This discussion and analysis of the company's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this quarterly report. In
this discussion and analysis of the company's financial condition and results of
operations, the company has included information that may constitute
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements provide current expectations of
future events and include any statement that does not directly relate to any
historical or current fact. Words such as "anticipates," "believes," "expects,"
"intends," "plans," "projects" and similar expressions may identify such
forward-looking statements. All forward-looking statements rely on assumptions
and are subject to risks, uncertainties and other factors that could cause the
company's actual results to differ materially from expectations. Factors that
could affect future results include, but are not limited to, those discussed
under "Risk Factors" in Part II, Item 1A. Any forward-looking statement speaks
only as of the date on which that statement is made. The company assumes no
obligation to update any forward-looking statement to reflect events or
circumstances that occur after the date on which the statement is made.
Overview
During the nine months ended September 30, 2021, through a combination of
transfers, annuity purchase arrangements and lump sum payments, the company
settled gross defined benefit pension plan liabilities of approximately $932
million.
In January of 2021, the company purchased a group annuity contract for
$279 million to transfer projected benefit obligations related to approximately
11,600 retirees of the company's U.S. defined benefit pension plans. This action
resulted in a first quarter 2021 pre-tax settlement loss of $158.0 million.
Effective May 1, 2021, the company's primary pension plan related to its Dutch
subsidiary was transferred to a 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 second quarter 2021 pre-tax settlement loss of
$182.6 million.
In the second quarter of 2021, the company's Swiss subsidiary transferred its
defined benefit pension plan to a 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 during the first quarter of 2021. This action
resulted in a second quarter 2021 pre-tax settlement loss of $28.1 million.
In addition, on October 14, 2021, the company purchased a group annuity contract
for approximately $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 is expected to result in a fourth quarter 2021 non-cash,
pre-tax settlement loss of approximately $130 million. With this settlement, the
total value of gross defined pension liabilities settled in the past twelve
months (including the fourth quarter of 2020 settlement of approximately
$276 million), totaled approximately $1.45 billion including approximately
$800 million attributable to the company's U.S. defined benefit pension plans.
The American Rescue Plan Act, which was signed into law on March 11, 2021,
includes a provision for pension relief that extends the amortization period for
required contributions from 7 to 15 years and provides for the stabilization of
interest rates used to calculate future required contributions. As a result,
based on year-end 2020 pension data and assumptions, current projections
indicate that the company will not be required to make future cash contributions
to its U.S. qualified defined benefit pension plans for the period covered by
such projections and the company has determined that it will not make the
previously-contemplated voluntary $200 million contribution to its U.S. pension
plans in 2021.
Any future material deterioration in the value of the company's U.S. qualified
defined benefit pension plan assets, as well as changes in pension legislation,
discount rate changes, asset return changes, or changes in economic or
demographic trends, could require the company to make cash contributions to its
U.S. defined benefit pension plans.
In 2021, the company expects to make cash contributions of approximately $48.3
million primarily for the company's international defined benefit pension plans.
In 2020, the company made cash contributions of $826.2 million to its worldwide
defined benefit pension plans. For the nine months ended September 30, 2021 and
2020, the company made cash contributions of $40.3 million and $340.2 million,
respectively.
On March 3, 2021, the company completed the conversion of $84.2 million
aggregate principal amount of Convertible Senior Notes due 2021 (the 2021 Notes)
that remained outstanding for a combination of cash and shares of the company's
common stock. As a result of the conversion of the outstanding 2021 Notes, the
company delivered to the holders (i) cash payments totaling approximately
$86.5 million, which included an aggregate cash payment for outstanding
principal of approximately $84.2 million, an aggregate cash payment for accrued
interest of approximately $2.3 million and a nominal cash payment in lieu
                                       26

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of fractional shares, and (ii) the issuance of 4,537,123 shares of the company's
common stock. The issuance of the common stock was made in exchange for the 2021
Notes pursuant to an exemption from the registration requirements provided by
Section 3(a)(9) of the Securities Act of 1933, as amended.
