Welcome to the Unisys fourth quarter and full year 2007 results conference call. At this time, I would like to turn the conference over to Mr. Jack McHale, Vice President of Investors Relations at Unisys Corporation. Please go ahead, sir.

Thank you, operator. Hello, everyone, and thank you for joining us this morning. A little while ago, Unisys released its fourth quarter, and full year 2007 financial results. And with us this morning to discuss those results and our repositioning program is our CEO, Joe McGrath; and our CFO, Janet Haugen. Before we begin, I want to cover just a few housekeeping details. First, today's conference call is being webcast by the Unisys Investor website. This webcast is being recorded, and will be available as a replay on our website shortly after the conclusion of the live event. Second, on our Investor website, you can find the earnings release, as well as the presentation slides that we'll be using this morning to guide the discussion. These materials are available for viewing as well as downloading and printing. Third, today's presentation, which is complimentary to the earnings press release, includes some non-GAAP financial measures. Certain financial comparisons made in this call will be without the impact of retirement expense and cost reduction charges. In the presentation, we have provided a reconciliation of our reported results on a US GAAP basis compared with our results, excluding the impact of cost reduction charges and retirement expense. Finally, I'd like to remind you that all forward-looking statements made in 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 periodic reports as filed with the SEC. Copies of these SEC reports are available from the SEC and also from the Unisys Investor website. Let me now turn the call over to Joe.

Thanks, Jack. Hello, everyone, and welcome to today's call. Over the past two years, Unisys has been implementing an aggressive multiyear program to rebuild our profitability and our competitive position in the IT market. This effort paid off in 2007 with significant growth in our profitability and cash flow. You can see highlights of the quarter for the year on slide 1. We reported fourth quarter operating profit of $136 million, excluding cost reduction charges and retirement expense. That was up 29% from a year ago level, and represents an 8.9% operating profit margin, which is our highest quarterly operating margin in four years. We also generated $247 million in operating cash flow in the quarter, up 48% from the year ago quarter. For the full year of 2008, we reported operating profits of $273 million, excluding cost reduction charges and retirement expense. That's a 91% increase over 2006. Our operating margins for the full year of 2007 came in at 4.8%, excluding cost reduction charges and retirement expense. Janet Haugen will provide details of our financial results. What I'd like to do now is share with you some graphs that highlight just how far we've come financially in the past few years. I will show you graphs from both a GAAP basis and non-GAAP basis, excluding cost reduction charges and retirement-related expenses. Note that we have included reconciliation as backup sides for your review. First, costs. As you know, we have been undergoing a painstaking and ongoing effort to benchmark our operations, reengineer and streamline processes, and reduce our global headcount. Slide 2 shows the progress we made in operating expenses over the 2005 to 2007 time period. This is on a GAAP basis, including cost reduction charges and retirement expenses. Slide 3 shows operating expenses on a non-GAAP…

Thank you, Joe and hello everyone. This morning I'll provide more details on our fourth quarter and full year 2007 financial results, including cash flow. I will also discuss CapEx expectations for 2008. To begin with the fourth quarter financial performance, please turn to slide 17. At the top line we reported revenue of $1.54 billion for the fourth quarter of 2007. This was down 1% from the year ago quarter. Currency had a 5 percentage point positive impact on our revenue in the quarter. Our fourth quarter results include $55 million in net charges related to our ongoing cost reduction program. The charge includes the cost related to the consolidation of 46 facilities and cost for approximately 220 workforce reductions. These headcount reductions are primarily in our technology business in North America. We expect these actions, facilities, consolidation and the headcount reduction to generate $20 million in savings in 2008, and $40 million in savings on a run-rate basis. Our fourth quarter results also included $11.6 million of pre-tax retirement related expense, compared with $47.6 million a year ago. Including the cost reduction charge and retirement related expense we reported fourth quarter 2007 operating income of $69.4 million. This compares with the fourth quarter 2006 operating income of $68.6 million which included a $10 million benefit from a change in estimate on previously recorded restructuring charges. After tax expense, we reported fourth quarter 2007 net income of $13.8 million or $0.04 per share. By comparison in the year ago quarter we reported net income of $21.3 million or $0.06 per share. We ended 2007 with $6.9 billion of firm services backlog, this was up 4% from year-end 2006 services backlog. Approximately 45% of this backlog is anticipated to convert into revenue in 2008. Going forward, we will provide services…

Well, thank you, Janet, and thank you, Joe. Operator, we'd now like to open the call up for questions, please.

