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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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 CORP ORATION
(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
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 Exchange Act).    Yes       No  
Number of shares of Common Stock outstanding as of March 31, 2020 : 62,970,006 .






UNISYS CORPORATION
TABLE OF CONTENTS

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






Part I - FINANCIAL INFORMATION
Item 1. Financial Statements

UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
(Millions, except per share data)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Revenue
 
 
 
 
Services
 
$
425.9

 
$
474.0

Technology
 
89.5

 
80.5

 
 
515.4

 
554.5

Costs and expenses
 
 
 
 
Cost of revenue:
 
 
 
 
Services
 
375.7

 
396.8

Technology
 
26.6

 
32.6

 
 
402.3

 
429.4

Selling, general and administrative
 
86.8

 
90.9

Research and development
 
6.2

 
9.0

 
 
495.3

 
529.3

Operating income
 
20.1

 
25.2

Interest expense
 
13.9

 
15.5

Other income (expense), net
 
( 48.1
)
 
( 30.4
)
Loss from continuing operations before income taxes
 
( 41.9
)
 
( 20.7
)
Provision for income taxes
 
10.8

 
9.4

Consolidated net loss from continuing operations
 
( 52.7
)
 
( 30.1
)
Net income attributable to noncontrolling interests
 
0.5

 
2.6

Net loss from continuing operations attributable to Unisys Corporation
 
( 53.2
)
 
( 32.7
)
Income from discontinued operations, net of tax
 
1,068.5

 
13.3

Net income (loss) attributable to Unisys Corporation
 
$
1,015.3

 
$
( 19.4
)
Earnings (loss) per share attributable to Unisys Corporation
 
 
 
 
Basic
 
 
 
 
  Continuing operations
 
$
( 0.85
)
 
$
( 0.64
)
  Discontinued operations
 
17.06

 
0.26

       Total
 
$
16.21

 
$
( 0.38
)
Diluted
 
 
 
 
  Continuing operations
 
$
( 0.85
)
 
$
( 0.64
)
  Discontinued operations
 
17.06

 
0.26

       Total
 
$
16.21

 
$
( 0.38
)
See notes to consolidated financial statements


2





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Millions)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Consolidated net loss from continuing operations
 
$
( 52.7
)
 
$
( 30.1
)
Income from discontinued operations, net of tax
 
1,068.5

 
13.3

     Total
 
1,015.8

 
( 16.8
)
Other comprehensive income:
 
 
 

Foreign currency translation
 
( 87.6
)
 
( 34.2
)
Postretirement adjustments, net of tax of $13.9 in 2020 and $(1.1) in 2019
 
91.2

 
68.5

Total other comprehensive income
 
3.6

 
34.3

Comprehensive income
 
1,019.4

 
17.5

Less comprehensive income (loss) attributable to noncontrolling interests
 
( 1.8
)
 
0.5

Comprehensive income attributable to Unisys Corporation
 
$
1,021.2

 
$
17.0

See notes to consolidated financial statements

3





UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Millions)
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
789.6

 
$
538.8

Restricted cash
487.3

 

Accounts receivable, net
421.3

 
417.7

Contract assets
40.9

 
38.4

Inventories:
 
 
 
Parts and finished equipment
3.9

 
10.8

Work in process and materials
6.5

 
5.6

Prepaid expenses and other current assets
133.8

 
100.7

     Current assets of discontinued operations

 
109.3

Total current assets
1,883.3

 
1,221.3

Properties
759.4

 
784.0

Less-Accumulated depreciation and amortization
648.0

 
668.0

Properties, net
111.4

 
116.0

Outsourcing assets, net
184.1

 
202.1

Marketable software, net
190.5

 
186.8

Operating lease right-of-use assets
71.3

 
71.4

Prepaid postretirement assets
132.8

 
136.2

Deferred income taxes
107.7

 
114.0

Goodwill
108.6

 
110.4

Restricted cash
10.6

 
13.0

Other long-term assets
171.3

 
198.9

Long-term assets of discontinued operations

 
133.9

Total assets
$
2,971.6

 
$
2,504.0

Liabilities and deficit
 
 
 
Current liabilities:
 
 
 
Notes payable
$
59.5

 
$

Current maturities of long-term debt
530.1

 
13.5

Accounts payable
201.1

 
204.3

Deferred revenue
224.2

 
246.4

Other accrued liabilities
296.0

 
316.7

     Current liabilities of discontinued operations

 
146.4

Total current liabilities
1,310.9

 
927.3

Long-term debt
47.1

 
565.9

Long-term postretirement liabilities
1,593.9

 
1,960.2

Long-term deferred revenue
134.9

 
147.0

Long-term operating lease liabilities
53.5

 
56.0

Other long-term liabilities
40.7

 
47.6

Long-term liabilities of discontinued operations

 
28.3

Commitments and contingencies

 

