What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-22 · 103 added, 134 removed, 203 unchanged (54% of the section changed)

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(For a discussion of 2021 compared with 2020, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2021.)

During 2021, the company continued to execute its key strategies including revenue growth and gross profit margin improvement by expanding its solution portfolio organically and through strategic investments/acquisitions while managing the company’s workforce to attract and retain talent in this competitive market.

In 2021, revenue increased 1.4% and gross profit improved to 27.8%.

Refer to Results of Operations for more information on the company’s financial results.

In January 2021, to simplify and streamline the company’s operations and more effectively address evolving client needs, the company changed its organizational structure.

Refer to the Segment Results section for more information on the company’s reportable segments.

One of the key elements of the company’s strategy is to pursue acquisitions.

During 2021, the company completed three acquisitions to accelerate its pace of innovation and capitalize on growing and emerging markets.

In June and November, the company acquired Unify Square, Inc.

(Unify Square) and the Mobinergy group of companies (Mobinergy), respectively, to advance the company’s experience-focused Digital Workplace Solutions set and to deliver higher-value solutions to its clients.

In December, the company acquired CompuGain LLC (CompuGain) to enhance the company’s delivery of rapid and agile cloud migration, application modernization and data value realization to its clients.

The company funded the cash consideration and acquisition-related costs for all the acquisitions with cash on hand, see Note 4, “Acquisitions,” of the Notes to Consolidated Financial Statements for more information on each acquisition.

As disclosed in Note 3, “Recent accounting pronouncements,” of the Notes to Consolidated Financial Statements, the company expects to adopt Accounting Standards Update (ASU) No.

2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, effective January 1, 2022.

This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it originated the contracts.

Had the company decided to retrospectively adopt this ASU on January 1, 2021, the difference in the value applied to contract assets and contract liabilities would have been immaterial.

Additionally, as the company continues its efforts to further de-risk its balance sheet, during 2021 the company, through a combination of transfers, annuity purchase arrangements and lump sum payments, settled gross defined benefit pension plan liabilities of approximately $1.2 billion.

These actions resulted in pre-tax settlement losses of $499.4 million for the year ended December 31, 2021 related to the company’s plans in the Netherlands, the United States and Switzerland.

• In January 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 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 multi-client circle within a multi-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 pre-tax settlement loss of $182.5 million.

• In the second quarter of 2021, the company’s Swiss subsidiary transferred its defined benefit pension plan to a multiple-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 in 2021.

This action resulted in a pre-tax settlement loss of $28.8 million.

• On October 14, 2021, the company purchased a group annuity contract for $235 million to transfer projected benefit obligations related to approximately 6,900 retirees of the company’s U.S.

defined benefit pension plans.

This action resulted in a pre-tax settlement loss of $130.1 million.

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.

See Note 16, “Debt,” of the Notes to Consolidated Financial Statements for details on the conversion.

In 2022, the company recorded a net loss attributable to Unisys Corporation of $106.0 million, or $1.57 per diluted share, compared with a loss of $448.5 million, or $6.75 per diluted share, in 2021.

In 2022, the company recorded cost-reduction charges and other costs of $54.9 million compared with $23.2 million in 2021.

Included in the 2021 results were defined benefit pension plan settlement losses of $499.4 million compared with zero in 2022.

The provision for income tax comparison for 2022 compared with 2021 was impacted by a $51.5 million tax benefit recorded in 2021 related to the pension plan settlement losses compared with zero in 2022.

Results of operations

Company results

Revenue for 2021 was $2.05 billion compared with $2.03 billion for 2020, an increase of 1.4%.

Foreign currency fluctuations had a 2-percentage-point positive impact on revenue in the current year compared with the year-ago period.

Revenue from international operations for 2021 was $1.20 billion compared with $1.24 billion for 2020, a decrease of 3.7% principally due to decreases in Latin America and Asia/Pacific.

Foreign currency had a 3-percentage-point positive impact on international revenue in 2021 compared with 2020.

Revenue for 2022 was $1.98 billion compared with $2.05 billion for 2021, a decrease of 3.6%.