The company also received 1,251,460 shares of its common stock, now held in
treasury stock, from the settlement of the capped call transactions that the
company had entered into with the initial purchasers and/or affiliates of the
initial purchasers of the 2021 Notes in connection with the issuance of the 2021
Notes. As a result, the net number of outstanding shares of the company's common
stock following the conversion of the 2021 Notes increased by 3,285,663 shares.
On June 3, 2021, the company acquired 100% of Unify Square, Inc. for a purchase
price consideration of $150.4 million on a cash-free, debt free basis. The
company funded the cash consideration and acquisition-related costs with cash on
hand, see Note 3 of the Notes to Consolidated Financial Statements.
During the three months ended September 30, 2021, the company recognized
cost-reduction charges and other costs of $0.8 million. The charges (credits)
related to work-force reductions were $(0.6) million, principally related to
severance costs, and were comprised of: (a) a charge of $0.7 million and (b) a
credit of $(1.3) million for changes in estimates. In addition, the company
recorded net charges (credits) of $1.4 million comprised of a charge of $1.3
million for net foreign currency losses related to exiting foreign countries, a
charge of $0.5 million for asset impairments and a credit of $(0.4) million
related to other cost-reduction efforts.
During the three months ended September 30, 2020, the company recognized
cost-reduction charges and other costs of $13.2 million. The charges (credits)
related to work-force reductions were $0.7 million, principally related to
severance costs, and were comprised of: (a) a charge of $2.7 million and (b) a
credit of $(2.0) million for changes in estimates. In addition, the company
recorded a credit of $(0.6) million for net foreign currency gains related to
exiting foreign countries, a charge of $7.5 million for asset impairments and a
charge of $5.6 million of other expenses.
During the nine months ended September 30, 2021, the company recognized
cost-reduction charges and other costs of $14.4 million. The charges (credits)
related to work-force reductions were $(2.5) million, principally related to
severance costs, and were comprised of: (a) a charge of $6.5 million and (b) a
credit of $(9.0) million for changes in estimates. In addition, the company
recorded charges of $16.9 million comprised of $2.9 million for net foreign
currency losses related to exiting foreign countries, $7.3 million for asset
impairments and $6.7 million of other expenses related to the cost-reduction
effort.
During the nine months ended September 30, 2020, the company recognized
cost-reduction charges and other costs of $48.6 million. The charges (credits)
related to work-force reductions were $6.2 million, principally related to
severance costs, and were comprised of: (a) a charge of $14.0 million and (b) a
credit of $(7.8) million for changes in estimates. In addition, the company
recorded charges of $17.8 million for net foreign currency losses related to
exiting foreign countries, $19.0 million for asset impairments and $5.6 million
of other expenses.
The charges (credits) were recorded in the following statement of income
classifications:
                                                                Three Months Ended            Nine Months Ended September
                                                                   September 30,                          30,
                                                               2021             2020             2021             2020
Cost of revenue                                             $   (0.2)         $  2.9          $    0.9          $ 15.7
Selling, general and administrative                             (0.1)           10.8               8.7            14.8
Research and development                                        (0.2)            0.1               1.9             0.3
Other expense, net                                               1.3            (0.6)              2.9            17.8
Total                                                       $    0.8          $ 13.2          $   14.4          $ 48.6


Results of operations
Company results
Three months ended September 30, 2021 compared with the three months ended
September 30, 2020
Revenue for the three months ended September 30, 2021 was $488.0 million
compared with $495.2 million for the three months of 2020, a decrease of 1.5%
from the prior year. Foreign currency fluctuations had a 2 percentage-point
positive impact on revenue in the current period compared with the year-ago
period.
U.S. revenue decreased 1.3% in the current period compared with the year-ago
period. International revenue decreased 1.6% in the current period compared with
the prior-year period principally due to decreases in Latin America and
Asia/Pacific. Foreign currency had a 3 percentage-point positive impact on
international revenue in the three months ended September 30, 2021 compared with
the three months ended September 30, 2020.
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Gross profit margin was 26.0% in the three months ended September 30, 2021
compared with 24.2% in the three months ended September 30, 2020. The increase
was principally due to higher sales of the company's enterprise software.
