MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The earnings per share amounts below reflect the company's previously announced reverse stock split applied on a retroactive basis (see note (a) of the Notes to Consolidated Financial Statements).

The company reported significantly improved profitability and cash flow for the first nine months of 2009 as the company's results benefited from ongoing actions to concentrate its resources more effectively and reduce its cost base, despite a decline in revenue.

Revenue in the first nine months of 2009 compared with the year-ago period was impacted by weakness in global economic conditions as well as unfavorable foreign currency translation. The company reported revenue of $3.39 billion in the nine months ended September 30, 2009, down 14% compared with revenue of $3.95 billion in the nine months ended September 30, 2008. Foreign currency exchange rates had an approximately 7-percentage-point negative impact on revenue in the first nine months of 2009. On a constant currency basis, revenue declined 7% in the first nine months of 2009 compared to the prior-year period.

For the nine months ended September 30, 2009, operating income increased to $215.4 million compared with $88.5 million in the first nine months of 2008. Operating profit percent increased to 6.4% for the first nine months of 2009 compared with 2.2% in the year-ago period. After a tax provision of $58.4 million, the company reported net income attributable to Unisys Corporation of $74.8 million, or $1.93 per diluted share, for the first nine months of 2009. This compared with a year-ago net loss attributable to Unisys Corporation of $72.1 million, or a loss of $2.01 per diluted share, which included a tax provision of $72.5 million.

Cash from operating activities increased to $181.8 million in the first nine months of 2009 compared with $116.4 million in the same period of 2008.

Results of operations
Company results

Revenue for the quarter ended September 30, 2009 was $1.16 billion compared with $1.31 billion for the third quarter of 2008, a decrease of 12% from the prior year. Foreign currency fluctuations had a 5-percentage-point negative impact on revenue in the third quarter compared with the year-ago period. Services revenue declined 13% and Technology revenue declined 4% in the third quarter compared with the year-ago period. U.S. revenue was down 3% in the third quarter compared with the year-ago period, as growth in U.S. Federal government revenue was offset by declines in commercial revenue. International revenue decreased 18% (11% on a constant currency basis) in the three months ended September 30, 2009 due to declines in all major regions.

18 Total gross profit margin was 26.4% in the three months ended September 30, 2009 compared with 22.2% in the three months ended September 30, 2008. The increase in gross profit margin reflects improved cost efficiencies in services delivery, the benefits from operating expense reductions as well as a stronger mix of high-end enterprise server sales.

Selling, general and administrative expense in the three months ended September 30, 2009 was $163.5 million (14.1% of revenue) compared with $218.4 million (16.6% of revenue) in the year-ago period. The decrease in selling, general and administrative expense reflects the benefits from cost reduction actions as well as foreign currency exchange fluctuations. During the three months ended September 30, 2009 and 2008, the company reversed $2.4 million and $13.2 million, respectively, of previously-accrued compensation expense related to performance-based restricted stock units due to a change in the assessment of the achievability of the performance goals. In addition, during the three months ended September 30, 2009, the company reversed $2.6 million of previously-accrued share-based compensation principally related to employees terminated in prior periods (see note (f)).

Research and development (R&D) expenses in the third quarter of 2009 were $24.3 million compared with $35.7 million in the third quarter of 2008. The decrease in R&D expenses in 2009 compared with 2008 principally reflects changes in the company's development model as the company has focused its investments on software development versus hardware design.

For the third quarter of 2009, the company reported operating income of $118.0 million compared with operating income of $37.9 million in the third quarter of 2008.

For the three months ended September 30, 2009, pension income was $5.2 million compared with pension income of $15.0 million for the three months ended September 30, 2008. The expense related to the company's match to the U.S. 401(k) plan for the three months ended September 30, 2009 and 2008 was zero and $11.3 million, respectively. Effective January 1, 2009, the company match was suspended. The company records pension income or expense, as well as other employee-related costs such as 401(k) match, payroll taxes and medical insurance costs, in operating income in the following income statement categories: cost of revenue; selling, general and administrative expenses; and research and development expenses. The amount allocated to each category is based on where the salaries of active employees are charged.

Due to changes in estimates related to cost reduction charges, during the three months ended September 30, 2009, $4.7 million was recorded as expense compared with $2.0 million recorded as expense in the year-ago period.

