Good day, and welcome, to the Unisys Fourth Quarter and Full Year 2010 Results Conference. At this time, I'd like to turn the conference over to Mr. Niels Christensen, Vice President of Investor Relations at Unisys Corporation. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, Unisys released its fourth quarter and full year 2010 financial results. With us this afternoon to discuss our results are Ed Coleman, our CEO; and Janet Haugen, our CFO. Before we begin, I want to cover 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 afternoon 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, includes 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 have provided reconciliation charts at the end of the presentation. Finally, I'd like to remind you all that 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'd like to turn the call over to Ed.

Thanks, Niels. Hello, everyone. We appreciate you joining us today. Please turn to Slide 1, which summarizes a number of the highlights for 2010 that I'll be referencing in my comments. Before Janet takes us through the numbers for the fourth quarter and full year, I'd like to make some observations about where we are, who we are and where we're going. It's an exciting time to be at Unisys. We made continued progress against our priorities in 2010 and entered 2011 in what we believe is a strong competitive position. First, having divested a number of non-core businesses, we have a sharpened focus, with outstanding solutions for our clients in the areas of Security, Data Center Transformation and Outsourcing, End-User Outsourcing and Application Modernization. These solutions are enabling us to win exciting new engagements that help our clients deal with the disruptive trends associated with cloud computing, cybersecurity, global computing, social computing, smart computing and IT appliance offerings. For instance, in cloud computing, we are the prime contractor partnering with Google to build a new cloud-based e-mail and collaboration system for the General Services Administration, a first of its kind cloud implementation in the U.S. federal government. We've also recently announced contracts to build advanced cloud-based solutions for the City of Minneapolis, Colt Communications [Colt Technology Services] and the University of Salford, in the U.K. Second, we've invested in building world-class IT outsourcing systems integration and technology, skills, infrastructure and products to enhance our services and solutions that are delivered around the globe. Slide 2 highlights our global service delivery network, which includes more than 30 centers and over 17,000 service and delivery professionals. Our delivery model is based on ITIL service standards, and we believe we're the first global player to achieve ISO 20000 certification in all of…

Thanks, Ed and hello, everyone. We closed out 2010 with strong fourth quarter margin and cash flow performance, demonstrating our continued discipline and enhancing our cost competitiveness and optimizing cash across the company. We saw some encouraging improvements in the top line as our non-U.S. federal ITO revenue rose by about 6% for the year, and our Technology revenue was stable for the full year, with our ClearPath revenue growing 5%. We also saw continued progress in our efforts to strengthen our balance sheet and capital structure, and we are focused on extending that progress in 2011. This afternoon, I will provide more details on our fourth quarter results as well as our full year 2010 financial results. I will also update you on our capital and pension funding expectations for 2011. To start our financial review, please turn to Slide 5 for an overview of order trends in the quarter. We closed 2010 with $5.8 billion in services backlog, which was flat sequentially from September 30 and down 1% from December 31, 2009. Currency had no impact on the year-over-year comparison. Approximately $725 million of the December 31, 2010, services backlog is anticipated to convert into first quarter 2011 services revenue. Over the past eight quarters, we typically have between 87% to 93% of our quarterly services revenue in opening backlog. The balance of our services revenue comes from sell-and-build business during the quarter. Fourth quarter services orders declined 17% year-over-year. This decline was primarily attributable to lower ITO orders, after two consecutive quarters of sequential double-digit ITO orders growth. We had orders growth in Business Process Outsourcing and Infrastructure Services, due primarily to the renewal of contracts with several large customers. In terms of geographic trends, we saw good services order growth in our Asia-Pacific and European regions…

Thanks, Janet. Operator, we'd like to open the call up to questions, if we may.

[Operator Instructions] And we'll take our first question from Joseph Vafi with Jefferies. Joseph Vafi - Jefferies & Company, Inc.: As we look into 2011, two quarters here of services margin at 8%, is it too early to start talking about having that be a sustainable bogey here for this year and kind of providing some guidance that, that is indeed sustainable here for 2011?

As we've said in our long-term goals, getting the services business to deliver consistent 8% to 10% operating profit is our long-term goal over the next couple of years. We are particularly proud of the fact that we've gotten there the last two quarters. We think that's strong momentum for us, and we don't want to go backwards. But we need to deliver it quarter-by-quarter, and we'll continue to focus on it throughout 2011. Joseph Vafi - Jefferies & Company, Inc.: On the ClearPath business, been very strong. If you could provide a bit of color as to where that demand is coming from to kind of give us a better sense of the sustainability of that business here in 2011.

