Good day and welcome to the Unisys second quarter 2010 results conference call. At this time I will turn the conference over to Mr. Niels Christensen at Unisys Corporation. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Earlier today Unisys released its first quarter 2010 financial results. With us this morning to discuss our results are Ed Coleman, our CEO and Janet Haugen, our CFO. Before we begin I want to cover just a few housekeeping details. First, today's conference call and the Q&A session are being webcast via the Unisys investor website. Second, you can find the earnings press release and the presentation slides that we will be using this morning to guide our discussion on our investor website. These materials are available for viewing as well as downloading and printing. Third, today's presentation, which is complementary to the earnings press release, include some non-GAAP financial measures. These have been provided in an effort to give investors additional information. The non-GAAP measures have been reconciled to the related GAAP measures and we provided reconciliation charts at the end of the presentation. Finally, I'd like to remind you that all forward-looking statements made during this conference call are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of these SEC reports are available from the SEC and from the Unisys investor website. Now I will turn the call over to Ed.

Thanks, Niels. Hello, everyone. Thank you for joining us today to discuss our second quarter 2010 financial results. Please turn to slide one to begin our discussion today. This was another solid quarter for the company as we continued to make progress in enhancing our profitability and reshaping our business model at Unisys. By staying focused on our business priorities we delivered our fifth consecutive quarter of year-over-year improved profitability. We also generated positive free cash flow in the quarter and continued to make progress in strengthening our balance sheet. Driven by a strong performance in our technology business, our second quarter operating profit grew 58% to $107 million and we reported a 10.1% operating margin in the quarter. Including the pretax gain of $65 million from the sale of our Health Information Management business we reported net income of $120 million, up from $38 million a year ago. Net income from continuing operations rose 77% to $59 million. Our technology business had a great quarter growing revenue 47% as sales in ClearPath servers more than doubled in the quarter. In our services business, while revenue declined in the quarter, we saw a growth of 9% in IT outsourcing outside of the US federal government. Services revenue also strengthened sequentially enabling us to drive higher services margins and operating profit compared to the first quarter of the year. We've also maintained our focus on expense management with operating expenses down 6% year-over-year and we continue to increase our use of lower-cost labor pools to improve our direct labor cost with offshore and lower-cost onshore resources now accounting for 25% of our employee headcount, up from 23% at the end of the first quarter and 20% at the start of the year. Through the first six months of 2010 our operating…

Thanks, Ed, and hello, everyone. Our results this quarter showed our continued progress in improving our profitability, generating free cash flow and strengthening our balance sheet. This morning I will provide more details on our financial results, including expenses, margin trends and cash flow. Additionally, I will give an update on pension. Before commenting on our continuing operations I want to discuss our divested Health Information Management business, HIM. As previously disclosed, we sold this business in the quarter. Net proceeds for the sale were approximately $126 million. In the quarter we recognized a $65 million pretax gain on the transaction. The company's financial statements have been retroactively restated to report the HIM business as a discontinued operation. As a result, HIM operating results, as well as the gain on sale, are reported in one line, the income from discontinued operations on the income statement. Additionally, HIM assets and liabilities are reported as assets and liabilities of discontinued operations on the December 31, 2009 balance sheet. Now please turn to slide six for an overview of our services backlog and order trends in the quarter. We closed the quarter with $5.7 billion in services backlog. This was up from the June 30, 2009 services backlog of $5.5 billion. June 30, 2010 backlog was down from March 31, 2010 backlog of $5.9 billion principally due to the impact of translating the backlog at different quarter-end currency rates. Approximately $810 million of the June 30, 2010 services backlog is anticipated to convert into third quarter 2010 services revenue. Over the past six quarters we typically have between 87% to 91% of our quarterly services revenue in our opening backlog. The balance of our services revenue in the quarter comes from sell and build business during the quarter. Our services orders showed single-digit…

Thanks, Janet. Operator, we'd like to open the call up to questions at this time.

(Operator Instructions) Your first question comes from the line of Eric Boyer - Wells Fargo.

Just wanted to talk about -- I think you noted a slowdown in outsourcing orders for the quarter. Some of the advisor calls have highlighted that decision making is starting to lengthen again in duration. I just wanted to know if you had any comments there.

