Document




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number 1-8729
 
 
 
UNISYS CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
38-0387840
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
801 Lakeview Drive, Suite 100
Blue Bell, Pennsylvania
 
19422
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (215) 986-4011 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01
UIS
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ý    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  ý
Number of shares of Common Stock outstanding as of June 30, 2019: 51,784,433.






UNISYS CORPORATION
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
 
Page Number
Item 1.
Financial Statements (Unaudited)
 
 
 
Consolidated Statements of Income
 
 
Consolidated Statements of Comprehensive Income
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Cash Flows
 
 
Consolidated Statements of Deficit
 
 
Notes to Consolidated Financial Statements
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Item 4.
Controls and Procedures
 
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
 
 
 
Exhibit Index
 
Signatures
 






Part I - FINANCIAL INFORMATION
Item 1. Financial Statements

UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions, except per share data)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
 
Services
 
$
653.4

 
$
586.7

 
$
1,265.5

 
$
1,155.2

Technology
 
100.4

 
80.7

 
184.1

 
220.6

 
 
753.8

 
667.4

 
1,449.6

 
1,375.8

Costs and expenses
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Services
 
534.8

 
484.2

 
1,046.7

 
955.1

Technology
 
25.1

 
30.3

 
59.1

 
66.6

 
 
559.9

 
514.5

 
1,105.8

 
1,021.7

Selling, general and administrative
 
99.7

 
92.7

 
197.7

 
183.6

Research and development
 
7.2

 
6.2

 
16.2

 
14.7

 
 
666.8

 
613.4

 
1,319.7

 
1,220.0

Operating income
 
87.0

 
54.0

 
129.9

 
155.8

Interest expense
 
16.2

 
15.7

 
31.7

 
32.3

Other income (expense), net
 
(28.9
)
 
(18.0
)
 
(59.3
)
 
(40.6
)
Income before income taxes
 
41.9

 
20.3

 
38.9

 
82.9

Provision for income taxes
 
12.1

 
14.3

 
25.9

 
35.2

Consolidated net income
 
29.8

 
6.0

 
13.0

 
47.7

Net income attributable to noncontrolling interests
 
3.6

 
2.2

 
6.2

 
3.3

Net income attributable to Unisys Corporation
 
$
26.2

 
$
3.8

 
$
6.8

 
$
44.4

Earnings per share attributable to Unisys Corporation
 
 
 
 
 
 
 
 
Basic
 
$
0.51

 
$
0.07

 
$
0.13

 
$
0.87

Diluted
 
$
0.42

 
$
0.07

 
$
0.13

 
$
0.74

See notes to consolidated financial statements


2





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Millions)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Consolidated net income
 
$
29.8

 
$
6.0

 
$
13.0

 
$
47.7

Other comprehensive income:
 
 
 
 
 
 
 
 
Foreign currency translation
 
(13.8
)
 
(23.3
)
 
(48.0
)
 
(28.4
)
Postretirement adjustments, net of tax of $4.2 and $3.1 in 2019 and $1.9 and $2.9 in 2018
 
50.4

 
39.9

 
118.9

 
78.9

Total other comprehensive income
 
36.6

 
16.6

 
70.9

 
50.5

Comprehensive income
 
66.4

 
22.6

 
83.9

 
98.2

Less comprehensive income attributable to noncontrolling interests
 
2.7

 
0.9

 
3.2

 
3.2

Comprehensive income attributable to Unisys Corporation
 
$
63.7

 
$
21.7

 
$
80.7

 
$
95.0

See notes to consolidated financial statements

3





UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Millions)
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
507.2

 
$
605.0

Accounts receivable, net
496.4

 
509.2

Contract assets
32.7

 
29.7

Inventories:
 
 
 
Parts and finished equipment
13.5

 
14.0

Work in process and materials
14.4

 
13.3

Prepaid expenses and other current assets
141.6

 
130.2

Total current assets
1,205.8

 
1,301.4

Properties
814.2

 
800.2

Less-Accumulated depreciation and amortization
690.4

 
678.9

Properties, net
123.8

 
121.3

Outsourcing assets, net
210.1

 
216.4

Marketable software, net
177.8

 
162.1

Operating lease right-of-use assets
134.5

 

Prepaid postretirement assets
152.9

 
147.6

Deferred income taxes
104.0

 
109.3

Goodwill
177.8

 
177.8

Restricted cash
10.3

 
19.1

Other long-term assets
210.8

 
202.6

Total assets
$
2,507.8

 
$
2,457.6

Liabilities and deficit
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
7.5

 
$
10.0

Accounts payable
233.5

 
268.9

Deferred revenue
288.3

 
294.4

Other accrued liabilities
342.4

 
350.0

Total current liabilities
871.7

 
923.3

Long-term debt
668.6

 
642.8

Long-term postretirement liabilities
1,888.0

 
1,956.5

Long-term deferred revenue
147.0

 
157.2

Long-term operating lease liabilities
96.1

 

Other long-term liabilities
50.1

 
77.4

Commitments and contingencies

 

Deficit:
 
 
 
Common stock, shares issued:
 
 
 
2019; 55.3, 2018; 54.2
0.6

 
0.5

Accumulated deficit
(1,687.2
)
 
(1,694.0
)
Treasury stock, shares at cost:
 
 
 
2019; 3.5, 2018; 3.1
(109.5
)
 
(105.0
)
Paid-in capital
4,546.2

 
4,539.8

Accumulated other comprehensive loss
(4,010.9
)
 
(4,084.8
)
Total Unisys stockholders’ deficit
(1,260.8
)
 
(1,343.5
)
Noncontrolling interests
47.1

 
43.9

Total deficit
(1,213.7
)
 
(1,299.6
)
Total liabilities and deficit
$
2,507.8

 
$
2,457.6

See notes to consolidated financial statements

4





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
 
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
Consolidated net income
 
$
13.0

 
$
47.7

Adjustments to reconcile consolidated net income to net cash used for operating activities:
 
 
 
 
Foreign currency transaction losses
 
5.3

 
1.5

Non-cash interest expense
 
5.4

 
5.2

Employee stock compensation
 
7.3

 
7.3

Depreciation and amortization of properties
 
17.8

 
21.6

Depreciation and amortization of outsourcing assets
 
31.7

 
31.9

Amortization of marketable software
 
21.6

 
28.6

Other non-cash operating activities
 
(0.2
)
 
(1.6
)
Loss on disposal of capital assets
 
1.3

 
0.3

Gain on sale of properties
 

 
(7.1
)
Postretirement contributions
 
(47.7
)
 
(72.9
)
Postretirement expense
 
47.1

 
38.5

Decrease in deferred income taxes, net
 
2.7

 
8.3

Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
 
10.1

 
(21.2
)
Inventories
 
(0.3
)
 
(0.8
)
Accounts payable and other accrued liabilities
 
(140.3
)
 
