SEC Filing | Unisys Corporation

View:

uis-20200930

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 September 30, 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 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

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 September 30, 2020: 63,037,852.

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 September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Services	$	426.0	$	478.8	$	1,247.9	$	1,433.8
Technology	69.2		73.3		201.5		242.2
	495.2		552.1		1,449.4		1,676.0
Costs and expenses
Cost of revenue:
Services	345.9		389.3		1,061.6		1,185.2
Technology	29.4		22.8		79.9		73.1
	375.3		412.1		1,141.5		1,258.3
Selling, general and administrative	85.5		84.7		252.5		268.0
Research and development	6.7		5.9		16.1		22.1
	467.5		502.7		1,410.1		1,548.4
Operating income	27.7		49.4		39.3		127.6
Interest expense	2.4		15.2		20.9		46.9
Other expense, net	(32.5)		(49.2)		(134.3)		(108.5)
Loss from continuing operations before income taxes	(7.2)		(15.0)		(115.9)		(27.8)
Provision for income taxes	6.1		10.4		26.6		23.4
Consolidated net loss from continuing operations	(13.3)		(25.4)		(142.5)		(51.2)
Net income attributable to noncontrolling interests	—		3.8		0.5		10.0
Net loss from continuing operations attributable to Unisys Corporation	(13.3)		(29.2)		(143.0)		(61.2)
Income from discontinued operations, net of tax	0.4		16.0		1,066.8		54.8
Net income (loss) attributable to Unisys Corporation	$	(12.9)	$	(13.2)	$	923.8	$	(6.4)
Earnings (loss) per share attributable to Unisys Corporation
Basic
Continuing operations	$	(0.21)	$	(0.50)	$	(2.27)	$	(1.14)
Discontinued operations	0.01		0.27		16.96		1.02
Total	$	(0.20)	$	(0.23)	$	14.69	$	(0.12)
Diluted
Continuing operations	$	(0.21)	$	(0.50)	$	(2.27)	$	(1.14)
Discontinued operations	0.01		0.27		16.96		1.02
Total	$	(0.20)	$	(0.23)	$	14.69	$	(0.12)

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Millions)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Consolidated net loss from continuing operations	$	(13.3)	$	(25.4)	$	(142.5)	$	(51.2)
Income from discontinued operations, net of tax	0.4		16.0		1,066.8		54.8
Total	(12.9)		(9.4)		924.3		3.6
Other comprehensive income
Foreign currency translation	40.1		(51.7)		(41.1)		(99.7)
Postretirement adjustments, net of tax of $(7.8) and $6.4 in 2020 and $8.8 and $11.9 in 2019	8.2		63.4		139.4		182.3
Total other comprehensive income	48.3		11.7		98.3		82.6
Comprehensive income	35.4		2.3		1,022.6		86.2
Less comprehensive income attributable to noncontrolling interests	2.0		2.6		0.5		5.8
Comprehensive income (loss) attributable to Unisys Corporation	$	33.4	$	(0.3)	$	1,022.1	$	80.4

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)


	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	774.0	$	538.8
Accounts receivable, net	364.1		417.7
Contract assets	47.0		38.4
Inventories	14.5		16.4
Prepaid expenses and other current assets	103.0		100.7
Current assets of discontinued operations	—		109.3
Total current assets	1,302.6		1,221.3
Properties	755.6		784.0
Less-accumulated depreciation and amortization	648.7		668.0
Properties, net	106.9		116.0
Outsourcing assets, net	177.3		202.1
Marketable software, net	191.5		186.8
Operating lease right-of-use assets	67.8		71.4
Prepaid postretirement assets	144.2		136.2
Deferred income taxes	121.6		114.0
Goodwill	108.6		110.4
Restricted cash	10.1		13.0
Other long-term assets	176.8		198.9
Long-term assets of discontinued operations	—		133.9
Total assets	$	2,407.4	$	2,504.0
Liabilities and deficit
Current liabilities:
Current maturities of long-term-debt	$	100.0	$	13.5
Accounts payable	183.4		204.3
Deferred revenue	197.4		246.4
Other accrued liabilities	272.4		316.7
Current liabilities of discontinued operations	—		146.4
Total current liabilities	753.2		927.3
Long-term debt	48.4		565.9
Long-term postretirement liabilities	1,563.6		1,960.2
Long-term deferred revenue	122.5		147.0
Long-term operating lease liabilities	49.3		56.0
Other long-term liabilities	70.7		47.6
Long-term liabilities of discontinued operations	—		28.3
Commitments and contingencies (see note 14)
Deficit:
Common stock, shares issued: 2020; 66.8, 2019; 65.9	0.7		0.7
Accumulated deficit	(787.4)		(1,711.2)
Treasury stock, shares at cost: 2020; 3.8, 2019; 3.5	(114.4)		(109.6)
Paid-in capital	4,653.5		4,643.3
Accumulated other comprehensive loss	(3,990.3)		(4,088.6)
Total Unisys Corporation stockholders’ deficit	(237.9)		(1,265.4)
Noncontrolling interests	37.6		37.1
Total deficit	(200.3)		(1,228.3)
Total liabilities and deficit	$	2,407.4	$	2,504.0

