Unisys Corp 10-Q for FY2021 Q2
Unisys Corp (UIS)
10-Q
2021-08-02
For: 2021-06-30
View Original
Added on
April 08, 2026
About this 10-Q
Unisys Corp filed this 10-Q on August 2, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $517.3M
- up 17.9% from $438.8M a year earlier
- Net loss
- $140.8M
- compared with a net loss of $78.6M a year earlier
- Diluted EPS
- -$2.10
- compared with -$1.25 a year earlier
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 June 30, 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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | ||||||
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 | ☐ | ☒ | ||||||||||||||||||
| 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 June 30, 2021: 67,115,826
UNISYS CORPORATION
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | Page Number | ||||||||||
| Item 1. | Consolidated Financial Statements (Unaudited) | ||||||||||
| Consolidated Statements of Income (Loss) | |||||||||||
| Consolidated Statements of Comprehensive Income (Loss) | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| Consolidated Statements of Cash Flows | |||||||||||
| Consolidated Statements of Deficit | |||||||||||
| Notes to Consolidated Financial Statements | |||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | ||||||||||
| Item 4. | Controls and Procedures | ||||||||||
| PART II - OTHER INFORMATION | |||||||||||
| Item 1. | Legal Proceedings | ||||||||||
| Item 1A. | Risk Factors | ||||||||||
| Item 6. | Exhibits | ||||||||||
| Exhibit Index | |||||||||||
| Signatures | |||||||||||
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
(Millions, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| Services | $ | $ | $ | $ | ||||||||||||||||||||||
| Technology | ||||||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||
| Technology | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Other (expense), net | ( | ( | ( | ( | ||||||||||||||||||||||
| Loss from continuing operations before income taxes | ( | ( | ( | ( | ||||||||||||||||||||||
| Provision (benefit) for income taxes | ( | ( | ||||||||||||||||||||||||
| Consolidated net loss from continuing operations | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Net loss from continuing operations attributable to Unisys Corporation | ( | ( | ( | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | |||||||||||||||||||||||||
| Net income (loss) attributable to Unisys Corporation | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Earnings (loss) per share attributable to Unisys Corporation | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
See notes to consolidated financial statements
2
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Millions)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Consolidated net loss from continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | |||||||||||||||||||||||||
| Total | ( | ( | ( | |||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||
| Foreign currency translation | ( | ( | ||||||||||||||||||||||||
Postretirement adjustments, net of tax of $ | ||||||||||||||||||||||||||
| Total other comprehensive income | ||||||||||||||||||||||||||
| Comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Less comprehensive income (loss) attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Comprehensive income (loss) attributable to Unisys Corporation | $ | $ | ( | $ | $ | |||||||||||||||||||||
See notes to consolidated financial statements
3
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Millions)
| June 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Contract assets | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Properties | |||||||||||
| Less-accumulated depreciation and amortization | |||||||||||
| Properties, net | |||||||||||
| Outsourcing assets, net | |||||||||||
| Marketable software, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Prepaid postretirement assets | |||||||||||
| Deferred income taxes | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Restricted cash | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and deficit | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term-debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Deferred revenue | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term postretirement liabilities | |||||||||||
| Long-term deferred revenue | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
Commitments and contingencies (see Note 15) | |||||||||||
| Deficit: | |||||||||||
Common stock, shares issued: 2021; | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
Treasury stock, shares at cost: 2021; | ( | ( | |||||||||
| Paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Unisys Corporation stockholders’ deficit | ( | ( | |||||||||
| Noncontrolling interests | |||||||||||
| Total deficit | ( | ( | |||||||||
| Total liabilities and deficit | $ | $ | |||||||||
See notes to consolidated financial statements
4
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
See notes to consolidated financial statements
| Six Months Ended June 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Consolidated net loss from continuing operations | $ | ( | $ | ( | ||||||||||
| Income from discontinued operations, net of tax | ||||||||||||||
| Adjustments to reconcile consolidated net loss to net cash used for operating activities: | ||||||||||||||
| Gain on sale of U.S. Federal business | ( | |||||||||||||
| Loss on debt extinguishment | ||||||||||||||
| Foreign currency translation losses | ||||||||||||||
| Non-cash interest expense | ||||||||||||||
| Employee stock compensation | ||||||||||||||
| Depreciation and amortization of properties | ||||||||||||||
| Depreciation and amortization of outsourcing assets | ||||||||||||||
| Amortization of marketable software | ||||||||||||||
| Amortization of intangible assets | ||||||||||||||
| Other non-cash operating activities | ( | |||||||||||||
| Loss on disposal of capital assets | ||||||||||||||
| Postretirement contributions | ( | ( | ||||||||||||
| Postretirement expense | ||||||||||||||
| Deferred income taxes, net | ( | ( | ||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||
| Receivables, net and contract assets | ||||||||||||||
| Inventories | ||||||||||||||
| Other assets | ( | ( | ||||||||||||
| Accounts payable and current liabilities | ( | ( | ||||||||||||
| Other liabilities | ||||||||||||||
| Net cash used for operating activities | ( | ( | ||||||||||||
| Cash flows from investing activities | ||||||||||||||
| Purchase of business | ( | |||||||||||||
| Net proceeds from sale of U.S. Federal business | ||||||||||||||
| Proceeds from investments | ||||||||||||||
| Purchases of investments | ( | ( | ||||||||||||
| Investment in marketable software | ( | ( | ||||||||||||
| Capital additions of properties | ( | ( | ||||||||||||
| Capital additions of outsourcing assets | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Net cash (used for) provided by investing activities | ( | |||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Proceeds from short-term borrowings | ||||||||||||||
| Proceeds from issuance of long-term debt | ||||||||||||||
| Payments of long-term debt | ( | ( | ||||||||||||
| Cash paid for debt extinguishment | ( | |||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Other | ( | ( | ||||||||||||
| Net cash used for financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | |||||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | |||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||||||||
5
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)
(Millions)
| Unisys Corporation | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Total Unisys Corporation | Common Stock Par Value | Accumu-lated Deficit | Treasury Stock At Cost | Paid-in Capital | Accumu-lated Other Compre-hensive Loss | Non-controlling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Consolidated net income (loss) | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Capped call on conversion of notes | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based activity | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Translation adjustments | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Postretirement plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Consolidated net loss | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based activity | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Translation adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Postretirement plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| 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 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Consolidated net income | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based activity | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Translation adjustments | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Postretirement plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Consolidated net loss | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based activity | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Translation adjustments | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Postretirement plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements
6
UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except share and per share amounts)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements and footnotes of Unisys Corporation have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of management, the financial information furnished herein reflects all adjustments necessary for a fair 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, 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 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 June 30, 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 June 30, 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.