Selling, general and administrative expense in the three months ended
September 30, 2021 was $95.1 million (19.5% of revenue) compared with $85.5
million (17.3% of revenue) in the year-ago period. The increase was principally
due compensation expense increases, the majority of which was related to direct
sales support.
Research and development (R&D) expense for each of the three months ended
September 30, 2021 and 2020 was $6.7 million.
For the three months ended September 30, 2021, the company reported an operating
profit of $25.1 million compared with an operating profit of $27.7 million for
prior year period.
Interest expense for the three months ended September 30, 2021 was $8.5 million
compared with $2.4 million for the three months ended September 30, 2020. 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 $24.2 million for the three months ended
September 30, 2021 compared with expense of $32.5 million for the three months
ended September 30, 2020. See Note 7 of the Notes to Consolidated Financial
Statements for details of other (expense), net.
The loss from continuing operations before income taxes for the three months
ended September 30, 2021 was $7.6 million compared with a loss of $7.2 million
for the three months ended September 30, 2020.
The provision for income taxes was $10.9 million in the current period compared
with a provision of $6.1 million in the year-ago period.
The company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such allowance,
if necessary. The company records a tax provision or benefit for those
international subsidiaries that do not have a full valuation allowance against
their net deferred tax assets. Any profit or loss recorded for the company's
U.S. operations will have no provision or benefit associated with it due to the
company's valuation allowance, except with respect to withholding taxes not
creditable against future taxable income. As a result, the company's provision
or benefit for taxes may vary significantly quarter to quarter depending on the
geographic distribution of income.
Net loss from continuing operations attributable to Unisys Corporation for the
three months ended September 30, 2021 was $18.7 million, or a loss of $0.28 per
diluted share, compared with a loss of $13.3 million, or a loss of $0.21 per
diluted share, for the three months ended September 30, 2020.
Nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020
Revenue for the nine months ended September 30, 2021 was $1,515.1 million
compared with $1,449.4 million for the nine months of 2020, an increase of 4.5%
from the prior year. Foreign currency fluctuations had a 3 percentage-point
positive impact on revenue in the current period compared with the year-ago
period.
U.S. revenue increased 7.4% in the current period compared with the year-ago
period. International revenue increased 2.6% in the current period compared with
the prior-year period principally due to increases in Europe. Foreign currency
had a 5 percentage-point positive impact on international revenue in the nine
months ended September 30, 2021 compared with the nine months ended
September 30, 2020.
Gross profit margin was 26.9% in the nine months ended September 30, 2021
compared with 21.2% in the nine months ended September 30, 2020. The increase
was due in part by improvements in all the company's segments driven by higher
sales of the company's enterprise software, improvements to efficiency and
related cost-reduction initiatives.
Selling, general and administrative expense in the nine months ended
September 30, 2021 was $279.7 million (18.5% of revenue) compared with $252.5
million (17.4% of revenue) in the year-ago period.
Research and development (R&D) expense for the nine months ended September 30,
2021 was $19.1 million compared with $16.1 million for the nine months ended
September 30, 2020.
For the nine months ended September 30, 2021, the company reported an operating
profit of $109.5 million compared with an operating profit of $39.3 million for
prior year period. The increase was due in part by improvements in all the
company's segments driven by higher sales of the company's enterprise software,
improvements to efficiency and related cost-reduction initiatives.
Interest expense for the nine months ended September 30, 2021 was $27.0 million
compared with $20.9 million for the nine months ended September 30, 2020. The
increase was principally due to the issuance of the 6.875% senior secured notes
due 2027 in October 2020.
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Other (expense), net was expense of $434.6 million for the nine months ended
September 30, 2021 compared with expense of $134.3 million for the nine months
ended September 30, 2020. Other (expense), net for the nine months ended
September 30, 2021 includes $368.7 million of pension settlement losses. See
Note 7 of the Notes to Consolidated Financial Statements for details of other
(expense), net.
The loss from continuing operations before income taxes for the nine months
ended September 30, 2021 was $352.1 million compared with a loss of $115.9
million for the nine months ended September 30, 2020. The decline was
principally due to the pension settlement losses discussed above.
