SEC Filing | Unisys Corporation

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uis-20220331

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, 2022


☐			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, 2022: 67,637,858

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	27
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	29

Exhibit Index		30
Signatures		31

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,
		2022		2021
Revenue
Services		$	392.1	$	420.4
Technology		54.6		89.4
		446.7		509.8
Costs and expenses
Cost of revenue
Services		321.3		338.7
Technology		38.0		31.9
		359.3		370.6
Selling, general and administrative		104.4		90.0
Research and development		6.5		5.6
		470.2		466.2
Operating (loss) income		(23.5)		43.6
Interest expense		8.4		10.1
Other (expense), net		(21.0)		(182.6)
Loss before income taxes		(52.9)		(149.1)
Provision for income taxes		4.1		8.4
Consolidated net loss		(57.0)		(157.5)
Net income attributable to noncontrolling interests		0.3		0.3
Net loss attributable to Unisys Corporation		$	(57.3)	$	(157.8)


Loss per share attributable to Unisys Corporation



Basic		$	(0.85)	$	(2.45)



Diluted		$	(0.85)	$	(2.45)

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Millions)


	Three Months Ended March 31,
		2022		2021


Consolidated net loss		$	(57.0)	$	(157.5)
Other comprehensive income (loss)
Foreign currency translation		(17.7)		(17.1)
Postretirement adjustments, net of tax of $6.7 in 2022 and $3.1 in 2021		57.3		202.2
Total other comprehensive income		39.6		185.1
Comprehensive (loss) income		(17.4)		27.6
Less comprehensive (loss) income attributable to noncontrolling interests		(0.9)		1.1
Comprehensive (loss) income attributable to Unisys Corporation		$	(16.5)	$	26.5

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	491.4	$	552.9
Accounts receivable, net	369.4		451.7
Contract assets	39.9		42.0
Inventories	13.0		7.6
Prepaid expenses and other current assets	108.3		78.8
Total current assets	1,022.0		1,133.0
Properties	475.4		468.0
Less-accumulated depreciation and amortization	393.3		381.5
Properties, net	82.1		86.5
Outsourcing assets, net	109.8		124.6
Marketable software, net	171.5		176.2
Operating lease right-of-use assets	56.0		62.7
Prepaid postretirement assets	164.1		159.7
Deferred income taxes	126.6		125.3
Goodwill	314.8		315.0
Intangible assets, net	32.5		34.9
Restricted cash	9.5		7.7
Assets held-for-sale	20.0		20.0
Other long-term assets	168.1		173.9
Total assets	$	2,277.0	$	2,419.5
Liabilities and deficit
Current liabilities:
Current maturities of long-term-debt	$	18.2	$	18.2
Accounts payable	172.5		180.2
Deferred revenue	238.9		253.2
Other accrued liabilities	261.1		300.9

Total current liabilities	690.7		752.5
Long-term debt	504.9		511.2
Long-term postretirement liabilities	932.7		976.2
Long-term deferred revenue	142.2		150.7
Long-term operating lease liabilities	39.7		46.1
Other long-term liabilities	46.4		47.2
Commitments and contingencies (see Note 15)
Deficit:
Common stock, shares issued: 2022; 73.1, 2021; 72.5	0.7		0.7
Accumulated deficit	(1,466.3)		(1,409.0)
Treasury stock, shares at cost: 2022; 5.5, 2021; 5.3	(155.7)		(152.2)
Paid-in capital	4,716.6		4,710.9
Accumulated other comprehensive loss	(3,223.3)		(3,264.1)
Total Unisys Corporation stockholders’ deficit	(128.0)		(113.7)
Noncontrolling interests	48.4		49.3
Total deficit	(79.6)		(64.4)
Total liabilities and deficit	$	2,277.0	$	2,419.5

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Millions)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Consolidated net loss	$	(57.0)	$	(157.5)

Adjustments to reconcile consolidated net loss to net cash used for operating activities:


