<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, 1997

                               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.)

Township Line and Union Meeting Roads
Blue Bell, Pennsylvania                             19424
(Address of principal executive offices)          (Zip Code)     

       Registrant's telephone number, including area code:       
                         (215) 986-4011                          

   Securities registered pursuant to Section 12(b) of the Act:   

                                       NAME OF EACH EXCHANGE ON
    TITLE OF EACH CLASS                     WHICH REGISTERED    
    -------------------                ------------------------

Common Stock, par value $.01           New York Stock Exchange
Series A Cumulative Convertible 
  Preferred Stock, par value 
  $1, $3.75 annual fixed dividend      New York Stock Exchange
Preferred Share Purchase Rights        New York Stock Exchange
8 1/4% Convertible Subordinated
  Notes Due 2006                       New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:   

                              None                               

<PAGE>
 
                             -2-

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 $4,460,293,194 as of February 27, 1998.
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 February 27, 1998: 250,475,169.

               DOCUMENTS INCORPORATED BY REFERENCE               


Portions of the Unisys Corporation 1997 Annual Report to         
Stockholders -- Part I, Part II and Part IV.                     

Portions of the Unisys Corporation Proxy Statement for 1998      
Annual Meeting of Stockholders -- Part III.                      

<PAGE>
 
                              -3-


                             PART I                              



ITEM 1.  BUSINESS
- -----------------

     Unisys Corporation ("Unisys") is a major supplier of information 
services and solutions on a worldwide basis.  Through its three business 
units, Information Services, Computer Systems, and Global Customer Services, 
Unisys provides systems and solutions designed to enhance the productivity, 
competitiveness and responsiveness of its clients.  

     Unisys operates primarily in one business segment - information services 
and systems.  Financial information concerning revenue, operating profit and 
identifiable assets relevant to the segment is set forth in Note 15, "Business 
segment information," of the Notes to Consolidated Financial Statements 
appearing in the Unisys 1997 Annual Report to Stockholders, and such 
information is incorporated herein by reference.

     The principal executive offices of Unisys are located at Township Line 
and Union Meeting Roads, Blue Bell, Pennsylvania 19424.

PRINCIPAL PRODUCTS AND SERVICES
- -------------------------------

     Information Services provides information solutions and services to help 
clients apply technology to improve the performance of their business-critical 
systems.  Its major service lines are systems integration, outsourcing, 
industry-specific software solutions for select markets, document imaging, year 
2000 services and Microsoft Windows NT application services.

     Computer Systems provides computer hardware and software products that 
are the basis of enterprise-class information systems.  Its major product 
lines are enterprise-class servers, network servers, desktop and mobile 
systems, system software and middleware, data and voice communications and 
information storage solutions.  

     Global Customer Services provides services and products to help clients 
manage, maintain and support their distributed network, desktop, and mobile 
computing assets.  Its major service/product lines are local- and wide-area 
network integration, remote network management, life-cycle desktop support 
services, network and desktop consulting, multivendor hardware/software 
maintenance, computer supplies and traditional hardware/software maintenance.

     Information about revenue by business unit for the three years ended 
December 31, 1997, appears under the heading "Customer revenue by business 
unit" appearing in the Unisys 1997 Annual Report to Stockholders, and such 
information is incorporated herein by reference.

     Unisys markets its products and services throughout most of the world, 
primarily through direct sales forces.  In certain foreign countries, 
Unisys markets primarily through distributors.  Unisys manufactures a 
significant portion of its product lines.  Some products, including certain 
personal computers, peripheral products, electronic components and 

<PAGE>
 
                               -4-

subassemblies and software products, are manufactured for Unisys to its design 
or specifications by other business equipment manufacturers, component 
manufacturers or software suppliers.  

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 used on or in connection with 
Unisys products are considered to be valuable assets of Unisys.

BACKLOG
- -------

     During 1997, the Company began, for the first time, to gather the 
information necessary to report its backlog of unfilled orders.  At 
December 31, 1997, this backlog was approximately $3.6 billion ($2.9 billion 
in services and $.7 billion in computer equipment).  Unfunded U.S. government 
orders are not included in the December 31, 1997 backlog amounts.  Of the 
total, approximately 65% is expected to be filled in 1998.  Comparable prior 
year numbers do not exist.

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 
12% of total consolidated revenue in 1997.

COMPETITION
- -----------

     Unisys business is affected by rapid change in technology in the 
information systems and services field and aggressive competition from 
many domestic and foreign companies, including computer hardware 
manufacturers, software providers and information services companies.  
Unisys competes primarily on the basis of product performance, service, 
technological innovation and price.  Unisys believes that its continued 
investment in engineering and research and development, coupled with its 
marketing capabilities, will have a favorable impact on its competitive 
position.

<PAGE>
 
                              -5-

RESEARCH AND DEVELOPMENT
- ------------------------

     Unisys-sponsored research and development costs were $302.3 million in 
1997, $342.9 million in 1996 and $404.5 million in 1995.

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 1998 and 
1999.

EMPLOYEES
- ---------

     As of December 31, 1997, Unisys had approximately 32,600 employees.

INTERNATIONAL AND DOMESTIC OPERATIONS
- -------------------------------------

     Financial information by geographic area is set forth in Note 15, 
"Business segment information," of the Notes to Consolidated Financial 
Statements appearing in the Unisys 1997 Annual Report to Stockholders, and 
such information is incorporated herein by reference.

YEAR 2000
- ---------

     Many computer systems will experience problems handling dates beyond the 
year 1999 and therefore need to be modified prior to the year 2000 in order 
to remain functional.  The Company has been taking actions to ensure both the 
internal readiness of its computer systems and the compliance of computer 
products and software for sale by it to customers for handling dates beginning 
in the year 2000.  The Company does not believe that the cost of these actions 
will have a material adverse effect on the Company's results of operations or 
financial condition.  However, future results may be adversely affected by a 
delay in, or increased costs associated with, the implementation of these 
actions, or by the Company's inability to implement them.

     Unisys is also assessing the possible effects on its operations of the 
year 2000 readiness of its key suppliers and subcontractors.  The potential 
impact and related costs of the failure of these entities to address year 2000 
in the products they supply the Company are not known at this time.



I
TEM 2.  PROPERTIES
- -------------------

     As of December 31, 1997, Unisys had 37 major facilities in the United 
States with an aggregate floor space of approximately 7.2 million square feet, 
located primarily in California, Illinois, Michigan, Minnesota, Pennsylvania, 

<PAGE>
 
                                   -6-

Utah and Virginia.  Eight of these facilities, with an aggregate of 
approximately 1.9 million square feet of floor space, were owned by Unisys 
while 29 of these facilities, with approximately 5.3 million square feet of 
floor space, were leased to Unisys.  Of the aggregate floor space of major 
facilities in the United States, approximately 5.7 million square feet were in 
current operation, approximately .9 million square feet were subleased to 
others and approximately .6 million square feet were being held in reserve or 
were declared surplus with disposition efforts in progress.

     As of December 31, 1997, Unisys had 34 major facilities outside the 
United States with an aggregate floor space of approximately 3.5 million 
square feet, located primarily in Brazil, Canada, France, Germany, South 
Africa, Switzerland and the United Kingdom.  Eight of these facilities, with 
approximately 1.1 million square feet of floor space, were owned by Unisys 
while 26 of these facilities, with approximately 2.4 million square feet 
of floor space, were leased to Unisys.  Of the aggregate floor space of major 
facilities outside the United States, approximately 2.7 million square feet 
were in current operation, approximately .3 million square feet were subleased 
to others and approximately .5 million square feet were being held in reserve 
or were declared surplus with disposition efforts in progress.  

     Unisys major facilities include offices, laboratories, manufacturing 
plants, warehouses and distribution and sales centers.  Unisys believes that 
its facilities are suitable and adequate for current and presently projected 
needs.  Unisys continuously reviews its anticipated requirements for 
facilities, and, on the basis thereof, will from time to time acquire 
additional facilities, expand existing facilities and dispose of existing 
facilities or parts thereof.



ITEM 3.  LEGAL PROCEEDINGS
- --------------------------

     As of March 1, 1998, Unisys had no material pending legal proceedings
 reportable under the requirements of this Item 3.  



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 1997.

<PAGE>
 
                               -7-



ITEM 10.  EXECUTIVE OFFICERS OF THE REGISTRANT
- ----------------------------------------------

     Information concerning the executive officers of Unisys set forth below 
is as of March 1, 1998.  

     NAME                     AGE        POSITION WITH UNISYS
     ----                     ---        --------------------

Lawrence A. Weinbach          58       Chairman of the Board, President
                                         and Chief Executive Officer

Gerald A. Gagliardi           50       Executive Vice President;
                                         President, Unisys Global 
                                         Customer Services 

George R. Gazerwitz           57       Executive Vice President;
                                         President, Unisys Computer
                                         Systems 

Lawrence C. Russell           59       Executive Vice President;
                                         President, Unisys Information
                                         Services 

David O. Aker                 51       Senior Vice President,
                                         Worldwide Human Resources

Harold S. Barron              61       Senior Vice President,
                                         General Counsel and
                                         Secretary

Jack A. Blaine                53       Senior Vice President;
                                         President,
                                         Pacific Asia Americas

Robert H. Brust               54       Senior Vice President and
                                         Chief Financial Officer

Dewaine L. Osman              63       Senior Vice President,
                                         Strategic Development

Janet Brutschea Haugen        39       Vice President and 
                                         Controller

James F. McGuirk II           54       Vice President; President
                                         Federal Systems 

Jack F. McHale                49       Vice President, 
                                         Investor Relations

Angus F. Smith                56        Vice President and Treasurer

<PAGE>
 
                              -8-

     There are no family relationships among any of the above-named executive 
officers.  The Bylaws provide that the officers of Unisys shall be elected 
annually by the Board of Directors and that each officer shall hold office for 
a term of one year and until a successor is elected and qualified, or until 
the officer's earlier resignation or removal. 

     Mr. Weinbach has been the Chairman of the Board, President and Chief 
Executive Officer of Unisys since September 1997.  Prior to that time, he 
held the position of managing partner-chief executive of Andersen Worldwide 
(Arthur Andersen and Andersen Consulting), a global professional services 
organization.  He had been with Andersen Worldwide since 1961.

     Mr. Gagliardi was elected an Executive Vice President of Unisys in 1996.  
He had been a Senior Vice President of Unisys and President of Unisys Global 
Customer Services since 1995.  He held the positions of Vice President, 
Customer Services Worldwide from 1994 to 1995 and Vice President and General 
Manager, Customer Services and Support from 1991 to 1994.  Mr. Gagliardi has 
been an officer since 1994.

     Mr. Gazerwitz was elected an Executive Vice President of Unisys and 
President of Unisys Computer Systems in 1996.  He had been a Vice President 
of Unisys and Executive Vice President of Nihon Unisys Limited from 1994 to
October 1996 and Vice President, Marketing, of the United States Division from 
1992 to 1994.  Mr. Gazerwitz has been an officer since 1984.

     Mr. Russell was elected an Executive Vice President of Unisys and 
President of Unisys Information Services in 1995.  He was an officer of The 
First Manhattan Consulting Group, a management consulting firm, from 1993 to 
1995.  He was Chairman and Chief Executive Officer of Palaru Corporation, a 
printing company, from 1990 to 1993.  Mr. Russell has been an officer since
1995.

     Mr. Aker was elected Senior Vice President of Unisys Worldwide Human 
Resources in February 1997.  He had been Vice President of Unisys Worldwide 
Human Resources since 1995 and Vice President, Human Resources, Information 
Services and Systems Group from 1994 to 1995.  From 1991 to 1994, he was Vice 
President, Human Resources and Administration of Rolls-Royce of North America 
and a director of its subsidiary, Rolls-Royce Incorporated. Mr. Aker has been 
an officer since 1995.                                               

     Mr. Barron was elected Vice President and General Counsel of Unisys in 
1991.  In 1993, he was elected Senior Vice President and in 1994, he was 
also elected Secretary.  Mr. Barron has been an officer since 1991.

     Mr. Blaine has been a Senior Vice President of Unisys and President of 
Unisys Pacific Asia Americas since 1996.  He was a Vice President of Unisys 
and President of the Latin America and Caribbean Division from 1995 to 1996.  
From 1990 to 1995, Mr. Blaine was Vice President of Unisys and General Manager 
of the Latin America and Caribbean Group of the Pacific Asia Americas 
Division.  Mr. Blaine has been an officer since 1988.

<PAGE>
 
                                   -9-

     Mr. Brust was elected Senior Vice President and Chief Financial Officer 
of Unisys in February 1997.  Prior to that time he held the position of Vice 
President of Finance at G. E. Plastics, a unit of General Electric Company.  
He had been with General Electric Company since 1965.  Mr. Brust has been an 
officer since 1997.

     Mr. Osman has been Senior Vice President, Strategic Development, since 
October 1997.  From August 1996 to October 1997,he served as Senior Vice 
President, Information Technology and Strategic Development.  He also served 
as President of Worldwide Sales and Marketing from July 1995 to January 1996 
and as President of the Pacific Asia Americas Group from July 1995 to 
July 1996.  He was Vice President, Corporate Planning and Business Development, 
from 1992 to 1995 and Vice President, Commercial Marketing, from 1993 to 1994.  
Mr. Osman was an officer from 1986 to 1991 and was reelected in 1992.

     Ms. Haugen was elected Vice President and Controller of Unisys in 1996.
Prior to that time, she held the position of audit partner at Ernst & Young LLP.
She had been with Ernst & Young LLP since 1980. Ms. Haugen has been an officer
since 1996.

     Mr. McGuirk was elected a Vice President of Unisys in 1996 and has been 
President, Federal Systems since 1992.  Mr. McGuirk has been an officer since 
1996.

     Mr. McHale has been Vice President, Investor Relations, since May 1997.  
From 1989 to May 1997, he was Vice President, Investor and Corporate 
Communications.  Mr. McHale has been an officer since 1986.

     Mr. Smith has been Vice President and Treasurer since June 1997.  Prior 
to that time, he held the position of Treasurer of Rohm and Haas Company since 
1980.  He had been with Rohm and Haas Company since 1967.  Mr. Smith has been 
an officer since 1997.



                                PART II                             



ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 
         MATTERS
         ----------------------------------------------------------------

     Unisys Common Stock (trading symbol "UIS") is listed for trading on the New
York Stock Exchange and on exchanges in Amsterdam, Antwerp, Basel, Brussels,
Geneva, Lausanne, London and Zurich. Information on the high and low sales
prices for Unisys Common Stock is set forth under the heading "Quarterly
financial information" in the Unisys 1997 Annual Report to Stockholders and is
incorporated herein by reference. At December 31, 1997, there were 249.5 million
shares outstanding and approximately 37,300 stockholders of record. Unisys has
not declared or paid any cash dividends on its Common Stock since 1990.

