 2.0 ( 19.9) (21.5) ( 63.0)
Related tax expense
(benefit) 5.1 1.0 13.7 1.5
------ ------ ------ ------
Total other comprehensive
income (loss) (3.1) ( 20.9) (35.2) ( 64.5)
------ ------ ------ ------
Comprehensive income $ 39.8 $117.5 $150.7 $301.8
====== ====== ====== ======
Accumulated other comprehensive income (loss), all of which
relates to foreign currency translation adjustments, as of
September 30,2000 and December 31, 1999 is as follows (in millions of
dollars):
September 30, December 31,
2000 1999
---------------- -----------
Balance at beginning of period $(570.4) $(531.6)
Translation adjustments ( 35.2) ( 38.8)
------- -------
Balance at end of period $(605.6) $(570.4)
======= =======
d. The amount credited to stockholders' equity for the income tax benefit
related to the company's stock plans for the nine months ended September
30, 2000 and 1999 was $10.5 million and $53.8 million, respectively. The
company expects to realize these tax benefits on future Federal
income tax returns.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
------------
The company is continuing to transition its business to meet the new
requirements of the e-business marketplace. During the third quarter, the
company completed a strategic business review aimed at focusing the company
on higher-growth, higher-margin e-business opportunities and improving its
financial performance. As a result of this review, the company plans to
implement a series of actions during the fourth quarter of 2000 designed to
build its revenue base in new high-growth markets; focus its research and
development resources on high-potential new markets; de-emphasize non-
strategic, low-growth and low-margin businesses and products; and reduce its
cost structure in line with its new, more focused business model. In
particular, the company plans to:
* Streamline its portfolio of industry-specific repeatable solutions from
more than 30 programs currently to approximately 15 strategic solutions, and
introduce new, high-potential solutions in growth areas such as wealth
management and mobile-commerce;
* Enhance its outsourcing business to more aggressively pursue joint
ventures and other new business models to drive accelerated growth in this
key growth area;
* Focus its networking business on high value-added services, such as
managed network outsourcing services, network consulting, and an expanded
network security management practice;
* Continue to focus its technology business on high-end, enterprise-class
servers and de-emphasize low-margin commodity products.
In addition, the company plans to reduce its cost structure in line with its
lower revenue levels and its focus on higher-growth, higher-margin
opportunities going forward. As the first action in this cost structure
realignment, the company is offering an early retirement incentive to
approximately 1,500 U.S. employees. To the extent eligible employees elect
this program, funding will come from the company's pension plan. The company
estimates that it will take a one-time, pre-tax charge of approximately $200
million in the fourth quarter of 2000 related to the early retirement and
other actions.
Results of Operations
---------------------
For the three months ended September 30, 2000, the company reported net
income of $42.9 million or $.14 per diluted share, compared to $138.4
million, or $.43 per diluted share, for the three months ended September 30,
1999. The prior period included an extraordinary item of $12.1 million, or
$.04 per diluted common share, for the early extinguishment of debt and a
one-time tax benefit of $22.0 million, or $.07 per diluted share. Excluding
these items, earnings in the prior period were $.40 per diluted common share.
<PAGE> 8
Total revenue for the quarter ended September 30, 2000 was $1.69 billion,
down 9% from revenue of $1.87 billion for the quarter ended September 30,
1999. Excluding the negative impact of foreign currency translations, revenue
in the quarter declined 6%. The decrease in revenue was principally due to
continuing weakness in the company's services business as well as lower sales
of enterprise servers. Total gross profit percent was 28.1% in the third
quarter of 2000 compared to 35.9% in the year-ago period, principally due to
a lower mix of higher-margin products and services than in the year-ago
quarter and reduced utilization of services personnel.
For the three months ended September 30, 2000, selling, general and
administrative expenses were $320.1 million (18.9% of revenue) compared to
$354.8 million (19.0% of revenue) for the three months ended September 30,
1999. The decrease in these expenses reflected continued progress in
controlling costs through the company's worldwide business process
standardization program as well as the benefits of tight controls placed on
discretionary spending during the quarter. This led to a reduction in
general and administrative expenses which was partially offset by an increase
in selling expenses. Research and development expenses were $77.5 million
compared to $86.2 million a year earlier.