Foreign currency fluctuations had a 3.7-percentage-point negative impact on revenue in the current year compared with the year-ago period.

Revenue from international operations for 2022 was $1.13 billion compared with $1.20 billion for 2021, a decrease of 6.1% principally due to decreases in Europe and Asia/Pacific.

Foreign currency had a 6.4-percentage-point negative impact on international revenue in 2022 compared with 2021.

Revenue from U.S.

operations was $856.2 million for 2021 compared with $781.5 million for 2020, an increase of 9.6%.

operations was $854.9 million for 2022 compared with $856.2 million for 2021, a decrease of 0.2%.

During 2022, the company recognized cost-reduction charges and other costs of $54.9 million.

The net charges related to work-force reductions were $7.5 million, principally related to severance costs, and were comprised of:

(a) a charge of $12.3 million and (b) a credit of $11.9 million for changes in estimates.

In addition, the company recorded charges of $22.8 million comprised of $4.0 million for net foreign currency losses related to exiting foreign countries, $12.6 million for asset impairments and $6.2 million for other expenses related to cost-reduction efforts.

(a) a charge of $7.1 million and (b) a charge of $0.4 million for changes in estimates.

In addition, the company recorded net charges of $47.4 million comprised of $35.8 million for asset impairments, $8.7 million for other expenses related to cost-reduction efforts and $2.9 million for net foreign currency losses related to exiting foreign countries.

See Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements for details of the cost reduction activities.

During 2021, the company recognized cost-reduction charges and other costs of $23.2 million.

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(a) a charge of $12.3 million and (b) a credit of $11.9 million for changes in estimates.

In addition, the company recorded charges of $70.0 million comprised of $32.3 million for net foreign currency losses related to exiting foreign countries, $24.0 million for asset impairments and $13.7 million for other expenses related to cost-reduction efforts.

In addition, the company recorded charges of $22.8 million comprised of $12.6 million for asset impairments, $6.2 million for other expenses related to cost-reduction efforts and $4.0 million for net foreign currency losses related to exiting foreign countries.

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

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Total $ 54.9 $ 23.2

Gross profit margin was 27.8% in 2021 and 23.8% in 2020.

The increase in gross profit margin in 2021 was due in part to improvements in all the company’s segments driven by higher sales of the company’s enterprise software and improvements to efficiency.

Gross profit and gross profit margin were $529.6 million and 26.7% in 2022, respectively, and $572.0 million and 27.8% in 2021, respectively.

The decrease in gross profit and gross profit margin in 2022 was primarily due to higher cost-reduction charges in the current year compared with the year-ago period and the impact from non-strategic contracts exited in 2021.

Selling, general and administrative expenses were $453.2 million in 2022 (22.9% of revenue) and $389.5 million in 2021 (19.0% of revenue).

The increase was primarily due to increased investments in the company’s go-to-market efforts, primarily related to direct sales support and increases to non-cash-based compensation.

The change was primarily due to increased investments in marketing and higher cost-reduction charges and other expenses.

Research and development (R&D) expenses in 2022 were $24.2 million compared with $28.5 million in 2021.

In 2022, the company reported an operating profit of $52.2 million compared with an operating profit of $154.0 million in 2021.

The increase in 2021 was due in part by improvements in all the company’s segments driven by higher sales of the company’s enterprise software and improvements to efficiency.

The decrease in 2022 was primarily driven by increased investments in marketing and higher cost-reduction charges and other non-recurring expenses.

Interest expense was $32.4 million in 2022 compared with $35.4 million in 2021.

The increase was principally due to the issuance of the 6.875% senior secured notes due 2027 in October 2020.

Other (expense), net was expense of $82.4 million in 2022 compared with expense of $580.3 million in 2021.

Other (expense), net in 2021 includes $499.4 million of pension settlement losses compared with $142.1 million in 2020.

Other (expense), net in 2021 includes $499.4 million of pension settlement losses.

See Note 7, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense for 2021 was $553.9 million compared with $235.3 million in 2020.