Note 2 - Discontinued Operations
7
The results of the U.S. Federal business discontinued operations were as follows:
Three Months Ended June 30, 2020* | Six Months Ended June 30, 2020* | |||||||||||||
| Revenue | $ | $ | ||||||||||||
| Income (loss): | ||||||||||||||
| Operations | ||||||||||||||
| Gain on sale | ( | |||||||||||||
| ( | ||||||||||||||
| Income tax provision | ||||||||||||||
| Income (loss) from discontinued operations, net of tax | $ | ( | $ | |||||||||||
* Includes results of operations through the March 13, 2020 closing date.
Note 3 - Acquisitions
On June 3, 2021, the company acquired 100 % of Unify Square, Inc. (Unify Square) for a purchase price consideration of $150.1 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 is funding the cash consideration and acquisition-related costs with cash on hand.
Headquartered in Bellevue, Washington, and with offices in the United Kingdom, Germany, Switzerland, India, Australia and Lithuania, Unify Square is a market leader in the provision of management and security software and services for collaboration and communication platforms. The acquisition is expected to enhance the company’s digital workplace solutions and enable the company to deliver higher value solutions to its clients.
The preliminary fair values of the total net assets acquired was as follows:
| Receivables | $ | |||||||
| Prepaid expenses and other current assets | ||||||||
| Properties and other long-term assets | ||||||||
| Accounts payable and accruals | ( | |||||||
| Deferred revenue | ( | |||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Total | $ | |||||||
At June 30, 2021, the company has not finalized the purchase accounting related to Unify Square 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 values 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 intellectual capital and the acquired assembled workforce, none of which qualify for recognition as a separate intangible asset. Any goodwill determined by the allocation of the purchase price will be recorded in the company’s Digital Workplace Solutions segment and is not expected to be deductible for tax purpose.
8
| Weighted Average Amortization Period in Years | ||||||||||||||
| Customer relationships and backlog | $ | |||||||||||||
| Software and technology | ||||||||||||||
| Trade name | ||||||||||||||
| Total | $ | |||||||||||||
The company incurred and expensed acquisition-related costs of $1.6 million, included within selling, general and administrative expense on the consolidated statements of income (loss) for the three and six months ended June 30, 2021.
The company’s consolidated financial statements include the results of Unify Square commencing as of the acquisition date.
Note 4 - Cost-Reduction Actions
During the three months ended June 30, 2021, the company recognized cost-reduction charges and other costs of $5.1 million. The charges (credits) related to work-force reductions were $(0.3 ) million, principally related to severance costs, and were comprised of: (a) a charge of $2.9 million and (b) a credit of $(3.2 ) million for changes in estimates. In addition, the company recorded charges of $5.4 million comprised of $(0.7 ) million for net foreign currency gains related to exiting foreign countries, $4.4 million for asset impairments and $1.7 million of other expenses related to the cost-reduction effort.
During the three months ended June 30, 2020, the company recognized cost-reduction charges and other costs of $7.9 million. The charges (credits) related to work-force reductions were $(3.0 ) million, principally related to severance costs, and were comprised of: (a) a charge of $1.6 million and (b) a credit of $(4.6 ) million for changes in estimates. In addition, the company recorded a credit of $(0.6 ) million for net foreign currency gains related to exiting foreign countries and a charge of $11.5 million for asset impairments.
During the six months ended June 30, 2021, the company recognized cost-reduction charges and other costs of $13.6 million. The charges (credits) related to work-force reductions were $(1.9 ) million, principally related to severance costs, and were comprised of: (a) a charge of $5.8 million and (b) a credit of $(7.7 ) million for changes in estimates. In addition, the company recorded charges of $15.5 million comprised of $1.6 million for net foreign currency losses related to exiting foreign countries, $6.8 million for asset impairments and $7.1 million of other expenses related to the cost-reduction effort.
During the six months ended June 30, 2020, the company recognized cost-reduction charges and other costs of $35.4 million. The charges related to work-force reductions were $5.5 million, principally related to severance costs, and were comprised of: (a) a charge of $11.3 million and (b) a credit of $(5.8 ) million for changes in estimates. In addition, the company recorded charges of $18.4 million for net foreign currency losses related to exiting foreign countries and $11.5 million for asset impairments.
9
The charges (credits) were recorded in the following statement of income classifications:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Cost of revenue - services | $ | $ | $ | $ | ||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Other (expense), net | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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 | $ | $ | $ | |||||||||||||||||
| Additional provisions | ||||||||||||||||||||
| Payments | ( | ( | ( | |||||||||||||||||
| Changes in estimates | ( | ( | ( | |||||||||||||||||
| Translation adjustments | ( | ( | ||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | |||||||||||||||||
Expected future utilization on balance at June 30, 2021: | ||||||||||||||||||||
| Short-term | $ | $ | $ | |||||||||||||||||
| Long-term | $ | $ | $ | |||||||||||||||||
10
Note 5 - Pension and Postretirement Benefits
Net periodic pension expense is presented below:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||
| Total | U.S. Plans | International Plans | Total | U.S. Plans | International Plans | |||||||||||||||||||||||||||||||||
Service cost(i) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Amortization of prior service benefit | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Recognized net actuarial loss | ||||||||||||||||||||||||||||||||||||||
| Settlement losses | ||||||||||||||||||||||||||||||||||||||
| Net periodic pension expense | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||
| Total | U.S. Plans | International Plans | Total | U.S. Plans | International Plans | |||||||||||||||||||||||||||||||||
Service cost(i) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Amortization of prior service benefit | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Recognized net actuarial loss | ||||||||||||||||||||||||||||||||||||||
| Settlement losses | ||||||||||||||||||||||||||||||||||||||
| Net periodic pension expense | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
(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.
Effective May 1, 2021, the company’s primary pension plan related to its Dutch subsidiary was transferred to a multiple-client circle within a multiple-employer fund. This resulted in removing all of the plan’s projected benefit obligations, valued at approximately $553 million, from the company’s balance sheet. This action resulted in a second quarter 2021 pre-tax settlement loss of $182.6 million.