Thank you. (Operator Instructions) We'll take our first question from Julie Santoriello with Morgan Stanley.

Thanks, good morning. Joe, could you comment a bit on 2008 expectations for revenue growth. I believe in your comments you sort of alluded to expectation for an improvement, and showed revenue growth in the second half of 08. So can you give us an idea of what you are looking at for the full year? I realize the services backlog was up 4%, which is a good leading indicator, but then coming into 2007 the backlog was actually up, but it didn’t follow through in revenue for the year, I guess because short-term projects were declining?

First of all let me give you a kind of a disclaimer, Julie. We went back to our board as a number of you have asked to see if we could give guidance for 2008. And a number of you on the call have specifically asked us to see if we could work through that since the belief is that, at the two year point of a three year transition period, we should be in a position to start to do that. And so we heard everyone's feedback, we discussed it with our board and frankly the feedback they gave us was that this moment in time, considering the volatile economic environment, and a possible recession, it will be the wrong time to begin to give guidance. Now, we discussed further if we could revisit this at the end of the first quarter, and the answer was, yes. That said, what we put in our comments here was soft and we knew that. But we are really not prepared to go any further than we did. I will tell you the reason that we emphasized so much on the second part of my call, on the changes we are making in the System Integration business and it's turnaround, because as you know that’s been somewhat problematic for us. We think we'll have a big impact, positive impact in 2008, starting from leadership through finally having a world-class portfolio across that entire business. We actually have a simplified structure that we've put into place the 1st of the year, and we believe almost all of our solutions have leading price performance. So frankly, that has been a growth drag on us and we believe that’s turning and that’s extremely important. As you know the outsourcing business continue to grow, you heard those comments we actually believe that with the addition of mega deal teams in the United States, in addition to what we've already been doing in Europe that can start to really grow the North America outsourcing business fasters as well. But unfortunately, the guidance that we gave you in revenue growth is about as far we can go.

Okay. You had a very good quarter in the ClearPath, congratulations on that and that carried through nicely to cash flow. If we run numbers through our model, and then assume that you can hit those expectations for 8% to 10% margins in the second half of the year. It looks like it's shaping up to be a positive free cash flow year for you this year, would be able to agree with that at this point?

Well, I am going deferred it to Janet to do some…

But, going into next year with fewer requirements for restructuring payments as I mentioned, we anticipate that to be $60 million in 2008. The continued improvements, which will increase obviously the EBITDA line as we go forward. All of those items with CapEx staying at roughly the same level would obviously yield for improvements going on that free cash flow number for 2008. But, going into next year with fewer requirements for restructuring payments as I mentioned, we anticipate that to be $60 million in 2008. The continued improvements, which will increase obviously the EBITDA line as we go forward. All of those items with CapEx staying at roughly the same level would obviously yield for improvements going on that free cash flow number for 2008.

Okay, thanks. If I can get just one more question, I found the slides helpful in terms of that the breakout you had for the strategic businesses, and how those have grown. So I definitely appreciate that. And so when we look at overhead your business is growing 10%, the other half by default is declining more than 10%, at what point do we – what point would you expect the other businesses, the areas where the developments that are either in secular decline that you are deemphasizing or exiting, when does that decline begin to slow, stop having such a drag on the total number? And does declining piece of business get down to zero ultimately, or does it get down to just a smaller base from where it is today?