Yes. We were expecting some orders in Q2 that got deferred into Q3. We don't believe those are lost at this point but rather deferred decisions by the customers. So it does appear to be lengthening a bit.

Is that more of kind of a macro concern they're having on kind of the second half?

I wouldn't view it so much as a macro. We just had some specific transactions in Q2 that we believe got deferred to Q3. We're not a big enough player industrywide to really think of that as being a macro issue. I think the outsourcing value proposition is still a valuable proposition for our customers.

Then ClearPath, another strong quarter there; can you give us any sense of kind of what you're expecting, not in terms of obviously of a dollar amount but just kind of the general trend you were expecting there for ClearPath sales?

Yes, let me say, again, how pleased we are with the growth in ClearPath over the last three quarters as we've revitalized and repositioned it in the marketplace. I think [with] validation that we're on the right track with the platform. We remain committed to our goal of reversing what some have projected to be a long-term secular decline in ClearPath. We're working hard to do that. Again, I think we're showing progress against that. That being said, forecasting, clearly results for ClearPath remains difficult due to the transaction nature of that business and the amount of sell and build that occurs with any given quarter. So we've got a lot of work to do the second half of the year to keep the momentum going.

Then just along ClearPath lines again, could you just talk about the profitability? I mean, another really, really strong quarter in margins there -- is that a result of the higher end software that you're configuring with the ClearPath?

Yes, I mean, ClearPath essentially today is a software business. It's really selling and implementing and running two of the finest, high-availability operating environments in the industry and it's really based on the operating systems themselves.

So, I mean, are we at kind of a new level? How should we think about the margins because obviously that line's kind of been -- it's moved all over the place over the years here.

Eric, I think when looking at the ClearPath it's best to look at it on an annualized basis. A fair amount of the cost in that software business are more fixed and so as the volume comes in stronger in a given quarter more of that incrementally drops to the bottom line. I don't think that we've seen a change in the overall when you look at it from an overall program standpoint and the margins. It's pretty good testament to our ClearPath team that we haven't seen a decline in those margins compared to what we may see across the industry.

A final one; you talked about the government, some slowdown in revenue growth there but you're encouraged by some of the new signings. Could you just give us a status on TSA, where that is right now?

Yes, we protested the most recent TSA decision and we're waiting to hear the results of that protest. In the meantime we continue to perform, we think, very well for TSA.

Is there any kind of transition you're undertaking now or kind of ramping down the work that you're doing?

I wouldn't say we're ramping it down. What we've been doing over the course of several months now is planning for an eventuality that we hope doesn't come. But if we were to leave that contract we've had several months to plan for how we would handle that and deal with it, which is a good thing. But, again, our great hope is that we would continue to stay engaged with TSA and continue to provide great service to them like we have for the last several years.

Your next question comes from the line of Joseph Vafi - Jefferies & Company. Joseph Vafi - Jefferies & Company: I think I'll just kind of circle back to ClearPath and the strong results here. I think it would be useful for us if we could get an idea of some of the growth here in ClearPath this quarter and even last quarter if it's been broad based or if it's been concentrated within a few customers just to get an idea of the trends in that line of business.

Yes, Joe, I would characterize it as broad based. I think a number of things have occurred over the last few quarters to help there. One, I think we've made new investments in ClearPath, both in terms of the technology as well as our commitment to the platform that we're sharing with our customers. Secondly, our own improved financial results have given customers greater confidence in acquiring ClearPath. Third, I think, is the industry moves more to providing technology as a service. The emphasis is more on the reliability, the security and the performance characteristics of that service more so than the underlying platform itself and these are all attributes where ClearPath absolutely shines. Joseph Vafi - Jefferies & Company: Another question on the ClearPath businesses would be are you seeing more new ClearPath sales or are we still really focused on the ClearPath install base at this point as our target market for ClearPath?

It's very much the install base, continuing to bring value to them and help clients move additional workload to ClearPath. Joseph Vafi - Jefferies & Company: Then secondly, I guess, Janet, the tax rate was down a fair bit and I know that that does move around and just were there a couple areas where there were some positive tax performance for you in the quarter?

