UNITED STATES          
                    SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C.  20549
                    __________________________________

                                FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________.

                        Commission file number 1-8729


                             UNISYS CORPORATION
            (Exact name of registrant as specified in its charter)

               Delaware                            38-0387840
       (State or other jurisdiction             (I.R.S. Employer
       of incorporation or organization)        Identification No.)

               Unisys Way
        Blue Bell, Pennsylvania                          19424
       (Address of principal executive offices)        (Zip Code)

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


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject 
to such filing requirements for the past 90 days.  YES [X]    NO [ ]

     Indicate by check mark whether the registrant is a large accelerated 
filer, an accelerated filer, or a non-accelerated filer.  See definition of 
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange 
Act.  (Check one):

Large Accelerated Filer [X]  Accelerated Filer [ ]  Non-Accelerated Filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).                YES [ ]    NO [X]


     Number of shares of Common Stock outstanding as of September 30, 2006:  
344,577,714.



<PAGE> 2

Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                             UNISYS CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                                (Millions)
   
                                          
                                        September 30,    
                                            2006       December 31,
                                         (Unaudited)       2005
                                         -----------   ------------
Assets
------
Current assets
Cash and cash equivalents                 $  612.0       $  642.5
Accounts and notes receivable, net         1,139.9        1,111.5
Inventories:
   Parts and finished equipment              100.3          103.4
   Work in process and materials              88.4           90.7
Deferred income taxes                        112.2           68.2
Prepaid expenses and other current assets    157.0          137.0
                                          --------       --------
Total                                      2,209.8        2,153.3
                                          --------       --------

Properties                                 1,346.3        1,320.8
Less-Accumulated depreciation and
  amortization                               998.8          934.4
                                          --------       --------
Properties, net                              347.5          386.4
                                          --------       --------
Outsourcing assets, net                      410.6          416.0
Marketable software, net                     307.7          327.6
Investments at equity                          1.1          207.8
Prepaid pension cost                       1,298.0           66.1
Deferred income taxes                        138.4          138.4
Goodwill                                     191.3          192.0
Other long-term assets                       137.8          141.3
                                          --------       --------
Total                                     $5,042.2       $4,028.9
                                          ========       ========
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Notes payable                             $     .8       $   18.1

Current maturities of long-term debt            .6           58.8
Accounts payable                             377.7          444.6
Other accrued liabilities                  1,469.2        1,293.3
                                          --------       --------
Total                                      1,848.3        1,814.8
                                          --------       --------
Long-term debt                             1,049.2        1,049.0
Accrued pension liabilities                  353.8          506.9
Other long-term liabilities                  662.7          690.8

Stockholders' equity (deficit)
Common stock, shares issued: 2006, 346.6;
   2005, 344.2                                 3.5            3.4
Accumulated deficit                       (2,408.1)      (2,108.1)
Other capital                              3,937.7        3,917.0
Accumulated other comprehensive loss        (404.9)      (1,844.9)
                                          --------       --------
Stockholders' equity (deficit)             1,128.2          (32.6)
                                          --------       --------
Total                                     $5,042.2       $4,028.9
                                          ========       ========

See notes to consolidated financial statements.




<PAGE> 3

                              UNISYS CORPORATION
                CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                     (Millions, except per share data)


                                         Three Months         Nine Months
                                      Ended September 30   Ended September 30
                                      ------------------   ------------------
                                      2006         2005     2006       2005
                                      ----         ----     ----       ----
                                                                             
Revenue                                                                      
  Services                          $1,217.6    $1,174.0  $3,618.5   $3,517.7
  Technology                           192.5       213.1     586.7      671.5
                                    --------    --------  --------   --------
                                     1,410.1     1,387.1   4,205.2    4,189.2
Costs and expenses
   Cost of revenue:
     Services                        1,058.9     1,036.0   3,271.7    3,080.8
     Technology                         92.5       105.1     310.0      324.7
                                    --------    --------  --------   --------
                                     1,151.4     1,141.1   3,581.7    3,405.5
                            
Selling, general and administrative    256.1       261.0     834.2      790.0
Research and development                45.5        61.2     184.7      192.7
                                    --------    --------  --------   --------
                                     1,453.0     1,463.3   4,600.6    4,388.2
                                    --------     -------  --------   --------
Operating loss                         (42.9)      (76.2)   (395.4)    (199.0)

Interest expense                        19.0        17.1      57.9       44.9
Other income (expense), net               .4        13.3     153.1       45.8
                                    --------    --------  --------   --------
Loss before income taxes               (61.5)      (80.0)   (300.2)    (198.1)
Provision (benefit)
   for income taxes                     16.0     1,548.2       (.2)   1,502.7
                                    --------    --------  --------   --------
Net loss                            $  (77.5)  $(1,628.2) $ (300.0) $(1,700.8)
                                    ========    ========  ========   ========
Loss per share
   Basic                            $   (.23)   $  (4.78) $   (.87)  $  (5.01)
                                    ========    ========  ========   ========
   Diluted                          $   (.23)   $  (4.78) $   (.87)  $  (5.01)
                                    ========    ========  ========   ========


See notes to consolidated financial statements.




<PAGE> 4

                           UNISYS CORPORATION
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                (Millions)

                                                    Nine Months Ended
                                                       September 30
                                                    ------------------
                                                       2006      2005
                                                    --------   --------
                                                      
Cash flows from operating activities
Net loss                                           $ (300.0) $(1,700.8) 
Add (deduct) items to reconcile net loss
   to net cash (used for) provided by operating 
   activities:
Equity loss (income)                                    4.3       (3.8)
Employee stock compensation                             4.8         .2  
Depreciation and amortization of properties            88.1       89.7
Depreciation and amortization of outsourcing assets   100.5       96.0
Amortization of marketable software                    98.7       91.6
Gain on sale of NUL shares and other assets          (153.2)     (15.8)     
Loss on the tender of debt                              -         10.7
(Increase) decrease in deferred income taxes, net     (44.0)   1,474.5
Decrease in receivables, net                            8.0       20.7
Decrease in inventories                                 5.2       19.6
Increase (decrease) in accounts payable and other
  accrued liabilities                                  69.8     (245.9)
(Decrease) increase in other liabilities              (64.8)     199.4
Decrease (increase) in other assets                    21.2      (48.8)
Other                                                  22.7       35.2
                                                    -------     ------
Net cash (used for) provided by operating activities (138.7)      22.5
                                                    -------     ------
Cash flows from investing activities
   Proceeds from investments                        5,617.8    5,758.9
   Purchases of investments                        (5,620.7)  (5,746.2)
   Investment in marketable software                  (81.2)     (93.7)
   Capital additions of properties                    (48.2)     (84.9)
   Capital additions of outsourcing assets            (68.9)    (115.7)
   Proceeds from sale of NUL shares and                                
     other assets                                     380.6       23.4     
   Purchases of businesses                              -          (.5)
                                                    -------     ------
Net cash provided by (used for) 
  investing activities                                179.4     (258.7)
                                                    -------     ------
Cash flows from financing activities
   Net (reduction in) proceeds from 
     short-term borrowings                            (17.3)       3.8
   Proceeds from employee stock plans                    .9       12.8
   Payments of long-term debt                         (57.9)    (500.2)
   Financing fees                                      (4.6)       -
   Proceeds from issuance of long-term debt              -       541.5
                                                    -------     ------
Net cash (used for) provided by financing activities  (78.9)      57.9
                                                    -------     ------
Effect of exchange rate changes on
   cash and cash equivalents                            7.7      (16.1)
                                                    -------     ------

Decrease in cash and cash equivalents                 (30.5)    (194.4)
Cash and cash equivalents, beginning of period        642.5      660.5
                                                    -------    -------
Cash and cash equivalents, end of period           $  612.0    $ 466.1
                                                   ========    =======

See notes to consolidated financial statements.




<PAGE> 5

Unisys Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In the opinion of management, the financial information furnished herein 
reflects all adjustments necessary for a fair presentation of the financial 
position, results of operations and cash flows for the interim periods 
specified.  These adjustments consist only of normal recurring accruals except 
as disclosed herein.  Because of seasonal and other factors, results for interim
periods are not necessarily indicative of the results to be expected for the 
full year.

a. The following table shows how earnings (loss) per share were computed for the
three and nine months ended September 30, 2006 and 2005 (dollars in millions,   
shares in thousands):

                                         Three Months         Nine Months
                                      Ended September 30   Ended September 30
                                      ------------------   ------------------
                                      2006         2005     2006       2005
                                      ----         ----     ----       ----

    Basic Loss Per Share

    Net loss                        $  (77.5)  $ (1,628.2) $ (300.0) $(1,700.8)
                                    ========    =========  ========  =========
    Weighted average shares          344,182      340,914   343,351    339,736
                                    ========    =========  ========  =========
    Basic loss per share            $   (.23)   $   (4.78) $   (.87) $   (5.01)
                                    ========    =========  ========   ========
    Diluted Loss Per Share
    
    Net loss                        $  (77.5)   $(1,628.2) $ (300.0) $(1,700.8)
                                    ========    =========  ========   ========
    Weighted average shares          344,182      340,914   343,351    339,736
    Plus incremental shares 
      from assumed conversions
      of employee stock plans           -            -         -         -  
                                    --------    ---------  --------   --------
    Adjusted weighted average shares 344,182      340,914   343,351    339,736
                                    ========    =========  ========   ========
    Diluted loss per share          $   (.23)   $   (4.78) $   (.87)  $  (5.01)
                                    ========    =========  ========   ========

At September 30, 2006, no shares related to employee stock plans were 
included in the computation of diluted earnings per share since inclusion of 
these shares would be antidilutive because of the net loss incurred in the 
three and nine months ended September 30, 2006.

b.  As part of the company's repositioning plan to right size its cost 
structure, on March 31, 2006, the company committed to a reduction of 
approximately 3,600 employees.  This resulted in a pretax charge in the 
first quarter of 2006 of $145.9 million, principally related to severance 
costs.  The charge is broken down as follows: (a) approximately 1,600 
employees in the U.S. for a charge of $50.3 million and (b) approximately 
2,000 employees outside the U.S. for a charge of $95.6 million.  The pretax 
charge was recorded in the following statement of income classifications: 
cost of revenue-services, $83.4 million; cost of revenue-technology, $2.0 
million; selling, general and administrative expenses, $45.4 million; 
research and development expenses, $17.6 million; and other income 
(expense), net, $2.5 million.  The income recorded in other income 
(expense), net relates to minority shareholders' portion of the charge 
related to majority owned subsidiaries which are fully consolidated by the 
company.

As part of the company's continuing repositioning plan to right size its 
cost structure, during the three months ended June 30, 2006, the company 
committed to an additional reduction of approximately 1,900 employees.  This 
resulted in a pretax charge in the second quarter of 2006 of $141.2 million, 
principally related to severance costs.  The charge is broken down as 
follows: (a) approximately 650 employees in the U.S. for a charge of $22.1 
million and (b) approximately 1,250 employees outside the U.S. for a charge 
of $119.1 million.  The pretax charge was recorded in the following 
statement of income classifications: cost of revenue-services, $101.4 
million; selling, general and administrative expenses, $28.3 million; 
research and development expenses, $11.8 million; and other income 
(expense), net, $.3 million.  The income recorded in other income (expense), 
net relates to minority shareholders' portion of the charge related to 
majority owned subsidiaries which are fully consolidated by the company.


<PAGE> 6

During the three months ended September 30, 2006, the company committed to 
an additional reduction of approximately 100 employees outside the U.S that 
resulted in a pretax charge of $36.4 million, principally related to 
severance costs.  The pretax charge was recorded in the following statement 
of income classifications: cost of revenue-services, $28.1 million and 
selling, general and administrative expenses, $8.3 million.

For the nine months ended September 30, 2006, the pretax charge of $323.5 
million was recorded in the following statement of income classifications:  
cost of revenue-services, $212.9 million; cost of revenue-technology, $2.0 
million; selling, general and administrative expenses, $82.0 million; 
research and development expenses, $29.4 million; and other income 
(expense), net, $2.8 million.  The income recorded in other income 
(expense), net relates to minority shareholders' portion of the charge 
related to majority owned subsidiaries which are fully consolidated by the 
company.

Of the total of approximately 5,600 employee reductions announced through 
September 30, 2006, approximately 90% are expected to be completed by the 
end of 2006 with the remaining reductions targeted for the first half of 
2007.  Net of increases in offshore resources and outsourcing of certain 
internal, non-client facing functions, the company anticipates that these 
combined actions will yield annualized cost savings in excess of $340 
million by the second half of 2007.  The company continues to explore other 
approaches to reducing its cost structure, including additional work force 
reductions and potential idle facility charges which could result in 
additional cost reduction charges in the fourth quarter of 2006.