        On September 23, 1997, Unisys sold 84,881 shares of Unisys Common Stock
to Lawrence A. Weinbach, the Chairman, President and Chief Executive Officer of
Unisys, for an aggregate purchase price of $1 million. The sale was exempt from
the registration requirements of the Securities Act of 1933 by reason of Section
4(2) thereof.
 
 

<PAGE>
 
                               -10-


ITEM 6.  SELECTED FINANCIAL DATA
- --------------------------------

     A summary of selected financial data for Unisys is set forth under the 
heading "Seven-year summary of selected financial data" in the Unisys 1997 
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 1997 
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, 1997 and 1996 and the related consolidated 
statements of income and cash flows for each of the three years in the period 
ended December 31, 1997, appearing in the Unisys 1997 Annual Report to 
Stockholders, together with the report of Ernst & Young LLP, independent 
auditors, on the financial statements at December 31, 1997 and 1996 and for 
each of the three years in the period ended December 31, 1997, appearing in 
the Unisys 1997 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 1997 Annual 
Report to Stockholders, is incorporated herein by reference.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE
         ---------------------------------------------------------------

     Not applicable.



                           PART III                             


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------

     (a)  Identification of Directors.  Information concerning the directors 
of Unisys Corporation 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 1999" and "Members of the Board of Directors 
Continuing in Office -- Term Expiring in 2000" in the Unisys Proxy Statement 
for the 1998 Annual Meeting of Stockholders and is incorporated herein by 
reference.

<PAGE>
 
                                   -11-

     (b) Identification of Executive Officers. Information concerning executive
officers of Unisys Corporation is set forth under the caption "EXECUTIVE
OFFICERS OF THE REGISTRANT" in Part I, Item 10, of this report.

     (c)  Section 16(a) Beneficial Ownership Reporting Compliance. Information 
included in the Unisys Proxy Statement for the 1998 Annual Meeting of 
Stockholders under the caption "Section 16(a) Beneficial Ownership Reporting 
Compliance" is incorporated herein by reference.



ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------

     Information concerning executive compensation is set forth under the 
heading "EXECUTIVE COMPENSATION" in the Unisys Proxy Statement for the 1998 
Annual Meeting of Stockholders and is incorporated herein by reference.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT
- -------------------------------------------------

     (a)  FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson and Fidelity 
Management & Research Company, 82 Devonshire Street, Boston, Massachusetts 
02109, have jointly filed a Schedule 13G with the Securities and Exchange 
Commission dated February 14, 1998, reporting beneficial ownership of 
29,585,516 shares (or 11.72%)of Unisys Common Stock.  Of such shares, 
3,406,141 represent shares issuable upon conversion of Unisys Corporation's 
convertible debt securities and preferred stock.  Sole dispositive power has 
been reported for 29,585,516 shares.  Sole voting power has been reported for 
1,327,133 shares.  To Unisys knowledge, as of March 1, 1998, no other person 
was the beneficial owner of more than 5% of the total outstanding shares of 
Unisys Common Stock.  

     (b)  Security Ownership of Management.  Certain information furnished by 
members of management with respect to shares of Unisys equity securities 
beneficially owned as of March 1, 1998, by all directors individually, by 
certain named officers and by all directors and officers of Unisys as a group 
is set forth under the heading "SECURITY OWNERSHIP BY CERTAIN BENEFICIAL 
OWNERS AND MANAGEMENT" in the Unisys Proxy Statement for the 1998 Annual 
Meeting of Stockholders and is incorporated herein by reference.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------

     Information concerning certain relationships and transactions between 
Unisys and members of its management is set forth under the headings 
"EXECUTIVE COMPENSATION" and "REPORT OF THE COMPENSATION AND ORGANIZATION 
COMMITTEE" in the Unisys Proxy Statement for the 1998 Annual Meeting of 
Stockholders and is incorporated herein by reference.

<PAGE>
 
                                   -12-


                             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 1997 Annual Report to Stockholders 
which are incorporated herein by reference:     

                                                   ANNUAL REPORT 
                                                     PAGE NO.
                                                   -------------
Consolidated Balance Sheet at                                   
  December 31, 1997 and December 31, 1996.....................33

Consolidated Statement of Income for each of the
  three years in the period ended December 31, 1997...........31

Consolidated Statement of Cash Flows for each of the
  three years in the period ended December 31, 1997...........35

Notes to Consolidated Financial Statements.................39-55

Report of Independent Auditors................................56

2.   Financial Statement Schedules filed as part of this report 
     pursuant to Item 8 of this report:

SCHEDULE                                            FORM 10-K
 NUMBER                                              PAGE NO. 
- --------                                            ---------

II     Valuation and Qualifying Accounts.................16

     The financial statement schedule should be read in conjunction with 
the consolidated financial statements and notes thereto in the Unisys 1997 
Annual Report to Stockholders.  Financial statement schedules not included 
with this report have been omitted because they are not applicable or the 
required information is shown in the consolidated financial statements or 
notes thereto.

     Separate financial statements of subsidiaries not consolidated with 
Unisys and entities in which Unisys has a fifty percent or less ownership 
interest have been omitted because these operations do not meet any of the 
conditions set forth in Rule 3-09 of Regulation S-X.

3.  Exhibits.  Those exhibits required to be filed by Item 601 of Regulation 
S-K are listed in the Exhibit Index included in this report at pages 17 
through 20.  Management contracts and compensatory plans and arrangements are 
listed as Exhibits 10.1 through 10.21.  

<PAGE>
 
                                     -13-


 (b) Reports on Form 8-K.

     During the quarter ended December 31, 1997, Unisys filed a Current Report 
on Form 8-K, dated October 7, 1997, to report under Items 5 and 7 of such Form.

<PAGE>
 
                               -14-


                           SIGNATURES                            

     Pursuant to the requirements of Section 13 or 15(d) of the  
Securities Exchange Act of 1934, the registrant has duly caused  
this report to be signed on its behalf by the undersigned,       
thereunto duly authorized.

                                UNISYS CORPORATION

                                    /s/ Lawrence A. Weinbach    
                                By: ----------------------------
                                        Lawrence A. Weinbach    
                                        Chairman of the Board,
                                        President and Chief     
                                        Executive Officer

                                    Date: March 20, 1998       

     Pursuant to the requirements of the Securities Exchange    
Act of 1934, this report has been signed below by the following  
persons on behalf of the registrant and in the capacities        
indicated on March 20, 1998.

/s/Lawrence A. Weinbach               *James J. Duderstadt       
- -----------------------                --------------------
 Lawrence A. Weinbach                  James J. Duderstadt
 Chairman of the Board,                Director
 President and Chief Executive
 Officer (principal                   *Henry C. Duques
 executive officer) and               ---------------------
 Director                              Henry C. Duques
                                       Director

/s/Robert H. Brust                    *Gail D. Fosler      
- ---------------------                  --------------------
 Robert H. Brust                       Gail D. Fosler
 Senior Vice President and             Director
 Chief Financial Officer 
(principal financial officer)

/s/Janet Brutschea Haugen             *Melvin R. Goodes        
- ------------------------               ---------------------
 Janet Brutschea Haugen                Melvin R. Goodes
 Vice President and                    Director
 Controller (principal
 accounting officer)

*J. P. Bolduc                         *Edwin A. Huston        
- ---------------------                  ---------------------
 J. P. Bolduc                          Edwin A. Huston
 Director                              Director

<PAGE>
 
                                   -15-

*Kenneth A. Macke                     *Theodore E. Martin       
- ---------------------                  ---------------------
 Kenneth A. Macke                      Theodore E. Martin     
 Director                              Director
 
*Robert McClements, Jr.               *Alan E. Schwartz
- ---------------------                  ---------------------
 Robert McClements, Jr.                Alan E. Schwartz
 Director                              Director
                       



                                      *By:/s/Lawrence A. Weinbach    
                                          ---------------------------
                                             Lawrence A. Weinbach    
                                             Attorney-in-Fact

<PAGE>
 
                                      -16-


                                  UNISYS CORPORATION 
                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 
                                      (Millions) 

                                     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 
  December 31, 1995       $ 74.5       $21.0          $(  8.8)         $ 86.7

Year Ended 
  December 31, 1996       $ 86.7       $ 2.5          $(  5.3)         $ 83.9

Year Ended 
  December 31, 1997       $ 83.9       $ 9.8          $ (24.2)         $ 69.5

(a) Write-off of bad debts less recoveries.

<PAGE>
 
                                          -17-


                          EXHIBIT INDEX 

Exhibit
Number                     Description

- -------                    -----------

 3.1        Amended and Restated Certificate of Incorporation of 
            Unisys Corporation, incorporated by reference to Exhibit 
            4.1 to the registrant's Quarterly Report on Form 10-Q 
            for the quarterly period ended September 30, 1997. 

 3.2        By-Laws of Unisys Corporation, incorporated by 
            reference to Exhibit 3 to the registrant's Quarterly 
            Report on Form 10-Q for the quarterly period ended 
            June 30, 1995. 

 4.1        Agreement to furnish to the Commission on request a 
            copy of any instrument defining the rights of the 
            holders of long-term debt which authorizes a total 
            amount of debt not exceeding 10% of the total assets 
            of the registrant, incorporated by reference to 
            Exhibit 4 to the registrant's Annual Report on Form 
            10-K for the year ended December 31, 1982 (File No. 
            1-145). 

 4.2        Form of Rights Agreement dated as of March 7, 1986 
            between Burroughs Corporation and Harris Trust 
            Company of New York, as Rights Agent, which includes 
            as Exhibit A, the Certificate of Designations for 
            the Junior Participating Preferred Stock, and as 
            Exhibit B, the Form of Rights Certificate, 
            incorporated by reference to Exhibit 1 to the 
            registrant's Registration Statement on Form 8-A, 
            dated March 11, 1986. 

 4.3        Amendment No. 1, dated as of February 22, 1996, to 
            Rights Agreement, dated as of March 7, 1986, between 
            Unisys Corporation, a Delaware Corporation (then named 
            Burroughs Corporation) and Harris Trust Company of 
            New York, as Rights Agent, 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 
            May 22, 1997, incorporated by reference to Exhibit 10.4 
            to the registrant's Quarterly Report on Form 10-Q 
            for the quarterly period ended June 30, 1997. 

10.2        Deferred Compensation Plan for Directors of Unisys 
            Corporation, as amended and restated effective 
            May 22, 1997, incorporated by reference to Exhibit 10.5 
            to the registrant's Quarterly Report on Form 10-Q for 
            the quarterly period ended June 30, 1997.

<PAGE>
 
                                 -18-

10.3        Form of Executive Employment Agreement, incorporated 
            by reference to Exhibit 10.1 to the registrant's 
            Quarterly Report on Form 10-Q for the quarterly period 
            ended June 30, 1995. 

10.4        Agreement, dated October 17, 1995, between the 
            registrant and Lawrence C. Russell, incorporated 
            by reference to Exhibit 10.4 to the registrant's 
            Annual Report on Form 10-K for the year ended 
            December 31, 1995.

10.5        Employment Agreement, dated July 2, 1997 
            between the registrant and James A. Unruh, 
            incorporated by reference to Exhibit 10.1 to the 
            registrant's Quarterly Report on Form 10-Q for the 
            quarterly period ended September 30, 1997. 

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        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. 

10.9        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. 

10.10       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. 

10.11       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. 

<PAGE>
 
                                   -19-

10.12       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. 

10.13       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. 

10.14       Amendment, dated May 26, 1994, to 1990 Unisys 
            Long-Term Incentive Plan, effective as of 
            February 22, 1990, incorporated by reference to 
            Exhibit 10.15 to the registrant's Annual Report on 
            Form 10-K for the year ended December 31, 1994. 

10.15       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.

10.16       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.

10.17       Form of Loan Agreement including Note used for term 
            loans to executive officers purchasing residences, 
            incorporated by reference to Exhibit 10(ll) to the 
            registrant's Annual Report on Form 10-K for the year 
            ended December 31, 1986. 

10.18       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. 

10.19       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. 

10.20       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. 

<PAGE>
 
                                 -20-

10.21       Unisys Corporation Supplemental Executive Retirement 
            Income Plan, as amended through May 22, 1997, 
            incorporated by reference to Exhibit 10.3 to the 
            registrant's Quarterly Report on Form 10-Q for the 
            quarterly period ended June 30, 1997. 

12          Computation of Ratio of Earnings to Fixed Charges. 

13          Portions of the Annual Report to Stockholders of the 
            registrant for the year ended December 31, 1997. 

18          Letter re Change in Accounting Principles. 

21          Subsidiaries of Unisys Corporation. 

23          Consent of Ernst & Young LLP, Independent Auditors. 

24          Power of Attorney. 

27          Financial Data Schedule. 





<PAGE>
 
Exhibit 12


                             UNISYS CORPORATION
       COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
                               ($ in millions)

                                                Years Ended December 31
                                       ---------------------------------------
                                       1997     1996     1995     1994    1993
                                       ----     ----     ----     ----    ----
Income (loss) from continuing
 operations before income taxes      $(758.8)  $ 93.7  $(781.1)  $ 14.6  $370.9
Add (deduct) share of loss 
  (income) of associated 
  companies                              5.9     (4.9)     5.0     16.6    14.5
                                     -------   ------   ------   ------  ------
    Subtotal                          (752.9)    88.8   (776.1)    31.2   385.4
                                     -------   ------   ------   ------  ------
Interest expense (net of 
  interest capitalized)                233.2    249.7    202.1    203.7   241.7
Amortization of debt issuance
  expenses                               6.7      6.3      5.1      6.2     6.6
Portion of rental expense
  representative of interest            56.2     59.2     65.3     65.0    70.5
                                     -------   -------  ------   ------  ------
    Total Fixed Charges                296.1    315.2    272.5    274.9   318.8
                                     -------   -------  ------   ------  ------
Earnings (loss) from continuing
  operations before income 
  taxes and fixed charges            $(456.8)  $404.0  $(503.6)  $306.1  $704.2
                                     =======  =======  =======   ======  ======
Ratio of earnings to fixed 
  charges                                *      1.28      *        1.11    2.21
                                     =======  =======  =======   ======  ======


  * Earnings for the years ended December 31, 1997 and 1995 were inadequate to
    cover fixed charges by approximately $752.9 million and $776.1 million,
    respectively.






<PAGE>
 


                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                 ---------------------------------------------

Overview
- --------
For 1997, the company reported net income before one-time charges of $199.0
million, compared to net income of $61.8 million before one-time charges for
1996. Before one-time items in both years, in 1997 the company earned $.46 per
common share on a diluted basis after preferred dividends,compared to a loss
of $.34 on a diluted basis after preferred dividends in 1996.