Right. I think as you look at the tax rate it was about the same as last year on higher earnings. It just relates to the mix of the business. Joe, we're starting to see some profitability come back in countries where we don't have -- we're not required to book a tax revision given the loss provision. Then it's just -- the rest of it just is a mix of where the revenue came in. 50% of our [annuities] we provide a tax provision for, 50% we don't under the US GAAP rules that we're in. So the rest of it just was a mix. Joseph Vafi - Jefferies & Company: So if we see a general lift or positive earnings contribution in some of those geographies where I guess maybe you have an NOL, would we expect to potentially see further use of kind of global NOLs in the coming quarters?

Yes, you would. Joseph Vafi - Jefferies & Company: Then let's see here. It's kind of like you gave us almost a little bit of guidance on the services revenue line with the 87% to 91% visibility to revenue. So that was helpful. I was wondering if in the sequential numbers on services, obviously a little bit better margin sequentially. Is there anything structural there that's gone on between Q1 and Q2 to drive better sequential margin or are we really talking about higher volumes just flowing down through the P&L?

I would point out two things: one, systems integration did improve sequentially and that contributes to that improvement on the margins. But it is still a benefit of the continuing progress we're making in the services labor delivery model as we continue to move work into lower cost locations. Joseph Vafi - Jefferies & Company: Then I guess finally for me would be -- I don't know if I heard a CapEx number for the quarter and it does look like the ITO business continues to grow and even potentially ClearPath on a Cloud solution. How should we be thinking about CapEx run rate and trends there?

Right, so CapEx declined $48 million in the quarter. That's down sequentially from the first quarter CapEx of $69 million. As we said on the first quarter call, the first quarter CapEx was a little bit higher than what we're normally running with combined from two specific deals in the first quarter that require CapEx from a timing standpoint. Then second, investments in facilities: as we move to lower cost facilities there have been some lease hold improvements that happened in the first quarter. For the full year we're still staying with the same capital expenditures guidelines that we had given previously, the $200 million to $225 million for the full year. That's in line with what we've been running at and we feel like we can achieve the opportunities we have in the pipeline at that CapEx rate. Joseph Vafi - Jefferies & Company: Just one final one and I know you're not providing guidance but in general in the past you said that ClearPath is more of an H2 business than an H1 business. Do the strong results here in Q2 in ClearPath at all change that outlook on how that business tracks seasonally?

Yes, as I said before, it's hard to forecast ClearPath quarter-by-quarter. One of the things we've worked hard on this year, though, is to try and remove some of that seasonality from the ClearPath business so that we can get more of a consistent flow through all four quarters. So I believe the seasonality is still there but we've made a concerted effort to do more in Q2 or in the first half of the year than perhaps we have in previous years. I'd also comment on your first question about whether the ClearPath in Q2 was broad based or not. I think it's accurate to characterize it as broad based but you have to remember that ClearPath is everything from relatively small systems to very large systems and we certainly had some large transactions in Q2 to deliver the kind of results we did.

Your next question comes from the line of Arun Seshadri - Credit Suisse.

First I just wanted to ask about TSA. What would your -- you said that the federal revenue declined about 12% in the quarter. What would that have been ex the TSA decline?

Arun, in this time last year the TSA contract moved from a fixed price to a cost [plus]. So we've seen that contract. In the third quarter we'll hit an anniversary date of one year of having moved to that contract term. We generally run about $10 million a quarter in TSA revenue a month -- $10 million a month in TSA revenue from a quarter. In the second quarter of this year we ran about $30 million of revenue which compared to $42 million in the second quarter last year.

Then I just wanted to get a sense for the disclosure you made on the pension. You mentioned the two options. Could you go over sort of what those two options would mean from a cash flow standpoint and I guess releasing over seven versus releasing over 15 years, a little bit additional color in terms of what the cash obligations would be two years out in the first option and then on the second option as well would be helpful as well.

Obviously we are still looking at the legislation and we are looking at where the updated unfunded obligation and the discount rate would be and all of that would factor into the calculation. If I give you an outlook based upon where the December 31, 2009 information was, I'll give you a sense of that. If you -- for us, if we move to the 15-year amortization, that would mean that pension contributions would be in the $90 million to $100 million a year level based upon the December 31, 2009. On the seven year you would double that essentially. Now, those are based upon the interest rate and the assets and the unfunded obligation that existed at December 31, 2009. As those change, as market returns change, as discount rates change, those numbers can change in the future. So I just wanted to give you a sense, in response to your question, about how large could it be over that time period but realize that neither one of those numbers are going to be what the calculation looks like at December 31, 2010 when we have to make that decision.

