SEC Filing | Unisys Corporation

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uis-20210331

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, 2021


☐			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 March 31, 2021: 67,022,500

UNISYS CORPORATION

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION		Page Number
Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Income (Loss)	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Deficit	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	30

Exhibit Index		31
Signatures		32

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,
		2021		2020
Revenue
Services		$	420.4	$	425.9
Technology		89.4		89.5
		509.8		515.4
Costs and expenses
Cost of revenue
Services		338.7		375.7
Technology		31.9		26.6
		370.6		402.3
Selling, general and administrative		90.0		86.8
Research and development		5.6		6.2
		466.2		495.3
Operating income		43.6		20.1
Interest expense		10.1		13.9
Other (expense), net		(182.6)		(48.1)
Loss from continuing operations before income taxes		(149.1)		(41.9)
Provision for income taxes		8.4		10.8
Consolidated net loss from continuing operations		(157.5)		(52.7)
Net income attributable to noncontrolling interests		0.3		0.5
Net loss from continuing operations attributable to Unisys Corporation		(157.8)		(53.2)
Income from discontinued operations, net of tax		—		1,068.5
Net income (loss) attributable to Unisys Corporation		$	(157.8)	$	1,015.3
Earnings (loss) per share attributable to Unisys Corporation
Basic
Continuing operations		$	(2.45)	$	(0.85)
Discontinued operations		—		17.06
Total		$	(2.45)	$	16.21
Diluted
Continuing operations		$	(2.45)	$	(0.85)
Discontinued operations		—		17.06
Total		$	(2.45)	$	16.21

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Millions)


	Three Months Ended March 31,
		2021		2020
Consolidated net loss from continuing operations		$	(157.5)	$	(52.7)
Income from discontinued operations, net of tax		—		1,068.5
Total		(157.5)		1,015.8
Other comprehensive income
Foreign currency translation		(17.1)		(87.6)
Postretirement adjustments, net of tax of $3.1 in 2021 and $13.9 in 2020		202.2		91.2
Total other comprehensive income		185.1		3.6
Comprehensive income		27.6		1,019.4
Less comprehensive income (loss) attributable to noncontrolling interests		1.1		(1.8)
Comprehensive income attributable to Unisys Corporation		$	26.5	$	1,021.2

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)


	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	716.6	$	898.5
Accounts receivable, net	410.3		460.5
Contract assets	45.1		44.3
Inventories	9.6		13.4
Prepaid expenses and other current assets	99.0		89.3
Total current assets	1,280.6		1,506.0
Properties	704.6		727.0
Less-accumulated depreciation and amortization	597.7		616.5
Properties, net	106.9		110.5
Outsourcing assets, net	163.6		173.9
Marketable software, net	195.5		193.6
Operating lease right-of-use assets	70.8		79.3
Prepaid postretirement assets	188.2		187.5
Deferred income taxes	134.1		136.2
Goodwill	108.6		108.6
Restricted cash	9.9		8.2
Other long-term assets	198.5		204.1
Total assets	$	2,456.7	$	2,707.9
Liabilities and deficit
Current liabilities:
Current maturities of long-term-debt	$	19.9	$	102.8
Accounts payable	172.7		223.2
Deferred revenue	248.0		257.1
Other accrued liabilities	289.3		352.0

Total current liabilities	729.9		935.1
Long-term debt	521.2		527.1
Long-term postretirement liabilities	1,230.0		1,286.1
Long-term deferred revenue	138.3		137.9
Long-term operating lease liabilities	57.5		62.4
Other long-term liabilities	65.6		71.4
Commitments and contingencies (see note 14)
Deficit:
Common stock, shares issued: 2021; 72.3, 2020; 66.8	0.7		0.7
Accumulated deficit	(1,118.3)		(960.5)
Treasury stock, shares at cost: 2021; 5.3, 2020; 3.8	(151.9)		(114.4)
Paid-in capital	4,693.1		4,656.9
Accumulated other comprehensive loss	(3,755.2)		(3,939.5)
Total Unisys Corporation stockholders’ deficit	(331.6)		(356.8)
Noncontrolling interests	45.8		44.7
Total deficit	(285.8)		(312.1)
Total liabilities and deficit	$	2,456.7	$	2,707.9