Foreign currency (gains) losses	(2.2)		2.9
Non-cash interest expense	0.4		0.9
Employee stock compensation	6.6		3.3
Depreciation and amortization of properties	10.4		7.6
Depreciation and amortization of outsourcing assets	18.3		16.1
Amortization of marketable software	15.8		15.5
Amortization of intangible assets	2.4		—
Other non-cash operating activities	0.4		(0.6)
Loss on disposal of capital assets	0.5		0.8
Postretirement contributions	(16.2)		(21.6)
Postretirement expense	10.2		169.0
Deferred income taxes, net	(3.7)		(2.0)
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Receivables, net and contract assets	94.2		48.8
Inventories	(5.4)		3.7
Other assets	(26.4)		(15.2)
Accounts payable and current liabilities	(79.0)		(124.8)
Other liabilities	(2.3)		10.2
Net cash used for operating activities	(33.0)		(42.9)
Cash flows from investing activities
Purchase of businesses, net of cash acquired	(0.3)		—

Proceeds from investments	939.0		1,229.5
Purchases of investments	(941.3)		(1,235.5)
Investment in marketable software	(11.1)		(17.4)
Capital additions of properties	(5.2)		(5.1)
Capital additions of outsourcing assets	(2.4)		(5.0)
Other	(0.4)		(0.4)
Net cash used for investing activities	(21.7)		(33.9)
Cash flows from financing activities
Payments of long-term debt	(7.7)		(91.6)

Proceeds from issuance of long-term debt	—		1.5

Proceeds from exercise of stock options	—		2.7
Other	(3.5)		(7.4)
Net cash used for financing activities	(11.2)		(94.8)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	6.2		(8.6)
Decrease in cash, cash equivalents and restricted cash	(59.7)		(180.2)
Cash, cash equivalents and restricted cash, beginning of period	560.6		906.7
Cash, cash equivalents and restricted cash, end of period	$	500.9	$	726.5

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, 2021	$	(64.4)	$	(113.7)	$	0.7	$	(1,409.0)	$	(152.2)	$	4,710.9	$	(3,264.1)	$	49.3
Consolidated net (loss) income	(57.0)		(57.3)				(57.3)								0.3


Stock-based activity	2.2		2.2						(3.5)		5.7
Translation adjustments	(17.7)		(14.9)										(14.9)		(2.8)
Postretirement plans	57.3		55.7										55.7		1.6
Balance at March 31, 2022	$	(79.6)	$	(128.0)	$	0.7	$	(1,466.3)	$	(155.7)	$	4,716.6	$	(3,223.3)	$	48.4


			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 (loss) 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

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 (loss), 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, purchased intangibles 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’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, 2021 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 - Accounting Standards

Effective January 1, 2022, the company adopted Accounting Standards Update (ASU) No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, which had historically resulted in a deferred revenue impairment at the date of acquisition. The company will adopt this guidance for acquisitions completed on or after January 1, 2022.

Note 3 - Acquisitions

On December 14, 2021, the company acquired 100% of CompuGain LLC (CompuGain), a leading cloud solutions provider, for a purchase price consideration of $87.0 million on a cash-free, debt-free basis. The purchase price is subject to customary adjustments based on closing cash, indebtedness and working capital. The company funded the cash consideration and acquisition-related costs with cash on hand.

The acquisition enhanced the company’s delivery of rapid and agile cloud migration, application modernization and data value realization to our clients.

The preliminary fair values of the total net assets acquired was as follows:



Receivables	$	7.8
Prepaid expenses and other current assets	0.7
Properties and other long-term assets	0.2
Operating lease right-of-use assets	0.2
Accounts payable and accruals	(5.6)

Long-term operating lease liabilities	(0.1)
Intangible assets	18.3
Goodwill	65.5
Total	$	87.0

At March 31, 2022, the company has not finalized the purchase accounting related to CompuGain and the above amounts represent preliminary estimated values. The preliminary purchase price allocation is subject to change as the company completes its determination of the final working capital and the fair value of the acquired assets and liabilities assumed, the impact of which could be material.

Goodwill is the excess of the purchase price consideration over the fair value of the underlying intangible assets and net liabilities assumed. The goodwill represents expected synergies, intellectual capital and the acquired assembled workforce, none of which qualify for recognition as a separate intangible asset. Goodwill determined by the allocation of the purchase price was recorded in the company’s Cloud and Infrastructure Solutions segment and is deductible for tax purposes.