In the fourth quarter of 1997, the company recorded a one-time charge of $1.1
billion against net income. Including this charge, the company had a 1997 net
loss of $853.6 million, or $5.30 per share, compared to 1996 net income of $49.7
million, or a loss of $.41 per share after preferred dividends. Net income in
1996 includes a charge for an extraordinary item of $12.1 million, or $.07 per
share, for the early retirement of debt. The 1997 loss of $5.30 per share is
computed based on the weighted average common shares outstanding. Earnings per
share for 1997 before one-time charges ($.46) are computed on a diluted basis,
which also includes additional shares from the assumed conversion of outstanding
stock options and convertible debt.

The $1.1 billion charge in the fourth quarter
 of 1997 reflects a number of
actions taken to focus the company's resources on enterprise-class servers and
its services business, accelerate profitable revenue growth, and reduce debt.
The charge included $127.0 million, or $.70 per share, principally related to
the company's decision to discontinue the manufacturing and assembly of personal
computers and low-end servers and to dispose of a small, non-strategic
technology product. The company plans to meet customer needs for low-end systems
through partnering arrangements.

Also included in the charge is the non-cash writeoff of $883.6 million, or $4.85
per share, of goodwill principally related to the 1986 merger of Burroughs
Corporation and Sperry Corporation. The writeoff reflects 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, as well as the company's decision to change the method used
for measuring the remaining value of goodwill. Yearly amortization of this
goodwill was approximately $36 million.

The final component of the fourth-quarter charge was $42.0 million, or $.23 per
share, related to the conversion of convertible debt. During the fourth quarter
of 1997, the company reduced its long-term debt by $616 million through the
conversion of convertible notes into 73.2 million shares of common stock.
Approximately $271 million of the debt was converted in response to a special
offer by the company to pay a cash premium for each note converted. The $42.0
million charge represents the cost of the special offer. For further information
on the 1997 fourth quarter charges, see Note 3 of the Notes to the Consolidated
Financial Statements.


<PAGE>
 
Results of operations
- ---------------------
The following comparisons of income statement categories exclude all of the 1997
and 1996 one-time charges discussed above, as well as 1995 after-tax charges of
$581.9 million for restructuring and $88.6 million for contract losses. See Note
3 of the Notes to the Consolidated Financial Statements.

Revenue for 1997 was $6.6 billion compared to $6.4 billion in 1996 and $6.3
billion in 1995. Revenue from international operations in 1997, 1996, and 1995
was $3.9 billion, $4.0 billion, and $3.9 billion, respectively. Revenue from
U.S. operations was $2.7 billion in 1997 and $2.4 billion in both 1996 and 1995.

Revenue for 1997 rose 4% to $6.6 billion from $6.4 billion in 1996. Excluding
the negative impact of foreign currency fluctuations, primarily in Europe,
revenue in 1997 rose 7%. Currency and related financial issues in the Asian
markets did not have a material impact on the company's operations in 1997.

Total gross profit percent was 35.1% in 1997, 33.3% in 1996, and 34.5% in 1995.
The increase in 1997 over 1996 was due to higher gross profit percentages in
both Information Services and Computer Systems.

Selling, general and administrative expenses in 1997 were $1.4 billion compared
to $1.4 billion in 1996 and $1.5 billion in 1995.

Research and development expenses in 1997 were $297.4 million compared to $342.9
million in 1996 and $361.8 million in 1995. These declines were largely due to
the company's cost reduction actions.

In 1997, the company reported operating income of $613.8 million (9.2% of
revenue) compared to $327.4 million (5.1% of revenue) in 1996 and $284.5 million
(4.5% of revenue) in 1995.

Information by business unit for 1997, 1996, and 1995 is presented below:

<TABLE> 
<CAPTION> 
                                                           Global   
                                     Elimi-   Information  Customer   Computer
(Millions of dollars)       Total    nations  Services     Services   Systems
================================================================================
<S>                       <C>        <C>      <C>          <C>        <C> 
1997                                                                
- ------------------                                                  
Customer revenue          $ 6,636.0            $ 2,056.0   $ 2,148.1  $ 2,431.9 
Intercompany                         $ (497.9)      19.4        64.7      413.8 
                          ---------  --------  ---------   ---------  --------- 
Total revenue             $ 6,636.0  $ (497.9) $ 2,075.4   $ 2,212.8  $ 2,845.7 
                          =========  ========  =========   =========  ========= 
Gross profit percent*         35.1%                20.8%       27.3%      45.5%
                                                                                
Operating income percent*      9.2%               (2.9)%        9.6%      16.1%
                                                                              
1996                                                                          
- ------------------                                                            
Customer revenue         $ 6,370.5             $ 1,951.4   $ 1,991.9  $ 2,427.2 
Intercompany                         $ (557.0)       9.9       100.0      447.1 
                         ---------   --------  ---------   ---------  --------- 
Total revenue            $ 6,370.5   $ (557.0) $ 1,961.3   $ 2,091.9  $ 2,874.3 
                         =========   ========  =========   =========  ========= 
Gross profit percent*        33.3%                 17.8%       29.7%      41.0%
                                                                                
1995                                                                            
- ------------------                                                              
Customer revenue         $ 6,342.3             $ 1,836.8   $ 1,884.1  $ 2,621.4 
Intercompany                         $ (629.0)                 119.7      509.3 
                         ---------   --------  ---------   ---------  --------- 
Total revenue            $ 6,342.3   $ (629.0) $ 1,836.8   $ 2,003.8  $ 3,130.7 
                         =========   ========  =========   =========  ========= 
Gross profit percent*        34.5%                 15.1%       30.3%      41.9%
</TABLE>
 

*as a percent of total revenue

Note: Certain business unit amounts have been reclassified to conform with the
current year presentation.


<PAGE>
 
In Information Services, customer revenue for 1997 was $2.1 billion, up 5%
from $2.0 billion in 1996. Customer revenue in 1996 increased 6% from $1.8
billion in 1995. The increases in both years were the result of growth in both
systems integration and outsourcing. The gross profit percent was 20.8% in
1997, 17.8% in 1996, and 15.1% in 1995. The increase in 1997 compared to 1996
reflects the benefits of an improved bid quality and control process, as well as
continued benefits from completing certain problem contracts. The increase in
1996 compared to 1995 was a result of management's efforts to constrain growth
in certain markets to improve profitability.

In Global Customer Services, customer revenue for 1997 was $2.1 billion, up 8%
from $2.0 billion in 1996. Customer revenue in 1996 increased 6% from $1.9
billion in 1995. The increase in revenue in both years was due to growth in
distributed computing support services ("DCSS") revenue. A large part of these
increases were due to the continued rollout of a large, low-margin federal
government networking project. Growth in DCSS revenue in both years more than
offset a continuing decline in core maintenance revenue. The gross profit
percent for Global Customer Services was 27.3% in 1997, 29.7% in 1996,and 30.3%
in 1995. The declines in gross profit margins continue to reflect heavy
competition in the network integration market and commoditization of low-end,
third-party hardware components that are typically part of a network integration
project. Margins also reflect the continued rollout of the federal government
networking project and the continued shift in the mix from proprietary
maintenance toward DCSS. The company expects to continue to see pressure in
Global Customer Services' gross margins going forward.

Computer Systems' customer revenue for 1997 was $2.4 billion compared to $2.4
billion in 1996 and $2.6 billion in 1995. Customer revenue for 1997 was only up
slightly from 1996 due to a high volume of revenue in late 1996 of high-end
models of the ClearPath enterprise servers. Customer revenue in 1996 decreased
7% from 1995 principally due to declines in large-scale enterprise servers
caused by delays in availability for certain ClearPath models. The gross profit
percent was 45.5% in 1997, 41.0% in 1996, and 41.9% in 1995. The increase in
1997 compared to 1996 was due in large part to a richer mix of enterprise
servers and enterprise server software sales.

Interest expense was $233.2 million in 1997, $249.7 million in 1996, and
$202.1 million in 1995. The decline in 1997 was due to lower average debt
levels; the increase in 1996 was due to higher average debt levels.

Other income (expense), net, which can vary from year to year, was an expense of
$64.8 million in 1997, income of $16.0 million in 1996, and an expense of $16.9
million in 1995. The difference in 1997 compared to 1996 was principally due to
lower interest and equity income in 1997 and a gain on the sale of an equity
investment in 1996. The change in 1996 compared to 1995 was due principally to
foreign exchange gains in 1996 compared to losses in 1995, a gain on the sale of
an equity investment in 1996, and higher equity income.

Income from continuing operations before income taxes in 1997 was $315.8 million
compared to $93.7 million in 1996 and $65.5 million in 1995.

Estimated income taxes in 1997 were $116.8 million compared to $31.9 million in
1996 and $22.3 million in 1995. The 1996 tax provision included a benefit of
$24.8 million related to reversals of deferred tax valuation allowances due to
additional tax planning strategies available to the company. The effective
income tax rate for 1998 is expected to be approximately one percentage point
lower than in 1997 due to the reduction in the amount charged to income for
goodwill, which was not deductible for tax purposes.


<PAGE>
 
In 1995, the company sold its defense business for cash of $862 million. The net
results of the defense operations for 1995 are reported separately in the
Consolidated Statement of Income as "income from discontinued operations." See
Note 4 of the Notes to Consolidated Financial Statements.

Effective January 1, 1998, the company changed the functional currency of its
Brazilian operations from the U.S. dollar to the Brazilian local currency
because the Brazilian economy is no longer considered highly inflationary. This
change is not expected to have a material effect on the company's consolidated
financial position, consolidated results of operations, or liquidity.

During 1997, the company adopted Statement of Financial Accounting Standards
("SFAS") Nos. 125 and 128, and the American Institute of Certified Public
Accountants Statement of Position ("SOP") 96-1. In 1998, the company will adopt
SFAS No. 131 as well as SOP 97-2. For further information on these items, see
Notes 2 and 5 of the Notes to Consolidated Financial Statements.

Financial condition
- -------------------
Cash and cash equivalents at December 31, 1997 were $803.0 million compared to
$1.0 billion at December 31, 1996.

During 1997, cash provided by operations was $383.5 million compared to 1996
cash usage of $89.7 million. The increase in cash provided of $473.2 million was
due in large part to improved working capital management, including improvements
in inventory turns and accounts receivable days outstanding. Cash expenditures
related to restructuring actions (which are included in operating activities) in
1997, 1996, and 1995 were $178.7 million, $220.8 million, and $133.0 million,
respectively. Cash expenditures for restructuring actions, principally for work
force reductions and facility costs, are expected to be approximately $180
million in 1998 and $58 million in 1999 and beyond. Personnel reductions in 1997
related to restructuring actions were approximately 2,600 and are expected to be
approximately 1,400 thereafter, principally in 1998.

Cash used for investing activities during 1997 was $291.6 million compared to
$218.8 million for 1996. The increased cash usage in 1997 was principally due to
increased capital expenditures as a number of large-scale ClearPath enterprise
servers were added to the company's rental machines base, and to an increase in
investment for marketable software, principally for a new level of ClearPath
software.

Cash used for financing activities during 1997 was $274.1 million compared to
cash provided of $251.2 million in 1996. In 1997, the company redeemed all
$150.0 million of its Series B and C Cumulative Convertible Preferred Stock and
spent $46.1 million in connection with the conversions of debt into common stock
described below. The year-ago period included proceeds of $1.1 billion from
issuances of debt and $766.4 million of principal payments of debt. Dividends
paid on preferred stock were $113.1 million in 1997 compared to $120.8 million
in 1996.


<PAGE>
 
At December 31, 1997, total debt was $1.7 billion, a decline of $599.1 million
from December 31, 1996. In the fourth quarter of 1997, $ 616.2 million of the
company's convertible subordinated notes were converted into 73.2 million shares
of common stock. These conversions included all $345.0 million of the company's
8 1/4% convertible subordinated notes due 2000 and $271.2 million of its 8 1/4%
convertible subordinated notes due 2006. On February 5, 1998, the company
redeemed all $197.5 million of its 9 1/2% senior notes due on July 15, 1998.
This redemption, combined with the two conversions, is expected to save the
company more than $58 million in cash and interest expense in 1998.

On January 30, 1998, the company issued $200 million of 7 7/8% senior notes due
2008. The net proceeds from the sale of the notes were used to call $200 million
principal amount of 10 5/8% senior notes due 1999 at 101.77%.

The company may, from time to time, redeem, tender for, or repurchase its
securities in the open market or in privately negotiated transactions depending
upon availability, market conditions, and other factors.

In December 1997, Duff & Phelps Credit Rating Co. raised its credit ratings on
the company's senior long-term debt and subordinated debt to BB from B+ and to
BB- from B-, respectively. The credit ratings on the company's senior long-term
debt and subordinated debt by Standard and Poor's Corporation are B+ and B-,
respectively; Moodys' Investor Service ratings are B1 and B3, respectively.

The company has a $200 million revolving credit facility that expires in June
1999. The facility includes certain financial tests that must be met as
conditions to a borrowing and provides that no amounts may be outstanding under
the facility for a minimum of 20 consecutive days in each quarter. The facility
may not be used to refinance other debt. The amount the company may borrow at
any given time is dependent upon the amount of certain of its accounts
receivable and inventory. As of December 31, 1997, there were no borrowings
outstanding under the facility and the entire $200 million was available for
borrowings.

At December 31, 1997, the company had deferred tax assets in excess of deferred
tax liabilities of $1,435 million. For the reasons cited below, management
determined that it is more likely than not that $1,035 million of such assets
will be realized, therefore resulting in a valuation allowance of $400 million.

The company evaluates quarterly the realizability of its net deferred tax assets
by assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are the company's forecast of future taxable income, which is
adjusted by applying probability factors and available tax planning strategies
that could be implemented to realize deferred tax assets. The combination of
these factors is expected to be sufficient to realize the $1,035 million of net
deferred tax assets. Approximately $3.0 billion of future taxable income
(predominantly U.S.) is needed to realize all of the net deferred tax assets.

The company's net deferred tax assets include substantial amounts of net
operating loss and tax credit carryforwards. Failure to achieve forecasted
taxable income might affect the ultimate realization of the net deferred tax
assets. See "Factors That May Affect Future Results" below.

Stockholders' equity decreased $400.1 million during 1997, principally
reflecting the net loss of $853.6 million, preferred stock dividends declared of
$113.1 million, and translation adjustments of $58.0 million, offset in part by
$606.7 million related to conversions of convertible debt.