A further breakdown of the individual components of these costs follows (in 
millions of dollars):

                                  Headcount    Total       U.S.     Int'l.
                                  ---------    -----       ----     ------

Charge for work force reductions    5,631     $323.5      $72.5    $251.0

Minority interest                                2.8                  2.8
                                   ------     ------      ------    -----
                                    5,631      326.3       72.5     253.8

Utilized                           (3,237)     (98.0)     (27.8)    (70.2)
Changes in estimates and
  revisions                          (411)      (2.4)      (1.9)      (.5)
Translation adjustments                          5.2                  5.2
                                   ------     ------      -----     -----

Balance at September 30, 2006       1,983     $231.1      $42.8    $188.3
                                   ======     ======      =====    ======

Expected future utilization:
2006 remaining three months         1,400      $84.1      $23.2    $ 60.9
2007 and thereafter                   583      147.0       19.6     127.4

c.  On March 17, 2006, the company adopted changes to its U.S. defined 
benefit pension plans effective December 31, 2006, and will increase 
matching contributions to its defined contribution savings plan beginning 
January 1, 2007.

The changes to the U.S. plans are part of a global effort by the company to 
provide a competitive retirement program while controlling the level and 
volatility of retirement costs.


<PAGE> 7

The changes to the U.S. pension plans affect most U.S. employees and 
senior management. They include: 

*  Ending the accrual of future benefits in the company's defined benefit 
pension plans for employees effective December 31, 2006.  There will be 
no new entrants to the plans after that date.

*  Increasing the company's matching contribution under the company savings 
plan to 100 percent of the first 6 percent of eligible pay contributed 
by participants, up from the current 50 percent of the first 4 percent 
of eligible pay contributed by participants.  The company match is made 
in company common stock.

The changes do not affect the vested accrued pension benefits of current and 
former employees, including Unisys retirees, as of December 31, 2006.

As a result of the amendment to stop accruals for future benefits in its 
U.S. defined benefit pension plans, the company recorded a pretax 
curtailment gain of $45.0 million in the first quarter of 2006.  U.S. GAAP 
pension accounting rules require companies to re-measure both plan assets 
and obligations whenever a significant event occurs, such as a plan 
amendment.  The company has performed such re-measurement as of March 31, 
2006.  As a result of the re-measurement, the company's U.S. qualified 
defined benefit pension plan is no longer in a minimum liability position 
and, accordingly, the company has reclassified its prepaid pension asset 
from other comprehensive income to a prepaid pension asset on its balance 
sheet.  Based on the changes to the U.S. plans, the March 31, 2006 re-
measurement and including the $45.0 million curtailment gain, the company 
currently expects its 2006 worldwide pension expense to be approximately 
$135 million, down from $181 million in 2005.  The expected pension expense 
in 2006 is based on actuarial assumptions and on assumptions regarding 
interest rates and currency exchange rates, all of which are subject to 
change.  Accordingly the expected expense amount could change.

Net periodic pension expense for the three and nine months ended September 
30, 2006 and 2005 is presented below (in millions of dollars):

                                     Three Months             Three Months
                              Ended September 30, 2006  Ended September 30, 2005
                              ------------------------  ------------------------
                                       U.S.    Int'l.            U.S.    Int'l.
                               Total   Plans   Plans    Total    Plans   Plans
                               -----   -----   -----    -----    -----   -----

    Service cost              $ 26.0  $  13.9  $ 12.1  $  28.4   $ 17.3 $ 11.1
    Interest cost               91.7     63.0    28.7     91.9     65.8   26.1
    Expected return on
      plan assets             (114.2)   (83.1)  (31.1)  (119.1)  ( 90.3) (28.8)
    Amortization of prior
      service (benefit) cost     (.4)     (.5)     .1   (  1.7)  (  1.9)    .2
    Recognized net actuarial 
      loss                      40.3     27.5    12.8     44.7     35.1    9.6
                               -----   ------   -----    -----    -----   ----
    Net periodic pension
      expense                 $ 43.4  $  20.8   $22.6   $ 44.2   $ 26.0  $18.2
                              ======   ======   =====   ======   ======  =====


                                   Nine Months                  Nine Months
                             Ended September 30, 2006   Ended September 30, 2005
                             ------------------------   ------------------------
                                       U.S.    Int'l.            U.S.    Int'l.
                               Total   Plans   Plans    Total    Plans   Plans
                               -----   -----   ------   -----    -----   ------

    Service cost              $ 83.2   $ 47.5   $35.7    $ 88.2  $ 52.0  $ 36.2
    Interest cost              298.5    215.3    83.2     278.0   197.3    80.7
    Expected return on
      plan assets             (374.8)  (284.1)  (90.7)   (359.9) (270.8)  (89.1)
    Amortization of prior
      service (benefit) cost     (.9)    (1.5)     .6      (4.7)   (5.7)    1.0
    Recognized net actuarial 
      loss                     130.8     93.9    36.9     135.2   105.2    30.0
    Curtailment gain           (45.0)   (45.0)                                 
                              ------   ------   -----    ------   -----   -----
    Net periodic pension 
      expense                 $ 91.8   $ 26.1   $65.7    $136.8   $78.0  $ 58.8
                              ======   ======   =====    ======   =====  ======



<PAGE> 8

The company currently expects to make cash contributions of approximately 
$80 million to its worldwide defined benefit pension plans in 2006 compared 
with $71.6 million in 2005.  For the nine months ended September 30, 2006 
and 2005, $53.3 million and $49.3 million, respectively, of cash 
contributions have been made.  In accordance with regulations governing 
contributions to U.S. defined benefit pension plans, the company is not 
required to fund its U.S. qualified defined benefit pension plan in 2006.

Net periodic postretirement benefit expense for the three and nine months 
ended September 30, 2006 and 2005 is presented below (in millions of 
dollars):

                                    Three Months                  Nine Months
                                 Ended September 30           Ended September 30
                               --------------------          -------------------

                                2006          2005           2006          2005
                                ----          ----           ----          ----

    Interest cost               $3.2         $3.5            $ 9.6        $10.4
    Expected return on assets    (.2)         (.1)             (.3)         (.3)
    Amortization of prior 
      service benefit            (.5)         (.5)            (1.5)        (1.5)
    Recognized net actuarial 
      loss                       1.4          1.6              4.0          4.8
                                ----         ----             ----        -----
    Net periodic postretirement 
      benefit expense           $3.9         $4.5            $11.8        $13.4
                                ====         ====             ====        =====

The company expects to make cash contributions of approximately $28 million 
to its postretirement benefit plan in 2006 compared with $26.4 million in 
2005.  For the nine months ended September 30, 2006 and 2005, $19.1 million 
and $18.8 million, respectively, of cash contributions have been made.

d.  In March 2006, the company sold all of the shares it owned in Nihon Unisys, 
Ltd. (NUL), a publicly traded Japanese company.  The company received gross 
proceeds of $378.1 million and recognized a pretax gain of $149.9 million in 
the first quarter of 2006.  NUL will remain the exclusive distributor of the 
company's hardware and software in Japan.

At December 31, 2005, the company owned approximately 29% of the voting 
common stock of NUL.  The company accounted for this investment by the 
equity method, and, at December 31, 2005, the amount recorded in the 
company's books for the investment, after the reversal of a minimum pension 
liability adjustment, was $243 million.  During the years ended December 31, 
2005, 2004 and 2003, and for the nine months ended September 30, 2006 and 
2005, the company recorded equity income (loss) related to NUL of $9.1 
million, $16.2 million, $18.2 million, $(4.2) million and $3.7 million, 
respectively.  These amounts were recorded in "Other income (expense), net" 
in the company's consolidated statements of income.

e.  Under the company's stockholder approved stock-based plans, stock options, 
stock appreciation rights, restricted stock and restricted stock units may 
be granted to officers, directors and other key employees.  At September 30, 
2006, 5.5 million shares of unissued common stock of the company were 
available for granting under these plans.

As of September 30, 2006, the company has granted non-qualified stock 
options and restricted stock units under these plans.  Prior to January 1, 
2006, the company applied the recognition and measurement principles of APB 
Opinion No. 25, "Accounting for Stock Issued to Employees," and related 
interpretations in accounting for those plans, whereby for stock options, at 
the date of grant, no compensation expense was reflected in income, as all 
stock options granted had an exercise price equal to or greater than the 
market value of the underlying common stock on the date of grant.  Pro forma 
information regarding net income and earnings per share was provided in 
accordance with  Statement of Financial Accounting Standards (SFAS)  No. 
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" 
(SFAS No. 148), as if the fair value method defined by SFAS No. 123, 
"Accounting for Stock-Based Compensation" (SFAS No. 123) had been applied to 
stock-based compensation.  For purposes of the pro forma disclosures, the 
estimated fair value of stock options was amortized to expense over the 
options' vesting periods.



<PAGE> 9

Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), 
"Share-Based Payment" (SFAS No. 123R), which replaces SFAS No. 123 and 
supersedes APB Opinion No. 25.  SFAS No. 123R requires all share-based 
payments to employees, including grants of employee stock options, to be 
recognized in the financial statements based on their fair values.  The 
company adopted SFAS No. 123R using the modified-prospective transition 
method, which requires the company, beginning January 1, 2006 and 
thereafter, to expense the grant date fair value of all share-based awards 
over their remaining vesting periods to the extent the awards were not fully 
vested as of the date of adoption and to expense the fair value of all 
share-based awards granted subsequent to December 31, 2005 over their 
requisite service periods.  Stock-based compensation expense for all share-
based payment awards granted after January 1, 2006 is based on the grant-
date fair value estimated in accordance with the provisions of SFAS No. 
123R.  The company recognizes compensation cost net of a forfeiture rate and 
recognizes the compensation cost for only those awards expected to vest on a 
straight-line basis over the requisite service period of the award, which is 
generally the vesting term.  The company estimated the forfeiture rate based 
on its historical experience and its expectations about future forfeitures.  
As required under the modified-prospective transition method, prior periods 
have not been restated.  In March 2005, the Securities and Exchange 
Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) 
regarding the SEC's interpretation of SFAS No. 123R and the valuation of 
share-based payments for public companies.  The company has applied the 
provisions of SAB 107 in its adoption of SFAS No. 123R.  The company records 
share-based payment expense in selling, general and administrative expenses.

The company's stock option and time-based restricted stock unit grants 
include a provision that if termination of employment occurs after the 
participant has attained age 55 and completed 5 years of service with the 
company, or for directors, the completion of 5 years of service as a 
director, the participant shall continue to vest in each of his or her 
awards in accordance with the vesting schedule set forth in the applicable 
award agreement.  For purposes of the pro forma information required to be 
disclosed by SFAS No. 123, the company recognized compensation expense over 
the vesting period.  Under SFAS No. 123R, compensation expense is recognized 
over the period through the date that the employee first becomes eligible to 
retire and is no longer required to provide service to earn the award.  For 
grants prior to January 1, 2006, compensation expense continues to be 
recognized under the prior method; compensation expense for awards granted 
after December 31, 2005 is recognized over the period to the date the 
employee first becomes eligible for retirement.

Options have been granted to purchase the company's common stock at an 
exercise price equal to or greater than the fair market value at the date of 
grant.  Options granted before January 1, 2005 generally have a maximum 
duration of ten years and were exercisable in annual installments over a 
four-year period following date of grant.  Stock options granted after 
January 1, 2005 generally have a maximum duration of five years and become 
exercisable in annual installments over a three-year period following date 
of grant.  On September 23, 2005, the company accelerated the vesting of all 
of its then-issued unvested stock options.  On December 19, 2005, the 
company granted fully vested stock options to purchase a total of 3.4 
million shares of the company's common stock at an exercise price of $6.05, 
the fair market value of the company's common stock on December 19, 2005.

Prior to January 1, 2006, restricted stock units had been granted and were 
subject to forfeiture upon employment termination prior to the release of 
the restrictions.  Compensation expense resulting from these awards is 
recognized as expense ratably from the date of grant until the date the 
restrictions lapse and is based on the fair market value of the shares at 
the date of grant.  

For stock options issued both before and after adoption of SFAS No. 123R, 
the fair value is estimated at the date of grant using a Black-Scholes 
option pricing model.  As part of its adoption of SFAS No. 123R, for stock 
options issued after December 31, 2005, the company reevaluated its 
assumptions in estimating the fair value of stock options granted.  
Principal assumptions used are as follows: (a) expected volatility for the 
company's stock price is based on historical volatility and implied market 
volatility, (b) historical exercise data is used to estimate the options' 
expected term, which represents the period of time that the options granted 
are expected to be outstanding, and (c) the risk-free interest rate is the 
rate on zero-coupon U.S. government issues with a remaining term equal to 
the expected life of the options.  The company recognizes compensation 
expense for the fair value of stock options, which have graded vesting, on 
the straight-line basis over the requisite service period of the awards.