Deficit:
 
 
 
Common stock, shares issued: 2020; 66.8, 2019; 65.9
0.7

 
0.7

Accumulated deficit
( 695.9
)
 
( 1,711.2
)
Treasury stock, shares at cost: 2020; 3.8, 2019; 3.5
( 114.2
)
 
( 109.6
)
Paid-in capital
4,647.4

 
4,643.3

Accumulated other comprehensive loss
( 4,082.7
)
 
( 4,088.6
)
Total Unisys Corporation stockholders’ deficit
( 244.7
)
 
( 1,265.4
)
Noncontrolling interests
35.3

 
37.1

Total deficit
( 209.4
)
 
( 1,228.3
)
Total liabilities and deficit
$
2,971.6

 
$
2,504.0

See notes to consolidated financial statements

4





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)  
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Cash flows from operating activities
 
 
 
 
Consolidated net loss from continuing operations
 
$
( 52.7
)
 
$
( 30.1
)
Income from discontinued operations, net of tax
 
1,068.5

 
13.3

Adjustments to reconcile consolidated net income (loss) to net cash used for operating activities:
 
 
 
 
Gain on sale of U. S. Federal business
 
( 1,059.5
)
 

Foreign currency translation losses
 
15.8

 
4.8

Non-cash interest expense
 
1.5

 
2.7

Employee stock compensation
 
5.1

 
4.7

Depreciation and amortization of properties
 
8.2

 
9.2

Depreciation and amortization of outsourcing assets
 
16.0

 
15.8

Amortization of marketable software
 
13.6

 
9.5

Other non-cash operating activities
 
0.2

 
( 0.6
)
Loss on disposal of capital assets
 
0.8

 
1.2

Postretirement contributions
 
( 327.7
)
 
( 23.1
)
Postretirement expense
 
23.5

 
23.5

Decrease in deferred income taxes, net
 
( 5.6
)
 
( 3.1
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
 
( 18.6
)
 
5.5

Inventories
 
5.6

 
2.6

Accounts payable and other accrued liabilities
 
( 58.0
)
 
( 121.0
)
Other liabilities
 
( 0.4
)
 
14.8

Other assets
 
( 14.2
)
 
( 0.1
)
Net cash used for operating activities
 
( 377.9
)
 
( 70.4
)
Cash flows from investing activities
 
 
 
 
Net proceeds from sale of U.S. Federal business
 
1,164.7

 

Proceeds from investments
 
828.8

 
893.9

Purchases of investments
 
( 870.5
)
 
( 887.2
)
Investment in marketable software
 
( 17.3
)
 
( 18.0
)
Capital additions of properties
 
( 5.6
)
 
( 10.7
)
Capital additions of outsourcing assets
 
( 4.8
)
 
( 29.4
)
Net proceeds from sale of properties
 

 
( 0.1
)
Other
 
( 1.5
)
 
( 0.4
)
Net cash provided by (used for) investing activities
 
1,093.8

 
( 51.9
)
Cash flows from financing activities
 
 
 
 
Net proceeds from short-term borrowings
 
59.5

 

Proceeds from issuance of long-term debt
 
2.1

 
27.7

Payments of long-term debt
 
( 6.1
)
 
( 8.7
)
Other
 
( 4.7
)
 
( 4.4
)
Net cash provided by financing activities
 
50.8

 
14.6

Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
( 31.0
)
 
0.4

Increase (decrease) in cash, cash equivalents and restricted cash
 
735.7

 
( 107.3
)
Cash, cash equivalents and restricted cash, beginning of period
 
551.8

 
624.1

Cash, cash equivalents and restricted cash, end of period
 
$
1,287.5

 
$
516.8

See notes to consolidated financial statements


5





UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)
(Millions)
   
 
 
 
Unisys Corporation
 
 
 
 
Total
 
Total Unisys Corporation
 
Common Stock Par Value
 
Accumu-lated Deficit
 
Treasury Stock At Cost
 
Paid-in Capital
 
Accumu-lated Other Compre-hensive Loss
 
Non-controlling Interests
Balance at January 1, 2020
 
$
( 1,228.3
)
 
$
( 1,265.4
)
 
$
0.7

 
$
( 1,711.2
)
 
$
( 109.6
)
 
$
4,643.3

 
$
( 4,088.6
)
 
$
37.1

Consolidated net income
 
1,015.8

 
1,015.3

 
 
 
1,015.3

 
 
 
 
 
 
 
0.5

Stock-based activity
 
( 0.5
)
 
( 0.5
)
 

 
 
 
( 4.6
)
 
4.1

 
 
 
 
Translation adjustments
 
( 87.6
)
 
( 81.6
)
 
 
 
 
 
 
 
 
 
( 81.6
)
 
( 6.0
)
Postretirement plans
 
91.2

 
87.5

 
 
 
 
 
 
 
 
 
87.5

 
3.7

Balance at March 31, 2020
 
$
( 209.4
)
 
$
( 244.7
)
 
$
0.7

 
$
( 695.9
)
 
$
( 114.2
)
 
$
4,647.4

 
$
( 4,082.7
)
 
$
35.3


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

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

 
$
( 4,084.8
)
 
$
43.9

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

Stock-based activity
 
( 0.4
)
 
( 0.4
)
 
0.1

 
 
 
( 4.4
)
 
3.9

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

 
69.2

 
 
 
 
 
 
 
 
 
69.2

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

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

 
$
( 4,048.4
)
 
$
44.4

See notes to consolidated financial statements

6



UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except share and per share amounts)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements and footnotes of Unisys Corporation have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of management, the financial information furnished herein reflects all adjustments necessary for a fair presentation of the results of operations, comprehensive income, financial position, cash flows and deficit for the interim periods specified. These adjustments consist only of normal recurring accruals except as disclosed herein. Because of seasonal and other factors, results for interim periods are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and the reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, contract assets, inventories, operating lease right-of-use assets, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, indemnifications, assumptions used in the calculation for systems integration projects, income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of March 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to the valuation of accounts receivable, contract assets, outsourcing assets, marketable software, goodwill and other long-lived assets, and retirement and other post-employment benefits. While there was not a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods. 
The company’s accounting policies are set forth in detail in Note 1 of the Notes to Consolidated Financial Statements in the company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission. Such Annual Report also contains a discussion of the company’s critical accounting policies and estimates. The company believes that these critical accounting policies and estimates affect its more significant estimates and judgments used in the preparation of the company’s consolidated financial statements.
Note 2 - Discontinued Operations
On March 13, 2020, the company completed the sale of its U.S. Federal business to Science Applications International Corporation for a cash purchase price of $ 1.2 billion . The company’s financial statements have been retroactively reclassified to report the U.S. Federal business as discontinued operations. As a result, all items relating to the business within the consolidated statements of income (loss) have been reported as income from discontinued operations, net of tax, and all items relating to the business within the consolidated balance sheets have been reported as either assets or liabilities of discontinued operations. Depreciation, amortization, capital expenditures, and significant noncash operating and investing activities related to the U.S. Federal business were immaterial.
The results of the U.S. Federal business discontinued operations for the three months ended March 31, 2020 and 2019 were as follows (in millions of dollars):

7





 
 
2020*
 
2019
Revenue
 
$
149.5

 
$
141.3

Income:
 
 
 
 
Operations
 
9.0

 
17.7

Gain on sale
 
1,061.7

 

 
 
1,070.7

 
17.7

Income tax provision
 
2.2

 
4.4

Income from discontinued operations, net of tax
 
$
1,068.5

 
$
13.3

* Includes results of operations through the March 13, 2020 closing date.

Note 3 - Accounting Standards
Effective January 1, 2020, the company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) : Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract which clarifies the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The company adopted the new guidance on a prospective basis and the adoption did not have a material impact on its consolidated results of operations and financial position.
Effective January 1, 2020, the company adopted ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, contract assets, loans and other financial instruments. The adoption did not have a material impact on the company’s consolidated results of operations and financial position.
Effective January 1, 2020, the company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which removed certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new standard was applied to the presentation of the company’s U.S. Federal business, which is reflected in discontinued operations.
Note 4 - Cost-Reduction Actions
During the three months ended March 31, 2020, the company recognized cost-reduction charges and other costs of $ 27.5 million . The charges related to work-force reductions were $ 8.5 million , principally related to severance costs, and were comprised of: (a) a charge of $ 2.3 million for 67 employees for the U.S. and (b) a charge of $ 7.4 million for 223 employees and $( 1.2 ) million for changes in estimates outside the U.S. In addition, the company recorded charges of $ 19.0 million for net foreign currency losses related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue - services, $ 5.9 million ; selling, general and administrative expenses, $ 2.5 million ; research and development expenses, $ 0.1 million ; and other income (expense), net, $ 19.0 million .

8





During the three months ended March 31, 2019 , the company recognized cost-reduction charges and other costs of $ 2.6 million . Charges were comprised of $ 3.5 million for lease abandonment and asset write-offs and $( 0.9 ) million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue - services, $( 3.7 ) million ; selling, general and administrative expenses, $ 5.0 million ; and research and development expenses, $ 1.3 million .
Liabilities and expected future payments related to the company’s work-force reduction actions are as follows:
 
 
Total
 
U.S.
 
International
Balance at December 31, 2019
 
$
49.8

 
$
5.2

 
$
44.6

Additional provisions
 
9.7

 
2.3

 
7.4

Payments
 
( 8.6
)
 
( 0.5
)
 
( 8.1
)
Changes in estimates
 
( 1.2
)
 

 
( 1.2
)
Translation adjustments
 
( 1.2
)
 

 
( 1.2
)
Balance at March 31, 2020
 
$
48.5

 
$
7.0

 
$
41.5

Expected future utilization on balance at March 31, 2020:
 
 
 
 
 
 
2020 remaining nine months
 
$
41.4

 
$
6.8

 
$
34.6

Beyond 2020
 
$
7.1

 
$
0.2

 
$
6.9


Note 5 - Pension and Postretirement Benefits
Net periodic pension expense for the three months ended March 31, 2020 and 2019 is presented below:
 
 
Three Months Ended
March 31, 2020
 
Three Months Ended
March 31, 2019
 
 
Total
 
U.S.
Plans
 
International
Plans
 
Total
 
U.S.
Plans
 
International
Plans
Service cost (i)
 
$
0.7

 
$

 
$
0.7

 
$
0.7

 
$

 
$
0.7

Interest cost
 
53.8

 
40.4

 
13.4

 
66.7

 
49.2

 
17.5

Expected return on plan assets
 
( 75.1
)
 
( 52.3
)
 
( 22.8
)
 
( 81.2
)
 
( 54.5
)
 
( 26.7
)
Amortization of prior service benefit
 
( 1.2
)
 
( 0.6
)
 
( 0.6
)
 
( 1.2
)
 
( 0.6
)
 
( 0.6
)
Recognized net actuarial loss
 
44.3

 
33.5

 
10.8

 
37.6

 
28.9

 
8.7

Net periodic pension expense (benefit)
 
$
22.5

 
$
21.0

 
$
1.5

 
$
22.6

 
$
23.0

 
$
( 0.4
)

(i) Service cost is reported in selling, general and administrative expense. All other components of net periodic pension expense are reported in other income (expense), net in the consolidated statements of income.

In 2020 , the company expects to make cash contributions of approximately $ 640 million to its worldwide defined benefit pension plans, which are comprised of $ 600 million for the company’s U.S. qualified defined benefit pension plans and $ 40 million primarily for the company’s international defined benefit pension plans. In 2019 , the company made cash contributions of $ 103.9 million to its worldwide defined benefit pension plans. For the three months ended March 31, 2020 and 2019 , the company made cash contributions of $ 325.6 million and $ 21.2 million , respectively.

Net periodic postretirement benefit expense for the three months ended March 31, 2020 and 2019 is presented below:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Service cost (i)
 
$
0.1

 
$
0.1

Interest cost
 
1.1

 
1.2

Expected return on assets
 
( 0.1
)
 
( 0.1
)
Recognized net actuarial loss
 
0.3

 
0.1

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

 
$
0.9

(i) Service cost is reported in selling, general and administrative expense. All other components of net periodic postretirement benefit expense are reported in other income (expense), net in the consolidated statements of income.


9



The company expects to make cash contributions of approximately $ 7.0 million to its postretirement benefit plans in 2020 compared to $ 5.5 million in 2019 . For the three months ended March 31, 2020 and 2019 , the company made cash contributions of $ 2.1 million and $ 1.9 million , respectively.
Note 6 - Stock Compensation
Under stockholder approved stock-based plans, stock options, stock appreciation rights, restricted stock and restricted stock units may be granted to officers, directors and other key employees.
As of March 31, 2020 , the company has granted non-qualified stock options and restricted stock units under these plans. The company recognizes compensation cost, net of a forfeiture rate, in selling, general and administrative expense, and recognizes compensation cost only for those awards expected to vest. The company estimates the forfeiture rate based on its historical experience and its expectations about future forfeitures.
During the three months ended March 31, 2020 and 2019 , the company recorded $ 5.1 million and $ 4.7 million of share-based restricted stock unit compensation expense, respectively.
Restricted stock unit awards may contain time-based units, performance-based units, total shareholder return market-based units, or a combination of these units. Each performance-based and market-based unit will vest into zero to two shares depending on the degree to which the performance or market conditions are met. Compensation expense for performance-based awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse, and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals. Compensation expense for market-related awards is recognized as expense ratably over the measurement period, regardless of the actual level of achievement, provided the service requirement is met. Restricted stock unit grants for the company’s directors vest upon award and compensation expense for such awards is recognized upon grant.
A summary of restricted stock unit activity for the three months ended March 31, 2020 follows (shares in thousands):
 