The benefit for income taxes was $33.8 million for the nine months ended
September 30, 2021 compared with a provision of $26.6 million for the nine
months ended September 30, 2020. The current period includes income tax benefits
of $51.7 million related to the pension plan settlement losses in the
Netherlands and Switzerland. In June 2021, the UK enacted an income tax rate
increase from 19% to 25% for the financial year beginning April 1, 2023. The UK
rate increase resulted in a deferred tax benefit of approximately $17.7 million
for the nine months ended September 30, 2021.
The company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such allowance,
if necessary. The company records a tax provision or benefit for those
international subsidiaries that do not have a full valuation allowance against
their net deferred tax assets. Any profit or loss recorded for the company's
U.S. operations will have no provision or benefit associated with it due to the
company's valuation allowance, except with respect to withholding taxes not
creditable against future taxable income. As a result, the company's provision
or benefit for taxes may vary significantly quarter to quarter depending on the
geographic distribution of income.
Net loss from continuing operations attributable to Unisys Corporation for the
nine months ended September 30, 2021 was $317.3 million, or a loss of $4.79 per
diluted share, compared with a loss of $143.0 million, or a loss of $2.27 per
diluted share, for the nine months ended September 30, 2020.
Segment results
In January 2021, the company changed its organizational structure to more
effectively address evolving client needs. With these changes, the company
changed its reportable segments, but this did not impact the consolidated
financial statements as of December 31, 2020. In addition, during the second
quarter of 2021, the company renamed its ClearPath Forward® segment as
Enterprise Computing Solutions to better represent the nature of the segment's
operations. There was no change to the composition of the segment or its
historical results.
The company's reportable segments are as follows:
•Digital Workplace Solutions (DWS), which provides services and IP-led solutions
that support clients' employees' productivity, satisfaction and ability to
securely work anywhere, any time;
•Cloud & Infrastructure Solutions (C&I), which provides hybrid and multi-cloud
solutions in select markets to accelerate innovation and increase efficiency of
our clients' businesses; and
•Enterprise Computing Solutions (ECS), which provides server systems and
operating system software and services that are secure, innovative, and reliable
for mission-critical processing.
The accounting policies of each segment are the same as those followed by the
company as a whole. Intersegment sales and transfers are priced as if the sales
or transfers were to third parties. Accordingly, the ECS segment records
intersegment revenue and manufacturing profit on hardware and software shipments
to customers under contracts of other segments. These segments, in turn, record
customer revenue and marketing profits on such shipments of company hardware and
software to customers. In the company's consolidated statements of income, the
manufacturing costs of products sourced from the ECS segment and sold to other
segments' customers are reported in cost of revenue for these other segments.
Also included in the ECS segment's sales and gross profit are sales of hardware
and software sold to other segments for internal use in their engagements. The
amount of such profit included in gross profit of the ECS segment for the three
months ended September 30, 2021 and 2020 was $0.3 million and $5.3 million,
respectively. The amount of such profit included in gross profit of the ECS
segment for the nine months ended September 30, 2021 and 2020 was $1.4 million
and $5.3 million, respectively. The sales and profit on these transactions are
eliminated in Corporate.
The company evaluates segment performance based on gross profit exclusive of the
service cost component of postretirement income or expense, restructuring
charges, amortization of purchased intangibles and unusual and nonrecurring
items, which are included in Corporate. During the first quarter of 2021, the
company also changed its internal measurement of segment profitability. Prior
period amounts have therefore been reclassified to be comparable to the current
period's presentation.
                                       29

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Three months ended September 30, 2021 compared to the three months ended
September 30, 2020
A summary of the company’s activities by segment is presented below:

                                              Total Segments        DWS           C&I           ECS
Three Months Ended September 30, 2021
Customer revenue                             $       409.4       $ 141.3       $ 118.9       $ 149.2
Intersegment                                             -             -             -             -
Total revenue                                $       409.4       $ 141.3       $ 118.9       $ 149.2
Gross profit percent                                  30.1  %       11.9  %        7.8  %       65.0  %

Three Months Ended September 30, 2020
Customer revenue                             $       411.8       $ 148.3       $ 116.9       $ 146.6
Intersegment                                             -             -             -             -
Total revenue                                $       411.8       $ 148.3       $ 116.9       $ 146.6
Gross profit percent                                  24.6  %       14.6  %        3.7  %       51.4  %

The percentage of gross profit is expressed as a percentage of total sales.