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Millions)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Consolidated net loss from continuing operations	$	(157.5)	$	(52.7)
Income from discontinued operations, net of tax	—		1,068.5
Adjustments to reconcile consolidated net loss to net cash used for operating activities:
Gain on sale of U.S. Federal business	—		(1,059.5)
Foreign currency translation losses	2.9		15.8
Non-cash interest expense	0.9		1.5
Employee stock compensation	3.3		5.1
Depreciation and amortization of properties	7.6		8.2
Depreciation and amortization of outsourcing assets	16.1		16.0
Amortization of marketable software	15.5		13.6
Other non-cash operating activities	(0.6)		0.2
Loss on disposal of capital assets	0.8		0.8
Postretirement contributions	(21.6)		(327.7)
Postretirement expense	169.0		23.5
Deferred income taxes, net	(2.0)		(5.6)
Changes in operating assets and liabilities
Receivables, net and contract assets	48.8		(18.6)
Inventories	3.7		5.6
Other assets	(15.2)		(14.2)
Accounts payable and current liabilities	(124.8)		(58.0)
Other liabilities	10.2		(0.4)
Net cash used for operating activities	(42.9)		(377.9)
Cash flows from investing activities
Net proceeds from sale of U.S. Federal business	—		1,164.7
Proceeds from investments	1,229.5		828.8
Purchases of investments	(1,235.5)		(870.5)
Investment in marketable software	(17.4)		(17.3)
Capital additions of properties	(5.1)		(5.6)
Capital additions of outsourcing assets	(5.0)		(4.8)
Other	(0.4)		(1.5)
Net cash (used for) provided by investing activities	(33.9)		1,093.8
Cash flows from financing activities
Net proceeds from short-term borrowings	—		59.5
Proceeds from issuance of long-term debt	1.5		2.1

Payments of long-term debt	(91.6)		(6.1)
Proceeds from exercise of stock options	2.7		—
Other	(7.4)		(4.7)
Net cash (used for) provided by financing activities	(94.8)		50.8
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8.6)		(31.0)
Increase (decrease) in cash, cash equivalents and restricted cash	(180.2)		735.7
Cash, cash equivalents and restricted cash, beginning of period	906.7		551.8
Cash, cash equivalents and restricted cash, end of period	$	726.5	$	1,287.5

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, 2020	$	(312.1)	$	(356.8)	$	0.7	$	(960.5)	$	(114.4)	$	4,656.9	$	(3,939.5)	$	44.7
Consolidated net income	(157.5)		(157.8)				(157.8)								0.3

Capped call on conversion of notes	—		—						(30.8)		30.8
Stock-based activity	(1.3)		(1.3)						(6.7)		5.4
Translation adjustments	(17.1)		(17.9)										(17.9)		0.8
Postretirement plans	202.2		202.2										202.2		—
Balance at March 31, 2021	$	(285.8)	$	(331.6)	$	0.7	$	(1,118.3)	$	(151.9)	$	4,693.1	$	(3,755.2)	$	45.8


			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

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, operating lease right-of-use assets, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, 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.

The company 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, 2021 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 March 31, 2021 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, 2020 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. Net cash proceeds of the sale was $1,164.7 million (net of working capital adjustments and transaction costs).

The results of the U.S. Federal business discontinued operations were as follows:


	Three Months Ended March 31, 2020*
Revenue	$	149.5
Income
Operations	9.0
Gain on sale	1,061.7
	1,070.7
Income tax provision	2.2
Income from discontinued operations, net of tax	$	1,068.5

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

Note 3 - Cost-Reduction Actions

During the three months ended March 31, 2021, the company recognized cost-reduction charges and other costs of $8.5 million. The charges (credits) related to work-force reductions were $(1.6) million, principally related to severance costs, and were comprised of: (a) a charge of $2.9 million and (b) a credit of $(4.5) million for changes in estimates. In addition, the company recorded charges of $10.1 million comprised of $2.3 million for foreign currency losses related to exiting foreign countries, $2.4 million for asset impairments and $5.4 million of other expenses related to the cost-reduction effort.

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 $9.7 million and (b) a credit of $(1.2) million for changes in estimates. In addition, the company recorded charges of $19.0 million for net foreign currency losses related to exiting foreign countries.