The increase in 2021 was principally due to $499.4 million of settlement losses in 2021 related to defined benefits plans in the Netherlands, the United States and Switzerland compared to a $142.1 million settlement loss in 2020 related to U.S.

defined benefit pension plans.

Pension expense in 2022 was $47.1 million compared with $553.9 million in 2021.

Pension expense in 2021 included $499.4 million of settlement losses related to defined benefits plans in the Netherlands, the United States and Switzerland.

See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements for details of the settlement losses.

The loss from continuing operations before income taxes in 2021 was $461.7 million compared with a loss of $271.8 million in 2020.

Included in the loss in 2021 and 2020 was $499.4 million and $142.1 million, respectively, of settlement losses related to

the company’s defined benefit pension plans as well as $23.2 million and $95.5 million of cost reduction charges in 2021 and 2020, respectively.

The benefit for income taxes in 2021 was $11.9 million compared with a provision of $45.4 million in 2020.

The current period includes income tax benefits of $51.5 million related to the pension plan settlement losses in the Netherlands and Switzerland.

In addition, in June 2021 the UK enacted an income tax rate increase from 19% to 25% for the fiscal year beginning April 1, 2023.

The UK rate increase resulted in a deferred tax benefit of $17.7 million in 2021.

The loss from continuing operations before income taxes in 2022 was $62.6 million compared with a loss of $461.7 million in 2021, which included $499.4 million of settlement losses related to the company’s defined benefit pension plans.

Additionally, 2022 was impacted by investments in marketing and higher cost-reduction charges and other non-recurring expenses.

The provision for income taxes in 2022 was $42.3 million compared with a benefit of $11.9 million in 2021.

The change in the tax provision (benefit) is described below.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary.

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Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments.

It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States.

As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination.

It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months.

Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period’s earnings.

Net loss from continuing operations attributable to Unisys Corporation for 2021 was $448.5 million, or $6.75 per diluted share, compared with $317.7 million, or $5.05 per diluted share in 2020.

Included in the loss in 2021 and 2020 was $447.9 million and $142.1 million, respectively, of after tax settlement losses related to the company’s defined benefit pension plans.

Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in that period and could have a significant impact on that period’s earnings.

As a result of its projections of future taxable income during 2022, the company has determined that a portion of its non-U.S.

net deferred tax assets no longer requires a valuation allowance.

The net change in the valuation allowances impacting the effective tax rate in 2022 was approximately $9.8 million of a tax benefit, primarily in the United Kingdom and other foreign jurisdictions.

The benefit from income tax benefits in 2021 included $51.5 million related to the pension plan settlement losses in the Netherlands and Switzerland.

In addition, in June 2021, the UK enacted an income tax rate increase from 19% to 25% for the fiscal year beginning April 1, 2023.

The UK rate increase resulted in a deferred tax benefit of $17.7 million in 2021.

Net loss from continuing operations attributable to Unisys Corporation for 2022 was $106.0 million, or $1.57 per diluted share, compared with a net loss of $448.5 million, or $6.75 per diluted share in 2021.

Included in the loss in 2021 was $447.9 million of after tax settlement losses related to the company’s defined benefit pension plans.

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 January 2022, the company changed the grouping of certain immaterial revenue streams.

As a result, certain prior period segment revenue as well as the related cost of sales amounts have been reclassified to be comparable to the current period’s presentation.

In addition, during 2022, the company renamed its Cloud and Infrastructure Solutions segment as Cloud, Applications & Infrastructure 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 solutions that transform digital workplaces securely and create exceptional end-user experiences;

• Cloud and Infrastructure Solutions (C&I), which provides solutions that drive modern IT service platforms, cloud applications development, intelligent services, and cybersecurity services;

• Digital Workplace Solutions (DWS), which provides modern and traditional workplace solutions;

• Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital platform, applications, and infrastructure solutions;

• Enterprise Computing Solutions (ECS), which provides solutions that harness secure, continuous high-intensity computing and enable digital services through software-defined operating environments.

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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 software and hardware shipments to customers under contracts of other segments.

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 (loss), 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.

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 software and hardware 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 years ended December 31, 2021 and 2020 was $1.4 million and $7.8 million, respectively.