Revenue from DWS was $141.3 million in the current quarter a decline of 4.7%
compared with the prior-year quarter. Foreign currency fluctuations had a 1
percentage-point positive impact on DWS revenue in the current period compared
with the year-ago period. Gross profit percent was 11.9% in the current period
compared with 14.6% in the year ago period. Revenue and gross profit were
negatively impacted as the company exited some contracts there were not core to
how the company plans to grow this segment. Additionally, during the current
quarter the company experienced some supply chain shortages, which resulted in a
decline in revenue and gross profit.
C&I revenue was $118.9 million for the three-month period ended September 30,
2021, an increase of 1.7% compared with the three-month period ended
September 30, 2020. Foreign currency fluctuations had a 1 percentage-point
positive impact on C&I revenue in the current period compared with the year-ago
period. Gross profit percent was 7.8% in the current period compared with 3.7%
in the year ago period. The increase in gross profit reflected increased revenue
from higher-margin offerings and improvements driven by efficiency enhancements.
ECS revenue was $149.2 million for the three-month period ended September 30,
2021, an increase of 1.8% compared with the three-month period ended
September 30, 2020. Foreign currency fluctuations had a 2 percentage-point
positive impact on ECS revenue in the current period compared with the year-ago
period. Gross profit percent was 65.0% in the current period compared with 51.4%
in the year ago period. The increase in both revenue and gross profit was
principally due to higher sales of the company's enterprise software.
Nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020
A summary of the company's operations by segment is presented below:
                                           Total Segments         DWS           C&I           ECS
Nine Months Ended September 30, 2021
Customer revenue                          $      1,281.8       $ 428.9       $ 366.6       $ 486.3
Intersegment                                         1.4             -             -           1.4
Total revenue                             $      1,283.2       $ 428.9       $ 366.6       $ 487.7
Gross profit percent                                31.1  %       13.5  %       10.1  %       62.4  %

Nine Months Ended September 30, 2020
Customer revenue                          $      1,215.3       $ 442.0       $ 334.1       $ 439.2
Intersegment                                         0.1             -             -           0.1
Total revenue                             $      1,215.4       $ 442.0       $ 334.1       $ 439.3
Gross profit percent                                22.8  %        8.6  %        2.2  %       52.9  %

The percentage of gross profit is expressed as a percentage of total sales.

                                       30

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Revenue from DWS was $428.9 million for the nine-month period ended
September 30, 2021, a decline of 3.0% compared with the nine-month period ended
September 30, 2020. Revenue for the nine-month period ended September 30, 2021
was negatively impacted as the company exited some contracts that were not core
to how the company plans to grow this segment. Additionally, during the
nine-month period ended September 30, 2021 the company experienced some supply
chain shortages, which resulted in a decrease in revenue. Foreign currency
fluctuations had a 3 percentage-point positive impact on DWS revenue in the
current period compared with the year-ago period. Gross profit percent was 13.5%
in the current period compared with 8.6% in the year ago period. The increase in
gross profit was due in part by improvements driven by efficiency and related
cost-reduction initiatives.
C&I revenue was $366.6 million for the nine-month period ended September 30,
2021, an increase of 9.7% compared with the nine-month period ended
September 30, 2020. The increase was driven by continued momentum with public
sector clients as well as other highly-regulated industries. Foreign currency
fluctuations had a 3 percentage-point positive impact on C&I revenue in the
current period compared with the year-ago period. Gross profit percent was 10.1%
in the current period compared with 2.2% in the year ago period. The increase in
gross profit reflected increased revenue from higher-margin offerings and
improvements driven by efficiency enhancements.
ECS revenue was $486.3 million for the nine-month period ended September 30,
2021, an increase of 10.7% compared with the nine-month period ended
September 30, 2020. Foreign currency fluctuations had a 2 percentage-point
positive impact on ECS revenue in the current period compared with the year-ago
period. Gross profit percent was 62.4% in the current period compared with 52.9%
in the year ago period. The increase in both revenue and gross profit was
principally due to higher sales of the company's enterprise software.