In the second quarter of 2021, the company’s Swiss subsidiary transferred its defined benefit pension plan to a multi-employer collective foundation. This resulted in removing the projected benefit obligations related to retirees under the Swiss plan, valued at approximately $100 million, from the company’s balance sheet. The transfer required a one-time additional contribution of approximately $10 million to the Swiss plan during the first quarter of 2021. This action resulted in a second quarter 2021 settlement loss of $28.1 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 for the period covered by such projections 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.
11
In 2021, the company expects to make cash contributions of approximately $48.7 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 six months ended June 30, 2021 and 2020, the company made cash contributions of $30.3 million and $329.9 million, respectively.
Net periodic postretirement benefit (income) expense is presented below:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Service cost(i) | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Recognized net actuarial (gain) loss | ( | ( | ||||||||||||||||||||||||
| Amortization of prior service cost | ( | ( | ( | ( | ||||||||||||||||||||||
| Net periodic postretirement benefit (income) expense | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
(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 six months ended June 30, 2021 and 2020, the company made cash contributions of $1.8 million and $3.1 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 June 30, 2021, 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 six months ended June 30, 2021 and 2020, the company recorded $7.0 million and $8.0 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 six months ended June 30, 2021 follows (shares in thousands):
| Restricted Stock and RSU’s | Weighted- Average Grant-Date Fair Value | |||||||||||||
| Outstanding at December 31, 2020 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Forfeited and expired | ( | |||||||||||||
| Outstanding at June 30, 2021 | ||||||||||||||
12
The aggregate weighted-average grant-date fair value of restricted stock and restricted stock units granted during the six months ended June 30, 2021 and 2020 was $32.2 million and $17.2 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:
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Weighted-average fair value of grant | $ | $ | |||||||||
Risk-free interest rate(i) | % | % | |||||||||
Expected volatility(ii) | % | % | |||||||||
Expected life of restricted stock units in years(iii) | |||||||||||
| 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 June 30, 2021, there was $33.3 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 2.4 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the six months ended June 30, 2021 and 2020 was $14.7 million and $12.6 million, respectively.
Note 7 - Other (expense), net
Other (expense), net is comprised of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Postretirement expense* | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Loss on debt extinguishment | ( | ( | ||||||||||||||||||||||||
| Foreign exchange gains (losses)** | ( | ( | ||||||||||||||||||||||||
| Environmental costs and other, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Total other (expense), net | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
*Includes $210.7 million and $368.7 million in the three and six months ended June 30, 2021, respectively, of settlement losses related to defined benefit pension plans. See Note 5.
**Includes a credit of $(0.7 ) million and a credit of $(0.6 ) million for net foreign currency gains for the three months ended June 30, 2021 and 2020, respectively, related to substantial completion of liquidation of foreign subsidiaries. Includes $1.6 million and $18.4 million for net foreign currency losses for the six months ended June 30, 2021 and 2020, respectively, 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 factors used to assess the likelihood of realization are the company’s historical
13
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.
14
Note 9 - Earnings Per Share
The following table shows how earnings (loss) per share attributable to Unisys Corporation was computed (shares in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Basic earnings (loss) per common share computation: | ||||||||||||||||||||||||||
| Net loss from continuing operations attributable to Unisys Corporation | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | |||||||||||||||||||||||||
| Net income (loss) attributable to Unisys Corporation | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Weighted average shares | ||||||||||||||||||||||||||
| Basic earnings (loss) per share attributable to Unisys Corporation | ||||||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Diluted earnings (loss) per common share computation: | ||||||||||||||||||||||||||
| Net loss from continuing operations attributable to Unisys Corporation | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Add interest expense on convertible senior notes, net of tax of | ||||||||||||||||||||||||||
| Net loss from continuing operations attributable to Unisys Corporation for diluted earnings per share | ( | ( | ( | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | |||||||||||||||||||||||||
| Net income (loss) attributable to Unisys Corporation for diluted earnings per share | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Weighted average shares | ||||||||||||||||||||||||||
| Plus incremental shares from assumed conversions: | ||||||||||||||||||||||||||
| Employee stock plans | ||||||||||||||||||||||||||
| Convertible senior notes | ||||||||||||||||||||||||||
| Adjusted weighted average shares | ||||||||||||||||||||||||||
| Diluted earnings (loss) per share attributable to Unisys Corporation | ||||||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
Anti-dilutive weighted-average stock options and restricted stock units(i) | ||||||||||||||||||||||||||
Anti-dilutive weighted-average common shares issuable upon conversion of the convertible senior notes(i) | ||||||||||||||||||||||||||
(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. | ||
15
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:
| June 30, 2021 | December 31, 2020 | ||||||||||
| Contract assets - current | $ | $ | |||||||||
Contract assets - long-term(i) | |||||||||||
| Deferred revenue - current | ( | ( | |||||||||
| Deferred revenue - long-term | ( | ( | |||||||||
(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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue recognized that was included in deferred revenue at the beginning of the period | $ | $ | $ | $ | |||||||||||||||||||
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 June 30, 2021 and December 31, 2020, the company had $7.7 million and $8.7 million, respectively, of deferred commissions.
Amortization expense related to deferred commissions was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Deferred commissions - amortization expense(i) | $ | $ | $ | $ | |||||||||||||||||||
(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 June 30, 2021 and December 31, 2020 was $67.2 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Costs to fulfill a contract - amortization expense | $ | $ | $ | $ | |||||||||||||||||||
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.
16
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 June 30, 2021 and December 31, 2020, the notional amount of these contracts was $530.8 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.
| June 30, 2021 | December 31, 2020 | |||||||||||||
| Balance Sheet Location | ||||||||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||||||||
| Other accrued liabilities | ||||||||||||||
| Total fair value | $ | ( | $ | |||||||||||
The following table summarizes the location and amount of gains and losses recognized on foreign exchange forward contracts.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Statement of Income Location | |||||||||||||||||||||||
| Other (expense), net | $ | $ | $ | ( | $ | ( | |||||||||||||||||
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 June 30, 2021 and December 31, 2020.
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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
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 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 18 for additional information on the company’s operating and reportable segments.
As a result of the realignment, goodwill totaling $108.6 million was reallocated on a relative fair value basis. The amount of goodwill at March 31, 2021 and December 31, 2020 was as follows: Enterprise Computing Solutions (ECS), $98.3 million and
17
Other, $10.3 million. On June 3, 2021, the company acquired Unify Square, Inc. resulting in a preliminary estimated addition to goodwill in the DWS segment of $117.6 million (see Note 3).
Changes in the carrying value of goodwill by segment were as follows:
| Total | DWS | C&I | ECS | Other | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Acquisition (see Note 3) | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
At June 30, 2021, the amount of goodwill allocated to reporting units with negative net assets within Other was $10.3 million.
Intangible Assets
Intangible assets, net (see Note 3) at June 30, 2021 consists of the following:
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||
| Customer relationships and backlog | $ | $ | $ | |||||||||||||||||
| Software and technology | ||||||||||||||||||||
| Trade name | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
Amortization expense was $0.5
Note 14 - Debt
Long-term debt is comprised of the following:
| June 30, 2021 | December 31, 2020 | |||||||||||||
| $ | $ | |||||||||||||
| Finance leases | ||||||||||||||
| Other debt | ||||||||||||||
| Total | ||||||||||||||
| Less – current maturities | ||||||||||||||
| Total long-term debt | $ | $ | ||||||||||||
See Note 12 for the fair value of the notes. | ||
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., Unisys AP Investment Company I, and Unify Square, Inc., each 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.
18
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 June 30, 2021 | Six Months Ended June 30, 2021 | |||||||||||||
| Contractual interest coupon | $ | $ | ||||||||||||
| Amortization of issuance costs | ||||||||||||||
| Total | $ | $ | ||||||||||||
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 June 30, 2020 | Six Months Ended June 30, 2020 | |||||||||||||
| Contractual interest coupon | $ | $ | ||||||||||||
| Amortization of issuance costs | ||||||||||||||
| Total | $ | $ | ||||||||||||
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
19
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Contractual interest coupon | $ | $ | $ | $ | ||||||||||||||||||||||
| Amortization of debt discount | ||||||||||||||||||||||||||
| Amortization of debt issuance costs | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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 June 30, 2021, $6.2 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 June 30, 2021, $3.8 million was reported in current maturities of long-term debt.
Asset Based Lending (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 June 30, 2021, the company had no borrowings and $5.7 million of letters of credit outstanding, and availability under the facility was $103.3 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-
20
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 June 30, 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 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 June 30, 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 $75 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 June 30, 2021, 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, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | |||||||||||||||||||
| Current period other comprehensive income | ( | |||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
21
Amounts reclassified out of accumulated other comprehensive loss are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Translation adjustments: | ||||||||||||||||||||||||||
Adjustment for substantial completion of liquidation of foreign subsidiaries(i) | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||
Postretirement plans(ii): | ||||||||||||||||||||||||||
| Amortization of prior service cost | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of actuarial losses | ||||||||||||||||||||||||||
| Settlement losses | ||||||||||||||||||||||||||
| Total before tax | ||||||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | ||||||||||||||||||||||
| Total reclassifications for the period | $ | $ | $ | $ | ||||||||||||||||||||||
(i) Reported in other (expense), net in the consolidated statements of income (loss). | ||
(ii)These items are included in net periodic postretirement cost (see Note 5). | ||
Note 17 - Supplemental Cash Flow Information
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash paid during the period for: | |||||||||||
| Income taxes, net of refunds | $ | $ | |||||||||
| Interest | $ | $ | |||||||||
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the amounts shown in the consolidated statements of cash flows.
| June 30, 2021 | December 31, 2020 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | $ | |||||||||
22
Note 18 - Segment Information
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, but this did not impact the consolidated financial statements as of December 31, 2020. In addition, during the second quarter of 2021, the company renamed its ClearPath Forward® segment as Enterprise Computing Solutions to better represent the nature of the segment’s operations. There was no change to the composition of the segment or its historical results.
The company’s reportable segments are as follows:
•Digital Workplace Solutions (DWS), which provides services and IP-led solutions that support clients’ employees’ productivity, satisfaction and ability to securely work anywhere, any time;
•Cloud & Infrastructure Solutions (C&I), which provides hybrid and multi-cloud solutions in select markets to accelerate innovation and increase efficiency of our clients’ businesses; and
•Enterprise Computing Solutions (ECS), which provides server systems and operating system software and services that are secure, innovative, and reliable for mission-critical processing.
The accounting policies of each segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the ECS segment records intersegment revenue and manufacturing profit on hardware and software shipments to customers under contracts of other segments. These segments, in turn, record customer revenue and marketing profits on such shipments of company hardware and software to customers. In the company’s consolidated statements of income, the manufacturing costs of products sourced from the ECS segment and sold to other segments’ customers are reported in cost of revenue for these other segments. Also included in the ECS segment’s sales and gross profit are sales of hardware and software sold to other segments for internal use in their engagements. The amount of such profit included in gross profit of the ECS segment for the three months ended June 30, 2021 and 2020 was $0.4 million and zero , respectively. The amount for the six months ended June 30, 2021 and 2020 was $1.1 million and zero , respectively. The sales and profit on these transactions are eliminated in Corporate.
The company evaluates segment performance based on gross profit exclusive of the service cost component of postretirement income or expense, restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items, which are included in Corporate. During the first quarter of 2021, the company also changed its internal measurement of segment profitability. Prior period amounts have therefore been reclassified to be comparable to the current period’s presentation.
A summary of the company’s operations by segment is presented below:
| Total Segments | DWS | C&I | ECS | |||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Customer revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Intersegment | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||
| Customer revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Intersegment | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||||||||||||
23
| Total Segments | DWS | C&I | ECS | |||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Customer revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Intersegment | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||
| Customer revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Intersegment | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||||||||||||
Presented below is a reconciliation of total segment revenue to total consolidated revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Total segment revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Other revenue | ||||||||||||||||||||||||||
| Elimination of intercompany revenue | ( | ( | ( | |||||||||||||||||||||||
| Total consolidated revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Other revenue and, in the table below, other gross profit, is comprised of an aggregation of a number of immaterial business activities that principally provide for the management of critical processes and functions for clients in select industries, helping them improve performance and reduce costs.
