UIS 10-Q

Unisys Corp (UIS)

10-Q 2020-10-27 For: 2020-09-30

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Delaware						38-0387840
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01	UIS	New York Stock Exchange


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


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


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


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			Unisys Corporation
	Total		Total Unisys Corporation		Common Stock Par Value		Accumu-lated Deficit		Treasury Stock At Cost		Paid-in Capital		Accumu-lated Other Compre-hensive Loss		Non-controlling Interests
Balance at December 31, 2019	$	(1,228.3)	$	(1,265.4)	$	0.7	$	(1,711.2)	$	(109.6)	$	4,643.3	$	(4,088.6)	$	37.1
Consolidated net income	1,015.8		1,015.3				1,015.3								0.5
Stock-based activity	(0.5)		(0.5)						(4.6)		4.1
Translation adjustments	(87.6)		(81.6)										(81.6)		(6.0)
Postretirement plans	91.2		87.5										87.5		3.7
Balance at March 31, 2020	$	(209.4)	$	(244.7)	$	0.7	$	(695.9)	$	(114.2)	$	4,647.4	$	(4,082.7)	$	35.3
Consolidated net loss	(78.6)		(78.6)				(78.6)
Stock-based activity	2.9		2.9						(0.1)		3.0
Translation adjustments	6.4		6.5										6.5		(0.1)
Postretirement plans	40.0		39.6										39.6		0.4
Balance at June 30, 2020	$	(238.7)	$	(274.3)	$	0.7	$	(774.5)	$	(114.3)	$	4,650.4	$	(4,036.6)	$	35.6
Consolidated net loss	(12.9)		(12.9)				(12.9)
Stock-based activity	3.0		3.0						(0.1)		3.1
Translation adjustments	40.1		38.6										38.6		1.5
Postretirement plans	8.2		7.7										7.7		0.5
Balance at September 30, 2020	$	(200.3)	$	(237.9)	$	0.7	$	(787.4)	$	(114.4)	$	4,653.5	$	(3,990.3)	$	37.6


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


	Total		U.S.		International
Balance at December 31, 2019	$	49.8	$	5.2	$	44.6
Additional provisions	14.0		4.0		10.0
Payments	(17.7)		(2.3)		(15.4)
Changes in estimates	(7.8)		—		(7.8)
Translation adjustments	0.7		—		0.7
Balance at September 30, 2020	$	39.0	$	6.9	$	32.1
Expected future utilization on balance at September 30, 2020:
2020 remaining three months	$	9.1	$	5.6	$	3.5
Beyond 2020	$	29.9	$	1.3	$	28.6


	Three Months Ended September 30, 2020										Three Months Ended September 30, 2019
	Total		U.S. Plans		International Plans		Total		U.S. Plans		International Plans
Service cost⁽ⁱ⁾	$	0.8	$	—	$	0.8	$	0.7	$	—	$	0.7
Interest cost	54.1		40.6		13.5		66.1		49.6		16.5
Expected return on plan assets	(75.0)		(52.1)		(22.9)		(80.1)		(54.7)		(25.4)
Amortization of prior service benefit	(1.3)		(0.6)		(0.7)		(1.2)		(0.6)		(0.6)
Recognized net actuarial loss	44.8		33.8		11.0		37.9		29.6		8.3
Net periodic pension expense (benefit)	$	23.4	$	21.7	$	1.7	$	23.4	$	23.9	$	(0.5)


	Nine Months Ended September 30, 2020										Nine Months Ended September 30, 2019
	Total		U.S. Plans		International Plans		Total		U.S. Plans		International Plans
Service cost⁽ⁱ⁾	$	2.2	$	—	$	2.2	$	2.1	$	—	$	2.1
Interest cost	161.7		121.8		39.9		199.3		148.1		51.2
Expected return on plan assets	(224.0)		(156.4)		(67.6)		(242.2)		(163.7)		(78.5)
Amortization of prior service benefit	(3.8)		(1.9)		(1.9)		(3.7)		(1.9)		(1.8)
Recognized net actuarial loss	133.8		101.6		32.2		113.1		87.5		25.6
Net periodic pension expense (benefit)	$	69.9	$	65.1	$	4.8	$	68.6	$	70.0	$	(1.4)


⁽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).


	Restricted Stock Units	Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2019	2,040	$	14.17
Granted	747	22.45
Vested	(940)	13.80
Forfeited and expired	(116)	15.88
Outstanding at September 30, 2020	1,731	17.84


⁽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


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


	Nine Months Ended September 30,
	2020			2019
Weighted-average fair value of grant	$	28.33		$	16.58
Risk-free interest rate⁽ⁱ⁾	1.35		%	2.49		%
Expected volatility⁽ⁱⁱ⁾	51.81		%	47.91		%
Expected life of restricted stock units in years⁽ⁱⁱⁱ⁾	2.86			2.87
Expected dividend yield	—		%	—		%


⁽ⁱ⁾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.