<PAGE>
 
Factors that may affect future results
- --------------------------------------
From time to time, the company provides information containing "forward-looking"
statements as defined in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements rely on assumptions and are subject to risks,
uncertainties, and other factors that could cause the company's actual results
to differ materially from expectations. In addition to changes in general
economic and business conditions and natural disasters, these include, but are
not limited to, the factors discussed below.

The company operates in an industry characterized by aggressive competition,
rapid technological change, evolving technology standards, and short product
life cycles. Future operating results will depend on the company's ability to
design, develop, introduce, deliver, or obtain new products and services on a
timely and cost-effective basis; on its ability to mitigate the effects of
competitive pressures and volatility in the information 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.

Certain of the company's systems integration contracts are fixed-price
contracts under which the company assumes the risk for the delivery of the
contracted services at an agreed-upon price. Future results will depend on the
company's ability to profitably perform these services contracts and bid and
obtain new contracts.

Approximately 60% 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.

Many computer systems will experience problems handling dates beyond the
year 1999 and therefore need to be modified prior to the year 2000 in order to
remain functional. The company has been taking actions to ensure both the
internal readiness of its computer systems and the compliance of computer
products and software sold by it to customers for handling dates beginning in
the year 2000. The company does not believe that the cost of these actions will
have a material adverse effect on the company's results of operations or
financial condition. However, future results may be adversely affected by a
delay in, or increased costs associated with, the implementation of these
actions, or by the company's inability to implement them.

In the course of providing complex, integrated solutions to customers, the
company frequently forms alliances with third parties that have complementary
products, services, or skills. Future results will depend in part on the
performance and capabilities of these third parties, including their ability to
deal effectively with the year 2000 issue. Future results will also depend upon
the ability of external suppliers to deliver components at reasonable prices and
in a timely manner and on the financial condition of and the company's
relationship with distributors and other indirect channel partners.


<PAGE>


<TABLE> 
CONSOLIDATED STATEMENT OF INCOME
Unisys Corporation
<CAPTION> 
- ------------------------------------------------------------------------------
Year Ended December 31
(Millions, except per share data)            1997         1996         1995
==============================================================================
<S>                                       <C>          <C>          <C> 
Revenue                                   $  6,636.0   $  6,370.5   $  6,342.3
                                          ----------   ----------   ----------
Costs and expenses
Cost of revenue                              4,402.4      4,252.1      4,650.1
Selling, general and                                                          
  administrative expenses                    1,427.2      1,448.1      1,849.8 
Research and development expenses              302.3        342.9        404.5
Goodwill impairment                            883.6                          
                                          ----------   ----------   ----------
                                             7,015.5      6,043.1      6,904.4
                                          ----------   ----------   ----------
Operating income (loss)                       (379.5)       327.4       (562.1)
Interest expense                               233.2        249.7        202.1
Other income (expense), net                   (146.1)        16.0        (16.9)
                                          ----------   ----------   ----------
Income (loss) from continuing                
  operations before income taxes              (758.8)        93.7       (781.1)
Estimated income taxes (benefit)                94.8         31.9       (153.8)
                                          ----------   ----------   ----------
Income (loss) from continuing operations                           
  before extraordinary item                   (853.6)        61.8       (627.3)
Income from discontinued operations                                        2.7
Extraordinary item                                          (12.1)            
                                          ----------   ----------   ----------
Net income (loss)                             (853.6)        49.7       (624.6)
Dividends on preferred shares                  111.1        120.8        120.3
                                          ----------   ----------   ----------
Earnings (loss) on common shares          $   (964.7)  $    (71.1)  $   (744.9)
                                          ==========   ==========   ==========
Earnings (loss) per common share - basic                                       
Continuing operations                        $ (5.30)      $ (.34)     $ (4.37)
Discontinued operations                                                    .02 
Extraordinary item                                           (.07)            
                                          ----------   ----------   ----------
Total                                        $ (5.30)      $ (.41)     $ (4.35)
                                          ==========   ==========   ==========
Earnings (loss) per common share - diluted                                    
Continuing operations                        $ (5.30)      $ (.34)     $ (4.37)
Discontinued operations                                                    .02
Extraordinary item                                           (.07)            
                                          ----------   ----------   ----------
Total                                        $ (5.30)      $ (.41)     $ (4.35) 
                                          ==========   ==========   ==========
                                                                              
See notes to consolidated financial statements.                               
</TABLE>
 



<PAGE>


<TABLE> 
CONSOLIDATED BALANCE SHEET
Unisys Corporation
<CAPTION> 
December 31 (Millions)                                      1997          1996
================================================================================
<S>                                                    <C>            <C> 
Assets
Current assets
Cash and cash equivalents                              $   803.0      $ 1,029.2
Accounts and notes receivable, net                         967.3          959.0
Inventories                                                560.8          642.3
Deferred income taxes                                      461.4          365.8
Other current assets                                        94.0          136.8
                                                       ---------      ---------
Total                                                    2,886.5        3,133.1
                                                       ---------      ---------
Long-term receivables, net                                  47.4           59.3
                                                       ---------      ---------
Properties                                               1,774.1        1,950.3
Less - Accumulated depreciation                          1,192.9        1,328.5
                                                       ---------      ---------
Properties, net                                            581.2          621.8
                                                       ---------      ---------
Goodwill                                                    34.2          981.3
                                                       ---------      ---------
Investments at equity                                      215.7          244.4
                                                       ---------      ---------
Deferred income taxes                                      665.7          678.7
                                                       ---------      ---------
Other assets                                             1,160.6        1,248.5
                                                       ---------      ---------
Total                                                  $ 5,591.3      $ 6,967.1
                                                       =========      =========
Liabilities and stockholders' equity
Current liabilities
Notes payable                                          $    40.6      $    13.9

Current maturities of long-term debt                       213.1            5.8
Accounts payable                                           817.1          871.1
Other accrued liabilities                                1,307.2        1,453.4
Dividends payable                                           26.6           26.6
Estimated income taxes                                     172.8           94.3
                                                       ---------      ---------
Total                                                    2,577.4        2,465.1
                                                       ---------      ---------
Long-term debt                                           1,438.3        2,271.4
                                                       ---------      ---------
Other liabilities                                          369.7          474.6
                                                       ---------      ---------
Redeemable preferred stock                                                150.0
                                                       ---------      ---------
Stockholders' equity
Preferred stock                                          1,420.1        1,420.2
Common stock, shares issued: 
  1997 - 250.2; 1996 - 175.7                                 2.5            1.8
Accumulated deficit                                     (1,736.8)        (770.1)
Other capital                                            1,520.1          954.1
                                                       ---------      ---------
Stockholders' equity                                     1,205.9        1,606.0
                                                       ---------      ---------
Total                                                  $ 5,591.3      $ 6,967.1
                                                       =========      =========

See notes to consolidated financial statements.
</TABLE>
 



<PAGE>
 

<TABLE> 
CONSOLIDATED STATEMENT OF CASH FLOWS
Unisys Corporation
<CAPTION> 
- --------------------------------------------------------------------------------------------------
Year Ended December 31 (Millions)                                1997          1996          1995
==================================================================================================
<S>                                                         <C>            <C>          <C>  
Cash flows from operating activities
Income (loss) from continuing operations                     $ (853.6)     $   61.8       $ (627.3)
Add (deduct) items to reconcile income              
  (loss) from continuing operations to net          
  cash provided by (used for)                       
  operating activities:                             
Effect of extraordinary item                                                  (12.1)
Depreciation                                                    156.0         182.0          203.0
Amortization:                                       
  Marketable software                                            97.0         101.6          151.7
  Goodwill                                                      963.9          46.1           40.9
(Increase) in deferred income taxes, net                        (25.3)        (51.0)        (223.1)
Decrease (increase) in receivables, net                          24.0          11.0          (66.9)
Decrease (increase) in inventories                               81.5          32.1          (15.4)
(Decrease) increase in accounts payable                                               
  and other accrued liabilities                                (220.6)       (258.4)         565.6
Increase (decrease) in estimated income taxes                    23.0         (34.7)         (63.9)
(Decrease) increase in other liabilities                        (71.1)        (85.9)         215.5
Decrease (increase) in other assets                             106.5         (70.3)        (132.7)
Other                                                           102.2         (11.9)          50.3
                                                             --------      --------       --------      
Net cash provided by (used for)                                                       
  operating activities                                          383.5         (89.7)          97.7
                                                             --------      --------       --------      
Cash flows from investing activities                                                  
Proceeds from investments                                     1,662.5       1,846.1        3,311.9
Purchases of investments                                     (1,629.0)     (1,845.9)      (3,329.6)
Proceeds from marketable securities                               4.8                         14.4   
Proceeds from sales of properties                                 5.1          77.4           30.3
Investment in marketable software                              (132.9)       (116.2)        (123.0)
Capital additions of properties                                (179.9)       (162.3)        (195.0)
Purchases of businesses                                         (22.2)        (17.9)         (42.3)
                                                             --------      --------       --------      
Net cash used for investing activities                         (291.6)       (218.8)        (333.3)
                                                             --------      --------       --------      
Cash flows from financing activities                                                  
Redemption of redeemable preferred stock                       (150.0)                
Proceeds from issuance of debt                                              1,139.7                 
Principal payments of debt                                                   (766.4)         (68.2)  
Costs of debt conversions                                       (46.1)                
Net proceeds from (reduction in)                                                      
  short-term borrowings                                          26.7          (1.9)           3.1
Dividends paid on preferred shares                             (113.1)       (120.8)        (120.2)
Other                                                             8.4            .6            2.8
                                                             --------      --------       --------      
Net cash (used for) provided by                                                       
  financing activities                                         (274.1)        251.2         (182.5)
                                                             --------      --------       --------      
Effect of exchange rate changes                                                       
  on cash and cash equivalents                                  (24.9)         (7.3)           5.7
                                                             --------      --------       --------      
Net cash used for continuing operations                        (207.1)        (64.6)        (412.4)
                                                             --------      --------       --------      
Discontinued operations                                                               
Proceeds from sale                                                                           862.0                 
Other                                                           (19.1)        (20.5)        (203.7)
                                                             --------      --------       --------      
Net cash (used for) provided by                                                       
  discontinued operations                                       (19.1)        (20.5)         658.3
                                                             --------      --------       --------      
(Decrease) increase in cash and                                                       
  cash equivalents                                             (226.2)        (85.1)         245.9
                                                             --------      --------       --------      
Cash and cash equivalents, beginning of year                  1,029.2       1,114.3          868.4
                                                             --------      --------       --------      
Cash and cash equivalents, end of year                       $  803.0      $1,029.2       $1,114.3
                                                             --------      --------       --------      

See notes to consolidated financial statements.
</TABLE>
 



<PAGE>
 
                  Notes to Consolidated Financial Statements
                  ------------------------------------------
                              Unisys Corporation

1  Summary of significant accounting policies
- ---------------------------------------------

Principles of consolidation 
- ---------------------------
The consolidated financial statements include the accounts of all majority-owned
subsidiaries including Unisys Receivables, Inc. ("URI") to which the company
sells accounts receivable which URI then sells to a master trust. 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. Leasehold improvements are amortized
over the shorter of the asset lives or the terms of the respective leases. The
principal rates used are summarized below by classification of properties:

                                   Rate per Year (%)
                                   -----------------
Buildings                               2 - 5
Machinery and equipment                5 - 25
Tools and test equipment              10 - 33 1/3
Rental equipment                           25

Revenue recognition 
- -------------------
Sales revenue is recorded upon shipment of product in the case of sales
contracts, upon shipment of the program in the case of software, and upon
installation in the case of sales-type leases. Revenue from services and
equipment maintenance is recorded as earned over the lives of the respective
contracts.

Revenue under systems integration and services contracts is recognized when
services have been performed and accepted or milestones have been met. Cost of
revenue under such contracts is charged based on current estimated total costs.

Accounting for large multi-year, fixed-price systems integration contracts
involves considerable use of estimates in determining revenue, costs, and
profits. When estimates indicate a loss under a contract, cost of revenue is
charged with a provision for such loss. Revisions in profit estimates are
reflected in the period in which the facts 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 since such amounts are expected
to be reinvested indefinitely.

Software capitalization 
- -----------------------
The cost of development of computer software to be sold or leased is capitalized
and amortized to cost of sales over the estimated revenue-producing lives of the
products, but not in excess of three years following product release.
Unamortized marketable software costs (which are included in other assets) at
December 31, 1997 and 1996 were $259.0 and $223.1 million, respectively.

Goodwill 
- --------
Goodwill represents the excess of cost over fair value of net assets acquired,
which is being amortized on the straight-line method. Accumulated amortization
at December 31, 1997 and 1996 was $5.7 and $617.1 million, respectively.

39

<PAGE>
 
The carrying value of goodwill is reviewed for impairment whenever events or
changes in circumstances indicate that it may not be recoverable. If such an
event occurred, the company would prepare projections of future cash flows for
the applicable business. If such projections indicated that goodwill would not
be recoverable, the company's carrying value of such asset would be reduced by
the estimated excess of such value over projected discounted cash flow.

Translation of foreign currency 
- -------------------------------
The local currency is the functional currency for most of the company's
international subsidiaries and, as such, assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are
translated at average exchange rates during the year. Translation adjustments
resulting from changes in exchange rates are reported in a separate component of
stockholders' equity. Exchange gains and losses on intercompany balances of a
long-term investment nature are reported in the separate component of
stockholders' equity.

For those international subsidiaries operating in hyper-inflationary economies,
the U.S. dollar is the functional currency and, as such, non-monetary assets and
liabilities are translated at historical exchange rates and monetary assets and
liabilities are translated at current exchange rates. Exchange gains and losses
arising from translation are included in other income.

Derivative financial instruments 
- --------------------------------
The derivative financial instruments used by the company are foreign exchange
forward contracts and options. The company does not hold or issue derivatives
for speculative trading purposes. These instruments have been designated as
hedges of certain forecasted transactional exposures.

For these financial instruments, no impact on financial position or results of
operations would result from a change in the level of the underlying rate,
price, or index. 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 item.

The company monitors and controls its risks in the derivative transactions
referred to above by periodically assessing the cost of replacing, at market
rates, those contracts in the event of default by the counterparty. The company
believes such risk to be remote. In addition, before entering into derivative
contracts, and periodically during the life of the contract, the company reviews
the counterparties' financial condition.

Gains or losses on foreign exchange forward contracts and the cost of foreign
currency options are deferred in current liabilities and prepaid expenses,
respectively, and are recognized in income (either in revenue or cost of
revenue) when the transactions being hedged are recorded. Cash flows on such
instruments are reported in investing activities as proceeds or purchases of
investments.

If the criteria for hedge accounting discussed above were not met, gains or
losses on these instruments would be included in income currently and would not
be deferred. If a derivative financial instrument is terminated before the
transaction date of the hedged transaction, any deferred gain or loss would
continue to be deferred until the transaction date. If a forecasted transaction
is no longer likely to occur, any deferred gains or losses on financial
instruments that hedge such a transaction would be reported in income
immediately.

Reclassifications 
- -----------------
Certain prior-year amounts have been reclassified to conform with the 1997
presentation.

40

<PAGE>
 
2  Earnings per share
- ---------------------

As of December 31, 1997, the company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." This statement establishes new
standards for computing and presenting earnings per share. Adoption of SFAS 
No. 128 and restatement of prior periods' earnings per share were required in
the fourth quarter of 1997. For the company, earnings per share under SFAS No.
128 for 1997 was the same as if it were computed in accordance with the prior
rule. The effect of restatement on prior periods was immaterial.


<TABLE> 
<CAPTION> 
Year ended December 31
(Millions, except per share data)                                              1997              1996              1995
                                                                            ---------         ---------         ---------- 
<S>                                                                         <C>               <C>               <C> 
Earnings per share computation - basic
Income (loss) from continuing operations before extraordinary item          $  (853.6)        $    61.8         $  (627.3)
Less dividends on preferred shares                                             (111.1)           (120.8)           (120.3)
                                                                            ---------         ---------         ---------- 
Income (loss) available to common stockholders                                 (964.7)            (59.0)           (747.6)
Discontinued operations                                                                                               2.7
Extraordinary item                                                                                (12.1)
                                                                            ---------         ---------         ---------- 
Net income (loss) available to common stockholders                          $  (964.7)        $   (71.1)        $  (744.9)
                                                                            ---------         ---------         ---------- 
Weighted average shares (thousands)                                           182,016           172,507           171,238
                                                                            ---------         ---------         ---------- 
Earnings per share - basic
Income (loss) from continuing operations before extraordinary item          $   (5.30)        $    (.34)        $   (4.37)
Discontinued operations                                                                                               .02
Extraordinary item                                                                                 (.07)
                                                                            ---------         ---------         ---------- 
Net income (loss)                                                           $   (5.30)        $    (.41)        $   (4.35)
                                                                            ---------         ---------         ---------- 
Earnings per share computation - diluted
Income (loss) available to common stockholders                              $  (964.7)        $   (59.0)        $  (747.6)
Discontinued operations                                                                                               2.7
Extraordinary item                                                                                (12.1)
                                                                            ---------         ---------         ---------- 
Net income (loss) available to common stockholders                          $  (964.7)        $   (71.1)        $  (744.9)
                                                                            ---------         ---------         ---------- 
Weighted average shares (thousands)                                           182,016           172,507           171,238
                                                                            ---------         ---------         ---------- 
Earnings per share - diluted
Income (loss) from continuing operations before extraordinary item          $   (5.30)        $    (.34)        $   (4.37)
Discontinued operations                                                                                               .02
Extraordinary item                                                                                 (.07)
                                                                            ---------         ---------         ---------- 
Net income (loss)                                                           $   (5.30)        $    (.41)        $   (4.35)
                                                                            =========         =========         ========== 

The average 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.

<CAPTION> 
Year ended December 31 (thousands)                                             1997              1996              1995
                                                                            ---------         ---------         ---------- 
<S>                                                                         <C>               <C>               <C> 
Employee stock plans                                                            4,154               723                719
8 1/4% convertible notes due 2006                                              40,946            35,486         
8 1/4% convertible notes due 2000                                              27,016            33,697             33,697
Series A preferred stock                                                       47,454            47,454             47,454
</TABLE>
 

41

<PAGE>
 
3  Significant fourth-quarter events
- ------------------------------------ 

Restructuring charges 
- ---------------------
In the fourth quarter of 1997, the company recorded a pretax charge of $149.0
million, $127.0 million after tax, or $.70 per diluted common share. The charge
was related to plans to discontinue the manufacturing and assembly of personal
computers and low-end servers, and to dispose of a small, non-strategic
technology product. The charge included (a) $64.9 million for work-force
reductions (principally in Europe) of approximately 1,000 people, including
severance, notice pay, medical, and other benefits, (b) $81.6 million for
product and program discontinuances, and goodwill associated with these
businesses, and (c) $2.5 million associated with facilities.

In the fourth quarter of 1995, the company recorded a pretax charge of $717.6
million, $581.9 million after tax, or $3.39 per diluted common share. The charge
included (a) $436.6 million for work-force reductions of approximately 7,900
people, including severance, notice pay, medical, and other benefits, (b) $218.6
million for consolidation of office facilities and manufacturing capacity, and
(c) $62.4 million associated with product and program discontinuances.

Cash expenditures related to restructuring in 1997, 1996, and 1995 were $178.7
million, $220.8 million, and $133.0 million, respectively. Cash expenditures are
expected to be $180 million in 1998 and $58 million in 1999 and beyond,
principally for work-force reductions and facility costs. Personnel reductions
in 1997 related to restructuring actions were approximately 2,600 and are
expected to be approximately 1,400 thereafter, principally in 1998. Actual costs
incurred are charged to the accrued liability when the actions are taken.

Activity related to the restructuring reserve during the years ended December
31, 1997 and 1996 was as follows:

<TABLE> 
<CAPTION> 
                               Work-Force
(Millions)        Total        Reductions(1)      Facilities(2)    Products(3)
- --------------------------------------------------------------------------------
<S>               <C>          <C>                <C>              <C> 
Balance at
Dec. 31, 1995     $ 734.3        $ 473.3           $ 249.6          $  11.4
Utilized           (300.4)        (155.6)            (62.9)           (81.9)
Provided             84.0                             13.0             71.0
Other(4)            (84.0)        (110.2)             (7.4)            33.6
                  -------        -------           -------          ------- 
Balance at                                                
Dec. 31, 1996       433.9          207.5             192.3             34.1
Provided            149.0           64.9               2.5             81.6
Utilized           (284.2)        (140.9)            (76.5)           (66.8)
Other(4)             (9.7)          (1.0)            (15.1)             6.4
                  -------        -------           -------          ------- 
Balance at                                                
Dec. 31, 1997     $ 289.0        $ 130.5           $ 103.2          $  55.3
                  =======        =======           =======          ======= 
</TABLE>
 

(1) Includes severance, notice pay, medical, and other benefits.
(2) Includes consolidation of office facilities and manufacturing capacity.
(3) Includes product and program discontinuances, and goodwill.
(4) Includes changes in estimates, reversals of excess reserves, and translation
    adjustments.


   During 1996, the company experienced lower-than-anticipated costs for
work-force reductions. Revisions of estimates for these costs were offset by
additional provisions for product and program discontinuances and facility
consolidations, $84 million of which were recorded in the fourth quarter. 

Other charges 
- -------------
In the fourth quarter of 1997, the company recorded a charge of $883.6 million,
or $4.85 per diluted common share, for the writeoff of goodwill principally
related to the 1986 merger of Burroughs Corporation and Sperry Corporation.
Yearly amortization of such goodwill was approximately $36 million. Effective
December 31, 1997, the company elected to change its method of measuring
goodwill impairment. Prior to the change, when impairment indicators existed,
goodwill was evaluated for impairment and any impairment would have been
measured based on comparing the unamortized goodwill to projected undiscounted
operating results. Under the company's new accounting method, any impairment of
goodwill indicated by such comparison would be measured by discounting projected
cash flows using a discount rate commensurate with the risks involved. When a
goodwill impairment must be recognized, the company believes the discounted cash
flow method is a better measurement of the

42

<PAGE>
 
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 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.

In the fourth quarter of 1995, the company recorded a charge (in cost of
revenue) for contract losses of $129.0 million, $88.6 million after tax, or $.51
per diluted share, related to certain services contracts, primarily a few large
multi-year, fixed-price systems integration contracts. Included in the charge
was $65.5 million related to fourth-quarter developments with respect to
contract terminations and $63.5 million related to contract performance issues
including schedule slippages, late deliveries, and cost overruns that arose in
that quarter.

Summary 
- -------
The 1997 and 1995 charges for restructurings and other charges were recorded in
the following statement of income classifications:

Year ended December 31 (Millions)                  1997         1995
- ---------------------------------------------------------------------
Cost of revenue                                 $   92.5     $  498.7
Selling, general and administrative expenses        12.3        305.2
Research and development expenses                    4.9         42.7
Goodwill impairment                                883.6
Other income (expense), net                         81.3
                                                --------     --------
Total                                           $1,074.6     $  846.6
                                                ========     ========

4  Discontinued operations
- --------------------------

During the year ended December 31, 1995, the company sold its defense business
for cash of $862 million. The net results of the defense operations for 1995 are
reported separately in the Consolidated Statement of Income as "income from
discontinued operations."

The following is a summary of the results of operations of the company's defense
business:

Year ended December 31 (Millions)            1995
- ---------------------------------------------------
Revenue                                    $ 258.1*
                                           --------
Income from operations, net of
 taxes of $6.5                             $  12.5*
Loss on sale, net of taxes of $98.2           (9.8)
                                           --------
Income from discontinued
 operations                                $   2.7
                                           ========
* Reflects results for the period January 1 through March 31, 1995.

5  Accounting changes and extraordinary items 
- ---------------------------------------------

As discussed in Note 3, effective December 31, 1997, the company elected to
change its method of measuring goodwill impairment.

Effective January 1, 1997, the company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement requires that if a transfer of financial assets does not meet
certain criteria for recording the transaction as a sale, the transfer must be
accounted for as a secured borrowing. The adoption of SFAS No. 125 did not have
a material effect on the company's consolidated financial position, consolidated
results of operations, or liquidity.

Effective January 1, 1997, the company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." The SOP provides authoritative guidance
on the recognition, measurement, display, and disclosure of environmental
remediation liabilities. Adoption of SOP 96-1 did not have a material effect on
the company's consolidated financial position, consolidated results of
operations, or liquidity.

43

<PAGE>
 
Effective January 1, 1996, the company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
requires the recognition or disclosure of compensation expense for grants of
stock options or other equity instruments issued to employees based upon their
fair value. As permitted by SFAS No. 123, the company adopted the disclosure-
only option and therefore will continue to apply APB Opinion 25 for its stock
plans. Accordingly, no compensation expense has been recognized for its stock
option plans. The adoption of these statements had no effect on the company's
consolidated financial position, consolidated results of operations, or
liquidity.

In October of 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition."
This SOP provides guidance on applying generally accepted accounting principles
in recognizing revenue on software transactions. The SOP is effective for
transactions entered into after December 31, 1997. The company will adopt this
SOP effective January 1, 1998 and such adoption is not expected to have a
material effect on the company's consolidated financial position, consolidated
results of operations, or liquidity.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that companies report information
about operating segments and is effective for financial statements for periods
beginning after December 15, 1997. The company expects to adopt SFAS No. 131 for
the year ended December 31, 1998, in its 1998 annual report. The company has not
yet made a determination of its operating segments. Adoption of SFAS No. 131
will have no effect on the company's consolidated financial position,
consolidated results of operations, or liquidity.

In 1996, the company recorded an extraordinary charge for extinguishment of
debt of $12.1 million, net of $6.5 million of income tax benefits, or $.07 per
diluted common share.

6  Inventories
- --------------

Inventories comprise the following:

December 31 (Millions)                1997      1996
                                    -------   -------
Finished equipment and supplies     $ 289.7   $ 325.5
Work in process and raw materials     271.1     316.8
                                    -------   -------    
Total inventories                   $ 560.8   $ 642.3
                                    =======   =======

At December 31, 1997 and 1996, work in process inventories included $140.7 and
$154.7 million, respectively, of costs related to long-term contracts.

7  Estimated income taxes
- -------------------------
Year ended December 31 (Millions)     1997      1996      1995
                                    -------   -------   -------
Income (loss) from continuing   
operations before income taxes
   United States                    $(954.1)  $ (91.1)  $(482.7)
   Foreign                            195.3     184.8    (298.4)
                                    -------   -------   ------- 
Total income (loss) from continuing
  operations before income taxes    $(758.8)  $  93.7   $(781.1)
                                    =======   =======   ======= 
Estimated income taxes (benefit)
   Current
      United States                 $  28.0   $ (15.0)  $ (83.6)
      Foreign                          69.0      87.0      60.5
      State and local                  23.1      10.9      (5.7)
                                    -------   -------   ------- 
      Total                           120.1      82.9     (28.8)
                                    -------   -------   ------- 
   Deferred
      United States                   (26.0)    (70.9)   (140.4)
      Foreign                           1.0      12.4      15.4
      State and local                   (.3)      7.5
                                    -------   -------   ------- 
      Total                           (25.3)    (51.0)   (125.0)
                                    -------   -------   ------- 
Total estimated income
  taxes (benefit)                   $  94.8   $  31.9   $(153.8)
                                    =======   =======   ======= 

44

<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)       1997      1996     1995
                                      -------   -------  -------
United States statutory income
 tax (benefit)                        $(265.6)  $  32.8  $(273.4)
Difference in estimated income
 taxes on foreign earnings, losses,
 and remittances                        (35.4)      7.9    192.8
State taxes                              14.8      11.8     (3.6)
Tax refund claims, audit issues,
 and other matters                       42.7     (12.9)   (85.4)
Amortization of goodwill                335.1      12.6     12.6
Reversal of valuation allowances                  (24.8)
Other                                     3.2       4.5      3.2
                                      -------   -------  -------
Estimated income taxes (benefit)      $  94.8   $  31.9  $(153.8)
                                      =======   =======  =======

The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31, 1997
and 1996, were as follows:

December 31 (Millions)                1997          1996
                                    --------      --------
Deferred tax assets
Tax loss carryforwards              $  433.3      $  469.4
Foreign tax credit carryforwards       479.8         407.8
Other tax credit carryforwards          82.2          77.5
Capitalized research and                             
 development                           327.4         242.4
Depreciation                            55.7          61.3
Postretirement benefits                 88.0          85.0
Employee benefits                       65.4          73.0
Restructuring                          115.9         196.4
Other                                  253.1         250.4
                                    --------      --------
                                     1,900.8       1,863.2
Valuation allowance                   (400.7)       (434.9)
                                    --------      --------
Total deferred tax assets           $1,500.1      $1,428.3
                                    ========      ========
Deferred tax liabilities
Pensions                            $  319.5      $  315.1
Other                                  146.0         103.9
                                    --------      --------
Total deferred tax liabilities      $  465.5      $  419.0
                                    --------      --------
Net deferred tax asset              $1,034.6      $1,009.3
                                    ========      ========

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 1997, the net decrease in the valuation
allowance was $34.2 million.