(152.8
)
Other liabilities
 
16.9

 
10.8

Other assets
 
(11.2
)
 
(7.2
)
Net cash used for operating activities
 
(19.5
)
 
(61.9
)
Cash flows from investing activities
 
 
 
 
Proceeds from investments
 
1,704.1

 
2,028.8

Purchases of investments
 
(1,706.9
)
 
(2,034.6
)
Investment in marketable software
 
(37.2
)
 
(41.1
)
Capital additions of properties
 
(20.8
)
 
(9.9
)
Capital additions of outsourcing assets
 
(39.7
)
 
(42.4
)
Net proceeds from sale of properties
 
(0.2
)
 
19.7

Other
 
(0.4
)
 
(0.9
)
Net cash used for investing activities
 
(101.1
)
 
(80.4
)
Cash flows from financing activities
 
 
 
 
Proceeds from issuance of long-term debt
 
28.1

 

Payments of long-term debt
 
(10.5
)
 
(1.3
)
Other
 
(4.5
)
 
(2.1
)
Net cash provided by (used for) financing activities
 
13.1

 
(3.4
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
0.9

 
(17.3
)
Decrease in cash, cash equivalents and restricted cash
 
(106.6
)
 
(163.0
)
Cash, cash equivalents and restricted cash, beginning of period
 
624.1

 
764.1

Cash, cash equivalents and restricted cash, end of period
 
$
517.5

 
$
601.1

See notes to consolidated financial statements



5





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)
(Millions)

  
 
 
 
Unisys Corporation
 
 
 
 
Total
 
Total Unisys Corporation
 
Common Stock Par Value
 
Accumu-lated Deficit
 
Treasury Stock At Cost
 
Paid-in Capital
 
Accumu-lated Other Compre-hensive Loss
 
Non-controlling Interests
Balance at January 1, 2019
 
$
(1,299.6
)
 
$
(1,343.5
)
 
$
0.5

 
$
(1,694.0
)
 
$
(105.0
)
 
$
4,539.8

 
$
(4,084.8
)
 
$
43.9

Consolidated net income (loss)
 
(16.8
)
 
(19.4
)
 
 
 
(19.4
)
 
 
 
 
 
 
 
2.6

Stock-based activity
 
(0.4
)
 
(0.4
)
 
0.1

 
 
 
(4.4
)
 
3.9

 
 
 
 
Translation adjustments
 
(34.2
)
 
(32.8
)
 
 
 
 
 
 
 
 
 
(32.8
)
 
(1.4
)
Postretirement plans
 
68.5

 
69.2

 
 
 
 
 
 
 
 
 
69.2

 
(0.7
)
Balance at March 31, 2019
 
$
(1,282.5
)
 
$
(1,326.9
)
 
$
0.6

 
$
(1,713.4
)
 
$
(109.4
)
 
$
4,543.7

 
$
(4,048.4
)
 
$
44.4

Consolidated net income
 
29.8

 
26.2

 
 
 
26.2

 
 
 
 
 
 
 
3.6

Stock-based activity
 
2.4

 
2.4

 
 
 
 
 
(0.1
)
 
2.5

 
 
 
 
Translation adjustments
 
(13.8
)
 
(11.6
)
 
 
 
 

 
 
 
 
 
(11.6
)
 
(2.2
)
Postretirement plans
 
50.4

 
49.1

 
 
 
 
 
 

 
 

 
49.1

 
1.3

Balance at June 30, 2019
 
$
(1,213.7
)
 
$
(1,260.8
)
 
$
0.6

 
$
(1,687.2
)
 
$
(109.5
)
 
$
4,546.2

 
$
(4,010.9
)
 
$
47.1


  
 
 
 
Unisys Corporation
 
 
 
 
Total
 
Total Unisys Corporation
 
Common Stock Par Value
 
Accumu-lated Deficit
 
Treasury Stock At Cost
 
Paid-in Capital
 
Accumu-lated Other Compre-hensive Loss
 
Non-controlling Interests
Balance at January 1, 2018
 
$
(1,326.5
)
 
$
(1,354.7
)
 
$
0.5

 
$
(1,963.1
)
 
$
(102.7
)
 
$
4,526.4

 
$
(3,815.8
)
 
$
28.2

Cumulative effect adjustment - ASU No. 2014-09
 
(21.4
)
 
(21.4
)
 
 
 
(21.4
)
 
 
 
 
 
 
 
 
Consolidated net income
 
41.7

 
40.6

 
 
 
40.6

 
 
 
 
 
 
 
1.1

Stock-based activity
 
1.5

 
1.5

 
 
 
 
 
(2.1
)
 
3.6

 
 
 
 
Translation adjustments
 
(5.1
)
 
(5.9
)
 
 
 
 
 
 
 
 
 
(5.9
)
 
0.8

Postretirement plans
 
39.0

 
38.6

 
 
 
 
 
 
 
 
 
38.6

 
0.4

Balance at March 31, 2018
 
$
(1,270.8
)
 
$
(1,301.3
)
 
$
0.5

 
$
(1,943.9
)
 
$
(104.8
)
 
$
4,530.0

 
$
(3,783.1
)
 
$
30.5

Consolidated net income
 
6.0

 
3.8

 
 
 
3.8

 
 
 
 
 
 
 
2.2

Stock-based activity
 
4.1

 
4.1

 
 
 
 
 


 
4.1

 
 
 
 
Translation adjustments
 
(23.3
)
 
(21.6
)
 
 
 
 

 
 
 
 
 
(21.6
)
 
(1.7
)
Postretirement plans
 
39.9

 
39.5

 
 
 
 
 
 

 
 

 
39.5

 
0.4

Balance at June 30, 2018
 
$
(1,244.1
)
 
$
(1,275.5
)
 
$
0.5

 
$
(1,940.1
)
 
$
(104.8
)
 
$
4,534.1

 
$
(3,765.2
)
 
$
31.4

See notes to consolidated financial statements


6



UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except share and per share amounts)

Note 1 - Basis of Presentation
The accompanying consolidated financial statements and footnotes of Unisys Corporation have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of management, the financial information furnished herein reflects all adjustments necessary for a fair presentation of the results of operations, comprehensive income, financial position, cash flows and deficit for the interim periods specified. These adjustments consist only of normal recurring accruals except as disclosed herein. Because of seasonal and other factors, results for interim periods are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and the reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, contract assets, inventories, operating lease right-of-use assets, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, indemnifications, assumptions used in the calculation for systems integration projects, income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
The company’s accounting policies are set forth in detail in Note 1 of the Notes to Consolidated Financial Statements in the company’s Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K) filed with the Securities and Exchange Commission. Such Annual Report also contains a discussion of the company’s critical accounting policies and estimates. The company believes that these critical accounting policies and estimates affect its more significant estimates and judgments used in the preparation of the company’s consolidated financial statements.
As described in Note 3, effective January 1, 2019 the company adopted the requirements of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the effective date transition method. The company’s updated accounting policy on leases is described in Note 2 of this Form 10-Q.
Note 2 - Summary of Significant Accounting Policies
Leases
The company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the company if the company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The company has lease agreements that include lease and non-lease components, which the company accounts for as a single lease component for all personal property leases. Lease expense for variable leases and short-term leases is recognized when the expense is incurred.
Operating leases are included in operating lease right-of-use (ROU) assets, other accrued liabilities and long-term operating lease liabilities on the consolidated balance sheets. Operating lease ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term.
Finance leases are included in outsourcing assets, net and long-term debt on the consolidated balance sheets. Finance lease ROU assets and lease liabilities are initially measured in the same manner as operating leases. Finance lease ROU assets are amortized using the straight-line method. Finance lease liabilities are measured at amortized cost using the effective interest method.
The company has not capitalized leases with terms of twelve months or less.