As we've said in the past, it's a difficult business to predict on a quarter-by-quarter basis. We think it's important to look at it on an annual basis as those transactions can move from quarter-to-quarter. But we've been very pleased with the way our ClearPath customers have embraced our recommitment to the platform, number one, embracing the technology innovations that we're bringing to it and the openness that we're bringing to that platform. In addition to that, I think our stronger financial performance has improved their confidence, not only in the platform but in the company, and we're also looking at additional ways to bring ClearPath technology to market, so not only the way we've done it in the past but we're seeing new customers coming to the ClearPath technology via our cloud offerings, and we also are looking hard at our ability to create some IT appliance solutions based on the ClearPath technology. So we think it's coming from our traditional customers, as well as, in some cases, from new customers, and we fully intend to meet our targets of keeping that flat, if not growing.

And we'll go and move on to the next question, which will come from Eric Boyer from Wells Fargo.

Just on that last question, with the profitability on the Tech segment with the strong server results. So keeping that flat year-over-year, would you expect a similar amount of overall profitability for 2011 within the Technology segment?

We have not given specific guidance for 2011. We have said our goal is to keep the Technology revenue flat. The major component in that is our ClearPath operating system and product family, and given that the expenses in that business are generally fixed over the course of the year, we would hope that, that would bode for continued profitability in that business at this level. But we're not at the point where we want to commit to driving at that level of profitability. We think it has the potential to do it, but we're not there yet in having that all underpinned.

And then on the Services operating margin, you usually see a pretty large sequential drop in your operating margin, Q1 from Q4. So when you talk about the goal of hitting services margins consistently in the 8% to 10% range, what are some of the things you're doing to take the seasonality out of that drop from Q4 to Q1, given the fact that system integration and consulting work tends to be softer there, and then that's some higher margin business?

Eric, I think one of the key points there is the growth in the IT Outsourcing business, which tends to be a less seasonal business and more of an annuity stream across the four quarters of the year, and so we're particularly pleased to see the growth in IT Outsourcing outside the U.S. Federal business of 6% this year. We won 22 new logo clients in 2010, which is an increase for us, and we feel like we had strong momentum in that business and that's an excellent way to begin to de-seasonalize that business, the overall Services business.

It looks like the System Integration Consulting was a bit soft again. Most of your competitors have indicated that demands picked up within that area. So when would you expect to see a pickup in that work? Or are you seeing the demand out there and you're just not bidding for the work while you revamp the offerings? Just trying to understand the disconnect there.

I think we've been working hard over the last several quarters to get our portfolio right and the differentiation in our offerings right in that part of the marketplace, and I think we've done a lot of very good work there. So we anticipate the primary demand for the Systems Integration Services to be coming from those trends that I mentioned earlier in the discussion, particularly around consumerization of the IT, Application, Modernization associated with increased mobility and the use of social networking, the movement to cloud, helping clients build out private clouds, as well as helping the clients modernize and enhance the applications that they have from Unisys that are running within their ClearPath environments. So we think there's a lot of strong portfolio there. It's really up to us to execute at this point.

So you see the demand to that. It's just a matter of going out and getting it at whatever point?

Yes, I think it is. I mean, I really think it is.

Janet, any onetime items we should think about in terms of your free cash flow for 2011?

Did you say any onetime items in 2011?

Yes, that you're anticipating for the free cash flow?

We have not announced any actions that would have a onetime item that would affect 2011 pretax profit or in free cash flow. Eric, I did give the indications for the pension contributions that would be up year-over-year from the $82 million we spent this year, up to the $115 million. We're going to spend less restructuring as it rolls out in 2011 compared to 2010, but beyond that, there are no other unusual items that we've announced at this point in time.

We'll move onto -- from KDP with John Moore.

The other technology revenues, at this point, what are some of the main growth areas or growth drivers for that business?

John, some of the areas that caused that growth in that are attached storage, like AMC products, where we're doing an accommodation for some of our technology customers, and perhaps some third-party product or licenses related to their operating environment.

And then for year-end 2011, is there a goal again for moving ahead on getting the low-cost labor percentage up? Or what would you say about that?

Yes, we haven't set a specific target for that. Over the last couple of years, we've gone from 16% of our employee base, meaning the lower-cost labor pool is up to now 29%. We've said pretty consistently that we think within our industry, the typical range of our competition is in the 35% to 40% of their employee base, and we continue to move towards that, both looking at positions that can be shifted to take advantage of those labor pools, but primarily the big driver for that and the increase in that is new IT outsourcing wins, where we're implementing the service delivery model that's taking full advantage of those offshore and lower-cost onshore capabilities, and we'll continue to do that.

The debt that was called in the quarter, which debt was that?