The charges (credits) were recorded in the following statement of income classifications:


	Three Months Ended March 31,
	2021		2020
Cost of revenue	$	(1.7)	$	5.9
Selling, general and administrative	6.2		2.5
Research and development	1.7		0.1
Other (expense), net	2.3		19.0
Total	$	8.5	$	27.5

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, 2020	$	55.9	$	13.1	$	42.8
Additional provisions	2.9		2.8		0.1
Payments	(12.0)		(5.2)		(6.8)
Changes in estimates	(4.5)		(0.5)		(4.0)
Translation adjustments	(1.3)		—		(1.3)
Balance at March 31, 2021	$	41.0	$	10.2	$	30.8
Expected future utilization on balance at March 31, 2021:
Short-term	$	31.2	$	9.9	$	21.3
Long-term	$	9.8	$	0.3	$	9.5

Note 4 - Pension and Postretirement Benefits

Net periodic pension expense is presented below:


	Three Months Ended March 31, 2021
		Total		U.S. Plans		International Plans
Service cost(i)		$	1.2	$	—	$	1.2
Interest cost		39.6		29.4		10.2
Expected return on plan assets		(74.1)		(51.4)		(22.7)
Amortization of prior service benefit		(1.3)		(0.6)		(0.7)
Recognized net actuarial loss		46.2		33.2		13.0
Settlement loss		158.0		158.0		—
Net periodic pension expense		$	169.6	$	168.6	$	1.0


	Three Months Ended March 31, 2020
		Total		U.S. Plans		International Plans
Service cost(i)		$	0.7	$	—	$	0.7
Interest cost		53.8		40.4		13.4
Expected return on plan assets		(75.1)		(52.3)		(22.8)
Amortization of prior service benefit		(1.2)		(0.6)		(0.6)
Recognized net actuarial loss		44.3		33.5		10.8
Net periodic pension expense		$	22.5	$	21.0	$	1.5


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

In January of 2021, the company purchased a group annuity contract for $279 million to transfer projected benefit obligations related to approximately 11,600 retirees of the company’s U.S. defined benefit pension plans. This action resulted in a first quarter 2021 settlement loss of $158.0 million.

The American Rescue Plan Act, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, based on year-end 2020 pension data and assumptions, current projections indicate that the company will not be required to make future cash contributions to its U.S. qualified defined benefit pension plans and the company has determined that it will not make the previously-contemplated voluntary $200 million contribution to its U.S. pension plans in 2021.

Any future material deterioration in the value of the company’s U.S. qualified defined benefit pension plan assets, as well as changes in pension legislation, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions to its U.S. defined benefit pension plans.

In 2021, the company expects to make cash contributions of approximately $50.3 million primarily for the company’s international defined benefit pension plans. In 2020, the company made cash contributions of $826.2 million to its worldwide defined benefit pension plans. For the three months ended March 31, 2021 and 2020, the company made cash contributions of $20.2 million and $325.6 million, respectively.

Net periodic postretirement benefit (income) expense is presented below:


	Three Months Ended March 31,
		2021		2020
Service cost(i)		$	0.1	$	0.1
Interest cost		0.4		1.1
Expected return on assets		(0.1)		(0.1)
Recognized net actuarial (gain) loss		(0.6)		0.3
Amortization of prior service cost		(0.4)		(0.4)
Net periodic postretirement benefit (income) expense		$	(0.6)	$	1.0


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

The company expects to make cash contributions of approximately $5.0 million to its postretirement benefit plan in 2021 compared to $6.0 million in 2020. For the three months ended March 31, 2021 and 2020, the company made cash contributions of $1.4 million and $2.1 million, respectively.

Note 5 - 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, 2021, 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, 2021 and 2020, the company recorded $3.3 million and $5.1 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, 2021 follows (shares in thousands):


	Restricted Stock Units	Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2020	1,726	$	17.87
Granted	963	28.32
Vested	(839)	16.75
Forfeited and expired	(73)	18.18
Outstanding at March 31, 2021	1,777	22.38

The aggregate weighted-average grant-date fair value of restricted stock units granted during the three months ended March 31, 2021 and 2020 was $24.1 million and $16.4 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,
	2021			2020
Weighted-average fair value of grant	$	40.02		$	28.33
Risk-free interest rate(i)	0.27		%	1.35		%
Expected volatility(ii)	57.08		%	51.81		%
Expected life of restricted stock units in years(iii)	2.84			2.86
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, 2021, there was $29.8 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 2.6 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the three months ended March 31, 2021 and 2020 was $14.0 million and $11.8 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 6 - Other (expense), net

Other (expense), net is comprised of the following:


	Three Months Ended March 31,
	2021		2020
Postretirement expense*	$	(167.7)	$	(22.7)
Foreign exchange losses**	(2.9)		(15.6)
Environmental costs and other, net	(12.0)		(9.8)
Total other expense, net	$	(182.6)	$	(48.1)

*Includes $158.0 million settlement loss in 2021 related to the U.S. defined benefit pension plans.