<PAGE> 10

The fair value of stock option awards was estimated using the Black-Scholes 
option pricing model with the following assumptions and expected weighted-
average fair values as follows:

                                              Nine Months Ended September 30
                                              ------------------------------

2006          2005
----          ----

Weighted-average fair value of grant                 $2.46          $3.27
Risk-free interest rate                               4.35%          3.43%
Expected volatility                                  45.88%         55.00%
Expected life of options in years                     3.67           3.50
Expected dividend yield                                 -              -

Prior to January 1, 2006, the company would grant an annual stock option 
award to officers, directors and other key employees generally in the first 
quarter of a year.  For 2006, this annual stock option award has been 
replaced with restricted stock unit awards.  The company currently expects 
to continue to grant stock option awards, principally to newly hired 
individuals.  The restricted stock unit awards granted in March of 2006 
contain both time-based units (25% of the grant) and performance-based units 
(75% of the grant).  The time-based units vest in three equal annual 
installments beginning with the first anniversary of the grant, and the 
performance-based units vest in three equal annual installments, beginning 
with the first anniversary of the grant, based upon the achievement of 
pretax profit and revenue growth rate goals in 2006, 2006-2007, and 2006-
2008, for each installment, respectively.  Each performance-based unit will 
vest into zero to 1.5 shares depending on the extent to which the 
performance goals are met.  Compensation expense resulting from these awards 
is recognized as expense ratably for each installment from the date of grant 
until the date the restrictions lapse and is based on the fair market value 
at the date of grant and the probability of achievement of the specific 
performance-related goals.  

During the nine months ended September 30, 2006, the company recorded $4.8 
million of share-based compensation expense, which is comprised of $4.4 
million of restricted stock unit expense and $.4 million of stock option 
expense.  

The adoption of SFAS No. 123R had an immaterial impact to income before 
income taxes and net income for the nine months ended September 30, 2006.

A summary of stock option activity for the nine months ended September 30, 
2006 follows (shares in thousands):

                                              Weighted-
                               Weighted-      Average        Aggregate
                               Average        Remaining      Intrinsic
                               Exercise       Contractual    Value
   Options        Shares       Price          Term (years)   ($ in millions)
   -------        ------       ---------      ------------   ---------------

Outstanding at
   December 
   31, 2005       47,536       $16.54
Granted              570         6.29
Exercised           (150)        6.25
Forfeited and
   expired        (3,559)       16.47
                  ------
Outstanding at
   Sept. 30, 2006 44,397        16.45             4.4        $    -
                  ======
Vested and 
   expected to
   vest at 
   Sept. 30, 2006 44,397        16.45             4.4             -
                  ======
Exercisable at
   Sept. 30, 2006 43,576        16.65             4.4             -
                  ======


<PAGE> 11

The aggregate intrinsic value in the above table reflects the total pretax 
intrinsic value (the difference between the company's closing stock price on 
the last trading day of the period and the exercise price of the options, 
multiplied by the number of in-the-money stock options) that would have been 
received by the option holders had all option holders exercised their 
options on September 30, 2006.  The intrinsic value of the company's stock 
options changes based on the closing price of the company's stock.  The 
total intrinsic value of options exercised for the nine months ended 
September 30, 2006 and September 30, 2005 was immaterial.  As of September 
30, 2006, $1.7 million of total unrecognized compensation cost related to 
stock options is expected to be recognized over a weighted-average period of 
1.5 years.

A summary of restricted stock unit activity for the nine months ended 
September 30, 2006 follows (shares in thousands):

                                                                Weighted-
                                         Restricted             Average
                                         Stock                  Grant Date
                                         Units                  Fair Value
                                         ----------             ----------

Outstanding at December 31, 2005             352                   $8.89
Granted                                    1,928                    6.55
Vested                                      (128)                   7.62
Forfeited and expired                       (124)                   8.11
                                           -----
Outstanding at September 30, 2006          2,028                    6.65
                                           =====

The fair value of restricted stock units is determined based on the average 
of the high and low trading price of the company's common shares on the date 
of grant.  The weighted-average grant-date fair value of restricted stock 
units granted during the nine months ended September 30, 2006 and 2005 was 
$6.55 and $7.55, respectively.  As of September 30, 2006, there was $8.1 
million of total unrecognized compensation cost related to outstanding 
restricted stock units granted under the company's plans.  That cost is 
expected to be recognized over a weighted-average period of 1.6 years.  The 
total fair value of restricted share units vested during the nine months 
ended September 30, 2006 was $.8 million.  No restricted share units vested 
during the nine months ended September 30, 2005.

For the nine months ended September 30, 2005, the following table 
illustrates the effect on net income and earnings per share if the company 
had applied the fair value recognition provisions of SFAS No. 123 (in 
millions of dollars, except per share amounts):

                                       Nine Months Ended September 30
                                       ------------------------------
                                               2005
                                               -----       
    Net loss as reported                       $(1,700.8)
    Deduct total stock-based employee
      compensation expense determined
      under fair value method for all
      awards, net of tax                           (65.2)
                                                ---------       
    Pro forma net loss                         $(1,766.0)
                                               ==========
    Loss per share
      Basic - as reported                        $ (5.01)
      Basic - pro forma                          $ (5.20)
      Diluted - as reported                      $ (5.01)
      Diluted - pro forma                        $ (5.20)

Common stock issued upon exercise of stock options or upon lapse of 
restrictions on restricted stock units are newly-issued shares.  Cash 
received from the exercise of stock options for the nine months ended 
September 30, 2006 and 2005 was $1.0 million and $.3 million, respectively.  
The company did not realize any tax benefits from the exercise of stock 
options or upon issuance of stock upon lapse of restrictions on restricted 
stock units in light of the company's tax position.  Prior to the adoption 
of SFAS No. 123R, the company presented such tax benefits as operating cash 
flows.  Upon the adoption of SFAS No. 123R, tax benefits resulting from tax 
deductions in excess of the compensation cost recognized are classified as 
financing cash flows.


<PAGE> 12

f.  The company has two business segments:  Services and Technology.  Revenue 
classifications by segment are as follows:  Services - consulting and 
systems integration, outsourcing, infrastructure services and core 
maintenance; Technology - enterprise-class servers and specialized 
technologies.

The accounting policies of each business segment are the same as those 
followed by the company as a whole.  Intersegment sales and transfers are 
priced as if the sales or transfers were to third parties.  Accordingly, the 
Technology segment recognizes intersegment revenue and manufacturing profit 
on hardware and software shipments to customers under Services contracts.  
The Services segment, in turn, recognizes customer revenue and marketing 
profits on such shipments of company hardware and software to customers.  
The Services segment also includes the sale of hardware and software 
products sourced from third parties that are sold to customers through the 
company's Services channels.  In the company's consolidated statements of 
income, the manufacturing costs of products sourced from the Technology 
segment and sold to Services customers are reported in cost of revenue for 
Services.  

Also included in the Technology segment's sales and operating profit are 
sales of hardware and software sold to the Services segment for internal use 
in Services engagements.  The amount of such profit included in operating 
income of the Technology segment for the three and nine months ended 
September 30, 2006 and 2005 was $9.7 million and $3.3 million, and $13.0 
million and $13.0 million, respectively.  The profit on these transactions 
is eliminated in Corporate.

The company evaluates business segment performance on operating income 
exclusive of restructuring charges and unusual and nonrecurring items, which 
are included in Corporate.  All other corporate and centrally incurred costs 
are allocated to the business segments based principally on revenue, 
employees, square footage or usage.

A summary of the company's operations by business segment for the three and 
nine month periods ended September 30, 2006 and 2005 is presented below (in 
millions of dollars):

                               Total    Corporate    Services    Technology
                               -----    ---------    --------    ----------
    Three Months Ended 
    September 30, 2006
    ------------------
    Customer revenue         $1,410.1                $1,217.6     $ 192.5
    Intersegment                        $ (76.5)          3.6        72.9
                             --------   --------     --------     -------
    Total revenue            $1,410.1   $ (76.5)     $1,221.2     $ 265.4
                             ========   ========     ========     =======
    Operating loss (profit)  $  (42.9)  $ (42.0)     $  (15.6)    $  14.7
                             ========   ========     ========     =======


    Three Months Ended
    September 30, 2005  
    ------------------  

    Customer revenue         $1,387.1                $1,174.0     $ 213.1
    Intersegment                         $( 57.1)         4.5        52.6
                              -------    --------    --------     -------
    Total revenue            $1,387.1    $( 57.1)    $1,178.5     $ 265.7
                             ========    =======     ========     =======
    Operating loss           $  (76.2)   $   (.4)    $  (60.2)    $ (15.6)
                             ========    =======     ========     =======

    Nine Months Ended
    September 30, 2006
    ----------------

    Customer revenue         $4,205.2                $3,618.5     $ 586.7 
    Intersegment                         $(172.3)        10.8       161.5 
                             --------    -------     --------     -------
    Total revenue            $4,205.2    $(172.3)    $3,629.3     $ 748.2 
                             ========    =======     ========     =======
    Operating loss           $ (395.4)   $(330.7)    $  (37.7)    $ (27.0)
                             ========    =======     ========     =======

    Nine Months Ended
    September 30, 2005
    ----------------

    Customer revenue         $4,189.2                $3,517.7     $ 671.5
    Intersegment                        $( 192.7)        14.2       178.5
                             --------   --------     --------     -------
    Total revenue            $4,189.2   $( 192.7)    $3,531.9     $ 850.0
                             ========   ========     ========     =======
    Operating loss           $ (199.0)  $   (8.1)    $ (181.7)    $  (9.2)
                             ========   ========     ========     =======


<PAGE> 13

Presented below is a reconciliation of total business segment operating 
income (loss) to consolidated loss before income taxes (in millions of 
dollars):

                                    Three Months                Nine Months
                                  Ended September 30         Ended September 30
                                  ------------------        -------------------

                                   2006         2005          2006        2005
                                   ----         ----          ----        ----

    Total segment operating 
      profit (loss)              $   (.9)   $ (75.8)       $ (64.7)    $(190.9)
    Interest expense               (19.0)     (17.1)         (57.9)      (44.9)
    Other income (expense), net       .4       13.3          153.1        45.8 
    Cost reduction charge          (36.4)                   (323.5)            
    Corporate and eliminations      (5.6)       (.4)          (7.2)       (8.1)
                                 -------    -------        -------     ------- 
    Total loss before income                                                   
      taxes                      $ (61.5)   $ (80.0)       $(300.2)    $(198.1)
                                 =======    =======        =======     =======

Customer revenue by classes of similar products or services, by segment, is 
presented below (in millions of dollars):

                                   Three Months                 Nine Months
                                Ended September 30           Ended September 30
                                ------------------           ------------------

                                  2006         2005          2006        2005
                                  ----         ----          ----        ----

    Services 
     Consulting and systems 
       integration               $  377.6    $ 392.1       $1,162.9    $1,205.4
     Outsourcing                    491.0      435.8        1,417.4     1,288.6
     Infrastructure services        237.0      220.8          691.5       632.0
     Core maintenance               112.0      125.3          346.7       391.7
                                 --------   --------       --------    --------
                                  1,217.6    1,174.0        3,618.5     3,517.7
    Technology
     Enterprise-class servers       146.2      170.9          459.9       534.8
     Specialized technologies        46.3       42.2          126.8       136.7
                                 --------   --------       --------    --------
                                    192.5      213.1          586.7       671.5
                                 --------   --------       --------    --------
    Total                        $1,410.1   $1,387.1       $4,205.2    $4,189.2
                                 ========   ========       ========    ========


g.  Comprehensive income (loss) for the three and nine months ended September 
30, 2006 and 2005 includes the following components (in millions of dollars):

                                    Three Months                Nine Months
                                 Ended September 30          Ended September 30
                                 ------------------          ------------------

                                    2006       2005          2006        2005
                                    ----       ----          ----        ----
    Net loss                     $ (77.5)   $(1,628.2)    $(300.0)   $(1,700.8)
    Other comprehensive income   
      (loss)                     
      Cash flow hedges
        Income (loss), net of 
          tax of $ -, $(.8), -,                                              
          and $1.9                   (.1)        (1.6)        (.3)         3.3
        Reclassification 
          adjustments, net of 
          tax of $ -, $.6, $- 
          and $-                      .5          1.3          .5           .3
      Foreign currency  
        translation adjustments      6.0          4.6        (6.2)        21.8
      Reversal of U.S. minimum 
        pension liability            -            -        1,446.0          - 
                                 --------   ---------      -------    --------
    Total other comprehensive 
      income (loss)                  6.4          4.3      1,440.0        25.4
                                 --------    --------      -------    --------
    Comprehensive income (loss)  $ (71.1)   $(1,623.9)    $1,140.0   $(1,675.4)
                                 ========    =========    ========   =========


<PAGE> 14

Accumulated other comprehensive income (loss) as of December 31, 2005 and
September 30, 2006 is as follows (in millions of dollars):

                                                          Cash    Minimum
                                            Translation   Flow    Pension
                                     Total  Adjustments  Hedges  Liability
                                     -----  -----------  ------  ---------
    Balance at December 31, 2005  $(1,844.9)  $(627.3)   $   .1  $(1,217.7)

    Change during period            1,440.0      (6.2)       .2    1,446.0
                                   --------   -------    ------  ---------

    Balance at September 30, 2006 $  (404.9)  $(633.5)   $   .3  $   228.3
                                  =========   =======    ======  =========

h.  For equipment manufactured by the company, the company warrants that it will
substantially conform to relevant published specifications for 12 months 
after shipment to the customer.  The company will repair or replace, at its 
option and expense, items of equipment that do not meet this warranty.  For 
company software, the company warrants that it will conform substantially to 
then-current published functional specifications for 90 days from customer's 
receipt.  The company will provide a workaround or correction for material 
errors in its software that prevents its use in a production environment.

The company estimates the costs that may be incurred under its warranties 
and records a liability in the amount of such costs at the time revenue is 
recognized.  Factors that affect the company's warranty liability include 
the number of units sold, historical and anticipated rates of warranty 
claims and cost per claim.  The company quarterly assesses the adequacy of 
its recorded warranty liabilities and adjusts the amounts as necessary.  
Presented below is a reconciliation of the aggregate product warranty 
liability (in millions of dollars):

                                    Three Months                Nine Months
                                 Ended September 30          Ended September 30
                                 ------------------          ------------------

                                  2006         2005          2006        2005
                                  ----         ----          ----        ----

    Balance at beginning of 
      period                     $   8.9    $    9.4      $   8.0      $ 11.6
    
    Accruals for warranties 
      issued during the period       2.1         2.1          7.1         6.4

    Settlements made during 
      the period                    (2.3)       (2.6)        (7.1)       (8.1)

    Changes in liability for 
      pre-existing warranties
      during the period, 
      including expirations          (.1)        (.5)          .6        (1.5)
                                 -------     --------     --------     ------
    Balance at September 30      $   8.6     $   8.4      $   8.6      $  8.4
                                 =======     =======      ========     ======

i.  Cash paid during the nine months ended September 30, 2006 and 2005 for 
income taxes was $60.4 million and $32.4 million, respectively.

Cash paid during the nine months ended September 30, 2006 and 2005 for 
interest was $60.4 million and $61.7 million, respectively.


<PAGE> 15

j.  Effective January 1, 2006, the company adopted SFAS No. 151, "Inventory 
Costs an amendment of ARB No. 43, Chapter 4" (SFAS No. 151).  SFAS No. 151 
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to 
clarify the accounting for abnormal amounts of idle facility expense, 
handling costs and wasted material (spoilage).  Among other provisions, the 
new rule requires that such items be recognized as current-period charges, 
regardless of whether they meet the criterion of "so abnormal" as stated in 
ARB No. 43.  Adoption of SFAS No. 151 did not have a material effect on the 
company's consolidated financial position, consolidated results of 
operations, or liquidity.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB 
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an 
interpretation of FASB Statement No. 109," (FIN 48).  FIN 48 prescribes a 
recognition threshold and measurement attribute for the financial statement 
recognition and measurement of a tax position taken or expected to be taken 
in a tax return.  FIN 48 is effective for fiscal years beginning after 
December 15, 2006.  The company is currently evaluating what effect, if any, 
adoption of FIN 48 will have on the company's consolidated results of 
operations and financial position.

In September 2006, the FASB issued Statement of Financial Accounting 
Standards No. 157, "Fair Value Measurements," (SFAS No. 157).  SFAS No. 157 
defines fair value, establishes a framework for measuring fair value and 
expands disclosures about fair value measurements.  This statement applies 
under other accounting pronouncements that require or permit fair value 
measurements.  Accordingly, SFAS No. 157 does not require any new fair value 
measurements.  The provisions of SFAS No. 157 are to be applied 
prospectively and are effective for financial statements issued for fiscal 
years beginning after November 15, 2007.  The company is currently 
evaluating what effect, if any, adoption of SFAS No. 157 will have on the 
company's consolidated results of operations and financial position.
	
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, "Employers' Accounting for Defined Benefit Pension and 
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, 
and 132(R)," (SFAS No. 158).  SFAS No. 158 requires an employer to recognize 
in its statement of financial position the funded status of a benefit plan, 
measured as the difference between plan assets at fair value and the benefit 
obligation.  For pension plans, the benefit obligation is the projected 
benefit obligation; for any other postretirement benefit plan, such as a 
retiree health care plan, the benefit obligation is the accumulated benefit 
obligation.  If plan assets exceed plan liabilities, an asset would be 
recognized, and if plan liabilities exceed plan assets a liability would be 
recognized.  In addition, SFAS No. 158 requires that changes in the funded 
status of a defined benefit postretirement plan be recognized in 
comprehensive income in the year in which the changes occur.  SFAS No. 158 
does not change the amount of expense recorded in a company's statement of 
income related to defined benefit postretirement plans.  The requirement to 
recognize the funded status of a defined benefit postretirement plan and 
other disclosure requirements of SFAS No. 158 are effective for fiscal years 
ending after December 15, 2006.  Adoption of SFAS No. 158 by the company on 
December 31, 2006 will result in the recognition of a material charge in the 
ending balance of accumulated other comprehensive income.  This charge will 
have no effect on the company's net income, liquidity, cash flows, or 
financial ratio covenants in the company's credit agreements and debt 
securities.

In September 2006, the Securities and Exchange Commission issued Staff 
Accounting Bulletin No. 108, "Considering the Effects of Prior Year 
Misstatements when Quantifying Misstatements in Current Year Financial 
Statements," (SAB 108).  SAB 108 requires companies to evaluate the 
materiality of identified unadjusted errors on each financial statement and 
related financial statement disclosure using both the rollover approach and 
the iron curtain approach.  The rollover approach quantifies misstatements 
based on the amount of the error in the current year financial statement 
whereas the iron curtain approach quantifies misstatements based on the 
effects of correcting the misstatement existing in the balance sheet at the 
end of the current year, irrespective of the misstatement's year(s) of 
origin.  Financial statements would require adjustment when either approach 
results in quantifying a misstatement that is material.  Correcting prior 
year financial statements for immaterial errors would not require previously 
filed reports to be amended.  SAB 108 is effective for interim periods of 
the first fiscal year ending after November 15, 2006.  The company is 
currently evaluating what effect, if any, adoption of SAB 108 will have on 
the company's consolidated results of operations and financial position. 


<PAGE> 16

In September 2006, the Emerging Issues Task Force (EITF) of the FASB, 
reached a consensus on Issue 06-4, "Accounting for Deferred Compensation and 
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance 
Arrangements,"  (EITF 06-4).  EITF 06-4 requires that, for split-dollar life 
insurance arrangements that provide a benefit to an employee that extends to 
postretirement periods, an employer should recognize a liability for future 
benefits in accordance with SFAS No. 106.  EITF 06-4 is effective for fiscal 
years beginning after December 15, 2007 and it requires that recognition of 
the effects of adoption should be either by (a) a change in accounting 
principle through a cumulative-effect adjustment to retained earnings as of 
the beginning of the year of adoption or (b) a change in accounting 
principle through retrospective application to all prior periods.  The 
company is currently evaluating what effect, if any, adoption of EITF 06-4 
will have on the company's consolidated results of operations and financial 
position.

In September 2006, the EITF reached a consensus on Issue 06-5, "Accounting 
for Purchases of Life Insurance-Determining the Amount That Could Be 
Realized in Accordance with FASB Technical Bulletin No. 85-4," (EITF 06-5).  
EITF 06-5 requires that a policyholder should consider any additional 
amounts included in the contractual terms of the policy in determining the 
amount that could be realized under the insurance contract on a policy by 
policy basis.  EITF 06-5 is effective for fiscal years beginning after 
December 15, 2006 and it requires that recognition of the effects of 
adoption should be either by (a) a change in accounting principle through a 
cumulative-effect adjustment to retained earnings as of the beginning of the 
year of adoption or (b) a change in accounting principle through 
retrospective application to all prior periods.  The company is currently 
evaluating what effect, if any, adoption of EITF 06-5 will have on the 
company's consolidated results of operations and financial position.


k.  In 2002, the company and the Transportation Security Administration (TSA) 
entered into a competitively awarded contract providing for the 
establishment of secure information technology environments in airports.  
The Defense Contract Audit Agency (DCAA), at the request of TSA, reviewed 
contract performance and raised some government contracting issues.  It is 
not unusual in complex government contracts for the government and the 
contractor to have issues arise regarding contract obligations.  The company 
continues to work collaboratively with the DCAA and TSA to try to resolve 
these issues.  While the company believes that it and the government will 
resolve the issues raised, there can be no assurance that these issues will 
be successfully resolved or that new issues will not be raised.  It has been 
publicly reported that certain of these matters have been referred to the 
Inspector General's office of the Department of Homeland Security for 
investigation.  The company has received no investigative requests from the 
Inspector General's office or any other government agency with respect to 
any such referral.  The company does not know whether any such referral will 
be pursued or, if pursued, what effect it may have on the company or on the 
resolution of the issues with TSA.

l.  In June 2006, the company retired at maturity all $57.9 million of its 
remaining 8-1/8% senior notes.

During the nine months ended September 30, 2005, the company (a) issued 
$400 million 8% senior notes due 2012 and $150 million 8-1/2% senior notes 
due 2015, (b) repaid $339.8 million of the company's $400 million 8-1/8% 
senior notes due 2006 pursuant to a September 2005 tender offer by the 
company and recorded a charge of $10.7 million related to the tender premium 
and amortization of deferred costs related to the notes, and (c) in January 
2005 retired at maturity all of the company's $150.0 million 7-1/4% senior 
notes.


<PAGE> 17

The company has a three-year, secured revolving credit facility which 
expires in 2009 that provides for loans and letters of credit up to an 
aggregate of $275 million.  Borrowings under the facility bear interest 
based on short-term rates and the company's credit rating.  The credit 
agreement contains customary representations and warranties, including no 
material adverse change in the company's business, results of operations or 
financial condition.  It also contains financial covenants requiring the 
company to maintain certain interest coverage, leverage and asset coverage 
ratios and a minimum amount of liquidity, which could reduce the amount the 
company is able to borrow.  The credit facility also includes covenants 
limiting liens, mergers, asset sales, dividends and the incurrence of debt.  
Events of default include non-payment, failure to perform covenants, 
materially incorrect representations and warranties, change of control and 
default under other debt aggregating at least $25 million.  If an event of 
default were to occur under the credit agreement, the lenders would be 
entitled to declare all amounts borrowed under it immediately due and 
payable.  The occurrence of an event of default under the credit agreement 
could also cause the acceleration of obligations under certain other 
agreements and the termination of the company's U.S. trade accounts 
receivable facility.  The credit facility is secured by the company's 
assets, except that the collateral does not include accounts receivable that 
are subject to the receivable facility, U.S. real estate or the stock or 
indebtedness of the company's U.S. operating subsidiaries.  As of September 
30, 2006, there were letters of credit of $35.9 million issued under the 
facility and there were no cash borrowings.

m.  During the financial close for the quarter ended September 30, 2005, the 
company performed its quarterly assessment of its net deferred tax assets.  
Up to that point in time, as previously disclosed in the company's critical 
accounting policies section of its Form 10-K, the company had principally 
relied on its ability to generate future taxable income (predominately in 
the U.S.) in its assessment of the realizability of its net deferred tax 
assets.  
    
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for 
Income Taxes" (SFAS No. 109), limits the ability to use future taxable income 
to support the realization of deferred tax assets when a company has 
experienced recent losses even if the future taxable income is supported by 
detailed forecasts and projections.  After considering the company's pretax 
losses in 2004 and for the nine months ended September 30, 2005, the 
expectation of a pretax loss for the full year of 2005, and the company's plans 
to restructure its business model by divesting non-core assets, reducing its 
cost structure and shifting its focus to high growth markets, the company 
concluded that it could no longer rely on future taxable income as the basis 
for realization of its net deferred tax asset.