7





As most of the company’s leases do not provide an implicit rate, the company uses its incremental borrowing rate, based on the information available at the lease commencement date, in determining the present value of lease payments.
The lease term for all of the company’s leases includes the non-cancelable period of the lease plus any additional periods covered by either a company option to extend (or not to terminate) the lease that the company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, amounts expected to be payable under a residual value guarantee and the exercise of the company option to purchase the underlying asset, if reasonably certain.
Variable lease payments associated with the company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as an operating expense in the company’s consolidated results of operations in the same line item as expense arising from fixed lease payments (operating leases) or amortization of the ROU asset (finance leases).
The company uses the long-lived assets impairment guidance in ASC Subtopic 360-10 Property, Plant, and Equipment to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. If impaired, ROU assets for operating and finance leases are reduced for any impairment losses.
The company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in the consolidated statement of income.
The company has commitments under operating leases for certain facilities and equipment used in its operations. The company also has finance leases for equipment. The company’s leases generally have initial lease terms ranging from 1 year to 8 years, most of which include options to extend or renew the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. Certain lease agreements contain provisions for future rent increases.
The components of lease expense for the three and six months ended June 30, 2019 are as follows:
 
 
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating lease cost
 
$
18.4

 
$
33.2

Finance lease cost
 
 
 
 
Amortization of right-of-use assets
 
0.4

 
0.8

Interest on lease liabilities
 

 

Total finance lease cost
 
0.4

 
0.8

Short-term lease costs
 
0.1

 
0.2

Variable lease cost
 
2.8

 
6.7

Sublease income
 
(0.1
)
 
(0.6
)
Total lease cost
 
$
21.6

 
$
40.3


8





Supplemental balance sheet information related to leases is as follows:
 
 
June 30, 2019
Operating Leases
 
 
Operating lease right-of-use assets
 
$
134.5

Other accrued liabilities
 
66.8

Long-term operating lease liabilities
 
96.1

Total operating lease liabilities
 
$
162.9

 
 
 
Finance Leases
 
 
Outsourcing assets, net
 
$
4.7

Current maturities of long-term debt
 
$
1.6

Long-term debt
 
3.8

Total finance lease liabilities
 
$
5.4

 
 
 
Weighted-Average Remaining Lease Term
 
 
Operating leases
 
3.3

Finance leases
 
3.2

 
 
 
Weighted-Average Discount Rate
 
 
Operating leases
 
6.3
%
Finance leases
 
2.6
%
Supplemental cash flow information related to leases is as follows:
 
 
Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Cash payments for operating leases included in operating activities
 
$
31.8

Cash payments for finance leases included in financing activities
 
0.9

Right-of-use assets obtained in exchange for lease obligations are as follows:
 
 
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating leases
 
$
36.2

 
$
42.9

Finance leases
 
0.4

 
0.4



9





Maturities of lease liabilities as of June 30, 2019 are as follows:
Year
 
Finance Leases
 
Operating Leases
2019
 
$
1.0

 
$
37.0

2020
 
1.7

 
67.5

2021
 
1.7

 
30.7

2022
 
1.1

 
18.4

2023
 
0.1

 
11.1

Thereafter
 

 
15.9

Total lease payments
 
5.6

 
180.6

Less imputed interest
 
0.2

 
17.7

Total
 
$
5.4

 
$
162.9

Maturities of lease liabilities as of December 31, 2018, prior to the adoption of ASU No. 2016-02 as described in Note 3, “Accounting Standards,” are as follows:
Year
 
Finance Leases
 
Operating Leases(i)
2019
 
$
1.6

 
$
48.5

2020
 
1.6

 
42.1

2021
 
1.6

 
30.0

2022
 
1.0

 
20.8

2023
 

 
14.3

Thereafter
 

 
24.4

Total
 
$
5.8

 
$
180.1

(i)Such rental commitments have been reduced by minimum sublease rentals of $2.7 million, due in the future under noncancelable leases.
For transactions where the company is considered the lessor, revenue for operating leases is recognized on a monthly basis over the term of the lease and for sales-type leases at the inception of the lease term. These amounts were immaterial for the three and six months ended June 30, 2019.
As of June 30, 2019, receivables under sales-type leases before the allowance for unearned income were collectible as follows:
Year
 
2019
$
16.8

2020
18.2

2021
12.9

2022
12.3

2023
12.3

Thereafter
17.5

Total
$
90.0


Marketable software
The cost of development of computer software to be sold or leased, incurred subsequent to establishment of technological feasibility, is capitalized and amortized to cost of sales over the estimated revenue-producing lives of the products. In assessing the estimated revenue-producing lives and recoverability of the products, the company considers operating strategies, underlying technologies utilized, estimated economic life and external market factors, such as expected levels of competition, barriers to entry by potential competitors, stability in the market and governmental regulation. The company continually reassesses the estimated revenue-producing lives of the products and any change in the company’s estimate could result in the remaining amortization expense being accelerated or spread out over a longer period.

10





Previously, the estimated revenue-producing lives of the company’s proprietary enterprise software was three years. Due to the maturity of the company’s proprietary enterprise software product, the company increased the time between its major releases as its product has a longer useful life. In addition, the company modified its commitment to provide post-contract support from an average of three years to five years following each new proprietary enterprise software release. In the first quarter of 2019, the company validated that the revised extended timeline between major product releases and the revised post-contract support period has achieved market acceptance. The company’s historical experience is that its significant customers typically renew the software on average every five years. As a result, the company adjusted the remaining useful life of its proprietary enterprise software product, which represents approximately 65% of the company’s marketable software, to five years. This change in estimate was applied prospectively effective January 1, 2019. The adjustment resulted in a $4.9 million decrease to cost of revenue in the three months ended June 30, 2019, and accordingly increased consolidated net income by $4.9 million or $0.06 per diluted earnings per share. For the six months ended June 30, 2019, this adjustment resulted in a $9.3 million decrease to cost of revenue, and accordingly increased consolidated net income by $9.3 million or $0.18 per diluted earnings per share. The useful lives of the remaining products classified as marketable software remain at three years, which is consistent with prior years. As of June 30, 2019, $44.7 million of marketable software was in process and the remaining $133.1 million has a weighted-average remaining life of 3.5 years. The company performs quarterly reviews to ensure that unamortized costs remain recoverable from future revenue. As of June 30, 2019, the company believes that all unamortized costs are fully recoverable.
Note 3 - Accounting Standards
Accounting Pronouncements Adopted
Effective January 1, 2019, the company adopted ASU No. 2016-02 Leases (Topic 842) issued by the Financial Accounting Standards Board (FASB) which is intended to improve financial reporting about leasing transactions. Topic 842 requires organizations that lease assets, referred to as lessees, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The company adopted the new standard using the effective date transition method by applying a cumulative-effect adjustment to the balance sheet through the addition of ROU assets and lease liabilities at January 1, 2019. Prior-period results were not restated.
The company applied certain practical expedients, including the package of practical expedients, permitted under the transition guidance within Topic 842 to leases that commenced before January 1, 2019. The election of the package of practical expedients resulted in the company not reassessing prior conclusions under FASB Topic 840 Leases related to lease identification, lease classification and initial direct costs for existing leases at January 1, 2019.
The adoption had a material impact on the consolidated financial position and did not have a material impact on the consolidated results of operations or cash flows as of and for the three and six months ended June 30, 2019. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the company’s accounting for finance leases remained substantially unchanged.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract which clarifies the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This update is effective for fiscal years ending after December 15, 2019, with earlier adoption permitted, including adoption in any interim period. The new guidance can be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, loans and other financial instruments. This update is effective for annual periods beginning after December 15, 2019, with earlier adoption permitted. The company will adopt the new guidance on January 1, 2020 through a cumulative-effect adjustment to retained earnings. The company is currently evaluating the impact of the adoption on its consolidated financial statements.

11





Note 4 - Cost-Reduction Actions
During the three months ended June 30, 2019, the company recognized cost-reduction charges and other costs of $2.6 million. Charges were comprised of $0.8 million for lease abandonment costs and $1.8 million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue – services, $(1.0) million and selling, general and administrative expenses, $3.6 million.
During the six months ended June 30, 2019, the company recognized cost-reduction charges and other costs of $5.2 million. Charges were comprised of $4.3 million for lease abandonment costs and asset write-offs and $0.9 million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue – services, $(4.7) million; selling, general and administrative expenses, $8.6 million; and research and development expenses, $1.3 million.
No provisions for cost-reduction actions were recorded during the first half of 2018; however, $0.7 million and $(2.2) million, respectively, was recorded as expense (income) for changes in estimates during the three and six months ended June 30, 2018. For the three months ended June 30, 2018, the charge was recorded in the following statement of income classifications: cost of revenue - services, $(0.5) million and selling, general and administrative expenses, $1.2 million. For the six months ended June 30, 2018, the benefit was recorded in the following statement of income classifications: cost of revenue - services, $(3.5) million and selling, general and administrative expenses, $1.3 million.
Liabilities and expected future payments related to the company’s work-force reduction actions are as follows:
 
 
Total
 
U.S.
 
International
Balance at December 31, 2018
 
$
86.2

 
$
6.1

 
$
80.1

Payments
 
(28.8
)
 
(1.6
)
 
(27.2
)
Changes in estimates
 
0.8

 
(0.6
)
 
1.4

Translation adjustments
 
(0.6
)
 

 
(0.6
)
Balance at June 30, 2019
 
$
57.6

 
$
3.9

 
$
53.7

Expected future utilization on balance at June 30, 2019:
 
 
 
 
 
 
2019 remaining six months
 
$
44.5

 
$
3.5

 
$
41.0

Beyond 2019
 
$
13.1

 
$
0.4

 
$
12.7


12



Note 5 - Pension and Postretirement Benefits
Net periodic pension expense for the three and six months ended June 30, 2019 and 2018 is presented below:
 
 
Three Months Ended
June 30, 2019
 
Three Months Ended
June 30, 2018
 
 
Total
 
U.S.
Plans
 
International
Plans
 
Total
 
U.S.
Plans
 
International
Plans
Service cost(i)
 
$
0.7

 
$

 
$
0.7

 
$
0.8

 
$

 
$
0.8

Interest cost
 
66.5

 
49.3

 
17.2

 
64.0

 
46.6

 
17.4

Expected return on plan assets
 
(80.9
)
 
(54.5
)
 
(26.4
)
 
(87.0
)
 
(57.6
)
 
(29.4
)
Amortization of prior service benefit
 
(1.3
)
 
(0.7
)
 
(0.6
)
 
(1.7
)
 
(0.7
)
 
(1.0
)
Recognized net actuarial loss
 
37.6

 
29.0

 
8.6

 
42.0

 
31.2

 
10.8

Net periodic pension expense (benefit)
 
$
22.6

 
$
23.1

 
$
(0.5
)
 
$
18.1

 
$
19.5

 
$
(1.4
)
 
 
Six Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2018
 
 
Total
 
U.S.
Plans
 
International
Plans
 
Total
 
U.S.
Plans
 
International
Plans
Service cost(i)
 
$
1.4

 
$

 
$
1.4

 
$
1.6

 
$

 
$
1.6

Interest cost
 
133.2

 
98.5

 
34.7

 
128.0

 
93.2

 
34.8

Expected return on plan assets
 
(162.1
)
 
(109.0
)
 
(53.1
)
 
(174.2
)
 
(115.2
)
 
(59.0
)
Amortization of prior service benefit
 
(2.5
)
 
(1.3
)
 
(1.2
)
 
(3.2
)
 
(1.3
)
 
(1.9
)
Recognized net actuarial loss
 
75.2

 
57.9

 
17.3

 
84.1

 
62.4

 
21.7

Net periodic pension expense (benefit)
 
$
45.2

 
$
46.1

 
$
(0.9
)
 
$
36.3

 
$
39.1

 
$
(2.8
)
(i)Service cost is reported in selling, general and administrative expense. All other components of net periodic pension expense are reported in other income (expense), net in the consolidated statements of income.
In 2019, the company expects to make cash contributions of approximately $104.5 million to its worldwide defined benefit pension plans, which are comprised of $67.2 million for the company’s U.S. qualified defined benefit pension plans and $37.3 million primarily for the company’s international defined benefit pension plans. In 2018, the company made cash contributions of $129.7 million to its worldwide defined benefit pension plans. For the six months ended June 30, 2019 and 2018, the company made cash contributions of $45.9 million and $67.7 million, respectively.

Net periodic postretirement benefit expense for the three and six months ended June 30, 2019 and 2018 is presented below:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Service cost(i)
 
$
0.1

 
$
0.1

 
$
0.2

 
$
0.3

Interest cost
 
1.2

 
1.2

 
2.4

 
2.4

Expected return on assets
 
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
Recognized net actuarial loss
 
0.2

 
0.2

 
0.3

 
0.5

Amortization of prior service benefit
 
(0.4
)
 
(0.3
)
 
(0.8
)
 
(0.8
)
Net periodic postretirement benefit expense
 
$
1.0

 
$
1.1

 
$
1.9

 
$
2.2

(i)Service cost is reported in selling, general and administrative expense. All other components of net periodic postretirement benefit expense are reported in other income (expense), net in the consolidated statements of income.
The company expects to make cash contributions of approximately $6.0 million to its postretirement benefit plans in 2019 compared to $9.0 million in 2018. For the six months ended June 30, 2019 and 2018, the company made cash contributions of $1.8 million and $5.2 million, respectively.

13





Note 6 - Stock Compensation
Under stockholder approved stock-based plans, stock options, stock appreciation rights, restricted stock and restricted stock units may be granted to officers, directors and other key employees. At June 30, 2019, 5.4 million shares of unissued common stock of the company were available for granting under these plans.
As of June 30, 2019, the company has granted non-qualified stock options and restricted stock units under these plans. The company recognizes compensation cost, net of a forfeiture rate, in selling, general and administrative expense, and recognizes compensation cost only for those awards expected to vest. The company estimates the forfeiture rate based on its historical experience and its expectations about future forfeitures.
During the six months ended June 30, 2019 and 2018, the company recorded $7.3 million and $7.3 million of share-based compensation expense, respectively, which was comprised of $7.3 million and $7.2 million of restricted stock unit expense and zero and $0.1 million of stock option expense, respectively.
There were no grants of stock option awards during the six months ended June 30, 2019 and 2018. As of June 30, 2019, 548,273 stock option awards with a weighted-average exercise price of $23.53 are outstanding.
Restricted stock unit awards may contain time-based units, performance-based units, total shareholder return market-based units, or a combination of these units. Each performance-based and market-based unit will vest into zero to two shares depending on the degree to which the performance or market conditions are met. Compensation expense for performance-based awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse, and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals. Compensation expense for market-related awards is recognized as expense ratably over the measurement period, regardless of the actual level of achievement, provided the service requirement is met. Time-based restricted stock unit grants for the company’s directors vest upon award and compensation expense for such awards is recognized upon grant.
A summary of restricted stock unit activity for the six months ended June 30, 2019 follows (shares in thousands):
 
 
Restricted
Stock
Units
 
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 31, 2018
 
2,151

 
$
12.90

Granted
 
1,317

 
15.04

Vested
 
(1,097
)
 
13.23

Forfeited and expired
 
(211
)
 
13.71

Outstanding at June 30, 2019
 
2,160

 
14.16

The aggregate weighted-average grant-date fair value of restricted stock units granted during the six months ended June 30, 2019 and 2018 was $16.8 million and $17.9 million, respectively. The fair value of restricted stock units with time and performance conditions was determined based on the trading price of the company’s common shares on the date of grant. The fair value of awards with market conditions was estimated using a Monte Carlo simulation with the following weighted-average assumptions:
 
Six Months Ended
June 30,
 
2019
 
2018
Weighted-average fair value of grant
$
16.58

 
$
15.84

Risk-free interest rate(i)
2.49
%
 
2.26
%
Expected volatility(ii)
47.91
%
 
52.97
%
Expected life of restricted stock units in years(iii)
2.87

 
2.88

Expected dividend yield
%
 
%
(i)Represents the continuously compounded semi-annual zero-coupon U.S. treasury rate commensurate with the remaining performance period
(ii)Based on historical volatility for the company that is commensurate with the length of the performance period
(iii)Represents the remaining life of the longest performance period

14





As of June 30, 2019, there was $18.9 million of total unrecognized compensation cost related to outstanding restricted stock units granted under the company’s plans. That cost is expected to be recognized over a weighted-average period of 2.2 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the six months ended June 30, 2019 and 2018 was $14.5 million and $10.1 million, respectively.
Common stock issued upon exercise of stock options or upon lapse of restrictions on restricted stock units are newly issued shares. In light of its tax position, the company is currently not recognizing any tax benefits from the exercise of stock options or upon issuance of stock upon lapse of restrictions on restricted stock units.
Note 7 - Income Taxes
Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s historical profitability, forecast of future taxable income and available tax-planning strategies that could be implemented to realize the net deferred tax assets. The company uses tax-planning strategies to realize or renew net deferred tax assets to avoid the potential loss of future tax benefits.
A full valuation allowance is currently maintained for all U.S. and certain foreign deferred tax assets in excess of deferred tax liabilities. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their net deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to such valuation allowance, except with respect to withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly depending on the geographic distribution of income.

15





Note 8 — Earnings Per Share
The following table shows how earnings per share attributable to Unisys Corporation was computed for the three and six months ended June 30, 2019 and 2018 (shares in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Basic earnings per common share computation:
 
 
 
 
 
 
 
 
Net income attributable to Unisys Corporation
 
$
26.2

 
$
3.8

 
$
6.8

 
$
44.4

Weighted average shares
 
51,782

 
50,986

 
51,600

 
50,867

Basic earnings per common share
 
$
0.51

 
$
0.07

 
$
0.13

 
$
0.87

Diluted earnings per common share computation:
 
 
 
 
 
 
 
 
Net income attributable to Unisys Corporation
 
$
26.2

 
$
3.8

 
$
6.8

 
$
44.4

Add interest expense on convertible senior notes, net of tax of zero
 
5.0

 

 

 
9.7

Net income attributable to Unisys Corporation for diluted earnings per share
 
$
31.2

 
$
3.8

 
$
6.8

 
$
54.1

Weighted average shares
 
51,782

 
50,986

 
51,600

 
50,867

Plus incremental shares from assumed conversions:
 
 
 
 
 
 
 
 
Employee stock plans
 
328

 
412

 
422

 
370

Convertible senior notes
 
21,868

 

 

 
21,868

Adjusted weighted average shares
 
73,978

 
51,398

 
52,022

 
73,105

Diluted earnings per common share
 
$
0.42

 
$
0.07

 
$
0.13

 
$
0.74

 
 
 
 
 
 
 
 
 
Anti-dilutive weighted-average stock options and restricted stock units(i)
 
1,572

 
1,430

 
1,360

 
1,562

Anti-dilutive weighted-average common shares issuable upon conversion of the 5.50% convertible senior notes(i)
 

 
21,868

 
21,868

 

(i)Amounts represent shares excluded from the computation of diluted earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.
Note 9 - Contract Assets and Contract Liabilities
Contract assets represent rights to consideration in exchange for goods or services transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities represent deferred revenue.
Net contract assets (liabilities) as of June 30, 2019 and December 31, 2018 are as follows:
 
June 30, 2019
 
December 31, 2018
Contract assets - current
$
32.7

 
$
29.7

Contract assets - long-term(i)
24.5

 
22.2

Deferred revenue - current
(288.3
)
 
(294.4
)
Deferred revenue - long-term
(147.0
)
 
(157.2
)
(i)Reported in other long-term assets on the company’s consolidated balance sheets
As of June 30, 2019 and December 31, 2018, deposit liabilities of $32.6 million and $21.2 million, respectively, were principally included in current deferred revenue. These deposit liabilities represent upfront consideration received from customers for services such as post-contract support and maintenance that allow the customer to terminate the contract at any time for convenience.

16





Significant changes during the three and six months ended June 30, 2019 and 2018 in the above contract asset and liability balances were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue recognized that was included in deferred revenue at December 31, 2018
$
85.7

 
 
 
$
190.6

 
 
Revenue recognized that was included in deferred revenue at December 31, 2017
 
 
$
86.3

 
 
 
$
190.9

Note 10 - Capitalized Contract Costs
The company’s incremental direct costs of obtaining a contract consist of sales commissions which are deferred and amortized ratably over the initial contract life. These costs are classified as current or noncurrent based on the timing of when the company expects to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and in other long-term assets, respectively, in the company’s consolidated balance sheets. At June 30, 2019 and December 31, 2018, the company had $11.8 million and $12.1 million, respectively, of deferred commissions.
Amortization expense related to deferred commissions for the three and six months ended June 30, 2019 and 2018 was as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Deferred commissions - amortization expense(i)
$
1.0

 
$
1.7

 
$
2.0

 
$
3.4

(i)Reported in selling, general and administrative expense in the company’s consolidated statements of income
Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (costs to fulfill a contract), principally initial customer setup, are capitalized and expensed over the initial contract life. These costs are included in outsourcing assets, net in the company’s consolidated balance sheets. The amount of such cost at June 30, 2019 and December 31, 2018 was $80.0 million and $79.5 million, respectively. These costs are amortized over the initial contract life and reported in Services cost of sales.
During the three and six months ended June 30, 2019 and 2018, amortization expense related to costs to fulfill a contract was as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Costs of fulfill a contract - amortization expense
$
5.7

 
$
5.5

 
$
11.9

 
$
10.7

The remaining balance of outsourcing assets, net is comprised of fixed assets and software used in connection with outsourcing contracts. These costs are capitalized and depreciated over the shorter of the initial contract life or in accordance with the company’s fixed asset policy.
Note 11 - Financial Instruments and Fair Value Measurements
Due to its foreign operations, the company is exposed to the effects of foreign currency exchange rate fluctuations on the U.S. dollar, principally related to intercompany account balances. The company uses derivative financial instruments to reduce its exposure to market risks from changes in foreign currency exchange rates on such balances. The company enters into foreign exchange forward contracts, generally having maturities of three months or less, which have not been designated as hedging instruments. At June 30, 2019 and December 31, 2018, the notional amount of these contracts was $393.5 million and $384.7 million, respectively. The fair value of these forward contracts is based on quoted prices for similar but not identical financial instruments; as such, the inputs are considered Level 2 inputs.

17





The following table summarizes the fair value of the company’s foreign exchange forward contracts as of June 30, 2019 and December 31, 2018.
 
 
June 30, 2019
 
December 31, 2018
Balance Sheet Location
 
 
 
 
Prepaid expenses and other current assets
 
$
1.3

 
$
3.4

Other accrued liabilities
 
0.6

 
0.3

Total fair value
 
$
0.7

 
$
3.1

The following table summarizes the location and amount of gains and losses recognized on foreign exchange forward contracts for the three and six months ended June 30, 2019 and 2018.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Statement of Income Location
 
 
 
 
 
 
 
Other income (expense), net
$
(5.3
)
 
$
(17.6
)
 
$
(5.2
)
 
$
(6.9
)
Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other liabilities. The carrying amounts of these financial assets and liabilities approximate fair value due to their short maturities. Such financial instruments are not included in the following table that provides information about the estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheets as of June 30, 2019 and December 31, 2018.
 
June 30, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt:
 
 
 
 
 
 
 
10.75% senior secured notes due 2022
$
433.2

 
$
487.4

 
$
432.0

 
$
486.8

5.50% convertible senior notes due 2021
$
198.3

 
$
261.1

 
$
194.2

 
$
298.5

Long-term debt is carried at amortized cost and its estimated fair value is based on market prices classified as Level 2 in the fair value hierarchy.
Note 12 - Goodwill
At June 30, 2019, the amount of goodwill allocated to reporting units with negative net assets was as follows: Business Process Outsourcing Services, $10.4 million.
Changes in the carrying amount of goodwill by segment for the six months ended June 30, 2019 were as follows:
 
 
Total
 
Services
 
Technology
Balance at December 31, 2018
 
$
177.8

 
$
69.1

 
$
108.7

Translation adjustments
 

 

 

Balance at June 30, 2019
 
$
177.8

 
$
69.1

 
$
108.7


18





Note 13 - Debt
Long-term debt is comprised of the following:
 
 
June 30, 2019
 
December 31, 2018
10.75% senior secured notes due April 15, 2022 ($440.0 million face value less unamortized discount and fees of $6.8 million and $8.0 million at June 30, 2019 and December 31, 2018, respectively)
 
$
433.2

 
$
432.0

5.50% convertible senior notes due March 1, 2021 ($213.5 million face value less unamortized discount and fees of $15.2 million and $19.3 million at June 30, 2019 and December 31, 2018, respectively)
 