 
Restricted
Stock
Units
 
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 31, 2019
 
2,040

 
$
14.17

Granted
 
709

 
22.48

Vested
 
( 858
)
 
13.75

Forfeited and expired
 
( 52
)
 
13.79

Outstanding at March 31, 2020
 
1,839

 
17.56


The aggregate weighted-average grant-date fair value of restricted stock units granted during the three months ended March 31, 2020 and 2019 was $ 16.4 million and $ 16.5 million , respectively. The fair value of restricted stock units with time and performance conditions was determined based on the trading price of the company’s common shares on the date of grant. The fair value of awards with market conditions was estimated using a Monte Carlo simulation with the following weighted-average assumptions:
 
Three Months Ended
March 31,
 
2020
 
2019
Weighted-average fair value of grant
$
28.33

 
$
16.58

Risk-free interest rate (i)
1.35
%
 
2.49
%
Expected volatility (ii)
51.81
%
 
47.91
%
Expected life of restricted stock units in years (iii)
2.86

 
2.87

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

As of March 31, 2020 , there was $ 22.3 million of total unrecognized compensation cost related to outstanding restricted stock units granted under the company’s plans. That cost is expected to be recognized over a weighted-average period of 2.5 years.

10





The aggregate weighted-average grant-date fair value of restricted stock units vested during the three months ended March 31, 2020 and 2019 was $ 11.8 million and $ 14.2 million , respectively.
Common stock issued upon the lapse of restrictions on restricted stock units are newly issued shares. In light of its tax position, the company is currently not recognizing any tax benefits from the issuance of stock upon lapse of restrictions on restricted stock units.
Note 7 - Income Taxes
Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s historical profitability, forecast of future taxable income and available tax-planning strategies that could be implemented to realize the net deferred tax assets. The company uses tax-planning strategies to realize or renew net deferred tax assets to avoid the potential loss of future tax benefits.
A full valuation allowance is currently maintained for all U.S. and certain foreign deferred tax assets in excess of deferred tax liabilities. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their net deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to such valuation allowance, except with respect to withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly depending on the geographic distribution of income.
A corporation’s ability to deduct its federal NOL carryforwards and utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code (Section 382) if it undergoes an “ownership change” as defined in Section 382 (generally where cumulative stock ownership changes among material shareholders exceed 50 percent during a rolling three-year period). Similar rules may apply under state tax laws. A future tax “ownership change” pursuant to Section 382, may severely limit or effectively eliminate the company’s ability to utilize its NOL carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on the company’s ability to utilize its NOL carryforwards, the company has implemented a tax asset protection plan intended to prevent an “ownership change” from occurring. However, no assurance can be given that such an “ownership change” will not occur, in which case the company’s ability to utilize its NOL carryforwards and other tax attributes could be severely limited or effectively eliminated.

11





Note 8 — Earnings Per Share
The following table shows how earnings per share attributable to Unisys Corporation was computed for the three months ended March 31, 2020 and 2019 (shares in thousands):
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Basic earnings (loss) per common share computation:
 
 
 
 
Net loss from continuing operations attributable to Unisys Corporation
 
$
( 53.2
)
 
$
( 32.7
)
Income from discontinued operations, net of tax
 
1,068.5

 
13.3

Net income (loss) attributable to Unisys Corporation
 
$
1,015.3

 
$
( 19.4
)
 
 
 
 
 
Weighted average shares
 
62,650

 
51,418

 
 
 
 
 
Basic earnings (loss) per share attributable to Unisys Corporation
 
 
 
 
Continuing operations
 
$
( 0.85
)
 
$
( 0.64
)
Discontinued operations
 
17.06

 
0.26

Total
 
$
16.21

 
$
( 0.38
)
 
 
 
 
 
Diluted earnings (loss) per common share computation:
 
 
 
 
Net loss from continuing operations attributable to Unisys Corporation
 
$
( 53.2
)
 
$
(