John, we called the $14 million of the 8 1/4% (sic) [8 1/2%] notes, John, that were due October 15, but they had a call date in 2010. And we called all $14.2 million that was outstanding in the 8 1/2%, and we did take a charge of about $700,000 in other income expense for that.

And we'll move on to our next question, which comes from Jeff Harlib with Barclays Capital.

Talk about your new business pipeline with your transformation, in terms of you're bidding on a lot more new types of business and how that looks entering 2011.

Jeff, you're breaking up a bit there, so I'm not sure I got it right. But I think it was, if I got the sense of it right, it's about new business pipeline, what kind of opportunities are we seeing that we're pursuing. And if that's the correct question, we're seeing some excellent opportunities in a strong pipeline, again in our IT Outsourcing business. And in the areas of application, modernization, we're seeing strong interest and demand drivers coming from the clients' desires to add support for mobile devices, social networking and adopt this whole consumerization of IT and the way it affects the application suite that the customers have is a big driver of the pipeline. Security, particularly in identity and credentialing solutions, is an important demand that we see, and clients' interest in transforming their data centers, which essentially means building out private clouds for our customers, is also an area of important interest. Back on this consumerization piece and the drivers there, one of the things I might recommend that you look at is, if you went to www.blog.unisys.com, there's an entire site that's set up there with a lot of very good content about what's going on with the consumerization of IT and how it's affecting not only the IT Outsourcing business, but also it's affecting the way our CIOs are thinking about the application management that they have to be responsible for.

Can you talk about what you're seeing in the public sector x U.S. government? Are you being affected domestically and overseas by budgetary pressures? How do you see that part of your business?

I think the question with the U.S. federal government right now is just really the timing of budget resolutions and is it going to be full year budgets laid out or is it going to be an ongoing set of continuing resolutions, as well as what the level of the budget will be. There's just a fair amount of uncertainty and unknown now.

And how about outside federal, the rest of your public business?

Outside of the U.S. federal government, in North America, we're seeing particular interest in the ITO area where the states are looking at the cost efficiency of their operations to look for opportunities to close gaps in the budget challenges that they have. When you go out broader, we're seeing the impact of the six disruptive trends that Ed had mentioned earlier, whether it's in trying to understand the impact of a broader set of appliances, equipment and the consumerization of IT and what that does to the federal infrastructure. But also the ITO cost efficiency type of activity and lastly, security ID and credentialing across the board.

And just your three-year plan, does that assume overall some revenue stabilization? Or are you still factoring in some erosion from TSA as well as some other services business?

So our three-year goals that Ed went through, say that we want to see our systems integration and our ITO business grow at the rate of the market. We know that in 2011, we're going to have to adjust for the fact that we have our largest contract rolling off. That contract did end, as we mentioned, in November of this year, and then keeping the technology flat. But we do expect not to continue to see declines on the right-hand side of the chart that we talk about in the Business Process Outsourcing Infrastructure Services and the Core Maintenance area.

And just also on free cash flow, just cash taxes? Any rough approximate number on that? And also, use of your free cash flow. In addition to improving liquidity and longer-term debt reduction, might you potentially fund your U.S. pension plan, even though there are no requirements?

Sure, our cash income taxes for the full year 2010 were $53 million, and that compares to about $58 million in 2009. We said previously that we expect that the cash taxes would be in the $50 million to $60 million range, at least in the near term. With regard to the use of free cash flow, I've stated what our expectations are in the U.S. for the U.S. Frozen Defined Benefit Plan. We do not plan to fund into that plan in 2011, but expect a $100 million required contribution in 2012, unless returns, discount rates or legislation changes.

So the rest of the cash would go to supplement liquidity and debt reduction over when the bonds are callable. Is that...

But consistent with our goal over that three-year time period to reduce our debt by 75% or the $625 million that I mentioned. All of our bonds either mature or are callable during that three-year window.

We'll hear next from Tim Hasara from Kennedy Capital.

A couple clarifications. On your depreciation and amortization number of $200 million you gave for 2011, if I compare that to the statement of cash flows, would that be the three items of depreciation, amortization of properties, outsourcing assets and marketable software?

Yes, it would.

And then have you changed your expected rate of return on your asset plan for 2011?

No, we have not. Coming off of the last two years, where the returns have been in excess of the expected rate of return of 8.75, we do not anticipate changing it in 2011.

And I guess just back to the depreciation and amortization again. I mean, I add those numbers up for 2010, and I come up with $248 million, and that would compare to $200 million for 2011. Is that accurate?

Probably rounded it, when we take the decimals out, it actually comes to $251 million.

But that compares to $200 million for 2011?