The sale and profit on these transactions is eliminated in Corporate.

The company evaluates segment performance based on gross profit exclusive of the service costs component of postretirement income or expense, restructuring charges, amortization of purchased intangible and unusual and nonrecurring items, which are included in Corporate.

Effective for 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.

The amount of such profit included in gross profit of the ECS segment for the year ended December 31, 2021 was $1.4 million.

The sale and profit on these transactions is eliminated in consolidation.

The company evaluates segment performance based on gross profit exclusive of the service costs component of postretirement income or expense, restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items, which are included in other gross profit.

Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes.

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Information by reportable segment is presented below:

(millions) Total Segments DWS C&I ECS

(millions) Total Segments DWS CA&I ECS

Customer revenue $ 1,699.9 $ 509.9 $ 520.3 $ 669.7

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DWS revenue was $509.9 million in 2022 and $574.5 million in 2021.

Revenue in 2021 was negatively impacted as the company exited certain non-strategic contracts that were not aligned to its targeted margin profile.

Foreign currency fluctuations had a 2-percentage-point positive impact on DWS revenue in 2021 compared with 2020.

Revenue in 2022 was negatively impacted by the run-off effect of certain non-strategic contracts that the company exited in 2021.

Foreign currency fluctuations had a 3.9-percentage-point negative impact on DWS revenue in 2022 compared with 2021.

Gross profit percent was 14.0% in 2022 and 13.8% in 2021.

The increase in gross profit in 2021 compared with 2020 was due in part to improvements in efficiency as well as the company’s focus on higher margin solutions.

C&I revenue was $496.5 million in 2021 and $465.2 million in 2020.

The increase in revenue in 2021 compared with 2020 was driven by continued momentum with public sector clients as well as other highly-regulated industries.

Foreign currency fluctuations had a 2-percentage-point positive impact on C&I revenue in 2021 compared with 2020.

CA&I revenue was $520.3 million in 2022 and $485.6 million in 2021.

The increase in revenue in 2022 compared with 2021 was driven by expansion of the digital platforms and applications solutions and acquired application development solutions.

Foreign currency fluctuations had a 2.2-percentage-point negative impact on CA&I revenue in 2022 compared with 2021.

Gross profit percent was 9.1% in 2022 and 9.7% in 2021.

The increase in gross profit in 2021 compared with 2020 was due in part to improvements in efficiency.

The decrease in gross profit percent in 2022 compared with 2021 was primarily due to additional expense associated with certain contract exits and higher labor costs.

ECS revenue was $669.7 million in 2022 and $685.7 million in 2021.

Foreign currency fluctuations had a 2 percentage-point positive impact on ECS revenue in 2021 compared with 2020.

Foreign currency fluctuations had a 2.4 percentage-point negative impact on ECS revenue in 2022 compared with 2021.

Gross profit percent was 64.5% in 2022 and 63.4% in 2021.

The increase in revenue and gross profit in 2021 compared with 2020 was due to higher sales of the company’s enterprise software.

New accounting pronouncements

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As of December 31, 2022, $274.0 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.

The company may not be able to readily transfer approximately 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.

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See Note 8, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

During 2021, cash provided by operating activities was $132.5 million compared with cash used for operations of $681.2 million during 2020.

The operating cash improvement in 2021 was principally due to lower cash contributions to the company’s postretirement plans of $56.4 million in 2021 compared to $832.2 million in 2020.

Cash used for investing activities during 2021 was $360.3 million compared with cash provided by investing activities of $1,041.6 million during 2020.

During 2021, the company purchased Unify Square, Mobinergy and CompuGain for cash of $239.3 million.

See Note 4, “Acquisitions,” of the Notes to Consolidated Financial Statements for further information on each acquisition.

On March 13, 2020, the company sold its U.S.

Federal business and received net cash proceeds of $1,162.9 million.

Net purchases of investments were $19.9 million in 2021 compared with net proceeds of $9.3 million in 2020.

During 2022, cash provided by operating activities was $12.7 million compared with cash provided by operations of $132.5 million during 2021.

The decline in operating cash in 2022 was primarily driven by the change in accounts receivable.