The following table summarizes the preliminary fair value of the intangible assets acquired and the related weighted average amortization period:


	Weighted Average Amortization Period in Years	Fair Value

Customer relationships	8.5	17.4
Marketing	4.0	0.9
Total		$	18.3

For the three months ended March 31, 2022, the company incurred and expensed acquisition-related costs of $0.4 million, included within selling, general and administrative expense on the consolidated statements of income (loss).

The company’s consolidated financial statements include the results of CompuGain commencing as of the acquisition date. Revenue and earnings for CompuGain have not been presented as the impact is not material to the company’s consolidated financial statements.

Note 4 - Cost-Reduction Actions

During the three months ended March 31, 2022, the company recognized cost-reduction charges and other costs of $3.0 million. The credit related to work-force reductions was $0.6 million for changes in estimates. In addition, the company recorded net charges of $3.6 million comprised of a charge of $1.1 million for net foreign currency losses related to exiting foreign countries, a charge of $3.8 million for asset impairments and a credit of $1.3 million for changes in estimates related to other cost-reduction efforts.

During the three months ended March 31, 2021, the company recognized cost-reduction charges and other costs of $8.5 million. The net 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 net foreign currency losses related to exiting foreign countries, $2.4 million for asset impairments and $5.4 million for other expenses related to other cost reduction efforts.

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


	Three Months Ended March 31,
		2022		2021
Cost of revenue		$	2.7	$	(1.7)
Selling, general and administrative		(0.7)		6.2
Research and development		(0.1)		1.7
Other (expense), net		1.1		2.3
Total		$	3.0	$	8.5

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, 2021	$	16.3	$	5.7	$	10.6

Payments	(3.8)		(1.5)		(2.3)
Changes in estimates	(0.6)		(0.5)		(0.1)
Translation adjustments	(0.3)		—		(0.3)
Balance at March 31, 2022	$	11.6	$	3.7	$	7.9
Expected future utilization on balance at March 31, 2022:
Short-term	$	11.0	$	3.7	$	7.3
Long-term	$	0.6	$	—	$	0.6

Note 5 - Pension and Postretirement Benefits

Net periodic pension expense is presented below:


	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	Total		U.S. Plans		International Plans		Total		U.S. Plans		International Plans
Service cost(i)	$	0.5	$	—	$	0.5	$	1.2	$	—	$	1.2
Interest cost	38.9		28.3		10.6		39.6		29.4		10.2
Expected return on plan assets	(68.4)		(47.5)		(20.9)		(74.1)		(51.4)		(22.7)
Amortization of prior service benefit	(1.3)		(0.6)		(0.7)		(1.3)		(0.6)		(0.7)
Recognized net actuarial loss	40.9		30.7		10.2		46.2		33.2		13.0
Settlement losses	—		—		—		158.0		158.0		—
Net periodic pension expense	$	10.6	$	10.9	$	(0.3)	$	169.6	$	168.6	$	1.0


(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 2022, the company expects to make cash contributions of approximately $40.2 million primarily for the company’s international defined benefit pension plans. In 2021, the company made cash contributions of $52.4 million to its worldwide defined benefit pension plans. During the three months ended March 31, 2022 and 2021, the company made cash contributions of $15.1 million and $20.2 million, respectively.

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.

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


	Three Months Ended March 31,
		2022		2021
Service cost(i)		$	—	$	0.1
Interest cost		0.5		0.4
Expected return on assets		(0.1)		(0.1)
Recognized net actuarial gain		(0.5)		(0.6)
Amortization of prior service cost		(0.3)		(0.4)
Net periodic postretirement benefit income		$	(0.4)	$	(0.6)


(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 $6 million to its postretirement benefit plan in 2022. In 2021, the company made cash contributions of $4.0 million to its postretirement benefit plan. For the three months ended March 31, 2022 and 2021, the company made cash contributions of $1.1 million and $1.4 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, 2022, the company has granted non-qualified stock options, restricted stock 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, 2022 and 2021, the company recorded $6.6 million and $3.3 million of share-based restricted stock and restricted stock unit compensation expense, respectively.

