SEC Comment Letter for UNISYS CORP (UIS) (CIK 0000746838) (UIS) — Oct 16, 2006
UNISYS CORP (UIS) (CIK 0000746838)
Date: Oct. 16, 2006 · CIK: 0000746838 · Accession: 0000000000-06-049868
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-08729
Letter
Room 4561 May 26, 2006 Mr. Joseph W. McGrath President and Chief Executive Officer Unisys Corporation Unisys Way Blue Bell, PA 19424
Re: Unisys Corporation Form 10-K for Fiscal Ye ar Ended December 31, 2005 Form 10-Q for the Peri od Ended March 31, 2006 Form 8-K Filed April 18, 2006 File No. 001-08729
Dear Mr. McGrath:
We have reviewed the above referenced filings and have the following comments. Please note that we have limited our review to the matters addr essed in the comments below. Where indicated, we think you shoul d revise your document in response to these comments. If you disagree, we will consider your explanation as to why our comment is inapplicable or a revision is unnecessary. Pl ease be as detailed as necessary in your explanation. In some of our comments, we may ask you to provide us with supplemental information so we may better understand your disclosure. After reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requirements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Mr. Joseph W. McGrath Unisys Corporation May 26, 2006 Page 2 Form 10-K for the year Ended December 31, 2005
Exhibit 13, Portions of Annual Re port for Year Ended December 31, 2005
Management’s Discussion and Analysis of Fi nancial Condition and Results of Operations
Overview, page 12
1. We note you recorded a $1.6 billion adjust ment to your deferred tax valuation allowance in the third quarter ended September 30, 2005. Your disclosures previously indicated that you considered your ability to generate future taxable income (predominantly in the U.S.) in assessing the realizability of the net deferred tax assets. Your current disclosu res indicate that you considered your historical pretax losses recognized both in fiscal 2004 and in th e first nine months of 2005 as well as the expected short te rm negative impact on operations as a result of your planned busi ness restructurings in 2 006. SFAS 109 requires that all available evidence both positive and negative should be considered to determine whether a valuation allowance is needed. Further, it states that the historical information should be supplemented by all currently available information about future years. We note the following forw ard looking statements which you have made and disclosed in within the Form 10-K:
• Your restructuring actions to be cond ucted in 2006 are expected to yield approximately $250 million of annualized cost savings on a run-rate basis by the end of 2007; • In January 2006, you restructured an ag reement with your equity partners in your iPSL joint venture whereby you expect an increase in your revenues of $150 million over the 2006 to 2010 timeframe and; • The Company believes that the act ions being taken by management, including the two listed above, will enable the Company in the coming years to accelerate revenue growth and significantly expand its margins and profitability.
Based on the current disclosure s it is unclear to us why the company recorded the valuation allowance during the 3rd quarter ended September 30, 2005 after considering the guidance in paragrap hs 20-25 of SFAS 109. Provide us with specific evidence which addresses the following:
• Consideration given to th e planned restructuring ac tivities to be entered into in fiscal 2006 and th e related impact these ac tivities are expected to have on both domestic and international operations; • Address whether the company had a ch ange in their interpretation of SFAS 109 when they reconsidered th eir previous position of focusing on domestic operations to generate fu ture taxable income to one where you focused on historical operating results;
Mr. Joseph W. McGrath Unisys Corporation May 26, 2006 Page 3 • Address the timing of the recordi ng of the valuation allowance; • Address how your planned restruct uring of your business model and planned divestiture of non-core assets (i.e. undefined) impacted your decision to record the valuation allowance.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Revenue Recognition, page 33
2. We note your disclosure that revenue for post-contract software support arrangements is recorded at inception for contracts of one year or less. Describe how such arrangements comply with paragr aph 59 of SOP 97-2. As part of your response, provide us with objective evidence of the Company’s compliance with criteria c. and d. of paragraph 59 which i ndicate that in orde r to recognize PCS revenue with the initial licensing fee, th e estimated cost of providing PCS during the arrangement is insignificant and uns pecified upgrades/enhancements offered during the PCS period have been and are expected to be both minimal and infrequent. Also, tell us specifically what is included in these post-contract software support arrangements a nd whether they are renewable.
Form 8-K Filed April 18, 2006
Exhibit 99
3. Your non-GAAP presentation within the press release does not appear consistent with our guidance and requirements on su ch presentation. We note the following inconsistencies:
• We note your presentation of a non- GAAP statement of operations may create the unwarranted impression that the presentation is based on a comprehensive set of accounting rule s or principles and that such presentation may not comply with It em 100(b) of Regulation G. Please explain to us your basis for this pr esentation and explain how you believe it complies with Item 100(b) of Regulation G.
• Your non-GAAP statement of operati ons excludes pension expense and identifies numerous non-GAAP meas ures including, but not limited to, non-GAAP cost of revenue, non-GAAP operating loss, various non-GAAP operating expense items and non-GAAP income (loss) before income taxes. It appears that you r presentation lacks any substantive disclosure that addresses the various disclosures in Question 8 of the Frequently Asked Questions Regard ing the Use of non-GAAP Financial Measures. For example, the disclo sure does not explain the economic
Mr. Joseph W. McGrath Unisys Corporation May 26, 2006 Page 4 substance behind your decision to use the measures, why you believe the measures provide investors with valuable insight into your operating results, or why it is useful to an inve stor to segregate each of the items for which adjustments are made. A dditionally, you do not provide any discussion regarding the ma terial limitations associated with each measure or the manner in which you compensate for such limitations. Note that we believe that detailed disclosures should be provided for each adjustment to your GAAP results and each non-GAAP measure. Further, please note that you must meet the burden of demonstrating the usefulness of any measure that excludes recurring it ems, especially if the non-GAAP measure is used to evaluate performa nce. Please explain to us how your current disclosure meets these requirements.
• Similar considerations should be give n to your reconciliation of GAAP to non-GAAP segment results of operations as this reconc iliation includes numerous non-GAAP measures as we ll including, non-GAAP gross profit in both dollar terms and as a percentage of revenues.
Form 10-Q for the Period Ended March 31, 2006
Notes to Consolidated Financial Statements
Note b. page 6
4. We note that the Company recorded a charge of $145.9 million on March 31, 2006 in connection with a commitment to reduce your workforce by 3,600 employees. Tell us what consideration you have given to the disclosures required by paragraphs 20 b and d of SFAS 146.
* * * * * * *
As appropriate, please amend your filing and respond to these comments within 10 business days or tell us when you will provid e us with a response. Please submit all correspondence and supplemental materials on EDGAR as required by Rule 101 of Regulation S-T. You may wish to provide us with marked copies of any amendment to expedite our review. Please furnish a cove r letter with any amendment that keys your responses to our comments and provides any requested information. Detailed cover letters greatly facilitate our review. Please understand that we may have additional comments after reviewing any amendment and your responses to our comments.
We urge all persons who are responsi ble for the accuracy and adequacy of the disclosure in the filing review ed by the staff to be certain that they have provided all information investors require for an info rmed decision. Since the company and its management are in possession of all facts re lating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made.
Mr. Joseph W. McGrath Unisys Corporation May 26, 2006 Page 5
In connection with responding to our comments, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclosure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comme nts as a defense in any proceeding initiated by the Commission or any person under the federal secu rities laws of the United States.
In addition, please be advise d that the Division of Enfo rcement has access to all information you provide to the staff of the Divi sion of Corporation Fi nance in our review of your filing or in response to our comments on your filing.
You may contact David E dgar, Staff Accountant, at (202)-551-3459, Marc Thomas, Senior Staff Accountant, at (202) 551-3452 or the undersigned at (202) 551- 3489 if you have any questions regarding co mments on the financial statements and related matters.