Presented below is a reconciliation of total segment gross profit to consolidated loss from continuing operations before income taxes:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Total segment gross profit | $ | $ | $ | $ | ||||||||||||||||||||||
| Other gross profit | ||||||||||||||||||||||||||
| Total gross profit | ||||||||||||||||||||||||||
| Selling, general and administrative expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Research and development expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other (expense), net | ( | ( | ( | ( | ||||||||||||||||||||||
| Total loss from continuing operations before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Geographic information about the company’s revenue, which is principally based on location of the selling organization, is presented below:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||||||||
| Other foreign | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
24
Note 19 - Remaining Performance Obligations
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis of the company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report. In this discussion and analysis of the company’s financial condition and results of operations, the company has included information that may constitute “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “projects” and similar expressions may identify such forward-looking statements. All forward-looking statements rely on assumptions and are subject to risks, uncertainties and other factors that could cause the company’s actual results to differ materially from expectations. Factors that could affect future results include, but are not limited to, those discussed under “Risk Factors” in Part II, Item 1A. Any forward-looking statement speaks only as of the date on which that statement is made. The company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
Overview
During the six months ended June 30, 2021, the company, through a combination of transfers, annuity purchase arrangements and lump sum payments, settled gross defined benefit pension plan liabilities of approximately $932 million. This is in addition to approximately $276 million settled in the fourth quarter of 2020 for a total of approximately $1.2 billion of gross pension liabilities.
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 pre-tax settlement loss of $158.0 million.
Effective May 1, 2021, the company’s primary pension plan related to its Dutch subsidiary was transferred to a multiple-client circle within a multiple-employer fund. This resulted in removing all of the plan’s projected benefit obligations, valued at approximately $553 million, from the company’s balance sheet. This action resulted in a second quarter 2021 pre-tax settlement loss of $182.6 million.
In the second quarter of 2021, the company’s Swiss subsidiary transferred its defined benefit pension plan to a multi-employer collective foundation. This resulted in removing the projected benefit obligations related to retirees under the Swiss plan, valued at approximately $100 million, from the company’s balance sheet. The transfer required a one-time additional contribution of approximately $10 million to the Swiss plan during the first quarter of 2021. This action resulted in a second quarter 2021 pre-tax settlement loss of $28.1 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 for the period covered by such projections 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 $48.7 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 six months ended June 30, 2021 and 2020, the company made cash contributions of $30.3 million and $329.9 million, respectively.
On March 3, 2021, the company completed the conversion of $84.2 million aggregate principal amount of Convertible Senior Notes due 2021 (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) 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.
26
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.
On June 3, 2021, the company acquired 100% of Unify Square, Inc. for a purchase price consideration of $150.1 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 is funding the cash consideration and acquisition-related costs with cash on hand, see Note 3 of the Notes to Consolidated Financial Statements.
During the three months ended June 30, 2021, the company recognized cost-reduction charges and other costs of $5.1 million. The charges (credits) related to work-force reductions were $(0.3) million, principally related to severance costs, and were comprised of: (a) a charge of $2.9 million and (b) a credit of $(3.2) million for changes in estimates. In addition, the company recorded charges of $5.4 million comprised of $(0.7) million for foreign currency gains related to exiting foreign countries, $4.4 million for asset impairments and $1.7 million of other expenses related to the cost-reduction effort.
During the three months ended June 30, 2020, the company recognized cost-reduction charges and other costs of $7.9 million. The charges (credits) related to work-force reductions were $(3.0) million, principally related to severance costs, and were comprised of: (a) a charge of $1.6 million and (b) a credit of $(4.6) million for changes in estimates. In addition, the company recorded a credit of $(0.6) million for net foreign currency gains related to exiting foreign countries and a charge of $11.5 million for asset impairments.
During the six months ended June 30, 2021, the company recognized cost-reduction charges and other costs of $13.6 million. The charges (credits) related to work-force reductions were $(1.9) million, principally related to severance costs, and were comprised of: (a) a charge of $5.8 million and (b) a credit of $(7.7) million for changes in estimates. In addition, the company recorded charges of $15.5 million comprised of $1.6 million for foreign currency losses related to exiting foreign countries, $6.8 million for asset impairments and $7.1 million of other expenses related to the cost-reduction effort.
During the six months ended June 30, 2020, the company recognized cost-reduction charges and other costs of $35.4 million. The charges related to work-force reductions were $5.5 million, principally related to severance costs, and were comprised of: (a) a charge of $11.3 million and (b) a credit of $(5.8) million for changes in estimates. In addition, the company recorded charges of $18.4 million for net foreign currency losses related to exiting foreign countries and $11.5 million for asset impairments.
The charges (credits) were recorded in the following statement of income classifications:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Cost of revenue | $ | 2.8 | $ | 6.9 | $ | 1.1 | $ | 12.8 | ||||||||||||||||||
| Selling, general and administrative | 2.6 | 1.5 | 8.8 | 4.0 | ||||||||||||||||||||||
| Research and development | 0.4 | 0.1 | 2.1 | 0.2 | ||||||||||||||||||||||
| Other (expenses), net | (0.7) | (0.6) | 1.6 | 18.4 | ||||||||||||||||||||||
| Total | $ | 5.1 | $ | 7.9 | $ | 13.6 | $ | 35.4 | ||||||||||||||||||
Results of operations
Company results
Three months ended June 30, 2021 compared with the three months ended June 30, 2020
Revenue for the three months ended June 30, 2021 was $517.3 million compared with $438.8 million for the three months of 2020, an increase of 17.9% from the prior year. Foreign currency fluctuations had a 6 percentage-point positive impact on revenue in the current period compared with the year-ago period.
U.S. revenue increased 15.3% in the current period compared with the year-ago period. International revenue increased 19.6% in the current period compared with the prior-year period principally due to increases in Europe and Asia/Pacific. Foreign currency had a 10 percentage-point positive impact on international revenue in the three months ended June 30, 2021 compared with the three months ended June 30, 2020.
Gross profit margin was 27.5% in the three months ended June 30, 2021 compared with 17.1% in the three months ended June 30, 2020. The increase was due in part by improvements in all of the company’s segments driven by higher sales of the company’s enterprise software, improvements to efficiency and related cost-reduction initiatives.
27
Selling, general and administrative expense in the three months ended June 30, 2021 was $94.6 million (18.3% of revenue) compared with $80.2 million (18.3% of revenue) in the year-ago period.
Research and development (R&D) expense for the three months ended June 30, 2021 was $6.8 million compared with $3.2 million for the three months ended June 30, 2020.
For the three months ended June 30, 2021, the company reported an operating profit of $40.8 million compared with an operating loss of $8.5 million for prior year period. The increase was due in part by improvements in all the company’s segments driven by higher sales of the company’s enterprise software, improvements to efficiency and related cost-reduction initiatives.
Interest expense for the three months ended June 30, 2021 was $8.4 million compared with $4.6 million for the three months ended June 30, 2020.