Cash used for investing activities during 2022 was $131.4 million compared with cash used for by investing activities of $360.3 million during 2021.

Cash usage during 2021, included $239.3 million for acquisitions.

Net purchases of investments were $44.3 million in 2022 compared with net purchases of $19.9 million in 2021.

Proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates.

In addition, capital additions of properties were $31.0 million in 2022 compared with $27.3 million in 2021, capital additions of outsourcing assets were $8.6 million in 2022 compared with $18.5 million in 2021 and the investment in marketable software was $46.3 million in 2022 compared with $54.4 million in 2021.

Cash used for financing activities during 2021 was $105.5 million compared with cash provided by financing activities of $5.1 million during 2020.

The cash used in 2021 was principally due to the convertible notes exchange.

The American Rescue Plan Act, which was signed into law in the U.S.

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, the company was not required to make cash contributions in 2021 to its U.S.

qualified defined benefit pension plans and did not make the previously-contemplated voluntary $200 million contribution to its U.S.

pension plans in 2021.

Based on year-end 2021 pension data and actuarial assumptions, which are likely to change in the future, the company is not expected to be required to make future cash contributions to its U.S.

qualified defined benefit pension plans for at least the next 10 years.

Any future material deterioration in the value of the company’s U.S.

Cash used for financing activities during 2022 was $21.6 million compared with cash used for financing activities of $105.5 million during 2021.

The decrease in cash used in 2022 was principally due to redemptions of debt in the prior year period.

At the end of each year, the company estimates its future cash contributions to its U.S.

qualified defined benefit pension plans based on year-end pension data and assumptions.

Any 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 that are not currently expected.

qualified defined benefit pension plans.

Based upon our most current estimates as of December 31, 2022, the company does not expect to make mandatory cash contributions to its U.S.

qualified defined benefit pension plans until 2025.

In the first quarter of 2023, the company expects to sign an agreement with an insurance company to purchase, with plan assets, a group annuity contract to transfer approximately $250 million of projected benefit obligations related to approximately 8,600 retires of the company’s U.S.

defined benefit pension plans.

This action is expected to result in a first quarter 2023 non-cash pre-tax settlement loss of approximately $200 million.

As described in Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements, the company expects to make cash contributions of approximately $40 million in 2023, primarily for its international defined benefit pension plans compared with cash contributions of $39.3 million in 2022.

At December 31, 2022, total debt was $513.1 million compared with $529.4 million at December 31, 2021.

The reduction is primarily due to the conversion of the company’s 2021 Notes, which is described below.

See Note 16, “Debt,” of the Notes to Consolidated Financial Statements for more detailed discussion of the company’s debt financing agreements including maturities by fiscal year.

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As of December 31, 2022, the company’s operating lease liabilities were $55.7 million.

The company also have a number of finance leases for equipment, with lease liabilities totaling $2.7 million as of December 31, 2021.

The company also has a number of finance leases for equipment, with lease liabilities totaling $1.1 million as of December 31, 2022.

See Note 6, “Leases and commitments,” of the Notes to Consolidated Financial Statements for more information pertaining to future minimum lease payments relating to the company’s operating and finance lease obligations.

Additionally as described in Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $14.9 million in 2022 related to the company’s work-force reduction actions and the company expects to make payments of approximately $1.4 million beyond 2022.

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 of such notes (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) 4,537,123 shares of the company’s common stock in the aggregate.

Additionally, as described in Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $11.7 million in 2023 related to the company’s work-force reduction actions.

In March 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) 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.

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At December 31, 2022, the company had no borrowings and $6.3 million of letters of credit outstanding, and availability under the facility was $67.9 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, CompuGain LLC and CompuGain Public Services, LLC, each of which is a U.S.

corporation or limited liability company that is directly or indirectly owned by the company (the subsidiary guarantors).

Any borrowings under the facility will be subject to variable interest rates.

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 Restated 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.

and Unisys AP Investment Company I, each of which is a U.S.

corporation that 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 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.

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On the basis of experience with these arrangements, the company believes that any obligations that may arise will not be material.