Restricted stock and 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 and restricted stock unit (RSU) activity for the three months ended March 31, 2022 follows (shares in thousands):


	Restricted Stock and RSU	Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2021	2,124	$	22.73
Granted	903	27.02
Vested	(642)	23.16
Forfeited and expired	(24)	26.99
Outstanding at March 31, 2022	2,361	24.20

The aggregate weighted-average grant-date fair value of restricted stock and restricted stock units granted during the three months ended March 31, 2022 and 2021 was $22.2 million and $24.1 million, respectively. The fair value of restricted stock and 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,
	2022			2021
Weighted-average fair value of grant	$	34.14		$	40.02
Risk-free interest rate(i)	1.72		%	0.27		%
Expected volatility(ii)	57.71		%	57.08		%
Expected life of restricted stock units in years(iii)	2.85			2.84
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, 2022, there was $41.4 million of total unrecognized compensation cost related to outstanding restricted stock and 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. The aggregate weighted-average grant-date fair value of restricted stock and restricted stock units vested during the three months ended March 31, 2022 and 2021 was $14.0 million each period.

Common stock issued upon the lapse of restrictions on restricted stock and 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 and restricted stock units.

Note 7 - Other (expense), net

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


	Three Months Ended March 31,
		2022		2021
Postretirement expense*		$	(9.7)	$	(167.7)

Foreign exchange gains (losses)**		2.2		(2.9)
Environmental costs and other, net		(13.5)		(12.0)
Total other (expense), net		$	(21.0)	$	(182.6)

*Includes $158.0 million in the three months ended March 31, 2021 of settlement losses related to defined benefit pension plans. See Note 5.

**Includes net foreign currency losses of $1.1 million and $2.3 million, respectively, in the three months ended March 31, 2022 and 2021, related to substantial completion of liquidation of foreign subsidiaries.

Note 8 - 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 realization of the company’s net deferred tax assets as of March 31, 2022 is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in that period and could have a significant impact on that period’s earnings.

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 net operating loss (NOL) carryforwards and utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the U.S. Internal Revenue 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 or future changes in tax laws that impose tax attribute utilization limitations may severely limit or effectively eliminate the company’s ability to utilize its NOL carryforwards and other tax attributes.

Note 9 - Loss Per Share

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


	Three Months Ended March 31,
		2022		2021
Basic loss per common share computation:


Net loss attributable to Unisys Corporation		$	(57.3)	$	(157.8)
Weighted average shares		67,387		64,423




Basic loss per common share		$	(0.85)	$	(2.45)

Diluted loss per common share computation:
Net loss attributable to Unisys Corporation		$	(57.3)	$	(157.8)




Weighted average shares		67,387		64,423

Plus incremental shares from assumed conversions of employee stock plans		—		—

Adjusted weighted average shares		67,387		64,423




Diluted loss per common share		$	(0.85)	$	(2.45)

Anti-dilutive weighted-average stock options and restricted stock units(i)		837		1,067


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

Note 10 - 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, 2022		December 31, 2021
Contract assets - current	$	39.9	$	42.0
Contract assets - long-term(i)	16.8		17.4
Deferred revenue - current	(238.9)		(253.2)
Deferred revenue - long-term	(142.2)		(150.7)


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

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


	Three Months Ended March 31,
		2022		2021
Revenue recognized that was included in deferred revenue at the beginning of the period		$	82.9	$	99.1

Note 11 - 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, 2022 and December 31, 2021, the company had $5.7 million and $6.7 million, respectively, of deferred commissions.

Amortization expense related to deferred commissions was as follows:


	Three Months Ended March 31,
		2022		2021
Deferred commissions - amortization expense(i)		$	1.1	$	0.8

(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, 2022 and December 31, 2021 was $49.3 million and $56.2 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,
		2022		2021
Costs to fulfill a contract - amortization expense		$	8.9	$	5.9

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 12 - 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, 2022 and December 31, 2021, the notional amount of these contracts was $525.3 million and $552.2 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, 2022		December 31, 2021
Balance Sheet Location
Prepaid expenses and other current assets	$	1.5	$	3.6
Other accrued liabilities	8.6		2.1
Total fair value	$	(7.1)	$	1.5

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


	Three Months Ended March 31,
		2022		2021
Statement of Income Location
Other (expense), net		$	(10.9)	$	(8.8)

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, 2022 and December 31, 2021.