Cumulative undistributed earnings of foreign subsidiaries, for which no U.S.
income or foreign withholding taxes have been recorded, approximated $615
million at December 31, 1997. 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 1997, 1996, and 1995 for income taxes was $80.0, $112.7, and
$132.2 million, respectively.

At December 31, 1997, 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 $433.3 million. These
carryforwards will expire as follows (in millions): 1998, $2.0; 1999, $6.5;
2000, $7.6; 2001, $10.9; 2002, $6.9; and $399.4 thereafter. The company also has
available tax credit carryforwards of approximately $562.0 million, which will
expire as follows (in millions): 1998, $106.9; 1999, $118.3; 2000, $96.3; 2001,
$100.3; 2002, $83.0; and $57.2 thereafter.

The company's net deferred tax assets include substantial amounts of net
operating loss and tax credit carryforwards. Failure to achieve forecasted
taxable income might affect the ultimate realization of the net deferred tax
assets. In recent years, the information services and systems industry has
undergone dramatic changes and there can be no assurance that in the future
there would not be increased competition or other factors that may result in a
decline in sales or margins, loss of market share, delays in product
availability, or technological obsolescence.

45

<PAGE>
 
The company is currently contesting issues before the Internal Revenue Service
in connection with Sperry Corporation for the years ended March 31, 1978,
through September 16, 1986. For Convergent, Inc., the company is awaiting a
report from the Internal Revenue Service confirming the treatment of settled
issues for the years 1985-1988. In management's opinion, adequate provisions for
income taxes have been made for all years.

8  Properties
- -------------

Properties comprise the following:

December 31 (Millions)         1997        1996
                            ---------   --------- 
Land                        $    24.5   $    24.6
Buildings                       208.7       218.5
Machinery and equipment       1,180.6     1,269.0
Tools and test equipment        103.5       138.3
Unamortized leasehold
 improvements                    35.3        42.5
Construction in progress         18.6        19.6
Rental equipment                202.9       237.8
                            ---------   --------- 
Total properties            $ 1,774.1   $ 1,950.3
                            =========   =========  
9  Long-term debt
- -----------------

Long-term debt comprises the following:

December 31 (Millions)            1997        1996
                               ---------   ---------
9 1/2% notes due 1998          $   197.5   $   197.5
10 5/8% senior notes due 1999      330.1       330.1
12% senior notes due 2003          425.0       425.0
11 3/4% senior notes due 2004      450.0       450.0
9 3/4% senior sinking fund
  debentures due 2016              190.0       190.0
8 1/4% convertible subordinated
  notes due 2006                    27.8       299.0
8 1/4% convertible subordinated
  notes due 2000                       -       345.0
Other                               31.0        40.6
                               ---------   ---------
Total                            1,651.4     2,277.2
Less - Current maturities          213.1         5.8
                               ---------   ---------
Total long-term debt           $ 1,438.3   $ 2,271.4
                               =========   =========

Total long-term debt maturities in 1998, 1999, 2000, 2001, and 2002 are $213.1,
$344.7, $15.6, $11.8, and $11.6 million, respectively.

Cash paid during 1997, 1996, and 1995 for interest was $253.1, $255.1, and
$201.3 million, respectively.

In the fourth quarter of 1997, $616.2 million of the company's convertible
subordinated notes were converted into 73.2 million shares of common stock.
These conversions included all $345.0 million of its 8 1/4% convertible
subordinated notes due 2000 and $271.2 million of its 8 1/4% convertible
subordinated notes due 2006. The conversion of the notes due 2006 was in
response to a special offer to pay holders of these notes a cash premium for
each note converted. As discussed in Note 3, the company recorded a one-time
charge of $42.0 million to cover the cost of this special offer.

On January 30, 1998, the company issued $200 million of 7 7/8% senior notes
due 2008. The net proceeds from the sale of the notes were used to call $200
million principal amount of the 10 5/8% senior notes due 1999 at 101.77%. On
February 5, 1998, the company redeemed all $197.5 million of the 9 1/2% senior
notes due on July 15, 1998.

The company has a $200 million revolving credit facility that expires in June
1999. The facility includes certain financial tests that must be met as
conditions to a borrowing and provides that no amounts may be outstanding under
the facility for a minimum of 20 consecutive days in each quarter. The facility
may not be used to refinance other debt. The amount the company may borrow at
any given time is dependent upon the amount of certain of its accounts
receivable and inventory. As of December 31, 1997, there were no borrowings
outstanding under the facility and the entire $200 million was available for
borrowings. The company pays commitment fees on the unused amount of the
facility. In addition, international subsidiaries maintain short-term credit
arrangements with banks in accordance with local customary practice.

46

<PAGE>
 
10  Other accrued liabilities
- -----------------------------

Other accrued liabilities (current) comprise the following:

December 31 (Millions)                   1997       1996
                                       --------   --------
Payrolls and commissions               $  288.7   $  305.6
Customers' deposits and prepayments       540.2      551.9
Taxes other than income taxes             130.5      164.6
Restructuring*                            224.0      294.7
Other                                     123.8      136.6
                                       --------   --------
Total other accrued liabilities        $1,307.2   $1,453.4
                                       ========   ========

* At December 31, 1997 and 1996, an additional $65.0 million and $139.2 million,
  respectively, was reported in other liabilities (long term) on the
  consolidated balance sheet.

11  Comprehensive income
- ------------------------

Comprehensive income for the three years ended December 31, 1997, includes the
following components:

Year ended
December 31 (Millions)                        1997        1996        1995
                                            -------     -------     -------
Net income (loss)                           $(853.6)    $  49.7     $(624.6)
                                            -------     -------     -------
Other comprehensive income (loss)                               
  Foreign currency translation 
    adjustments*                              (40.4)      (35.8)      (22.7)
  Related tax expense (benefit)                17.6        15.1       (24.3)
                                            -------     -------     -------
Total other comprehensive income (loss)       (58.0)      (50.9)        1.6
                                            -------     -------     -------
Comprehensive (loss)                        $(911.6)    $  (1.2)    $(623.0)
                                            =======     =======     =======

* Net of income on translation adjustments reclassified to income upon sale or
  writeoff of ownership interest in foreign investments as follows: 1997, $2.8
  million; 1996, $1.5 million; and 1995, $.9 million.

12  Leases
- ----------

Rental expense, less income from subleases, for 1997, 1996, and 1995 was $168.5
$177.7, and $195.8 million, respectively.

Minimum net rental commitments under noncancelable operating leases outstanding
at December 31, 1997, substantially all of which relate to real properties, were
as follows: 1998, $142.9 million; 1999, $117.8 million; 2000, $90.3 million;
2001, $71.2 million; 2002, $54.4 million; and thereafter, $336.0 million. Such
rental commitments have been reduced by minimum sublease rentals of $113.9
million due in the future under non-cancelable subleases.

13  Financial instruments 
- -------------------------

The company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates. The derivative instruments
used are foreign exchange forward contracts and options. These derivatives,
which are over-the-counter instruments, are non-leveraged and involve little
complexity.

Due to its foreign operations, the company is exposed to the effects of foreign
exchange rate fluctuations on the U.S. dollar. Foreign exchange forward
contracts and options generally having maturities of less than nine months are
entered into for the sole purpose of hedging certain transactional exposures.

The cost of foreign currency options is recorded in prepaid expenses in the
consolidated balance sheet. At December 31, 1997, such prepaid expense was $5.5
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 and any gains
thereon are reported in income when the related transactions being hedged
(generally within 12 months) are recognized.

47

<PAGE>
 
The company also enters into foreign exchange forward contracts. Gains and
losses on such contracts, which hedge transactional exposures, are deferred and
included in current liabilities until the corresponding transaction is
recognized. At December 31, 1997, the company had a total of $205.4 million (of
notional value) of foreign exchange forward contracts, $159.1 million to sell
foreign currencies, and $46.3 million to buy foreign currencies. At December 31,
1996, the company had a total of $200.0 million of such contracts, $144.7
million to sell foreign currencies, and $55.3 million to buy foreign currencies.
At December 31, 1997, a realized net gain on such contracts of approximately
$1.7 million was deferred and included in current liabilities. Gains or losses
on foreign exchange forward contracts that hedge foreign currency transactions
are reported in income when the related transactions being hedged (generally
within 12 months) are recognized.

Financial instruments comprise the following:

December 31 (Millions)                       1997            1996
                                          ---------       ---------
Outstanding                                           
  Long-term debt                          $ 1,651.4       $ 2,277.2
  Foreign exchange forward contracts*         205.4           200.0
  Foreign exchange options*                   284.4           282.3
                                          ---------       ---------

Estimated fair value                                  
  Long-term debt                          $ 1,823.4       $ 2,374.3
  Foreign exchange forward contracts           (6.1)           (2.2)
  Foreign exchange options                      5.9             5.9

* notional value

Financial instruments also include temporary cash investments and customer
accounts receivable. Temporary investments are placed with creditworthy
financial institutions, primarily in over-securitized treasury repurchase
agreements, Euro-time deposits, or commercial paper of major corporations. At
December 31, 1997, 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 1997 and 1996, as well as
unrealized gains or losses at December 31, 1997, were immaterial. Receivables
are due from a large number of customers that are dispersed worldwide across
many industries. At December 31, 1997 and 1996, 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 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.

48

<PAGE>
 
15  Business segment information 
- --------------------------------

The company operates primarily in one business segment - information services
and systems. This segment represents more than 90% of consolidated revenue,
operating profit, and identifiable assets. The company's products and services
include enterprise-class and network servers, desktop/mobile systems, software,
systems integration, consulting and outsourcing services, distributed computing
support services, and hardware/software maintenance. These products and services
are marketed throughout the world to commercial businesses and governments.
While the company's worldwide operations are structured to achieve consolidated
objectives, the majority of manufacturing costs and research and development is
incurred in the United States. As a result, significant interdependencies and
overlaps exist among the company's operating units. Accordingly, the revenue,
operating profit, and identifiable assets shown for each geographic area may not
be indicative of the amounts that would have been reported if the operating
units were independent of one another.

Sales and transfers between geographic areas are generally priced to recover
certain cost plus an appropriate mark-up for profit. Operating profit is revenue
less related costs and direct and allocated operating expenses, excluding
interest and the unallocated portion of corporate expenses. Corporate assets are
those assets maintained for general purposes, principally cash and cash
equivalents, goodwill, prepaid pension assets, deferred taxes, investments at
equity, and corporate facilities. No single customer accounts for more than 10%
of revenue. Revenue from various agencies of the U.S. Government approximated
$791, $542, and $530 million in 1997, 1996, and 1995, respectively.

A summary of the company's operations by geographic area follows:

(Millions)                          1997          1996          1995
                                 ----------    ----------    ----------
United States
  Customer revenue               $  2,705.5    $  2,350.0    $  2,405.5
  Affiliate revenue                   914.7         720.2         721.6
                                 ----------    ----------    ----------
  Total                          $  3,620.2    $  3,070.2    $  3,127.1
                                 ==========    ==========    ==========
  Operating profit (loss)        $    155.0    $    (23.7)   $   (306.9)
  Identifiable assets               1,193.3       1,314.9       1,368.5
                                 ----------    ----------    ----------
Europe and Africa
  Customer revenue               $  2,005.9    $  2,063.5    $  2,090.3
  Affiliate revenue                    27.0          28.2          28.8
                                 ----------    ----------    ----------
  Total                          $  2,032.9    $  2,091.7    $  2,119.1
                                 ==========    ==========    ==========
  Operating profit (loss)        $     90.0    $     76.0    $   (505.0)
  Identifiable assets                 751.3         777.5         827.8
                                 ----------    ----------    ----------
Americas/Pacific
  Customer revenue               $  1,924.6    $  1,957.0    $  1,846.5
  Affiliate revenue                    83.0         122.3         138.7
                                 ----------    ----------    ----------
  Total                          $  2,007.6    $  2,079.3    $  1,985.2
                                 ==========    ==========    ==========
  Operating profit               $    437.5    $    420.9    $    408.0
  Identifiable assets                 520.5         492.6         496.1
                                 ----------    ----------    ----------
Adjustments and eliminations
  Affiliate revenue              $ (1,024.7)   $   (870.7)   $   (889.1)
  Operating profit                    (29.0)         (4.8)         21.5
  Identifiable assets                 (54.2)        (28.7)        (23.9)
                                 ----------    ----------    ----------
Consolidated
  Revenue                        $  6,636.0    $  6,370.5    $  6,342.3
                                 ==========    ==========    ==========
  Operating profit (loss)        $    653.5    $    468.4    $   (382.4)
  General corporate expenses*      (1,179.1)       (125.0)       (196.6)
  Interest expense                   (233.2)       (249.7)       (202.1)
                                 ----------    ----------    ----------
Income (loss) from
  continuing operations
  before income taxes            $   (758.8)   $     93.7    $   (781.1)
                                 ==========    ==========    ==========
Identifiable assets              $  2,410.9    $  2,556.3    $  2,668.5
Corporate assets                    3,180.4       4,410.8       4,444.7
                                 ----------    ----------    ----------
Total assets                     $  5,591.3    $  6,967.1    $  7,113.2
                                 ==========    ==========    ==========

* Includes $883.6 million in 1997 related to goodwill impairment.

49

<PAGE>
 
16  Employee plans
- ------------------

Retirement benefits 
- -------------------
Defined benefit retirement income plans cover the majority of domestic employees
and certain employees in countries outside the United States. In the United
States, the company has a retirement plan under which funds are deposited with a
trustee. Major subsidiaries outside the United States provide for employee
pensions in accordance with local requirements and customary practices, and
several maintain funded defined benefit plans.

For the U.S. plan, which is covered by the Employee Retirement Income Security
Act ("ERISA"), the company's funding policy is to fund in accordance with ERISA
funding standards. The various benefit formulas and the funding methods used in
the international plans are in accordance with local requirements. Plan assets
generally are invested in common stocks, fixed-income securities, insurance
contracts, and real estate.

Net curtailment gains of $3.2, $10.5, and $14.9 million have been recognized in
1997, 1996, and 1995, respectively.

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 become exercisable in annual installments over a two-, three-, or 
four-year period following date of grant.

Restricted stock and restricted stock units have been granted and are subject to
forfeiture until the expiration of a specified period of service commencing on
the date of grant. Compensation expense resulting from the awards is charged to
income ratably from the date of grant until the date the restrictions lapse and
is based on fair market value at the date of grant. During the year ended
December 31, 1997 and 1996, .7 and 2.9 million shares of restricted stock and
restricted stock units were granted at a weighted average grant date price of
$8.79 and $7.06 per share, .3 and .5 million shares and units were forfeited,
and $6.4 and $4.6 million was charged to income, respectively.