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 has explored, and expects to continue to explore, a variety of debt and equity sources to fund its liquidity and capital needs.

From time to time the company may explore a variety of additional 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.

The company does not have any off-balance sheet arrangements that are material or reasonably likely to become material to its financial condition or results of operations

Critical accounting policies and estimates

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however, some agreements contain multiple performance obligations or non-standard terms and conditions.

As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may include any combination of hardware, software or services.

As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may

include any combination of hardware, software or services.

As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how many performance obligations are present in an arrangement, whether they should be treated as separate performance obligations and when to recognize revenue and under what method for each performance obligation.

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See “Item 1A.

Risk Factors.” It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States.

It is reasonably possible that such changes could result in a material impact to the Company’s valuation allowance within the next 12 months.

Risk Factors.” The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their 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 refundable tax credits and withholding taxes not creditable against future taxable income.

As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

Internal Revenue Code Sections 382 and 383 provide annual limitations with respect to the ability of a corporation to utilize its net operating loss (as well as certain built-in losses) and tax credit carryforwards, respectively (Tax Attributes), against future U.S.

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The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries.

These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential

future events such as demographic experience.

These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential future events such as demographic experience.

The assumptions used in developing the required estimates include the following key factors:

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A change of 25 basis points in the U.S.

discount rates causes a change in 2022 pension expense of approximately $1 million and $200 thousand, respectively, and a change of approximately $83 million and $102 million, respectively, in the benefit obligation.

discount rates causes a change in 2023 pension expense of approximately $400 thousand and $400 thousand, respectively, and a change of approximately $51 million and $46 million, respectively, in the benefit obligation.

These estimates are intended to be illustrative based on a single 25 basis point change.

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Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions.

Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension cost of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension expense for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets.

If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants.

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pension plans was $1.80 billion and $800 million, respectively.

For the year ended December 31, 2021, the company recognized consolidated pension expense of $553.9 million (which includes $499.4 million settlement losses), compared with $235.3 million for the year ended December 31, 2020 (which includes a $142.1 million settlement loss).

For the year ended December 31, 2022, the company recognized consolidated pension expense of $47.1 million compared with $553.9 million for the year ended December 31, 2021 (which includes a $499.4 million settlement losses).

For 2023, the company expects to recognize pension expense of approximately $41.5 million.

See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements.

The company tests goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable.

The company reviews goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events) which indicate that the carrying amount may not be recoverable.

The company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

This qualitative assessment considers all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and relevant entity-specific events.

If, after completing the qualitative assessment, the company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company proceeds to perform a subsequent quantitative goodwill impairment test.

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It is reasonably possible that the judgments and estimates described above could change in future periods.

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 quantitative goodwill impairment test 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.

As a result of the realignment, goodwill totaling $108.6 million was reallocated as follows:

ECS, $98.3 million and Other, $10.3 million.

Goodwill by reporting unit at December 31, 2021, was as follows (dollars in millions):

During the fourth quarter of 2022, the company performed a quantitative goodwill impairment test for each reporting unit.

The quantitative assessment indicated that each reporting unit’s fair value exceeded its carrying value, as such no impairment charge was recognized as of December 31, 2022.

We estimated the fair value of the reporting units using a combination of discounted cash flows and market-based valuation methodologies as noted above.

These methodologies involve significant assumptions that are subject to variability.

Based on the annual impairment analysis performed during the fourth quarter of 2022, the reporting unit that was closest to impairment was the CA&I reporting unit with fair value in excess of book value, including goodwill, of 6%.

All other reporting units had a fair value substantially in excess of book value.

The company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S.

treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the company’s market capitalization, and general industry, market and macro-economic conditions.

It is possible that future changes in such circumstances or in the inputs and assumptions used in estimating the fair value of the reporting units, could require the company to record a non-cash impairment charge.

Goodwill by reporting unit at December 31, 2022, was as follows:

Reporting unit Carrying Amount

Total $ 287.1

After performing the annual goodwill impairment qualitative analysis during the fourth quarter of 2021, the company determined it was not necessary to perform the quantitative goodwill impairment test.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis