SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1997.
[ ] 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Township Line and Union Meeting Roads
Blue Bell, Pennsylvania 19424
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 986-4011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Number of shares of Common Stock outstanding as of March 31, 1997:
174,836,208.
Page 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(Millions)
March 31,
1997 December 31,
(Unaudited) 1996
----------- ------------
Assets
Current Assets
Cash and cash equivalents $ 686.4 $1,029.2
Marketable securities 5.6 5.6
Accounts and notes receivable, net 900.6 959.0
Inventories
Finished equipment and supplies 324.0 325.5
Work in process and raw materials 323.5 316.8
Deferred income taxes 365.8 365.8
Other current assets 133.7 131.2
-------- --------
Total 2,739.6 3,133.1
-------- --------
Long-term receivables, net 60.0 59.3
-------- --------
Properties and rental equipment 1,860.8 1,950.3
Less-Accumulated depreciation 1,273.6 1,328.5
-------- --------
Properties and rental equipment, net 587.2 621.8
-------- --------
Cost in excess of net assets acquired 971.3 981.3
Investments at equity 245.3 244.4
Deferred income taxes 678.7 678.7
Other assets 1,234.7 1,248.5
-------- --------
Total $6,516.8 $6,967.1
-------- --------
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 14.7 $ 13.9
Current maturities of long-term debt 5.5 5.8
Accounts payable 819.5 871.1
Other accrued liabilities 1,246.4 1,453.4
Dividends payable 27.2 26.6
Estimated income taxes 73.8 94.3
-------- --------
Total 2,187.1 2,465.1
-------- --------
Long-term debt 2,268.4 2,271.4
Other liabilities 448.9 474.6
Redeemable preferred stock 50.0 150.0
Stockholders' equity
Preferred stock 1,420.2 1,420.2
Common stock,
issued: 1997, 175.8; 1996, 175.7 1.8 1.8
Accumulated deficit (782.8) (770.1)
Other capital 923.2 954.1
-------- -------
Stockholders' equity 1,562.4 1,606.0
-------- -------
Total $6,516.8 $6,967.1
======== ========
See notes to consolidated financial statements.
Page 3
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Millions, except per share data)
Three Months
Ended March 31
---------------------
1997 1996
-------- --------
Revenue $1,530.7 $1,423.1
-------- --------
Costs and expenses
Cost of revenue 1,015.0 984.2
Selling, general and administrative 328.8 322.0
Research and development 80.3 96.0
-------- --------
1,424.1 1,402.2
-------- --------
Operating income 106.6 20.9
Interest expense 60.4 50.5
Other income (expense), net (15.6) 9.3
-------- --------
Income (loss) before income taxes 30.6 (20.3)
Estimated income taxes (benefit) 11.3 ( 6.9)
-------- --------
Net income (loss) 19.3 (13.4)
Dividends on preferred shares 30.1 30.2
-------- --------
Earnings (loss) on common shares $ (10.8) $ (43.6)
======== ========
Earnings (loss) per common share
Primary $ (.06) $ (.25)
======== ========
Fully diluted $ (.06) $ (.25)
======== ========
See notes to consolidated financial statements.
Page 4
UNISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Millions)
Three Months
Ended March 31
----------------------
1997 1996
-------- --------
Cash flows from operating activities
Net income (loss) $ 19.3 $( 13.4)
Add (deduct) items to reconcile net income
(loss) to net cash (used for)
operating activities:
Depreciation 39.0 44.6
Amortization:
Marketable software 22.5 28.7
Cost in excess of net assets acquired 11.6 10.4
Decrease in receivables, net 56.5 94.9
(Increase) in inventories ( 5.2) ( 36.4)
(Decrease) in accounts payable and other
accrued liabilities ( 259.9) ( 378.3)
(Decrease) in estimated income taxes ( 20.5) ( 48.1)
(Decrease) increase in other liabilities ( 25.7) .6
Decrease (increase) in other assets 12.8 ( 27.7)
Other 12.6 ( 1.5)
-------- --------
Net cash used for operating activities ( 137.0) ( 326.2)
-------- --------
Cash flows from investing activities
Proceeds from investments 332.7 713.4
Purchases of investments ( 323.3) ( 718.2)
Proceeds from sales of properties 1.0 14.9
Investment in marketable software ( 25.6) ( 14.9)
Capital additions of properties and
rental equipment ( 37.3) ( 34.6)
Purchases of businesses ( 6.4) ( 7.1)
-------- --------
Net cash used for investing activities ( 58.9) ( 46.5)
-------- --------
Cash flows from financing activities
Redemption of redeemable preferred stock ( 100.0)
Proceeds from issuance of debt 700.9
Principal payments of debt ( .3)
Net proceeds from short-term borrowings .8 2.2
Dividends paid on preferred shares ( 31.4) ( 30.2)
Other .2
-------- --------
Net cash (used for) provided by
financing activities ( 130.6) 672.8
-------- --------
Effect of exchange rate changes on
cash and cash equivalents ( 14.7) ( 7.1)
-------- --------
Net cash (used for) provided by
continuing operations ( 341.2) 293.0
Net cash used for discontinued operations ( 1.6) ( 4.2)
-------- --------
(Decrease) increase in cash and
cash equivalents ( 342.8) 288.8
Cash and cash equivalents,
beginning of period 1,029.2 1,114.3
-------- --------
Cash and cash equivalents, end of period $ 686.4 $1,403.1
======== ========
See notes to consolidated financial statements.