**Includes $2.3 million and $19.0 million for foreign currency losses in 2021 and 2020, respectively, related to substantial completion of liquidation of foreign subsidiaries.

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.

Note 8 - Earnings Per Share

The following table shows how earnings (loss) per share attributable to Unisys Corporation was computed (shares in thousands):


	Three Months Ended March 31,
		2021		2020
Basic earnings (loss) per common share computation:
Net loss from continuing operations attributable to Unisys Corporation		$	(157.8)	$	(53.2)
Income from discontinued operations, net of tax		—		1,068.5
Net income (loss) attributable to Unisys Corporation		$	(157.8)	$	1,015.3

Weighted average shares		64,423		62,650

Basic earnings (loss) per share attributable to Unisys Corporation
Continuing operations		$	(2.45)	$	(0.85)
Discontinued operations		—		17.06
Total		$	(2.45)	$	16.21

Diluted earnings (loss) per common share computation:
Net loss from continuing operations attributable to Unisys Corporation		$	(157.8)	$	(53.2)
Add interest expense on convertible senior notes, net of tax of zero		—		—
Net loss from continuing operations attributable to Unisys Corporation for diluted earnings per share		(157.8)		(53.2)
Income from discontinued operations, net of tax		—		1,068.5
Net income (loss) attributable to Unisys Corporation for diluted earnings per share		$	(157.8)	$	1,015.3

Weighted average shares		64,423		62,650
Plus incremental shares from assumed conversions:
Employee stock plans		—		—
Convertible senior notes		—		—
Adjusted weighted average shares		64,423		62,650

Diluted earnings (loss) per share attributable to Unisys Corporation
Continuing operations		$	(2.45)	$	(0.85)
Discontinued operations		—		17.06
Total		$	(2.45)	$	16.21

Anti-dilutive weighted-average stock options and restricted stock units(i)		1,067		875
Anti-dilutive weighted-average common shares issuable upon conversion of the 5.50% convertible senior notes(i)		2,227		8,625


(i)Amounts represent shares excluded from the computation of diluted earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.

Note 9 - Contract Assets and Deferred Revenue

Contract assets represent rights to consideration in exchange for goods or services transferred to a customer when that right is conditional on something other than the passage of time. Deferred revenue represents contract liabilities.

Net contract assets (liabilities) are as follows:


	March 31, 2021		December 31, 2020
Contract assets - current	$	45.1	$	44.3
Contract assets - long-term(i)	18.8		20.7
Deferred revenue - current	(248.0)		(257.1)
Deferred revenue - long-term	(138.3)		(137.9)


(i)Reported in other long-term assets on the company’s consolidated balance sheets

Significant changes in the above contract asset and liability balances were as follows:


	Three Months Ended March 31,
		2021		2020
Revenue recognized that was included in deferred revenue at the beginning of the period		$	99.1	$	81.0

Note 10 - Capitalized Contract Costs

The company’s incremental direct costs of obtaining a contract consist of sales commissions which are deferred and amortized ratably over the initial contract life. These costs are classified as current or noncurrent based on the timing of when the company expects to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and in other long-term assets, respectively, in the company’s consolidated balance sheets. At March 31, 2021 and December 31, 2020, the company had $7.9 million and $8.7 million, respectively, of deferred commissions.

Amortization expense related to deferred commissions was as follows:


	Three Months Ended March 31,
		2021		2020
Deferred commissions - amortization expense(i)		$	0.8	$	0.7

(i)Reported in selling, general and administrative expense in the company’s consolidated statements of income (loss)

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (costs to fulfill a contract), principally initial customer setup, are capitalized and expensed over the initial contract life. These costs are included in outsourcing assets, net in the company’s consolidated balance sheets. The amount of such costs at March 31, 2021 and December 31, 2020 was $70.5 million and $74.4 million, respectively. These costs are amortized over the initial contract life and reported in cost of revenue.