Accordingly, the company recorded a non-cash charge in the third quarter of 
2005 of $1,573.9 million to increase the valuation allowance against deferred 
tax assets. With this increase the company has a full valuation allowance 
against its deferred tax assets for all of the U.S. and certain foreign 
subsidiaries. This non-cash charge did not affect the company's compliance with 
the financial covenants under its credit agreements. It was recorded in 
provision for income taxes in the accompanying consolidated statement of income.
The company expects to continue to record a full valuation allowance on future 
tax benefits in such jurisdictions until other positive evidence is sufficient 
to justify realization.

The realization of the remaining deferred tax assets is primarily dependent on 
forecasted future taxable income within certain foreign jurisdictions. Any 
reduction in estimated forecasted future taxable income may require the company 
to record an additional valuation allowance against the remaining deferred tax 
assets. Any increase or decrease in the valuation allowance would result in 
additional or lower income tax expense in such period and could have a 
significant impact on that period's earnings. 

n.  Certain prior year amounts have been reclassified to conform with the 2006 
presentation.



<PAGE> 18


I
tem 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.

Overview

For the nine months ended September 30, 2006, the company reported a net loss of
$300.0 million, or $.87 per share, compared with a net loss of $1,700.8 million,
or $5.01 per share, for the nine months ended September 30, 2005.  The current 
period includes pretax charges of $323.5 million relating to cost reduction 
actions and the prior-year period includes a non-cash charge of $1,573.9 million
for the increase in the deferred tax asset valuation allowance discussed below.

During the first nine months of 2006, the company executed against its 
previously-announced plan to fundamentally reposition the company for profitable
growth.  During the period, the company:

*  committed to a reduction of approximately 5,600 employees, which resulted in 
pretax charges of $323.5 million.  In the first nine months, the company 
implemented approximately 3,600 of the employee reductions.  See note (b) to 
the financial statements.

*  adopted changes to its U.S. defined benefit pension plans effective December 
31, 2006, and will increase matching contributions to its defined contribution 
savings plan beginning January 1, 2007.  As a result of stopping the accruals 
for future benefits, the company recorded a pretax curtailment gain of $45.0 
million.  See note (c) to the financial statements.

*  began its program to divest non-core assets.  In March the company divested 
its stake in Nihon Unisys, Ltd. (NUL), a leading IT solutions provider in Japan.
The company sold all of its 30.5 million shares in NUL, generating cash proceeds
of approximately $378 million, which will be used to fund the company's cost 
reduction program.  A pretax gain of $149.9 million was recorded on the sale.  
The company also sold certain assets of its Unigen semiconductor test equipment 
business for cash proceeds of $8 million.  See note (d) to the financial 
statements.

*  reached a definitive agreement with its partner banks on renegotiated terms 
for its iPSL payment processing joint venture in the United Kingdom.  The terms 
of the new agreement, which went into effect on January 1, 2006, include new 
tariff arrangements that are expected to yield an additional approximately $150 
million in revenue to the company over the 2006-2010 timeframe.

*  reached a series of alliance agreements with NEC Corporation (NEC) to 
collaborate in server technology, research and development, manufacturing, and 
solutions delivery.  Among the areas included in the agreements, the two 
companies will co-design and develop a common high-end, Intel-based server 
platform for customers of both companies, and NEC is recognizing the company as 
a preferred provider of technology support and maintenance services and managed 
security services in markets outside of Japan by offering the company the 
opportunity to bid these services. 


Results of operations

Company results
     
For the three months ended September 30, 2006, the company reported a net loss 
of $77.5 million, or $.23 per share, compared with a net loss of $1,628.2 
million, or $4.78 per share, for the three months ended September 30, 2005.  The
prior-year period includes a non-cash charge of $1,573.9 million for the 
increase in the deferred tax asset valuation allowance discussed below.

Revenue for the quarter ended September 30, 2006 was $1.41 billion compared with
$1.39 billion for the third quarter of 2005, an increase of 2% from the prior 
year.  Foreign currency fluctuations had a 2 percentage point positive impact on
revenue in the current period compared with the year-ago period.  Services 
revenue increased 4% which was offset in part by a decrease of 10% in Technology
revenue.  U.S. revenue declined 5% in the quarter compared with the year-ago 
period principally in the company's Federal business.  Revenue in international 
markets increased 8% due to increases in Latin America, Asia and Europe offset 
in part by a decline in South Pacific and Japan.  On a constant currency basis, 
international revenue increased 4% in the three months ended September 30, 2006 
compared with the three months ended September 30, 2005.

Pension expense for the three months ended September 30, 2006 was $43.4 million 
compared with $44.2 million for the three months ended September 30, 2005.  The 
company records pension income or expense, as well as other employee-related 
costs such as payroll taxes and medical insurance costs, in operating income in 
the following income statement categories:  cost of sales; selling, general and 
administrative expenses; and research and development expenses.  The amount 
allocated to each category is based on where the salaries of active employees 
are charged.


<PAGE> 19

Total gross profit margin was 18.3% in the three months ended September 30, 2006
compared with 17.7% in the three months ended September 30, 2005.  The current 
year period includes a charge of $28.1 million related to cost reduction 
actions.  Excluding the cost reduction charge, the gross margin improvement was 
principally due to operational improvements in several large BPO contracts as 
well as the benefits derived from the cost reduction actions.

Selling, general and administrative expenses were $256.1 million for the three 
months ended September 30, 2006 (18.2% of revenue) compared with $261.0 million 
(18.8% of revenue) in the year-ago period.  The current year period includes a 
charge of $8.3 million related to cost reduction actions.  Excluding the cost 
reduction charge, the improvement was principally due to the benefits derived 
from the cost reduction actions.

Research and development (R&D) expense in the third quarter of 2006 was $45.5 
million compared with $61.2 million in the third quarter of 2005.  The company 
continues to invest in proprietary operating systems, middleware and in key 
programs within its industry practices.  The decline in R&D in the quarter was 
principally a result of cost reduction actions.

For the third quarter of 2006, the company reported a pretax operating loss of 
$42.9 million compared with a pretax operating loss of $76.2 million in the 
third quarter of 2005.  The current year period includes a charge of $36.4 
million related to cost reduction actions.  

Interest expense for the three months ended September 30, 2006 was $19.0 million
compared with $17.1 million for the three months ended September 30, 2005, 
principally due to higher average debt.

Other income (expense), net, which can vary from period to period, was income of
$.4 million in the third quarter of 2006 compared with income of $13.3 million 
in 2005.  The difference in 2006 from 2005 was principally due to (a) an 
increase in NUL equity income from a loss of $7.8 million in the year-ago 
quarter to zero in the current quarter due to the sale of the company's 
investment in NUL in March 2006 (see note d), (b) expense of $2.3 million in the
current quarter compared with income of $11.3 million in last year's third 
quarter related to minority shareholders' portion of earnings or losses of iPSL,
a 51% owned subsidiary which is fully consolidated by the company, due to 
increased profit from iPSL resulting from the renegotiated contract in January 
2006, (c) a gain on the sale of property of $15.8 million in the year-ago 
period, and (d) a charge of $10.7 million in the year-ago period related to the 
debt tender offer discussed below.

During the financial close for the quarter ended September 30, 2005, the company
performed its quarterly assessment of its net deferred tax assets.  Up to that 
point in time, as previously disclosed in the company's critical accounting 
policies section of its Form 10-K, the company had principally relied on its 
ability to generate future taxable income (predominately in the U.S.) in its 
assessment of the realizability of its net deferred tax assets.

Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for 
Income Taxes" (SFAS No. 109), limits the ability to use future taxable income to
support the realization of deferred tax assets when a company has experienced 
recent losses even if the future taxable income is supported by detailed 
forecasts and projections.  After considering the company's pretax losses in 
2004 and for the nine months ended September 30, 2005, the expectation of a pre-
tax loss for the full year of 2005, and the company's plans to restructure its 
business model by divesting non-core assets, reducing its cost structure and 
shifting its focus to high growth markets, the company concluded that it could 
no longer rely on future taxable income as the basis for realization of its net 
deferred tax asset.

Accordingly, the company recorded a non-cash charge in the third quarter of 2005
of $1,573.9 million to increase the valuation allowance against deferred tax 
assets. With this increase the company has a full valuation allowance against 
its deferred tax assets for all of the U.S. and certain foreign subsidiaries. 
This non-cash charge did not affect the company's compliance with the financial 
covenants under its credit agreements. It was recorded in provision for income 
taxes in the accompanying consolidated statement of income.  The company expects
to continue to record a full valuation allowance on future tax benefits in such 
jurisdictions until other positive evidence is sufficient to justify 
realization.


<PAGE> 20

The realization of the remaining deferred tax assets is primarily dependent on 
forecasted future taxable income within certain foreign jurisdictions. Any 
reduction in estimated forecasted future taxable income may require the company 
to record an additional valuation allowance against the remaining deferred tax 
assets. Any increase or decrease in the valuation allowance would result in 
additional or lower income tax expense in such period and could have a 
significant impact on that period's earnings. 

Income (loss) before income taxes for the three months ended September 30, 2006 
was a loss of $61.5 million compared with a loss of $80.0 million in 2005. The 
provision for income taxes was $16.0 million in the current quarter compared 
with a provision for income taxes of $1,548.2 million in the year-ago period.  
The prior year provision includes the increase in the deferred tax asset 
valuation allowance discussed above.  Due to the fact that the company has a 
full valuation allowance for all of its U.S. tax assets and certain 
international subsidiaries, which was recorded in the third quarter of 2005, the
company no longer has a meaningful effective tax rate.  The company will record 
a tax provision or benefit for those international subsidiaries that do not have
a full valuation allowance against their deferred tax assets.  Any profit or 
loss recorded for the company's U.S. operations will have no provision or 
benefit associated with it.  As a result, the company's provision or benefit for
taxes will vary significantly quarter to quarter depending on the geographic 
distribution of income.

For the nine months ended September 30, 2006, the company reported a net loss of
$300.0 million, or $.87 per share, compared with a net loss of $1,700.8 million,
or $5.01 per share, for the nine months ended September 30, 2005.  The current 
period includes a pretax charge of $323.5 million relating to the cost reduction
actions and the prior-year period includes a non-cash charge of $1,573.9 million
for the increase in the deferred tax asset valuation allowance. 

Total revenue for the nine months ended September 30, 2006 was $4.21 billion 
compared with $4.19 billion for the nine months ended September 30, 2005.  
Foreign currency translations had a negligible impact on revenue in the current 
nine months when compared with the year-ago period.  In the current nine-month 
period, Services revenue increased 3% and Technology revenue decreased 13%.

U.S. revenue declined 4% in the current nine-month period compared with the 
year-ago period.  Revenue in international markets increased 4% driven by 
increases in Europe and Latin America which was partially offset by a decrease 
in Pacific/Asia/Japan.  On a constant currency basis, international revenue 
increased 5% in the nine months ended September 30, 2006.

Pension expense for the nine months ended September 30, 2006 was $91.8 million 
compared with $136.8 million of pension expense for the nine months ended 
September 30, 2005. The decrease in pension expense in 2006 from 2005 was 
principally due to the U.S. curtailment gain of $45.0 million recognized in 
March 2006, resulting from the freezing of U.S. plan benefits effective January 
1, 2007.

Total gross profit margin was 14.8% in the nine months ended September 30, 2006 
compared with 18.7% in the year-ago period.  The current period included a 
$214.9 million charge related to the cost reduction actions.

For the nine months ended September 30, 2006, selling, general and 
administrative expense were $834.2 million (19.8% of revenue) compared with 
$790.0 million (18.9% of revenue) for the nine months ended September 30, 2005. 
Selling general and administrative expenses for the nine months ended September 
30, 2006 included $82.0 million related to the cost reduction actions.  Selling,
general and administrative expense in the current nine-month period includes 
$19.5 million of pension expense compared with pension expense of $27.1 million 
in the year-ago period.

R&D expense for the nine months ended September 30, 2006 was $184.7 million 
compared with $192.7 million a year ago.  R&D expense in the nine months of 2006
included $29.4 million related to the cost reduction actions.  R&D in the 
current period includes $4.3 million of pension expense compared with pension 
expense of $14.7 million in the year-ago period.

For the nine months ended September 30, 2006, the company reported an operating 
loss of $395.4 million compared with an operating loss of $199.0 million for the
nine months ended September 30, 2005.  The current period includes a $323.5 
million charge related to the cost reduction actions.  The current period also 
includes pension expense of $91.8 million compared with pension expense of 
$136.8 million in the year-ago period.

Interest expense for the nine months ended September 30, 2006 was $57.9 million 
compared with $44.9 million for the nine months ended September 30, 2005, 
principally due to higher average debt.


