SEC Filing | Unisys Corporation

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)



☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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

(215) 986-4011

(Address, zip code and telephone number, including area code of principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

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 ☐ 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 ☐ 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	☒

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 Act). ☐ Yes ☒ No

Aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter: approximately $491.6 million.

The amount shown is based on the closing price of Unisys Common Stock as reported on the New York Stock Exchange composite tape on June 28, 2019. Voting stock beneficially held by officers and directors is not included in the computation. However, Unisys Corporation has not determined that such individuals are “affiliates” within the meaning of Rule 405 under the Securities Act of 1933.

Number of shares of Unisys Common Stock, par value $.01, outstanding as of January 31, 2020: 62,401,731

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Unisys Corporation’s Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

Table of Contents



Part I		Page Number
Item 1.	Business	6
	Information About Our Executive Officers	9
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18

Part II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78
Item 9A.	Controls and Procedures	78
Item 9B.	Other Information	78

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	79
Item 11.	Executive Compensation	79
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 13.	Certain Relationships and Related Transactions, and Director Independence	79
Item 14.	Principal Accounting Fees and Services	79

Part IV
Item 15.	Exhibits, Financial Statement Schedules	80
Item 16.	Form 10-K Summary	82
	Signatures	83

Disclosure Regarding Forward-Looking Statements

In this Annual Report on Form 10-K, we have included information that may constitute “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events and include any statement that does not directly relate to any historical or current fact. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed sale of the U.S. Federal business and the anticipated benefits thereof. Words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “projects” and similar expressions may identify such forward-looking statements.

Factors that could affect our future results include, but are not limited to, the following:


•	our ability to continue revenue growth and margin expansion in our Services business;


•	our significant pension obligations and required cash contributions and requirements to make additional significant cash contributions to our defined benefit pension plans;


•	our ability to access financing markets;


•	a reduction in our credit rating;


•	our ability to maintain our installed base and sell new solutions;


•	the potential adverse effects of aggressive competition in the information services and technology marketplace;


•	cybersecurity breaches could result in significant costs and could harm our business and reputation;


•	our ability to effectively anticipate and respond to volatility and rapid technological innovation in our industry;


•	our ability to retain significant clients;


•	our contracts may not be as profitable as expected or provide the expected level of revenues;


•	the risks of doing business internationally when a significant portion of our revenue is derived from international operations;


•	the business and financial risk in implementing future acquisitions or dispositions;


•	the adverse effects of global economic conditions, acts of war, terrorism, natural disasters or the widespread outbreak of infectious diseases;


•	the impact of Brexit could adversely affect the company’s operations in the United Kingdom as well as the funded status of the company’s U.K. pension plans;


•	our ability to attract, motivate and retain experienced and knowledgeable personnel in key positions;


•	a significant disruption in our IT systems could adversely affect our business and reputation;


•	the potential adverse effects of a U.S. Federal government shutdown;


•	contracts with U.S. governmental agencies may subject us to audits, criminal penalties, sanctions and other expenses and fines;


•	we may face damage to our reputation or legal liability if our clients are not satisfied with our services or products;


•	the performance and capabilities of third parties with whom we have commercial relationships;


•	an involuntary termination of the company’s U.S. qualified defined benefit pension plans;


•	the potential for intellectual property infringement claims to be asserted against us or our clients; and


•	the possibility that legal proceedings could affect our results of operations or cash flow or may adversely affect our business or reputation.

Risks related to the announced sale of our U.S. Federal business include, but are not limited to, the following:


•	adverse impacts on our business and financial results during the pendency of the sale of our U.S. Federal business, particularly if there is a delay in the completion of the sale;


•	if the proposed sale of our U.S. Federal business is completed, we may not achieve the operational and financial results that we anticipate in the future;


•	an “ownership change” could limit our ability to utilize net operating losses and certain other tax attributes to offset the gain from the pending sale of the U.S. Federal business;


•	the price of our stock may be volatile during the pendency of the sale of our U.S. Federal business; and


•	the occurrence of any event, change or other circumstance that could give rise to the termination of the asset purchase agreement for the sale of our U.S. Federal business.

Any forward-looking statement should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K and in our other filings made with the U.S. Securities and Exchange Commission (SEC) from time to time, which are available at the SEC’s website at www.sec.gov. All forward-looking statements rely on assumptions and are subject to risks, uncertainties and other factors that could cause the company’s actual results to differ materially from expectations. Factors that could affect future results include, but are not limited to, those discussed in “Risk Factors” in Part I, Item 1A of this Form 10-K. Any forward-looking statement speaks only as of the date on which that statement is made. Unisys Corporation assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.

PART I

ITEM 1. BUSINESS

General

Unisys Corporation, a Delaware corporation (Unisys, we, our, or the company), is a global information technology (IT) company that builds high-performance, security-centric solutions for clients across the Government, Financial Services and Commercial markets. Unisys offerings include security software and services; digital transformation and workplace services; industry applications and services; and innovative software operating environments for high-intensity enterprise computing.

We operate in two business segments – Services and Technology.

Principal Products and Services

We deliver high-performance, security-centric, leveraged services and solutions across industries, industry-specific application products and technology solutions worldwide to our primary target markets: Government (the U.S. federal government and other public sector organizations in the U.S. and around the world), Commercial (e.g., travel and transportation and life sciences and healthcare) and Financial Services (e.g., commercial and retail banking).

We market our products and services solutions primarily through a direct sales force. Complementing our direct sales force, we make use of a select group of resellers and alliance partners to market our services and product portfolio. In certain countries, we market primarily through distributors.

Our solutions are designed to build better outcomes - securely - for our clients, enabling them to:


•	Enhance enterprise security;


•	Transform core business processes to compete more effectively in their markets;


•	Improve user engagement for customers and workers, streamline operations and enhance go-to-market efforts;


•	Optimize IT infrastructure to meet digital-business requirements; and


•	Simplify management of IT infrastructure and service delivery.

Within Services, our principal solutions include cloud and infrastructure services, application services and business process outsourcing services, each of which is delivered with advanced security built in.


•	In cloud and infrastructure services, we help 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.


•	In application services, we help 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.


•	In business process outsourcing services, we assume management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.

We deliver some of these capabilities through our leveraged Services solutions, which include:


•	Unisys InteliServe^TM, a service solution that transforms traditional service desk into an intelligent, user-centric experience aligned with the needs of the modern digital workplace. The service leverages the InteliServe platform, an integrated suite of technologies for omnichannel support, advanced analytics, automation, artificial intelligence, machine learning and identity authentication.

•

Unisys CloudForte^®, a comprehensive managed service offering to help accelerate the secure move of data and applications to the cloud. The solution is available for Microsoft Azure, AWS, and hybrid cloud environments and includes the following features: an automated software-as-a-service platform to identify and provision private, public and hybrid cloud services, real-time analytics, and capabilities for industrial-grade modernization of legacy applications.


•	Unisys Security Solutions, a portfolio that includes managed security services, security consulting services, the Unisys Incident Response Ecosystem subscription service and the TrustCheck™ cyber risk management solution, and that is underpinned by the company’s Zero Trust security approach.

In Technology, we design and develop software and offer hardware and other related products to help clients improve security and flexibility, reduce costs and improve the efficiency of their data-center environments. As a pioneer in large-scale computing, we offer deep experience and rich technological capabilities in transaction-intensive, mission-critical operating environments.

Our Technology products include:

•

Unisys ClearPath Forward^®, a secure, scalable software operating environment for high-intensity enterprise computing capable of delivering Unisys security across multiple platforms. The ClearPath Forward operating environment is hardware-independent and provides a tested, integrated stack of software products that run on a range of contemporary, commonly-deployed Intel x86 server platforms and select virtualization environments of the client’s choice.

•

Unisys Stealth^® security software, which enables trusted identities to access micro-segmented critical assets and safely communicate through secure, encrypted channels. Stealth™ establishes user authentication, prevents lateral attacker movement and reduces data center, mobile and cloud attack surfaces and quickly isolates devices or users at the first sign of compromise. Stealth also reduces the cost and complexity of securing information and operation technology such as industrial control systems, allowing organizations to meet compliance and security mandates.

Our industry application products include solutions that securely help law enforcement agencies solve crime and social services case workers assist families; travel and transportation companies manage freight and distribution; and financial institutions deliver omnichannel banking.

On February 5, 2020, we entered into an asset purchase agreement to sell our U.S. Federal business to Science Applications International Corporation for a cash purchase price of $1.2 billion, subject to a net working capital adjustment. The U.S. Federal business provides certain products and services to U.S. federal government customers. The sale is expected to close in the first half of 2020 and is subject to receipt of regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as well as the satisfaction or waiver of other customary closing conditions. The U.S. Federal business, which has operations in both of our reporting segments of Services and Technology, generated 2019 revenue and pre-tax income of approximately $725 million and $100 million, respectively. The U.S. Federal business will be reported as discontinued operations in 2020.

When the sale is complete, we expect to report an after-tax gain on the sale of approximately $1 billion. Due to the company’s U.S. tax position, no federal income tax is expected to be payable on the sale and, subject to the final purchase price allocation to the assets sold, state income taxes are expected to be minimal. We primarily intend to use the net proceeds from the sale to redeem our senior secured notes due 2022 and reduce our obligations under our U.S. defined benefit pension plans.

In connection with the entry into the asset purchase agreement to sell the U.S. Federal business, we also adopted a Tax Asset Protection Plan designed to protect our tax assets in contemplation of the sale transaction. This plan is similar to tax benefit protection plans adopted by other public companies with significant tax attributes and is designed to protect our valuable tax assets by reducing the likelihood of an “ownership change” through actions involving our securities. See “Risk Factors-- Risks Related to the Announced Sale of the Company’s U.S. Federal Business-- An ‘ownership change’ could limit the company’s ability to utilize net operating losses and certain other tax attributes to offset the gain from the pending sale of the U.S. Federal business” for more information.

Materials

Unisys purchases components and supplies from a number of suppliers around the world. For certain Technology products, we rely on a single or limited number of suppliers, although we make every effort to assure that alternative sources are available if the need arises. The failure of our suppliers to deliver components and supplies in sufficient quantities and in a timely manner could adversely affect our business. For more information on the risks associated with purchasing components and supplies, see “Risk Factors” (Part I, Item 1A of this Form 10-K).