Interest expense for the three months ended September 30, 2009 was $25.4 million compared with $21.5 million for the three months ended September 30, 2008. The increase was principally due to higher interest rates associated with the debt issued in connection with the debt exchange discussed below.

Other income (expense), net was an expense of $3.3 million in the third quarter of 2009, compared with expense of $.9 million in 2008, principally due to a loss of $4.7 million on the sale of a subsidiary in the third quarter of 2009.

The company reported income before income taxes for the three months ended September 30, 2009 of $89.3 million compared with income before taxes of $15.5 million in 2008. The provision for income taxes was $26.2 million in the third quarter compared with a provision of $45.1 million in the year-ago period. Included in the tax provision for the three months ended September 30, 2009 was a benefit related to a prior period adjustment of $4.4 million. Included in the tax provision for the three months ended September 30, 2008 was a provision of $7.8 million for the understatement of the income tax provision for the first and second quarters of 2008. This charge had no effect on the 2008 year to date provision for income taxes.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company's U.S. operations will have no provision or benefit associated with it. As a result, the company's provision or benefit for taxes will vary significantly quarter to quarter depending on the geographic distribution of income.

19 The net income attributable to Unisys Corporation for the three months ended September 30, 2009 was $61.1 million, or $1.48 per diluted share, compared with a net loss attributable to Unisys Corporation of $34.7 million, or a loss of $.96 per diluted share, for the three months ended September 30, 2008.

Revenue for the nine months ended September 30, 2009 was $3.39 billion compared with $3.95 billion for the nine months ended September 30, 2008, a decrease of 14% from the prior year. Foreign currency fluctuations had a 7-percentage-point negative impact on revenue in the current period compared with the year-ago period. Services revenue declined 13% and Technology revenue declined 21% for the nine months ended September 30, 2009 compared with the year-ago period. U.S. revenue was down 3% in the first nine months of 2009 compared with the year-ago period, as growth in U.S. Federal government revenue was offset by declines in commercial revenue. International revenue decreased 23% (10% on a constant currency basis) in the first nine months of 2009 due to declines in all major regions.

Total gross profit margin was 23.6% in the nine months ended September 30, 2009 compared with 22.5% in the nine months ended September 30, 2008. The increase in gross profit margin reflects the benefits from cost reduction actions.

Selling, general and administrative expense in the nine months ended September 30, 2009 was $506.3 million (14.9% of revenue) compared with $701.9 million (17.8% of revenue) in the year-ago period. The decrease in selling, general and administrative expense reflects the benefits from cost reduction actions as well as foreign currency exchange fluctuations. During the nine months ended September 30, 2009 and 2008, the company reversed $2.4 million and $13.2 million, respectively, of previously-accrued compensation expense related to performance-based restricted stock units due to a change in the assessment of the achievability of the performance goals. In addition, during the nine months ended September 30, 2009, the company reversed $2.6 million of previously-accrued share-based compensation principally related to employees terminated in prior periods (see note (f)).

R&D expenses in the first nine months of 2009 were $76.8 million compared with $98.6 million in the first nine months of 2008. The decrease in R&D expenses in 2009 compared with 2008 principally reflects changes in the company's development model as the company has focused its investments on software development versus hardware design.

For the nine months ended September 30, 2009, the company reported operating income of $215.4 million compared with operating income of $88.5 million for the nine months ended September 30, 2008.

For the nine months ended September 30, 2009, pension income was $17.0 million compared with pension income of $35.3 million for the nine months ended September 30, 2008. The decrease in pension income in 2009 from 2008 was principally due to lower returns on plan assets worldwide. The expense related to the company's match to the U.S. 401(k) plan for the nine months ended September 30, 2009 and 2008 was zero and $38.0 million, respectively.

Due to changes in estimates related to cost reduction charges, during the nine months ended September 30, 2009, $4.7 million was recorded as income compared with $1.2 million recorded as expense in the year-ago period. In addition, during the nine months ended September 30, 2009, the company recorded a benefit of $11.2 million (a $5.4 million benefit in other income, a $6.1 million benefit in cost of revenue and an expense of $.3 million in selling, general and administrative expense related to legal fees) relating to a change in Brazilian law involving a gross receipt tax.