Those numbers are against the US cash numbers for 2011 you disclosed previously of $30 million, correct?

Correct. As I said in my comments, based upon the pension relief we do not anticipate any contribution in 2011 for the US pension plan.

On the last question, you mentioned you bought back -- you used $25 million of the proceeds from the HIM sale to do various things. How much debt did you buy back and what debt did you buy back and if you could update us on what your plans are with the remainder of the $101 million proceeds.

We bought around $11 million of debt back in the quarter. Now they have been for open market purchases during the quarter and, as we said previously, we continue to look at all options for use of that $101 million proceed to improve our capital structure. We may from time-to-time make open market purchases but we continue to evaluate all options and can't comment on them right now. But we will once we've made a final decision and begin implementing them.

Just a quick follow-up, the open market purchases, what bonds or what debt did you buy back? What specific debt instrument did you buy back?

A little on the 12s and some on the 14s.

Your next question comes from the line of Jeff Harlib - Barclays Capital.

I was wondering if you could talk about the services pipeline. You commented on a double-digit decline in outsourcing orders and I know federal government is weak. But what about -- you did make some positive comments on the non-federal business. So maybe you can talk about the pipeline and how you expect to reduce those high single-digit revenue declines in services.

Yes, specifically to the outsourcing business our comment was the IT outsourcing business outside the federal government from a revenue perspective grew 9% year-over-year in the quarter. So we're very pleased by that, encouraged by that and that's really a reflection, I think, of orders growth that we've seen in the previous quarters. This particular quarter orders were down. As I mentioned earlier, we had a number of transactions that we were expecting and hoping to sing in Q2 that we believe have been deferred to Q3. We don't believe we've lost those opportunities but we think the decisions were just deferred. So the order number can be fairly spiky based on customer decision and the timeframe of those customer decisions as well as the timing of renewals of existing contracts.

Just the pipeline in terms of contracts you're bidding on and that kind of thing, as you've targeted certain growth areas.

Again, we're focusing our efforts around these four solution areas of security, data center transformation, end-user outsourcing, application modernization. We feel that we have good, solid, robust pipelines in each of those areas and we're working hard on bringing them through the pipeline.

Did you have any comments to make on the technology or ClearPath outlook for the second half given what seems like a pretty significant refresh that's gone on more recently and some pretty strong revenues? Are you more cautious about the second half or do you see pretty good pipeline and interest from your customers?

As I said earlier, the challenge with ClearPath -- first of all, again, we're very pleased with the last three quarters of year-over-year growth and we think that it's an indication of validation that the plans that we have in ClearPath are bearing fruit. But, again, forecasting ClearPath on a quarterly basis is difficult because it's really not so much a backlog business. It's very much a sell and build business that oftentimes both sides of that transaction occurs within the quarter. So, again, we think we have some good, positive momentum but we have to execute quarter-by-quarter in that business.

Janet, just the one $160 million EBITDA that you reported there, were there any unusual items either in operating income or EBITDA restructuring or other items? Then what about the $7.6 million other expense item? What does that relate to?

In the EBITDA line item, with regard to unusual items, there's about $8 million worth of expenses that would be for restructuring or non-recurring type of items. In the other income expense, which was a loss of $7.6 million, most of that expense comes from foreign exchange losses in the quarter.

But that does reduce EBITDA per your calculation.

Yes.

Your next question comes from the line of Tony Venturino - Federated Investors.

Ed, the last call you talked about having some difficulty with translating the pipeline and the orders into revenue. Are you still seeing that this quarter? I mean, have you seen any change in that activity?

I think what I was referring to is the nature of IT outsourcing engagements is that you sign the order and then you go through a transition process before running into full production mode on that contract. Sometimes those transition periods can be relatively lengthy. I think what we saw this quarter is the fruits of getting through those transitions on a number of major contracts that we signed late last year, early this year as the ITO outside the federal business, again, grew 9% year-over-year. So I think that's what you're seeing is working your way through those transitions and getting into production mode and a billable mode on those contracts.

Are those transitions taking longer than historically or are they in line with historical?

I think it's pretty much in line. We've had some large wins and some large engagements that we're undertaking on a global basis and the nature of that kind of deal creates a more complex and sometimes lengthier transition. I don't think it's anything out of the ordinary.