Amortization expense related to costs to fulfill a contract was as follows:


	Three Months Ended March 31,
		2021		2020
Costs to fulfill a contract - amortization expense		$	5.9	$	6.4

The remaining balance of outsourcing assets, net is comprised of fixed assets and software used in connection with outsourcing contracts. These costs are capitalized and depreciated over the shorter of the initial contract life or in accordance with the company’s fixed asset policy.

Note 11 - Financial Instruments and Fair Value Measurements

Due to its foreign operations, the company is exposed to the effects of foreign currency exchange rate fluctuations on the U.S. dollar, principally related to intercompany account balances. The company uses derivative financial instruments to reduce its exposure to market risks from changes in foreign currency exchange rates on such balances. The company enters into foreign exchange forward contracts, generally having maturities of three months or less, which have not been designated as hedging instruments. At March 31, 2021 and December 31, 2020, the notional amount of these contracts was $500.9 million and $588.5 million, respectively. The fair value of these forward contracts is based on quoted prices for similar but not identical financial instruments; as such, the inputs are considered Level 2 inputs.

The following table summarizes the fair value of the company’s foreign exchange forward contracts.


	March 31, 2021		December 31, 2020
Balance Sheet Location
Prepaid expenses and other current assets	$	0.4	$	1.4
Other accrued liabilities	2.8		1.0
Total fair value	$	(2.4)	$	0.4

The following table summarizes the location and amount of gains and losses recognized on foreign exchange forward contracts.


	Three Months Ended March 31,
		2021		2020
Statement of Income Location
Other (expense), net		$	(8.8)	$	(28.5)

Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other liabilities. The carrying amounts of these financial assets and liabilities approximate fair value due to their short maturities. Such financial instruments are not included in the following table that provides information about the estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheets as of March 31, 2021 and December 31, 2020.


	March 31, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt:
6.875% senior secured notes due November 1, 2027	$	477.2	$	531.9	$	476.9	$	532.3
5.50% convertible senior notes due March 1, 2021	—		—		83.6		169.8

Long-term debt is carried at amortized cost and its estimated fair value is based on market prices classified as Level 2 in the fair value hierarchy.

Note 12 - Goodwill

In January 2021, the company changed its organizational structure to more effectively address evolving client needs. With these changes, the company changed its reportable segments, operating segments and reporting units. The realignment and change in operating segments was deemed a triggering event, resulting in the company performing an interim goodwill analysis on the reporting units impacted by this segment change as of immediately before and immediately after the change. There were no impairment charges resulting from this analysis. See Note 17, Segment Information, for additional information on the company’s operating and reportable segments.

As a result of the realignment, goodwill totaling $108.6 million was reallocated to reporting units on a relative fair value basis. The amount of goodwill at March 31, 2021 and December 31, 2020 was as follows: ClearPath Forward, $98.3 million and Other, $10.3 million. At March 31, 2021, the amount of goodwill allocated to reporting units with negative net assets within Other was $10.3 million.

Note 13 - Debt

Long-term debt is comprised of the following:


	March 31, 2021		December 31, 2020
6.875% senior secured notes due November 1, 2027 (Face value of $485.0 million less unamortized issuance costs of $7.8 and $8.1 million at March 31, 2021 and at December 31, 2020)	$	477.2	$	476.9
5.50% convertible senior notes (Face value of $84.2 million less unamortized discount and fees of $0.6 million at December 31, 2020)	—		83.6
Finance leases	4.7		5.5
Other debt	59.2		63.9
Total	541.1		629.9
Less – current maturities	19.9		102.8
Total long-term debt	$	521.2	$	527.1


See Note 11 for the fair value of the notes.

Senior Secured Notes due 2027

On October 29, 2020, the company issued $485.0 million aggregate principal amount of its 6.875% Senior Secured Notes due 2027 (the 2027 Notes). The 2027 Notes will pay interest semiannually on May 1 and November 1, commencing on May 1, 2021, and will mature on November 1, 2027, unless earlier repurchased or redeemed. The 2027 Notes are fully and unconditionally guaranteed on a senior secured basis by Unisys Holding Corporation, Unisys NPL, Inc., and Unisys AP Investment Company I, each a Delaware corporation that is directly or indirectly owned by the company (the subsidiary guarantors).