Financial condition
The company's principal sources of liquidity are cash on hand, cash from
operations and its revolving credit facility, discussed below. The company and
certain international subsidiaries have access to uncommitted lines of credit
from various banks. The company believes that it will have adequate sources of
liquidity to meet its expected cash requirements for at least the next twelve
months.
Cash and cash equivalents at September 30, 2021 were $615.4 million compared to
$898.5 million at December 31, 2020.
As of September 30, 2021, $285.2 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 up to one-third of these funds
out of the country in which they are located as a result of local restrictions,
contractual or other legal arrangements or commercial considerations.
Additionally, any transfers of these funds to the U.S. in the future may require
the company to accrue or pay withholding or other taxes on a portion of the
amount transferred.
During the nine months ended September 30, 2021, cash provided by operations was
$64.5 million compared to cash usage of $325.8 million for the nine months ended
September 30, 2020. The decrease in cash usage was principally due to lower cash
contributions to the company's U.S. qualified defined benefit pension plans in
the current period.
Cash used for investing activities during the nine months ended September 30,
2021 was $236.0 million compared to cash provided of $1,055.8 million during the
nine months ended September 30, 2020. On June 3, 2021, the company purchased
Unify Square, Inc. for $150.4 million, see Note 3 of the Notes to Consolidated
Financial Statements. 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 $8.2 million for the nine months ended September 30, 2021
compared with net purchases of $11.5 million in the prior-year period. Proceeds
from investments and purchases of investments represent derivative financial
instruments used to reduce the company's currency exposure to market risks from
changes in foreign currency exchange rates. In the current period, the
investment in marketable software was $42.1 million compared with $54.8 million
in the year-ago period, capital additions of properties were $19.7 million in
2021 compared with $16.7 million in 2020 and capital additions of outsourcing
assets were $14.7 million in 2021 compared with $23.6 million in 2020.
Cash used for financing activities during the nine months ended September 30,
2021 was $100.8 million compared to cash used of $472.4 million during the nine
months ended September 30, 2020. The decrease in cash used was principally due
to higher redemptions of debt in the prior year period.
The American Rescue Plan Act, which was signed into law on March 11, 2021,
includes a provision for pension relief that extends the amortization period for
required contributions from 7 to 15 years and provides for the stabilization of
interest rates used to calculate future required contributions. As a result,
based on year-end 2020 pension data and assumptions, current projections
indicate that the company will not be required to make future cash contributions
to its U.S. qualified defined benefit pension plans for the period covered by
such projections and the company has determined that it will not make the
previously-contemplated voluntary $200 million contribution to its U.S. pension
plans in 2021.
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Any future material deterioration in the value of the company's U.S. qualified
defined benefit pension plan assets, as well as changes in pension legislation,
discount rate changes, asset return changes, or changes in economic or
demographic trends, could require the company to make cash contributions to its
U.S. defined benefit pension plans.
In 2021, the company expects to make cash contributions of approximately $48.3
million primarily for the company's international defined benefit pension plans.
In 2020, the company made cash contributions of $826.2 million to its worldwide
defined benefit pension plans. For the nine months ended September 30, 2021 and
2020, the company made cash contributions of $40.3 million and $340.2 million,
respectively.
At September 30, 2021, total debt was $532.9 million compared to $629.9 million
at December 31, 2020. The reduction was principally due to the conversion of the
company's 2021 Notes.
On March 3, 2021, the company completed the conversion of $84.2 million
aggregate principal amount of the 2021 Notes that remained outstanding for a
combination of cash and shares of the company's common stock. As a result of the
conversion of the outstanding 2021 Notes, the company delivered to the holders
(i) aggregate cash payments totaling approximately $86.5 million, which included
an aggregate cash payment for outstanding principal of approximately
$84.2 million, an aggregate cash payment for accrued interest of approximately
$2.3 million and a nominal cash payment in lieu of fractional shares, and (ii)
the issuance of 4,537,123 shares of the company's common stock. The issuance of
the common stock was made in exchange for the 2021 Notes pursuant to an
exemption from the registration requirements provided by Section 3(a)(9) of the
Securities Act of 1933, as amended.
