<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, 1999
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
Preferred Share Purchase Rights New York Stock Exchange
<PAGE>
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. [_]
Aggregate market value of the voting stock held by non-affiliates: approximately
$9,902,024 as of December 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
December 31, 1999: 310,582,112.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Unisys Corporation 1999 Annual Report to Stockholders -- Part I,
Part II and Part IV.
Portions of the Unisys Corporation Proxy Statement for the 2000 Annual Meeting
of Stockholders -- Part III.
2
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PART I
ITEM 1. BUSINESS
- -----------------
Unisys Corporation ("Unisys" or the "Company") is a worldwide information
services and technology company. It provides services, systems and solutions,
its Unisys e-@ction Solutions, that help customers apply information technology
to seize the opportunities and overcome the challenges of the internet economy.
Unisys has two business segments -- Services and Technology. Financial
information concerning the two segments is set forth in Note 15, "Segment
information", of the Notes to Consolidated Financial Statements appearing in the
Unisys 1999 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 and delivers the solutions,
services and network infrastructure required by business and government to
transform their organizations for the internet economy. Unisys offers a
portfolio of solutions targeted at seven key vertical industries: financial
services, communications, transportation, publishing, commercial, worldwide
public sector and U.S. federal government. Offerings in the Services segment
include vertical industry and custom solutions, systems integration,
outsourcing, network services and multi-vendor information systems management
and support.
In the Technology segment, Unisys develops servers and related products
which operate in high-volume, mission-critical environments. Major offerings
include enterprise-class servers such as the ClearPath Enterprise 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 a direct sales force.
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.
3
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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 segment, firm order backlog at December 31, 1999 was $4.6
billion, compared to $3.4 billion at December 31, 1998. Approximately $2.0
billion (44%) of 1999 backlog is expected to be filled in 2000. 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 1999, the Company also had $2.3 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 1998 was $2.4
billion.
Because of the relatively short cycle between order and shipment in its
Technology segment, 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 11%
of total consolidated revenue in 1999.
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
4
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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 $339.4 million in
1999, $308.3 million in 1998, and $314.8 million in 1997.
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 2000 and
2001.
Employees
- ---------
As of December 31, 1999, Unisys had approximately 35,800 employees.
International and Domestic Operations
- -------------------------------------
Financial information by geographic area is set forth in Note 15, "Segment
information", of the Notes to Consolidated Financial Statements appearing in the
Unisys 1999 Annual Report to Stockholders, and such information is incorporated
herein by reference.
Year 2000
- ---------
The Company's Year 2000 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 1999 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 2. PROPERTIES
- -------------------
As of December 31, 1999, Unisys had 26 major facilities in the United
States with an aggregate floor space of approximately 5.5 million square feet,
located primarily in California, Illinois, Michigan, 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 23, with
approximately 4.0 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 .7 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, 1999, Unisys had 29 major facilities outside the United
States with an aggregate floor space of approximately 2.8 million
5
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square feet, located primarily in Brazil, Canada, France, South Africa,
Switzerland and the United Kingdom. Six of these facilities, with approximately
.9 million square feet of floor space, were owned by Unisys and 23, with
approximately 1.9 million square feet of floor space, were leased to Unisys.
Approximately 2.0 million square feet were in current operation, approximately
.4 million square feet were subleased to others, and approximately .4 million
square feet were being held in reserve or were declared surplus with disposition
efforts in progress.
Unisys major facilities include offices, laboratories, centers of
excellence, 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 will from time to time acquire
additional facilities, expand existing facilities, and dispose of existing
facilities or parts thereof, as necessary.
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, 1999, a number of
purported class action lawsuits seeking unspecified compensatory damages have
been filed against the Company and various current and former officers in the
U.S. District Court for the Eastern District of Pennsylvania by persons who
acquired the Company's common stock during the period May 4, 1999 through
October 14, 1999. The plaintiffs in these actions allege violations of the
Federal securities laws in connection with statements made by the Company
concerning certain of its services contracts. These actions, which are in the
early stages, include the following: Frances W. Smith, et al. v. Unisys
----------------------------------
Corporation, Larry Weinbach, Jack McHale and Gerald Gagliardi (filed on October
- -------------------------------------------------------------
28, 1999); Sam Wietschner, et al. v. Unisys Corporation, et al. (filed on
----------------------------------------------------
November 1, 1999); Larry Morrison, et al. v. Unisys Corporation, et al. (filed
----------------------------------------------------
on November 4, 1999); Alex Igdalski and Michael Sayegh, et al. v. Unisys
--------------------------------------------------
Corporation, et al. (filed on November 9, 1999); Patrick Yam, et al. v. Unisys
- ------------------- -----------------------------
Corporation, et al. (filed on November 12, 1999); Edward L. Slate, et al. v.
- ------------------- --------------------------
Unisys Corporation, et al. (filed on November 12, 1999); Joseph Operman, et al.
- -------------------------- ----------------------
v. Unisys Corporation, et al. (filed on November 16, 1999); Molly Levin,
- ----------------------------- ------------
Custodian for Elizabeth H. Levin, et al. v. Unisys Corporation, et al. (filed on
- ----------------------------------------------------------------------
November 19, 1999); Gary L. Hopkins, et al. v. Unisys Corporation, et al. (filed
-----------------------------------------------------
on November 24, 1999); Marlene M. and Paul L. Baertschiger, et al. v. Unisys
-----------------------------------------------------
Corporation, et al. (filed on December 1, 1999); Joseph Lasensky, et al. v.
- ------------------- --------------------------
Unisys Corporation, et al. (filed on December 3, 1999); and Robert M. Peters, et
- -------------------------- --------------------
al. v. Unisys Corporation, Lawrence A. Weinbach, James F. McGuirk II, Jack F.
- -----------------------------------------------------------------------------
McHale and Gerald Gagliardi (filed on December 3, 1999). The Company believes
- ---------------------------
it has meritorious defenses to these actions and intends to defend them
vigorously.
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 1999.
6
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ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
- ----------------------------------------------
Information concerning the executive officers of Unisys is set forth below.
Name Age Position with Unisys
---- --- --------------------
Lawrence A. Weinbach 60 Chairman of the Board, President
and Chief Executive Officer
Jack A. Blaine 55 Executive Vice President; President,
Worldwide Sales and Services
George R. Gazerwitz 59 Executive Vice President; President,
Systems & Technology
Joseph W. McGrath 47 Executive Vice President; President,
Global Industries
David O. Aker 53 Senior Vice President, Worldwide Human
Resources
Harold S. Barron 63 Senior Vice President and General
Counsel
James F. McGuirk II 56 Senior Vice President, Worldwide Public
Sector
Janet B. Wallace 48 Senior Vice President; President, Global
Network Services
Barbara A. Babcock 51 Vice President; President, e-Business
Services
Richard D. Badler 49 Vice President, Corporate Communications
Robert D. Evans 52 Vice President; President, Global
Outsourcing
Janet Brutschea Haugen 41 Vice President, Controller and Acting
Chief Financial Officer
Jack F. McHale 50 Vice President, Investor Relations
Angus F. Smith 58 Vice President and Treasurer
Nancy Straus Sundheim 48 Vice President, Secretary and Deputy
General Counsel
Alastair M. Taylor 51 Vice President, Worldwide Financial
Services
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
7
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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, Chairman of the Board, President and Chief Executive Officer
since 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. Blaine, Executive Vice President and President, Worldwide Sales and
Services since January 2000. Prior to that time, he served as Senior Vice
President and President of the Pacific Asia Americas Group (1996-1999); and Vice
President and President of the Latin America and Caribbean Division (1995-1996).
Mr. Blaine has been an officer since 1988.
Mr. Gazerwitz, Executive Vice President and President, Systems and
Technology since January 2000. Prior to that time, he served as Executive Vice
President and President of the Computer Systems Group (1996-1999); and Vice
President and Executive Vice President of Nihon Unisys Limited (1994-1996). Mr.
Gazerwitz has been an officer since 1984.
Mr. McGrath, Executive Vice President and President, Global Industries
since January 2000. During 1999, he served as Senior Vice President of Major
Accounts Sales and Chief Marketing Officer. Prior to joining Unisys in 1999, he
was with Xerox Corporation from 1988 until 1998, serving as vice president and
general manager of its Production Color Systems unit and as vice president of
strategy and integration for the Production Systems division. Before that, Mr.
McGrath was vice president and service director at Gartner Group. Mr. McGrath
has been an officer since 1999.
Mr. Aker, Senior Vice President, Worldwide Human Resources since 1997.
Prior to that time, he served as Vice President, Worldwide Human Resources
(1995-1997); and vice president of human resources for the information services
and systems group (1994-1995). Mr. Aker has been an officer since 1995.
Mr. Barron, Senior Vice President and General Counsel since 1993. From 1994
to 1999, he also served as Secretary. Mr. Barron has been an officer since 1991,
when he joined the Company as Vice President and General Counsel.
Mr. McGuirk, Senior Vice President, Worldwide Public Sector since January
2000. He has been a Senior Vice President since 1998 and also served as
President, Federal Systems from 1992 to 1999. Mr. McGuirk has been an officer
since 1996.
Ms. Wallace, Senior Vice President and President, Global Network Services
since January 2000. Ms. Wallace joined Unisys in 1999 as Vice President and
President, Global Network Services. Prior to that, she was Vice President of
Services Marketing and Sales, Compaq Computer Corporation (1998-1999); and Vice
President of Marketing and Services, Digital Equipment Corporation (1993-1998).
Ms. Wallace has been an officer since 2000.
Ms. Babcock, Vice President and President, e-Business Services since
January 2000. Prior to that time, she was the virtual general
8
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manager for electronic business (1999); and vice president of marketing and
strategy for the information services group (1994-1999). Ms. Babcock has been an
officer since 2000.
Mr. Badler, Vice President, Corporate Communications since 1998. Prior to
joining Unisys, he was Vice President, Corporate Communications for General
Instrument Corporation (1996-1998); and an executive vice president and account
director for Golin/Harris Communications in Chicago (1994-1996). Mr. Badler has
been an officer since 1998.
Mr. Evans, Vice President and President, Global Outsourcing since January
2000. Prior to that time, he served as vice president and general manager for
outsourcing in North America (1996-1999); and vice president for information
processing services and outsourcing (1995-1996). Mr. Evans has been an officer
since 2000.
Ms. Haugen, Vice President and Controller since 1996 and the Acting Chief
Financial Officer since December 1999. Prior to 1996, she held the position of
partner at Ernst & Young LLP. She had been with Ernst & Young LLP since 1980.
Ms. Haugen has been an officer since 1996.
Mr. McHale, Vice President, Investor Relations since 1997. From 1989 to
1997, he was Vice President, Investor and Corporate Communications. Mr. McHale
has been an officer since 1986.
Mr. Smith, Vice President and Treasurer since 1997. Prior to that time, he
served as the Treasurer of Rohm and Haas Company (1980-1997). Mr. Smith has been
an officer since 1997.
Ms. Sundheim, Vice President and Secretary since October 1999. She also has
been Deputy General Counsel since 1990. Ms. Sundheim has been an officer since
1999.
Mr. Taylor, Vice President, Worldwide Financial Services since January
2000. Prior to that time, he served as chief executive of the information
services group in Europe (1998-1999); vice president and general manager of the
financial market sector of the information services group (1996-1998); and vice
president of operations and planning for the information services and solutions
group (1995-1996). Mr. Taylor has been an officer since 2000.
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 1999 Annual Report to Stockholders and is
incorporated herein by reference. At December 31, 1999, there were 310.6 million
shares outstanding and approximately 32,800 stockholders of record. Unisys has
not declared or paid any cash dividends on its Common Stock since 1990.
9
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ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
A summary of selected financial data for Unisys is set forth under the
heading "Nine-year summary of selected financial data" in the Unisys 1999 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 1999 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" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Unisys 1999 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements of Unisys, consisting of the consolidated balance
sheets at December 31, 1999 and 1998 and the related consolidated statements of
income, cash flows and stockholders' equity for each of the three years in the
period ended December 31, 1999, appearing in the Unisys 1999 Annual Report to
Stockholders, together with the report of Ernst & Young LLP, independent
auditors, on the financial statements at December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999, appearing in the
Unisys 1999 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 1999 Annual Report to
Stockholders, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
10
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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 2001" and "Members of the Board of Directors Continuing in Office --
Term Expiring in 2002" in the Unisys Proxy Statement for the 2000 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 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.
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 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
None.
11
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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 1999 Annual Report to Stockholders
which are incorporated herein by reference:
Annual Report
Page No.
-------------
Consolidated Balance Sheet at
December 31, 1999 and December 31, 1998............... 39
Consolidated Statement of Income for each of the
three years in the period ended December 31, 1999......38
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1999......40
Consolidated Statement of Stockholders' Equity for
each of the three years in the period ended
December 31, 1999......................................41
Notes to Consolidated Financial Statements...........42-59
Report of Independent Auditors..........................60
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..............15
The financial statement schedule should be read in conjunction with
the consolidated financial statements and notes thereto in the Unisys 1999
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 16 through 19.
Management contracts and compensatory plans and arrangements are listed as
Exhibits 10.1 through 10.25.
12
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(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, the Company filed no Current
Reports on Form 8-K.
13
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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
Date: February 14, 2000 Executive Officer
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 February 14, 2000.
/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/ Janet Brutschea Haugen
- --------------------------- *Gail D. Fosler
Janet Brutschea Haugen --------------------
Vice President, Acting Chief Gail D. Fosler
Financial Officer and Controller Director
(principal financial and
accounting officer)
*J. P. Bolduc *Melvin R. Goodes
- ----------------------- ---------------------
J. P. Bolduc Melvin R. Goodes
Director Director
*Kenneth A. Macke *Edwin A. Huston
- ----------------------- ----------------------
Kenneth A. Macke Edwin A. Huston
Director Director
*Robert McClements, Jr. *Theodore E. Martin
- ----------------------- ----------------------
Robert McClements, Jr. Theodore E. Martin
Director Director
*By:/s/ Lawrence A. Weinbach
--------------------------
Lawrence A. Weinbach
Attorney-in-Fact
14
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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
- --------------------------------------------------------------------------------
Allowance for Doubtful Accounts
(deducted from accounts and
notes receivable):
Year Ended
<S> <C> <C> <C> <C>
December 31, 1997 $84.5 $10.2 $ (24.7) $70.0
Year Ended
December 31, 1998 $70.0 $ 4.0 $( 22.8) $51.2
Year Ended
December 31, 1999 $51.2 $13.6 $( 13.0) $51.8
</TABLE>
(a) Write-off of bad debts less recoveries.