The 2027 Notes and the related guarantees rank equally in right of payment with all of the existing and future senior debt of the company and its subsidiary guarantors and senior in right of payment to any future subordinated debt of the company and its subsidiary guarantors. The 2027 Notes and the related guarantees are structurally subordinated to all existing and future liabilities (including preferred stock, trade payables and pension liabilities) of the subsidiaries of the company that are not subsidiary guarantors. The 2027 Notes and the guarantees will be secured by liens on substantially all assets of the company and the subsidiary guarantors, other than certain excluded assets (the collateral). The liens securing the 2027 Notes on certain ABL collateral will be subordinated to the liens on ABL collateral in favor of the ABL secured parties and, in the future, the liens securing the 2027 Notes may be subordinated to liens on the collateral securing certain permitted first lien debt, subject to certain limitations and permitted liens.

Prior to November 1, 2023 the company may, at its option, redeem some or all of the 2027 Notes at any time, at a price equal to 100% of the principal amount of the 2027 Notes redeemed plus a “make-whole” premium, plus accrued and unpaid interest, if any. The company may also redeem, at its option, up to 40% of the 2027 Notes at any time prior to November 1, 2023, using the proceeds of certain equity offerings at a redemption price of 106.875% of the principal amount thereof, plus accrued and unpaid interest, if any. On or after November 1, 2023, the company may, on any one or more occasions, redeem all or a part of the 2027 Notes at specified redemption premiums, declining to par for any redemptions on or after November 1, 2025.

The indenture contains covenants that limit the ability of the company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem its capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make certain prepayments in respect of pension obligations; (v) issue certain preferred stock or similar equity securities; (vi) make loans and investments (including investments by the company and subsidiary guarantors in subsidiaries that are not guarantors); (vii) sell assets; (viii) create or incur liens; (ix) enter into transactions with affiliates; (x) enter into agreements restricting its subsidiaries’ ability to pay dividends; and (xi) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to several important limitations and exceptions.

If the company experiences certain kinds of changes of control (as defined in the indenture), it will be required to offer to repurchase the 2027 Notes at 101% of the principal amount of the 2027 Notes, plus accrued and unpaid interest as of the repurchase date, if any. In addition, if the company sells assets, under certain circumstances it must apply the proceeds towards an offer to repurchase the 2027 Notes at a price equal to par plus accrued and unpaid interest, if any.

The indenture also provides for events of default, which, if any of them occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding 2027 Notes to be due and payable immediately.

Interest expense related to the 2027 Notes is comprised of the following:


	Three Months Ended March 31, 2021
Contractual interest coupon	$	8.3
Amortization of issuance costs	0.3
Total	$	8.6

Senior Secured Notes Due 2022

On April 15, 2020, the company redeemed all $440.0 million in aggregate principal amount of its outstanding 10.75% Senior Secured Notes due 2022 (the 2022 Notes) for a redemption price equal to 105.375% of the aggregate principal amount of the 2022 Notes redeemed plus accrued but unpaid interest to, but not including, the redemption date. The redemption price paid was $487.3 million and is made up of the following: $440.0 million of principal amount due, $23.65 million of call premium and $23.65 million of accrued interest through April 14, 2020. In the second quarter of 2020, the company recorded a loss on debt extinguishment in other (expense), net of $28.5 million consisting of the premium of $23.65 million and write off of $4.8 million of unamortized discount and fees related to the issuance of the 2022 Notes.

Interest expense related to the 2022 Notes was as follows:


	Three Months Ended March 31, 2020
Contractual interest coupon		$	11.8
Amortization of issuance costs		0.6
Total		$	12.4

Convertible Senior Notes Due 2021

In 2016, the company issued $213.5 million aggregate principal amount of Convertible Senior Notes due 2021 (the 2021 Notes). Following the completion of separate, privately negotiated exchange agreements in 2019, $84.2 million aggregate principal amount of 2021 Notes remained outstanding.

On March 3, 2021, the company completed the conversion of $84.2 million aggregate principal amount of the 2021 Notes that remained outstanding for a combination of cash and shares of the company’s common stock. As a result of the conversion of the outstanding 2021 Notes, the company delivered to the holders (i) aggregate cash payments totaling approximately $86.5 million, which included an aggregate cash payment for outstanding principal of approximately $84.2 million, an aggregate cash payment for accrued interest of approximately $2.3 million and a nominal cash payment in lieu of fractional shares, and (ii) the issuance of 4,537,123 shares of the company’s common stock. The issuance of the common stock was made in exchange for the 2021 Notes pursuant to an exemption from the registration requirements provided by Section 3(a)(9) of the Securities Act of 1933, as amended.