That is correct. That's what I said.

Last year, in your 10-K that you filed, you said you were going to fund $115 million in your non-U.S. plans. You ended up only funding $82 million. Is there a chance that you fund less than what you're stating for 2011 in cash to your non-U.S. plans?

You're correct that our expectation for 2010 was $115 million in pension funding. We only funded $82 million in 2010. We do have a little bit of a carryover of items that weren't resolved or settled in 2010 that we thought we would pay, and that's carrying into the 2011 expectation of $115 million.

We will take our next question from Vlad Steinberg [ph] from Realm.

First of all, when you were talking about 2013 pretax goal, does that include $36 million of pension expense? Or does that assume the $3 million of pension income?

Our comments said that, that was assuming that pension income or expense stays consistent with 2010, which is $3 million of income.

On Technology segment, how do we think about, given the lumpiness in the business, how do we think about incremental and decremental margins in this segment? What's the cost structure, in terms of what's the fixed cost to manufacture the servers versus commissions? How do we think about that decremental or incremental margins? Because they seem to be very inconsistent.

When you look at our Technology business, the largest component of our Technology business is our ClearPath product family. Within that, about 75% of that revenue comes from software. It is not predominantly from equipment, and so as a result, most of those costs are relatively fixed for an annual basis because it's an element of what we capitalize from a software standpoint and that amortizes in over the course of the year.

So you were saying it should be 100% incremental or decremental margins from...

No, I did not say 100% incremental. I did say there's a vast -- if you look at that cost base and you look at the cost base, how it's occurred during the course of 2010, we do have some seasonality because we pay commissions and bonuses based on higher revenue levels. But the vast majority of those costs are fixed.

In terms of their lumpiness, would you attribute last quarter's or Q4's strong performance to -- would you call Q3 a bit of weakness? Did you see some sales flow into Q4? Trying to get a sense for what Q1 shaping up as in terms of, did a large order come in at the end of Q4 that will eat into Q1? Or was it more of Q3 sales floating into Q4?

Our goal, that we have said last quarter and again this quarter, is to first get the technology business flat, and so we're particularly pleased with where we ended up for 2010, and from a historic standpoint, we've had multiple years where that number has declined. So this is a significant point for us this year, to have flat technology revenue, and we've said that, that's our goal going forward. There'll always be lumpiness in seasonal buying patterns by customer. Historically, if you had looked at us, you'll see that it's easier to call the first half and second half-type of revenue mix than being able to figure out what's going to close in the third versus the fourth quarter. We have been focused on keeping that technology revenue flat for a full year, which is what we have accomplished this year. We'd expect to have a seasonal pattern next year, but obviously, our goal is to try to smooth that out, but we're not going to do it at the loss of some, losing it on price with a customer. We're going to let those deals fall the quarter they happen, when we can get the most optimal pricing.

The key point here is we feel like we've reinvigorated that part of our business, and you see that, as Janet says, in holding technology flat in 2010 and actually growing the ClearPath revenue by 5% for the year. So we tend to look at it on an annual basis.

Seasonal patterns, what exactly are they? And did you say that second half is typically stronger?

The second half has historically been stronger as both the federal government, governments and commercial customers spend towards the end of the year. And if you go back to 2009, we were in the middle of a debt exchange in the first half of the year. That did cause some delay in customer buying patterns that made the second half of 2009 stronger than what it would have been on an ongoing basis. But we are trying to smooth out the pattern but we still expect it to have a seasonal pattern, stronger second half than first half.

And then just on the services. So you mentioned that U.S. government was down 9%, the non-public services in the U.S. is, I guess, is up 6%. So that's kind of close to canceling each other out, but yet your ITO was down 6%. So is the rest of the weakness coming from other public sector? Is it the states? Where is that weakness coming from?

So let me clarify. The U.S. federal government revenue that I talked about is the revenue across all of our portfolio, services and technology from the U.S. federal government. And when I spoke about ITO, I did say, for the full year, within outsourcing, our ITO revenue was flat for the full year. ITO revenue outside of the U.S. federal government was up 6% and ITO revenue from the federal government is down for the year, due to the reduced revenue on the TSA contract. You can also see that graphically depicted on our slide.

What was the services order year-over-year, the total services orders' decline year-over-year in Q4?

I commented on the decline in total overall services orders, down 17%.

And that is all the time we have for our question-and-answer session. I'd like to turn the conference back over to Ed Coleman for closing remarks.

Great, well thank you, operator. Thank all of you for attending the call today, and we look forward to our next call when we report our Q1 results for 2011. Have a good evening.

Once again, ladies and gentlemen, this does conclude today's conference. We thank you all for your participation.