What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-26 · 105 added, 84 removed, 222 unchanged (46% of the section changed)

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In 2024, the company recorded a net loss attributable to Unisys Corporation of $193.4 million, or $2.79 per diluted share, compared with a loss of $430.7 million, or $6.31 per diluted share, in 2023.

Included in the 2023 results were defined benefit pension plan settlement losses of $348.9 million compared with zero in 2022.

During 2023, the company purchased two group annuity contracts, with pension plan assets, for approximately $516 million to transfer projected benefit obligations related to approximately 12,550 retirees of the company’s U.S.

The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of defined benefit pension plan settlement losses.

The net loss in 2024 included a goodwill impairment charge of $39.1 million within the Digital Workplace Solutions (DWS) reportable segment and a tax provision established for certain foreign subsidiaries of $27.3 million as the company is no longer asserting indefinite reinvestment of the earnings of those foreign subsidiaries.

During 2024, the company purchased a group annuity contract, with plan assets, for approximately $192 million to transfer projected benefit obligations related to one of the company’s U.S.

defined benefit pension plans.

As a result of these actions, the company recorded pre-tax settlement losses of $348.2 million for the year ended December 31, 2023.

Additionally in 2023, the company recorded cost-reduction charges and other costs of $9.3 million compared with $54.9 million in 2022.

This action resulted in a pre-tax settlement loss of $130.1 million in 2024.

During 2023, the company purchased two group annuity contracts, with pension plan assets, for approximately $516 million to transfer projected benefit obligations related to the company’s U.S.

defined benefit pension plans.

These actions resulted in pre-tax settlement losses of $348.2 million in 2023.

Results of operations

Company results

Revenue for 2023 was $2.02 billion compared with $1.98 billion for 2022, an increase of 1.8%.

Revenue for 2024 was $2.01 billion compared with $2.02 billion for 2023, a decrease of 0.3%.

Foreign currency fluctuations had a negligible impact on revenue in 2024 compared with 2023.

Revenue from international operations for both 2023 and 2022 was $1.13 billion.

Revenue from international operations for 2024 was $1.14 billion compared with $1.13 billion for 2023, an increase of 1.6%.

Foreign currency had a negligible impact on international revenue in 2024 compared with 2023.

Revenue from U.S.

operations was $889.0 million for 2023 compared with $854.9 million for 2022, an increase of 4.0%.

operations was $864.1 million for 2024 compared with $889.0 million for 2023, a decrease of 2.8%.

During 2024, the company recognized cost-reduction charges and other costs of $20.6 million.

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(a) a charge of $23.7 million and (b) a credit of $10.2 million for changes in estimates.

In addition, the company recorded net charges of $1.0 million comprised of charges of $4.7 million primarily related to professional fees and other expenses related to cost-reduction efforts and a credit of $3.7 million for net foreign currency gains related to exiting foreign countries.

See Note 4, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements for details of the cost reduction activities.

In addition, the company recorded net charges of $7.1 million comprised of a charge of $4.4 million for an asset impairment, a charge of $2.6 million for net foreign currency losses related to exiting foreign countries and a net charge of $0.1 million for other expenses and changes in estimates related to other cost-reduction efforts.

During 2023, the company recognized cost-reduction charges and other costs of $9.3 million.

The net charges related to workforce reductions were $8.3 million, principally related to severance costs, and were comprised of:

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

In addition, the company recorded 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.

(a) a charge of $15.2 million and (b) a credit of $6.9 million for changes in estimates.

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

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Gross profit and gross profit margin were $585.9 million and 29.2% in 2024, respectively, and $551.3 million and 27.4% in 2023, respectively.

The increase in gross profit and gross profit margin in 2023 were primarily due lower cost reduction charges in 2023 and gross profit improvement in the Cloud, Applications & Infrastructure Solutions (CA&I) segment, partially offset by lower gross profit in Enterprise Computing Solutions (ECS) segment.

The increases in gross profit and gross profit margin in 2024 were primarily due to delivery modernization

and labor cost savings initiatives, partially offset by higher cost reduction charges in 2024.

Prior year gross profit margin was negatively impacted by certain adjustments related to a previously exited contract.

Selling, general and administrative expenses were $424.2 million in 2024 (21.1% of revenue) and $450.3 million in 2023 (22.3% of revenue).

The decrease was primarily driven by lower professional services.

Research and development (R&D) expenses in 2024 were $25.2 million compared with $24.1 million in 2023.

In 2024, the company reported an operating profit of $97.4 million compared with an operating profit of $76.9 million in 2023.

The increase in 2023 was primarily driven by higher gross profit as discussed above.

The increase in 2024 was primarily driven by higher gross profit and lower selling, general and administrative expenses as discussed above, partially offset by a goodwill impairment charge of $39.1 million related to the DWS reportable segment.

See Note 1, “Summary of significant accounting policies” of the Notes to Consolidated Financial Statements for details on the goodwill impairment.

Interest expense was $31.9 million in 2024 compared with $30.8 million in 2023.

Other (expense), net was expense of $140.8 million in 2024 compared with expense of $393.9 million in 2023.

Other (expense), net in 2023 includes $348.9 million of pension settlement losses.

Other (expense), net in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of pension settlement losses.

Additionally, other (expense), net in 2024 included a gain of $40.0 million related to a favorable settlement of a litigation matter and a net gain of $14.9 million related to a favorable judgment received in a Brazilian services tax matter.

See Note 6, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense in 2024 was $182.8 million compared with $391.3 million in 2023.

Pension expense in 2023 included $348.9 million of settlement losses primarily related to the company’s U.S.

Pension expense in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses primarily related to the company’s U.S.

defined benefits plans.

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The loss before income taxes in 2024 was $75.3 million compared with a loss of $347.8 million in 2023.

Included in the loss in 2023 were $348.9 million of settlement losses related to the company’s defined benefit pension plans.

The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses related to the company’s defined benefit pension plans.

Additionally, the loss before income taxes in 2024 included a goodwill impairment charge of $39.1 million related to the DWS reportable segment.

The provision for income taxes in 2024 was $117.9 million compared with a provision of $79.3 million in 2023.

The change in the tax provision is described below.

The change in the tax provision was primarily driven by a provision of $27.3 million established for certain foreign subsidiaries for which the company is no longer asserting indefinite reinvestment of earnings, the geographic distribution of income and the net change in the valuation allowances of approximately $7.9 million, primarily in the United Kingdom.

The effective tax rate in 2024 and 2023 was (156.6)% and (22.8)%, respectively, primarily driven by U.S.

operating losses with no tax benefit as the deferred tax assets are subject to a full valuation allowance and non-creditable withholding taxes in the U.S.

and jurisdictions with no valuation allowance that are subject to tax.

Additionally, the effective tax rate in 2024 was impacted by a change in the company’s indefinite reinvestment assertion of the earnings in certain foreign subsidiaries.

See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements for further details.

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.

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.

During 2023, the company determined that a portion of its non-U.S.

During 2024 and 2023, the company determined that a portion of its non-U.S.

net deferred tax assets required an additional valuation allowance.

The net change in the valuation allowance impacting the effective tax rate in 2023 was approximately $2.1 million, primarily in Latin America.

During 2022, the company determined that a portion of its non-U.S.

net deferred tax assets no longer required 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 net change in the valuation allowance impacting the effective tax rate in 2024 was approximately $7.9 million, primarily in the United Kingdom, and in 2023, the net change was approximately $2.1 million, primarily in Latin America.

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.

In 2021, the Organization for Economic Cooperation and Development introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two, effective January 1, 2024, and onward.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar Two, certain countries in which the company operates have adopted legislation, and other countries are in the process of introducing legislation to implement this minimum tax directive.

Pillar Two is not expected to have a material effect on the company’s global effective tax rate and its consolidated financial statements.

Net loss attributable to Unisys Corporation for 2023 was $430.7 million, or $6.31 per diluted share, compared with a net loss of $106.0 million, or $1.57 per diluted share in 2022.

Included in the loss in 2023 was $348.9 million of after-tax settlement losses related to the company’s defined benefit pension plans.

will enact legislation to adopt Pillar Two, certain countries in which the company operates have adopted such legislation, and other countries are in the process of introducing legislation to implement this minimum tax directive.

Pillar Two did not have a material effect on the company’s global effective tax rate and its consolidated financial statements.

The net loss attributable to Unisys Corporation for 2024 was $193.4 million, or $2.79 per diluted share, compared with a net loss of $430.7 million, or $6.31 per diluted share in 2023.

The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses, net of tax, related to the company’s defined benefit pension plans.

Additionally, the net loss in 2024 included a goodwill impairment charge of $39.1 million related to the DWS reportable segment and a tax provision of $27.3 million established for certain foreign subsidiaries for which the company is no longer asserting indefinite reinvestment of earnings.

Segment results

The company’s reportable segments are as follows:

• 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.

The accounting policies of each segment are the same as those followed by the company as a whole.

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.

The expense or income related to corporate assets and centrally incurred costs are allocated to the business segments.

See Note 20, “Segment information,” of the Notes to Consolidated Financial Statements.

• Digital Workplace Solutions (DWS), which provides workplace solutions featuring intelligent workplace services, proactive experience management and collaboration tools to support business growth;

• Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital transformation in the areas of cloud migration and management, applications and infrastructure transformation and modernization solutions;

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

The company evaluates the performance of the segments based on segment revenue and segment gross profit.

Segment revenue and segment gross profit are exclusive of certain activities and expenses that are not allocated to specific segments related to certain non-core business activities including the company’s business process solutions, which primarily provides for the management of processes and functions for clients in select industries, and a U.K.

business process outsourcing consolidated joint venture.

Additionally, certain expenses such as restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items are not allocated to specific segments.

These amounts are combined within other revenue and other gross profit (loss) to arrive at consolidated revenue and consolidated gross profit (loss).

See Note 20, “Segment information,” of the Notes to Consolidated Financial Statements for the reconciliations of segment revenue to total consolidated revenue and segment gross profit to total consolidated loss before income taxes.

Information by reportable segment is presented below:

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32.2 % 14.0 % 15.4 % 61.2 %

DWS revenue was $546.1 million in 2023 and $509.9 million in 2022.

The increase in revenue in 2023 was primarily driven by new business with existing clients.

DWS revenue was $523.5 million in 2024 and $546.1 million in 2023, a decrease of 4.1%.

The decline in revenue in 2024 was primarily driven by lower volume with existing clients, partially offset by revenue from expansion and new scope for existing clients and new logo contracts, as compared to the prior-year period.

Foreign currency fluctuations had a negligible impact on DWS revenue in 2024 compared with 2023.

Gross profit percent was 14.0% in both 2023 and 2022.

CA&I revenue was $531.0 million in 2023 and $520.3 million in 2022.

Gross profit percent was 15.7% in 2024 and 14.0% in 2023.

The increase in gross profit percent in 2024 compared with 2023 was primarily driven by delivery modernization and efficiency initiatives.

CA&I revenue was $526.9 million in 2024 and $531.0 million in 2023, a decrease of 0.8%.

Foreign currency fluctuations had a negligible impact on CA&I revenue in 2024 compared with 2023.

Gross profit percent was 16.5% in 2024 and 15.4% in 2023.

The increase in revenue and gross profit percent in 2023 compared with 2022 was primarily due to certain prior year contract exits and new business with existing clients.

ECS revenue was $648.0 million in 2023 and $669.7 million in 2022.

The increase in gross profit percent in 2024 compared with 2023 was primarily driven by labor cost savings initiatives.

ECS revenue was $651.3 million in 2024 and $648.0 million in 2023, an increase of 0.5%.

Foreign currency fluctuations had a negligible impact on ECS revenue in 2024 compared with 2023.

Gross profit percent was 60.2% in 2024 and 61.2% in 2023.

The decrease in revenue and gross profit percent was driven by the timing of software license renewals.

The decrease in gross profit percent in 2024 compared with 2023 was primarily driven by a higher proportion of hardware revenue, which has a lower gross margin relative to license renewals.

New accounting pronouncements

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As of December 31, 2024, $265.2 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 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.

The company may not be able to readily transfer approximately one-fifth 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.

See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

At December 31, 2024, the company maintained cash balances in various operating accounts in excess of federally insured limits.

The company monitors this risk by evaluating the creditworthiness of the financial institutions.

During 2024, cash provided by operating activities was $135.1 million compared with cash provided by operations of $74.2 million during 2023.

The increase in operating cash in 2023 was primarily due to improvements in working capital.

The increase in operating cash in 2024 was primarily due to lower international pension contributions and favorable settlements of legal and other matters.

Cash used for investing activities during 2024 was $97.4 million compared with cash used for investing activities of $69.6 million during 2023.

Net proceeds from investments were $11.2 million in 2023 compared with net purchases of $44.3 million in 2022.

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.

Net purchases of foreign exchange forward contracts were $17.3 million in 2024 compared with net proceeds of $11.2 million in 2023.

Proceeds from foreign exchange forward contracts and purchases of foreign exchange forward contracts 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 $16.0 million in 2024 compared with $21.3 million in 2023, capital additions of outsourcing assets were $16.3 million in 2024 compared with $11.4 million in 2023 and the investment in marketable software was $47.5 million in 2024 compared with $46.0 million in 2023.

Cash used for financing activities during 2024 was $18.1 million compared with cash used for financing activities of $17.3 million during 2023.

In March 2024, the company purchased a group annuity contract, with plan assets, for approximately $192 million to transfer projected benefit obligations related to approximately 3,800 retirees of one of the company’s U.S defined benefit pension plans.

This action resulted in a pre-tax settlement loss of $130.1 million for the year ended December 31, 2024.

In March 2023, the company purchased a group annuity contract, with plan assets, for approximately $263 million to transfer projected benefit obligations related to approximately 8,650 retirees of one of the company’s U.S.

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This action resulted in a pre-tax settlement loss of $167.2 million for the year ended December 31, 2023.

After considering these most recent group annuity contract purchases, the company has successfully reduced its global defined benefit pension obligations since December 2020 by approximately $2.0 billion, including approximately $1.3 billion in the U.S.

After considering the most recent group annuity contract purchase, the company has successfully reduced its global defined benefit pension obligations since December 2020 by approximately $2.2 billion, including approximately $1.5 billion in the U.S.

The company will continue to evaluate opportunities for additional reduction of its global defined benefit pension obligations in future periods depending on overall market conditions.

Due to the company’s significant postretirement plans accumulated other comprehensive losses, future group annuity contract purchases could result in material non-cash settlement losses.

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.

In 2023, we made cash contributions of $42.4 million, primarily for our international defined benefit pension plans.

Based on current legislation, global regulations, recent interest rates and expected returns, the company estimates future cash contributions of approximately $21 million in 2024, primarily for our international defined benefit pension plans.

The company estimates that cash contributions to its U.S.

defined benefit pension plans will begin to increase in 2025, increasing the total estimated contributions for the company’s U.S.

defined benefit pension plans to approximately $110 million in 2025 and approximately $770 million in the aggregate from 2026 through 2033.

If the company is not able to generate sufficient cash flows from operations, we may need to obtain additional funding in order to make these contributions.

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, volatility in the capital markets, 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.

qualified defined benefit pension plans in different amounts and on a different schedule than previously contemplated.

Due to the company’s significant pension and postretirement plans accumulated other comprehensive losses, future group annuity contract purchases could result in material non-cash settlement losses.

At the end of each year, the company estimates its future cash contributions to its global defined benefit pension plans based on year-end pension data, assumptions and agreements.

In 2024, the company made cash contributions of $21.9 million, primarily for its international defined benefit pension plans.

Based on current legislation, global regulations, recent interest rates and expected returns, the company estimates future cash contributions of approximately $92 million in 2025, primarily for its U.S.

defined benefit pension plans.

The company estimates totaled cash contributions to its U.S.

defined benefit pension plans of approximately $120 million in 2026 and approximately $750 million in the aggregate from 2027 through 2034.

If the company is not able to generate sufficient cash flows from operations, it may need to obtain additional funding in order to make these contributions.

Any material deterioration in the value of the company’s global defined benefit pension plan assets, as well as changes in pension legislation, volatility in the capital markets, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions in different amounts and on a different schedule than previously estimated.

At December 31, 2024, total debt was $493.2 million compared with $504.2 million at December 31, 2023.

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Additionally, as described in Note 4, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $13.0 million in 2025 related to the company’s workforce 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.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility), which matures on October 29, 2025, and provides for revolving loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $175.0 million upon the satisfaction of certain specified conditions.

The Amended and Restated ABL Credit Facility was amended on June 2, 2023, primarily to replace the reference rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility), which was amended in October 2024 (the Amendment).

Among other things, the Amendment extended the maturity from October 29, 2025 to October 29, 2027 and reduced the aggregate amount of loans and letters of credit available under the Amended and Restated ABL Credit Facility to $125.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $155.0 million upon the satisfaction of certain specified conditions.

Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables.

At December 31, 2023, the company had no borrowings and $7.1 million of letters of credit outstanding, and availability under the facility was $88.6 million net of letters of credit issued.

At December 31, 2024, the company had no borrowings and no letters of credit outstanding, and availability under the facility was $117.1 million.

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 subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to the maturity of the company’s 6.875% Senior Secured Notes due 2027 (the 2027 Notes) or 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 remaining outstanding balance of the

2027 Notes or the amount of such pension payments, as applicable, 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.

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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.

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 Bank of America, 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 $12.5 million.

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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.

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.

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.

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

Additionally, 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.

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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As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below).

This allows the effects of the performance of the pension plan’s assets on the company’s computation of pension income or expense to be amortized over future periods.

This allows the effects of the performance of the pension plan’s assets on the company’s computation of

pension income or expense to be amortized over future periods.

A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

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At December 31, 2024, the company determined this rate to be 6.09% for its U.S.

defined benefit pension plans, a decrease of 34 basis points from the rate used at December 31, 2022, and 4.24% for the company’s non-U.S.

defined benefit pension plans, a decrease of 56 basis points from the rate used at December 31, 2022.

defined benefit pension plans, an increase of 39 basis points from the rate used at December 31, 2023, and 5.10% for the company’s non-U.S.

defined benefit pension plans, an increase of 86 basis points from the rate used at December 31, 2023.

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

discount rates causes a change in 2024 pension expense of approximately $500 thousand and $800 thousand, respectively, and a change of approximately $42 million and $48 million, respectively, in the benefit obligation.

discount rates causes a change in 2025 pension expense of approximately $300 thousand in the U.S.

and a nominal change in the non-U.S pension expense, and a change in the U.S.

benefit obligation of approximately $35 million and $39 million, respectively.

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

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For the company’s U.S.

qualified defined benefit pension plans and the company’s non-U.S.

qualified defined benefit pension plans and non-U.S.

pension plans, that period is approximately 14 and 21 years, respectively.

At December 31, 2024, the estimated unrecognized loss for the company’s U.S.

qualified defined benefit pension plans and the company’s non-U.S.

pension plans was $1.02 billion and $400 million, respectively.

For the year ended December 31, 2023, the company recognized consolidated pension expense of $391.3 million (which includes $348.9 million of settlement losses) compared with $47.1 million for the year ended December 31, 2022.

qualified defined benefit pension plans and non-U.S.

pension plans was approximately $1.00 billion and $490 million, respectively.

For the year ended December 31, 2024, the company recognized consolidated pension expense of $182.8 million (which included $130.6 million of settlement losses) compared with $391.3 million for the year ended December 31, 2023 (which included $348.9 million of settlement losses).

For 2025, the company expects to recognize pension expense of approximately $87.0 million.

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It is reasonably possible that the judgments and estimates described above could change in future periods, which could have a significant impact on the fair value of the related reporting units.

During the third quarter of 2024, the company reviewed its estimated long-term expected future cash flows for its DWS reporting unit as operating results were below estimated forecast due to the impact of the slower pace of client signings driven by the current economic environment and industry dynamics.

Based on this, the company concluded that a triggering event existed and conducted a quantitative goodwill assessment for the DWS reporting unit as of September 30, 2024.

The fair value of the DWS reporting unit was estimated using a combination of discounted cash flows and market-based valuation methodologies as noted above.

Based on the goodwill impairment analysis performed during the third quarter of 2024, the carrying value of the DWS reporting unit exceeded its respective fair value, resulting in the recognition of a goodwill impairment charge of $39.1 million.

During the fourth quarter of 2024, 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, 2023.

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

The quantitative assessment indicated that the DWS reporting unit had a fair value that equaled its carrying value and all the other reporting units’ fair values exceeded their carrying values, as such no additional impairment charge was recognized as of December 31, 2024.

The CA&I reporting unit had a fair value in excess of book value, including goodwill, of 10%.

The fair value of the reporting units was estimated 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 2023, all reporting units had a fair value in excess of book value.

The reporting units that were closest to impairment were the CA&I and DWS reporting units with fair value in excess of book value, including goodwill, of 10% and 16%, respectively.

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, 2024, was as follows:

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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