Then if I switch over to kind of -- well, I guess talking about the Cloud business, how big is that business and where is it located in terms of segment revenue?

We don't give out the specific size of the business. The Cloud business, from our perspective, really takes various forms. It can either be a hosting of a Cloud on behalf of clients, which we do. The most notable example is one we've been doing for seven years in support of our air cargo solution, emission critical production system that we run for a number of airlines. It can also take the form of helping clients build their own internal Clouds and that can take either providing technology for that as well as a set of consulting and systems integration services that help the client work their way through that path of consolidation, virtualization and automation, which leads to them operating their own Cloud. So it can take a number of different forms. In some cases it would show up in our systems integration. Other cases it would show up in our outsourcing business. Other cases they would show up in our technology segment. So it's really a different model for delivering service either internally by the customer or utilizing an external site that really flows through the whole business.

Are all the external sites owned and operated by you? Are these all your data centers?

To date, yes. I believe so.

Are there any plans to increase that? I mean, do you have maybe a utilization number for your data centers?

I wouldn't comment on that.

Then along the same line, is this potentially playing into the growth that we're seeing in the server sales? I mean, is the increase in the Cloud -- and we're seeing it with other companies -- is this maybe driving some of that growth?

It's hard to say. I mean, to the degree that clients are building internal Clouds that are utilizing capacity that we're providing to them through our technology solutions, perhaps, but not something that we would call out specifically as saying our ClearPath business is growing because of Cloud. We just announced a new tested development Cloud last week that augments what we've been doing from a production Cloud for the cargo system. It's a more general purpose Cloud. We'll see how that goes.

How would you rate your Cloud services visa vie some of the other competitors, specifically Actavis or Terremark?

Outstanding.

I thought you would say something else.

No, outstanding.

But, not to be [liberating], can you maybe add a little more color like how you differentiate your product versus Airs or what you might provide that's different?

I think what we bring to bear across either hosting a Cloud environment or helping customers build their own Cloud environment is a legacy of data center expertise and a focus on mission critical operations. That's really what this company stands for and what it's been built on is mission critical, operational support for clients.

Then just, Janet, if I could just a couple of quick ones. Could you actually give us the debt balances, the individual debt balances so I can get up to date? I think you said total was $839 million?

Right, so on slide 12 we did go through the debt balances of $839 million. I commented on adjusted net debt and I showed that the net debt had declined when you consider the cash balance and the restricted cash of $101 million proceeds that are sitting off to the side. That decline over the net debt position at June 30 for that is $239 million. When you consider that we also during the same time period had to move $67 million of cash into restricted cash to back up our letters of credits when our revolving credit went away, that reduced our adjusted net debt position to $172 million at June 30, 2010. So hopefully during this time period if we see an improvement in credit markets we can go back to a credit facility that does not require cash collateralization. So in looking at our adjusted net debt position we consider the cash on the chart you see, the restricted cash was $101 million for the HIM balance, which takes you to $239 million. If you consider that over the longer term we can improve our performance, improve our access and some improvement in the credit markets, hopefully we can go back to a letter of credit facility that would free up about $67 million that's sitting in restricted cash which would reduce that adjusted net debt position to $172 million.

Do you have the individual balances?

Yes, I can tell you. At June 30, the October '12 are sitting at $68 million in outstanding maturities. The October '14s are sitting at $375 million. The September '15s are $247 million. The October '15s are at $14 million and then the January '16s are at $150 million, $151 million it rounds to. All of that will be disclosed when you see our 10-Q being filed.

Then pension expense for the quarter and any sort of cash restructuring or cash [OPEB].

Yes, as I said on one of the earlier questions, we had about $8 million worth of net restructuring charges in the quarter. Pension expense was $1 million in the quarter.

Was that $8 million a charge or the actual cash outlet?

Charge.

Was there any cash that went out for restructuring?

Oh, roughly about $10 million went out for restructuring in the quarter.

Cash [OPEB]?

That's got to be, yes, $20 million a year, $5 million a quarter.

So not too different from last quarter.

That does conclude our question-and-answer session. We'll turn the conference over to our host for any closing or additional remarks.

Great. Well, thank you all so much for being on the call today and we look forward to speaking with you next time. Have a great day.