15
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of
Unisys Corporation (incorporated by reference to Exhibit
3.1 to the registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999)
3.3 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, 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)
10.1 Deferred Compensation Plan for Executives of Unisys
Corporation, as amended and restated effective February
26, 1998 (incorporated by reference to Exhibit 10.1 to
the registrant's Annual Report on Form 10-K for the year
ended December 31, 1998)
10.2 Amendment, effective September 24, 1999, to the Deferred
Compensation Plan for Executives of Unisys Corporation
(incorporated by reference to Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999)
10.3 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)
10.4 Amendment, effective September 24, 1999, to the Deferred
Compensation Plan for Directors of Unisys Corporation
(incorporated by reference to Exhibit 10.3 to the
registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999)
16
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10.5 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)
10.6 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)
10.7 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)
10.8 Amendment, effective September 24, 1999, to the Director
Stock Unit Plan (incorporated by reference to Exhibit
10.1 to the registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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
17
<PAGE>
Form 10-K for the year ended December 31, 1994)
10.16 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)
10.17 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)
10.18 Amendment, effective April 28, 1999, to the 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, 1999)
10.19 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)
10.20 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)
10.21 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)
10.22 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)
10.23 Unisys Corporation Executive Life Insurance Program
(incorporated by reference to Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999)
10.24 Employment Agreement, dated as of November 19, 1999, by
and between Unisys Corporation and Joseph W. McGrath
10.25 Unisys Directors Stock Option Plan, effective January 1,
2000
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, 1999
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
18
<PAGE>
24 Power of Attorney
27 Financial Data Schedule
19
<PAGE>
Exhibit 10.24
November 19, 1998
Mr. Joseph W. McGrath
10 Pine Acres Drive
Rochester, NY 14618
Dear Joe:
On behalf of Unisys Corporation, I am pleased to offer you the position of
Senior Vice President, Global Marketing, reporting directly to me. At the next
Board of Directors meeting, you will be recommended to be made an elected
officer of Unisys Corporation.
Your salary will be at the annual rate of $325,000, which is $27,083
monthly. Our method of payment is by direct deposit to your bank account. You
will participate in the Executive Variable Compensation (EVC) Plan, and your
target will be 55% of your annual salary. You will have an EVC minimum
guarantee in 1999 (paid in March 2000) of $178,750, provided that you continue
to be employed through the payment date. Going forward, your actual award under
the EVC Plan can vary from zero to 150% of the target amount. Under the terms
of the EVC Plan, you must continue to be actively employed on a full time basis
through the EVC payout date in order to be eligible to receive an award. You
will also receive a signing bonus of $110,000 (subject to normal taxes), payable
within 30 days of the commencement of your employment.
You will be recommended for a stock option grant under the terms of the
1990 Unisys Long-Term Incentive Plan to be made at the next Board of Directors
Compensation & Organization Committee (the "Committee") meeting following your
acceptance of this offer. You will be recommended for a grant of 60,000 shares
which will vest 25% per year starting with the first anniversary following the
date of grant. The option price for this grant will be the Fair Market Value of
Unisys Stock on the date of grant, which will be the date of the Committee
meeting or the first work day following your becoming an employee, if later.
This grant is conditional upon your signing a Stock Option Agreement, a copy of
which is attached. You will have 60 days from the date of issue to sign and
return the Stock Option Agreement.
You will be recommended for a restricted share unit grant under the terms
of the 1990 Unisys Long-Term Incentive Plan at the next Committee meeting
following your acceptance of this offer. You will be recommended for a grant of
58,000 restricted share units which will vest over three years, with one-third
vesting each year starting with the first anniversary following the date of
grant.
You will be eligible for relocation assistance under the Corporation's Full
Support Relocation Assistance Policy. In accepting this offer you agree to
relocate to the Philadelphia area within the next twelve months. Attached is a
brief summary with more specific details to be provided by our Relocation
Center. This plan provides a comprehensive program through an outside
relocation firm to help you sell your home. Once you have accepted our offer a
representative from our Relocation Center will contact you. You should take no
action to list your home prior to a discussion with our Relocation
Representative. The program will include an option to buy out your current
home. You
<PAGE>
will also receive a one-time incidental allowance of two months' salary
($54,166), in addition to our normal relocation provisions.
You will receive all the supplemental executive benefits made available to
elected officers, including a car allowance of $600 per month, subject to normal
taxes. You will also be eligible for a membership in an approved luncheon club,
an annual executive physical, participation in the Executive Deferred
Compensation Plan, life insurance up to four times annual salary plus target EVC
(subject to underwriting requirements) pursuant to the Unisys Executive Life
Insurance Plan, umbrella personal liability insurance up to $5,000,000, and
contribution toward financial counseling services of $7,500 for the first year
and $5,000 per year thereafter. In addition, you and your eligible dependents
will be eligible to participate in all basic retirement, welfare, and other
benefit arrangements generally applicable to elected officers. You are also
eligible to join a country club of your choice. This requires the approval of
Dave Aker, Senior Vice President, Worldwide Human Resources. You will be
entitled to 20 days of vacation. The vacation year is from April 1 to March 31.
Your vacation will be prorated from your start date to March 31, 1999. As an
elected officer of Unisys, you will also receive the attached Employment
Agreement which applies in the event of a change in control.
You will also be eligible to participate in the Unisys Elected Officer
Pension Plan which has minimum vesting requirements of age 50 with five years of
service, and provides a minimum normal retirement benefit after five years of
service equal to 20% of final average earnings. Thereafter, the accrual is an
additional 4% per year up to 10 years of service, plus 1% for each additional
year of service, with a 60% final average earnings (30 year) maximum. See the
attached Plan document for more details.
Each of the above-described benefits, which are more fully described in an
applicable Unisys plan document, are subject to the terms of such plan document
(as may be amended by Unisys from time to time); and, except as expressly
provided in this agreement, each such plan document will govern the benefit
payable hereunder and thereunder. In addition, you agree that the Unisys
policies and procedures applicable to all Unisys employees shall be applicable
to you.
If, at any time during the term of this agreement, your employment is
terminated by Unisys without "cause", or you terminate your employment for "Good
Reason", you will be entitled to receive the continued monthly payment of your
base salary at the time of the termination plus an EVC bonus payment at 100%
target and continuation of medical and dental benefits for the remaining term of
this agreement or twelve (12) months from the date of termination, whichever is
greater. In the event of any such termination during the first year of your
employment, you will also receive the initial one-third allocation of your
restricted share unit. You agree to accept these termination payments as the
sole and exclusive remedy against Unisys for any claims arising out of your
employment relationship, including, but not limited to the termination thereof.
These termination payments are not eligible compensation for purposes of any
employee benefit plan, including, but not limited to, the Elected Officer
Pension Plan, the Unisys Pension Plan and the Unisys Savings Plan. These
termination payments shall be paid notwithstanding your subsequent employment
elsewhere during the termination period.
<PAGE>
For purposes of this agreement, "cause" means intentional dishonesty;
conviction of a felony; or your conviction of a misdemeanor which, in the
opinion of Unisys, impairs your ability to substantially perform your job; any
conduct which violates the Unisys Code of Ethical Conduct; your continued
failure to adequately perform your duties; or engaging in conduct against the
best interest of Unisys, provided that Unisys has provided you with notice
identifying the manner in which it believes that you have failed to adequately
perform such duties or identified the conduct in question and you fail to cure
your inadequate performance or correct such conduct within 30 days of receiving
such notice; or your inability to perform your duties because of a mental or
physical disability which extends for a period of six months, or your death.
"Good Reason" means a reduction in your base pay or annual bonus target as
stated herein, or the assignment to you of job duties not comparable to the
duties of Vice President, Global Marketing, or any material reduction in such
responsibilities or status unless such reduction or change is (a) for cause, as
defined above, or (b) is done with your written consent. You recognize that the
dynamic nature of Unisys business may result in changes in your duties,
responsibilities and status. It is agreed that the assignment to you of duties
comparable to your duties and changes in your responsibilities or status that
are not material reductions thereof, will not constitute "Good Reason"
hereunder.
The payments under this agreement are not intended to duplicate payments
under any other Unisys agreement or severance program, including, without
limitation, the Employment Agreement applicable to Unisys elected officers which
covers and takes effect only upon change in control situations, as defined
therein. To the extent that you may be entitled to receive duplicate payments
under this and any other Unisys agreement or program, the provisions of that
agreement or program which is most favorable to you or provides you with the
greater benefit shall be effective.
The term of your employment under this agreement shall be three years from
your first day of employment. If you are still employed by Unisys at the end of
such term, this agreement shall be null and void and the standard Unisys
policies and procedures applicable to elected officers will govern your
employment.
Your employment is contingent upon your representations that you are not
subject to any restrictions that would prevent you from performing the duties
described above for Unisys and the verification of the information provided on
your employment application, which includes a criminal record check. In
addition, we will require proof of employment eligibility and identity under the
Immigration Reform Control Act of 1986, and signing of our Employee Proprietary
Information, Invention and Non-Competition Agreement. For purposes of Paragraph
6(c) of said Proprietary Agreement, it is agreed that this paragraph is
necessary to protect Unisys from any unfair disadvantage that may be caused by
your commencement of employment, as an employee, consultant or otherwise, with
any competitor, customer, or prospective customer of Unisys, under circumstances
whereby the disclosure or potential disclosure of Unisys confidential,
proprietary, trade secret or other specialized knowledge would disadvantage
Unisys. It is not the intention of the parties to unfairly restrict or restrain
you from obtaining gainful employment and pursuing your professional goals in
the event you subsequently leave Unisys. Consistent with this understanding, it
is also agreed that Paragraph 6(c) of the Proprietary
<PAGE>
Agreement is hereby amended by inserting the words "which approval shall not be
unreasonably withheld" after the words "in writing".
Any dispute or controversy arising under or in connection with this
agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association in Philadelphia, Pennsylvania.
You agree that you will keep the contents of this Agreement and all
discussions leading up to it confidential and that you will not disclose them to
any third party, except as may be required by law. You are permitted, however,
to discuss this Agreement with your family, attorney and financial advisor.
Joe, we all look forward to your positive response to our offer and to
having someone of your experience and personal attributes with us in the near
future. If you have any questions, or if we can be of personal assistance to
you in any way, please feel free to call me at 215-986-5212 or Terry Laudal at
215-986-7666.
Sincerely,
Lawrence A. Weinbach
Chairman, President, and Chief Executive Officer
CC: David O. Aker
Terry W. Laudal
Enclosures
Accepted: Joseph W. McGrath Date: November 20, 1998
<PAGE>
Exhibit 10.25
UNISYS DIRECTORS STOCK OPTION PLAN
ARTICLE I
Purpose and Adoption of the Plan
--------------------------------
1.1 Purpose. The Unisys Directors Stock Option Plan (the "Plan") is
-------
established as a sub-plan to the 1990 Unisys Long-Term Incentive Plan. The
purpose of the Plan is to assist in attracting and retaining highly qualified
individuals to serve as outside directors of Unisys, to reward outside directors
for their service to Unisys and to act as an incentive in motivating the outside
directors to achieve long-term objectives of Unisys and its shareholders.
1.2 Adoption and Term. The Plan has been approved by the Board and is
-----------------
effective as of January 1, 2000, and will remain in effect until terminated or
abandoned by action of the Board.
ARTICLE II
Definitions
-----------
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest Fair Market Value of a share of Company
Common Stock during the sixty day period ending on the date of such Change in
Control or (ii) in the case of a Change in Control described in Section 2.7(a)
or 2.7(c), the highest price per share of Company Common Stock paid to holders
of Company Common Stock in any transaction (or series of transactions)
constituting or resulting from such Change in Control.
2.2 "Award" shall mean the grant of an Option made under the terms of the
Plan.
2.3 "Award Agreement" means a written agreement between the Company and a
Participant or a written acknowledgement from the Company specifically setting
forth the terms and conditions of an Award granted under the Plan.
2.4 "Beneficiary" means an individual, trust or estate who or which by
designation of the Participant or operation or law succeeds to the rights and
obligations of the Participant under the Plan and Award Agreement upon the
Participant's death.
2.5 "Board" means the Board of Directors of Unisys.
2.6 "Change in Control" means any of the following events:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or
<PAGE>
maintained by the Company or any corporation controlled by the Company
or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2.07; or
(b) Individuals who, as of May 25, 1995, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended. References
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends,
2
<PAGE>
supplement or supersedes said section.
2.8 "Committee" means the Corporate Governance and Compensation Committee
of the Board.
2.9 "Company Common Stock" means the common stock of Unisys, par value
$.01 per share.
2.10 "Company Voting Securities" means the combined voting power of all
outstanding voting securities of Unisys entitled to vote generally in the
election of directors for the Board.
2.11 "Date of Grant" means the date designated by the Committee as the date
as of which it grants an Award, which shall not be earlier than the date on
which the Committee approves the granting of such Award.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.13 "Fair Market Value" means, on any date, the average of the high and
low quoted sales prices of a share of Company Common Stock, sold regular way, as
reported on the Composite Tape for New York Stock Exchange Listed Companies, on
such date or, if there were no sales on such date, on the last date preceding
such date on which a sale was reported.
2.14 "Incumbent Board" means the Board as of May 25, 1995.
2.15 "Non-Qualified Stock Option" means a stock option that is not an
incentive stock option within the meaning of Section 422A of the Code.
2.16 "Option" means a Non-Qualified Stock Option granted under the Plan.
2.17 "Outstanding Company Common Stock" means, at any time, the issued and
outstanding shares of Company Common Stock.
2.18 "Participant" shall have the meaning set forth in Section 5.1.
2.19 "Plan" shall mean the Unisys Directors Stock Option Plan as described
herein and as may be amended from time to time.
2.20 "Purchase Price", with respect to Options, shall have the meaning set
forth in Section 6.1(b).
2.21 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as it may be amended
from time to time, and any successor rule.
2.22 "Subsidiary" shall have the meaning set forth in Section 425(f) of the
Code.
2.23 "Termination of Service" means the voluntary or involuntary
termination of a Participant's service as a director of Unisys for any reason,
including death, disability or retirement. Whether a Termination of Service is a
result of disability shall be determined in each case by the Committee in its
sole discretion.
2.24 "Unisys" means Unisys Corporation, a Delaware corporation.
3
<PAGE>
ARTICLE III
Administration
--------------
3.1 Committee. The Plan shall be administered by the Committee. The
---------
Committee shall be selected from time to time by the Board, and shall be
comprised of not less than three members of the Board or such other persons who
would constitute "Non-Employee Directors" under the requirements of Rule 16b-3.