Patents, Trademarks and Licenses

As of January 31, 2020, Unisys owns over 535 active U.S. patents and over 50 active patents granted in eleven non-U.S. jurisdictions. These patents cover systems and methods related to a wide variety of technologies, including, but not limited to, information security, cloud computing, virtualization, database encryption/management and user interfaces. We have granted licenses covering both single patents, and particular groups of patents, to others. Likewise, we have active licensing agreements granting us rights under patents owned by other entities. However, our business is not materially dependent upon any single patent, patent license, or related group thereof.

Unisys also maintains 27 U.S. trademark and service mark registrations, and over 525 additional trademark and service mark registrations in over eighty non-U.S. jurisdictions as of January 31, 2020. These marks are valuable assets used on or in connection with our services and products, and as such are actively monitored, policed and protected by Unisys and its agents.

Seasonality

Our revenue is affected by such factors as the introduction of new services and products, the length of sales cycles and the seasonality of purchases. Seasonality has generally resulted in higher fourth quarter revenues than in other quarters.

Customers

No single client accounted for more than 10% of our revenue in the year ended December 31, 2019. Sales of commercial services and products to various agencies of the U.S. government represented approximately 25% of total consolidated revenue in 2019. For more information on the risks associated with contracting with governmental entities, see “Risk Factors” (Part I, Item 1A of this Form 10-K).

Backlog

In the Services segment, firm order backlog at December 31, 2019 was $4.3 billion, compared to $4.8 billion at December 31, 2018. Approximately $1.8 billion (42%) of 2019 backlog is expected to be converted to revenue in 2020. Although we believe that this backlog is firm, we may, for commercial reasons, allow the orders to be cancelled, with or without penalty. In addition, funded government contracts included in this backlog are generally subject to termination, in whole or part, at the convenience of the government or if funding becomes unavailable. In such cases, we are generally entitled to receive payment for work completed plus allowable termination or cancellation costs.

Because of the relatively short cycle between order and shipment in our Technology segment, we believe that backlog information for this segment is not material to the understanding of our business.

Competition

Our business is affected by rapid change in technology in the information services and technology industries and aggressive competition from many domestic and foreign companies. Principal competitors are systems integrators, consulting and other professional services firms, outsourcing providers, infrastructure services providers, computer hardware manufacturers and software providers. We compete primarily on the basis of service, product performance, technological innovation, and price. We believe that our continued focused investment in engineering and research and development, coupled with our sales and marketing capabilities, will have a favorable impact on our competitive position. For more information on the competitive risks we face, see “Risk Factors” (Part I, Item 1A of this Form 10-K).

Environmental Matters

Our capital expenditures, earnings and competitive position have not been materially affected by compliance with federal, state and local laws regulating the protection of the environment. Capital expenditures for environmental control facilities are not expected to be material in 2020 and 2021.

Employees

At December 31, 2019, we employed approximately 21,000 employees serving clients around the world.

Available Information

Our Investor web site is located at www.unisys.com/investor. Through our web site, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after this material is electronically filed with or furnished to the U.S. SEC. We also make available on our web site our Guidelines on Significant Corporate Governance Issues, the charters of the Audit and Finance Committee, Compensation Committee, Nominating and Corporate Governance Committee and Security and Risk Committee of our board of directors, and our Code of Ethics and Business Conduct. This information is also available in print to stockholders upon request. We do not intend for information on our web site to be part of this Annual Report on Form 10-K.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Information concerning the executive officers of Unisys as of February 15, 2020 is set forth below.



Name	Age	Position with Unisys
Peter A. Altabef	60	Chairman, President and Chief Executive Officer
Katie Ebrahimi	50	Senior Vice President and Chief Human Resources Officer
Vishal Gupta	48	Senior Vice President, Technology, and Chief Technology Officer
Eric Hutto	55	Senior Vice President and President, Enterprise Solutions
Gerald P. Kenney	68	Senior Vice President, General Counsel and Secretary
Venkatapathi R. Puvvada	59	Senior Vice President and President, Unisys Federal
Jeffrey E. Renzi	59	Senior Vice President and President, Global Sales
Ann S. Ruckstuhl	57	Senior Vice President and Chief Marketing Officer
Michael M. Thomson	51	Senior Vice President and Chief Financial Officer
Shalabh Gupta	58	Vice President and Treasurer

There is no family relationship among any of the above-named executive officers. The By-Laws provide that the officers of Unisys shall be elected annually by the Board of Directors and that each officer shall hold office for a term of one year and until a successor is elected and qualified, or until the officer’s earlier resignation or removal.

Mr. Altabef is President and Chief Executive Officer and is a member and Chairman of the Board of Directors. Prior to joining Unisys in 2015, Mr. Altabef was the President and Chief Executive Officer, and a member of the board of directors, of MICROS Systems, Inc. from 2013 through 2014, when MICROS Systems, Inc. was acquired by Oracle Corporation. He previously served as President and Chief Executive Officer of Perot Systems Corporation from 2004 until 2009, when Perot Systems was acquired by Dell, Inc. Thereafter, Mr. Altabef served as President of Dell Services (a unit of Dell Inc.) until his departure in 2011. Mr. Altabef also serves on the President’s National Security Telecommunications Advisory Committee, the Boards of Directors of NiSource Inc. and Petrus Trust Company, L.T.A., the Board of the East West Institute and the Board of Advisors of Merit Energy Company, LLC. He previously served as Senior Advisor to 2M Companies, Inc. in 2012, and served as a director of Belo Corporation from 2011 through 2013. Mr. Altabef has been an officer since 2015.

Ms. Ebrahimi has been Senior Vice President and Chief Human Resources Officer since April 2018. Ms. Ebrahimi served as Vice President of Human Resources, Global Delivery at DXC Technology from 2017 to 2018 prior to joining Unisys. From 2015 to 2017, she was Vice President of Human Resources, Enterprise Services, Global Practices & Solutioning for Hewlett-Packard Enterprise. She also served in increasingly senior roles with Cisco Systems, Inc. (2009-2015), Sun Microsystems, Inc. (2000-2009) and McAfee, LLC. Ms. Ebrahimi has been an officer since 2018.

Mr. Vishal Gupta has been Senior Vice President, Technology, and Chief Technology Officer since July 2018. Prior to joining Unisys, he served as Senior Vice President, Engineering at Symantec Corporation from 2015 to 2018. Prior to his tenure at Symantec, from 2014 to 2015, Mr. Gupta was Chief Product and IoT Officer for Silent Circle, a cybersecurity and privacy company in the mobile communications space. He has also held senior leadership roles with Cisco Systems (2006-2014), Metasolv Software (2002-2006), Nortel Networks (1996-2002) and Mercer Management Consulting (1994-1996). Mr. Gupta has been an officer since 2018.

Mr. Hutto has been Senior Vice President and President, Enterprise Solutions since 2015, after joining Unisys earlier in that year as Vice President and General Manager, U.S. and Canada, Enterprise Solutions. Prior to joining Unisys, Mr. Hutto held senior leadership positions with Dell Services (a unit of Dell Inc.) (2006-2015), serving most recently as Global Vice President/General Manager, Infrastructure, Cloud and Consulting and Vice President/General Manager, Americas. Mr. Hutto has been an officer since 2015.

Mr. Kenney has been Senior Vice President, General Counsel and Secretary since 2013. Prior to joining Unisys, he had been with NEC Corporation of America, the North American subsidiary of global technology company NEC Corporation, since 1999, serving most recently as Senior Vice President, General Counsel and Corporate Secretary (2004-2013). Mr. Kenney has been an officer since 2013.

Mr. Puvvada has been Senior Vice President and President, Federal Systems since 2015. Mr. Puvvada had been serving as acting President of Federal Systems since 2014. Prior to that time, he served as group Vice President for the Unisys federal civilian agency business since 2010. From 2005 to 2010, he was Managing Partner and Chief Technology Officer for Unisys Federal Systems. Previously, Mr. Puvvada held various management positions since joining Unisys in 1992. Mr. Puvvada has been an officer since 2015.

Mr. Renzi has been Senior Vice President and President, Global Sales since 2014. Prior to joining Unisys, Mr. Renzi was Senior Vice President, Sales & Marketing, at Arise Virtual Solutions (2012-2013). From 2009 to 2012, Mr. Renzi held key sales and service management roles at Dell Corporation. From 2003 to 2009, Mr. Renzi served as Executive Vice President, Global Sales and Marketing, Alliances & Procurement, at Perot Systems. Prior to Perot Systems, he held a variety of sales leadership and individual sales contributor roles at Electronic Data Systems from 1989 to 2003. Mr. Renzi has been an officer since 2014.

Ms. Ruckstuhl has been Senior Vice President and Chief Marketing Officer since 2016. Prior to joining Unisys, she had been the Chief Marketing Officer at SOASTA, Inc., a digital performance management platform provider acquired by Akamai Technologies, Inc., from 2015 to 2016. Previously, Ms. Ruckstuhl was the Chief Marketing Officer at Live Ops (2012-2015), and head of marketing at Symantec’s NortonLive Services (2009-2011). She has also held marketing leadership positions with several other technology companies including Sybase, Inc., eBay, Inc. and Hewlett-Packard. Ms. Ruckstuhl has been an officer since 2016.

Mr. Thomson has been Senior Vice President and Chief Financial Officer since September 2019. Mr. Thomson had been serving as the Company’s interim Chief Financial Officer since April 2019 and as the Company’s Vice President and Corporate Controller since 2015. Prior to joining Unisys, Mr. Thomson served as Controller of Towers Watson & Co. from 2010 until 2015, and he previously held the same position at Towers Perrin from 2007 until the consummation of that firm’s merger with Watson Wyatt in 2010. He also served as principal accounting officer of Towers Watson from 2012 until October 2015. Prior to that, Mr. Thomson worked for Towers Perrin as Director of Financial Systems from 2001 to 2004 and then Assistant Controller from 2004 to 2007. Prior to joining Towers Perrin, Mr. Thomson was with RCN Corporation, where he served as Director of Financial Reporting & Financial Systems from 1997 to 2001. Mr. Thomson has been an officer since 2015.

Mr. Shalabh Gupta has been Vice President and Treasurer since 2017. Prior to Unisys, Mr. Gupta served as Vice President and Corporate Treasurer for Avon Products from 2012 until 2016. He also served as Treasurer for Evraz North America, Inc. (2011 - 2012) and held the roles of Senior Vice President and Corporate Treasurer (2007 - 2011), Vice President and Assistant Treasurer (2005 - 2007) and Managing Director, Capital Markets, Pensions, Foreign Exchange (2004 - 2005) at Sara Lee Corporation. Mr. Gupta also held treasury roles at Delphi Corporation and General Motors Corporation. Mr. Gupta has been an officer since 2017.

ITEM 1A. RISK FACTORS

Factors that could affect future results include the following:

Risks Related to the Company’s Business

Future results may be adversely impacted if the company is unable to continue revenue growth and margin expansion in its Services business.

The company’s strategy places an emphasis on an industry go-to-market approach with a focus within the company’s Services business on growing revenue, including specifically on higher value and higher margin offerings. The company’s ability to grow revenue and profitability in this business will depend on the level of demand for projects and the portfolio of solutions the company offers. It will also depend on an efficient utilization of services delivery personnel. Revenue and profit margins in this business are a function of both the portfolio of solutions sold in a given period and the rates the company is able to charge for services and the chargeability of its professionals. If the company is unable to attain sufficient rates and chargeability for its professionals, revenue and profit margins will be adversely affected. The rates the company is able to charge for services are affected by a number of factors, including clients’ perception of the company’s ability to add value through its services; introduction of new services or products by the company or its competitors; pricing policies of competitors; and general economic conditions. Chargeability is also affected by a number of factors, including the company’s ability to transition resources from completed projects to new engagements and across geographies, and its ability to forecast demand for services and thereby maintain appropriate resource levels. The company’s results of operations and financial condition may be adversely impacted if sales of higher margin offerings do not offset declines in revenue and profitability resulting from lower margin offerings.

The company has significant pension obligations and required cash contributions and may be required to make additional significant cash contributions to its defined benefit pension plans.

The company has significant unfunded obligations under its U.S. and non-U.S. defined benefit pension plans. In 2019, the company made cash contributions of $103.9 million to its worldwide defined benefit pension plans. Based on current legislation, global regulations, recent interest rates and expected returns, in 2020 the company estimates that it will be required to make cash contributions to its worldwide defined benefit pension plans of approximately $278.9 million, which are comprised of approximately $238.8 million for the company’s U.S. qualified defined benefit pension plans and approximately $40.1 million primarily for non-U.S. defined benefit pension plans. Although estimates for future cash contributions are likely to change based on a number of factors including market conditions and changes in discount rates, the company currently anticipates that its required cash contributions will remain significant for the next several years. Based on conditions as of December 31, 2019, the company anticipates that its required cash contributions for 2020 through 2024 will be approximately $1.2 billion in the aggregate. The company currently anticipates that it may need to obtain additional funding in order to make these contributions. There is no assurance that the company will be able to obtain such funding or that the company will have enough cash on hand to pay the required cash contributions.

If the proposed sale of the company’s U.S. Federal business is consummated, the company plans to use approximately $600 million of the net proceeds from the sale to fund the required cash contributions for 2020 through 2022. However, there is no assurance that the sale will be completed. See “--Risks Related to the Announced Sale of the Company’s U.S. Federal Business.”

The company has also applied for waivers with the U.S. Internal Revenue Service (IRS) to defer a portion of the required contributions to its two U.S. qualified defined benefit pensions plan, which if granted would reduce total required cash contributions by approximately $115 milllion in calendar year 2020 and defer these payments over a five-year period. There is no specified time frame in which the IRS must make a decision. The IRS may choose not to grant the application, or to grant it for an amount less than the amount requested.

Deterioration in the value of the company’s worldwide defined benefit pension plan assets, as well as discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions to its defined benefit pension plans in the future in an amount larger than currently anticipated. Increased cash contribution requirements or an acceleration in the due date of such cash contributions would further reduce the cash available for working capital, capital expenditures and other corporate uses and may worsen the adverse impact on the company’s operations, financial condition and liquidity.

If the company is unable to access the financing markets, it may adversely impact the company’s business and liquidity and may result in a default with respect to the company’s pension obligations and under the company’s debt agreements.

Market conditions may impact the company’s ability to access the financing markets on terms acceptable to the company or at all. Based on the most recent estimates for the required cash contributions to the company’s worldwide defined benefit pension plans for the period from 2020 to 2024, the company anticipates that it will need to obtain additional financing in order to fund some or all of these contributions. If the company is unable to access the financing markets, the company would be required to use cash on hand to fund operations and the company’s required pension contributions and repay outstanding debt as it comes

due. There is no assurance that the company will generate sufficient cash to fund its operations and required pension contributions and refinance such debt. A failure by the company to generate such cash would have a material adverse effect on its business if the company were unable to access financing markets and may result in a default with respect to the company’s pension obligation and under the company’s debt agreements. Market conditions may also impact the company’s ability to utilize surety bonds, letters of credit, foreign exchange derivatives or other financial instruments the company uses to conduct its business.

If the proposed sale of the company’s U.S. Federal business is consummated, the company plans to use a portion of the net proceeds from the sale to redeem its $440 million senior secured notes due 2022. See “--Risks Related to the Announced Sale of the Company’s U.S. Federal Business.” In the event that the Company seeks to raise additional funds in the future by accessing the financing markets, there can be no assurances that such future financings would be on similar or favorable terms as compared to the senior secured notes due 2022 or that the company would be able to access the financing markets at all.

A reduction in the company’s credit rating could adversely affect its business and/or the holders of its securities.

The credit rating agencies rating the company’s indebtedness regularly evaluate the company, and credit ratings are based on a number of factors, including the company’s financial strength and ability to generate earnings, as well as factors not entirely within the company’s control, including conditions affecting the information technology industry and the economy and changes in rating methodologies. There can be no assurance that the company will maintain its current credit ratings. A downgrade of the company’s credit ratings could adversely affect its access to liquidity and capital, and could significantly increase its cost of funds, decrease the number of investors and counterparties willing to lend to the company or purchase its securities and impact the company’s ability to utilize surety bonds or other financial instruments the company uses to conduct its business. This could affect the company’s growth, profitability, and financial condition, including liquidity.

Future results may be adversely impacted if the company is unable to maintain its installed base and sell new solutions.

The company continues to invest in its ClearPath Forward operating system software in order to retain existing clients in its Technology business. If clients do not believe in the value proposition provided by ClearPath Forward or choose not to renew their contracts for any other reason, there may not be a meaningful return on these investments, and revenue could decline meaningfully. Furthermore, if ClearPath Forward is sold as a Software as a Service (SaaS) at an accelerated pace, this would have a negative impact on the company’s short- and medium-term cash position and could adversely impact the company’s operations, financial condition and liquidity. The company also continues to invest in its Stealth family of software, as well as in other software and solutions. If the company is unsuccessful in selling these Stealth products or other solutions and related services, there may not be a meaningful return on these investments. Further, the revenues generated by Stealth and other new solutions and related services may be insufficient to offset any revenue declines caused if the company is unable to retain its installed base.

The company faces aggressive competition in the information services and technology marketplace, which could lead to reduced demand for the company’s services and products and could have an adverse effect on the company’s business.

The information services and technology markets in which the company operates include a large number of companies vying for customers and market share both domestically and internationally. The company’s competitors include systems integrators, consulting and other professional services firms, outsourcing providers, infrastructure services providers, computer hardware manufacturers and software providers. Some of the company’s competitors may develop competing services and products that offer better price-performance or that reach the market in advance of the company’s offerings. Some competitors also have or may develop greater financial and other resources than the company, with enhanced ability to compete for market share, in some instances through significant economic incentives to secure contracts. Some also may be better able to compete for skilled professionals. Any of these factors could lead to reduced demand for the company’s services and products and could have an adverse effect on the company’s business. Future results will depend on the company’s ability to mitigate the effects of aggressive competition on revenues, pricing and margins and on the company’s ability to attract and retain talented people.

Cybersecurity breaches could result in the company incurring significant costs and could harm the company’s business and reputation.

The company’s business includes managing, processing, storing and transmitting proprietary and confidential data, including personal information, intellectual property and proprietary business information, within the company’s own IT systems and those that the company designs, develops, hosts or manages for clients. Cybersecurity breaches involving these systems by hackers, other third parties or the company’s employees, despite established security controls, could disrupt these systems or result in the loss or corruption of data or the unauthorized disclosure or misuse of information of the company, its clients or others. This could result in claims, investigations, litigation and legal liability for the company, lead to the loss of existing or potential clients and adversely affect the market’s perception of the security and reliability of the company’s services and products. In addition, such breaches could subject the company to fines and penalties for violations of laws and result in the company incurring other significant costs. This may negatively impact the company’s reputation and financial results.

The company’s future results may be adversely impacted if it is unable to effectively anticipate and respond to volatility and rapid technological innovation in its industry.

The company operates in a highly volatile industry characterized by rapid technological innovation, evolving technology standards, short product life cycles and continually changing customer demand patterns. Future success will depend in part on the company’s ability to anticipate and respond to these market trends and to design, develop, introduce, deliver or obtain new and innovative services and products on a timely and cost-effective basis using new delivery models such as cloud computing. The company may not be successful in anticipating or responding to changes in technology, industry standards or customer preferences, and the market may not demand or accept its services and product offerings. In addition, services and products developed by competitors may make the company’s offerings less competitive.

The company’s future results will depend on its ability to retain significant clients.

The company has a number of significant long-term contracts with clients, including governmental entities, and its future success will depend, in part, on retaining its relationships with these clients. The company could lose clients for reasons such as contract expiration, conversion to a competing service provider, disputes with clients or a decision to in-source services, including contracts with governmental entities as part of the rebid process. The company could also lose clients as a result of their merger, acquisition or business failure. The company may not be able to replace the revenue and earnings from any such lost client.

The company’s contracts may not be as profitable as expected or provide the expected level of revenues.

In a number of the company’s long-term services contracts, the company’s revenue is based on the volume of services and products provided. As a result, revenue levels anticipated at the contract’s inception are not guaranteed. In addition, some of these contracts may permit termination at the customer’s discretion before the end of the contract’s term or may permit termination or impose other penalties if the company does not meet the performance levels specified in the contracts.

The company’s contracts with governmental entities are subject to the availability of appropriated funds. These contracts also contain provisions allowing the governmental entity to terminate the contract at the governmental entity’s discretion before the end of the contract’s term. In addition, if the company’s performance is unacceptable to the customer under a government contract, the government retains the right to pursue remedies under the affected contract, which remedies could include termination.

Certain of the company’s services agreements require that the company’s prices be benchmarked if the customer requests it and provide that those prices may be adjusted downward if the pricing for similar services in the market has changed. As a result, revenues anticipated at the beginning of the terms of these contracts may decline in the future.

Some of the company’s services contracts are fixed-price contracts under which the company assumes the risk for delivery of the contracted services and products at an agreed-upon fixed price. Should the company experience problems in performing fixed-price contracts on a profitable basis, adjustments to the estimated cost to complete may be required. Future results will depend on the company’s ability to perform these services contracts profitably.

A significant portion of the company’s revenue is derived from operations outside of the United States, and the company is subject to the risks of doing business internationally.

Approximately 47% of the company’s total revenue is derived from international operations, and if the proposed sale of the U.S. Federal business is consummated, the portion of the company’s total revenue derived from international operations will be approximately 63%. The risks of doing business internationally include foreign currency exchange rate fluctuations, currency restrictions and devaluations, changes in political or economic conditions, trade protection measures, import or export licensing requirements, multiple and possibly overlapping and conflicting tax laws, new tax legislation, weaker intellectual property protections in some jurisdictions and additional legal and regulatory compliance requirements applicable to businesses that operate internationally, including the U.S. Foreign Corrupt Practices Act, economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control, regulations in the European Union such as the General Data Protection Regulation, the U.K. Bribery Act and other U.S. and non-U.S. laws and regulations.

The company could face business and financial risk in implementing future acquisitions or dispositions.

As part of the company’s business strategy, it may from time to time consider acquiring complementary technologies, products and businesses, or disposing of existing technologies, products and businesses, including transactions of a material size and including the proposed sale of the U.S. Federal business. Any acquisitions may result in the incurrence of substantial additional indebtedness or contingent liabilities. Acquisitions could also result in potentially dilutive issuances of equity securities and an increase in amortization expenses related to intangible assets. Additional potential risks associated with acquisitions include integration difficulties; difficulties in maintaining or enhancing the profitability of any acquired business; risks of entering markets in which the company has no or limited prior experience; potential loss of employees or failure to maintain or renew any contracts of any acquired business; and expenses of any undiscovered or potential liabilities of the acquired product or business, including relating to employee benefits contribution obligations or environmental requirements. Potential risks with respect to dispositions, such as the proposed sale of the U.S. Federal business, include difficulty finding buyers or alternative

exit strategies on acceptable terms in a timely manner; potential loss of employees or clients; dispositions at unfavorable prices or on unfavorable terms, including relating to retained liabilities; and post-closing indemnity claims. Further, with respect to both acquisitions and dispositions, management’s attention could be diverted from other business concerns. Adverse credit conditions could also affect the company’s ability to consummate acquisitions or dispositions. The risks associated with acquisitions and dispositions could have a material adverse effect upon the company’s business, financial condition and results of operations. There can be no assurance that the company will be successful in consummating future acquisitions or dispositions on favorable terms or at all. For a discussion of certain risks relating to the proposed sale of the company’s U.S. Federal business, see “--Risks Related to the Announced Sale of the Company’s U.S. Federal Business.”

The company’s business may be adversely affected by global economic conditions, acts of war, terrorism, natural disasters or the widespread outbreak of infectious diseases.

If global economic conditions deteriorate, the company could see reductions in demand and increased pressure on revenue and profit margins. The company could also see a further consolidation of clients, which could also result in a decrease in demand. The company’s business could also be affected by acts of war, terrorism, natural disasters and the widespread outbreak of infectious diseases. Current world tensions could escalate, and this could have unpredictable consequences on the world economy and on the company’s business. If, as a result of such an event, such as the outbreak of the coronavirus known as Covid-19, the company’s clients in a particular industry such as travel and transportation companies or financial institutions were to suffer material adverse impacts, the company may experience a reduction in demand for its services and products from such clients, which may materially and adversely affect the company’s business, results of operations and financial condition.

The impact of Brexit could adversely affect the company’s operations in the United Kingdom as well as the funded status of the company’s U.K. pension plans.

The impact of the decision by the United Kingdom to withdraw from the European Union, commonly referred to as “Brexit”, and the resulting effect on the political and economic future of the U.K. and the European Union is uncertain. Depending on the outcome, the company may decide to alter its European operations to respond to the new business, legal, regulatory, tax and trade environments that may result, which may adversely affect the company’s financial results. In addition, uncertainty regarding Brexit could cause a slowdown in economic activity in the U.K., the European Union or globally. As a result of these possible effects, among others, Brexit could adversely impact the company’s operations in the U.K., cause increased volatility in the measurement of the pension assets or benefit obligations in the company’s U.K. pension plans, as well as adversely affect the funded status of the company’s U.K. pension plans.

If the company is unable to attract, motivate and retain experienced and knowledgeable personnel in key positions, its future results could be adversely impacted.

The success of the company’s business is dependent upon its ability to employ and train individuals with the requisite knowledge, skills and experience to execute the company’s business model and achieve its business objectives. The failure of the company to retain key personnel or implement an appropriate succession plan could adversely impact the company’s ability to successfully carry out its business strategy and retain other key personnel.

A significant disruption in the company’s IT systems could adversely affect the company’s business and reputation.

We rely extensively on our IT systems to conduct our business and perform services for our clients. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses and malicious attacks, cybersecurity breaches and catastrophic events. If our systems are accessed without our authorization, damaged or fail to function properly, we could incur substantial repair or replacement costs, experience data loss and impediments to our ability to conduct our business, and damage the market’s perception of our services and products. In addition, a disruption could result in the company failing to meet performance standards and obligations in its client contracts, which could subject the company to liability, penalties and contract termination. This may adversely affect the company’s reputation and financial results.

A U.S. Federal government shutdown may adversely affect the company’s results of operations and cash flows.

Currently, approximately 25% of the company’s total consolidated revenue is derived from sales of commercial services and products to various agencies of the U.S. Federal government. The impact of a U.S. Federal government shutdown for a significant duration could result in the suspension of work on contracts in process or in payment delays which could have an adverse effect on the company’s revenue, profit and cash flows. If the proposed sale of the company’s U.S. Federal business is consummated, the company will no longer derive any revenue from direct sales of commercial services and products to the U.S. Federal government, though it is expected that the buyer of the U.S. Federal business will be a reseller of certain of the company’s services and products to various agencies of the U.S. Federal government. However, there is no assurance that the sale will be completed. See “--Risks Related to the Announced Sale of the Company’s U.S. Federal Business.”

The company’s contracts with U.S. governmental agencies may subject the company to audits, criminal penalties, sanctions and other expenses and fines.

The company frequently enters into contracts with governmental entities. U.S. government agencies, including the Defense Contract Audit Agency and the Department of Labor, routinely audit government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The U.S. government also may review the adequacy of, and a contractor’s compliance with, contract terms and conditions, and its systems and policies, including the contractor’s purchasing, property, estimating, billing, accounting, compensation and management information systems. Any costs found to be overcharged or improperly allocated to a specific contract or any amounts improperly billed or charged for products or services will be subject to reimbursement to the government. In addition, government contractors, such as the company, are required to disclose credible evidence of certain violations of law and contract overcharging to the federal government. If the company is found to have participated in improper or illegal activities, the company may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. Any negative publicity related to such contracts, regardless of the accuracy of such publicity, may adversely affect the company’s business or reputation. If the proposed sale of the company’s U.S. Federal business is consummated, it is expected that all of the company’s contracts with U.S. Federal governmental entities will be assigned to the buyer of that business after the sale. However, there is no assurance that the sale will be completed. See “--Risks Related to the Announced Sale of the Company’s U.S. Federal Business.”

The company may face damage to its reputation or legal liability if its clients are not satisfied with its services or products.

The success of the company’s business is dependent on strong, long-term client relationships and on its reputation for responsiveness and quality. As a result, if a client is not satisfied with the company’s services or products, its reputation could be damaged and its business adversely affected. Allegations by private litigants or regulators of improper conduct, as well as negative publicity and press speculation about the company, whatever the outcome and whether or not valid, may harm its reputation. In addition to harm to reputation, if the company fails to meet its contractual obligations, it could be subject to legal liability, which could adversely affect its business, operating results and financial condition.

Future results will depend in part on the performance and capabilities of third parties with whom the company has commercial relationships.

The company maintains business relationships with suppliers, channel partners and other parties that have complementary products, services or skills. Future results will depend, in part, on the performance and capabilities of these third parties, on the ability of external suppliers to deliver components at reasonable prices and in a timely manner, and on the financial condition of, and the company’s relationship with, distributors and other indirect channel partners, which can affect the company’s capacity to effectively and efficiently serve current and potential customers and end users.

An involuntary termination of the company’s U.S. qualified defined benefit pension plans would adversely affect the company’s financial condition and results of operations.

As of December 31, 2019, the company had approximately $1.3 billion of underfunded pension obligations under its U.S. qualified defined benefit pension plans. The Pension Benefit Guaranty Corporation (the PBGC) has authority under the Employment Retirement Income Security Act of 1974, as amended, to terminate an underfunded defined benefit pension plan under certain circumstances, including when (1) the plan has not met the minimum funding requirements, (2) the plan cannot pay current benefits when due, or (3) the loss to the PBGC is reasonably expected to increase unreasonably over time if the plan is not terminated. If the PBGC were to terminate the company’s U.S. qualified defined benefit pension plans, the company’s obligations with respect to such plans would become due and payable in full. Any such event or the failure by the company to pay its pension plan insurance premiums with respect to its U.S. qualified defined benefit pension plans could result in the PBGC obtaining a lien on the company’s assets. Such an event would result in an event of default under the company’s debt agreements and would materially and adversely affect the Company’s financial condition and results of operations.

The company’s services or products may infringe upon the intellectual property rights of others.

The company cannot be sure that its services and products do not infringe on the intellectual property rights of third parties, and it may have infringement claims asserted against it or against its clients. These claims could cost the company money, prevent it from offering some services or products, or damage its reputation.

Legal proceedings could affect the company’s results of operations or cash flow or may adversely affect the company’s business or reputation.

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. See Note 17, “Litigation and contingencies,” of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) (the Notes to Consolidated Financial Statements) for more information on litigation. The company believes that it has valid defenses with respect to legal matters pending against it. Litigation is inherently unpredictable, however, and it is possible that the company’s results of operations or cash flows could be materially affected in any particular period by the resolution of one or more of the

legal matters pending against it. Additional legal proceedings may arise in the future with respect to the company’s existing and legacy operations, and may adversely affect the company’s business or reputation.

Other factors discussed in this report, although not listed here, also could materially affect our future results.

Risks Related to the Announced Sale of the Company’s U.S. Federal Business

The company’s business and financial results could be adversely impacted during the pendency of the sale of the U.S. Federal business, particularly if there is a delay in the completion of the sale.

On February 5, 2020, the company entered into an asset purchase agreement to sell its U.S. Federal business, which provides certain products and services to federal government customers, to Science Applications International Corporation. The pending sale of the U.S. Federal business may cause disruptions to the company’s business or business relationships, and may create uncertainty surrounding the company’s ongoing business operations, which could materially and adversely affect the company’s business, results of operations or financial condition, regardless of whether the sale of the U.S. Federal business is completed, including as a result of the attention of company’s management being directed to transaction-related considerations and being diverted from the day-to-day operations of the company’s business, the uncertainty regarding the company’s future which may adversely affect the company’s ability to hire, retain and motivate key personnel and other employees, and customers, suppliers or other parties with whom the company maintains business relationships experiencing uncertainty prior to the closing of the sale of the U.S. Federal business and seeking alternative relationships with third parties or seeking to terminate or renegotiated their relationships with the company.

In addition, with respect to the sale of the U.S. Federal business, the asset purchase agreement restricts the company from engaging in certain actions with respect to the U.S. Federal business without the consent of Science Applications International Corporation, which could prevent the company from pursuing business opportunities related to the U.S. Federal business that may arise prior to the consummation of the sale of the U.S. Federal business. Furthermore, the asset purchase agreement includes an indemnity by the company in favor of Science Applications International Corporation against losses incurred arising out of breaches of representations, warranties and covenants made by the company and liabilities expressly retained by the company.

The company has incurred, and will continue to incur, transaction costs in connection with the pending sale of the U.S. Federal business, and many of these fees and costs are payable regardless of whether or not the sale of the U.S. Federal business is completed.

If the proposed sale of the U.S. Federal business is completed, the company may not achieve the operational and financial results that it anticipates in the future.

If the proposed sale of the U.S. Federal business is completed, the company’s operational and financial profile will change upon the separation of the U.S. Federal business from the company’s other businesses. As a result, the company’s diversification of revenue sources will diminish, and the company’s results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and greater risk as a result of the concentration of its business in the global commercial sector of the information technology industry. Moreover, the shares of the company’s common stock will represent an investment in a smaller company than in existence today and the company’s exposure to the risks inherent in its remaining businesses will increase. Additionally, the company’s ability to return to the U.S. Federal business is restricted by the terms of the non-competition commitments made to Science Applications International Corporation pursuant to the terms of the asset purchase agreement governing the sale.

While the company’s cash flows will decrease after the proposed sale is consummated, the company will still have a substantial amount of outstanding pension obligations, even after the company applies a portion of the proceeds of the sale to reduce U.S. pension obligations. There is no certainty that the company will have the cash on hand to make the required cash contributions to the company’s worldwide defined benefit pension plans in the future without additional funding.

Following the closing of the pending sale of the U.S. Federal business, the company plans to use the net proceeds from the sale to pay down debt and reduce U.S. pension obligations, which may not improve the company’s results of operations or cash flows. Further, the anticipated benefits to the company of the proposed sale are based on a number of assumptions, some of which may prove incorrect. Any such incorrect assumptions could adversely affect the company’s business, results of operations or financial condition.

An “ownership change” could limit the company’s ability to utilize net operating losses and certain other tax attributes to offset the gain from the pending sale of the U.S. Federal business.

The company has significant net operating losses and certain other tax attributes (collectively, NOLs) for federal income tax purposes that it expects to use to offset the gain from the sale of the U.S. Federal business. The company’s ability to use its NOLs to offset the gain from the sale of the U.S. Federal business may be significantly limited if the company experiences an

“ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an ownership change will occur when the percentage of the company’s ownership (by value) by one or more “5-percent shareholders” (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to an annual limitation on the use of its pre-ownership change tax loss and credit carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The limitation on the company’s ability to utilize its NOLs arising from an ownership change under Section 382 would depend on the value of the company’s equity at the time of any ownership change. If the company were to experience an “ownership change”, it is possible that the company would not be able to offset the taxable gain from the proposed sale, which is estimated to be approximately $1 billion.

On February 5, 2020, the company adopted a Tax Asset Protection Plan to help protect the use of its NOLs. This plan is designed to reduce the likelihood of an “ownership change” by (i) discouraging any person or group from becoming a 4.9 percent shareholder and (ii) discouraging any existing 4.9 percent shareholder from acquiring additional shares of company stock. Despite the intentions of the plan to deter and prevent an “ownership change”, such an event may still occur. In addition, the plan may make it more difficult and more expensive to acquire the company, and may discourage open market purchases of company stock or a non-negotiated tender or exchange offer for company stock. Accordingly, the plan may limit a shareholder’s ability to realize a premium over the market price of company stock in connection with any stock transaction.

The price of the company’s stock may be volatile during the pendency of the sale of the U.S. Federal business, and stockholders could lose all or part of their investment.

The trading price of the company’s common stock may at times be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond the company’s control. In addition to other factors, these factors may include the timing and process for completion of the sale, including potential delays which may cause significant fluctuations in the price of the company’s stock.

The occurrence of any event, change or other circumstances that could give rise to the termination of the asset purchase agreement for the sale of the U.S. Federal business could adversely affect the company’s future business.

There are significant risks and uncertainties associated with the pending sale of the company's U.S. Federal business. The occurrence of certain events, changes or any other circumstances could give rise to the termination of the asset purchase agreement governing the sale and cause the sale not to be completed. For instance, there is no assurance that the parties to the agreement will receive the necessary regulatory approvals required to close the transaction. If the parties fail to obtain such approvals or to meet other conditions necessary to complete the sale as set forth in the asset purchase agreement, the company may not be able to close the transaction and the company may not realize the anticipated benefits to its business and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

As of December 31, 2019, the company did not own or lease any physical properties that are material to its business.

ITEM 3. LEGAL PROCEEDINGS

Information with respect to litigation is set forth in Note 17, “Litigation and contingencies,” of the Notes to Consolidated Financial Statements and is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Unisys Common Stock is listed for trading on the New York Stock Exchange (trading symbol “UIS”) and London Stock Exchange (trading symbol “USY”). At December 31, 2019, there were approximately 62.4 million shares outstanding.

Holders of Record

At January 31, 2020, there were approximately 4,900 stockholders of record.

Dividend Policy

Unisys has not declared or paid any cash dividends on its Common Stock since 1990, and we do not anticipate declaring or paying cash dividends in the foreseeable future.

Repurchase of Equity Securities

None.

Stock Performance

The following graph compares the cumulative total stockholder return on Unisys common stock during the five fiscal years ended December 31, 2019, with the cumulative total return on the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 IT Services Index. The comparison assumes $100 was invested on December 31, 2014, in Unisys common stock and in each of such indices and assumes reinvestment of any dividends.

https://cdn.kscope.io/ad5100783ea4625860403c15b762fdd3-chart-4cff26e00aa75bfc9cd.jpg



	2014		2015		2016		2017		2018		2019
Unisys Corporation	$	100	$	37	$	51	$	28	$	39	$	40
S&P 500	$	100	$	101	$	114	$	138	$	132	$	174
S&P 500 IT Services	$	100	$	107	$	118	$	154	$	162	$	227

ITEM 6. SELECTED FINANCIAL DATA

Five-year summary of selected financial data



(Dollars in millions, except per share data)	2019^(i),(ii)			2018⁽ⁱ⁾			2017⁽ⁱ⁾			2016^(i),(ii)			2015⁽ⁱ⁾
Results of operations
Revenue	$	2,948.7		$	2,825.0		$	2,741.8		$	2,820.7		$	3,015.1
Operating profit	238.2			284.1			97.1			129.2			54.3
Income (loss) before income taxes	39.7			143.2			(72.1		)	20.5			(58.8		)
Net income (loss) attributable to noncontrolling interests	3.9			3.4			(1.3		)	11.0			6.7
Net income (loss) attributable to Unisys Corporation common shareholders	(17.2		)	75.5			(65.3		)	(47.7		)	(109.9		)
Earnings (loss) per common share
Basic	(0.31		)	1.48			(1.30		)	(0.95		)	(2.20		)
Diluted	(0.31		)	1.30			(1.30		)	(0.95		)	(2.20		)
Financial position
Total assets	$	2,504.0		$	2,457.6		$	2,542.4		$	2,021.6		$	2,130.0
Long-term debt	566.1			642.8			633.9			194.0			233.7
Deficit	(1,228.3		)	(1,299.6		)	(1,326.5		)	(1,647.4		)	(1,378.6		)
Other data
Capital additions of properties	$	38.0		$	35.6		$	25.8		$	32.5		$	49.6
Capital additions of outsourcing assets	48.8			73.0			86.3			51.3			102.0
Investment in marketable software	73.0			80.7			64.4			63.3			62.1
Depreciation and amortization
Properties	35.3			40.4			39.7			38.9			57.5
Outsourcing assets	63.8			66.8			53.7			51.9			55.7
Amortization of marketable software	48.3			56.9			63.1			64.8			66.9
Common shares outstanding (millions)	62.4			51.1			50.5			50.1			49.9
Stockholders of record (thousands)	5.0			5.2			5.6			6.0			6.2
Employees (thousands)	20.8			21.7			20.5			21.0			23.0

⁽ⁱ⁾Includes pretax cost-reduction and other charges of $28.7 million, $19.7 million, $146.8 million, $82.1 million and $118.5 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively. See Note 3, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements.

⁽ⁱⁱ⁾Includes pretax loss on debt exchange of $20.1 million for the year ended December 31, 2019 and pretax loss on debt extinguishment of $4.0 million for the year ended December 31, 2016. See Note 14, “Debt,” of the Notes to Consolidated Financial Statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(For a discussion of 2018 compared with 2017, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2018.)

Overview

Effective January 1, 2018, the company adopted the requirements of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method whereby prior periods were not restated. This resulted in an adjustment to 2018 Technology revenue and profit of $53.0 million ($47.7 million, net of tax, or $0.65 per diluted share). 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 reported 2019 net loss attributable to Unisys Corporation of $17.2 million, or loss of $0.31 per share, compared with 2018 net income of $75.5 million, or income of $1.30 per diluted share. The company’s financial results in the current year were impacted by increases in revenue due to new business principally driven by the company’s U.S. business. In addition, the company recorded a charge of $20.1 million on the convertible note exchange as well as $28.7 million of cost-reduction and other costs. See Note 14, “Debt,” and Note 3, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements for further detail.