Other (expense), net was expense of $227.8 million for the three months ended June 30, 2021 compared with expense of $53.7 million for the three months ended June 30, 2020. Other (expense), net for the three months ended June 30, 2021 includes $210.7 million of pension settlement losses. See Note 7 of the Notes to Consolidated Financial Statements for details of other (expense), net.
The loss from continuing operations before income taxes for the three months ended June 30, 2021 was $195.4 million compared with a loss of $66.8 million for the three months ended June 30, 2020. The decline was principally due to the pension settlement losses discussed above.
The benefit for income taxes was $53.1 million in the current period compared with a provision of $9.7 million in the year-ago period. The current period includes income tax benefits of $51.7 million related to the pension plan settlement losses in the Netherlands and Switzerland. In addition, the Finance Act 2021 (the Act) was published in the Official Gazette which proposed an income tax rate increase in the United Kingdom from 19% to 25% for the financial year beginning April 1, 2023. The Act was enacted on June 10, 2021 and resulted in a deferred tax benefit of approximately $17.7 million in the second quarter of 2021.
The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their 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 the company’s 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 quarter to quarter depending on the geographic distribution of income.
Net loss from continuing operations attributable to Unisys Corporation for the three months ended June 30, 2021 was $140.8 million, or a loss of $2.10 per diluted share, compared with a loss of $76.5 million, or a loss of $1.21 per diluted share, for the three months ended June 30, 2020.
Six months ended June 30, 2021 compared with the six months ended June 30, 2020
Revenue for the six months ended June 30, 2021 was $1,027.1 million compared with $954.2 million for the six months of 2020, an increase of 7.6% from the prior year. Foreign currency fluctuations had a 4 percentage-point positive impact on revenue in the current period compared with the year-ago period.
U.S. revenue increased 11.7% in the current period compared with the year-ago period. International revenue increased 4.8% in the current period compared with the prior-year period principally due to increases in Europe and Asia/Pacific. Foreign currency had a 6 percentage-point positive impact on international revenue in the six months ended June 30, 2021 compared with the six months ended June 30, 2020.
Gross profit margin was 27.4% in the six months ended June 30, 2021 compared with 19.7% in the six months ended June 30, 2020. The increase was due in part by improvements in all the company’s segments driven by higher sales of the company’s enterprise software, improvements to efficiency and related cost-reduction initiatives.
Selling, general and administrative expense in the six months ended June 30, 2021 was $184.6 million (18.0% of revenue) compared with $167.0 million (17.5% of revenue) in the year-ago period.
Research and development (R&D) expense for the six months ended June 30, 2021 was $12.4 million compared with $9.4 million for the six months ended June 30, 2020.
For the six months ended June 30, 2021, the company reported an operating profit of $84.4 million compared with an operating profit of $11.6 million for prior year period. The increase was due in part by improvements in all the company’s segments driven by higher sales of the company’s enterprise software, improvements to efficiency and related cost-reduction initiatives.
28
Interest expense for the six months ended June 30, 2021 was $18.5 million compared with $18.5 million for the six months ended June 30, 2020.
Other (expense), net was expense of $410.4 million for the six months ended June 30, 2021 compared with expense of $101.8 million for the six months ended June 30, 2020. Other (expense), net for the six months ended June 30, 2021 includes $368.7 million of pension settlement losses. See Note 7 of the Notes to Consolidated Financial Statements for details of other (expense), net.
The loss from continuing operations before income taxes for the six months ended June 30, 2021 was $344.5 million compared with a loss of $108.7 million for the six months ended June 30, 2020. The decline was principally due to the pension settlement losses discussed above.
The benefit for income taxes was $44.7 million in the current period compared with a provision of $20.5 million in the year-ago period. The current period includes income tax benefits of $51.7 million related to the pension plan settlement losses in the Netherlands and Switzerland. In addition, the Finance Act 2021 (the Act) was published in the Official Gazette which proposed an income tax rate increase in the United Kingdom from 19% to 25% for the financial year beginning April 1, 2023. The Act was enacted on June 10, 2021 and resulted in a deferred tax benefit of approximately $17.7 million in the second quarter of 2021.
The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their 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 the company’s 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 quarter to quarter depending on the geographic distribution of income.
Net loss from continuing operations attributable to Unisys Corporation for the six months ended June 30, 2021 was $298.6 million, or a loss of $4.54 per diluted share, compared with a loss of $129.7 million, or a loss of $2.06 per diluted share, for the six months ended June 30, 2020.
Segment results
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, but this did not impact the consolidated financial statements as of December 31, 2020. In addition, during the second quarter of 2021, the company renamed its ClearPath Forward® segment as Enterprise Computing Solutions to better represent the nature of the segment’s operations. There was no change to the composition of the segment or its historical results.
The company’s reportable segments are as follows:
•Digital Workplace Solutions (DWS), which provides services and IP-led solutions that support clients’ employees’ productivity, satisfaction and ability to securely work anywhere, any time;
•Cloud & Infrastructure Solutions (C&I), which provides hybrid and multi-cloud solutions in select markets to accelerate innovation and increase efficiency of our clients’ businesses; and
•Enterprise Computing Solutions (ECS), which provides server systems and operating system software and services that are secure, innovative, and reliable for mission-critical processing.
The accounting policies of each segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the ECS segment records intersegment revenue and manufacturing profit on hardware and software shipments to customers under contracts of other segments. These segments, in turn, record customer revenue and marketing profits on such shipments of company hardware and software to customers. In the company’s consolidated statements of income, the manufacturing costs of products sourced from the ECS segment and sold to other segments’ customers are reported in cost of revenue for these other segments. Also included in the ECS segment’s sales and gross profit are sales of hardware and software sold to other segments for internal use in their engagements. The amount of such profit included in gross profit of the ECS segment for the three months ended June 30, 2021 and 2020 was $0.4 million and zero, respectively. The amount of such profit included in gross profit of the ECS segment for the six months ended June 30, 2021 and 2020 was $1.1 million and zero, respectively.The sales and profit on these transactions are eliminated in Corporate.
The company evaluates segment performance based on gross profit exclusive of the service cost component of postretirement income or expense, restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items, which are included in Corporate. During the first quarter of 2021, the company also changed its internal measurement of segment profitability. Prior period amounts have therefore been reclassified to be comparable to the current period’s presentation.