Yeah. Let me divide that segment into two segments. There is one part that as you might imagine, ClearPath and core, which is in that top number, as you know it’s in secular decline. That's a business that's strategic to us, but it's not part of that bottom part of the table. And so, even though the industry is in secular decline, that's the part where we've tried to slowdown. At first, we were successful in core maintenance, and you have recently seen the success we were starting to have in the technology business there, in ClearPath and so on. So that part we want to slowdown. Other parts, where we believe the margins are unattractive in part of that infrastructure services business; the margins are unattractive project-based work. I believe now there are still some pass-throughs of things like Cisco hardware and third-party hardware in that. We're trying to continue to further consciously exit that. And so, think of the two sections as; one we want to slowdown, even though we know it's in secular decline; and the other one, we have mixed feelings on how fast we take it out, because, obviously, people have looked at our revenue picture and would love to see us at least in a modest increase. So, we are torn a bit there, but we do want to get all of that third party equipment of small project, lower margin workout overtime and eventually that piece, Julie, we actually would like to get to zero. In there, there was, if you remember when we talked on previous calls about, what I called non-strategic SI solutions were in there, non-core development environment work, meaning J2EE, not dotcom but older development environment. So, on a theoretical basis we would love to get that to zero, but not the other part of it which is ClearPath and core.

Thanks. Got it. Thank you very much.

Great.

Our next question is from Jason Kupferberg with UBS.

Good morning, guys.

Good morning.

Just given the comments that you guys made about your disappoint in the stock price and the fact that the shares are undervalued, in your opinion you just posted your strongest cash flow quarter in I think four years or so. Why not consider a share buyback program? Is that been discussed with the board?

Jason, on the consideration of the stock buyback program, as part of Joe's comment he said that the board and continues, the board and management continue to evaluate all strategic alternative. At this point in time, it's been considered, but there are no current plans for a stock buyback. As we continue to proceed going forward, the stock buyback along with other alternatives would continue to be evaluated. Our thoughts right now are that given that we may potentially be going into a soft economic environment, and given that we have kept the capital expenditures at $300 million. I would tell you that right now based upon today's environment right now it's not something that we are considering to do in the very near term. But as with anything, we will continue to evaluate those alternatives and if the time is right and it's appropriate for that we would consider it.

Are there any limitations in the new bonds that would prevent you from doing that?

For us there are limitations on that. One of the things that we are trying to make sure we balance is that we are working towards trying to improve the rating agencies; the current rating agencies currently have this on a negative outlook. That is a consideration that goes into that. Generally, stock buyback with the cash we have on hand, at our credit rating, are generally not favorably viewed by the rating agencies. So, that is the primary consideration that we consider at this point in time.

Okay. Let me shift to margins for a minute, though we are sticking with the 8% to 10% target for second half '08, that's the one piece of guidance you are giving us. My model suggests you did about 6.9% in the second half of 07 on an apples-to-apples basis, so to get to the midpoint of 8% to 10% it's about a couple of hundred basis points still to go. Can you breakdown for us what the key moving parts or factors are that will get you from second half of '07 to second half '08?

Sure Jason. This is Janet. I will take that from high level. Obviously, as we go into '08, we will have the continued pressure from the declining revenue streams of the ClearPath and the core maintenance. In addition, as you know Jason, we don't have the royalty we received from NUL on March 31st effectively of 2008. So, we have that type of headwind coming into the year. Offsetting that, first at the cost line we have the continuing benefit from the restructuring actions that we have taken already. There will be continued -- this year, in 2007 we don't have a full year impact for those restructuring actions that will go forward. We will also have the benefit of the savings coming from the charges that we announced this quarter. So the biggest driver for us on a sequential perspective is coming from the restructuring cost savings. That being said, as Joe mentioned in his comments, as we continue to improve the strategic program and our cost base is in line, we do expect to get incremental benefit from that growth at higher than our normal rate of margins given that the cost base structure is in place.

Okay. And last question on topline, strategic programs grew 10% in '07 is that general range sustainable in '08 given the new sales focus?