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Millions)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Consolidated net loss from continuing operations	$	(142.5)	$	(51.2)
Income from discontinued operations, net of tax	1,066.8		54.8
Adjustments to reconcile consolidated net loss to net cash used for operating activities:
Gain on sale of U.S. Federal business	(1,057.7)		—
Loss on debt extinguishment	28.5		20.2
Foreign currency translation losses	14.3		7.2
Non-cash interest expense	3.5		7.5
Employee stock compensation	11.1		10.1
Depreciation and amortization of properties	22.0		26.7
Depreciation and amortization of outsourcing assets	48.9		47.3
Amortization of marketable software	50.2		35.0
Other non-cash operating activities	0.6		(0.8)
Loss on disposal of capital assets	3.3		1.3
Postretirement contributions	(344.5)		(82.3)
Postretirement expense	72.8		71.5
Deferred income taxes, net	(16.9)		1.0
Changes in operating assets and liabilities:
Receivables, net	12.4		(17.4)
Inventories	1.5		(1.7)
Accounts payable and current liabilities	(127.7)		(173.4)
Other liabilities	27.2		33.1
Other assets	0.4		9.3
Net cash used for operating activities	(325.8)		(1.8)
Cash flows from investing activities
Net proceeds from sale of U.S. Federal business	1,162.9		—
Proceeds from investments	2,550.2		2,824.9
Purchases of investments	(2,561.7)		(2,835.8)
Investment in marketable software	(54.8)		(56.2)
Capital additions of properties	(16.7)		(29.1)
Capital additions of outsourcing assets	(23.6)		(44.4)
Net proceeds from sale of properties	—		(0.2)
Other	(0.5)		(0.9)
Net cash provided by (used for) investing activities	1,055.8		(141.7)
Cash flows from financing activities
Cash paid in connection with debt extinguishment	(23.7)		(56.3)
Proceeds from capped call transactions	—		7.2
Proceeds from issuance of long-term debt	7.1		28.6
Payments of long-term debt	(451.0)		(12.2)
Other	(4.8)		(4.6)
Net cash used for financing activities	(472.4)		(37.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(25.3)		(10.0)
Increase (decrease) in cash, cash equivalents and restricted cash	232.3		(190.8)
Cash, cash equivalents and restricted cash, beginning of period	551.8		624.1
Cash, cash equivalents and restricted cash, end of period	$	784.1	$	433.3

See notes to consolidated financial statements

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 December 31, 2019	$	(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
Consolidated net loss	(78.6)		(78.6)				(78.6)
Stock-based activity	2.9		2.9						(0.1)		3.0
Translation adjustments	6.4		6.5										6.5		(0.1)
Postretirement plans	40.0		39.6										39.6		0.4
Balance at June 30, 2020	$	(238.7)	$	(274.3)	$	0.7	$	(774.5)	$	(114.3)	$	4,650.4	$	(4,036.6)	$	35.6
Consolidated net loss	(12.9)		(12.9)				(12.9)
Stock-based activity	3.0		3.0						(0.1)		3.1
Translation adjustments	40.1		38.6										38.6		1.5
Postretirement plans	8.2		7.7										7.7		0.5
Balance at September 30, 2020	$	(200.3)	$	(237.9)	$	0.7	$	(787.4)	$	(114.4)	$	4,653.5	$	(3,990.3)	$	37.6