29
Three months ended June 30, 2021 compared with the three months ended June 30, 2020
A summary of the company’s operations by segment is presented below:
| Total Segments | DWS | C&I | ECS | |||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Customer revenue | $ | 440.4 | $ | 146.5 | $ | 124.4 | $ | 169.5 | ||||||||||||||||||
| Intersegment | 0.5 | — | — | 0.5 | ||||||||||||||||||||||
| Total revenue | $ | 440.9 | $ | 146.5 | $ | 124.4 | $ | 170.0 | ||||||||||||||||||
| Gross profit percent | 32.2 | % | 15.2 | % | 12.5 | % | 61.3 | % | ||||||||||||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||
| Customer revenue | $ | 367.6 | $ | 133.5 | $ | 113.2 | $ | 120.9 | ||||||||||||||||||
| Intersegment | — | — | — | — | ||||||||||||||||||||||
| Total revenue | $ | 367.6 | $ | 133.5 | $ | 113.2 | $ | 120.9 | ||||||||||||||||||
| Gross profit percent | 19.5 | % | 6.8 | % | 5.2 | % | 47.0 | % | ||||||||||||||||||
Gross profit percent is as a percent of total revenue. | ||
Revenue from DWS was $146.5 million in the current quarter an increase of 9.7% compared with the prior-year quarter. The increase was due in part to higher field services volumes that were impacted by COVID-19. Foreign currency fluctuations had a 5 percentage-point positive impact on DWS revenue in the current period compared with the year-ago period. Gross profit percent was15.2% in the current period compared with 6.8% in the year ago period. The increase in gross profit was due in part by improvements driven by efficiency and related cost-reduction initiatives.
C&I revenue was $124.4 million for the three-month period ended June 30, 2021, an increase of 9.9% compared with the three-month period ended June 30, 2020. The increase was driven by continued momentum with public sector clients as well as other highly-regulated industries. Foreign currency fluctuations had a 4 percentage-point positive impact on C&I revenue in the current period compared with the year-ago period. Gross profit percent was 12.5% in the current period compared with 5.2% in the year ago period. The increase in gross profit was due in part by improvements driven by efficiency and related cost-reduction initiatives.
ECS revenue was $169.5 million for the three-month period ended June 30, 2021, an increase of 40.2% compared with the three-month period ended June 30, 2020. Foreign currency fluctuations had a 7 percentage-point positive impact on ECS revenue in the current period compared with the year-ago period. Gross profit percent was 61.3% in the current period compared with 47.0% in the year ago period. The increase in both revenue and gross profit was principally due to higher sales of the company’s enterprise software.
30
Six months ended June 30, 2021 compared with the six months ended June 30, 2020
A summary of the company’s operations by segment is presented below:
| Total Segments | DWS | C&I | ECS | |||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Customer revenue | $ | 872.4 | $ | 287.6 | $ | 247.7 | $ | 337.1 | ||||||||||||||||||
| Intersegment | 1.4 | — | — | 1.4 | ||||||||||||||||||||||
| Total revenue | $ | 873.8 | $ | 287.6 | $ | 247.7 | $ | 338.5 | ||||||||||||||||||
| Gross profit percent | 31.6 | % | 14.2 | % | 11.1 | % | 61.2 | % | ||||||||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||
| Customer revenue | $ | 803.5 | $ | 293.7 | $ | 217.2 | $ | 292.6 | ||||||||||||||||||
| Intersegment | 0.1 | — | — | 0.1 | ||||||||||||||||||||||
| Total revenue | $ | 803.6 | $ | 293.7 | $ | 217.2 | $ | 292.7 | ||||||||||||||||||
| Gross profit percent | 21.9 | % | 5.5 | % | 1.4 | % | 53.6 | % | ||||||||||||||||||
Gross profit percent is as a percent of total revenue. | ||
Revenue from DWS was $287.6 million for the six-month period ended June 30, 2021, a decline of 2.1% compared with the six-month period ended June 30, 2020. The decline was due in part to reduced field services volumes that were impacted by COVID-19. Foreign currency fluctuations had a 3 percentage-point positive impact on DWS revenue in the current period compared with the year-ago period. Gross profit percent was 14.2% in the current period compared with 5.5% in the year ago period. The increase in gross profit was due in part by improvements driven by efficiency and related cost-reduction initiatives.
C&I revenue was $247.7 million for the six-month period ended June 30, 2021, an increase of 14.0% compared with the six-month period ended June 30, 2020. The increase was driven by continued momentum with public sector clients as well as other highly-regulated industries. Foreign currency fluctuations had a 4 percentage-point positive impact on C&I revenue in the current period compared with the year-ago period. Gross profit percent was 11.1% in the current period compared with 1.4% in the year ago period. The increase in gross profit was due in part by improvements driven by efficiency and related cost-reduction initiatives.
ECS revenue was $337.1 million for the six-month period ended June 30, 2021, an increase of 15.2% compared with the six-month period ended June 30, 2020. Foreign currency fluctuations had a 2 percentage-point positive impact on ECS revenue in the current period compared with the year-ago period. Gross profit percent was 61.2% in the current period compared with 53.6% in the year ago period. The increase in both revenue and gross profit was principally due to higher sales of the company’s enterprise software.
Financial condition
The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements for at least the next twelve months.
Cash and cash equivalents at June 30, 2021 were $596.7 million compared to $898.5 million at December 31, 2020.
As of June 30, 2021, $311.9 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer up to one-third of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred.
During the six months ended June 30, 2021, cash used for operations was $1.0 million compared to cash usage of $392.1 million for the six months ended June 30, 2020. The decrease in cash usage was principally due to lower cash contributions to the company’s U.S. qualified defined benefit pension plans in the current period.
Cash used for investing activities during the six months ended June 30, 2021 was $201.7 million compared to cash provided of $1,075.5 million during the six months ended June 30, 2020. On June 3, 2021, the Company purchased Unify Square, Inc. for $150.1 million, see Note 3 of the Notes to Consolidated Financial Statements. On March 13, 2020, the company sold its U.S.
31
Federal business and received net cash proceeds of $1,159.4 million. Net purchases of investments were $0.8 million for the six months ended June 30, 2021 compared with net purchases of $20.6 million in the prior-year period. Proceeds from investments and purchases of investments represent derivative financial instruments used to reduce the company’s currency exposure to market risks from changes in foreign currency exchange rates. In the current period, the investment in marketable software was $29.7 million compared with $36.7 million in the year-ago period, capital additions of properties were $12.0 million in 2021 compared with $10.6 million in 2020 and capital additions of outsourcing assets were $8.7 million in 2021 compared with $15.8 million in 2020.