Sincerely,
Brad Skinner
Accounting Branch Chief
Show Raw Text
Room 4561
May 26, 2006
Mr. Joseph W. McGrath
President and Chief Executive Officer
Unisys Corporation
Unisys Way
Blue Bell, PA 19424
Re: Unisys Corporation
Form 10-K for Fiscal Ye ar Ended December 31, 2005
Form 10-Q for the Peri od Ended March 31, 2006
Form 8-K Filed April 18, 2006
File No. 001-08729
Dear Mr. McGrath:
We have reviewed the above referenced filings and have the following comments.
Please note that we have limited our review to the matters addr essed in the comments
below. Where indicated, we think you shoul d revise your document in response to these
comments. If you disagree, we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Pl ease be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After reviewing this
information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requirements and to enhance the overall
disclosure in your filing. We look forward to working with you in these respects. We
welcome any questions you may have about our comments or any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Mr. Joseph W. McGrath
Unisys Corporation
May 26, 2006 Page 2
Form 10-K for the year Ended December 31, 2005
Exhibit 13, Portions of Annual Re port for Year Ended December 31, 2005
Management’s Discussion and Analysis of Fi nancial Condition and Results of Operations
Overview, page 12
1. We note you recorded a $1.6 billion adjust ment to your deferred tax valuation
allowance in the third quarter ended September 30, 2005. Your disclosures
previously indicated that you considered your ability to generate future taxable
income (predominantly in the U.S.) in assessing the realizability of the net deferred tax assets. Your current disclosu res indicate that you considered your
historical pretax losses recognized both in fiscal 2004 and in th e first nine months
of 2005 as well as the expected short te rm negative impact on operations as a
result of your planned busi ness restructurings in 2 006. SFAS 109 requires that all
available evidence both positive and negative should be considered to determine whether a valuation allowance is needed. Further, it states that the historical
information should be supplemented by all currently available information about
future years. We note the following forw ard looking statements which you have
made and disclosed in within the Form 10-K:
• Your restructuring actions to be cond ucted in 2006 are expected to yield
approximately $250 million of annualized cost savings on a run-rate basis by the end of 2007;
• In January 2006, you restructured an ag reement with your equity partners
in your iPSL joint venture whereby you expect an increase in your
revenues of $150 million over the 2006 to 2010 timeframe and;
• The Company believes that the act ions being taken by management,
including the two listed above, will enable the Company in the coming
years to accelerate revenue growth and significantly expand its margins
and profitability.
Based on the current disclosure s it is unclear to us why the company recorded the
valuation allowance during the 3rd quarter ended September 30, 2005 after
considering the guidance in paragrap hs 20-25 of SFAS 109. Provide us with
specific evidence which addresses the following:
• Consideration given to th e planned restructuring ac tivities to be entered
into in fiscal 2006 and th e related impact these ac tivities are expected to
have on both domestic and international operations;
• Address whether the company had a ch ange in their interpretation of
SFAS 109 when they reconsidered th eir previous position of focusing on
domestic operations to generate fu ture taxable income to one where you
focused on historical operating results;
Mr. Joseph W. McGrath
Unisys Corporation
May 26, 2006 Page 3
• Address the timing of the recordi ng of the valuation allowance;
• Address how your planned restruct uring of your business model and
planned divestiture of non-core assets (i.e. undefined) impacted your
decision to record the valuation allowance.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Revenue Recognition, page 33
2. We note your disclosure that revenue for post-contract software support
arrangements is recorded at inception for contracts of one year or less. Describe
how such arrangements comply with paragr aph 59 of SOP 97-2. As part of your
response, provide us with objective evidence of the Company’s compliance with criteria c. and d. of paragraph 59 which i ndicate that in orde r to recognize PCS
revenue with the initial licensing fee, th e estimated cost of providing PCS during
the arrangement is insignificant and uns pecified upgrades/enhancements offered
during the PCS period have been and are expected to be both minimal and infrequent. Also, tell us specifically what is included in these post-contract
software support arrangements a nd whether they are renewable.