The Committee shall have exclusive and final authority in each determination,
interpretation or other action affecting the Plan and its Participants. The
Committee shall have the sole discretionary authority to interpret the Plan, and
to take such steps in connection with the Plan and Awards granted as it may deem
necessary or advisable. With Board ratification, the Committee may cancel
Awards and substitute new Options for underwater Options with the consent of the
recipient and under such terms as it deems appropriate.
ARTICLE IV
Shares Issued Under Awards
--------------------------
4.1 Shares Available for Issuance. The shares issued as a result of the
-----------------------------
grant of Awards under this Plan shall be issued from the shares available for
awards made under the terms of the 1990 Unisys Long-Term Incentive Plan.
4.2 Shares Subject to Terminated Awards. The shares of Company Common
-----------------------------------
Stock involved in any unexercised portions of terminated Options (including
cancelled Options) granted under the Plan may again be subject to Awards under
the Plan or the 1990 Unisys Long-Term Incentive Plan.
ARTICLE V
Participants
------------
5.1 Eligible Participants. Participants in the Plan eligible to receive
---------------------
Awards shall be those members of the Board who are not employees of Unisys.
ARTICLE VI
Stock Options
-------------
6.1 Option Awards.
-------------
(a) The Committee may grant, to such Participants as the
Committee may select, Options entitling the Participant to purchase
Company Common Stock from Unisys in such quantity, at such price, and
on such terms and subject to such conditions, not inconsistent with
the terms of this Plan, as may be established by the Committee. The
terms of any Stock Option granted under this Plan shall be set forth
in an Award Agreement. All Awards made by the Committee under the Plan
will be subject to ratification by the Board.
(b) Purchase Price of Options. The Purchase Price of each share
-------------------------
of Company Common Stock which may be purchased upon exercise of any
Option granted under the Plan shall be determined by the Committee,
provided that such Purchase Price shall be not less than 50% of the
Fair Market Value on the Date of Grant
(c) Rights as a Stockholder. A Participant or a transferee of
-----------------------
an Option pursuant to Section 7.4 shall have no rights as a
stockholder with respect to any shares of Company Common Stock covered
by an Option until the Participant or transferee shall have become the
holder of record or beneficial owner of any such shares, and no
adjustment shall be made for dividends in cash or other property or
distributions or other rights with respect to any such shares of
Company
4
<PAGE>
Common Stock for which the record date is prior to the date on which
the Participant or a transferee of the Option shall have become the
holder of record or beneficial owner of any such shares covered by the
Option.
6.2 Terms of Stock Options.
----------------------
(a) Conditions on Exercise. An Award Agreement with respect to
----------------------
Options may contain such waiting periods, exercise dates and
restrictions on exercise (including, but not limited to, periodic
installments which may be cumulative) as may be determined by the
Committee at the time of grant. Unless otherwise authorized by the
Board, no Stock Option may be exercised in whole or in part prior to
one year from the Date of Grant, except as set forth in Section 6.4.
(b) Duration of Options. Options shall terminate after the
-------------------
first to occur of the following events:
(1) Expiration of the Option as provided in the Award Agreement;
or
(2) Termination of the Award as provided in Section 6.2(e),
following the Participant's Termination of Service.
(c) Acceleration of Exercise Time. The Committee, in its sole
-----------------------------
discretion, shall have the right (but shall not in any case be
obligated) to permit purchase of shares under any Option prior to the
time such Option would otherwise become exercisable under the terms of
the Award Agreement, except that the acceleration of exercise prior to
one year from the Date of Grant must be approved by the Board.
(d) Extension of Exercise Time. In addition to the extensions
--------------------------
permitted under Section 6.2(e) in the event of Termination of Service,
the Committee, in its sole discretion, shall have the right (but shall
not in any case be obligated) to permit any Option granted under this
Plan to be exercised after its expiration date described in Section
6.2(e), subject, however to the limitations described in Section
6.2(b)(1).
(e) Exercise of Options upon Termination of Service.
-----------------------------------------------
(1) Termination with Less than Five Years of Service. In the
------------------------------------------------
event of Termination of Service of a Participant who had not served on
the Board for at least five years for a reason other than death or
disability, to the extent the right to exercise the Option had accrued
at the date of Termination of Service, the right of the Participant to
exercise the Option under the Plan shall terminate at the date of such
Termination of Service, unless otherwise provided by the Committee in
accordance with Section 6.2(d). Options, or any portion thereof, that
had not become exercisable as of the date of such Termination of
Service shall expire as of such date.
(A) Disability. Upon a Participant's Termination of
----------
Service by reason of disability prior to the date on which the
Participant completes five years of service, the Participant may,
within five years after the Termination of Service, exercise all or
any part of his or her Options which were exercisable upon such
Termination of Service. In no event, however, may any Option be
exercised later than the date described in Section 6.2(b)(1). Options,
or any portion thereof, that had not become exercisable as of the date
of such Termination of Service shall expire as of such date.
5
<PAGE>
(B) Death. In the event of the death of a Participant
-----
while serving as a director of Unisys or within the additional period
of time from the date of Termination of Service and prior to the
expiration of the Option as permitted in Section 6.2(e)(1)(A) or
Section 6.2(e)(2), to the extent the right to exercise the Option
accrued as of the date of such Termination of Service or thereafter
and did not expire during such additional period and prior to the
Participant's death, the right of the Participant's Beneficiary to
exercise the Option under the Plan shall expire upon the earliest of
(i) five years from the date of the Participant's death or (ii) five
years from the date of the Participant's Termination of Service or
(iii) the date of expiration of the Option determined pursuant to
Section 6.2(b)(1). Options, or any portion thereof, that had not
become exercisable as of the date of the Participant's death shall
expire as of the date of death.
(2) Termination of Service with Five Years of Service. If a
-------------------------------------------------
Participant terminates service after completing five years of service
as a director of Unisys,
(A) to the extent that the right to exercise an Option, or
any portion thereof, has not accrued as of the date of
Termination of Service, the Participant shall continue to vest in
the Option after Termination of Service in accordance with the
vesting schedule contained in the applicable Award Agreement, and
(B) the Participant may exercise the Option, to the extent
the right to exercise has accrued as of the date of Termination
of Service or thereafter in accordance with Section 6.2(e)(2)(A),
within five years of the date of the Participant's Termination of
Service, provided in no event may any Option be exercised later
than the date described in Section 6.2(b)(1).
6.3 Exercise Procedures. Each Option granted under the Plan shall be
-------------------
exercised by written notice to Unisys which must be received by the office of
Unisys designated in the Award Agreement on or before the expiration date of the
Award. The Purchase Price of shares purchased upon exercise of an Option
granted under the Plan shall be paid in full in cash by the Participant pursuant
to the Award Agreement; provided, however, that the Committee may (but need not)
permit payment to be made by delivery to Unisys of either (a) shares of Company
Common Stock (which may include shares issued in connection with the exercise of
the Option, subject to such rules as the Committee deems appropriate) or (b) any
combination of cash and shares of Company Common Stock, or (c) such other
consideration as the Committee deems appropriate and in compliance with
applicable law (including payment in accordance with a cashless exercise program
under which, if so instructed by the Participant, shares of Company Common Stock
may be issued directly to the Participant's broker or dealer upon receipt of the
Purchase Price in cash from the broker or dealer.) In the event that any
Company Common Stock shall be transferred to Unisys to satisfy all or any part
of the Purchase Price, the part of the Purchase Price deemed to have been
satisfied by such transfer of Company Common Stock shall be equal to the product
derived by multiplying the Fair Market Value as of the date of exercise times
the number of shares transferred. The Participant may not transfer to Unisys in
satisfaction of the Purchase Price (y) a number of shares which when multiplied
times the Fair Market Value as of the date of exercise would result in a product
greater than the Purchase Price or (z) any fractional share of Company Common
Stock. Any part of the Purchase Price paid in cash upon the exercise of any
Option shall be added to the general funds of Unisys and be used for any proper
corporate purpose. Unless the Committee shall otherwise determine, any Company
Common Stock transferred to Unisys as payment of all or part of the Purchase
Price upon the exercise of any Option shall be held as treasury shares.
6
<PAGE>
6.4 Change in Control. In the event of a Change in Control, (1) all
-----------------
Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable, and (2) a Participant will be permitted to
surrender for cancellation within sixty days after such Change in Control any
Option or portion of an Option to the extent not yet exercised (or with respect
to an Option or portion of an Option granted less than six months prior to the
date of the Change in Control, within sixty days after the expiration of a six
month period following the Date of Grant) and to receive a cash payment in an
amount equal to the excess, if any, of (A) the Adjusted Fair Market Value of the
Company Common Stock subject to the Option or a portion thereof surrendered,
over (B) the Purchase Price. The provisions of this Section 6.4 shall not be
applicable to any Options granted to a Participant if any Change in Control
results from such Participant's beneficial ownership (within the meaning of Rule
13d(3) under the Exchange Act) of Company Common Stock or Company Voting
Securities.
ARTICLE VII
Terms Applicable to All Awards Granted Under the Plan
-----------------------------------------------------
7.1 Plan Provisions Control Award Terms. The terms of the Plan shall
-----------------------------------
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant any Award under the Plan which is contrary to any of the
provisions of the Plan. In the event any provision of any Award granted under
the Plan should conflict with any term in the Plan as constituted on the Date of
Grant of such Award, the term in the Plan as constituted on the Date of Grant of
such Award shall control. Except as provided in Section 7.3, the terms of any
Award granted under the Plan may not be changed after the Date of Grant of such
Award so as to materially decrease the value of the Award without the express
approval of the holder.
7.2 Award Agreement. No person shall have any rights under any Award
---------------
granted under the Plan unless and until Unisys and the Participant to whom such
Award shall have been granted shall have executed and delivered an Award
Agreement or other Award acknowledgment expressly granting the Award to such
person and containing provisions setting forth the terms of the Award.
7.3 Modification of Award After Grant. No Award granted under the Plan to
---------------------------------
a Participant may be modified (unless such modification does not materially
decrease the value of the Award) after the date of its grant unless by express
written agreement between Unisys and the Participant provided that any such
change (a) shall not be inconsistent with the terms of the Plan, and (b) shall
be approved by the Committee. No modifications may be made to any Awards granted
to a Participant while the Participant is subject to Section 16(b) of the
Exchange Act except in compliance with Rule 16b-3.
7.4 Limitations on Transfer. A Participant's rights and interest under
-----------------------
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant.
7.5 Taxes. Unisys shall be entitled, if the Committee deems it necessary
-----
or desirable, to withhold (or secure payment from the Participant in lieu of
withholding) the amount of any withholding or other tax required by law to be
withheld or paid by Unisys with respect to any amount payable and/or shares
issuable under such Participant's Award, and Unisys may defer payment or
issuance of the cash or stock upon exercise of an Award unless indemnified to
its satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee and shall be
payable by the Participant at the time of issuance or payment
7.6 Surrender of Awards. Any Award granted under the Plan may be
-------------------
surrendered to Unisys for cancellation on such terms as the Committee and holder
approve.
7
<PAGE>
7.9 Adjustments to Reflect Capital Changes.
--------------------------------------
(a) Recapitalization. The number and kind of shares subject to
----------------
outstanding Awards, the Purchase Price or Exercise Price for such
shares, and the number and kind of shares available for Awards
subsequently granted under the Plan shall be appropriately adjusted to
reflect any stock dividend, stock split, combination or exchange of
shares, merger, consolidation or other change in capitalization with a
similar substantive effect upon the Plan or the Awards granted under
the Plan. The Committee shall have the power to determine the amount
of the adjustment to be made in each case.
(b) Sale or Reorganization. After any reorganization, merger or
----------------------
consolidation in which Unisys is the surviving corporation, each
Participant shall, at no additional cost, be entitled upon any
exercise of an Option to receive (subject to any required action by
shareholders), in lieu of the number of shares of Company Common Stock
receivable or exercisable pursuant to such Award, the number and class
of shares of stock or other securities to which such Participant would
have been entitled pursuant to the terms of the reorganization, merger
or consolidation if, at the time of such reorganization, merger or
consolidation, such Participant had been the holder of record of a
number of shares of stock equal to the number of shares receivable or
exercisable pursuant to such Award. Comparable rights shall accrue to
each Participant in the event of successive reorganizations, mergers
or consolidations of the character described above.
(c) Options to Purchase Stock of Acquired Companies. After any
-----------------------------------------------
reorganization, merger or consolidation in which Unisys or a
Subsidiary of Unisys shall be a surviving corporation, the Committee
may grant substituted options under the provisions of the Plan,
pursuant to Section 425 of the Code, replacing old options granted
under a plan of another party to the reorganization, merger or
consolidation whose stock subject to the old options may no longer be
issued following such merger or consolidation. The foregoing
adjustments and manner of application of the foregoing provisions
shall be determined by the Committee in its sole discretion. Any such
adjustments may provide for the elimination of any fractional shares,
which might otherwise become subject to any Options.
7.7 Governing Law. All determinations made and actions taken pursuant to
-------------
the Plan shall be governed by the laws of the Commonwealth of Pennsylvania and
construed in accordance therewith.
7.8 No Strict Construction. No rule of strict construction shall be
----------------------
implied against Unisys, the Committee, or any other person in the interpretation
of any of the terms of the Plan, any Award granted under the Plan or any rule or
procedure established by the Committee.
7.9 Compliance with Rule 16b-3. It is intended that the Plan be applied
--------------------------
and administered in compliance with Rule 16b-3. If any provision of the Plan
would be in violation of Rule 16b-3 if applied as written, such provision shall
not have effect as written and shall be given effect so as to comply with Rule
16b-3, as determined by the Committee. The Board is authorized to amend the plan
and to make any such modifications to Award Agreements to comply with Rule 16b-
3, as it may be amended from time to time, and to make any other such amendments
or modifications as it deems necessary or appropriate to better accomplish the
purposes of the Plan in light of any amendments made to Rule 16b-3.
7.10 Captions. The captions (i.e., all underlined words) used in the Plan
--------
are for convenience only, do not constitute a part of the Plan, and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions have been
used in the Plan.
8
<PAGE>
7.11 Severability. Whenever possible, each provision in the Plan and every
------------
Award at any time granted under the Plan shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of the Plan
or any Award at any time granted under the Plan shall be held to be prohibited
by or invalid under applicable law, then (a) such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and (b) all other provisions of the Plan and
every other Award at any time granted under the Plan shall remain in full force
and effect.