The company also received 1,251,460 shares of its common stock, now held in
treasury stock, from the settlement of the capped call transactions that the
company had entered into with the initial purchasers and/or affiliates of the
initial purchasers of the 2021 Notes in connection with the issuance of the 2021
Notes. As a result, the net number of outstanding shares of the company's common
stock following the conversion of the 2021 Notes increased by 3,285,663 shares.
The company has a secured revolving credit facility (the Amended and Restated
ABL Credit Facility) that expires on October 29, 2025 that provides for
revolving loans and letters of credit up to an aggregate amount of
$145.0 million (with a limit on letters of credit of $40.0 million), with an
accordion feature provision allowing for an increase in credit facility up to
$175.0 million upon the satisfaction of certain conditions specified in the
Amended and Restated ABL Credit Facility. Availability under the credit facility
is subject to a borrowing base calculated by reference to the company's
receivables. At September 30, 2021, the company had no borrowings and $5.7
million of letters of credit outstanding, and availability under the facility
was $75.1 million net of letters of credit issued.
The Amended and Restated ABL Credit Facility is subject to a springing maturity,
under which the Amended and Restated ABL Credit Facility will immediately mature
91 days prior to any date on which contributions to pension funds in the United
States in an amount in excess of $100.0 million are required to be paid unless
the company is able to meet certain conditions, including that the company has
the liquidity (as defined in the Amended and Restarted ABL Credit Facility) to
cash settle the amount of such pension payments, no default or event of default
has occurred under the Amended and Restated ABL Credit Facility, the company's
liquidity is above $130.0 million and the company is in compliance with the then
applicable fixed charge coverage ratio on a pro forma basis.
The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding
Corporation, Unisys NPL, Inc., Unisys AP Investment Company I, and Unify Square,
Inc., each is directly or indirectly owned by the company (the subsidiary
guarantors). The facility is secured by the assets of the company and the
subsidiary guarantors, other than certain excluded assets, under a security
agreement entered into by the company and the subsidiary guarantors in favor of
JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.
The company is required to maintain a minimum fixed charge coverage ratio if the
availability under the Amended and Restated ABL Credit Facility falls below the
greater of 10% of the lenders' commitments under the facility and $14.5 million.
The Amended and Restated ABL Credit Facility contains customary representations
and warranties, including, but not limited to, that there has been no material
adverse change in the company's business, properties, operations or financial
condition. The Amended and Restated ABL Credit Facility includes restrictions on
the ability of the company and its subsidiaries to, among other things, incur
other debt or liens, dispose of assets and make acquisitions, loans and
investments, repurchase its equity, and prepay other debt. These restrictions
are subject to several important limitations and exceptions. Events of default
include non-payment, failure to comply with covenants, materially incorrect
representations and warranties, change of control and default under other debt
aggregating at least $50.0 million, subject to relevant cure periods, as
applicable.
At September 30, 2021, the company has met all covenants and conditions under
its various lending and funding agreements. For at least the next twelve months,
the company expects to continue to meet these covenants and conditions.
The company maintains a shelf registration statement with the Securities and
Exchange Commission that covers the offer and sale of debt or equity securities.
Subject to the company's ongoing compliance with securities laws, the company
may offer and
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sell debt and equity securities from time to time under the shelf registration
statement. In addition, from time to time, the company may explore a variety of
institutional debt and equity sources to fund its liquidity and capital needs.
The company may, from time to time, redeem, tender for, or repurchase its
securities in the open market or in privately negotiated transactions depending
upon availability, market conditions and other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the company's assessment of its sensitivity
to market risk since its disclosure in its 2020 Form 10-K.
Item 4. Controls and Procedures
The company's management, with the participation of the company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of the end of the period covered by this report.
Based on this evaluation, the company's Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of such period, the company's
disclosure controls and procedures are effective. Such evaluation did not
identify any change in the company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that occurred during the fiscal quarter to which this report relates that
has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
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