Interest expense for the nine months ended September 30, 2009 was $68.4 million compared with $64.3 million for the nine months ended September 30, 2008. The increase was principally due to higher interest rates associated with the debt issued in connection with the debt exchange discussed below.

Other income (expense), net was an expense of $7.0 million for the nine months ended September 30, 2009, compared with expense of $8.4 million for the nine months ended September 30, 2008. The nine months ended September 30, 2009 includes income of $5.4 million related to the Brazilian law change discussed above, a loss of $4.7 million on the sale of a subsidiary and foreign exchange losses of $6.1 million. Included in the nine months ended September 30, 2008 were foreign exchange losses of $.8 million.

20 The company reported income before income taxes for the nine months ended September 30, 2009 of $140.0 million compared with income of $15.8 million in 2008. The provision for income taxes was $58.4 million in the first nine months of 2009 compared with a provision of $72.5 million in the year-ago period. Included in the tax provision for the nine months ended September 30, 2009 was a U.S. refundable credit of $8.3 million, a foreign tax refund of $2.7 million related to a 2008 refund claim and a benefit related to a prior period adjustment of $5.0 million. Included in the tax provision for the nine months ended September 30, 2008 was a $5.1 million benefit related to prior years' intercompany royalties and a U.S. refundable credit of $4.1 million.

The net income attributable to Unisys Corporation for the nine months ended September 30, 2009 was $74.8 million, or $1.93 per diluted share, compared with a net loss attributable to Unisys Corporation of $72.1 million, or a loss of $2.01 per diluted share, for the nine months ended September 30, 2008.

Segment results

The company has two business segments: Services and Technology. Revenue classifications by segment are as follows: Services - systems integration and consulting, outsourcing, infrastructure services and core maintenance; Technology - enterprise-class servers and specialized technologies. The accounting policies of each business segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profit on such shipments of company hardware and software to customers. The Services segment also includes the sale of hardware and software products sourced from third parties that are sold to customers through the company's Services channels. In the company's consolidated statements of income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.

Also included in the Technology segment's sales and operating profit are sales of hardware and software sold to the Services segment for internal use in Services engagements. The amount of such profit included in operating income of the Technology segment for the three months ended September 30, 2009 and 2008 was $1.5 million and $21.9 million, respectively. The amount for the nine months ended September 30, 2009 and 2008 was $12.0 million and $33.1 million, respectively. The profit on these transactions is eliminated in Corporate.

The company evaluates business segment performance on operating profit exclusive of cost reduction charges and unusual and nonrecurring items, which are included in Corporate. All other corporate and centrally incurred costs are allocated to the business segments, based principally on revenue, employees, square footage or usage.

Information by business segment for the three months ended September 30, 2009 and 2008 is presented below (in millions of dollars):

                                       Elimi-
                            Total      nations      Services    Technology
                           -------     -------      --------    ----------
Three Months Ended
September 30, 2009
------------------
Customer revenue          $1,159.6                 $1,006.0     $ 153.6
Intersegment                  -        $ (33.2)         1.7        31.5
                          --------     -------      -------      ------
Total revenue             $1,159.6     $ (33.2)    $1,007.7     $ 185.1
                          ========    ========     ========     =======
Gross profit percent          26.4%                    19.7%       55.2%
                          ========                  =======      ======
Operating income percent      10.2%                     7.7%       21.2%
                          ========                  =======      ======
Three Months Ended
September 30, 2008
------------------
Customer revenue          $1,312.4                 $1,152.1     $ 160.3
Intersegment                  -        $ (67.5)         4.0        63.5
                          --------     -------      -------      ------
Total revenue             $1,312.4     $ (67.5)    $1,156.1     $ 223.8
                          ========     ========     =======      ======
Gross profit percent          22.2%                    17.6%       47.5%
                          ========                  =======      ======
Operating income percent       2.9%                     3.1%       11.0%
                          ========                  =======      ======

Gross profit and operating income percent are as a percent of total revenue.