On February 5, 2020, the company entered into an asset purchase agreement to sell its U.S. Federal business to Science Applications International Corporation for a cash purchase price of $1.2 billion, subject to a net working capital adjustment. The U.S. Federal business provides certain products and services to U.S. federal government customers. The sale is expected to close in the first half of 2020 and is subject to receipt of regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as well as the satisfaction or waiver of other customary closing conditions. The U.S. Federal business, which has operations in both of the company’s reporting segments of Services and Technology, generated 2019 revenue and pre-tax income of approximately $725 million and $100 million, respectively. The U.S. Federal business will be reported as discontinued operations in 2020.

When the sale is complete, the company expects to report an after-tax gain on the sale of approximately $1 billion. Due to the company’s U.S. tax position, no federal income tax is expected to be payable on the sale and, subject to the final purchase price allocation to the assets sold, state income taxes are expected to be minimal. The company primarily intends to use the net proceeds from the sale to redeem its senior secured notes due 2022 and reduce its obligations under its U.S. defined benefit pension plans.

In connection with the entry into the asset purchase agreement to sell the U.S. Federal business, the company also adopted a Tax Asset Protection Plan designed to protect the company’s tax assets in contemplation of the sale transaction. This plan is similar to tax benefit protection plans adopted by other public companies with significant tax attributes and is designed to protect the company’s valuable tax assets by reducing the likelihood of an “ownership change” through actions involving the company’s securities. See “Risk Factors-- Risks Related to the Announced Sale of the Company’s U.S. Federal Business-- An ‘ownership change’ could limit the company’s ability to utilize net operating losses and certain other tax attributes to offset the gain from the pending sale of the U.S. Federal business” for more information.

Results of operations

Company results

Revenue for 2019 was $2.95 billion compared with $2.83 billion for 2018, an increase of 4.4% principally due to increases within the company’s U.S. business offset in part by the impact of the $53.0 million Topic 606 adjustment described above. Excluding this adjustment, revenue increased 6.4%. Foreign currency fluctuations had a 3-percentage-point negative impact on revenue in the current year compared with the year-ago period.

Services revenue increased 7.0% and Technology revenue decreased 9.7% year over year with the prior-year Topic 606 adjustment primarily contributing to the Technology revenue decline. Excluding the Topic 606 adjustment of $53.0 million, Technology revenue increased 2.7%. Foreign currency fluctuations had a 3-percentage-point negative impact on Services revenue and a 3-percentage-point negative impact on Technology revenue in the current year compared with the year-ago period.

Revenue from international operations in 2019 and 2018 was $1.40 billion and $1.59 billion, respectively. Without the Topic 606 adjustment, 2018 revenue from international operations was $1.54 billion. Foreign currency had a 4-percentage-point

negative impact on international revenue in 2019 compared with 2018. Revenue from U.S. operations was $1.55 billion in 2019 and $1.24 billion in 2018. Excluding the Topic 606 adjustment, U.S. revenue was $1.23 billion in 2018.

During 2019, the company recognized cost-reduction charges and other costs of $28.7 million, principally related to a reduction in employees. The charges related to work-force reductions were $22.1 million, principally related to severance costs, and were comprised of: (a) a charge of $4.6 million for 509 employees and $(1.5) million for changes in estimates in the U.S. and (b) a charge of $21.1 million for 255 employees and $(2.1) million for changes in estimates outside the U.S. In addition, the company recorded charges of $6.6 million comprised of $4.6 million for lease abandonment costs, $1.1 million for asset write-offs and $0.9 million for other expenses related to the cost-reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue – services, $10.8 million; cost of revenue - technology, $0.2 million; selling, general and administrative expenses, $15.5 million; and research and development expenses, $2.2 million.

During 2018, the company recognized cost-reduction charges and other costs of $19.7 million, principally related to a reduction in employees. The charges related to work-force reductions were $19.0 million, principally related to severance costs, and were comprised of : (a) a charge of $5.2 million for 264 employees and $0.1 million for changes in estimates in the U.S. and (b) a charge of $22.5 million for 325 employees and $(8.8) million for changes in estimates outside the U.S. In addition, the company recorded a charge of $0.7 million for changes in estimates related to idle leased facilities costs. The 2018 charges were recorded in the following statement of income classifications: cost of revenue - services, $18.1 million and selling, general and administrative expenses, $1.6 million.

Gross profit as a percent of total revenue, or gross profit percent, was 22.6% in 2019 and 24.3% in 2018. Gross profit in 2018 was positively impacted by the Topic 606 adjustment described above. Excluding the Topic 606 adjustment, total gross profit percent in the prior year was 22.8%. Gross profit in 2019 was positively impacted by $19.8 million related to the change in useful life of the company’s proprietary enterprise software. See Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements for further detail.

Selling, general and administrative expenses were $396.9 million in 2019 (13.5% of revenue) and $370.3 million in 2018 (13.1% of revenue). Included in the prior year was a $7.3 million gain on the sale of property in the U.K. Excluding the Topic 606 adjustment of $53.0 million, selling, general and administrative expense as a percentage of revenue was 13.4% in 2018.

Research and development (R&D) expenses in 2019 were $31.3 million compared with $31.9 million in 2018.

In 2019, the company reported an operating profit of $238.2 million compared with an operating profit of $284.1 million in 2018. Operating profit margin in 2018 was positively impacted by the Topic 606 adjustment described above. Excluding this adjustment, total operating profit in 2018 was $231.1 million.

Interest expense was $62.1 million in 2019 and $64.0 million in 2018. The decline from the prior year was principally due to the convertible notes exchange. See Note 14, “Debt,” of the Notes to Consolidated Financial Statements.

Other income (expense), net was expense of $136.4 million in 2019 compared with expense of $76.9 million in 2018. Included in 2019 was postretirement expense of $93.3 million, a loss on debt exchange of $20.1 million and foreign exchange losses of $10.4 million. Included in 2018 was postretirement expense of $80.3 million, a foreign non-income tax settlement gain of $13.9 million and $5.9 million of foreign exchange losses.

Pension expense for 2019 was $92.7 million compared with $79.7 million in 2018. For 2020, the company expects to recognize pension expense of approximately $90.0 million. The company records the service cost component of pension income or expense, as well as other employee-related costs such as 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. All other components of pension income or expense are recorded in other income (expense), net in the consolidated statements of income.

Income (loss) before income taxes in 2019 was income of $39.7 million compared with income of $143.2 million in 2018.

The provision for income taxes in 2019 and 2018 was $53.0 million and $64.3 million, respectively. In 2018, the provision for income taxes includes expense of $5.3 million related to the Topic 606 adjustment described above and a benefit of $6.6 million due to the release of a valuation allowance on certain deferred tax assets (net operating losses) as a result of the identification of an additional source of taxable income available in prior periods.

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 records 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 due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets as of December 31, 2019 is primarily dependent on forecasted future taxable income within certain foreign jurisdictions. Any reduction in estimated forecasted future taxable income may require the company to record an additional valuation allowance against the remaining deferred tax assets. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period’s earnings.

Net income attributable to Unisys Corporation common shareholders for 2019 was a loss of $17.2 million, or $0.31 per common share, compared with income of $75.5 million, or $1.30 per diluted common share, in 2018.

Segment results

The company has two business segments: Services and Technology. Revenue classifications within the Services and Technology segment are as follows:


•	Cloud and 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 software and hardware shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profits on such shipments of company software and hardware to customers. The Services segment also includes the sale of software and hardware 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 software and hardware 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 years ended December 31, 2019 and 2018 was $5.7 million and $4.2 million, respectively. The profit on these transactions is eliminated in Corporate.

The company evaluates business segment performance based on operating income exclusive 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. See Note 19, “Segment information,” of the Notes to Consolidated Financial Statements.

Information by business segment for 2019 and 2018 is presented below:



(millions)	Total			Corporate			Services			Technology
2019
Customer revenue	$	2,948.7		$	—		$	2,552.7		$	396.0
Intersegment	—			(15.2		)	—			15.2
Total revenue	$	2,948.7		$	(15.2	)	$	2,552.7		$	411.2
Gross profit percent	22.6		%				16.6		%	61.8		%
Operating profit percent	8.1		%				4.2		%	41.9		%

2018
Customer revenue	$	2,825.0		$	—		$	2,386.3		$	438.7
Intersegment	—			(24.7		)	—			24.7
Total revenue	$	2,825.0		$	(24.7	)	$	2,386.3		$	463.4
Gross profit percent	24.3		%				16.0		%	69.4		%
Operating profit percent	10.1		%				2.8		%	51.3		%

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

Customer revenue by classes of similar products or services, by segment, for 2019 and 2018 is presented below:



Year ended December 31 (millions)	2019		2018		Percentage Change
Services
Cloud & infrastructure services	$	1,567.7	$	1,363.4	15.0	%
Application services	750.4		772.4		(2.8	)%
BPO services	234.6		250.5		(6.3	)%
Total Services	2,552.7		2,386.3		7.0	%
Technology	396.0		438.7		(9.7	)%
Total customer revenue	$	2,948.7	$	2,825.0	4.4	%

In the Services segment, customer revenue was $2.6 billion in 2019 and $2.4 billion in 2018. The growth in revenue was principally due to increases within the company’s U.S. business. Foreign currency fluctuations had a 2.6-percentage-point negative impact on revenue in 2019 compared with 2018.

Revenue from cloud & infrastructure services was $1.6 billion in 2019, up 15.0% compared with 2018. Foreign currency fluctuations had a 2.5-percentage-point negative impact on cloud & infrastructure services revenue in the current period compared with the year-ago period.

Application services revenue decreased 2.8% in 2019 compared with 2018. Foreign currency fluctuations had a 2.2-percentage-point negative impact on application services revenue in the current period compared with the year-ago period.

Business process outsourcing services revenue decreased 6.3% in 2019 compared with 2018. Foreign currency fluctuations had a 3.8-percentage-point negative impact on business process outsourcing services revenue in the current period compared with the year-ago period.

Services gross profit percent was 16.6% in 2019 compared with 16.0% in 2018. Services operating profit percent was 4.2% in 2019 compared with 2.8% in 2018. Current period Services margins reflect benefits derived from reduced costs of services delivery. The prior-year operating profit margin was positively impacted by the gain on the sale of property in the U.K.

In the Technology segment, customer revenue decreased 9.7% to $396.0 million in 2019 compared with $438.7 million in 2018. The decline is principally attributed to the prior-year Topic 606 adjustment of $53.0 million described above. Excluding the Topic 606 adjustment, customer revenue increased 2.7%. Foreign currency translation had a 2.6-percentage-point negative impact on Technology revenue in 2019 compared with 2018.

Technology gross profit percent was 61.8% in 2019 compared with 69.4% in 2018. Technology operating profit percent was 41.9% in 2019 compared with 51.3% in 2018. The decrease in gross profit and operating profit percent in 2019 was primarily due to the prior-year Topic 606 adjustment. Excluding the impact of the Topic 606 adjustment, gross profit percent was 65.4% and operating profit percent was 45.0% in 2018. The decrease in gross profit percent and operating profit percent, excluding the Topic 606 adjustment, is primarily due to a lower mix of higher margin software sales.

New accounting pronouncements

See Note 2, “Recent accounting pronouncements and accounting changes,” of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least February 28, 2021.

Cash and cash equivalents at December 31, 2019 were $538.8 million compared with $605.0 million at December 31, 2018.

As of December 31, 2019, $303.1 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer up to one-third of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. See Note 6, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

During 2019, cash provided by operations was $123.9 million compared with cash provided by operations of $73.9 million in 2018.

Cash used for investing activities in 2019 was $158.2 million compared with cash usage of $185.0 million in 2018. Net proceeds from investments in 2019 were $2.8 million compared with net purchases of $14.0 million in 2018. Proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates. In addition, capital additions of properties were $38.0 million in 2019 compared with $35.6 million in 2018, capital additions of outsourcing assets were $48.8 million in 2019 compared with $73.0 million in 2018 and the investment in marketable software was $73.0 million in 2019 compared with $80.7 million in 2018. The decrease in capital expenditures is attributed in part to the company funding some of the 2019 additions by entering into installment payment and vendor agreements. The prior-year period includes net proceeds of $19.2 million related to the sale of property in the U.K.

Cash used for financing activities during 2019 was $38.0 million compared with cash used for financing activities of $4.8 million in 2018. The increase in cash usage in the current year is principally due to the convertible notes exchange partially offset by proceeds received from the issuance of debt as described below.

At December 31, 2019, total debt was $579.6 million compared with $652.8 million at December 31, 2018. The decrease is primarily due to the convertible notes exchange offset in part by the issuance of debt described below.

On August 2, 2019, the company entered into separate, privately negotiated exchange agreements pursuant to which it (i) issued an aggregate of 10,593,930 shares of its common stock, and (ii) paid cash in an aggregate amount of $59.4 million, such cash amount included $3.1 million of accrued and unpaid interest on the exchanged Convertible Senior Notes due 2021 (the 2021 Notes) up to, but excluding, the settlement date, in exchange for $129.3 million in aggregate principal amount of its outstanding 2021 Notes. The transactions closed on August 6, 2019. Upon closing, $84.2 million aggregate principal amount of 2021 Notes remain outstanding. In connection with the transactions, the company unwound a pro rata portion of the capped call transactions that it entered into with the initial purchasers and/or affiliates of the initial purchasers of the 2021 Notes and received proceeds of $7.2 million. Following the convertible note exchange, the capped call transactions remaining cover approximately 8.6 million shares of the company’s common stock. As a result of the exchange, the company recognized a charge of $20.1 million.

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.

On September 5, 2019, the company entered into a vendor agreement in the amount of $19.3 million to finance the acquisition of certain software licenses used to provide services to our clients. Interest accrues at an annual rate of 5.47% and the company is required to make annual principal and interest payments in advance with the last payment due on March 1, 2024.

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 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 December 31, 2019, the company had no borrowings and $5.9 million of letters of credit outstanding, and availability under the facility was $139.1 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 days prior to the maturity date of the company’s convertible notes due 2021 unless, on such date, certain conditions are met; or (ii) on the date that is 60 days prior to the maturity date of the company’s secured notes due 2022 unless, by such date, such secured notes have not 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.

At December 31, 2019, the company has met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions through, at least, February 28, 2021.

At December 31, 2019, the company had outstanding standby letters of credit and surety bonds totaling approximately $258 million related to performance and payment guarantees. On the basis of experience with these arrangements, the company believes that any obligations that may arise will not be material.

As described more fully in Note 3, “Cost-reduction actions,” Note 4, “Leases and commitments” and Note 14, “Debt,” of the Notes to Consolidated Financial Statements, at December 31, 2019, the company had certain cash obligations, which are due as follows:



(millions)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt (including current portion)	$	589.3	$	13.5	$	552.1	$	19.1	$	4.6
Interest payments on debt	136.1		55.3		78.4		2.0		0.4
Operating leases	169.0		77.2		62.5		23.0		6.3
Work-force reductions	49.8		47.5		2.3		—		—
Total	$	944.2	$	193.5	$	695.3	$	44.1	$	11.3

As described in Note 16, “Employee plans,” of the Notes to Consolidated Financial Statements, in 2020, the company expects to make cash contributions of approximately $278.9 million to its worldwide defined benefit pension plans, which are comprised of $238.8 million for the company’s U.S. qualified defined benefit pension plans and $40.1 million primarily for international defined benefit pension plans. Although estimates for future cash contributions are likely to change based on a number of factors including market conditions and changes in discount rates, based on conditions as of December 31, 2019, the company anticipates that its required contributions for 2020 through 2024 will be approximately $1.2 billion in the aggregate. The company currently anticipates that it may need to obtain additional funding in order to make these contributions. There is no assurance that the company will be able to obtain such funding.

On September 27, 2019, the company applied for waivers with the U.S. Internal Revenue Service (IRS) to defer a portion of the required contributions to its two U.S qualified defined benefit pension plans, which if granted would reduce total required cash contributions by approximately $115 million in calendar year 2020. If the company's application is approved by the IRS, the company anticipates that these deferred contributions will be paid over a five-year period. The company filed the application for these waivers under Section 412(c) of the Internal Revenue Code. The IRS considers funding waiver applications based on the facts and circumstances applicable to the request. There is no specified time frame in which the IRS must make a decision. The IRS may choose not to grant the application, or to grant it for an amount less than the amount requested.

The company maintains a shelf registration statement with the Securities and Exchange Commission that covers the offer and sale of up to $700.0 million of debt or equity securities. Subject to the company’s ongoing compliance with securities laws, the company may offer and sell debt and equity securities from time to time under the shelf registration statement.

In addition, from time to time the company has explored, and expects to continue to explore, a variety of debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

Critical accounting policies and estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. Although there are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the following critical accounting policies reflect the significant estimates, judgments and assumptions. The development and selection of these critical accounting policies have been determined by management of the company and the related disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors.

Revenue recognition

Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain

multiple performance obligations or non-standard terms and conditions. As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements, which may include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the performance obligations specified in an arrangement should be treated as separate performance obligations for revenue recognition purposes, and when to recognize revenue for each performance obligation.

The company must apply its judgment to determine the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations including estimating variable consideration, adjusting the consideration for the effects of the time value of money and assessing whether an estimate of variable consideration is constrained.

Revenue and profit under systems integration contracts are recognized over time as the company transfers control of goods or services. The company measures its progress toward satisfaction of its performance obligations using the cost-to-cost method, or when services have been performed, depending on the nature of the project.

For contracts accounted for using the cost-to-cost method, revenue and profit recognized in any given accounting period are based on estimates of total projected contract costs. The estimates are continually reevaluated and revised, when necessary, throughout the life of a contract. The company follows this method because reasonably dependable estimates of the revenue and costs applicable to various elements of a contract can be made. The financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contracts and therefore, recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Accordingly, favorable changes in estimates result in additional revenue and profit recognition, and unfavorable changes in estimates result in a reduction of recognized revenue and profit. When estimates indicate that a loss will be incurred on a contract upon completion, a provision for the expected loss is recorded in the period in which the loss becomes evident. As work progresses under a loss contract, revenue continues to be recognized, and a portion of the contract costs incurred in each period is charged to the contract loss reserve.

Outsourcing

Typically, the initial terms of the company’s outsourcing contracts are between 3 and 5 years. Revenue under these contracts is recognized when the company performs the services or processes transactions in accordance with contractual performance standards. Customer prepayments (even if nonrefundable) are deferred (classified as a liability) and recognized systematically as revenue over the initial contract term.

Costs on outsourcing contracts are charged to expense as incurred. However, direct costs incurred related to the inception of an outsourcing contract (principally initial customer setup) are deferred and charged to expense over the initial contract term. In addition, the costs of equipment and software, some of which are internally developed, are capitalized and depreciated over the shorter of their life or the initial contract term.

Recoverability of outsourcing assets is subject to various business risks. Quarterly, the company compares the carrying value of the outsourcing assets with the undiscounted future cash flows expected to be generated by the outsourcing assets to determine if the assets are impaired. If impaired, the outsourcing assets are reduced to an estimated fair value on a discounted cash flow approach. The company prepares its cash flow estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

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.

At December 31, 2019 and 2018, the company had deferred tax assets in excess of deferred tax liabilities of $1,617.8 million and $1,636.9 million, respectively. For the reasons cited below, at December 31, 2019 and 2018, management determined that it is more likely than not that $93.1 million and $89.4 million, respectively, of such assets will be realized, resulting in a valuation allowance of $1,524.7 million and $1,547.5 million, respectively.

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. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets. Factors that may affect the company’s ability to achieve sufficient forecasted taxable income include, but are not

limited to, the following: increased competition, a decline in sales or margins, loss of market share, delays in product availability or technological obsolescence. See “Item 1A. Risk Factors.”

Internal Revenue Code Sections 382 and 383 provide annual limitations with respect to the ability of a corporation to utilize its net operating loss (as well as certain built-in losses) and tax credit carryforwards, respectively (Tax Attributes), against future U.S. taxable income, if the corporation experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. The company regularly monitors ownership changes (as calculated for purposes of Section 382). The company has determined that, for purposes of the rules of Section 382 described above, an ownership change occurred in February 2011. Any future transaction or transactions and the timing of such transaction or transactions could trigger additional ownership changes under Section 382.

As a result of the February 2011 ownership change, utilization for certain of the company’s Tax Attributes, U.S. net operating losses and tax credits, is subject to an overall annual limitation of $70.6 million. The cumulative limitation as of December 31, 2019 is approximately $470.3 million. This limitation will be applied first to any recognized built in losses, then to any net operating losses, and then to any other Tax Attributes. Any unused limitation may be carried over to later years. Based on presently available information and the existence of tax planning strategies, the company does not expect to incur a U.S. cash tax liability in the near term. The company maintains a full valuation allowance against the realization of all U.S. deferred tax assets as well as certain foreign deferred tax assets in excess of deferred tax liabilities. See Note 6, “Income taxes,” of the Notes to Consolidated Financial Statements.

The company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. As a result, the actual income tax liabilities in the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.

Accounting rules governing income taxes also prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The company maintains reserves for estimated tax exposures including penalties and interest. Income tax exposures include potential challenges of intercompany pricing and other tax matters. Exposures are settled primarily through the settlement of audits within these tax jurisdictions, but can also be affected by changes in applicable tax law or other factors, which could cause management of the company to believe a revision of past estimates is appropriate. Management believes that an appropriate liability has been established for estimated exposures; however, actual results may differ materially from these estimates. The liabilities are reviewed quarterly for their adequacy and appropriateness. See Note 6, “Income taxes,” of the Notes to Consolidated Financial Statements.

Pensions

Accounting rules governing defined benefit pension plans require that amounts recognized in financial statements be determined on an actuarial basis. The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries. These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential future events such as demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, retirement rates, inflation, expected return on plan assets and mortality rates.

As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below). This allows the effects of the performance of the pension plan’s assets on the company’s computation of pension income or expense to be amortized over future periods. A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

A significant element in determining the company’s pension income or expense is the expected long-term rate of return on plan assets. The company sets the expected long-term rate of return based on the expected long-term return of the various asset categories in which it invests. The company considers the current expectations for future returns and the actual historical returns of each asset class. Also, because the company’s investment policy is to actively manage certain asset classes where the potential exists to outperform the broader market, the expected returns for those asset classes are adjusted to reflect the expected additional returns. For 2020, the company has assumed that the expected long-term rate of return on U.S. plan assets will be 6.50%, and on the company’s non-U.S. plan assets will be 3.50%. A change of 25 basis points in the expected long-term rate of return for the company’s U.S. and non-U.S. pension plans causes a change of approximately $8 million and $7 million, respectively, in 2020 pension expense. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over four years. This produces the expected return on plan assets that is included in pension income or expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains or losses affects the calculated value of plan

assets and, ultimately, future pension income or expense. At December 31, 2019, for the company’s U.S. qualified defined benefit pension plans, the calculated value of plan assets was $3.33 billion and the fair value was $3.28 billion.

At the end of each year, the company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the company looks to rates of return on high-quality, fixed-income investments that (a) receive one of the two highest ratings given by a recognized ratings agency and (b) are currently available and expected to be available during the period to maturity of the pension benefits. At December 31, 2019, the company determined this rate to be 3.53% for its U.S. defined benefit pension plans, a decrease of 97 basis points from the rate used at December 31, 2018, and 1.82% for the company’s non-U.S. defined benefit pension plans, a decrease of 73 basis points from the rate used at December 31, 2018. A change of 25 basis points in the U.S. and non-U.S. discount rates causes a change in 2020 pension expense of approximately $2 million and $400 thousand, respectively, and a change of approximately $114 million and $123 million, respectively, in the benefit obligation. These estimates are intended to be illustrative based on a single 25 basis point change. The sensitivity to rate changes is not linear and additional changes in rates may result in a different impact on the pension liability. The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred, as permitted.

Funding requirements for its U.S. qualified pension plans are calculated by the plan’s actuaries based on certain assumptions including, as permitted under the Bi-partisan Budget Act of 2015, a discount rate constrained to be within 10% of the 25-year average of the relevant rates. The effect of this limitation is that the funding discount rate is higher than the GAAP discount rate applied for balance sheet purposes, and the liability is therefore lower. In addition, this constraint mitigates the effect of changes in market interest rates on the funding discount rate and the funding liability. Changes to the benefit obligation caused by a 25 basis point change noted above are related to the balance sheet obligation and are not necessarily indicative of the impact on the funding liability.

Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions. Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension cost of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets. If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants. For the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans, that period is approximately 16 and 24 years, respectively. At December 31, 2019, the estimated unrecognized loss for the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans was $2.59 billion and $0.97 billion, respectively.

For the year ended December 31, 2019, the company recognized consolidated pension expense of $92.7 million, compared with $79.7 million for the year ended December 31, 2018. For 2020, the company expects to recognize pension expense of approximately $90.0 million. See Note 16, “Employee plans,” of the Notes to Consolidated Financial Statements.

Goodwill

Accounting rules governing goodwill require a company test goodwill for impairment at least annually, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable.

When determining the fair value of a reporting unit, as appropriate for the individual reporting unit, the company uses both an income and market approach. The methodology used to determine the fair values using the income and market approaches, as described below, are weighted to determine the fair value for each reporting unit.

The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method used is the discounted cash flow method. The company starts with a forecast of all expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then a reporting unit-specific discount rate is applied to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, long-term growth rate and the discount rate. Cash flow projections are based on management’s estimates of economic and market conditions, which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The discount rate in turn is based on various market factors and specific risk characteristics of each reporting unit.

The market approach relies primarily on external information for estimating the fair value. Some of the more significant estimates and assumptions inherent in this approach include the selection of appropriate guideline companies and the selected performance metric used in this approach.

Estimating the fair value of reporting units requires the use of estimates and significant judgments about key assumptions. There are a number of factors including potential events and changes in circumstances that could change in future periods, including: projected operating results; valuation multiples exhibited by the company and by companies considered comparable to the reporting units; and other macro-economic factors that could impact the discount rate. It is reasonably possible that the judgments and estimates described above could change in future periods.

Goodwill by reporting unit at December 31, 2019, was as follows (dollars in millions):



Reporting unit	Carrying Value
Cloud and infrastructure	$	32.2
Application services	26.0
Business process outsourcing	10.3
Technology	108.7
Total	$	177.2

As a result of the impairment review, the company concluded that none of its goodwill was impaired as of December 31, 2019, and does not believe that any of its reporting units are at risk of failing the impairment test since all reporting unit fair values were substantially in excess of carrying value as of the last impairment test.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

The company has exposure to interest rate risk from its debt. In general, the company’s long-term debt is fixed rate and, to the extent it has any, its short-term debt is variable rate. See Note 14, “Debt,” of the Notes to Consolidated Financial Statements for components of the company’s long-term debt. The company believes that the market risk assuming a hypothetical 10% increase in interest rates would not be material to the fair value of these financial instruments, or the related cash flows, or future results of operations.

Market risk

As of December 31, 2019, the company had outstanding $434.5 million ($440.0 million face value) of senior secured notes due 2022 and $80.0 million ($84.2 million face value) of convertible senior notes due 2021. The interest rates on these notes are fixed and therefore do not expose the company to risk related to rising interest rates. As of December 31, 2019, the fair value of the convertible senior notes was $115.8 million. In connection with the offering of the convertible senior notes, the company paid $27.3 million to purchase a capped call covering approximately 21.9 million shares of the company’s common stock. If the price per share of the company’s common stock is below $9.76, these capped call transactions would provide no benefit from potential dilution. If the price per share of the company’s common stock is above $12.75, then to the extent of the excess, these capped call transactions would result in no additional benefit for potential dilution at conversion. As a result of the convertible note exchange in August 2019, the company unwound a pro rata portion of the capped call transactions and received proceeds of $7.2 million. Following the convertible note exchange, the capped call transactions remaining cover approximately 8.6 million shares of the company’s common stock. See Note 14, “Debt,” of the Notes to Consolidated Financial Statements.

Foreign currency exchange rate risk

The company is also exposed to foreign currency exchange rate risks. The company is a net receiver of currencies other than the U.S. dollar and, as such, can benefit from a weaker dollar, and can be adversely affected by a stronger dollar relative to currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may adversely affect consolidated revenue and operating margins as expressed in U.S. dollars. Currency exposure gains and losses are mitigated by purchasing components and incurring expenses in local currencies.

In addition, the company uses derivative financial instruments, primarily foreign exchange forward contracts, to reduce its exposure to market risks from changes in foreign currency exchange rates on intercompany balances. See Note 11, “Financial instruments and concentration of credit risks,” of the Notes to Consolidated Financial Statements for additional information on the company’s derivative financial instruments.

The company has performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign currency exchange rates applied to these derivative financial instruments described above. As of December 31, 2019 and 2018, the analysis indicated that such market movements would have reduced the estimated fair value of these derivative financial instruments by approximately $44 million and $34 million, respectively. Based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the company’s actual exposures and hedges, actual gains and losses in the future may differ from the above analysis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index		Page Number
Report of Management		33
Reports of Independent Registered Public Accounting Firm		34
Consolidated Statements of Income		36
Consolidated Statements of Comprehensive Income (Loss)		37
Consolidated Balance Sheets		38
Consolidated Statements of Cash Flows		39
Consolidated Statements of Deficit		40
Notes to Consolidated Financial Statements		41

Report of Management

Management’s Report on the Financial Statements

The management of the company is responsible for the integrity of its financial statements. These statements have been prepared in conformity with U.S. generally accepted accounting principles and include amounts based on the best estimates and judgments of management. Financial information included elsewhere in this report is consistent with that in the financial statements.

KPMG LLP, an independent registered public accounting firm, has audited the company’s financial statements. Its accompanying report is based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

The Board of Directors, through its Audit and Finance Committee, which is composed entirely of independent directors, oversees management’s responsibilities in the preparation of the financial statements and selects the independent registered public accounting firm, subject to stockholder ratification. The Audit and Finance Committee meets regularly with the independent registered public accounting firm, representatives of management, and the internal auditors to review the activities of each and to assure that each is properly discharging its responsibilities. To ensure complete independence, the internal auditors and representatives of KPMG LLP have full access to meet with the Audit and Finance Committee, with or without management representatives present, to discuss the results of their audits and their observations on the adequacy of internal controls and the quality of financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The management of the company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded that the company maintained effective internal control over financial reporting as of December 31, 2019, based on the specified criteria.

KPMG LLP, an independent registered public accounting firm, has audited the company’s internal control over financial reporting as of December 31, 2019, as stated in its report that appears herein.



/s/ Peter A. Altabef		/s/ Michael M. Thomson
Peter A. Altabef		Michael M. Thomson
Chairman, President and Chief Executive Officer		Senior Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the stockholders and board of directors