	September 30, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt:
5.50% convertible senior notes due 2021	$	82.7	$	100.9	$	80.0	$	115.8


	September 30, 2020		December 31, 2019
Contract assets - current	$	47.0	$	38.4
Contract assets - long-term⁽ⁱ⁾	21.3		21.6
Deferred revenue - current	(197.4)		(246.4)
Deferred revenue - long-term	(122.5)		(147.0)


	September 30, 2020		December 31, 2019
Balance Sheet Location
Prepaid expenses and other current assets	$	3.2	$	2.1
Other accrued liabilities	0.5		0.1
Total fair value	$	2.7	$	2.0


	September 30, 2020		December 31, 2019
10.75% senior secured notes ($440.0 million face value less unamortized discount and fees of $5.5 million at December 31, 2019)	$	—	$	434.5
5.50% convertible senior notes due March 1, 2021 (Face value of $84.2 million less unamortized discount and fees of $1.5 million and $4.2 million at September 30, 2020 and December 31, 2019, respectively)	82.7		80.0
Finance leases	6.0		5.3
Other debt	59.7		59.6
Total	148.4		579.4
Less – current maturities	100.0		13.5
Total long-term debt	$	48.4	$	565.9


	Total		Translation Adjustments		Postretirement Plans
Balance at December 31, 2019	$	(4,088.6)	$	(872.9)	$	(3,215.7)
Other comprehensive income (loss) before reclassifications	(8.2)		(18.7)		10.5
Amounts reclassified from accumulated other comprehensive income	106.5		(17.8)		124.3
Current period other comprehensive income	98.3		(36.5)		134.8
Balance at September 30, 2020	$	(3,990.3)	$	(909.4)	$	(3,080.9)


⁽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).


	Total		Corporate		Services		Technology
Three Months Ended September 30, 2020
Customer revenue	$	495.2	$	—	$	426.0	$	69.2
Intersegment	—		(6.0)		—		6.0
Total revenue	$	495.2	$	(6.0)	$	426.0	$	75.2
Operating income (loss)	$	27.7	$	(17.9)	$	20.7	$	24.9

Three Months Ended September 30, 2019
Customer revenue	$	552.1	$	—	$	478.8	$	73.3
Intersegment	—		(2.3)		—		2.3
Total revenue	$	552.1	$	(2.3)	$	478.8	$	75.6
Operating income (loss)	$	49.4	$	(0.1)	$	17.7	$	31.8

Nine Months Ended September 30, 2020
Customer revenue	$	1,449.4	$	—	$	1,247.9	$	201.5
Intersegment	—		(10.9)		—		10.9
Total revenue	$	1,449.4	$	(10.9)	$	1,247.9	$	212.4
Operating income (loss)	$	39.3	$	(33.9)	$	5.1	$	68.1

Nine Months Ended September 30, 2019
Customer revenue	$	1,676.0	$	—	$	1,433.8	$	242.2
Intersegment	—		(6.8)		—		6.8
Total revenue	$	1,676.0	$	(6.8)	$	1,433.8	$	249.0
Operating income (loss)	$	127.6	$	(9.1)	$	25.3	$	111.4


	Total			Eliminations		Services			Technology
Three Months Ended September 30, 2020
Customer revenue	$	495.2		$	—	$	426.0		$	69.2
Intersegment	—			(6.0)		—			6.0
Total revenue	$	495.2		$	(6.0)	$	426.0		$	75.2
Gross profit percent	24.2		%			19.0		%	59.7		%
Operating profit (loss) percent	5.6		%			4.9		%	33.1		%

Three Months Ended September 30, 2019
Customer revenue	$	552.1		$	—	$	478.8		$	73.3
Intersegment	—			(2.3)		—			2.3
Total revenue	$	552.1		$	(2.3)	$	478.8		$	75.6
Gross profit percent	25.4		%			18.2		%	66.4		%
Operating profit (loss) percent	8.9		%			3.7		%	42.1		%


Gross profit and operating profit percent are as a percent of total revenue.


	Three Months Ended September 30,						Percent Change
	2020		2019
Services
Cloud & infrastructure services	$	294.1	$	325.4	(9.6)	%
Application services	91.1		93.5		(2.6)	%
Business process outsourcing services	40.8		59.9		(31.9)	%
	426.0		478.8		(11.0)	%
Technology	69.2		73.3		(5.6)	%
Total	$	495.2	$	552.1	(10.3)	%



Exhibit Number			Description

3.1			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)

3.2			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)

3.3			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)

3.4			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)

31.1			Certification of Peter A. Altabef required by Rule 13a-14(a) or Rule 15d-14(a)

31.2			Certification of Michael M. Thomson required by Rule 13a-14(a) or Rule 15d-14(a)

32.1			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

32.2			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, 2020 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)



	UNISYS CORPORATION

Date: October 27, 2020	By:	/s/ Michael M. Thomson
		Michael M. Thomson
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)