Yeah, I obviously would love to see it increase in '08. So at a minimum we believe it's sustainable and longer term we believe we can accelerate that growth rate.

Okay. So sustainable in '08 at a 10%.

Yeah.

Thank you.

Our next question is from Susan Chen with Merrill Lynch.

Thank you. This quarter has done very good operating cash flow, things were held by [sales] from the DSO. It seems that improved DSO about 7 days to 8 days versus last quarter. My question is, is that a one time improvement by year end collection or do you see this trend going forward to next year?

If you look historically at our financial statement, typically between the third and the fourth quarter, we see generally in the neighborhood of about 3 days DSO improvement on a sequential basis. You saw double that this quarter. And we probably won't be able to hold all of that improvement, because it does get the benefit of some of the ClearPath transactions in the quarter. But those three additional days, three days is seasonal – three days is additional above our prior performance, we’re going to put emphasis throughout the business to try to retain that three day improvement as we go through our 2008.

Again, also what should the tax rate ratio, what the tax rate we should look for 2008?

The tax rate in 2008, unfortunately given the fact that we’re in a situation where given the period of losses that we had, we no longer have a deferred tax asset on our balance sheet. Our tax rate varies from year-to-year depending upon the geographic mix of our income, 50% of our entities; we do provide a provision or a benefit for the result, the other we do not just as a result of US GAAP. From a structural standpoint, we believe our tax rate is a 34% is still in place. If you were normalizing it over the time period, but unfortunately to give guidance on that tax rate at this point in time going into the year is next to impossible to do, because we don’t know the countries and legalities where all the transactions will take place.

Thank you.

We do have time for one more question. Our final question comes from Eric Boyer with Wachovia.

Hi thanks. Just, you talked about the federal business I believe you are having a decline of 3% year-over-year, if you just give a little more detail on that business?

Yeah. As you see in the 10-K, that business is about a $900 million business. It has declined 3% since 2006. That decline is largely in the defense segment. We’ve three segments that began the year as roughly equal. One was Homeland Security, one was Defense, and one was Civilian. Homeland Security and Civilian had good years. Defense was a challenge for us. Part of that was, because the Department of Defense redirected funds towards the war effort, and the decline of defense offset the growth of the other two segments. So you can imagine what a challenge it was for us. And so, we believe that the worse is over for us in defense, those other two businesses can continue to increase and I'd like to believe that '08 can be a strong year for us.

Could you just give us an update on the TSA contract, where does the re-bid status stand on that?

Yeah. The expectation is TSA EAGLE is to be re-bid in the first half of 2008, but it's uncertain precisely when that will come back out. So that's where we are, and we're currently on the bridge contract.

And the contract runs through '08?

Yes.

And finally, what percentage of --

One other thing on that if you don't mind. We believe we're in a very strong position in the re-compete there as well. So I think we're doing all the right things. There is a temptation when you have been incumbent, to not work as hard for business you already have, and we’ve made sure we put a very strong team in place to re-compete that.

I don't know if you went over this, but what percentage of your services backlog is part of your strategic initiatives revenue stream?

We do not disclose that what we said was that we disclosed the numbers that we disclose whether its services backlog and that 40%, roughly 45% of that expected to be build in the next 12 months given that most of the non-strategic programs are shorter term based projects. The backlog is disproportionately stronger towards outsourcing, and so it's predominantly more than a majority, it's predominantly based in the strategic program offering. Eric Boyer – Wachovia: A:

That does conclude our question and answer session. Mr. McHale, I will turn the conference back to you for any additional or closing comments.

Yeah, this is actually Joe Mcgrath. Thank you for your support through this transition as you've heard from us. We share your feeling about our stock and being undervalued in the marketplace. And what you really see is look in the next few days you will see a commitment from the senior team in support of our confidence. So, watch this space. Thanks.

This does conclude today's conference call. Thank you for your participation. You may disconnect at this time.