7.12 Amendment and Termination.
-------------------------
(a) Amendment. The Board shall have complete power and
---------
authority to amend the Plan at any time and to add any other stock
award or other incentive compensation programs to the Plan as it deems
necessary or appropriate and no approval by the stockholders of Unisys
or by any other person, committee or entity of any kind shall be
required to make any amendment. No termination or amendment of the
Plan may, without the consent of the Participant to whom any Award
shall theretofore have been granted under the Plan, adversely affect
the right of such individual under such Award.
(b) Termination. The Board shall have the right and the power
-----------
to terminate the Plan at any time. No Award shall be granted under the
Plan after the termination of the Plan, but the termination of the
Plan shall not have any other effect and any Award outstanding at the
time of the termination of the Plan may be exercised after termination
of the Plan at any time prior to the expiration date of such Award to
the same extent such Award would have been exercisable had the Plan
not terminated.
9
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
($ in millions)
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges
Interest expense $127.8 $171.7 $ 233.2 $ 249.7 $ 202.1
Interest capitalized during
the period 3.6 - - - -
Amortization of debt issuance
expenses 4.1 4.6 6.7 6.3 5.1
Portion of rental expense
representative of interest 46.3 49.1 51.8 59.8 65.9
------ ------ ------- ------- -------
Total Fixed Charges 181.8 225.4 291.7 315.8 273.1
------ ------ ------- ------- -------
Earnings
Income (loss) from continuing
operations before income taxes 770.3 594.2 (748.1) 80.2 (786.0)
Add (deduct) share of loss
(income) of associated
companies 8.9 (.3) 5.9 (4.9) 5.0
------ ------ ------- ------- -------
Subtotal 779.2 593.9 (742.2) 75.3 (781.0)
------ ------ ------- ------- -------
Fixed charges per above 181.8 225.4 291.7 315.8 273.1
Less interest capitalized during
the period (3.6) - - - -
------ ------ ------- ------- -------
Total earnings (loss) $957.4 $819.3 $(450.5) $ 391.1 $(507.9)
====== ====== ======= ======= =======
Ratio of earnings to fixed
charges 5.27 3.63 * 1.24 *
====== ====== ======= ======= =======
</TABLE>
* Earnings for the years ended December 31, 1997 and 1995 were inadequate
to cover fixed charges by approximately $742.2 and $781.0 million,
respectively.
<PAGE>
UNISYS CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of operations
For 1999, the company reported net income of $510.7 million, or $1.59 per
diluted common share, compared to $376.4 million, or $1.01 per diluted common
share, for 1998. The current year included a one-time tax benefit of $22.0
million, or $.07 per diluted common share, related to a new U.S. Treasury income
tax regulation, as well as an extraordinary charge of $12.1 million, or $.04 per
diluted share, for the early extinguishment of debt. Excluding those items,
diluted earnings per share in 1999 was $1.56.
In 1997, net income before one-time charges was $176.4 million, or $.35 per
common share. In the fourth quarter of 1997, the company recorded one-time
charges against net income of $1.0 billion. Including these charges, the company
had a 1997 net loss of $852.9 million, or $5.25 per share. For further
information on the 1997 fourth quarter charges, see Note 5 of Notes to
Consolidated Financial Statements.
In August of 1999, the company acquired PulsePoint Communications, Tech
Hackers, Inc. and Publishing Partners International, Inc. Approximately 2.9
million shares of the company's common stock were exchanged for all of the
outstanding shares of these companies. The transactions were accounted for as
poolings of interests and all prior periods presented were restated.
The following comparisons of income statement categories exclude the
one-time charges in 1999 and 1997 discussed above.
Revenue for 1999 was $7.54 billion compared to $7.24 billion in 1998 and
$6.66 billion in 1997. Revenue in 1999 and 1998 increased 4% and 9%,
respectively. Excluding the negative impact of foreign currency translation in
1999 and 1998, revenue in those years would have risen 7% and 11%, respectively.
Revenue from international operations in 1999, 1998, and 1997 was $4.19 billion,
$4.09 billion and $3.93 billion, respectively. Revenue from U.S. operations was
$3.35 billion in 1999, $3.15 billion in 1998, and $2.73 billion in 1997.
Total gross profit percent was 35.6% in 1999, 34.1% in 1998, and 35.0% in
1997. The increase in 1999 from 1998 reflects improvements in both the services
and technology segments.
Selling, general and administrative expenses were $1.38 billion in 1999
(18.4% of revenue), $1.36 billion in 1998 (18.8% of revenue), and $1.43 billion
in 1997 (21.5% of revenue).
Research and development expenses in 1999 were $339.4 million compared to
$308.3 million in 1998 and $309.9 million in 1997.
In 1999, the company reported operating income of $960.7 million (12.7% of
revenue) compared to $799.0 million (11.0% of revenue) in 1998 and $588.8
million (8.8% of revenue) in 1997.
30
<PAGE>
Information by business segment for 1999, 1998, and 1997 is presented below:
- --------------------------------------------------------------------------------
(Millions of dollars) Total Eliminations Services Technology
- --------------------------------------------------------------------------------
1999
- ----------------
Customer revenue $7,544.6 $5,287.0 $2,257.6
Intersegment $(577.5) 65.6 511.9
----------------------------------------------------
Total revenue $7,544.6 $(577.5) $5,352.6 $2,769.5
----------------------------------------------------
Gross profit percent 35.6% 25.6% 48.1%
Operating income percent 12.7% 7.9% 20.3%
1998
- ----------------
Customer revenue $7,243.9 $4,944.8 $2,299.1
Intersegment $(511.2) 73.7 437.5
----------------------------------------------------
Total revenue $7,243.9 $(511.2) $5,018.5 $2,736.6
----------------------------------------------------
Gross profit percent 34.1% 24.4% 46.9%
Operating income percent 11.0% 6.6% 18.7%
1997
- ----------------
Customer revenue $6,662.9 $4,307.9 $2,355.0
Intersegment $(483.8) 70.0 413.8
----------------------------------------------------
Total revenue $6,662.9 $(483.8) $4,377.9 $2,768.8
----------------------------------------------------
Gross profit percent 35.0% 24.3% 46.2%
Operating income percent 8.8% 3.4% 16.0%
- --------------------------------------------------------------------------------
Gross profit percent and operating income percent are as a percent of total
revenue.
- --------------------------------------------------------------------------------
In the Services segment, customer revenue was $5.29 billion in 1999,
$4.94 billion in 1998, and $4.31 billion in 1997. Customer revenue grew 7% in
1999 led by growth in outsourcing and systems integration/industry solutions
revenue. Excluding proprietary maintenance revenue, which continues to decline
industry-wide, services revenue increased 9% in the year. Services revenue
growth in 1999 was also constrained by delays in the expected rollout of some
large networking projects and year 2000 customer spending lockdowns. Services
customer revenue grew 15% in 1998 led principally by increases in network
services, systems integration and outsourcing revenue which more than offset the
decline in proprietary maintenance revenue. Services gross profit improved to
25.6% in 1999 from 24.4% in 1998 and 24.3% in 1997. Operating profit in the
services segment improved to 7.9% in 1999 from 6.6% in 1998 and 3.4% in 1997.
The increases in both gross profit and operating profit were largely due to
productivity improvements and cost reduction programs.
31
<PAGE>
In the Technology segment, customer revenue was $2.25 billion in 1999,
$2.30 billion in 1998, and $2.35 billion in 1997. In 1999, revenue for ClearPath
enterprise servers was up slightly compared to 1998. Personal computer revenue
declined, as expected, reflecting the company's shift, in 1998, to outsourcing
the supply of notebooks, PCs, and entry-level servers. The gross profit percent
was 48.1% in 1999, 46.9% in 1998, and 46.2% in 1997. These increases were due in
large part to a richer mix of enterprise servers and enterprise server software
sales. Operating profit in this segment was 20.3% in 1999, 18.7% in 1998, and
16.0% in 1997. 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.
Interest expense declined to $127.8 million in 1999 from $171.7 million in
1998 and $233.2 million in 1997. The declines were principally due to lower
average debt levels.
Other income (expense), net, which can vary from year to year, was an
expense of $62.6 million in 1999, $33.1 million in 1998, and $64.5 million in
1997. The difference in 1999 compared to 1998 was principally due to higher
charges related to several legal matters and lower interest income. 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 several legal matters and
the early extinguishment of debt.
Income before income taxes in 1999 was $770.3 million compared to $594.2
million in 1998 and $291.1 million in 1997.
Estimated income taxes in 1999 were $247.5 million compared to $217.8
million in 1998 and $114.7 million in 1997. The 1999 tax provision included a
benefit of $22.0 million related to a new U.S. Treasury income tax regulation
pertaining to the use of net operating loss carryforwards of acquired companies.
In 1999, the Securities and Exchange Commission's staff issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on revenue recognition and 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 Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which is effective for the
year beginning January 1, 2001, 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.
32
<PAGE>
Financial condition
Cash and cash equivalents at December 31, 1999 were $464.0 million compared to
$616.4 million at December 31, 1998.
During 1999, cash provided by operations was $517.6 million compared to
$642.2 million in 1998, principally reflecting an increase in working capital.
The company's days of sales outstanding increased, reflecting in part late
year-end technology sales that were not able to be collected in December. Cash
expenditures related to prior-year restructuring actions (which are included in
operating activities) in 1999, 1998, and 1997 were $44.6 million, $118.4
million, and $178.7 million, respectively, and are expected to be approximately
$35 million in 2000 and $19 million thereafter, principally for work-force
reductions and facility costs. Personnel reductions in 1999 related to
restructuring actions were approximately 280 and are expected to be
approximately 120 thereafter, principally in 2000.
Cash used for investing activities during 1999 was $328.4 million compared
to $277.7 million for 1998. The increase was principally due to the purchase of
Datamec, a Brazilian application outsourcing company, in June of 1999.
Cash used for financing activities during 1999 was $328.4 million compared
to $569.3 million in 1998. Included in 1999 were payments of $197.0 million for
the redemption of preferred stock and $164.4 million related to the repayment of
long-term debt. Included in 1998 were payments of debt of $749.2 million,
partially offset by $195.2 million from the issuance of the company's 7 7/8%
senior notes due 2008. Dividends paid on preferred stock were $59.4 million in
1999 compared to $106.5 million in 1998.
At December 31, 1999, total debt was $1.0 billion, a decrease of $163.0
million from December 31, 1998. The decrease was principally due to the early
extinguishment, by means of open market purchases, of $115.8 million principal
amount of the company's 11 3/4% senior notes due 2004, and $25.5 million of 12%
senior notes due 2003. The decrease also reflects the March 15, 1999 conversion
into common stock of the remaining $27 million of the 8 1/4% convertible
subordinated notes due 2006, which were called during the first quarter.
Approximately 3.9 million common shares were issued for the conversion of the
8 1/4% notes. At December 31, 1999, the debt-to-capital ratio was 33.9% compared
to 43.1% at December 31, 1998.
The company may, from time to time, redeem, tender for, or repurchase its
debt securities in the open market or in privately negotiated transactions
depending upon availability, market conditions, and other factors.
During 1999, all shares of the company's Series A cumulative convertible
preferred stock were either converted into the company's common stock or
redeemed for cash in response to various calls by the company. These actions
have eliminated all $1.4 billion of Series A preferred stock (28.4 million
shares) and $106.5 million of annual dividend payments. Overall in 1999, of the
28.4 million shares of Series A preferred stock that were outstanding at the
beginning of the year, 24.5 million shares were converted into 40.8 million
shares of common stock and 3.9 million shares were redeemed for $197.0 million
in cash.
33
<PAGE>
As part of the company's ongoing program to reduce interest expense, in the
third quarter of 1999, the company entered into interest rate and currency swaps
for euros and Japanese yen. In these arrangements, the company receives payments
based on a U.S. fixed rate of interest and pays interest based on a foreign
currency denominated floating rate. The company is obligated to deliver, on
April 1, 2008, 23.2 billion yen in exchange for $200 million and is obligated to
deliver on October 15, 2004, 194.4 million euros in exchange for $200 million.
These currency swaps have been designated as hedges of the company's net
investments in entities measured in these currencies.
The company has a $400 million credit agreement that expires June 2001. As
of December 31, 1999, there were no borrowings under the agreement.
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.
On July 2, 1999, Moody's Investors Service increased its rating on the
company's senior long-term debt to Ba1 from Ba3. On August 2, 1999, Standard &
Poor's Corporation increased its rating on the company's senior long-term debt
to BB+ from BB-. On August 10, 1999, Duff & Phelps Credit Rating Co. increased
its rating on the company's senior long-term debt to BBB- from BB+.
At December 31, 1999, 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 $1,075 million of
such assets will be realized, therefore resulting in a valuation allowance of
$309 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 $417.7 million during 1999. The increase
principally reflects net income of $510.7 million, issuance of stock under stock
option and other plans of $85.6 million, $66.1 million of tax benefits related
to employee stock plans, and $26.4 million from conversion of the remaining
8 1/4% convertible notes, offset in part by the redemption of $197.0 million of
preferred stock, translation adjustments of $38.8 million, and preferred stock
dividends declared of $32.9 million.
34
<PAGE>
Market risk
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. As part of its ongoing program to reduce
interest expense, the company entered into interest rate and currency swaps for
Japanese yen and euros. See Note 10 of Notes to Consolidated Financial
Statements for components of the company's long-term debt. The company believes
that the market risk from changes in interest rates would not be material to the
fair value of these financial instruments, or the related cash flows, or future
results of operations.
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, foreign exchange
options and foreign currency swaps. The company does not hold or issue
derivatives for speculative trading purposes. See Note 13 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 applied to these
derivative financial instruments described above. As of December 31, 1999 and
1998, the analysis indicated that such market movements would have reduced the
estimated fair value of these derivative financial instruments by approximately
$70 million and $20 million, respectively. Based on changes in the timing and
amount of interest rate and foreign currency exchange rate movements and the
company's actual exposures and hedges, actual gains and losses in the future may
differ materially from the above analysis.
Year 2000 readiness disclosure
The following is a summary of actions taken by the company during the years
preceding January 1, 2000 in anticipation of the year 2000 transition and the
potential problems that computer systems and embedded technology could
experience handling dates beyond the year 1999.
As part of its development efforts, the company designed or redesigned its
current product offerings to be year 2000 ready, as defined by the company.
Certain of the company's older hardware and software products still used by
customers required upgrades or other remediation to become year 2000 ready. The
company notified customers of the year 2000 issue, provided information and
resources on the company's year 2000 web site, emphasized the importance of
customer testing of their own systems in their own unique business environments,
and offered consulting services to assist customers in assessing their year 2000
risk. No major issues with products were reported over the year 2000 transition.
The company also assessed the year 2000 readiness of its key suppliers by
inquiring about their year 2000 readiness and, whenever possible, obtaining year
2000 readiness warranties or statements as to their readiness. The company
identified alternate sources or strategies where necessary if significant
exposure was identified. No major vendor issues were reported over the year 2000
transition.
35
<PAGE>
The company's year 2000 internal systems effort involved three stages:
inventory and assessment of its hardware, software and embedded systems;
remediation or replacement of those that were not year 2000 ready; and testing
the systems. Remediation, integrated testing and replacement of both information
technology ("IT") applications and key non-IT systems were completed prior to
December 31, 1999. There were no major internal systems issues reported over the
year 2000 transition.
The company estimates that, as of December 31, 1999, the cost of
remediating/replacing its internal systems was approximately $26 million. The
company funded this effort through normal working capital. This estimate
includes remediation of key IT and non-IT systems, but 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.
Because the company experienced no major year 2000-related issues
internally or externally over the year 2000 transition, it does not currently
believe that it will incur material costs or experience material disruptions in
its business associated with the year 2000. However, there can be no assurance
that the company's or its suppliers' current product offerings do not contain
undetected errors or defects associated with year 2000 date functions. These
could give rise to increased customer satisfaction costs related to year 2000
and to litigation over year 2000 compliance issues. In addition, customer
spending patterns have been, and may continue to be, impacted by the year 2000
issue, although the company is unable to quantify the impact. Some of the
company's customers shifted technology spending from the fourth quarter of 1999
to earlier quarters of 1999 in preparation for the year 2000 transition. In
addition, the company could experience a shift in revenue to the later quarters
of 2000 as customers wrap up issues in their IT environments and begin spending
more proactively on new projects.
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 will no longer 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 successfully implement its recent
organizational realignment; on its ability to mitigate the effects of
competitive pressures and volatility in the information technology and services
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.
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. 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 55% 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.
37
<PAGE>
UNISYS CORPORATION
Consolidated Financial Statements
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 (Millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $7,544.6 $7,243.9 $6,662.9
----------------------------------
Costs and expenses
Cost of revenue 4,859.9 4,775.9 4,387.0
Selling, general and administrative expenses 1,384.6 1,360.7 1,446.6
Research and development expenses 339.4 308.3 314.8
Impairment charges 922.9
----------------------------------
6,583.9 6,444.9 7,071.3
----------------------------------
Operating income (loss) 960.7 799.0 (408.4)
Interest expense 127.8 171.7 233.2
Other income (expense), net (62.6) (33.1) (106.5)
----------------------------------
Income (loss) before income taxes 770.3 594.2 (748.1)
Estimated income taxes 247.5 217.8 104.8
----------------------------------
Income (loss) before extraordinary item 522.8 376.4 (852.9)
Extraordinary item (12.1)
----------------------------------
Net income (loss) 510.7 376.4 (852.9)
Dividends on preferred shares 36.7 106.5 111.1
----------------------------------
Earnings (loss) on common shares $ 474.0 $ 269.9 $ (964.0)
----------------------------------
Earnings (loss) per common share - basic
Before extraordinary item $ 1.69 $ 1.07 $ (5.25)
Extraordinary item (.04)
----------------------------------
Total $ 1.65 $ 1.07 $ (5.25)
----------------------------------
Earnings (loss) per common share - diluted
Before extraordinary item $ 1.63 $ 1.01 $ (5.25)
Extraordinary item (.04)
----------------------------------
Total $ 1.59 $ 1.01 $ (5.25)
- --------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
38
<PAGE>
UNISYS CORPORATION
<TABLE>
<CAPTION>
Consolidated Balance Sheet
December 31 (Millions) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 464.0 $ 616.4
Accounts and notes receivable, net 1,430.5 1,239.0
Inventories 372.9 471.0
Deferred income taxes 472.7 428.8
Other current assets 105.6 88.9
------------------------
Total 2,845.7 2,844.1
------------------------
Properties 1,723.0 1,734.6
Less-- Accumulated depreciation 1,102.2 1,149.2
------------------------
Properties, net 620.8 585.4
------------------------
Investments at equity 225.5 184.6
------------------------
Software, net of accumulated amortization 259.8 247.7
------------------------
Prepaid pension cost 975.9 833.8
------------------------
Deferred income taxes 655.6 694.4
------------------------
Other assets 306.4 223.2
------------------------
Total $ 5,889.7 $ 5,613.2
- ------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 26.9 $ 52.2
Current maturities of long-term debt 22.9 4.1
Accounts payable 1,036.7 928.5
Other accrued liabilities 1,183.1 1,308.2
Estimated income taxes 348.9 277.0
Dividends payable 26.6
------------------------
Total 2,618.5 2,596.6
------------------------
Long-term debt 950.2 1,106.7
------------------------
Other liabilities 367.7 374.3
------------------------
Stockholders' equity
Preferred stock 1,444.7
Common stock, shares issued: 1999-312.5; 1998-259.4 3.1 2.6
Accumulated deficit (1,054.4) (1,532.2)
Other capital 3,575.0 2,152.1
Accumulated other comprehensive loss (570.4) (531.6)
------------------------
Stockholders' equity 1,953.3 1,535.6
------------------------
Total $ 5,889.7 $ 5,613.2
- ------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
UNISYS CORPORATION
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 (Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Income (loss) before extraordinary item $ 522.8 $ 376.4 $ (852.9)
Add (deduct) items to reconcile income (loss) before extraordinary
item to net cash provided by operating activities:
Extraordinary item (12.1)
Depreciation 141.8 149.2 159.1
Amortization:
Marketable software 110.9 112.3 97.2
Goodwill 12.5 8.9 963.9
(Increase) in deferred income taxes, net (9.9) (26.7) (25.2)
(Increase) decrease in receivables, net (244.5) (277.3) 24.9
Decrease in inventories 98.0 94.4 80.6
(Decrease) increase in accounts payable and other accrued liabilities (81.8) 103.1 (233.2)
Increase in estimated income taxes 78.2 148.0 32.9
(Decrease) increase in other liabilities (2.2) 13.2 (85.6)
(Increase) decrease in other assets (159.2) (57.6) 106.6
Other 63.1 (1.7) 102.2
-------------------------------------------------------
Net cash provided by operating activities 517.6 642.2 370.5
-------------------------------------------------------
Cash flows from investing activities
Proceeds from investments 1,033.8 1,991.0 1,662.5
Purchases of investments (1,013.8) (2,006.5) (1,630.0)
Proceeds from sales of properties 47.9 51.1 5.1
Investment in marketable software (122.8) (100.3) (133.5)
Capital additions of properties (219.6) (209.1) (184.0)
Purchases of businesses (53.9) (3.9) (22.2)
Proceeds from marketable securities 4.8
-------------------------------------------------------
Net cash (used for) investing activities (328.4) (277.7) (297.3)
-------------------------------------------------------
Cash flows from financing activities
Redemption of preferred stock (197.0) (150.0)
Proceeds from issuance of long-term debt 30.3 197.3
Payments of long-term debt (164.4) (749.2) (.1)
Net (reduction in) proceeds from short-term borrowings (25.6) 9.6 28.4
Dividends paid on preferred shares (59.4) (106.5) (113.1)
Proceeds from employee stock plans 87.7 79.5 8.6
Costs of debt conversions (46.1)
Proceeds from issuance of preferred stock 13.1
Other 6.6
-------------------------------------------------------
Net cash (used for) financing activities (328.4) (569.3) (252.6)
-------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (13.2) (3.0) (24.9)
-------------------------------------------------------
Net cash used for continuing operations (152.4) (207.8) (204.3)
Net cash used for discontinued operations (19.1)
-------------------------------------------------------
Decrease in cash and cash equivalents (152.4) (207.8) (223.4)
Cash and cash equivalents, beginning of year 616.4 824.2 1,047.6
-------------------------------------------------------
Cash and cash equivalents, end of year $ 464.0 $ 616.4 $ 824.2
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
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, 1996 $ 1,425.2 $1.8 $ (836.1) $(16.3) $1,429.5 $(390.1)
Conversions to common stock (.1) .7 606.0
Issuance of stock under stock
option and other plans 4.0 8.6
Issuance of preferred stock 13.1
Net loss (852.9) $(852.9)
Other comprehensive income -
translation adjustments (58.0) (58.0)
-----
Comprehensive loss $(910.9)
-----
Dividends (113.1)
Unearned compensation 3.0
Tax benefit related to stock plans 1.5
Other .1 1.0
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,438.2 2.5 (1,802.1) (12.2) 2,049.6 (448.1)
Conversions to common stock (.1) .5
Conversion of shareholder notes 6.6
Issuance of stock under stock
option and other plans .1 (11.4) 90.2
Net income 376.4 $ 376.4
Other comprehensive income-
translation adjustments (83.5) (83.5)
-----
Comprehensive income $ 292.9
-----
Dividends (106.5)
Unearned compensation 4.8
Tax benefit related to stock plans 30.6
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,444.7 2.6 (1,532.2) (23.6) 2,175.7 (531.6)
Conversions to common stock (1,245.3) .4 1,271.2
Redemption of preferred stock (197.0)
Issuance of stock under stock
option and other plans .1 (17.8) 103.4
Net income 510.7 $ 510.7
Other comprehensive income-
translation adjustments (38.8) (38.8)
-----
Comprehensive income $ 471.9
-----
Dividends (32.9)
Unearned compensation
Tax benefit related to stock plans 66.1
Other (2.4)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ - $3.1 $(1,054.4) $(41.4) $3,616.4 $(570.4)
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
Outsourcing equipment is depreciated over the shorter of the asset lives or the
terms of the contract. For other classifications of properties, the principal
rates used are summarized below:
Rate per Year (%)
----------------
Buildings 2-5
Machinery and office equipment 5-25
Rental equipment 25
Advertising costs. The company expenses all advertising costs as they are
incurred. The amount charged to expense during 1999, 1998, and 1997 was $48.6,
$48.2, and $53.1 million, respectively.
Revenue recognition. Sales revenue is recorded upon shipment of product in the
case of sales contracts 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 from software licenses is recorded when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable. Revenue for post-contract software
support arrangements, which are marketed separately, is recorded over the
support period or as the contract elements are delivered.
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 incurred subsequent to establishment of technological feasibility 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 foreign currency swaps
designated as hedges of international net asset investments and 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 (expense), net.
Derivative financial instruments. The derivative financial instruments used by
the company are foreign exchange forward contracts, foreign exchange options,
foreign currency swaps and interest rate swaps. The company does not hold or
issue derivatives for speculative trading purposes.
For those financial instruments involving foreign exchange, 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 has interest rate and foreign currency swaps. In the interest
rate swaps, the company receives payments based on a U.S. fixed rate of interest
and pays interest based on a foreign currency denominated floating rate. Over
the terms of these agreements, the difference between what the company receives
and pays for the interest rate swaps is recognized in interest expense. The
company uses the foreign currency swaps in order to hedge the foreign currency
exposure of its net investments in foreign subsidiaries and equity investments.
The currency effects of the hedges are reflected in accumulated other
comprehensive income (loss), thereby offsetting a portion of the foreign
currency translation of net assets.
The company monitors its risks in derivative transactions 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 other current
assets, respectively. The cost of options is reported in income ratably over the
option term, and any gains thereon as well as any gains or losses on foreign
exchange contracts are recognized in income (either in revenue or cost
of revenue) when the transactions being hedged are recognized. 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 an expected 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.
43
<PAGE>
2 Earnings per share
The following table shows how earnings per share was computed for the three
years ended December 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
(Millions, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share computation
Income (loss) before extraordinary item $ 522.8 $ 376.4 $ (852.9)
Less dividends on preferred shares (36.7) (106.5) (111.1)
-------------------------------------------------
Income (loss) available to common stockholders before extraordinary item 486.1 269.9 (964.0)
Extraordinary item (12.1)
-------------------------------------------------
Net income (loss) available to common stockholders $ 474.0 $ 269.9 $ (964.0)
-------------------------------------------------
Weighted average shares (thousands) 287,290 253,335 183,550
-------------------------------------------------
Basic earnings per share
Before extraordinary item $ 1.69 $ 1.07 $ (5.25)
Extraordinary item (.04)
-------------------------------------------------
Total $ 1.65 $ 1.07 $ (5.25)
-------------------------------------------------
Diluted earnings per share computation
Income (loss) available to common stockholders before extraordinary item $ 486.1 $ 269.9 $ (964.0)
Plus interest expense on assumed conversion of
8 1/4% Convertible Notes due 2006, net of tax .3 1.5
-------------------------------------------------
Income (loss) available to common stockholders
plus assumed conversions before extraordinary item 486.4 271.4 (964.0)
Extraordinary item (12.1)
-------------------------------------------------
Net income (loss) available to common stockholders $ 474.3 $ 271.4 $ (964.0)
-------------------------------------------------
Weighted average shares (thousands) 287,290 253,335 183,550
Plus incremental shares from assumed conversions:
Preferred stock 877 1,350
Employee stock plans 9,835 11,164
8 1/4% Convertible Notes due 2006 818 3,994
-------------------------------------------------
Adjusted weighted average shares 298,820 269,843 183,550
-------------------------------------------------
Diluted earnings per share
Before extraordinary item $ 1.63 $ 1.01 $ (5.25)
Extraordinary item (.04)
-------------------------------------------------
Total $ 1.59 $ 1.01 $ (5.25)
-------------------------------------------------
</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.
<TABLE>
<CAPTION>
Year ended December 31 (thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee stock plans 6,680 101 22,792
Preferred stock 47,448 48,800
8 1/4% convertible notes due 2006 4,042
- ---------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
3 Acquisitions
During 1999, the company acquired the following companies: Datamec, a Brazilian
application outsourcing company; Motay Electronics, a U.S.-based company that
provides advanced automated burn-in systems and products to the semiconductor
industry; and City Lifeline Systems Limited, a U.K.-based company that provides
software and solutions for organizations trading in fixed income securities.
These companies were acquired for an aggregate purchase price of approximately
$60.0 million and were accounted for under the purchase method of accounting.
During 1999, the company also acquired the following U.S. companies:
PulsePoint Communications, a developer of carrier-class enhanced services
solutions for the communications industry; Tech Hackers, Inc., a developer of
software tools and enterprise systems for securities trading and financial
operations; and Publishing Partners International, Inc., a provider of
advertising management software and services for the publishing industry.