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the financial information furnished herein
reflects all adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
specified. These adjustments consist only of normal recurring accruals.
Because of seasonal and other factors, results for interim periods are not
necessarily indicative of the results to be expected for the full year.
a. For the three months ended March 31, 1997 and 1996, the computation
of earnings per share is based on the weighted average number of
outstanding common shares. Neither period assumes conversion of the
8 1/4% Convertible Subordinated Notes due 2000 and 2006, or the Series
A Preferred Stock since such conversions would have been antidilutive.
The shares used in the computations are as follows (in thousands):
Three Months Ended
March 31,
--------------------
1997 1996
------- -------
Primary 174,849 171,437
Fully diluted 174,849 171,437
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
For the three months ended March 31, 1997, the Company reported net
income of $19.3 million, compared to a net loss of $13.4 million for the
three months ended March 31, 1996. On a per-share basis, the first
quarter net loss was $.06 per primary and fully diluted common share
after preferred dividends, compared to a loss of $.25 per primary and
fully diluted common share a year ago.
Total revenue for the quarter ended March 31, 1997 was $1.53 billion, up
8% from $1.42 billion for the year-ago period despite the negative
impact of foreign currencies in the current quarter. Total gross profit
percent was 33.7% in the first quarter of 1997 compared to 30.8% in the
year-ago period.
For the three months ended March 31, 1997, selling, general and
administrative expenses were $328.8 million compared to $322.0 million
for the three months ended March 31, 1996, and research and development
expenses were $80.3 million compared to $96.0 million a year earlier.
The decline in research and development was largely due to the Company's
cost reduction actions.
For the first quarter of 1997, the Company reported an operating income
percent (operating income as a percent of revenue) of 7.0% compared to
1.5% for the first quarter of 1996.
Revenue, gross profit percentage and operating income percentage by
business unit are presented below ($ in millions):
Infor-
mation Global Computer
Elimi- Services Customer Systems
Total nations Group Services Group
----- ------- -------- -------- --------
Three Months Ended
March 31, 1997
- ------------------
Customer revenue $1,530.7 $430.2 $478.5 $622.0
Intercompany $(114.2) 5.2 16.3 92.7
-------- ------- ------ ------ ------
Total revenue $1,530.7 $(114.2) $435.4 $494.8 $714.7
======== ======= ====== ====== ======
Gross profit percent 33.7% 14.2% 30.0% 43.8%
======== ====== ====== ======
Operating income
percent 7.0% (11.4)% 10.1% 16.1%
======== ====== ====== ======
Three Months Ended
March 31, 1996
- ------------------
Customer revenue $1,423.1 $404.3 $464.1 $554.7
Intercompany $(116.1) 4.0 20.0 92.1
-------- ------- ------ ------ ------
Total revenue $1,423.1 $(116.1) $408.3 $484.1 $646.8
======== ======= ====== ====== ======
Gross profit percent 30.8% 14.8% 28.9% 36.5%
======== ====== ====== ======
Note: Certain prior year business unit amounts have been reclassified to
conform with the current year presentation.
Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
Customer revenue from the Information Services Group ("ISG") increased
6% in the quarter due to higher systems integration revenue,
particularly in international markets. ISG gross profit percent was
14.2% in 1997 compared to 14.8% last year principally due to operational
issues in the current quarter associated with a few large, multi-year
systems integration contracts. The gross profit margin reflects charges
of approximately $25 million for additional estimated contract costs
identified during the quarter.
Global Customer Services ("GCS") customer revenue increased 3% from
year-ago levels led by growth in distributed computing support services
which more than offset a decline in core maintenance revenue. The gross
profit percent in GCS was 30.0% in 1997 compared to 28.9% last year
principally due to increases in distributed computing support services.
Customer revenue in Computer Systems Group ("CSG") increased 12%
principally due to increases in large-scale enterprise servers and
software revenue. CSG gross profit percent rose to 43.8% in 1997 from
36.5% last year, due in large part to a higher proportion of sales of
large-scale enterprise servers.
Interest expense in the first quarter of 1997 was $60.4 million compared
to $50.5 million in the first quarter of 1996, principally due to higher
average debt levels.
Other income (loss), net, which can vary from quarter to quarter, was a
loss of $15.6 million in the current quarter compared to income of $9.3
million in the year-ago period. The change was mainly due to gains on
the sale of assets and other one-time income items in the prior year.
Income before income taxes was $30.6 million in 1997 compared to a loss
of $20.3 million last year. The provision for income tax was $11.3
million in the current period compared to a benefit of $6.9 million in
the year-ago period.
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement requires that if a transfer of financial assets does not meet
certain criteria for recording the transaction as a sale, the transfer
shall be accounted for as a secured borrowing. The adoption of SFAS No.
125 did not have a material effect on the Company's consolidated
financial position, consolidated statement of income, or liquidity.
Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
In February of 1997, SFAS No. 128, "Earnings per Share," was issued.
This statement establishes new standards for computing and presenting
earnings per share. Adoption of SFAS No. 128 and restatement of prior
periods' earnings per share is required in the fourth quarter of 1997.
For the Company, earnings per share as reported for the current quarter
would be the same as under SFAS No. 128. The effect on earlier periods
is immaterial.
Financial Condition
Cash, cash equivalents and marketable securities at March 31, 1997 were
$692.0 million compared to $1.0 billion at December 31, 1996. During
the quarter, cash used for operating activities was much lower than
historical first-quarter cash usage. Cash used for operating activities
during the quarter was $137.0 million compared to $326.2 million used
during the prior-year period. During the current quarter, management
reduced the sales of accounts receivable by $142.0 million. Even with
this reduction, cash used for operations in the current quarter was
reduced $189.2 million from the year-ago period.
Cash used for investing activities during the first quarter was $58.9
million compared to $46.5 million used in the year-ago period. Cash
used for financing activities during the first quarter of 1997 was
$130.6 million compared to cash provided of $672.8 million in 1996. In
the current quarter, the Company redeemed all $100.0 million of its
Series C Cumulative Convertible Preferred Stock. The year-ago period
includes proceeds of $700.9 million for issuances of debt. On June 26,
1997, the Company will redeem all $50.0 million of its Series B
Cumulative Convertible Preferred Stock. The Company may, from time to
time, redeem or repurchase its other securities in the open market or in
privately negotiated transactions depending upon availability, market
conditions, and other factors.
At March 31, 1997, total debt was $2.3 billion, a slight decrease from
December 31, 1996. The current $200 million revolving credit facility
expires in June of 1997. The Company has never borrowed under this
facility. The Company is currently in discussions with bankers
regarding a successor facility.
The Company has on file with the Securities and Exchange Commission an
effective registration statement covering $500 million of debt or equity
securities which enables the Company to be prepared for future market
opportunities.
Dividends paid on preferred stock were $31.4 million in the first
quarter of 1997 compared to $30.2 million in the first quarter of 1996.
At March 31, 1997, the Company had deferred tax assets in excess of
deferred tax liabilities of $1,444 million. For the reasons cited
below, management determined that it is more likely than not that $1,009
million of such assets will be realized, therefore resulting in a
valuation allowance of $435 million.
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd).
The Company evaluates quarterly the realizability of its net deferred
tax assets by assessing its valuation allowance and by adjusting the
amount of such allowance, if necessary. The factors used to assess the
likelihood of realization are the Company's forecast of future taxable
income, which is adjusted by applying probability factors, and available
tax planning strategies that could be implemented to realize deferred
tax assets. The combination of these factors is expected to be
sufficient to realize the entire amount of net deferred tax assets.
Approximately $2.9 billion of future taxable income (predominantly U.S.)
is needed to realize all of the net deferred tax assets.
The Company's net deferred tax assets include substantial amounts of net
operating loss and tax credit carryforwards. Failure to achieve
forecasted taxable income might affect the ultimate realization of the
net deferred tax assets. In recent years, the information management
business has undergone dramatic changes and there can be no assurances
that in the future there would not be increased competition or other
factors that may result in a decline in sales or margins, loss of market
share, delays in product availability, or technological obsolescence.
Stockholders' equity decreased $43.6 million during the quarter
principally reflecting translation adjustments of $32.0 million and
preferred dividends declared of $32.0 million, offset in part by net
income of $19.3 million.
Page 10
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed
no Current Reports on Form 8-K.
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: May 15, 1997 By: /s/ Robert H. Brust
------------ -----------------------------
Robert H. Brust
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/Janet M. Brutschea Haugen
-----------------------------
Janet M. Brutschea Haugen
Vice President and Controller
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Statement of Computation of Earnings Per Share for the three
months ended March 31, 1997 and 1996
12 Statement of Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
EXHIBIT 11
UNISYS CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(Millions, except share data)
1997 1996
----------- -----------
Primary Earnings Per Common Share
Average Number of Outstanding Common Shares 174,848,666 171,436,655
Additional Shares Assuming
Exercise of Stock Options 767,816 442,240
----------- -----------
Average Number of Outstanding Common Shares
and Common Share Equivalents 175,616,482 171,878,895
=========== ===========
Net Income (Loss) $ 19.3 $ ( 13.4)
Dividends on Series A, B and C Preferred Stock (30.1) ( 30.2)
-------- --------
Primary Earnings (Loss) on Common Shares $ (10.8) $ ( 43.6)
======== ========
Primary Earnings (Loss) Per Common Share $ (.06) $ ( .25)
======== ========
Fully Diluted Earnings Per Common Share
Average Number of Outstanding Common
Shares and Common Share Equivalents 175,616,482 171,878,895
Additional Shares:
Assuming Conversion of Series A
Preferred Stock 47,454,135 47,454,386
Assuming Conversion of 8 1/4%
Convertible Notes due 2000 33,697,387 33,697,387
Assuming Conversion of 8 1/4%
Convertible Notes due 2006 43,490,909 11,470,130
Attributable to Stock Plans 34,969
----------- -----------
Common Shares Outstanding Assuming
Full Dilution 300,258,913 264,535,767
=========== ===========
Primary Earnings (Loss) on Common Shares $( 10.8) $( 43.6)
Exclude Dividends on Series A Preferred Stock 26.6 26.6
Interest Expense on 8 1/4% Convertible Notes,
due 2000, Net of Applicable Tax 4.8 4.8
Interest Expense on 8 1/4% Convertible Notes,
due 2006, Net of Applicable Tax 4.1 1.1
-------- --------
Fully Diluted Earnings (Loss) on Common Shares $ 24.7 $( 11.1)
======== ========
Fully Diluted Earnings (Loss) per common Share $ .08 $( .04)
======== ========
Earnings (Loss) Per Common Share As Reported
Primary $( .06) $( .25)
======== ========
Fully Diluted $( .06) $( .25)
======== ========
The computation for 1997 and 1996 is based on the weighted average number
of outstanding common shares. Neither period assumes conversion of the
convertible notes or Series A preferred stock since such conversions would
have been antidilutive.
Exhibit 12
UNISYS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
($ in millions)
Three
Months
Ended
March 31, Years Ended December 31
------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Income (loss) from continuing
operations before income taxes $ 30.6 $ 93.7 $(781.1) $ 14.6 $370.9 $301.3
Add (deduct) share of loss (income)
of associated companies ( .1) ( 4.9) 5.0 16.6 14.5 3.2
------ ------ ------- ------ ------ ------
Subtotal 30.5 88.8 (776.1) 31.2 385.4 304.5
------ ------ ------- ------ ------ ------
Interest expense (net of interest
capitalized) 60.4 249.7 202.1 203.7 241.7 340.6
Amortization of debt issuance
expenses 1.8 6.3 5.1 6.2 6.6 4.8
Portion of rental expense
representative of interest 14.8 59.2 65.3 65.0 70.5 78.8
------ ------ ------- ------ ------ ------
Total Fixed Charges 77.0 315.2 272.5 274.9 318.8 424.2
------ ------ ------- ------ ------ ------
Earnings (loss) from continuing
operations before income
taxes and fixed charges $107.5 $404.0 $(503.6) $306.1 $704.2 $728.7
====== ====== ======= ====== ====== ======
Ratio of earnings to fixed charges 1.40 1.28 (a) 1.11 2.21 1.72
====== ====== ======= ====== ====== ======
(a) Earnings for the year ended December 31, 1995 was inadequate to cover fixed
charges by approximately $776.1 million.
5