For the third quarter of 2000, the company reported an operating income
percent of 4.6% compared to 12.3% for the third quarter of 1999.
Information by business segment is presented below (in millions):
Elimi-
Total nations Services Technology
------- ------- -------- ----------
Three Months Ended
September 30, 2000
------------------
Customer revenue $1,690.9 $1,200.2 $490.7
Intersegment $( 92.8) 10.6 82.2
-------- ------- -------- ------
Total revenue $1,690.9 $( 92.8) $1,210.8 $572.9
======== ======= ======== ======
Gross profit percent 28.1% 21.6% 38.9%
======== ======== ======
Operating income
percent 4.6% 1.5% 9.8%
======== ======== ======
Three Months Ended
September 30, 1999
------------------
Customer revenue $1,865.4 $1,318.5 $546.9
Intersegment $(151.7) 17.7 134.0
-------- ------- -------- ------
Total revenue $1,865.4 $(151.7) $1,336.2 $680.9
======== ======= ======== ======
Gross profit percent 35.9% 25.8% 48.5%
======== ======== ======
Operating income
percent 12.3% 7.8% 20.2%
======== ======== ======
<PAGE> 9
In the Services segment, customer revenue decreased 9% to $1.20 billion in
the third quarter of 2000 from $1.32 billion in the third quarter of 1999 as
an increase in networking services revenue was more than offset by declines
in systems integration and repeatable solutions, proprietary maintenance, and
outsourcing. The decline in proprietary maintenance revenue, which continues
to decline industry wide, reflected customers' higher rates of replacement of
older equipment last year with newer systems that are under warranty and
require less maintenance. The gross profit percent declined to 21.6% in the
current quarter compared to 25.8% in the prior period, principally reflecting
reduced utilization of services personnel as well as a lower mix of higher-
margin systems integration and solutions, and proprietary maintenance revenue
in the quarter. Operating income percent declined to 1.5% in the current
quarter from 7.8% last year, principally due to the gross profit decline.
In the Technology segment, customer revenue decreased 10% to $491 million in
the third quarter of 2000 from $547 million in the prior-year period, as
strong initial sales of the company's new Cellular MultiProcessing servers
were more than offset by a decline in ClearPath enterprise server revenue.
The current quarter comparison was difficult because the September 1999
quarter reflected strong revenue levels associated with spending by customers
in preparation for the year 2000 transition. The gross profit percent was
38.9% in 2000 compared to 48.5% in 1999, due in large part to a lower
percentage of enterprise server sales in the current quarter. Operating
profit in this segment declined to 9.8% in 2000 from 20.2% in 1999,
principally due to the gross profit decline.
Interest expense for the three months ended September 30, 2000 was $18.5
million compared to $34.1 million for the three months ended September 30,
1999. The decline was principally due to the company's debt reduction
program.
Other income (expense), net, which can vary from quarter to quarter, was
income of $6.4 million in the current quarter compared to income of $1.0
million in the year-ago quarter. The change was primarily due to higher
interest income and foreign exchange gains in the current period versus a
year ago.
Income before income taxes was $65.0 million in the third quarter of 2000
compared to $196.1 million last year. The provision for income taxes was
$22.1 million in the current period (34% effective rate) compared to $45.6
million in the year-ago period. The tax provision in the prior period
included a one-time benefit of $22.0 million related to a U.S. Treasury
income tax regulation pertaining to the use of net operating loss
carryforwards of acquired companies. Exclusive of this benefit, the
effective tax rate in 1999 was 35%. The decline in the effective tax rate
was principally due to tax planning strategies.
<PAGE> 10
For the nine months ended September 30, 2000, revenue was $4.96 billion, down
11% from $5.58 billion for the nine months ended September 30, 1999. Net
income in the current nine month period was $185.9 million, or $.59 per
diluted share, compared to net income of $366.3 million, or $1.13 per diluted
share, in the prior-year period. Both periods include an extraordinary item
for the early extinguishment of debt: $19.8 million, or $.06 per diluted
share, in the nine months ended September 30, 2000 and $12.1 million, or $.04
per diluted share, in the nine months ended September 30, 1999. In addition,
the prior-year period included the one-time tax benefit mentioned above.
Excluding these items, income in the current period was $205.7 million, or
$.65 per diluted share, compared to $356.4 million, or $1.10 per diluted
share, in the prior-year period.
In December 1999, the Securities and Exchange Commission's ("SEC") staff
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides the staff's views on applying
generally accepted accounting principles to selected revenue recognition
issues and is effective for the company in the first quarter of 2000.
However, in March and again in September 2000, in response to requests from a
number of groups asking for additional time to determine the effect, if any,
on registrants' revenue recognition practices, the SEC staff delayed the
implementation date of SAB No. 101. SAB No. 101 now must be implemented by
the company no later than the fourth quarter of 2000, effective retroactively
to the first quarter of 2000. In addition, on October 12, 2000, the SEC
staff issued a Frequently Asked Questions ("FAQ") document which clarifies
and elaborates on the SEC staff's views regarding revenue recognition. The
company's initial assessment of the impact of SAB No. 101 is that it would
not have a material effect on its consolidated financial position,
consolidated results of operations, or liquidity. However, the company is in
the process of reassessing the impact, if any, of SAB No. 101 based on the
FAQ document.
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 company for the year beginning January
1, 2001, establishes accounting and reporting standards for derivative
instruments and 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. Changes in
the fair value of derivatives will be reported currently in earnings or in
other comprehensive income depending on their effectiveness pursuant to SFAS
No. 133. Adoption of SFAS No. 133 will also require a change in accounting
for the company's yen cross currency swap, as discussed separately below.
Management does not currently expect that adoption of SFAS No. 133 will have
a material effect on the company's consolidated financial position,
consolidated results of operations, or liquidity.
Financial Condition
-------------------
Cash and cash equivalents at September 30, 2000 were $234.9 million compared
to $464.0 million at December 31, 1999. During the nine months ended
September 30, 2000, cash used for operations was $72.7 million compared to
cash provided by operations of $320.1 million a year ago, primarily
reflecting a decline in profitability and higher accounts receivable levels.
<PAGE> 11
Cash used for investing activities during the first nine months of 2000 was
$182.6 million compared to $229.5 million during the first nine months of
1999. During the current period, both proceeds from investments and
purchases of investments, which represent primarily foreign exchange hedging
contract activity, declined from the prior year as a result of extending the
duration of individual contracts to more closely match the timeframe of
related underlying exposures. This change in duration of foreign currency
contracts did not significantly impact net cash flows. In addition, the
current period reflects lower cash usage for purchases of businesses and, as
described below, $27.5 million proceeds from the termination of the euro
swap.
Cash provided by financing activities during the nine months ended September
30, 2000 was $37.8 million compared to cash usage of $322.3 million in the
year-ago period. The current period includes net proceeds from short-term
borrowings of $442.5 million, principally borrowings used to repay long-term
debt of $447.2 million, as described below. Included in the prior period
were payments of $197.0 million for redemptions of preferred stock and $59.4
million for preferred stock dividends.
Total debt was $1.0 billion at September 30, 2000, up $26.9 million from
December 31, 1999.
The company has a $400 million credit agreement which expires June 2001. As
of September 30, 2000, $240 million was outstanding under this agreement at
an average rate of 7.05%.
On April 15, 2000, the company redeemed all of its $399.5 million outstanding
12% senior notes due 2003 at the stated redemption price of 106% of
principal. As a result, the company recorded an extraordinary after-tax
charge of $19.8 million, or $.06 per diluted share, for the call premium and
unamortized debt expense. In March 2000, the company entered into an
additional $150 million credit agreement expiring April 2001 for the purpose
of funding this redemption. As of September 30, 2000, the entire amount was
borrowed under this agreement at a rate of 7.47%. The redemption was funded
through a combination of cash and short-term borrowings under the company's
two credit agreements.
The company may, from time to time, redeem, tender for, or repurchase its
securities in the open market or in privately negotiated transactions
depending upon availability, market conditions, and other factors.