	March 31, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt:
6.875% senior secured notes due November 1, 2027	$	478.4	$	509.2	$	478.1	$	527.0

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 13 - Goodwill and Intangible Assets

Goodwill

Changes in the carrying value of goodwill by reporting unit were as follows:


	Total		DWS		C&I		ECS		Other
Balance at December 31, 2021	$	315.0	$	140.9	$	65.5	$	98.3	$	10.3

Translation adjustments	$	(0.2)	$	(0.2)	$	—	$	—	$	—
Balance at March 31, 2022	$	314.8	$	140.7	$	65.5	$	98.3	$	10.3

At March 31, 2022, the amount of goodwill allocated to reporting units with negative net assets within Other was $10.3 million.

Intangible Assets, Net

Intangible assets, net at March 31, 2022 consists of the following:


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Technology (i)	$	10.0	$	2.6	$	7.4
Customer relationships (ii)	27.0		2.7		24.3
Marketing (ii)	0.9		0.1		0.8
Total	$	37.9	$	5.4	$	32.5

(i) Amortization expense is included within cost of revenue - technology in the consolidated statements of income (loss).

(ii) Amortization expense is included within selling, general and administrative expense in the consolidated statements of income (loss).

For the three months ended March 31, 2022, amortization expense was $2.4 million.

The future amortization relating to acquired intangible assets at March 31, 2022 was estimated as follows:


	Future Amortization Expense
Remainder of 2022	$	5.9
2023	7.9
2024	5.4
2025	2.6
2026	2.3
Thereafter	8.4
Total	$	32.5

Note 14 - Debt

Long-term debt is comprised of the following:


	March 31, 2022		December 31, 2021
6.875% senior secured notes due November 1, 2027 (Face value of $485.0 million less unamortized issuance costs of $6.6 and $6.9 million at March 31, 2022 and at December 31, 2021)	$	478.4	$	478.1
Finance leases	2.1		2.7
Other debt	42.6		48.6
Total	523.1		529.4
Less – current maturities	18.2		18.2
Total long-term debt	$	504.9	$	511.2


See Note 12 for the fair value of the notes.

Senior Secured Notes due 2027

The company has $485.0 million aggregate principal amount of its 6.875% Senior Secured Notes due 2027 (the 2027 Notes). The 2027 Notes pay interest semiannually on May 1 and November 1 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., Unisys AP Investment Company I, CompuGain LLC and CompuGain Public Services, LLC, each of which is a U.S. corporation or limited liability company 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 are 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 are 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,
	2022		2021
Contractual interest coupon	$	8.3	$	8.3
Amortization of issuance costs	0.3		0.3
Total	$	8.6	$	8.6

Convertible Senior Notes Due 2021

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
Contractual interest coupon	$	0.8
Amortization of debt discount	0.5
Amortization of debt issuance costs	0.1
Total	$	1.4

Other Debt

The company has 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, 2022, $5.2 million was reported in current maturities of long-term debt.

The company has 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, 2022, $4.0 million was reported in current maturities of long-term debt.

Asset Based Lending (ABL) Credit Facility

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility) that matures on October 29, 2025 and 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 the aggregate amount available under the credit facility to be increased up to $175.0 million upon the satisfaction of certain conditions specified in the Amended and Restated ABL Credit Facility. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At March 31, 2022, the company had no borrowings and $5.6 million of letters of credit outstanding, and availability under the facility was $90.5 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, 2022, 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 15 - 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, 2022, 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 $89 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, 2022, it has adequate provisions for any such matters.

Note 16 - Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is as follows:


	Total		Translation Adjustments		Postretirement Plans
Balance at December 31, 2021	$	(3,264.1)	$	(866.2)	$	(2,397.9)
Other comprehensive income (loss) before reclassifications	2.7		(16.0)