<PAGE> 21

Other income (expense), net was income of $153.1 million in the current nine-
month period compared with income of $45.8 million in the year-ago period.  The 
increase in income was principally due to the $149.9 million gain from the sale 
of all of the company's shares in NUL (see note (d)), offset in part by (a) a 
decline in NUL equity income from $3.7 million in the year-ago period to a loss 
of $4.2 million in the current nine month period, (b) an expense of $5.0 million
in the current period compared with income of $27.4 million in the last year's 
nine month period related to minority shareholders' portion of earnings or 
losses of iPSL, a 51% owned subsidiary which is fully consolidated by the 
company, (c) a gain on the sale of property of $15.8 million in the year-ago 
period, and (d) a charge of $10.7 million in the year-ago period related to the 
debt tender offer.

Income (loss) before income taxes was a loss of $300.2 million in the nine 
months ended September 30, 2006 compared with a loss of $198.1 million last 
year.  The benefit for income taxes was $.2 million in the current period 
compared with a provision for income taxes of $1,502.7 million in the year-ago 
period. 

In 2002, the company and the Transportation Security Administration (TSA) 
entered into a competitively awarded contract providing for the establishment of
secure information technology environments in airports. The Defense Contract 
Audit Agency (DCAA), at the request of TSA, reviewed contract performance and 
raised some government contracting issues. It is not unusual in complex 
government contracts for the government and the contractor to have issues arise 
regarding contract obligations. The company continues to work collaboratively 
with the DCAA and TSA to try to resolve these issues. While the company believes
that it and the government will resolve the issues raised, there can be no 
assurance that these issues will be successfully resolved or that new issues 
will not be raised. It has been publicly reported that certain of these matters 
have been referred to the Inspector General's office of the Department of 
Homeland Security for investigation. The company has received no investigative 
requests from the Inspector General's office or any other government agency with
respect to any such referral. The company does not know whether any such 
referral will be pursued or, if pursued, what effect it may have on the company 
or on the resolution of the issues with TSA.

Segment results

The company has two business segments:  Services and Technology.  Revenue 
classifications by segment are as follows:  Services - consulting and systems 
integration, outsourcing, infrastructure services and core maintenance; 
Technology - enterprise-class servers and specialized technologies.  

The accounting policies of each business segment are the same as those followed 
by the company as a whole.  Intersegment sales and transfers are priced as if 
the sales or transfers were to third parties.  Accordingly, the Technology 
segment recognizes intersegment revenue and manufacturing profit on hardware and
software shipments to customers under Services contracts.  The Services segment,
in turn, recognizes customer revenue and marketing profit on such shipments of 
company hardware and software to customers.  The Services segment also includes 
the sale of hardware and software products sourced from third parties that are 
sold to customers through the company's Services channels.  In the company's 
consolidated statements of income, the manufacturing costs of products sourced 
from the Technology segment and sold to Services customers are reported in cost 
of revenue for Services.  
            
Also included in the Technology segment's sales and operating profit are sales 
of hardware and software sold to the Services segment for internal use in 
Services agreements.  The amount of such profit included in operating income of 
the Technology segment for the three and nine months ended September 30, 2006 
and 2005 was $9.7 million and $3.3 million, and $13.0 million and $13.0 million,
respectively. The profit on these transactions is eliminated in Corporate.  
            
The company evaluates business segment performance on operating income exclusive
of restructuring charges and unusual and nonrecurring items, which are included 
in Corporate.  All other corporate and centrally incurred costs are allocated to
the business segments, based principally on revenue, employees, square footage 
or usage.  Therefore, the segment comparisons below exclude the cost reduction 
items mentioned above.  


<PAGE> 22

Information by business segment is presented below (in millions of dollars):

                                       Elimi-    
                            Total      nations      Services    Technology
                           -------     -------      --------    ----------
Three Months Ended
September 30, 2006
------------------
Customer revenue          $1,410.1                  $1,217.6     $192.5
Intersegment                           $(76.5)           3.6       72.9
                          --------     -------      --------     ------
Total revenue             $1,410.1     $(76.5)      $1,221.2     $265.4
                          ========     =======      ========     ====== 

Gross profit percent          18.3 %                    13.9 %     46.3%
                          ========                  ========     ======
Operating (loss) 
 profit percent               (3.0)%                   ( 1.3)%      5.5%
                          ========                  ========     ======

Three Months Ended
September 30, 2005
------------------
Customer revenue          $1,387.1                  $1,174.0     $213.1
Intersegment                           $( 57.1)          4.5       52.6
                          --------     -------      --------     ------ 
Total revenue             $1,387.1     $( 57.1)     $1,178.5     $265.7
                          ========     =======      ========     ====== 
Gross profit percent          17.7%                     11.3%      42.4%
                          ========                  ========     ======
Operating loss percent        (5.5)%                    (5.1)%     (5.9)%
                          ========                  ========     ======


Gross profit percent and operating loss percent are as a percent of total 
revenue.

In the Services segment, customer revenue was $1.22 billion for the three months
ended September 30, 2006 compared with $1.17 billion for the three months ended 
September 30, 2005.  Foreign currency translation had a 2 percentage point 
positive impact on Services revenue in the current quarter compared with the 
year-ago period.  Revenue in the third quarter of 2006 increased 4% compared 
with 2005, principally due to a 13% increase in outsourcing ($491.0 million in 
2006 compared with $435.8 million in 2005), and a 7% increase in infrastructure 
services ($237.0 million in 2006 compared with $220.8 million in 2005), offset 
in part by a 4% decrease in consulting and systems integration revenue ($377.6 
million in 2006 compared with $392.1 million in 2005) and a 11% decrease in core
maintenance ($112.0 million in 2006 compared with $125.3 million in 2005).  
Services gross profit was 13.9% in the third quarter of 2006 compared with 11.3%
in the year-ago period.  Services operating income (loss) percent was (1.3)% in 
the three months ended September 30, 2006 compared with (5.1)% in the three 
months ended September 30, 2005.  The Services margin improvements were 
principally due to operational improvements in several large BPO contracts as 
well as the benefits derived from the cost reduction actions.

In the Technology segment, customer revenue was $193 million in the current 
quarter compared with $213 million in the year-ago period.  Foreign currency 
translation had a 1 percentage point positive impact on Technology revenue in 
the current period compared with the prior-year period.  Revenue in the three 
months ended September 30, 2006 was down 10% from the three months ended 
September 30, 2005, due to a 14% decrease in sales of enterprise-class servers 
($146.2 million in 2006 compared with $170.9 million in 2005) offset in part by 
a 10% increase in sales of specialized technology products ($46.3 million in 
2006 compared with $42.2 million in 2005).  Technology gross profit was 46.3% in
the current quarter compared with 42.4% in the year-ago quarter.  Technology 
operating income percent was 5.5% in the three months ended September 30, 2006 
compared with (5.9)% in the three months ended September 30, 2005.  The decline 
in revenue in 2006 compared with 2005 primarily reflected the continuing secular
decline in the proprietary mainframe industry.  The Technology margin 
improvements were principally due to the benefits derived from the cost 
reduction actions. 



<PAGE> 23

New accounting pronouncements

Effective January 1, 2006, the company adopted SFAS No. 151, "Inventory Costs an
amendment of ARB No. 43, Chapter 4" (SFAS No. 151).  SFAS No. 151 amends the 
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the 
accounting for abnormal amounts of idle facility expense, handling costs and 
wasted material (spoilage).  Among other provisions, the new rule requires that 
such items be recognized as current-period charges, regardless of whether they 
meet the criterion of "so abnormal" as stated in ARB No. 43.  Adoption of SFAS 
No. 151 did not have a material effect on the company's consolidated financial 
position, consolidated results of operations, or liquidity.

Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), 
"Share-Based Payment" (SFAS No. 123R), which replaces SFAS No. 123 and 
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."  SFAS
No. 123R requires all share-based payments to employees, including grants of 
employee stock options, to be recognized in the financial statements based on 
their fair values.  The company adopted SFAS No. 123R using the modified-
prospective transition method, which requires the company, beginning January 1, 
2006 and thereafter, to expense the grant date fair value of all share-based 
awards over their remaining vesting periods to the extent the awards were not 
fully vested as of the date of adoption and to expense the fair value of all 
share-based awards granted subsequent to December 31, 2005 over their requisite 
service periods.  During the nine months ended September 30, 2006, the company 
recorded $4.8 million of share-based compensation expense.  Previous periods 
have not been restated.  See note (e) for further details.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB 
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an 
interpretation of FASB Statement No. 109," (FIN 48).  FIN 48 prescribes a 
recognition threshold and measurement attribute for the financial statement 
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  FIN 48 is effective for fiscal years beginning after December 15, 
2006.  The company is currently evaluating what effect, if any, adoption of FIN 
48 will have on the company's consolidated results of operations and financial 
position.

In September 2006, the FASB issued Statement of Financial Accounting Standards 
No. 157, "Fair Value Measurements," (SFAS No. 157).  SFAS No. 157 defines fair 
value, establishes a framework for measuring fair value and expands disclosures 
about fair value measurements.  This statement applies under other accounting 
pronouncements that require or permit fair value measurements.  Accordingly, 
SFAS No. 157 does not require any new fair value measurements.  The provisions 
of SFAS No. 157 are to be applied prospectively and are effective for financial 
statements issued for fiscal years beginning after November 15, 2007.  The 
company is currently evaluating what effect, if any, adoption of SFAS No. 157 
will have on the company's consolidated results of operations and financial 
position.

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other 
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 
132(R)," (SFAS No. 158).  SFAS No. 158 requires an employer to recognize in its 
statement of financial position the funded status of a benefit plan, measured as
the difference between plan assets at fair value and the benefit obligation.  
For pension plans, the benefit obligation is the projected benefit obligation; 
for any other postretirement benefit plan, such as a retiree health care plan, 
the benefit obligation is the accumulated benefit obligation.   If plan assets 
exceed plan liabilities, an asset would be recognized, and if plan liabilities 
exceed plan assets a liability would be recognized.  In addition, SFAS No. 158 
requires that changes in the funded status of a defined benefit postretirement 
plan be recognized in comprehensive income in the year in which the changes 
occur.  SFAS No. 158 does not change the amount of expense recorded in a 
company's statement of income related to defined benefit postretirement plans.  
The requirement to recognize the funded status of a defined benefit 
postretirement plan and other disclosure requirements of SFAS No. 158 are 
effective for fiscal years ending after December 15, 2006.  Adoption of SFAS No.
158 by the company on December 31, 2006 will result in the recognition of a 
material charge in the ending balance of accumulated other comprehensive income.
This charge will have no effect on the company's net income, liquidity, cash 
flows, or financial ratio covenants in the company's credit agreements and debt 
securities.


<PAGE> 24

In September 2006, the Securities and Exchange Commission issued Staff 
Accounting Bulletin No. 108, "Considering the Effects of Prior Year 
Misstatements when Quantifying Misstatements in Current Year Financial 
Statements," (SAB 108).  SAB 108 requires companies to evaluate the materiality 
of identified unadjusted errors on each financial statement and related 
financial statement disclosure using both the rollover approach and the iron 
curtain approach.  The rollover approach quantifies misstatements based on the 
amount of the error in the current year financial statement whereas the iron 
curtain approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year, 
irrespective of the misstatement's year(s) of origin.  Financial statements 
would require adjustment when either approach results in quantifying a 
misstatement that is material.  Correcting prior year financial statements for 
immaterial errors would not require previously filed reports to be amended.  SAB
108 is effective for interim periods of the first fiscal year ending after 
November 15, 2006.  The company is currently evaluating what effect, if any, 
adoption of SAB 108 will have on the company's consolidated results of 
operations and financial position. 

In September 2006, the Emerging Issues Task Force (EITF) of the FASB, reached a 
consensus on Issue 06-4, "Accounting for Deferred Compensation and 
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance 
Arrangements,"  (EITF 06-4).  EITF 06-4 requires that, for split-dollar life 
insurance arrangements that provide a benefit to an employee that extends to 
postretirement periods, an employer should recognize a liability for future 
benefits in accordance with SFAS No. 106.  EITF 06-4 is effective for fiscal 
years beginning after December 15, 2007 and it requires that recognition of the 
effects of adoption should be either by (a) a change in accounting principle 
through a cumulative-effect adjustment to retained earnings as of the beginning 
of the year of adoption or (b) a change in accounting principle through 
retrospective application to all prior periods.  The company is currently 
evaluating what effect, if any, adoption of EITF 06-4 will have on the company's
consolidated results of operations and financial position.

In September 2006, the EITF reached a consensus on Issue 06-5, "Accounting for 
Purchases of Life Insurance-Determining the Amount That Could Be Realized in 
Accordance with FASB Technical Bulletin No. 85-4," (EITF 06-5).  EITF 06-5 
requires that a policyholder should consider any additional amounts included in 
the contractual terms of the policy in determining the amount that could be 
realized under the insurance contract on a policy by policy basis.  EITF 06-5 is
effective for fiscal years beginning after December 15, 2006 and it requires 
that recognition of the effects of adoption should be either by (a) a change in 
accounting principle through a cumulative-effect adjustment to retained earnings
as of the beginning of the year of adoption or (b) a change in accounting 
principle through retrospective application to all prior periods.  The company 
is currently evaluating what effect, if any, adoption of EITF 06-5 will have on 
the company's consolidated results of operations and financial position.