Cash used for financing activities during the six months ended June 30, 2021 was $97.9 million compared to cash used of $412.5 million during the six months ended June 30, 2020. The decrease in cash used was principally due to higher redemptions of debt in the prior year period.
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 for the period covered by such projections 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 $48.7 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 six months ended June 30, 2021 and 2020, the company made cash contributions of $30.3 million and $329.9 million, respectively.
At June 30, 2021, total debt was $536.9 million compared to $629.9 million at December 31, 2020. The reduction was principally due to the conversion of the company’s 2021 Notes.
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.
The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility) that expires on October 29, 2025 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. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At June 30, 2021, the company had no borrowings and $5.7 million of letters of credit outstanding, and availability under the facility was $103.3 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 Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I, and Unify Square, Inc., each is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a
32
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 June 30, 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.
The company maintains a shelf registration statement with the Securities and Exchange Commission that covers the offer and sale of debt or equity securities. Subject to the company’s ongoing compliance with securities laws, the company may offer and sell debt and equity securities from time to time under the shelf registration statement. In addition, from time to time, the company may explore a variety of institutional debt and equity sources to fund its liquidity and capital needs.
The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the company’s assessment of its sensitivity to market risk since its disclosure in its 2020 Form 10-K.
Item 4. Controls and Procedures
The company’s management, with the participation of the company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on this evaluation, the company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the company’s disclosure controls and procedures are effective. Such evaluation did not identify any change in the company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
33
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to litigation is set forth in Note 15 of the Notes to Consolidated Financial Statements, and such information is incorporated herein by reference.
Item 1A. Risk Factors
There have been no significant changes to the “Risk Factors” in Part I, Item 1A of the company’s 2020 Form 10-K except for the risk factor relating to defined benefit pension plans which was changed in the company’s Form 10-Q for the quarterly period ended March 31, 2021.
CAUTIONARY STATEMENT PURSUANT TO THE U.S. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Risks and uncertainties that could cause the company’s future results to differ materially from those expressed in “forward-looking” statements include:
COVID-19
•uncertainty of the magnitude, duration and spread of the novel coronavirus (COVID-19) pandemic and the impact of COVID-19 and governments’ responses to it on the global economy and our business, growth, reputation, projections, financial condition, operations, cash flows and liquidity;
Implementation of Business Strategy in Information Technology Marketplace
•our ability to attract, motivate and retain experienced personnel in key positions;
•our ability to grow revenue and expand margin in our Digital Workplace Solutions and Cloud and Infrastructure Solutions businesses;
•our ability to maintain our installed base and sell new solutions;
•the potential adverse effects of aggressive competition in the information services and technology marketplace;
•our ability to effectively anticipate and respond to volatility and rapid technological innovation in our industry;
•our ability to retain significant clients and attract new clients;
•our contracts may not be as profitable as expected or provide the expected level of revenues;
•our ability to develop or acquire the capabilities to enhance the company’s solutions;
•the potential adverse effects of the concentration of the company’s business in the global commercial sector of the information technology industry;
Defined Benefit Pension Plans
•we have significant underfunded pension obligations;
Tax Assets
•our ability to use our net operating loss carryforwards and certain other tax attributes may be limited;
General Business Risks
•the risks of doing business internationally when a significant portion of our revenue is derived from international operations;
•the business and financial risk in implementing future acquisitions or dispositions;
•cybersecurity breaches could result in significant costs and could harm our business and reputation;
•the performance and capabilities of third parties with whom we have commercial relationships;
•a failure to meet standards or expectations with respect to the company’s environmental, social and governance practices;
•our ability to access financing markets;
•a reduction in our credit rating;
34
•the adverse effects of global economic conditions, acts of war, terrorism, natural disasters or the widespread outbreak of infectious diseases;
•the impact of Brexit could adversely affect the company’s operations in the United Kingdom as well as the funded status of the company’s U.K. pension plans;
•a significant disruption in our IT systems could adversely affect our business and reputation;
•we may face damage to our reputation or legal liability if our clients are not satisfied with our services or products;
•the potential for intellectual property infringement claims to be asserted against us or our clients; and
•the possibility that legal proceedings could affect our results of operations or cash flow or may adversely affect our business or reputation.
Other factors discussed in this report, although not listed here, also could materially affect our future results.
Item 6. Exhibits
See Exhibit Index
35
EXHIBIT INDEX
| Exhibit Number | Description | ||||
| Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 30, 2010) | |||||
| Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2011) | |||||
| Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2017) | |||||
| Bylaws of Unisys Corporation, as amended through May 10, 2019 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on May 15, 2019) | |||||
| Certification of Peter A. Altabef required by Rule 13a-14(a) or Rule 15d-14(a) | |||||
| Certification of Michael M. Thomson required by Rule 13a-14(a) or Rule 15d-14(a) | |||||
| Certification of Peter A. Altabef required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | |||||
| Certification of Michael M. Thomson required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | |||||
| 101 | The following financial information from Unisys Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Deficit, and (vi) Notes to Consolidated Financial Statements | ||||
| 104 | Cover page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL (Inline Extensible Business Reporting Language) document) | ||||
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNISYS CORPORATION | ||||||||
Date: August 2, 2021 | By: | /s/ Michael M. Thomson | ||||||
| Michael M. Thomson | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
37
Exhibit 31.1
CERTIFICATION
I, Peter A. Altabef, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Unisys Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2021
| /s/ Peter A. Altabef | ||||||||
| Name: | Peter A. Altabef | |||||||
| Title: | Chair and Chief Executive Officer | |||||||
Exhibit 31.2
CERTIFICATION
I, Michael M. Thomson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Unisys Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2021
| /s/ Michael M. Thomson | ||||||||
| Name: | Michael M. Thomson | |||||||
| Title: | Executive Vice President and Chief Financial Officer | |||||||
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
I, Peter A. Altabef, Chair and Chief Executive Officer of Unisys Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 2, 2021
| /s/ Peter A. Altabef | |||||
| Peter A. Altabef | |||||
| Chair and Chief Executive Officer | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF PERIODIC REPORT
I, Michael M. Thomson, Executive Vice President and Chief Financial Officer of Unisys Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 2, 2021
| /s/ Michael M. Thomson | |||||
| Michael M. Thomson | |||||
| Executive Vice President and Chief Financial Officer | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.