198.3

 
194.2

Finance leases
 
5.4

 
5.8

Other debt
 
39.2

 
20.8

Total
 
676.1

 
652.8

Less – current maturities
 
7.5

 
10.0

Total long-term debt
 
$
668.6

 
$
642.8

See Note 11 for the fair value of the notes.
Senior Secured Notes
In 2017, the company issued $440.0 million aggregate principal amount of 10.75% Senior Secured Notes due 2022 (the “2022 Notes”). The 2022 Notes are initially fully and unconditionally guaranteed on a senior secured basis by Unisys Holding Corporation, Unisys AP Investment Company I and Unisys NPL, Inc. (together with the Company, the “Grantors”). In the future, the 2022 Notes will be guaranteed by each material domestic subsidiary and each restricted subsidiary that guarantees the secured revolving credit facility and other indebtedness of the company or another subsidiary guarantor. The 2022 Notes and the guarantees will rank equally in right of payment with all of the existing and future senior debt of the company and the subsidiary guarantors. The 2022 Notes and the guarantees will be structurally subordinated to all existing and future liabilities (including preferred stock, trade payables and pension liabilities) of the company’s subsidiaries that are not subsidiary guarantors.
The 2022 Notes pay interest semiannually on April 15 and October 15 at an annual rate of 10.75%, and will mature on April 15, 2022, unless earlier repurchased or redeemed.
The company may, at its option, redeem some or all of the 2022 Notes at any time on or after April 15, 2020 at a redemption price determined in accordance with the redemption schedule set forth in the indenture governing the 2022 Notes (the “indenture”), plus accrued and unpaid interest, if any.
Prior to April 15, 2020, the company may, at its option, redeem some or all of the 2022 Notes at any time, at a price equal to 100% of the principal amount of the 2022 Notes redeemed plus a “make-whole” premium, plus accrued and unpaid interest, if any. The company may also redeem, at its option, up to 35% of the 2022 Notes at any time prior to April 15, 2020, using the proceeds of certain equity offerings at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any. In addition, the company may redeem all (but not less than all) of the 2022 Notes at any time that the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio (as such terms are described below and further defined in the indenture) at a price equal to 100% of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any.
The indenture contains covenants that limit the ability of the company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem its capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make certain prepayments in respect of pension obligations; (v) issue certain preferred stock or similar equity securities; (vi) make loans and investments (including investments by the company and subsidiary guarantors in subsidiaries that are not guarantors); (vii) sell assets; (viii) create or incur liens; (ix) enter into transactions with affiliates; (x) enter into agreements restricting its subsidiaries’ ability to pay dividends; and (xi) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to several important limitations and exceptions.
The indenture also includes a covenant requiring that the company maintain a Collateral Coverage Ratio of not less than 1.50:1.00 (the “Required Collateral Coverage Ratio”) as of any test date. The Collateral Coverage Ratio is based on the ratio of (A) Grantor unrestricted cash and cash equivalents plus 4.75 multiplied by of the greater of (x) Grantor EBITDA for the most recently ended four fiscal quarters and (y) (i) the average quarterly Grantor EBITDA for the most recently ended seven fiscal quarters, multiplied by (ii) four, to (B) secured indebtedness of the Grantors. The Collateral Coverage Ratio is tested quarterly.

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If the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio as of any test date, and the company has not redeemed the 2022 Notes within 90 days thereafter, this will be an event of default under the indenture.
If the company experiences certain kinds of changes of control, it must offer to purchase the 2022 Notes at 101% of the principal amount of the 2022 Notes, plus accrued and unpaid interest, if any. In addition, if the company sells assets under certain circumstances it must apply the proceeds towards an offer to repurchase the 2022 Notes at a price equal to par plus accrued and unpaid interest, if any.
The indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding 2022 Notes to be due and payable immediately.
Interest expense related to the 2022 notes for the three and six month periods ended June 30, 2019 and 2018 was as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Contractual interest coupon
 
$
11.8

 
$
11.8

 
$
23.6

 
$
23.6

Amortization of debt issuance costs
 
0.6

 
0.6

 
1.2

 
1.2

Total
 
$
12.4

 
$
12.4

 
$
24.8

 
$
24.8

Convertible Senior Notes
In 2016, the company issued $213.5 million aggregate principal amount of Convertible Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes, which are senior unsecured obligations, bear interest at a coupon rate of 5.50% (or 9.5% effective interest rate) per year until maturity, payable semiannually in arrears on March 1 and September 1 of each year. The 2021 Notes are not redeemable by the company prior to maturity. The 2021 Notes are convertible by the holders into shares of the company’s common stock if certain conditions set forth in the indenture governing the 2021 Notes have been satisfied. The conversion rate for the 2021 Notes is 102.4249 shares of the company’s common stock per $1,000 principal amount of the 2021 Notes (or a total amount of 21,867,716 shares), which is equivalent to an initial conversion price of approximately $9.76 per share of the company’s common stock. Upon any conversion, the company will settle its conversion obligation in cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election. On the maturity date, the company will be required to repay in cash the principal amount, plus accrued and unpaid interest, of any 2021 Notes that remain outstanding on that date.
In connection with the issuance of the 2021 Notes, the company also paid $27.3 million to enter into privately negotiated capped call transactions with the initial purchasers and/or affiliates of the initial purchasers. The capped call transactions will cover, subject to customary anti-dilution adjustments, the number of shares of the company’s common stock that will initially underlie the 2021 Notes. The capped call transactions will effectively raise the conversion premium on the 2021 Notes from approximately 22.5% to approximately 60%, which raises the initial conversion price from approximately $9.76 per share of common stock to approximately $12.75 per share of common stock. The capped call transactions are expected to reduce potential dilution to the company’s common stock and/or offset potential cash payments the company is required to make in excess of the principal amount upon any conversion of the 2021 Notes.
Interest expense related to the 2021 notes for the three and six month periods ended June 30, 2019 and 2018 was as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Contractual interest coupon
 
$
2.9

 
$
3.0

 
$
5.9

 
$
5.9

Amortization of debt discount
 
1.8

 
1.6

 
3.5

 
3.2

Amortization of debt issuance costs
 
0.3

 
0.3

 
0.6

 
0.6

Total
 
$
5.0

 
$
4.9

 
$
10.0

 
$
9.7

Revolving Credit Facility
The company has a secured revolving credit facility (the “Credit Agreement”) that provides for loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $30.0 million). The Credit Agreement includes an accordion feature allowing for an increase in the amount of the facility up to $150.0 million. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At June 30, 2019, the company had no borrowings and $5.6 million of letters of credit outstanding, and availability under the facility was $139.4 million net of letters of credit issued. The Credit Agreement expires October 5, 2022, subject to a springing maturity (i) on the date that is 91

20





days prior to the maturity date of the 2021 Notes unless, on such date, certain conditions are met; or (ii) on the date that is 60 days prior to the maturity date of the 2022 Notes unless, by such date, such secured notes have been redeemed or refinanced.
The credit facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I and any future material domestic subsidiaries. The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.
The company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of 10% of the lenders’ commitments under the facility and $15.0 million.
The Credit Agreement contains customary representations and warranties, including that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Credit Agreement includes limitations on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million.
Other
On March 27, 2019, the company entered into an Installment Payment Agreement (IPA) with a syndicate of financial institutions to finance the acquisition of certain software licenses necessary for the provision of services to a client. The IPA was in the amount of $27.7 million, of which $4.8 million matures on March 30, 2022 and $22.9 million matures on December 30, 2023. Interest accrues at an annual rate of 7.0% and the company is required to make monthly principal and interest payments on each agreement in arrears.
Note 14 - Commitments and Contingencies
There are various lawsuits, claims, investigations and proceedings that have been brought or asserted against the company, which arise in the ordinary course of business, including actions with respect to commercial and government contracts, labor and employment, employee benefits, environmental matters, intellectual property and non-income tax matters. The company records a provision for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information and events pertinent to a particular matter.
The company believes that it has valid defenses with respect to legal matters pending against it. Based on its experience, the company also believes that the damage amounts claimed in the lawsuits disclosed below are not a meaningful indicator of the company’s potential liability. Litigation is inherently unpredictable, however, and it is possible that the company’s results of operations or cash flow could be materially affected in any particular period by the resolution of one or more of the legal matters pending against it.
In April 2007, the Ministry of Justice of Belgium sued Unisys Belgium SA-NV, a Unisys subsidiary (Unisys Belgium), in the Court of First Instance of Brussels. The Belgian government had engaged the company to design and develop software for a computerized system to be used to manage the Belgian court system. The Belgian State terminated the contract and in its lawsuit has alleged that the termination was justified because Unisys Belgium failed to deliver satisfactory software in a timely manner. It claims damages of approximately €28 million. Unisys Belgium filed its defense and counterclaim in April 2008, in the amount of approximately €18.5 million. The company believes it has valid defenses to the claims and contends that the Belgian State’s termination of the contract was unjustified.
The company’s Brazilian operations, along with those of many other companies doing business in Brazil, are involved in various litigation matters, including numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former employees and contract labor. The tax-related matters pertain to value-added taxes, customs, duties, sales and other non-income-related tax exposures. The labor-related matters include claims related to compensation matters. The company believes that appropriate accruals have been established for such matters based on information currently available. At June 30, 2019, excluding those matters that have been assessed by management as being remote as to the likelihood of ultimately resulting in a loss, the amount related to unreserved tax-related matters, inclusive of any related interest, is estimated to be up to approximately $106 million.
On June 26, 2014, the State of Louisiana filed a Petition for Damages against, among other defendants, the company and Molina Information Systems, LLC, in the Parish of East Baton Rouge, 19th Judicial District. The State alleged that between 1989 and 2012 the defendants, each acting successively as the State’s Medicaid fiscal intermediary, utilized an incorrect reimbursement formula for the payment of pharmaceutical claims causing the State to pay excessive amounts for prescription drugs. The State contends overpayments of approximately $68 million for the period January 2002 through July 2011 and

21





sought data to identify the claims at issue for the remaining time period. On August 14, 2018, the Louisiana Court of Appeal for the First Circuit dismissed the case. On October 26, 2018, the State applied for a writ of review to the Louisiana Supreme Court, which was granted on January 18, 2019. On May 8, 2019 the Supreme Court issued an opinion vacating the decision of the appellate court and remanding the matter back to the state court for further proceedings.
With respect to the specific legal proceedings and claims described above, except as otherwise noted, either (i) the amount or range of possible losses in excess of amounts accrued, if any, is not reasonably estimable or (ii) the company believes that the amount or range of possible losses in excess of amounts accrued that are estimable would not be material.
Litigation is inherently unpredictable and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such matters could exceed the amounts accrued in an amount that could be material to the company’s financial condition, results of operations and cash flows in any particular reporting period.
Notwithstanding that the ultimate results of the lawsuits, claims, investigations and proceedings that have been brought or asserted against the company are not currently determinable, the company believes that at June 30, 2019, it has adequate provisions for any such matters.
Note 15 - Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) as of December 31, 2018 and June 30, 2019 is as follows:
 
 
Total
 
Translation
Adjustments
 
Postretirement
Plans
Balance at December 31, 2018
 
$
(4,084.8
)
 
$
(896.7
)
 
$
(3,188.1
)
Other comprehensive income before reclassifications
 
4.2

 
(44.4
)
 
48.6

Amounts reclassified from accumulated other comprehensive income
 
69.7

 

 
69.7

Current period other comprehensive income
 
73.9

 
(44.4
)
 
118.3

Balance at June 30, 2019
 
$
(4,010.9
)
 
$
(941.1
)
 
$
(3,069.8
)

Amounts reclassified out of accumulated other comprehensive income for the three and six months ended June 30, 2019 and 2018 are as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Postretirement Plans(i):
 
 
 
 
 
 
 
 
Amortization of prior service cost
 
$
(1.5
)
 
$
(1.8
)
 
$
(3.0
)
 
$
(3.6
)
Amortization of actuarial losses
 
37.3

 
41.6

 
74.7

 
83.4

Total before tax
 
35.8

 
39.8

 
71.7

 
79.8

Income tax benefit
 
(1.0
)
 
(1.2
)
 
(2.0
)
 
(2.5
)
Total reclassification for the period
 
$
34.8

 
$
38.6

 
$
69.7

 
$
77.3

(i)These items are included in net periodic postretirement cost (see Note 5).
Note 16 - Supplemental Cash Flow Information
 
Six Months Ended
June 30,
 
2019
 
2018
Cash paid during the period for:
 
 
 
Income taxes, net of refunds
$
32.8

 
$
26.8

Interest
$
30.2

 
$
29.8


22





The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the amounts shown in the consolidated statements of cash flows.
 
June 30, 2019
 
December 31, 2018
Cash and cash equivalents
$
507.2

 
$
605.0

Restricted cash
10.3

 
19.1

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
$
517.5

 
$
624.1

Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash includes cash the company is contractually obligated to maintain in accordance with the terms of its U.K. business process outsourcing joint venture agreement and other cash that is restricted from withdrawal.
Note 17 - Segment Information
Effective January 1, 2018, the company adopted the requirements of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which resulted in an adjustment to Technology revenue and profit of $53.0 million in the first quarter of 2018. The adjustment represents revenue from software license extensions and renewals, which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect (Topic 605). Topic 606 requires revenue related to software license renewals or extensions to be recorded when the new license term begins, which in the case of the $53.0 million, was January 1, 2018.
The company has two business segments: Services and Technology. Revenue classifications within the Services and Technology segment are as follows:
Cloud & infrastructure services. This represents revenue from helping clients apply cloud and as-a-service delivery models to capitalize on business opportunities, make their end users more productive and manage and secure their IT infrastructure and operations more economically.
Application services. This represents revenue from helping clients transform their business processes by developing and managing new leading-edge applications for select industries, offering advanced data analytics and modernizing existing enterprise applications.
Business process outsourcing (BPO) services. This represents revenue from the management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.
Technology. This represents revenue from designing and developing software and offering hardware and other related products to help clients improve security and flexibility, reduce costs and improve the efficiency of their data-center environments.
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 profits 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 June 30, 2019 and 2018 was zero and $2.2 million, respectively. The amount for the six months ended June 30, 2019 and 2018 was $0.2 million and $2.2 million, respectively. The sales and profit on these transactions are eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of the service cost component of postretirement income or expense, restructuring 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.

23





A summary of the company’s operations by business segment for the three and six month periods ended June 30, 2019 and 2018 is presented below:
 
 
Total
 
Corporate
 
Services
 
Technology
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
Customer revenue
 
$
753.8

 
$

 
$
653.4

 
$
100.4

Intersegment
 

 
(2.1
)
 

 
2.1

Total revenue
 
$
753.8

 
$
(2.1
)
 
$
653.4

 
$
102.5

Operating income (loss)
 
$
87.0

 
$
(7.3
)
 
$
39.2

 
$
55.1

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
Customer revenue
 
$
667.4

 
$

 
$
586.7

 
$
80.7

Intersegment
 

 
(4.0
)
 

 
4.0

Total revenue
 
$
667.4