21 Customer revenue by classes of similar products or services, by segment, is presented below (in millions of dollars):

                                    Three Months
                                  Ended September 30
                                 -------------------     Percent
                                   2009       2008        Change
                                   ----       ----       --------
    Services
     Systems integration
       and consulting            $  327.3    $ 361.2       (9.4)%
     Outsourcing                    464.5      515.0       (9.8)%
     Infrastructure services        133.7      182.1      (26.6)%
     Core maintenance                80.5       93.8      (14.2)%
                                 --------   --------
                                  1,006.0    1,152.1      (12.7)%
    Technology
     Enterprise-class servers       138.8      141.3       (1.8)%
     Specialized technologies        14.8       19.0      (22.1)%
                                 --------   --------
                                    153.6      160.3       (4.2)%
                                 --------   --------
    Total                        $1,159.6   $1,312.4      (11.6)%
                                 ========   ========

In the Services segment, customer revenue was $1,006.0 million for the three months ended September 30, 2009 down 12.7% from the three months ended September 30, 2008. Services revenue in the third quarter of 2009 when compared with the year-ago period was impacted by continued world wide weak demand and foreign currency exchange rates. Foreign currency translation had a 5-percentage-point negative impact on Services revenue in the current quarter compared with the year-ago period.

Revenue from systems integration and consulting decreased 9.4% in the three months ended September 30, 2009 compared with the year-ago period, reflecting lower demand for project-based services.

Outsourcing revenue decreased 9.8% in the three months September 30, 2009 compared with the year-ago period, primarily reflecting a decline in business processing outsourcing (BPO) revenue.

Infrastructure services revenue declined 26.6% in the three months ended September 30, 2009 compared with the year-ago period. The decline was due to weakness in demand for network design and consulting projects, as well as the shift of project-based infrastructure work to managed outsourcing contracts.

Core maintenance revenue declined 14.2% in the third quarter compared with the prior-year quarter. The company expects the secular decline of core maintenance to continue.

Services gross profit was 19.7% in the third quarter of 2009 compared with 17.6% in the year-ago period. Services operating income percent was 7.7% in the three months ended September 30, 2009 compared with 3.1% in the three months ended September 30, 2008. Contributing to the increase in Services margins were the benefits from operating expense reductions as well as cost efficiencies in services delivery.

In the Technology segment, customer revenue was $153.6 million in the September 2009 quarter compared with $160.3 million in the year-ago period for a decrease of 4.2%. Foreign currency translation had a negative impact of approximately 1- percentage point on Technology revenue in the September 2009 quarter compared with the prior-year period.

Revenue from the company's enterprise-class servers, which includes the company's ClearPath and ES7000 product families, decreased 1.8% for the three months ended September 30, 2009 compared with the three months ended September 30, 2008. Revenue in the current quarter benefited from a number of high-end enterprise server deals that were closed; however, the company expects the secular decline in the enterprise-class server market to continue.

Revenue from specialized technologies, which includes third-party technology products and the company's payment systems products, decreased $4.2 million for the three months ended September 30, 2009 compared with the prior year period, principally due to a decline in the company's payment systems products.

Technology gross profit was 55.2% in the current quarter compared with 47.5% in the year-ago quarter. Technology operating income percent was 21.2% in the three months ended September 30, 2009 compared with 11.0% in the three months ended September 30, 2008. Contributing to the increase in Technology margins was a stronger mix of high-end enterprise server sales as well as the benefits from cost reduction actions.

22 Information by business segment for the nine months ended September 30, 2009 and 2008 is presented below (in millions of dollars):

                                       Elimi-
                            Total      nations      Services    Technology
                           -------     -------      --------    ----------
Nine Months Ended
September 30, 2009
------------------
Customer revenue          $3,388.2                 $3,019.8     $ 368.4
Intersegment                  -        $(118.4)         5.0       113.4
                          --------     -------      -------      ------
Total revenue             $3,388.2     $(118.4)    $3,024.8     $ 481.8
                          ========     =======     ========     =======
Gross profit percent          23.6%                    19.0%       43.8%
                          ========                  =======      ======
Operating income percent       6.4%                     6.1%        2.8%
                          ========                  =======      ======
Nine Months Ended
September 30, 2008
------------------
Customer revenue          $3,953.7                 $3,486.2     $ 467.5
Intersegment                  -        $(162.2)         9.4       152.8
                          --------     -------      -------      ------
Total revenue             $3,953.7     $(162.2)    $3,495.6     $ 620.3
                          ========     ========    ========      ======
Gross profit percent          22.5%                    18.4%       43.4%
                          ========                  =======      ======
Operating income percent       2.2%                     2.9%        3.1%
                          ========                  =======      ======

Gross profit and operating income percent are as a percent of total revenue.