Approximately 2.9 million shares of the company's common stock were exchanged
for all of the outstanding shares of these companies. These acquisitions were
accounted for under the pooling of interests method of accounting and all prior
periods were restated.
4 Accounting changes
In 1999, the Securities and Exchange Commission's staff issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 provides guidance on revenue recognition and 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 Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which is effective for the
year beginning January 1, 2001, 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 5, effective December 31, 1997, the company elected to
change its method of measuring goodwill impairment.
5 One-time charges
Strategic realignments. In the fourth quarter of 1997, the company recorded a
pretax charge of $113.6 million, $103.7 million after tax, or $.56 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 of approximately 1,000 people (500 U.S.-based and 500
European-based), (b) $46.2 million for product and program discontinuances, and
(c) $2.5 million associated with facilities. A further breakdown of these costs
is as follows (in millions of dollars):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Personal Non-Strategic
Computers Technology
Cost Category Total Manufacturing Product
- ------------------------------------------------------------------------------
Work-force reductions--
Europe $ 54.5 $47.7 $ 6.8
U.S. 10.4 10.4
-------------------------------------------------
Subtotal 64.9 58.1 6.8
-------------------------------------------------
Products and Programs --
Provision for asset
write-downs 15.0 13.7 1.3
Associated goodwill 33.7 18.3 15.4
Cumulative translation
adjustments (2.5) (2.5)
-------------------------------------------------
Subtotal 46.2 32.0 14.2
-------------------------------------------------
Facilities (representing
provision for idle
lease costs) 2.5 2.5
-------------------------------------------------
Total charge $113.6 $90.1 $23.5
- --------------------------------------------------------------------------------
45
<PAGE>
Activity related to these 1997 restructuring actions during the years ended
December 31, 1999, 1998 and 1997, was as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Work-Force
(Millions) Total Reductions(1) Products Facilities
- ------------------------------------------------------------------------------
Total charge $113.6 $ 64.9 $ 46.2 $ 2.5
Immediate
asset
write-downs (31.2) (31.2)
---------------------------------------------------------
Balance at
Dec. 31, 1997 82.4 64.9 15.0 2.5
Utilized (40.0) (32.0) (8.0)
Other(2) (20.8) (18.3) (2.5)
---------------------------------------------------------
Balance at
Dec. 31, 1998 21.6 14.6 7.0 -
Utilized (12.1) (7.3) (2.9) (1.9)
0ther(2) .5 (1.0) (.7) 2.2
---------------------------------------------------------
Balance at
Dec. 31, 1999 $ 10.0 $ 6.3 $ 3.4 $ .3
---------------------------------------------------------
Expected future
utilization
2000 $ 6.4 $ 3.6 $ 2.8
2001 and
thereafter 3.6 2.7 .6 $ .3
- ------------------------------------------------------------------------------
(1) Includes severance, notice pay, medical, and other benefits.
(2) Includes changes in estimates, reversals of excess reserves, translation
adjustments, and additional provisions.
- --------------------------------------------------------------------------------
In 1998, there was a reduction in accrued work-force provisions,
principally for the reversal of unneeded reserves due to approximately 150
voluntary terminations, and the favorable results of negotiations on termination
indemnities relating principally to PC manufacturing personnel. In addition, as
a result of the sale of the non-strategic technology product operations in 1998
on more favorable terms than originally anticipated, the company reversed $6.0
million of unneeded accruals, principally for termination indemnities for
approximately 130 people.
Cash expenditures in 1999 and 1998 relating to the above restructuring
actions were $8.9 million and $32.6 million, respectively. Employee levels were
reduced in 1999 and 1998 by 59 and 600 people, respectively, through termination
actions, and, in addition, approximately 20 positions will be terminated in 2000
as certain support operations are phased out in completion of the original plan
to discontinue PC manufacturing. The $6.3 million balance of the reserve at
December 31, 1999 for work-force reductions represents amounts of termination
indemnities expected to be paid for these actions.
Other restructuring actions
The amounts below relate principally to restructuring actions taken in 1995. In
October 1995, the company announced that it would realign internally into three
business units -- information services, support services, and computer
systems -- each with its own marketing and sales organization. In the fourth
quarter of 1995, in connection with this realignment, the company recorded a
restructuring charge of $717.6 million. The charge initially covered (a) $436.6
million for work-force reductions of approximately 7,900 people including
severance, notice pay, medical, and other benefits, (b) $218.6 million for
consolidation of office facilities and manufacturing capacity, and (c) $62.4
million for costs associated with product and program discontinuances. Activity
during the years ended December 31, 1999, 1998 and 1997 in the reserves related
to these restructuring actions was as follows:
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Work-Force
(Millions) Total Reductions(1) Facilities(2) Products
- ------------------------------------------------------------------------------
Balance at
Dec. 31, 1996 $ 433.9 $ 207.5 $192.3 $ 34.1
Utilized (253.0) (140.9) (76.5) (35.6)
Other(3) (9.7) (1.0) (15.1) 6.4
----------------------------------------------------------
Balance at
Dec. 31, 1997 171.2 65.6 100.7 4.9
Utilized (87.3) (48.0) (36.0) (3.3)
Other(3) 2.0 10.8 (8.3) (.5)
----------------------------------------------------------
Balance at
Dec. 31, 1998 85.9 28.4 56.4 1.1
Utilized (36.7) (15.8) (20.4) (.5)
Other(3) (2.0) 3.6 (5.6)
----------------------------------------------------------
Balance at
Dec. 31, 1999 $ 47.2 $ 16.2 $ 30.4 $ .6
----------------------------------------------------------
Expected future
utilization:
2000 $ 29.8 $ 15.0 $ 14.2 $ .6
2001 and
thereafter 17.4 1.2 16.2 -
- ------------------------------------------------------------------------------
(1) Includes severance, notice pay, medical, and other benefits.
(2) Includes consolidation of office facilities and manufacturing capacity.
(3) Includes changes in estimates, reversals of excess reserves, translation
adjustments, and additional provisions.
- --------------------------------------------------------------------------------
Cash expenditures associated with these restructuring actions in 1999, 1998
and 1997 were $35.7 million, $85.8 million and $178.7 million, respectively.
Personnel reductions related to these restructuring actions during 1999, 1998
and 1997 were approximately 225, 300 and 2,600, respectively. The $16.2 million
balance of the reserve at December 31, 1999 for work-force reductions represents
the remaining balance of $12.2 million of extended payment severance packages
for terminated employees and an accrual of $4.0 million for planned work-force
reductions of approximately 100 people, which were identified in 1998 and late
1997 and which are expected to be completed by early 2001. The $30.4 million
1999 ending reserve balance for facility consolidations represents contractual
obligations (reduced by sub-lease income) existing under long-term leases of
vacated facilities.
Other charges. Effective December 31, 1997, the company elected to change its
method of measuring goodwill impairment, which is reported as a change in
accounting principle that is inseparable from a change in estimate. 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. If the estimate of the
future discounted cash flows, net of the carrying amount of tangible net assets,
is less than the carrying amount of goodwill, the difference would be charged to
operations. 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, considering the company's circumstances, particularly the rapid
changes that continue to occur in the marketplace away from the proprietary
technology and maintenance businesses, and the continuing declines in revenue
and margins in these businesses.
In the fourth quarter of 1997, the company recorded a charge of $883.6
million, or $4.81 per diluted common share, principally for the writeoff of
goodwill related to the 1986 acquisition of Sperry Corporation. Yearly
amortization of such goodwill was approximately $36 million.
In connection with a strategic operations review in the fourth quarter of
1997, indicators of a potential impairment were identified, and the company
concluded that it should test the remaining Sperry goodwill for recoverability.
The most significant impairment indicator was an expected decline in Sperry-
related revenue. The majority of Sperry-related revenue results from hardware
and associated operating systems software. Since the acquisition of Sperry in
1986, experience has seen a shift from centralized processing to desktop
computing with customer demand for open architectures. This shift in market
demand led
47
<PAGE>
to industry-wide erosions in demand for mainframe systems and continued
competitive pricing pressure. Another significant aspect to the decline in
Sperry-related revenue is the continuing industry-wide erosion of proprietary
maintenance revenue and margin streams. The company prepared an estimate of
projected cash flows relating to the remaining Sperry businesses. The sum of
these expected future undiscounted cash flows were less than the carrying amount
of the remaining Sperry goodwill, which indicated the existence of an impairment
loss. In preparing the cash flow analysis used by the company to measure
goodwill impairment for Sperry, the following major assumptions were used: (1)
the company's one year detail plan and its three-year strategic plan were used
as a basis to project future results. (2) a risk-based rate of 17.3% was used to
discount future cash flows, (3) a 6% compounded annual decline in Sperry-related
revenue, (4) a continuation of declining gross profit margins, (5) expense
levels were based on a percent of revenue, consistent with historical
experience, and (6) a 40% effective income tax rate. The projections of Sperry-
related cash flows were based on management's best estimate of future results.
Actual results could differ materially from those estimates.
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, $57.1 million; selling,
general and administrative expenses, $12.3 million; research and development
expenses, $4.9 million; impairment charges, $922.9 million; and other income
(expense), net, $42.0 million.
6 Accounts receivable and inventories
Accounts and notes receivable, net include unbilled accounts receivable, for
which revenue has been recorded under the percentage of completion method, at
December 31, 1999 and 1998 of $217.8 million and $184.8 million, respectively.
Inventories comprise the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- -----------------------------------------------------------------------
Parts and finished equipment $236.8 $264.1
Work in process and materials 136.1 206.9
----------------------
Total inventories $372.9 $471.0
- -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1999 and 1998, work in process inventories included $33.3
and $85.9 million, respectively, of costs related to long-term contracts.
7 Estimated income taxes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year ended December 31 (Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
Income (loss) before income taxes
United States $485.4 $ 397.8 $(960.4)
Foreign 284.9 196.4 212.3
-------------------------------------
Total income (loss) before
income taxes $770.3 $ 594.2 $(748.1)
- ------------------------------------------------------------------------------
Estimated income taxes (benefit)
Current
United States $ 22.3 $ 26.7 $ 28.0
Foreign 112.1 51.8 69.0
State and local 10.5 23.3 23.1
-------------------------------------
Total 144.9 101.8 120.1
-------------------------------------
Deferred
United States 75.7 115.2 (21.9)
Foreign 24.4 .7 6.8
State and local 2.5 .1 (.2)
-------------------------------------
Total 102.6 116.0 (15.3)
-------------------------------------
Total estimated income taxes $247.5 $ 217.8 $ 104.8
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
48
<PAGE>
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) 1999 1998 1997
- ----------------------------------------------------------------------------
United States statutory income
tax (benefit) $269.6 $208.0 $(261.8)
Difference in estimated income
taxes on foreign earnings, losses,
and remittances 3.8 (46.1) (35.7)
State taxes 9.3 15.1 14.8
Tax refund claims, audit issues,
and other matters (18.0) 31.2 42.7
Amortization of goodwill 2.3 1.8 335.1
U.S. tax law change (22.0)
Other 2.5 7.8 9.7
-------------------------------
Estimated income taxes $247.5 $217.8 $ 104.8
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and liabilities at December 31,
1999 and 1998, were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- ----------------------------------------------------------------
Deferred tax assets
Capitalized research and
development $ 596.1 $ 591.6
Tax loss carryforwards 254.2 282.9
Foreign tax credit carryforwards 114.4 232.3
Other tax credit carryforwards 243.3 140.7
Prepayments 138.5 109.7
Postretirement benefits 82.4 91.0
Employee benefits 88.5 64.2
Depreciation 46.3 60.8
Restructuring 38.2 50.7
Other 281.7 239.0
---------------------
1,883.6 1,862.9
Valuation allowance (308.7) (354.5)
---------------------
Total deferred tax assets $1,574.9 $1,508.4
=====================
Deferred tax liabilities
Pensions $ 424.1 $ 337.3
Other 75.3 110.0
---------------------
Total deferred tax liabilities $ 499.4 $ 447.3
---------------------
Net deferred tax asset $1,075.5 $1,061.1
- ----------------------------------------------------------------
- --------------------------------------------------------------------------------
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 1999, the net decrease in the valuation
allowance was $45.8 million. Included in this decrease was a one-time tax
benefit of $22.0 million, or $.07 per diluted common share, related to a new
U.S. Treasury income tax regulation pertaining to the use of net operating loss
carryforwards of acquired companies.
Cumulative undistributed earnings of foreign subsidiaries, for which no
U.S. income or foreign withholding taxes have been recorded, approximated $790.0
million at December 31, 1999. 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 1999, 1998, and 1997 for income taxes was $96.6, $92.7,
and $80.0 million, respectively.
At December 31, 1999, the company has U.S. federal and state and local tax
loss carryforwards and foreign tax loss carryforwards for certain foreign
subsidiaries, the tax effect of which is approximately $254.2 million. These
carryforwards will expire as follows (in millions): 2000, $8.6; 2001, $7.4;
2002, $7.5; 2003, $12.1; 2004, $10.4; and $208.2 thereafter. The company also
has available tax credit carryforwards of approximately $357.7 million, which
will expire as follows (in millions): 2000, $9.0; 2001, $62.0; 2002, $56.6;
2003, $7.2; 2004, $7.5; and $215.4 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
49
<PAGE>
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,
1982, through September 16, 1986. In management's opinion, adequate provisions
for income taxes have been made for all years.
8 Properties
Properties comprise the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- -------------------------------------------------------------------
Land $ 8.4 $ 10.3
Buildings 164.4 166.4
Machinery and office equipment 1,323.0 1,261.1
Rental and outsourcing
equipment 227.2 296.8
--------------------------
Total properties $1,723.0 $1,734.6
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 Investments at equity
Substantially all of the company's investments at equity consist of Nihon
Unisys, Ltd., a Japanese company ("NUL"). At December 31, 1999, the company
owned approximately 28.6% of NUL's common stock that has a fair market value of
approximately $1.1 billion. The company has approximately $157 million of
retained earnings that represents undistributed earnings of NUL.
10 Long-term debt
Long-term debt comprises the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- --------------------------------------------------------------------------------
12% senior notes due 2003 $399.5 $ 425.0
11 3/4% senior notes due 2004* 334.2 450.0
7 7/8% senior notes due 2008* 200.0 200.0
8 1/4% convertible subordinated
notes 27.0
Other, net of unamortized
discounts 39.4 8.8
------------------------
Total 973.1 1,110.8
Less -- Current maturities 22.9 4.1
------------------------
Total long-term debt $950.2 $1,106.7
- -------------------------------------------------------------------
*See interest rate swap discussion below.
Total long-term debt maturities in 2000, 2001, 2002, 2003, and 2004 are
$22.9, $17.9, $.3, $399.7, and $334.4 million, respectively.
Cash paid during 1999, 1998, and 1997 for interest was $141.5, $185.6, and
$253.1 million, respectively.
As discussed in Note 13, the company entered into interest rate swaps that
convert the interest rate on the company's $200 million 7 7/8% senior notes due
2008 and $200 million of its 11 3/4% senior notes due 2004 to a U.S. floating
rate. Under foreign currency swaps, the effective interest rate on these
principal balances is Japanese libor plus .40% (.59% at December 31, 1999) and
euro libor plus 4.71% (8.05% at December 31, 1999), respectively.
In March 1999, the remaining outstanding balance of $27 million of the
8 1/4% convertible subordinated notes due 2006 were converted into 3.9 million
shares of the company's common stock.
During 1999, the company repurchased $115.8 million principal amount of its
11 3/4% senior notes due 2004 and $25.5 million principal amount of its 12%
senior notes due 2003 at a cost of $157.4 million. As a result, the company
recorded an extraordinary charge of $12.1 million, net of $6.5 million of income
tax benefits, or $.04 per diluted common share.
The company has a $400 million credit agreement expiring June 2001. As of
December 31, 1999, there were no borrowings outstanding under the facility
50
<PAGE>
and the entire $400 million was available for borrowings. The company pays
commitment fees on the total amount of the facility. In addition, the company
has access to certain uncommitted lines of credit from U.S. banks and
international subsidiaries maintain short-term credit arrangements with banks in
accordance with local customary practice.
11 Other accrued liabilities
Other accrued liabilities (current) comprise the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- ------------------------------------------------------------------------------
Payrolls and commissions $ 360.9 $ 334.3
Customers' deposits and
prepayments 522.0 629.5
Taxes other than income taxes 113.5 133.0
Restructuring * 36.2 70.7
Other 150.5 140.7
------------------------
Total other accrued liabilities $1,183.1 $1,308.2
- ------------------------------------------------------------------------------
* At December 31, 1999 and 1998, an additional $21.0 million and $36.8 million,
respectively, was reported in other liabilities (long term) on the
consolidated balance sheet.
- --------------------------------------------------------------------------------
12 Leases
Rental expense, less income from subleases, for 1999, 1998, and 1997 was $139.0,
$147.4, and $155.3 million, respectively.
Minimum net rental commitments under noncancelable operating leases
outstanding at December 31, 1999, substantially all of which relate to real
properties, were as follows: 2000, $134.8 million; 2001, $112.1 million; 2002,
$86.7 million; 2003, $64.3 million; 2004, $49.4 million; and thereafter, $304.7
million. Such rental commitments have been reduced by minimum sublease rentals
of $84.7 million due in the future under noncancelable subleases.
13 Financial instruments
The company uses derivative financial instruments to manage its exposure to
market risks from changes in foreign currency exchange and interest rates. The
derivative instruments used are foreign exchange forward contracts, foreign
exchange options, interest rate swaps and foreign currency swaps.
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 royalty income
and cost exposures.
The cost of foreign currency options is recorded in other current assets in
the consolidated balance sheet. At December 31, 1999, such amount was $3.5
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 is reported in
income ratably over the option term, and any gains thereon are reported in
income when the related transactions being hedged (generally within 12 months)
are recognized.
The company also enters into foreign exchange forward contracts. Gains and
losses on such contracts are deferred and included in current liabilities until
the corresponding transaction is recognized. At December 31, 1999, the company
had a total of $264.7 million (of notional value) of such contracts, $237.0
million to sell foreign currencies, and $27.7 million to buy foreign currencies.
At December 31, 1998, the company had a total of $192.3 million (of notional
value) of foreign exchange forward contracts, $181.9 million to sell foreign
currencies, and $10.4 million to buy foreign currencies. At December 31, 1999, a
realized net loss on such contracts of approximately $5.6 million was deferred
and included in current liabilities. Gains or losses
51
<PAGE>
on foreign exchange forward contracts are reported in income when the related
transactions being hedged (principally within three months) are recognized.
In 1999, the company entered into interest rate and currency swaps for
Japanese yen and euros. In the currency swaps, the company is obligated to
deliver on April 1, 2008, 23.2 billion yen in exchange for $200 million and is
obligated to deliver on October 15, 2004, 194.4 million euros in exchange for
$200 million. At December 31, 1999, the company had a payable of $22.5 million
included in other liabilities (long term) related to these currency swaps. Over
the terms of these swaps, the company receives payments based on a U.S. fixed
rate of interest and pays interest based on a foreign currency denominated
floating rate. The difference between what the company receives and pays for the
interest rate swaps is recognized over the life of the agreements in interest
expense. The company has designated the currency swaps as hedges of the foreign
currency exposure on its net investments in foreign subsidiaries and equity
investments. The currency effects of these hedges are reflected in accumulated
other comprehensive income (loss) thereby offsetting a portion of the foreign
currency translation of net assets.
Financial instruments comprise the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- ----------------------------------------------------------------------------
Outstanding:
Long-term debt $ 973.1 $1,110.8
Foreign exchange forward contracts* 264.7 192.3
Foreign exchange options* 288.2 262.2
Interest rate swaps* 400.0 --
Foreign currency swaps * 400.0 --
-----------------------
Estimated fair value:
Long-term debt $1,021.2 $1,352.0
Foreign exchange forward contracts (1.9) (1.5)
Foreign exchange options 8.4 2.8
Interest rate swaps 3.4 --
Foreign currency swaps (27.2) --
- ----------------------------------------------------------------------------
*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, 1999, 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 1999 and 1998, as well as
unrealized gains or losses at December 31, 1999, were immaterial. Receivables
are due from a large number of customers that are dispersed worldwide across
many industries. At December 31, 1999 and 1998, 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.
14 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.
52
<PAGE>
15 Segment information
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 industry 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, except for warranty
obligations related to company-manufactured PCs in the Technology business
segment. For segment reporting purposes, prior to 1998, such costs are accounted
for on a cash basis, whereas on a total company basis, such costs are accounted
for on an accrual basis. In 1998, the company outsourced the manufacture of such
products and any warranty costs related to company-manufactured PCs are
considered corporate costs. The effect of the difference between the cash and
accrual basis in 1997 was immaterial. 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, 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 $865, $917, and $791 million in 1999, 1998, and 1997,
respectively.
A summary of the company's operations by business segment for 1999, 1998,
and 1997 is presented below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Millions of dollars) Total Corporate Services Technology
- --------------------------------------------------------------------------------
1999
- ------
Customer revenue $7,544.6 $ 5,287.0 $ 2,257.6
Intersegment $ (577.5) 65.6 511.9
--------------------------------------------------
Total revenue $7,544.6 $ (577.5) $ 5,352.6 $ 2,769.5
--------------------------------------------------
Operating income
(loss) $ 960.7 $ (23.6) $ 421.0 $ 563.3
Depreciation and
amortization 265.2 115.1 150.1
Total assets 5,889.7 2,754.9 1,991.8 1,143.0
Investments at
equity 225.5 1.8 223.7
Capital expenditures
for properties 219.6 59.9 97.8 61.9
1998
- ------
Customer revenue $7,243.9 $ 4,944.8 $ 2,299.1
Intersegment $ (511.2) 73.7 437.5
--------------------------------------------------
Total revenue $7,243.9 $ (511.2) $ 5,018.5 $ 2,736.6
--------------------------------------------------
Operating income
(loss) $ 799.0 $ (45.3) $ 332.3 $ 512.0
Depreciation and
amortization 270.4 88.1 182.3
Total assets 5,613.2 2,717.8 1,837.6 1,057.8
Investments at
equity 184.6 2.1 182.5
Capital expenditures
for properties 209.1 44.2 86.5 78.4
1997
- ------
Customer revenue $6,662.9 $ 4,307.9 $ 2,355.0
Intersegment $ (483.8) 70.0 413.8
--------------------------------------------------
Total revenue $6,662.9 $ (483.8) $ 4,377.9 $ 2,768.8
--------------------------------------------------
Operating income
(loss) $ (408.4) $(1,001.1) $ 148.6 $ 444.1
Depreciation and
amortization 1,220.2 952.2 90.1 177.9
Total assets 5,631.6 2,791.0 1,573.7 1,266.9
Investments at
equity 215.7 9.9 205.8
Capital expenditures
for properties 184.0 81.8 102.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
53
<PAGE>
Presented below is a reconciliation of total business segment operating
income to consolidated income (loss) before income taxes:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year ended December 31
(Millions) 1999 1998 1997
- ---------------------------------------------------------------------------
Total segment operating
income $ 984.3 $ 844.3 $ 592.7
Interest expense (127.8) (171.7) (233.2)
Other income (expense), net (62.6) (33.1) (106.5)
Impairment charges (922.9)
Other special charges (74.3)
Corporate and eliminations (23.6) (45.3) (3.9)
-------------------------------------
Total income (loss) before
income taxes $ 770.3 $ 594.2 $(748.1)
- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Presented below is a reconciliation of total business segment assets to
consolidated assets:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998 1997
- ---------------------------------------------------------------------------
Total segment assets $3,134.8 $2,895.4 $2,840.6
Cash and cash equivalents 464.0 616.4 824.2
Prepaid pension assets 975.9 833.8 762.4
Deferred income taxes 1,128.3 1,123.2 1,127.1
Elimination for sale of
receivables (30.7) (28.4) (125.9)
Other corporate assets 217.4 172.8 203.2
-------------------------------------
Total assets $5,889.7 $5,613.2 $5,631.6
- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Geographic information about the company's revenue, which is principally
based on location of the selling organization, and properties, is presented
below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Millions) 1999 1998 1997
- ---------------------------------------------------------------------------
Revenue
United States $3,357.9 $3,154.3 $2,732.4
Foreign 4,186.7 4,089.6 3,930.5
-------------------------------------
Total $7,544.6 $7,243.9 $6,662.9
-------------------------------------
Properties, net
United States $ 367.2 $ 322.3 $ 312.7
United Kingdom 64.2 56.2 53.5
Brazil 38.8 61.9 67.9
Other foreign 150.6 145.0 152.4
-------------------------------------
Total $ 620.8 $ 585.4 $ 586.5
- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16 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 years ended December 31, 1999, 1998, and 1997, $2.5, $6.0, and $6.4
million was charged to income, respectively.
54
<PAGE>
Effective July 1, 1998, the company implemented a world-wide Employee Stock
Purchase Plan ("ESPP"), which enables substantially all regular employees to
purchase 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
years ended December 31, 1999 and 1998, employees purchased shares, all of which
were newly issued shares, for which $35.1 million and $5.6 million was paid to
the company, respectively.
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. Effective January 1, 2000 such company match was
increased to 2%. 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, for the years ended December 31, 1999 and 1998 was $8.2 million
and $4.1 million, respectively.
The company applies APB Opinion 25 for its stock plans and the
disclosure-only option under SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense is 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 1999, 1998, and 1997, respectively: risk-free interest rates of
5.14%, 5.67%, and 6.59%, 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, 1999, 1998, and
1997, respectively, follows: 1999, $472.2 million, or income of $1.46 per
diluted share; 1998, $361.6 million, or income of $.95 per diluted share; and
1997, $(858.1) million, or a loss of $5.28 per share.
55
<PAGE>
A summary of the status of stock option activity follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
(Shares in thousands) 1999 1998 1997
- ----------------------------------------------------------- ---------------------------- ----------------------------
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 18,252 $13.28 20,439 $ 9.90 18,332 $10.32
Granted 6,981 30.54 5,492 23.14 5,327 7.79
Exercised (4,649) 11.28 (6,842) 10.76 (944) 8.45
Forfeited and expired (1,426) 17.05 (837) 14.05 (2,276) 9.60
--------------------------- ---------------------------- ----------------------------
Outstanding at end of year 19,158 19.74 18,252 13.28 20,439 9.90
--------------------------- ---------------------------- ----------------------------
Exercisable at end of year 6,138 11.39 7,547 10.50 11,297 11.42
--------------------------- ---------------------------- ----------------------------
Shares available for granting
options at end of year 2,601 4,592 4,058
--------------------------- ---------------------------- ----------------------------
Weighted average fair value
of options granted during
the year $15.95 $12.79 $ 4.38
<CAPTION>
December 31, 1999
(Shares in thousands) Outstanding Exercisable
--------------------------------------------------------------------------- ---------------------------------
Exercise Average Average Average
Price Range Shares Life * Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$4-11 5,492 6.25 $ 6.95 3,332 $ 7.37
$11-30 6,986 7.31 19.12 2,718 15.39
$30-82 6,680 9.31 30.90 88 40.18
----------------------------------------------------- ---------------------------------
Total 19,158 7.70 19.74 6,138 11.39
- -------------------------------------------------------------------------------------------------------------------------
*Average contractual remaining life in years
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
Retirement benefits
Retirement plans funded status and amounts recognized in the company's
consolidated balance sheet at December 31, 1999 and 1998, follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Plans International Plans
------------------------ ---------------------
December 31 (Millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $3,684.1 $3,543.7 $811.7 $685.4
Service cost 39.3 35.7 18.0 15.3
Interest cost 251.3 248.3 51.5 45.8
Plan participants' contributions 10.2 9.7
Plan amendments .6 3.0
Actuarial (gain) loss (234.5) 105.8 16.3 76.5
Benefits paid (249.1) (250.0) (35.9) (34.5)
Effect of settlements/curtailments 1.1
Foreign currency translation adjustments (66.9) 10.5
Other 38.2
------------------------------------------------------------------
Benefit obligation at end of year $3,491.1 $3,684.1 $844.2 $811.7
- ---------------------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $4,459.1 $4,107.1 $877.9 $789.3
Actual return on plan assets 831.0 597.2 113.8 86.6
Employer contribution 4.5 4.8 15.3 13.9
Plan participants' contributions 10.2 9.7
Benefits paid (249.1) (250.0) (35.9) (34.5)
Foreign currency translation adjustments (73.2) 10.6
Other 51.2 2.3
------------------------------------------------------------------
Fair value of plan assets at end of year $5,045.5 $4,459.1 $959.3 $877.9
- ---------------------------------------------------------------------------------------------------------------------------------
Funded status $1,554.4 $ 775.0 $115.1 $ 66.2
Unrecognized net actuarial (gain) loss (660.0) 13.1 (34.4) (17.8)
Unrecognized prior service (benefit) cost (20.0) (28.0) 7.6 9.1
Unrecognized net obligation at date of adoption .8 1.5 .7 1.0
------------------------------------------------------------------
Prepaid pension cost $ 875.2 $ 761.6 $ 89.0 $ 58.5
- ---------------------------------------------------------------------------------------------------------------------------------
Amounts recognized in the statement of
financial position consist of:
Prepaid pension cost $ 875.2 $ 761.6 $100.7 $ 72.2
Other liabilities (11.7) (13.7)
------------------------------------------------------------------
$ 875.2 $ 761.6 $ 89.0 $ 58.5
- ---------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</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): $187.2 million, $178.1
million, and $108.2 million at December 31, 1999; and $92.0 million, $86.2
million, and $13.3 million at December 31, 1998.
57
<PAGE>
Net periodic pension costs for 1999, 1998, and 1997 includes the following
components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Plans International Plans
------------------------------------ ------------------------------------
Year ended December 31 (Millions) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 39.3 $ 35.7 $ 33.4 $ 18.0 $ 15.3 $ 14.2
Interest cost 251.3 248.3 247.3 51.5 45.8 42.8
Expected return on plan assets (395.4) (356.5) (332.6) (67.4) (56.8) (53.7)
Amortization of prior service (benefit) cost (6.3) (6.6) (7.3) 1.0 .8 .7
Amortization of asset or liability at adoption .7 .7 .7 .1 .1
Recognized net actuarial loss (gain) 1.4 23.7 23.6 2.8 (.1) (1.8)
Settlement/curtailment (gain) loss (.4) (2.8) 1.1 .4
------------------------------------------------------------------------------
Net periodic pension (income) cost $(109.0) $ (55.1) $ (37.7) $ 7.1 $ 5.0 $ 2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-average assumptions as of December 31
were as follows:
Discount rate 7.75% 7.00% 7.25% 6.35% 6.36% 6.77%
Rate of compensation increase 5.40% 5.40% 5.40% 3.81% 4.07% 3.74%
Expected long-term rate of return on assets 10.00% 10.00% 10.00% 8.44% 8.23% 8.25%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1999 and
1998, follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 (Millions) 1999 1998
- ----------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 225.8 $ 227.4
Interest cost 14.9 15.5
Plan participants' contributions 23.8 24.6
Actuarial loss (gain) 1.5 (2.1)
Benefits paid (43.1) (39.6)
Effect of settlement/curtailment (5.5)
------------------------
Benefit obligation at end of year $ 217.4 $ 225.8
------------------------
Change in plan assets
Fair value of plan assets at beginning
of year $ 13.3 $ 15.4
Actual return on plan assets (.1) 1.0
Employer contributions 19.5 11.9
Plan participants' contributions 23.8 24.6
Benefits paid (43.1) (39.6)
------------------------
Fair value of plan assets at end of year $ 13.4 $ 13.3
------------------------
Funded status $(204.0) $(212.5)
Unrecognized net actuarial loss 12.1 16.8
Unrecognized prior service benefit (13.6) (22.9)
------------------------
Accrued benefit cost $(205.5) $(218.6)
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost for 1999, 1998, and 1997 follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year ended December 31 (Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
Interest cost $14.9 $15.5 $16.3
Expected return on plan assets (.4) (1.1) (1.8)
Amortization of prior
service benefit (2.2) (2.7) (2.7)
Recognized net actuarial loss .6 .6 1.2
Settlement/curtailment gain (6.5)
-------------------------------
Net periodic benefit cost $ 6.4 $12.3 $13.0
-------------------------------
Weighted-average assumptions
as of December 31 were as follows:
Discount rate 7.50% 7.20% 7.30%
Expected return on plan assets 8.00% 8.00% 8.00%
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
58
<PAGE>
The assumed health care cost trend rate used in measuring the expected cost
of benefits covered by the plan was 8.4% 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, 1999, by $8.4 million and
$(7.6) million, respectively, and increase (decrease) the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for 1999 by $.7 million and $(.6) million, respectively.
17 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.
During the year ended December 31, 1999, the company made several calls of
its Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock")
for redemption. As a result, of the 28.4 million shares of Series A Preferred
Stock outstanding at December 31, 1998, 24.5 million were converted into 40.8
million shares of the company's common stock and 3.9 million shares of Series A
Preferred Stock were redeemed for $197.0 million in cash.
In March 1999, the remaining balance of $27 million of 8 1/4% convertible
subordinated notes due 2006 were converted into 3.9 million shares of the
company's common 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, 1999, 27.0 million shares of unissued common stock of the
company were reserved for stock options and for stock purchase and savings
plans.
Changes in issued shares during the three years ended December 31, 1999,
were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Common Treasury
(Thousands) Stock Stock Stock
- ------------------------------------------------------------------------------
Balance at December 31, 1996 28,831 177,271 (899)
Conversions to common stock (2) 73,150
Issuance of stock under stock
option and other plans 1,259 160
Other (29) 84
-----------------------------------
Balance at December 31, 1997 28,800 251,764 (739)
Conversions to common stock (2) 110
Issuance of stock under stock
option and other plans 143 7,573 (553)
-----------------------------------
Balance at December 31, 1998 28,941 259,447 (1,292)
Conversions to common stock (24,952) 46,090
Redemptions (3,941)
Issuance of stock under stock
option and other plans 6,916 (578)
Other (48)
-----------------------------------
Balance at December 31, 1999 -- 312,453 (1,870)
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Comprehensive income for the three years ended December 31, 1999, includes
the following components:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year ended
December 31 (Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
Net income (loss) $510.7 $376.4 $(852.9)
----------------------------------
Other comprehensive
income (loss)
Foreign currency translation
adjustments* (41.6) (89.6) (40.4)
Related tax (benefit) expense (2.8) (6.1) 17.6
----------------------------------
Total other comprehensive
income (loss) (38.8) (83.5) (58.0)
----------------------------------
Comprehensive income (loss) $471.9 $292.9 $(910.9)
- ------------------------------------------------------------------------------
*Net of income (loss) on translation adjustments reclassified to income upon
sale or writeoff of ownership interest in foreign investments as follows: 1999,
$.2 million; 1998, $(.1) million; and 1997, $2.8 million.
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As described in Note 5 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 18, 2000
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
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
- -------------------------------------
Revenue $1,822.8 $1,896.5 $1,865.4 $1,959.9 $7,544.6
Gross profit 668.6 664.1 670.2 681.8 2,684.7
Income before income taxes 169.7 182.5 196.1 222.0 770.3
Income before extraordinary item 109.9 118.0 150.5 144.4 522.8
Net income 109.9 118.0 138.4 144.4 510.7
Dividends on preferred shares 22.8 12.0 1.9 36.7
Earnings on common shares 87.1 106.0 136.5 144.4 474.0
Earnings per common share -- basic
Before extraordinary item .33 .39 .49 .47 1.69
Extraordinary item (.04) (.04)
--------------------------------------------------------------------------
Total .33 .39 .45 .47 1.65
--------------------------------------------------------------------------
Earnings per common share -- diluted
Before extraordinary item .31 .37 .47 .46 1.63
Extraordinary item (.04) (.04)
--------------------------------------------------------------------------
Total .31 .37 .43 .46 1.59
--------------------------------------------------------------------------
Market price per common share -- high 36 1/2 39 15/16 49 11/16 47 7/16 49 11/16
-- low 27 5/8 27 3/8 37 1/16 20 15/16 20 15/16
- ------------------------------------------------------------------------------------------------------------------------------
1998
- -------------------------------------
Revenue $1,656.1 $1,737.2 $1,792.3 $2,058.3 $7,243.9
Gross profit 563.0 586.8 605.9 712.3 2,468.0
Income before income taxes 95.2 137.8 147.6 213.6 594.2
Net income 59.9 87.0 93.8 135.7 376.4
Dividends on preferred shares 26.7 26.6 26.6 26.6 106.5
Earnings on common shares 33.2 60.4 67.2 109.1 269.9
Earnings per common share -- basic .13 .24 .26 .43 1.07
-- diluted .13 .23 .25 .40 1.01
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
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1999, the company completed three acquisitions that were
accounted for as poolings of interests and all prior periods were restated. See
Note 3 of the Notes to Consolidated Financial Statements.
Included in the third quarter of 1999, the company recognized a one-time tax
benefit of $22.0 million, or $.07 per diluted common share. See Note 7 to 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>
Nine-year summary of selected financial data(1)
<TABLE>
<CAPTION>
(Millions, except per share data) 1999 1998 1997(2) 1996 1995(2) 1994(2) 1993 1992 1991(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of operations
Revenue $7,544.6 $7,243.9 $6,662.9 $6,397.9 $6,370.3 $6,130.6 $6,133.0 $6,750.9 $ 6,943.0
Operating income (loss) 960.7 799.0 (408.4) 313.1 (568.4) 273.8 692.7 690.2 (612.7)
Income (loss) from continuing
operations before income taxes 770.3 594.2 (748.1) 80.2 (786.0) 17.4 365.2 304.6 (1,422.2)
Income (loss) from continuing
operations before extraordinary
items and changes in accounting
principles 522.8 376.4 (852.9) 50.7 (632.2) 14.8 280.6 168.6 (1,517.8)
Net income (loss) 510.7 376.4 (852.9) 38.6 (629.5) 103.2 559.7 363.5 (1,390.9)
Dividends on preferred shares 36.7 106.5 111.1 120.8 120.3 120.1 121.6 122.1 121.2
Earnings (loss) on common shares 474.0 269.9 (964.0) (82.2) (749.8) (16.9) 438.1 241.4 (1,512.1)
Earnings (loss) from continuing
operations per common share
Basic 1.69 1.07 (5.25) (.40) (4.36) (.61) .97 .28 (10.05)
Diluted 1.63 1.01 (5.25) (.40) (4.36) (.61) .88 .28 (10.05)
Financial position
Working capital $ 227.2 $ 247.5 $ 321.9 $ 684.5 $ 93.5 $1,044.2 $ 700.9 $ 537.7 $ 406.7
Total assets 5,889.7 5,613.2 5,631.6 7,002.3 7,153.3 7,238.1 7,386.3 7,365.1 8,256.5
Long-term debt 950.2 1,106.7 1,438.4 2,271.5 1,533.3 1,864.1 2,025.0 2,172.8 2,694.6
Common stockholders' equity(3) 1,953.3 90.9 (210.3) 188.8 303.7 1,052.0 1,072.0 561.8 359.2
Common stockholders' equity
per share 6.29 .35 (.84) 1.07 1.76 6.10 6.24 3.44 2.20
Other data
Research and development $ 339.4 $ 308.3 $ 314.8 $ 352.0 $ 411.7 $ 464.8 $ 496.9 $ 513.3 $ 617.3
Capital additions of properties 219.6 209.1 184.0 164.3 196.0 209.4 174.0 228.4 224.1
Investment in marketable software 122.8 100.3 133.5 116.6 123.0 121.3 118.7 110.2 167.7
Depreciation 141.8 149.2 159.1 184.4 205.5 228.7 254.0 313.4 413.9
Amortization
Marketable software 110.9 112.3 97.2 101.7 151.7 150.5 144.6 131.8 241.0
Goodwill 12.5 8.9 963.9 46.1 40.9 36.9 36.7 36.8 246.6
Common shares outstanding (millions) 310.6 258.2 251.0 176.4 172.9 172.5 171.9 163.4 163.1
Stockholders of record (thousands) 32.8 28.6 37.3 39.2 41.5 45.3 47.8 51.7 54.6
Employees (thousands) 35.8 33.5 32.9 33.2 37.6 38.0 38.4 42.0 46.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1999, the company completed three acquisitions that were accounted for
as poolings of interests and all prior periods were restated. See Note 3 of
the Notes to Consolidated Financial Statements.
(2) Includes special pretax charges of $1,039.2 million, $846.6 million, $186.2
million, and $1,200.0 million for the years ended December 31, 1997, 1995,
1994, and 1991, respectively.
(3) 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:
State
or Other
Jurisdiction
Under the
Laws of Which
Name of Company Organized
--------------- ---------------
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 Osterreich Ges.m.b.H. Austria
Unisys Belgium Belgium
Unisys Deutschland G.m.b.H. Germany
Unisys Sudamericana S.A. Argentina
Unisys Electronica Ltda. Brazil
Datamec, S.A. 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
Unisys World Trade, Inc. Delaware
The names of certain subsidiaries are omitted from the above list. These
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 18, 2000, included in the 1999
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 a 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,
(14) Registration Statement (Form S-8 No. 333-51889) pertaining to the Unisys
Global Employee Stock Purchase Plan,
(15) Registration Statement (Form S-8 No. 333-73399) pertaining to the Deferred
Compensation Plan for Executives of Unisys Corporation,
(16) Registration Statement (Form S-4 No. 333-74745) of Unisys Corporation,
(17) Registration Statement (Form S-8 No. 333-87409) pertaining to the
PulsePoint Communications 1983 Stock Option Plan, the Stock Option Plan for
Independent Directors of Digital Sound Corporation and the Tech Hackers,
Inc. 1997 Equity Incentive Plan and
(18) Registration Statement (Form S-8 No. 333-87411) pertaining to the Unisys
Savings Plan;
of our report dated January 18, 2000, 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
Philadelphia, Pennsylvania
February 14, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Unisys Corporation
Annual Report on Form 10-K
for the year ended December 31, 1999
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby make, constitute and appoint LAWRENCE A. WEINBACH, JANET
BRUTSCHEA HAUGEN AND NANCY STRAUS SUNDHEIM, 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, 1999, 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 14, 2000
/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
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 464
<SECURITIES> 0
<RECEIVABLES> 1,451
<ALLOWANCES> (43)
<INVENTORY> 373
<CURRENT-ASSETS> 2,846
<PP&E> 1,723
<DEPRECIATION> (1,102)
<TOTAL-ASSETS> 5,890
<CURRENT-LIABILITIES> 2,619
<BONDS> 950
0
0
<COMMON> 3
<OTHER-SE> 1,950
<TOTAL-LIABILITY-AND-EQUITY> 5,890
<SALES> 2,770
<TOTAL-REVENUES> 7,545
<CGS> 1,437
<TOTAL-COSTS> 4,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 770
<INCOME-TAX> 247
<INCOME-CONTINUING> 523
<DISCONTINUED> 0
<EXTRAORDINARY> (12)
<CHANGES> 0
<NET-INCOME> 511
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.59
</TABLE>