Financial condition

Cash and cash equivalents at September 30, 2006 were $612.0 million compared 
with $642.5 at December 31, 2005.  

During the nine months ended September 30, 2006, cash used for operations was 
$138.7 million compared with cash provided of $22.5 million for the nine months 
ended September 30, 2005.  The current-year period includes $112.5 million, 
which represents the final payment from NUL relating to the 2005 grant of a 
perpetual license to certain of the company's intellectual property.  The prior-
year period included a tax refund of approximately $39 million. Also 
contributing to the reduction in operating cash flow was a reduction in the 
amount of receivables sold in the company's U.S. securitization.  At September 
30, 2006 and December 31, 2005, receivables of $120 million and $225 million, 
respectively, were sold under the facility and therefore were removed from the 
accompanying consolidated balance sheets.  Cash expenditures in the current 
period related to the current year and prior-year restructuring actions (which 
are included in operating activities) were approximately $110.2 million compared
with $49.0 million for the prior-year period.  Cash expenditures for the 
current-year and the prior-year restructuring actions are expected to be 
approximately $88 million for the remainder of 2006, resulting in an expected 
cash expenditure of approximately $198 million in 2006 compared with $57.8 
million in 2005.  

Cash provided by investing activities for the nine months ended September 30, 
2006 was $179.4 million compared with $258.7 million of cash used during the 
nine months ended September 30, 2005.  The principal reason for the increase in 
cash provided was that the company received net proceeds of $380.6 million from 
the sale of the NUL shares and other assets.  Net purchases of investments were 
$2.9 million for the nine months ended September 30, 2006 compared with net 
proceeds of $12.7 million in the prior-year period.  Proceeds from investments 
and purchases of investments represent derivative financial instruments used to 
manage the company's currency exposure to market risks from changes in foreign 
currency exchange rates.  In addition, in the current period, the investment in 
marketable software was $81.2 million compared with $93.7 million in the year-
ago period, capital additions of properties were $48.2 million in 2006 compared 
with $84.9 million in 2005 and capital additions of outsourcing assets were 
$68.9 million in 2006 compared with $115.7 million in 2005.


<PAGE> 25

Cash used for financing activities during the nine months ended September 30, 
2006 was $78.9 million compared with $57.9 million of cash provided during the 
nine months ended September 30, 2005.  The current period includes a cash 
expenditure of $57.9 million to retire at maturity all of the company's 
remaining 8-1/8% senior notes.  The prior period includes the following: (a) 
$541.5 million net proceeds from the September 2005 issuances of $400 million 8%
senior notes due 2012 and $150 million 8-1/2% senior notes due 2015, (b) the 
cash expenditure of $349.2 million (including tender premium and expenses of 
$9.4 million) for the repayment of $339.8 million of the company's $400 million 
8-1/8% senior notes due 2006 pursuant to a September 2005 tender offer by the 
company, and (c) the cash expenditure of $150.0 million to retire at maturity 
all of the company's 7-1/4% senior notes.

At September 30, 2006, total debt was $1.05 billion, a decrease of $75.3 million
from December 31, 2005.

The company has various lending and funding arrangements as follows:

The company has a three-year, secured revolving credit facility which expires in
2009 that provides for loans and letters of credit up to an aggregate of $275 
million.  Borrowings under the facility bear interest based on short-term rates 
and the company's credit rating.  The credit agreement contains customary 
representations and warranties, including no material adverse change in the 
company's business, results of operations or financial condition.  It also 
contains financial covenants requiring the company to maintain certain interest 
coverage, leverage and asset coverage ratios and a minimum amount of liquidity, 
which could reduce the amount the company is able to borrow.  The credit 
facility also includes covenants limiting liens, mergers, asset sales, dividends
and the incurrence of debt.  Events of default include non-payment, failure to 
perform covenants, materially incorrect representations and warranties, change 
of control and default under other debt aggregating at least $25 million.  If an
event of default were to occur under the credit agreement, the lenders would be 
entitled to declare all amounts borrowed under it immediately due and payable.  
The occurrence of an event of default under the credit agreement could also 
cause the acceleration of obligations under certain other agreements and the 
termination of the company's U.S. trade accounts receivable facility, discussed 
below.  The credit facility is secured by the company's assets, except that the 
collateral does not include accounts receivable that are subject to the 
receivable facility, U.S. real estate or the stock or indebtedness of the 
company's U.S. operating subsidiaries.  As of September 30, 2006, there were 
letters of credit of $35.9 million issued under the facility and there were no 
cash borrowings.

In addition, the company and certain international subsidiaries have access to 
uncommitted lines of credit from various banks.  Other sources of short-term 
funding are operational cash flows, including customer prepayments, and the 
company's U.S. trade accounts receivable facility.

Under the accounts receivable facility, the company has agreed to sell, on an 
on-going basis, through Unisys Funding Corporation I, a wholly owned subsidiary,
interests in up to $300 million of eligible U.S. trade accounts receivable.  The
receivables are sold at a discount that reflects a margin based on, among other 
things, the company's then-current S&P and Moody's credit rating.  The facility 
is terminable by the purchasers if the company's corporate rating is below B by 
S&P or B2 by Moody's and requires the maintenance of certain ratios related to 
the sold receivables.  At September 30, 2006, the company's corporate rating was
B+ and B2 by S&P and Moody's, respectively.  The facility is renewable annually 
at the purchasers' option until November 2008.

At September 30, 2006, the company has met all covenants and conditions under 
its various lending and funding agreements.  The company expects to continue to 
meet these covenants and conditions.  The company believes that it will have 
adequate sources and availability of short-term funding to meet its expected 
cash requirements.

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.

The company has on file with the Securities and Exchange Commission a 
registration statement covering $650 million of debt or equity securities, which
enables the company to be prepared for future market opportunities.
            

<PAGE> 26

Stockholders' equity increased $1,160.8 million during the nine months ended 
September 30, 2006, principally reflecting the reversal of the minimum pension 
liability adjustment of $1,446.0 million for the U.S. qualified defined benefit 
pension plan, offset in part by the net loss of $300.0 million.


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. 
Forward-looking statements provide current expectations of future events and 
include any statement that does not directly relate to any historical or current
fact. Words such as "anticipates," "believes," "expects," "intends," "plans," 
"projects" and similar expressions may identify such forward-looking statements.
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. Factors that could affect future results 
include, but are not limited to, those discussed below. Any forward-looking 
statement speaks only as of the date on which that statement is made. The 
company assumes no obligation to update any forward-looking statement to reflect
events or circumstances that occur after the date on which the statement is 
made.

Statements in this report regarding the company's cost reduction plan are 
subject to the risk that the company may not implement the planned headcount 
reductions or increase its offshore resources as quickly as currently planned, 
which could affect the timing of anticipated cost savings.  The amount of 
anticipated cost savings is also subject to currency exchange rate fluctuations 
with regard to actions taken outside the U.S.  Statements in this report 
regarding the revenue increases anticipated from the new iPSL tariff 
arrangements are based on assumptions regarding iPSL processing volumes and 
costs over the 2006-2010 time-frame. Because these volumes and costs are subject
to change, the amount of anticipated revenue is not guaranteed. In addition, 
because iPSL is paid by its customers in British pounds, the U.S. dollar amount 
of revenue recognized by the company is subject to currency exchange rate 
fluctuations.

Other factors that could affect future results include the following: 

The company's business is affected by changes in general economic and business 
conditions. The company continues to face a highly competitive business 
environment. If the level of demand for the company's products and services 
declines in the future, the company's business could be adversely affected. The 
company's business could also be affected by acts of war, terrorism or natural 
disasters. Current world tensions could escalate, and this could have 
unpredictable consequences on the world economy and on the company's business. 

The information services and technology markets in which the company operates 
include a large number of companies vying for customers and market share both 
domestically and internationally. The company's competitors include consulting 
and other professional services firms, systems integrators, outsourcing 
providers, infrastructure services providers, computer hardware manufacturers 
and software providers. Some of the company's competitors may develop competing 
products and services that offer better price-performance or that reach the 
market in advance of the company's offerings. Some competitors also have or may 
develop greater financial and other resources than the company, with enhanced 
ability to compete for market share, in some instances through significant 
economic incentives to secure contracts. Some also may be better able to compete
for skilled professionals. Any of these factors could have an adverse effect on 
the company's business. Future results will depend on the company's ability to 
mitigate the effects of aggressive competition on revenues, pricing and margins 
and on the company's ability to attract and retain talented people. 

The company operates in a highly volatile industry characterized by rapid 
technological change, evolving technology standards, short product life cycles 
and continually changing customer demand patterns. Future success will depend in
part on the company's ability to anticipate and respond to these market trends 
and to design, develop, introduce, deliver or obtain new and innovative products
and services on a timely and cost-effective basis. The company may not be 
successful in anticipating or responding to changes in technology, industry 
standards or customer preferences, and the market may not demand or accept its 
services and product offerings. In addition, products and services developed by 
competitors may make the company's offerings less competitive. 

Future results will also depend in part on the success of the company's focused 
investment and sales and marketing strategies.  These strategies are based on 
various assumptions, including assumptions regarding market segment growth, 
client demand, and the proper skill set of and training for sales and marketing 
management and personnel, all of which are subject to change.  


<PAGE> 27

The company's future results will depend in part on its ability to grow 
outsourcing and infrastructure services.  The company's outsourcing contracts 
are multiyear engagements under which the company takes over management of a 
client's technology operations, business processes or networks.  In a number of 
these arrangements, the company hires certain of its clients' employees and may 
become responsible for the related employee obligations, such as pension and 
severance commitments.  In addition, system development activity on outsourcing 
contracts may require the company to make significant upfront investments.  The 
company will need to have available sufficient financial resources in order to 
take on these obligations and make these investments. 

Recoverability of outsourcing assets is dependent on various factors, including 
the timely completion and ultimate cost of the outsourcing solution, and 
realization of expected profitability of existing outsourcing contracts.  These 
risks could result in an impairment of a portion of the associated assets, which
are tested for recoverability quarterly. 

As long-term relationships, outsourcing contracts provide a base of recurring 
revenue.  However, outsourcing contracts are highly complex and can involve the 
design, development, implementation and operation of new solutions and the 
transitioning of clients from their existing business processes to the new 
environment.  In the early phases of these contracts, gross margins may be lower
than in later years when an integrated solution has been implemented, the 
duplicate costs of transitioning from the old to the new system have been 
eliminated and the work force and facilities have been rationalized for 
efficient operations. Future results will depend on the company's ability to 
effectively and timely complete these implementations, transitions and 
rationalizations.  Future results will also depend on the company's ability to 
effectively address its challenging outsourcing operations through negotiations 
or operationally and to fully recover the associated outsourcing assets. 

Future results will also depend in part on the company's ability to drive 
profitable growth in consulting and systems integration. The company's ability 
to grow profitably in this business will depend on the level of demand for 
systems integration projects. It will also depend on an improvement in the 
utilization of services delivery personnel. In addition, profit margins in this 
business are largely a function of the rates the company is able to charge for 
services and the chargeability of its professionals. If the company is unable to
attain sufficient rates and chargeability for its professionals, profit margins 
will suffer. The rates the company is able to charge for services are affected 
by a number of factors, including clients' perception of the company's ability 
to add value through its services; introduction of new services or products by 
the company or its competitors; pricing policies of competitors; and general 
economic conditions. Chargeability is also affected by a number of factors, 
including the company's ability to transition employees from completed projects 
to new engagements, and its ability to forecast demand for services and thereby 
maintain an appropriate head count. 

Future results will also depend, in part, on an improvement in the company's 
technology business.  This will require, in part, an increase in market demand 
for the company's high-end enterprise servers and customer acceptance of the new
models announced in the second quarter of 2006.  In its technology business, the
company continues to focus its resources on enhancing a common high-performance 
platform for both its proprietary operating environments and open standards-
based operating environments such as Microsoft Windows and Linux. In addition, 
the company continues to apply its resources to develop value-added software 
capabilities and optimized solutions for these server platforms which provide 
competitive differentiation.  Future results will depend, in part, on customer 
acceptance of new ClearPath systems and the company's ability to maintain its 
installed base for ClearPath and to develop next-generation ClearPath products 
that are purchased by the installed base. In addition, future results will 
depend, in part, on the company's ability to generate new customers and increase
sales of the Intel-based ES7000 line. The company believes there is significant 
growth potential in the developing market for high-end, Intel-based servers 
running Microsoft and Linux operating system software. However, the company's 
ability to succeed will depend on its ability to compete effectively against 
enterprise server competitors with more substantial resources and its ability to
achieve market acceptance of the ES7000 technology by clients, systems 
integrators and independent software vendors.  Future results of the technology 
business will also depend, in part, on the successful implementation of the 
company's new arrangements with NEC.


<PAGE> 28

The company frequently enters into contracts with governmental entities. U.S. 
government agencies, including the Defense Contract Audit Agency and the 
Department of Labor, routinely audit government contractors. These agencies 
review a contractor's performance under its contracts, cost structure and 
compliance with applicable laws, regulations and standards. The U.S. government 
also may review the adequacy of, and a contractor's compliance with, its systems
and policies, including the contractor's purchasing, property, estimating, 
accounting, compensation and management information systems. Any costs found to 
be overcharged or improperly allocated to a specific contract will be subject to
reimbursement to the government. If an audit uncovers improper or illegal 
activities, the company may be subject to civil and criminal penalties and 
administrative sanctions, including termination of contracts, forfeiture of 
profits, suspension of payments, fines and suspension or prohibition from doing 
business with the U.S. government. Other risks and uncertainties associated with
government contracts include the availability of appropriated funds and 
contractual provisions that allow governmental entities to terminate agreements 
at their discretion before the end of their terms. In addition, if the company's
performance is unacceptable to the customer under a government contract, the 
government retains the right to pursue remedies under the affected contract, 
which remedies could include termination. 

A number of the company's long-term contracts for infrastructure services, 
outsourcing, help desk and similar services do not provide for minimum 
transaction volumes. As a result, revenue levels are not guaranteed. In 
addition, some of these contracts may permit customer termination or may impose 
other penalties if the company does not meet the performance levels specified in
the contracts. 

Some of the company's systems integration contracts are fixed-price contracts 
under which the company assumes the risk for delivery of the contracted services
and products at an agreed-upon fixed price. At times the company has experienced
problems in performing some of these fixed-price contracts on a profitable basis
and has provided periodically for adjustments to the estimated cost to complete 
them. Future results will depend on the company's ability to perform these 
services contracts profitably. 

The success of the company's business is dependent on strong, long-term client 
relationships and on its reputation for responsiveness and quality. As a result,
if a client is not satisfied with the company's services or products, its 
reputation could be damaged and its business adversely affected. In addition, if
the company fails to meet its contractual obligations, it could be subject to 
legal liability, which could adversely affect its business, operating results 
and financial condition. 

The company has commercial relationships with suppliers, channel partners and 
other parties that have complementary products, services or skills. The company 
has announced that alliance partnerships with select IT companies are a key 
factor in the development and delivery of the company's refocused portfolio. 
Future results will depend, in part, on the performance and capabilities of 
these third parties, on 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.

More than half 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, import or export licensing requirements, multiple and 
possibly overlapping and conflicting tax laws, new tax legislation, and weaker 
intellectual property protections in some jurisdictions. 

The company cannot be sure that its services and products do not infringe on the
intellectual property rights of third parties, and it may have infringement 
claims asserted against it or against its clients. These claims could cost the 
company money, prevent it from offering some services or products, or damage its
reputation. 



<PAGE> 29


I
tem 4.  Controls and Procedures
--------------------------------

The Company's management, with the participation of the Company's Chief 
Executive Officer and Chief Financial Officer, has evaluated the effectiveness 
of the Company's disclosure controls and procedures as of September 30, 2006.  
Based on this evaluation, the Company's Chief Executive Officer and Chief 
Financial Officer concluded that the Company's disclosure controls and 
procedures were effective for gathering, analyzing and disclosing the 
information the Company is required to disclose in the reports it files under 
the Securities Exchange Act of 1934, within the time periods specified in the 
SEC's rules and forms.  Such evaluation did not identify any change in the 
Company's internal controls over financial reporting that occurred during the 
quarter ended September 30, 2006 that has materially affected, or is reasonably 
likely to materially affect, the Company's internal control over financial 
reporting.  




Part II - OTHER INFORMATION
-------   -----------------


Item 1A.  Risk Factors
-------   ------------

See "Factors that may affect future results" in Management's Discussion and 
Analysis of Financial Condition and Results of Operations for a discussion of 
risk factors.


Item 5.  Other Information
------   -----------------

See note (b) of the notes to consolidated financial statements for information 
on the restructuring charge taken in the third quarter of 2006.

Effective October 26, 2006, Randall J. Hogan has resigned from the company's 
Board of Directors.


Item 6.   Exhibits 
-------   --------

(a)       Exhibits

          See Exhibit Index



<PAGE> 30


                               SIGNATURES
                               ----------



     Pursuant to the requirements of the Securities Exchange Act of 
1934, the registrant has duly caused this report to be signed on its 
behalf by the undersigned thereunto duly authorized.

                                              UNISYS CORPORATION

Date: October 26, 2006                        By: /s/ Janet Brutschea Haugen
                                                -----------------------------
                                                Janet Brutschea Haugen
                                                Senior Vice President and 
                                                Chief Financial Officer 
                                                (Principal Financial Officer)


                                             By: /s/ Joseph M. Munnelly
                                                 ----------------------
                                                 Joseph M. Munnelly
                                                 Vice President and 
                                                 Corporate Controller
                                                 (Chief Accounting Officer)



<PAGE>


                             EXHIBIT INDEX

Exhibit
Number                        Description
-------                       -----------
3.1      Restated Certificate of Incorporation of Unisys Corporation 
         (incorporated by reference to Exhibit 3.1 to the registrant's Quarterly
         Report on Form 10-Q for the quarterly period ended September 30, 1999)

3.2      Bylaws of Unisys Corporation, as amended through December 1, 2005 
         (incorporated by reference to Exhibit 3 to the registrant's Current 
         Report on Form 8-K dated December 1, 2005)

12       Statement of Computation of Ratio of Earnings to Fixed Charges

31.1     Certification of Joseph W. McGrath required by Rule 13a-14(a)
         or Rule 15d-14(a)

31.2     Certification of Janet Brutschea Haugen required by Rule 13a-14(a)
         or Rule 15d-14(a)

32.1     Certification of Joseph W. McGrath required by Rule 13a-14(b)
         or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002,
         18 U.S.C. Section 1350

32.2     Certification of Janet Brutschea Haugen required by Rule 13a-14(b)
         or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002,
         18 U.S.C. Section 1350






                                                                      Exhibit 12

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

                                

                                  Nine           
                                  Months     
                                  Ended          Years Ended December 31
                                  Sept. 30, ---------------------------------
                                  2006      2005   2004   2003   2002   2001
                                  --------  ----   ----   ----   ----   ----
Fixed charges
Interest expense                $  57.9   $ 64.7  $ 69.0 $ 69.6 $ 66.5 $ 70.0
Interest capitalized during 
  the period                        8.1     15.0    16.3   14.5   13.9   11.8
Amortization of debt issuance
  expense                           2.9      3.4     3.5    3.8    2.6    2.7
Portion of rental expense
  representative of interest       45.7     60.9    61.6   55.2   53.0   53.9
                                 -------  ------   -----  -----  -----  ----- 
    Total Fixed Charges           114.6    144.0   150.4  143.1  136.0  138.4
                                 -------  ------   -----  -----  -----  -----
Earnings                            
Income (loss) from continuing
 operations before income taxes  (300.2)  (170.9)  (76.0) 380.5  332.8  (73.0)
Add (deduct) the following:
 Share of loss (income) of
  associated companies              4.3     (7.2)  (14.0) (16.2)  14.2   (8.6)
 Amortization of capitalized
  interest                          9.5     12.9    11.7   10.2    8.8    5.4
                                 -------  ------  ------ ------ ------  -----
    Subtotal                     (286.4)  (165.2)  (78.3) 374.5  355.8  (76.2)
                                 -------  ------  ------ ------ ------  -----

Fixed charges per above           114.6    144.0   150.4  143.1  136.0  138.4
Less interest capitalized during
  the period                       (8.1)   (15.0)  (16.3) (14.5) (13.9) (11.8)
                                 -------  ------  ------ ------ ------ ------
Total earnings (loss)           $(179.9)  $(36.2) $ 55.8 $503.1 $477.9 $ 50.4
                                 =======  ======  ====== ====== ====== ======

Ratio of earnings to fixed 
  charges                             *       *     *      3.52   3.51    *  
                                 =======   ====== ====== ====== ======  =====

* Earnings for the nine months ended September 30, 2006 and for the years ended 
December 31, 2005, 2004 and 2001 were inadequate to cover fixed charges by 
$294.5 million, $180.2 million, $94.6 million and $88.0 million, respectively.






Exhibit 31.1

                             CERTIFICATION


I, Joseph W. McGrath, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Unisys Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of 
a material fact or omit to state a material fact necessary to make the 
statements made, in light of the circumstances under which such statements were 
made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial 
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for 
establishing and maintaining disclosure controls and procedures (as defined in 
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the 
registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure 
controls and procedures to be designed under our supervision, to ensure that 
material information relating
 to the registrant, including its consolidated 
subsidiaries, is made known to us by others within those entities, particularly 
during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such 
internal control over financial reporting to be designed under our supervision, 
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and 
procedures and presented in this report our conclusions about the effectiveness 
of the disclosure controls and procedures, as of the end of the period covered 
by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal 
quarter that has materially affected, or is reasonably likely to materially 
affect, the registrant's internal control over financial reporting; 
and 

5.  The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the 
registrant's auditors and the audit committee of the registrant's board of 
directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or 
operation of internal control over financial reporting which are reasonably 
likely to adversely affect the registrant's ability to record, process, 
summarize and report financial information; and 

b. Any fraud, whether or not material, that involves management or other 
employees who have a significant role in the registrant's internal control over 
financial reporting.

Date: October 26, 2006


                                /s/ Joseph W. McGrath 
                                    -------------------------
                            Name:   Joseph W. McGrath
                           Title:   President and Chief
                                    Executive Officer



Exhibit 31.2

                             CERTIFICATION


I, Janet Brutschea Haugen, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Unisys Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of 
a material fact or omit to state a material fact necessary to make the 
statements made, in light of the circumstances under which such statements were 
made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial 
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for 
establishing and maintaining disclosure controls and procedures (as defined in 
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the 
registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure 
controls and procedures to be designed under our supervision, to ensure that 
material information
 relating to the registrant, including its consolidated 
subsidiaries, is made known to us by others within those entities, particularly 
during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such 
internal control over financial reporting to be designed under our supervision, 
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and 
procedures and presented in this report our conclusions about the effectiveness 
of the disclosure controls and procedures, as of the end of the period covered 
by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal 
quarter that has materially affected, or is reasonably likely to materially 
affect, the registrant's internal control over financial reporting; 
and 

5.  The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the 
registrant's auditors and the audit committee of the registrant's board of 
directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or 
operation of internal control over financial reporting which are reasonably 
likely to adversely affect the registrant's ability to record, process, 
summarize and report financial information; and 

b. Any fraud, whether or not material, that involves management or other 
employees who have a significant role in the registrant's internal control over 
financial reporting.

Date: October 26, 2006

                                /s/ Janet Brutschea Haugen 
                                    -------------------------
                            Name:   Janet Brutschea Haugen
                           Title:   Senior Vice President and
                                    Chief Financial Officer




Exhibit 32.1



                  CERTIFICATION OF PERIODIC REPORT

I, Joseph W. McGrath, President and Chief Executive Officer of Unisys 
Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)   the Quarterly Report on Form 10-Q of the Company for the quarterly period 
ended September 30, 2006 (the "Report") fully complies with the requirements of 
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and 

(2)   the information contained in the Report fairly presents, in all material 
respects, the financial condition and results of operations of the Company.


Dated: October 26, 2006



/s/ Joseph W. McGrath
------------------------
Joseph W. McGrath
President and Chief Executive Officer




A signed original of this written statement required by Section 906 has been 
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.







Exhibit 32.2



                  CERTIFICATION OF PERIODIC REPORT

I, Janet Brutschea Haugen, Senior Vice President and Chief Financial Officer of 
Unisys Corporation (the "Company"), certify, pursuant to Section 906 of the 
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)   the Quarterly Report on Form 10-Q of the Company for the quarterly period 
ended September 30, 2006 (the "Report") fully complies with the requirements of 
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and 

(2)   the information contained in the Report fairly presents, in all material 
respects, the financial condition and results of operations of the Company.


Dated: October 26, 2006



/s/ Janet Brutschea Haugen
------------------------
Janet Brutschea Haugen
Senior Vice President and 
Chief Financial Officer




A signed original of this written statement required by Section 906 has been 
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.