Customer revenue by classes of similar products or services, by segment, is presented below (in millions of dollars):

                                    Nine Months
                                  Ended September 30
                                 -------------------      Percent
                                   2009       2008        Change
                                   ----       ----       --------
    Services
     Systems integration
       and consulting            $1,018.5   $1,094.7       (7.0)%
     Outsourcing                  1,347.8    1,529.7      (11.9)%
     Infrastructure services        419.7      575.7      (27.1)%
     Core maintenance               233.8      286.1      (18.3)%
                                 --------   --------
                                  3,019.8    3,486.2      (13.4)%
    Technology
     Enterprise-class servers       295.5      384.7      (23.2)%
     Specialized technologies        72.9       82.8      (12.0)%
                                 --------   --------
                                    368.4      467.5      (21.2)%
                                 --------   --------
    Total                        $3,388.2   $3,953.7      (14.3)%
                                 ========   ========

In the Services segment, customer revenue was $3,019.8 million for the nine months ended September 30, 2009 down 13.4% from the nine months ended September 30, 2008. Services revenue in the first nine months of 2009 when compared with the year-ago period was impacted by continued world wide weak demand and foreign currency exchange rates. Foreign currency translation had an 8- percentage-point negative impact on Services revenue in the first nine months of 2009 compared with the year-ago period.

Revenue from systems integration and consulting decreased 7.0% from $1,094.7 million for the nine months ended September 30, 2008 to $1,018.5 million for the nine months ended September 30, 2009.

23 Outsourcing revenue decreased 11.9% for the nine months September 30, 2009 compared with the year-ago period, primarily reflecting a decline in BPO revenue.

Infrastructure services revenue declined 27.1% for the nine months ended September 30, 2009 compared with the year-ago period. The decline was due to weakness in demand for network design and consulting projects, as well as the shift of project-based infrastructure work to managed outsourcing contracts.

Core maintenance revenue declined 18.3% in the nine months ended September 30, 2009 compared with the prior-year period. The company expects the secular decline of core maintenance to continue.

Services gross profit was 19.0% for the nine months ended September 30, 2009 compared with 18.4% in the year-ago period. Services operating income percent was 6.1% for the nine months ended September 30, 2009 compared with 2.9% for the nine months ended September 30, 2008. Contributing to the increase in Services operating profit margin were benefits from cost reduction actions.

In the Technology segment, customer revenue was $368.4 million in the nine months ended September 30, 2009 compared with $467.5 million in the year-ago period for a decrease of 21.2%. Foreign currency translation had a negative impact of approximately 4-percentage points on Technology revenue in the first nine months of 2009 compared with the prior-year period. The decline in Technology revenue in 2009 reflects lower sales of high-end mainframe systems, primarily in Europe and Japan, as clients deferred planned purchases in a weak economic environment, as well as the expiration of a royalty from Nihon Unisys Limited (NUL). The company had recognized revenue of $18.8 million per quarter ($8.5 million in enterprise-class servers and $10.3 million in specialized technologies) under this royalty agreement over the three-year period ended March 31, 2008. The expiration of this royalty from NUL contributed about 4 percentage points of the technology segment's 21% decline in revenue.

Revenue from the company's enterprise-class servers, which includes the company's ClearPath and ES7000 product families, decreased 23.2% for the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008. Technology sales during the period slowed as clients tightened spending on information technology projects due to economic concerns. Also contributing to the decrease in revenue was the secular decline in the enterprise-class server market, which the company expects to continue.

Revenue from specialized technologies, which includes third-party technology products and the company's payment systems products, decreased 12.0% for the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008.

Technology gross profit was 43.8% in the first nine months of 2009 compared with 43.4% in the year-ago period. Technology operating income percent was 2.8% for the nine months ended September 30, 2009 compared with 3.1% for the nine months ended September 30, 2008.

New accounting pronouncements

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