The company also received 1,251,460 shares of its common stock, now held in treasury stock, from the settlement of the capped call transactions that the company had entered into with the initial purchasers and/or affiliates of the initial purchasers of the 2021 Notes in connection with the issuance of the 2021 Notes. As a result, the net number of outstanding shares of the company’s common stock following the conversion of the 2021 Notes increased by 3,285,663 shares.

Interest expense related to the 2021 Notes was as follows:


	Three Months Ended March 31,
		2021		2020
Contractual interest coupon		$	0.8	$	1.2
Amortization of debt discount		0.5		0.8
Amortization of debt issuance costs		0.1		0.1
Total		$	1.4	$	2.1

Other Debt

In 2019, the company entered into a $27.7 million Installment Payment Agreement (IPA) maturing on December 20, 2023 with a syndicate of financial institutions to finance the acquisition of certain software licenses necessary for the provision of services to a client. 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. At March 31, 2021, $6.6 million was reported in current maturities of long-term debt.

In 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 and for its own internal use. 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. At March 31, 2021, $3.8 million was reported in current maturities of long-term debt.

ABL Credit Facility

Contemporaneously with the issuance of the 2027 Notes, the company and the subsidiary guarantors entered into an amendment and restatement of the company’s secured revolving credit facility (the Amended and Restated ABL Credit Facility) that provides for revolving loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for an increase in credit facility up to $175.0 million upon the satisfaction of certain conditions specified in the Amended and Restated ABL Credit Facility. The amendment and restatement extended the maturity from October 2022 to October 29, 2025 and modified certain other terms and covenants. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At March 31, 2021, the company had no borrowings and $5.7 million of letters of credit outstanding, and availability under the facility was $123.4 million net of letters of credit issued.

The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restarted ABL Credit Facility) to cash settle the amount of such pension payments, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by the subsidiary guarantors 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 Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $14.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions 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. These restrictions are subject to several important limitations and exceptions. 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, subject to relevant cure periods, as applicable.

At March 31, 2021, the company has met all covenants and conditions under its various lending and funding agreements. For at least the next twelve months, the company expects to continue to meet these covenants and conditions.

Note 14 - Litigation and Contingencies

There are various lawsuits, claims, investigations and proceedings that have been brought or asserted against the company, which arise in the ordinary course of business, including actions with respect to commercial and government contracts, labor and employment, employee benefits, environmental matters, intellectual property and non-income tax matters. The company records a provision for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information and events pertinent to a particular matter.

The company believes that it has valid defenses with respect to legal matters pending against it. Based on its experience, the company also believes that the damage amounts claimed in the lawsuits disclosed below are not a meaningful indicator of the company’s potential liability. Litigation is inherently unpredictable, however, and it is possible that the company’s results of operations or cash flow could be materially affected in any particular period by the resolution of one or more of the legal matters pending against it.

The company’s Brazilian operations, along with those of many other companies doing business in Brazil, are involved in various litigation matters, including numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former employees and contract labor. The tax-related matters pertain to value-added taxes, customs, duties, sales and other non-income-related tax exposures. The labor-related matters include claims related to compensation. The company believes that appropriate accruals have been established for such matters based on information currently available. At March 31, 2021, excluding those matters that have been assessed by management as being remote as to the likelihood of ultimately resulting in a loss, the amount related to unreserved tax-related matters, inclusive of any related interest, is estimated to be up to approximately $66 million.

With respect to the specific legal proceedings and claims described above, except as otherwise noted, either (i) the amount or range of possible losses in excess of amounts accrued, if any, is not reasonably estimable or (ii) the company believes that the amount or range of possible losses in excess of amounts accrued that are estimable would not be material.

Litigation is inherently unpredictable and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such matters could exceed the amounts accrued in an amount that could be material to the company’s financial condition, results of operations and cash flows in any particular reporting period.

Notwithstanding that the ultimate results of the lawsuits, claims, investigations and proceedings that have been brought or asserted against the company are not currently determinable, the company believes that at March 31, 2021, it has adequate provisions for any such matters.

Note 15 - Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is as follows:

Total