Effective January 1, 1996, the company adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock-Based Compensation." The company continues
to apply APB Opinion 25 for its stock plans. Accordingly, no compensation
expense has been recognized for its stock option plans.

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 was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1997, 1996, and 1995,
respectively: risk-free interest rates of 6.59%, 6.34%, and 6.70%, volatility
factors of the expected market price of the company's common stock of 55%, a
weighted average expected life of the options of 5 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, 1997, 1996, and
1995, respectively, follows: 1997, $(858.3) million, or a loss of $5.33 per
share; 1996, $46.0 million, or a loss of $.43 per share; and 1995, $(626.9)
million, or a loss of $4.36 per share. Since the fair value of options is
recognized over the vesting period, the initial impact on pro forma net income
may not be representative of pro forma results in future years, when the effect
of multiple awards would be reflected in the pro forma results.

50

<PAGE>
 
A summary of the status of stock option activity follows:

<TABLE> 
<CAPTION> 
Year ended December 31
(Shares in thousands)                          1997                      1996                      1995
                                      ----------------------    ----------------------    ----------------------
                                              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                   18,224      $10.16        17,429      $11.48        17,474      $11.81
Granted                                5,259        7.49         4,493        6.23         4,332        9.99
Exercised                               (944)       8.45          (119)       4.20          (471)       5.98
Forfeited and expired                 (2,258)       9.36        (3,579)      11.87        (3,906)      11.99
                                      ----------------------    ----------------------    ----------------------
Outstanding at 
  end of year                         20,281        9.67        18,224       10.16        17,429       11.48
                                      ----------------------    ----------------------    ----------------------
Exercisable at 
  end of year                         11,237       11.26        10,499       11.57         9,997       12.14
                                      ----------------------    ----------------------    ----------------------
Shares available 
  for granting options 
  at end of year                       4,058                     4,351                     4,480
                                      ----------------------    ----------------------    ----------------------
Weighted average fair 
  value of options 
  granted during the year                         $ 3.99                    $ 3.40                    $ 5.58
</TABLE>
 

<TABLE> 
<CAPTION> 
At December 31, 1997
(Shares in thousands)                         Outstanding                Exercisable
                                     ----------------------------   --------------------
                                                         Average               Average 
Exercise                                       Average   Exercise              Exercise 
Price Range                          Shares    Life*     Price      Shares     Price
                                     ----------------------------   -------------------- 
<S>                                  <C>       <C>       <C>        <C>        <C> 
$4-7                                  7,928     8.34       $6.06     1,593       $5.25
$7-11                                 3,909     6.10        9.96     2,760        9.91
$11-13                                4,750     6.68       11.59     3,278       11.60
$13-40                                3,694     2.37       14.62     3,606       14.64
                                     ----------------------------   -------------------- 
Total                                20,281     6.43        9.67    11,237       11.26
                                     ======                         ======
</TABLE>
 

* Average contractual remaining life in years.

51

<PAGE>
 
Other postretirement benefits 
- -----------------------------
The company provides certain health care benefits for U.S. employees who retired
or terminated after qualifying for such benefits. Most international employees
are covered by government-sponsored programs and the cost to the company (which
is expensed principally on a pay-as-you-go-basis) is not significant.

In 1992, the company announced changes to its postretirement benefit plans to
phase out the company's subsidy by January 1, 1996. Several lawsuits have been
brought by plan participants challenging the announced changes to the plans, and
the company is defending them vigorously.

Net periodic postretirement benefit cost for 1997, 1996, and 1995 includes the
following components:


<TABLE> 
<CAPTION> 
Year ended December 31 (Millions)       1997     1996     1995
                                       -------  -------  -------
<S>                                    <C>      <C>      <C> 
Interest cost on accumulated
  postretirement benefit obligation    $  16.3  $  16.0  $  17.6
Amortization of prior service
  benefit                                 (2.7)    (2.7)    (8.5)
Net amortization and deferral              1.2     (1.5)     3.6
Return on plan assets                     (1.8)    (1.0)    (4.2)
Service cost - benefits earned
 during the period                                            .1
                                       -------  -------  -------
Net periodic postretirement
  benefit cost                         $  13.0  $  10.8  $   8.6
                                       =======  =======  =======
</TABLE>
 

The status of the plan and amounts recognized in the company's consolidated
balance sheet at December 31, 1997 and 1996, were as follows:

<TABLE> 
<CAPTION> 
December 31 (Millions)                  1997        1996
                                      --------    --------
<S>                                   <C>         <C>  
Actuarial present value of
  accumulated postretirement
  benefit obligation                  $ 227.4     $ 221.6
Less plan assets at fair value          (15.4)      (24.8)
                                      --------    --------
Accrued postretirement benefit
  liability in excess of plan assets    212.0       196.8
Unrecognized net loss                   (19.3)      (10.7)
Unrecognized prior service benefit       25.5        28.3
                                      --------    --------
Accrued postretirement benefit
  obligation recognized in the
  consolidated balance sheet          $ 218.2     $ 214.4
                                      ========    ========
</TABLE>
 

As of December 31, 1997 and 1996, the entire liability was classified as long
term.

The assumed rate of return on plan assets, which are principally invested in
fixed-income securities, was 8% in 1997 and 1996, and the weighted average
discount rate used to measure the accumulated postretirement benefit obligation
was 7.3% at December 31, 1997, and 7.5% at December 31, 1996. The assumed health
care cost trend rate used in measuring the expected cost of benefits covered by
the plan was 9.2% for 1998, gradually declining to 5.5% in 2006 and thereafter.
A one-percentage point increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation at December 31, 1997,
by $10.8 million and increase the aggregate of the service and interest cost
components of net periodic postretirement health care benefit cost by $.8
million.

52

<PAGE>
 
Retirement benefits 
- -------------------
The plans' funded status and amounts recognized in the company's consolidated
balance sheet at December 31, 1997 and 1996, were as follows:


<TABLE> 
<CAPTION> 
                                                     Assets Exceed Accumulated Benefits       Accumulated Benefits Exceed Assets
                                                ------------------------------------------ ---------------------------------------
                                                       U.S. Plan           Int'l Plans           U.S. Plan         Int'l Plans
                                                --------------------- -------------------- ------------------- -------------------
(Millions)                                         1997       1996       1997      1996       1997      1996      1997     1996
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
<S>                                             <C>        <C>        <C>       <C>        <C>       <C>       <C>       <C> 
Actuarial present value of benefit obligations 
  Vested benefit obligation                     $ 3,356.1  $ 3,142.3   $ 617.1    $ 669.4   $  54.1   $  52.0   $  20.0   $  30.2
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
  Accumulated benefit obligation                $ 3,435.1  $ 3,193.4   $ 627.5    $ 683.3   $  55.8   $  53.5   $  20.3   $  32.9
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
  Projected benefit obligation                  $ 3,484.4  $ 3,246.2   $ 662.8    $ 710.6   $  59.3   $  53.5   $  22.6   $  37.2
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
Plan assets at fair value                         4,107.1    3,662.8     775.6      871.7                          13.7      20.2
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
Projected benefit obligation                   
  less than (in excess of) plan assets              622.7      416.6     112.8      161.1     (59.3)    (53.5)     (8.9)    (17.0)
Unrecognized net loss (gain)                        158.1      330.5     (59.2)     (42.0)     13.8      11.2      (4.7)     (9.7)
Unrecognized prior service (benefit) cost           (40.4)     (50.4)      6.8        7.0       4.7       2.2        .2       1.1
Unrecognized net (asset) obligation            
  at date of adoption                                 (.2)       (.3)      (.8)      (2.1)      2.4       3.2       1.8       3.3
                                                ---------- ---------- --------- ---------- --------- --------- --------- ---------
Prepaid pension cost (pension liability)       
  recognized in the consolidated balance sheet  $   740.2  $   696.4   $  59.6    $ 124.0   $ (38.4)  $ (36.9)  $ (11.6)  $ (22.3)
                                                ========== ========== ========= ========== ========= ========= ========= =========
</TABLE>
 
Net periodic pension cost for 1997, 1996, and 1995 includes the following
components:


<TABLE> 
<CAPTION> 
                                                                              U.S. Plans                 International Plans
                                                                   -------------------------------  ------------------------------
(Millions)                                                            1997       1996       1995       1997       1996      1995
                                                                   ---------  ---------  ---------  ---------  ---------  -------- 
<S>                                                                <C>        <C>        <C>        <C>        <C>        <C> 
Service cost - benefits earned during the period                   $    33.4  $    34.6  $    33.8  $    14.2  $    20.9  $   22.9
Interest cost on projected benefit obligation                          247.3      242.5      245.2       42.8       45.8      49.5
Return on assets                                                      (680.4)    (507.8)    (684.1)    (105.6)    (101.5)    (85.6)
Net amortization and deferral                                          364.8      197.8      355.2       50.9       38.2      25.3
                                                                   ---------  ---------  ---------  ---------  ---------  -------- 
Net periodic pension (income) cost                                 $   (34.9) $   (32.9) $   (49.9) $     2.3  $     3.4  $   12.1
                                                                   =========  =========  =========  =========  =========  ======== 
The assumptions used to determine the above data were as follows:
                                                                   ---------  ---------  ---------  ---------  ---------  --------
Discount rate                                                          7.25%      7.75%      7.50%      6.77%      7.11%     7.23%
Rate of increase in compensation levels                                5.40%      5.40%      5.40%      3.74%      3.88%     4.08%
Expected long-term rate of return on assets                           10.00%     10.00%     10.00%      8.25%      8.33%     8.37%
</TABLE>
 

53

<PAGE>
 
17  Stockholders' equity
- ------------------------
 
Changes in stockholders' equity during the three years ended December 31, 1997,
were as follows:

<TABLE> 
<CAPTION> 
                                                                                                        Other Capital 
                                                                                             --------------------------------- 
                                                                                                         Accumulated    Other, 
                                                                                  Retained                  Other       Princi-
                                              Preferred Stock                     Earnings               Comprehensive   pally
                                      --------------------------------  Common  (Accumulated  Treasury      Income      Paid-in
(Millions)                            Series A   Series B   Series C     Stock     Deficit)     Stock       (Loss)*      Capital
                                      ---------- ---------- ---------- -------- ------------  --------   ------------- ----------
<S>                                   <C>        <C>        <C>        <C>      <C>           <C>        <C>           <C>  
Balance at December 31, 1994          $ 1,420.3  $  50.0    $ 100.0    $    1.7 $     45.7    $  (16.0)  $   (340.8)   $  1,343.6
Issuance of stock under stock
  option and other plans                                                                           (.3)                       2.7
Net income (loss)                                                                   (624.6)
Dividends                                                                           (123.7)
Translation adjustments                                                                                         1.6
                                      ---------- ---------- ---------- -------- ------------  --------   ------------- ----------
Balance at December 31, 1995            1,420.3     50.0      100.0         1.7     (702.6)      (16.3)      (339.2)      1,346.3
Transfer to "redeemable
  preferred stock"                                 (50.0)    (100.0)
Issuance of stock under stock
  option and other plans                                                     .1                                              23.6
Net income                                                                            49.7
Dividends                                                                           (117.2)
Unearned compensation                                                                                                        (9.4)
Translation adjustments                                                                                       (50.9)
Other                                       (.1)
                                      ---------- ---------- ---------- -------- ------------  --------   ------------- ----------
Balance at December 31, 1996            1,420.2        -          -         1.8     (770.1)      (16.3)      (390.1)      1,360.5
Conversions to common stock                 (.1)                             .7                                             606.0
Issuance of stock under stock
  option and other plans                                                                           4.0                        8.4
Net income (loss)                                                                   (853.6)
Dividends                                                                           (113.1)
Unearned compensation                                                                                                         3.0
Translation adjustments                                                                                       (58.0)
Other                                                                                               .1                        2.5
                                      ---------- ---------- ---------- -------- ------------  --------   ------------- ----------
Balance at December 31, 1997          $ 1,420.1  $     -    $     -    $    2.5 $ (1,736.8)   $  (12.2)  $   (448.1)   $  1,980.4
                                      ========== ========== ========== ======== ============  ========   ============= ==========
</TABLE>
 

* Entire amount relates to foreign currency translation adjustments.

The company has 360.0 million authorized shares of common stock, par value $.01
per share and 40.0 million shares of authorized preferred stock, par value $1
per share, issuable in series. The company has authorization to issue up to 30.0
million shares of Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock").

Each share of Series A Preferred Stock (i) accrues quarterly cumulative
dividends of $3.75 per share per annum, (ii) has a liquidation preference of
$50.00 plus accrued and unpaid dividends, (iii) is convertible into 1.67 shares
of the company's common stock, subject to customary anti-dilution adjustments,
and (iv) is redeemable at the option of the company under certain circumstances
at

54

<PAGE>
 
$50.00 per share. In addition, shares of Series A Preferred Stock have priority
as to dividends over holders of the company's common stock that rank junior with
regard to dividends. If, on the date used to determine stockholders of record
for a meeting of stockholders at which directors are to be elected, preferred
stock dividends are in arrears in an amount equal to at least six quarterly
dividends, the number of members of the Board of Directors will be increased by
two as of the date of such stockholders' meeting and the holders of shares of
Series A Preferred Stock will be entitled to vote for and elect such two
additional directors.

In 1997, the company redeemed at stated value all $150.0 million of its Series B
and C Preferred Stock.

Each outstanding share of common stock has attached to it one preferred share
purchase right. Each right entitles the registered holder to purchase for $75,
under certain circumstances, one three-hundredth of a share of Junior
Participating Preferred Stock, par value $1 per share. The rights become
exercisable only if a person or group acquires 20% or more of the company's
common stock, or announces a tender or exchange offer for 30% or more of the
common stock. If the company is acquired (or survives in a reverse merger
transaction) or 50% or more of its consolidated assets or earnings power are
sold, each right will entitle its holder to purchase a number of the acquiring
company's common shares (or the company's common shares) having a market value
of $150. The company will be entitled to redeem the rights at one and two-thirds
cents per right prior to the earlier of the expiration of the rights, or the
time that a 20% position has been acquired. Until the rights become exercisable,
they have no dilutive effect on net income per common share.

At December 31, 1997, 77.1 million shares of unissued common stock of the
company were reserved for the following: 47.5 million for convertible preferred
stock, 4.0 million for the 8 1/4% convertible subordinated notes due 2006, and
25.6 million for stock options and stock purchase plans.

Changes in issued shares during the three years ended December 31, 1997, were as
follows:


<TABLE> 
<CAPTION> 
                                  Series A
                                  Preferred      Common      Treasury
(Thousands)                         Stock         Stock       Stock
                                  ---------      -------     --------
<S>                               <C>            <C>         <C> 
Balance at December 31, 1994         28,405      171,827        (865)
Issuance of stock under stock                                 
  option and other plans                             489         (28)
                                  ---------      -------     --------
Balance at December 31, 1995         28,405      172,316        (893)
Issuance of stock under stock                                 
  option and other plans                           3,426          (6)
Other                                                  1      
                                  ---------      -------     --------
Balance at December 31, 1996         28,405      175,743        (899)
Conversions to common stock              (2)      73,150      
Issuance of stock under stock                                 
  option and other plans                           1,245         160
Other                                                 84      
                                  ---------      -------     --------
Balance at December 31, 1997         28,403      250,222        (739)
                                  =========      =======     ========
</TABLE>
 

55

<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, 1997 and 1996, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
Unisys Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Unisys Corporation
at December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.

As described in Note 3 to the consolidated financial statements, effective
December 31, 1997, Unisys Corporation changed its method of accounting for the
measurement of goodwill impairment.

/s/ Ernst & Young LLP

Philadelphia,Pennsylvania
January 15, 1998, except for the fourth paragraph of Note 9,

as to which the date is February 5, 1998

56

<PAGE>
 

<TABLE> 
                    Supplemental Financial Data (Unaudited)
                              Unisys Corporation
                        Quarterly financial information
<CAPTION> 
                                                              First       Second        Third       Fourth
(Millions, except per share data)                            Quarter      Quarter      Quarter      Quarter       Year
- ---------------------------------                            --------     --------     --------     --------    --------
<S>                                                          <C>          <C>          <C>          <C>         <C>
1997
Revenue                                                      $1,530.7     $1,585.3     $1,621.4     $1,898.6    $6,636.0
Gross profit                                                    515.7        538.4        575.0        604.5     2,233.6
Income (loss) before income taxes                                30.6         66.5         80.8       (936.7)     (758.8)
Net income (loss)*                                               19.3         41.9         50.9       (965.7)     (853.6)
Dividends on preferred shares                                    30.1         27.8         26.6         26.6       111.1
Earnings (loss) on common shares                                (10.8)        14.1         24.3       (992.3)     (964.7)
Earnings (loss) per common share - basic                         (.06)         .08          .14        (4.75)      (5.30)
Earnings (loss) per common share - diluted*                      (.06)         .08          .13        (4.75)      (5.30)
Market price per common share - high                            7 5/8            8       15 3/4       16 1/2      16 1/2
                              - low                             6 1/4        5 3/4        7 3/8       11 1/8       5 3/4
                                                             --------     --------     --------     --------    --------
1996
Revenue                                                      $1,423.1     $1,505.0     $1,630.9     $1,811.5    $6,370.5
Gross profit                                                    438.9        491.9        530.0        657.6     2,118.4
Income (loss) before income taxes                               (20.3)         8.0         21.5         84.5        93.7
Net income (loss) before extraordinary item                     (13.4)         5.3         14.2         55.7        61.8
Net income (loss)                                               (13.4)         5.3         14.2         43.6        49.7
Dividends on preferred shares                                    30.2         30.2         30.2         30.2       120.8
Earnings (loss) on common shares                                (43.6)       (24.9)       (16.0)        13.4       (71.1)
Earnings (loss) per common share - basic
  Before extraordinary item                                      (.25)        (.14)        (.09)         .15        (.34)
  Extraordinary item                                                                                    (.07)       (.07)
                                                             --------     --------     --------     --------    --------
  Total                                                          (.25)        (.14)        (.09)         .08        (.41)
                                                             ========     ========     ========     ========    ========
Earnings (loss) per common share - diluted
  Before extraordinary item                                      (.25)        (.14)        (.09)         .14        (.34)
  Extraordinary item                                                                                    (.06)       (.07)
                                                             --------     --------     --------     --------    --------
  Total                                                          (.25)        (.14)        (.09)         .08        (.41)
                                                             ========     ========     ========     ========    ========
Market price per common share - high                            7 3/4        9 1/8        7 1/4        7 3/4       9 1/8
                              - low                             5 3/8        5 5/8        5 3/8        5 7/8       5 3/8
                                                             --------     --------     --------     --------    --------
</TABLE>


* In the fourth quarter of 1997, the company recorded one-time charges to net
  income of $1,052.6 million. Before these charges, fourth-quarter net income
  was $86.9 million, or $.25 per diluted common share, and full-year net income
  was $199.0 million, or $.46 per diluted common share. See Note 3 of the Notes
  to Consolidated Financial Statements.

  The individual quarterly per-common share amounts may not total to the per-
  common share amount for the full year because of accounting rules governing
  the computation of earnings per common share.

  Market prices per common share are as quoted on the New York Stock Exchange
  composite listing.

57

<PAGE>
 

<TABLE> 
<CAPTION> 
Seven-year summary of selected financial data
(Millions, except per share data)               1997(1)      1996       1995(1)     1994(1)      1993       1992     1991(1)
                                              ---------   ---------   ---------   ---------   ---------  ---------  ---------
<S>                                           <C>         <C>         <C>         <C>         <C>        <C>        <C> 
Results of operations
Revenue                                       $ 6,636.0   $ 6,370.5   $ 6,342.3   $ 6,095.5   $ 6,107.1  $ 6,715.6  $ 6,908.8
Operating income (loss)                          (379.5)      327.4      (562.1)      271.7       698.7      688.2     (614.3)
Income (loss) from 
  continuing operations
  before income taxes                            (758.8)       93.7      (781.1)       14.6       370.9      301.3   (1,425.6)
Income (loss) from 
  continuing operations
  before extraordinary 
  items and changes
  in accounting principles                       (853.6)       61.8      (627.3)       12.1       286.3      166.3   (1,520.2)
Net income (loss)                                (853.6)       49.7      (624.6)      100.5       565.4      361.2   (1,393.3)
Dividends on preferred shares                     111.1       120.8       120.3       120.1       121.6      122.1      121.2
Earnings (loss) on 
  common shares                                  (964.7)      (71.1)     (744.9)      (19.6)      443.8      239.1   (1,514.5)
Earnings (loss) from 
  continuing operations
  per common share                                                                                                  
    Basic                                         (5.30)       (.34)      (4.37)       (.63)       1.01        .27     (10.16)
    Diluted                                       (5.30)       (.34)      (4.37)       (.63)        .92        .27     (10.16)

Financial position
Working capital                               $   309.1   $   668.0   $    71.3   $ 1,015.7   $   681.0  $   513.3  $   384.3
Total assets                                    5,591.3     6,967.1     7,113.2     7,193.4     7,349.4    7,322.1    8,218.7
Long-term debt                                  1,438.3     2,271.4     1,533.3     1,864.1     2,025.0    2,172.8    2,694.6
Common stockholders' 
  equity(2)                                      (214.2)      185.8       289.9     1,034.2     1,057.3      541.8      342.1
Common stockholders' 
  equity per share                                 (.86)       1.06        1.69        6.05        6.21       3.35       2.12

Other data
Research and development                      $   302.3   $   342.9   $   404.5   $   458.5   $   489.3  $   505.6  $   610.6
Capital additions 
  of properties                                   179.9       162.3       195.0       208.2       173.5      227.0      222.7
Investment in marketable 
  software                                        132.9       116.2       123.0       121.3       118.7      110.2      167.7
Depreciation                                      156.0       182.0       203.0       226.2       252.0      311.4      412.1
Amortization
  Marketable software                              97.0       101.6       151.7       150.5       144.6      131.8      241.0
  Goodwill                                        963.9        46.1        40.9        36.9        36.7       36.8      246.6
Common shares 
  outstanding (millions)                          249.5       174.8       171.4       171.0       170.4      161.9      161.7
Stockholders of 
  record (thousands)                               37.3        39.2        41.5        45.3        47.8       51.7       54.6
Employees (thousands)                              32.6        32.9        37.4        37.8        38.2       41.7       46.4

(1) Includes special pretax charges of $1,074.6 million, $846.6 million, $186.2
    million, and $1,200.0 million for the years ended December 31, 1997, 1995,
    1994, and 1991, respectively.
(2) After deduction of cumulative preferred dividends in arrears in 1991, 1992,
    and 1993.
</TABLE>
 

Customer revenue by business unit


<TABLE>
<CAPTION>
Year ended December 31 (Millions)            1997                  1996                  1995
                                      -----------------     -----------------     -----------------
<S>                                   <C>         <C>       <C>          <C>      <C>          <C>
Information Services                  $2,056.0      31%     $1,951.4      31%     $1,836.8      29%
Global Customer Services               2,148.1      32       1,991.9      31       1,884.1      30
Computer Systems                       2,431.9      37       2,427.2      38       2,621.4      41
                                      --------     ----     --------     ----     --------     ----
Total                                 $6,636.0     100%     $6,370.5     100%     $6,342.3     100%
                                      ========     ====     ========     ====     ========     ====
</TABLE>


58





<PAGE>
 
EXHIBIT 18

January 15, 1998


Mr. Lawrence A. Weinbach
Chairman, President and Chief Executive Officer
Unisys Corporation
P.O. Box 500
M.S. A-1
Blue Bell, PA 19424

Dear Mr. Weinbach:

Note 3 to the Consolidated Financial Statements of Unisys Corporation (the 
"Company") included in its 1997 Annual Report to Stockholders, to be 
incorporated by reference in its Form 10-K for the year ended December 31, 
1997, describes a change in the method of accounting for measuring goodwill 
impairment.  Prior to the change, when impairment indicators existed, goodwill 
was evaluated for impairment and any impairment would have been measured based 
on comparing the unamortized goodwill to projected undiscounted operating 
results.  Under the Company's new accounting method, any impairment of 
goodwill indicated by such comparison would be measured by discounting 
projected cash flows using a discount rate commensurate with the risks 
involved. You have advised us that you believe that the change is to a 
preferable method in your circumstances because when a goodwill impairment 
must be recognized, the discounted cash flow method is a better measurement of 
the remaining value of goodwill, particularly considering 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.  

There are no authoritative criteria for determining a `preferable' method of 
measuring the impairment of goodwill based on the particular circumstances; 
however, we conclude that the change in the method of measuring the impairment 
of goodwill by discounting projected cash flows is to an acceptable 
alternative method which, based on your business judgment to make this change 
for the reasons cited above, is preferable in your circumstances. 

Very truly yours,

/s/ Ernst & Young LLP
Philadelphia, Pennsylvania



<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
Convergent Technologies, Inc.                                 California
Unisys Australia Limited                                      Michigan
Unisys New Zealand Limited                                    New Zealand
Unisys Espana S. A.                                           Spain
Unisys (Schweiz) A.G.                                         Switzerland
Unisys Belgium                                                Belgium
Unisys Deutschland G.m.b.H.                                   Germany
Unisys Eletronica Ltda.                                       Brazil
Unisys France                                                 France
Unisys Italia S.p.A.                                          Italy
Unisys Limited                                                England
Unisys Nederland N.V.                                         Netherlands
Unisys de Mexico, S.A. de C.V.                                Mexico
Unisys Korea Limited                                          Korea
Unisys South Africa, Inc.                                     Delaware
Unisys de Colombia, S.A.                                      Delaware

     The names of certain subsidiaries are omitted from the above list; such 
subsidiaries, considered in the aggregate as a single subsidiary, would not 
constitute a significant subsidiary.





<PAGE>
 
                        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 15, 1998 (except for the
fourth paragraph of Note 9, as to which the date is February 5, 1998), included
in the 1997 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 also consent to the incorporation by reference in the following Registration
Statements:
(1) Registration Statement (Form S-8 No. 33-20588) pertaining to the Unisys
Savings Plan, (2) Registration Statement (Form S-8 No. 33-7893) pertaining to
the Burroughs LTIP, (3) Registration Statement (Form S-8 No. 33-4317) pertaining
to the Burroughs 1985 Payroll Deduction Stock Purchase Plan, (4) Registration
Statement (Form S-8 No. 33-20204) pertaining
 to the Unisys Retirement Investment
Plan, (5) Registration Statement (Form S-8 No. 33-20205) pertaining to the
Unisys Retirement Investment Plan II, (6) Registration Statement (Form S-3 No.
33-25715) of Unisys Corporation, (7) Registration Statement (Form S-8 No. 33-
3937) pertaining to the Burroughs LTIP, (8) Registration Statement (Form S-8 No.
2-63842) pertaining to the Burroughs LTIP, (9) Registration Statement (Form S-8
No. 33-34771) pertaining to the Unisys Retirement Investment Plan, (10)
Registration Statement (Form S-8 No. 33-38711) pertaining to the Unisys Savings
Plan, (11) Registration Statement (Form S-8 No. 33-38712) pertaining to the
Unisys Retirement Investment Plan II, (12) Registration Statement (Form S-8 No.
33-38713) pertaining to the Unisys Retirement Investment Plan, (13) Registration
Statement (Form S-8 No. 33-40259) pertaining to the Unisys LTIP, (14)
Registration Statement (Form S-3 No. 33-51747) of Unisys Corporation and (15)
Registration Statement (Form S-3 No. 333-20373) of Unisys Corporation; of our
report dated January 15, 1998 (except for the fourth paragraph of Note 9, as to
which the date is February 5, 1998), 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
March 19, 1998



<PAGE>
 
Exhibit 24

                             POWER OF ATTORNEY
                            Unisys Corporation
                         Annual Report on Form 10-K
                    for the year ended December 31, 1997


     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature 
appears below does hereby make, constitute and appoint LAWRENCE A. WEINBACH, 
HAROLD S. BARRON, ROBERT H. BRUST AND JANET BRUTSCHEA HAUGEN, and each one of 
them severally, his true and lawful attorneys-in-fact and agents, for such 
person and in such person's name, place and stead, to sign the Unisys 
Corporation Annual Report on Form 10-K for the year ended December 31, 1997, 
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 26, 1998


/s/ J.P. Bolduc                              /s/ Kenneth A. Macke
- -----------------------                      --------------------------
    J. P. Bolduc                                 Kenneth A. Macke
    Director                                     Director


/s/ James J. Duderstadt                      /s/ Theodore E. Martin
- -----------------------                      --------------------------
    James J. Duderstadt                          Theodore E. Martin
    Director                                     Director

/s/ Henry C. Duques                          /s/ Robert McClements, Jr.
- -----------------------                      --------------------------
    Henry C. Duques                              Robert McClements, Jr.
    Director                                     Director

/s/ Gail D. Fosler                           /s/ Alan E. Schwartz
- -----------------------                      --------------------------
    Gail D. Fosler                               Alan E. Schwartz
    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 
/s/ Edwin A. Huston                              Officer; Director
- -----------------------
    Edwin A. Huston
    Director



<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
       
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</TABLE>