			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 December 31, 2018	$	(1,299.6)	$	(1,343.5)	$	0.5	$	(1,694.0)	$	(105.0)	$	4,539.8	$	(4,084.8)	$	43.9
Consolidated net income (loss)	(16.8)		(19.4)				(19.4)								2.6
Stock-based activity	(0.4)		(0.4)		0.1				(4.4)		3.9
Translation adjustments	(34.2)		(32.8)										(32.8)		(1.4)
Postretirement plans	68.5		69.2										69.2		(0.7)
Balance at March 31, 2019	$	(1,282.5)	$	(1,326.9)	$	0.6	$	(1,713.4)	$	(109.4)	$	4,543.7	$	(4,048.4)	$	44.4
Consolidated net income	29.8		26.2				26.2								3.6
Stock-based activity	2.4		2.4						(0.1)		2.5
Translation adjustments	(13.8)		(11.6)										(11.6)		(2.2)
Postretirement plans	50.4		49.1										49.1		1.3
Balance at June 30, 2019	$	(1,213.7)	$	(1,260.8)	$	0.6	$	(1,687.2)	$	(109.5)	$	4,546.2	$	(4,010.9)	$	47.1
Consolidated net income (loss)	(9.4)		(13.2)				(13.2)								3.8
Stock-based activity	2.9		2.9						(0.1)		3.0
Debt exchange	83.9		83.9		0.1						83.8
Capped call on debt exchange	7.2		7.2								7.2
Translation adjustments	(51.7)		(49.0)										(49.0)		(2.7)
Postretirement plans	63.4		61.9										61.9		1.5
Balance at September 30, 2019	$	(1,117.4)	$	(1,167.1)	$	0.7	$	(1,700.4)	$	(109.6)	$	4,640.2	$	(3,998.0)	$	49.7

See notes to consolidated financial statements

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 statement 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 estimated credit losses, 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 September 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to the valuation of estimated credit losses, 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 position as of September 30, 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 position 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 cash 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 for all periods presented.

The results of the U.S. Federal business discontinued operations for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020*		2019
Revenue	$	—	$	205.5	$	149.5	$	531.2
Income (loss)
Operations	—		21.5		9.1		73.2
Gain on sale	(0.2)		—		1,060.6		—
	(0.2)		21.5		1,069.7		73.2
Income tax provision (benefit)	(0.6)		5.5		2.9		18.4
Income from discontinued operations, net of tax	$	0.4	$	16.0	$	1,066.8	$	54.8

* 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 September 30, 2020, the company recognized cost-reduction charges and other costs of $13.2 million. The charges (credits) related to work-force reductions were $0.7 million, principally related to severance costs, and were comprised of: (a) a charge of $2.7 million and (b) a credit of $(2.0) million for changes in estimates. In addition, the company recorded a credit of $(0.6) million for net foreign currency gains related to exiting foreign countries, a charge of $7.5 million for asset impairments and $5.6 million of other expenses. The charges (credits) were recorded in the following statement of income classifications: cost of revenue - services, $2.9 million; selling, general and administrative expenses, $10.8 million; research and development expenses, $0.1 million; and other expense, net, $(0.6) million.

During the three months ended September 30, 2019, the company recognized cost-reduction charges and other costs of $0.2 million. Charges (credits) were comprised of $0.7 million for lease abandonment costs and $(0.5) million for changes in estimates principally related to work-force reductions. The charges (credits) were recorded in the following statement of income classifications: cost of revenue - services, $(1.9) million and selling, general and administrative expenses, $2.1 million.

During the nine months ended September 30, 2020, the company recognized cost-reduction charges and other costs of $48.6 million. The charges related to work-force reductions were $6.2 million, principally related to severance costs, and were comprised of: (a) a charge of $14.0 million and (b) a credit of $(7.8) million for changes in estimates. In addition, the company recorded charges of $