Form 8-K Filed April 18, 2006
Exhibit 99
3. Your non-GAAP presentation within the press release does not appear consistent with our guidance and requirements on su ch presentation. We note the following
inconsistencies:
• We note your presentation of a non- GAAP statement of operations may
create the unwarranted impression that the presentation is based on a comprehensive set of accounting rule s or principles and that such
presentation may not comply with It em 100(b) of Regulation G. Please
explain to us your basis for this pr esentation and explain how you believe
it complies with Item 100(b) of Regulation G.
• Your non-GAAP statement of operati ons excludes pension expense and
identifies numerous non-GAAP meas ures including, but not limited to,
non-GAAP cost of revenue, non-GAAP operating loss, various non-GAAP operating expense items and non-GAAP income (loss) before income taxes. It appears that you r presentation lacks any substantive
disclosure that addresses the various disclosures in Question 8 of the
Frequently Asked Questions Regard ing the Use of non-GAAP Financial
Measures. For example, the disclo sure does not explain the economic
Mr. Joseph W. McGrath
Unisys Corporation
May 26, 2006 Page 4
substance behind your decision to use the measures, why you believe the measures provide investors with valuable insight into your operating results, or why it is useful to an inve stor to segregate each of the items for
which adjustments are made. A dditionally, you do not provide any
discussion regarding the ma terial limitations associated with each measure
or the manner in which you compensate for such limitations. Note that we
believe that detailed disclosures should be provided for each adjustment to
your GAAP results and each non-GAAP measure. Further, please note
that you must meet the burden of demonstrating the usefulness of any
measure that excludes recurring it ems, especially if the non-GAAP
measure is used to evaluate performa nce. Please explain to us how your
current disclosure meets these requirements.
• Similar considerations should be give n to your reconciliation of GAAP to
non-GAAP segment results of operations as this reconc iliation includes
numerous non-GAAP measures as we ll including, non-GAAP gross profit
in both dollar terms and as a percentage of revenues.
Form 10-Q for the Period Ended March 31, 2006
Notes to Consolidated Financial Statements
Note b. page 6
4. We note that the Company recorded a charge of $145.9 million on March 31, 2006 in connection with a commitment to reduce your workforce by 3,600 employees. Tell us what consideration you have given to the disclosures required
by paragraphs 20 b and d of SFAS 146.
* * * * * * *
As appropriate, please amend your filing and respond to these comments within
10 business days or tell us when you will provid e us with a response. Please submit all
correspondence and supplemental materials on EDGAR as required by Rule 101 of Regulation S-T. You may wish to provide us with marked copies of any amendment to expedite our review. Please furnish a cove r letter with any amendment that keys your
responses to our comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we may have additional comments after reviewing any amendment and your responses to our comments.
We urge all persons who are responsi ble for the accuracy and adequacy of the
disclosure in the filing review ed by the staff to be certain that they have provided all
information investors require for an info rmed decision. Since the company and its
management are in possession of all facts re lating to a company’s disclosure, they are
responsible for the accuracy and adequacy of the disclosures they have made.
Mr. Joseph W. McGrath
Unisys Corporation
May 26, 2006 Page 5
In connection with responding to our comments, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclosure in the
filing;
staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comme nts as a defense in any proceeding
initiated by the Commission or any person under the federal secu rities laws of the
United States.
In addition, please be advise d that the Division of Enfo rcement has access to all
information you provide to the staff of the Divi sion of Corporation Fi nance in our review
of your filing or in response to our comments on your filing.
You may contact David E dgar, Staff Accountant, at (202)-551-3459, Marc
Thomas, Senior Staff Accountant, at (202) 551-3452 or the undersigned at (202) 551-
3489 if you have any questions regarding co mments on the financial statements and
related matters.
Sincerely,
Brad Skinner
Accounting Branch Chief