In the third quarter of 1999, the company entered into interest rate swaps
and currency swaps for euros and Japanese yen. In May 2000, the company
terminated the euro currency swap and received $27.5 million. A gain of $.9
million on the termination was recorded in the second quarter of 2000. On
October 5, 2000, the company terminated both of its interest rate swaps at a
net cost of $.7 million which will be recognized in interest expense over the
remaining terms of the related debt instruments.
<PAGE> 12
The only remaining swap instrument is the Japanese yen cross currency swap,
which has been designated as a hedge of the company's net investments
denominated in yen. Under this instrument, the company is obligated to
deliver on April 1, 2008, 23.2 billion yen in exchange for $200 million. At
September 30, 2000, the company has a payable of $14.0 million included in
other liabilities (long-term) related to the yen currency swap. Under this
instrument, the company pays yen libor plus .40% and receives US libor plus
.83% (.78875% and 7.49% at September 30, 2000, respectively). The company
records the effect of the interest rate difference in interest expense,
which, since inception of the swap, has approximated a $3.5 million reduction
in interest expense each quarter. Upon adoption of SFAS No. 133 on January
1, 2001, this benefit can no longer be recorded in interest expense.
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.
At September 30, 2000, the company had deferred tax assets in excess of
deferred tax liabilities of $1,382 million. For the reasons cited below,
management determined that it is more likely than not that $1,085 million of
such assets will be realized, therefore resulting in a valuation allowance of
$297 million.
The company evaluates quarterly the realizability of its deferred tax assets
and adjusts the amount of the related valuation allowance, if necessary. The
factors used to assess the likelihood of realization are the company's
forecast of future taxable income, and available tax planning strategies that
could be implemented to realize 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. 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.
Stockholders' equity increased $217.7 million during the nine months ended
September 30, 2000, principally reflecting net income of $185.9 million and
$66.6 million for issuance of stock under stock option and other plans offset
in part by currency translation of $35.2 million.
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. 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.
<PAGE> 13
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 effectively implement the actions
being taken as a result of its strategic review; on its ability to
effectively execute its sales efforts under the organizational model
implemented at the beginning of 2000; 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. In addition, future operating
results could be impacted by market demand for and acceptance of the
company's service and product offerings.
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.
The company frequently forms alliances with third parties that have
complementary products, services, or skills. Future results will depend in
part on the continuing relationships with, and on the performance and
capabilities of, these third parties. 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.
Approximately 58% of the company's total revenue derives from international
operations. The risk 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.
<PAGE> 14
Part II - OTHER INFORMATION
------- -----------------
Item 1. Legal Proceedings
------- -----------------
As previously reported, most recently in the company's Quarterly Report on
Form 10-Q for the period ended June 30, 2000, a number of purported class
action lawsuits seeking unspecified compensatory damages have been filed
against Unisys and various current and former officers in the U.S. District
Court for the Eastern District of Pennsylvania by persons who acquired Unisys
common stock during the period May 4, 1999 through October 14, 1999. On
February 16, 2000, these actions, which are in the early stages, were
consolidated under the caption In re: Unisys Corporation Securities
Litigation. The plaintiffs allege violations of the Federal securities laws
in connection with statements made by the company concerning certain of its
services contracts. The company believes it has meritorious defenses and
intends to defend this action vigorously.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the company filed no
Current Reports on Form 8-K.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNISYS CORPORATION
Date: October 23, 2000 By: /s/ Janet M. Brutschea Haugen
-----------------------------
Janet M. Brutschea Haugen
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.1 1990 Unisys Long-Term Incentive Plan, as amended and restated
effective September 22, 2000
10.2 Unisys Directors Stock Option Plan, as amended and restated
effective September 22, 2000
10.3 Unisys Corporation Deferred Compensation Plan, as amended and
restated effective September 22, 2000
10.4 Deferred Compensation Plan for Directors of Unisys Corporation, as
amended and restated effective September 22, 2000
10.5 Unisys Corporation Director Stock Unit Plan, as amended and restated
effective September 22, 2000
11.1 Statement of Computation of Earnings Per Share for the nine months
ended September 30, 2000 and 1999
11.2 Statement of Computation of Earnings Per Share for the three months
ended September 30, 2000 and 1999
12 Statement of Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
